Toast, Inc. (TOST) Q1 2022 Earnings Call Transcript

Toast, Inc. (TOST -2.46%)
Q1 2022 Earnings Call
May 12, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Sam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Toast earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session. [Operator instructions] Thank you. I'll now turn the call over to Michael Senno, vice president of investor relations and treasury. You may begin your conference.

Michael Senno -- Vice President of Investor Relations and Treasury

Thank you, Sam. Welcome to Toast's earnings conference call for the first quarter ended March 31, 2022. On today's call our CEO, Chris Comparato; and CFO, Elena Gomez, will open with prepared remarks. They will then be joined by our COO, Aman Narang, for our Q&A session.

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 the Securities and the Exchange Act. All statements other than statements of historical facts 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 second quarter and full year 2022. 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 SEC filings for a discussion of the risks and uncertainties that could cause actual results to differ materially from our expectations. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures.

Unless otherwise stated, all references on this call to cost of revenue, gross profit and gross margin, selling and marketing expense, research and development expense, and general and administrative expense are on a non-GAAP basis. Finally, both the press releases and a replay of this call, including the accompanying investor presentation, will be available on our investor relations website at investors.toasttab.com. With that, let me turn the call over to Chris.

Chris Comparato -- Chief Executive Officer

Thank you, Michael, and good afternoon, everyone. Toast delivered a strong first quarter, coming in well ahead of expectations across the board. We added a record number of net new locations to our platform as we continue to lead the digitization of the $800 billion restaurant industry and penetrate our $55 billion market opportunity. Our performance is a function of continued execution on our three core growth drivers: increasing the number of restaurant locations on our platform, delivering product innovations, so restaurants use more of our platform to drive success with all of their stakeholders; and deepening our ability to serve all segments of the market.

Despite being one of the largest industries in the world, restaurants have been underserved by technology with one of the lowest levels of digitization of any sector. Running a restaurant is also an incredibly complex and competitive business. The pandemic, a tight labor market, supply chain constraints, and inflation have only magnified the challenges. The stakes have never been higher for restaurant owners to embrace technology to help them improve operational efficiency and increase sales so they can thrive in this dynamic new world.

Over the next several years, we expect every restaurant to operate on a unified digital platform. And just like we've seen in other industries, restaurants that embrace a digital platform performed better. As the restaurant industry goes through this wholesale digital transformation, we expect restaurant spend on technology to increase closing the gap with other industries. Amid this secular shift to digital in the cloud, Toast is executing on a generational opportunity to become the trusted partner restaurants need and to serve as the industry's technology backbone.

We are leading restaurants into a new era of hospitality. With our laser focus on restaurants and a proven track record of innovation, we've built the best-in-class platform that offers restaurants everything they need to win, to delight their guests, attract and retain employees, manage supplier relationships and ultimately do what they love and thrive. We understand the unique needs of restaurants of any size or concept in a way that no other platform can and we are adding more capabilities to help serve every segment of the market and expand our reach. Now turning to our results for the quarter.

Revenue increased 90% year over year to $535 million in the first quarter, and ARR increased 66% year over year to $637 million. This was driven by an acceleration in subscription revenue growth from the addition of new locations and continued customer adoption of our growing portfolio of products, as well as strong growth in GPV. Customers using four or more core modules beyond point-of-sale and payments reached 60% in Q1, contributing to the robust 103% year-over-year growth in subscription revenue. GPV on our platform increased 98% year over year to $18 billion in Q1.

And for the first time ever, we exceeded 5,000 net new locations in a quarter. We ended Q1 with approximately 62,000 live locations on our platform, up nearly 45% year over year, and we're still just scratching the surface of this massive long-term opportunity. Even as our ARR has more than tripled over the past two years, it still represents only about 1% of our $55 billion market opportunity in the U.S. On the back of our strong start to the year, we increased our full year revenue guidance by 6% at the midpoint of the range, which implies 48% year-over-year growth.

We also improved our adjusted EBITDA outlook as we focus on driving efficient growth. I want to add additional context on our investment levels this year. Our Q1 results are further evidence of the momentum in our business and the reason we have conviction to invest to capture the massive market opportunity in front of us. At the same time, the current environment calls for heightened discipline and we're actively evaluating our spend to make sure we scale in a sustainable, efficient manner.

That means identifying efficiency opportunities throughout our business and directing our investments only to areas that drive growth and have a proven return profile. We've shown in the past we can grow efficiently and deliver profits with a proven go-to-market approach that gains leverage with scale, healthy unit economics and disciplined cost management. We're confident we will drive sustained strong growth and healthy long-term profitability. Our updated guidance implies a margin improvement in the second half of the year and we expect to continue on that trajectory moving forward.

Now I want to turn to how we're executing on our core growth drivers. As the restaurant industry undergoes the secular shift to digital in the cloud, driving location growth is a key priority, and we're leaning into this in a number of ways to build on our momentum. We continue to benefit from our proven scalable go-to-market formula. The restaurant industry is a uniquely local business and our model feeds on that.

As we've seen in our most established markets as our penetration increases and more customers in a market experience our superior product offering, the number of referrals and inbound leads accelerate, creating a flywheel effect that drives strong and efficient growth. We're investing in less developed markets to build that same flywheel. And as we build this muscle broadly across more markets, we expect it to continue to drive efficient location growth. Not only are we rapidly adding locations, we are seeing that our new customers are leveraging more of our products from the onset, a strong signal of the demand for our broader platform.

Software ARPU for locations booked in Q1 approximately doubled from just two years ago. We've seen strong uptake for our guest modules as we've significantly enhanced our products to help customers cater to the evolving guest needs over the past two years. Our payroll and team management offering is also building momentum, and we continue to see a significant opportunity to attach more products to our existing customer base, an important indication of our long-term ARPU growth potential. Let me share with you a few examples of the strong demand we are seeing across restaurant segments.

This quarter, we expanded our relationship with Union Square Hospitality Group, which has created some of New York's most beloved restaurants, cafes, and bars. They're expanding Toast to 16 total locations, including Gramercy Tavern, Union Square Cafe, The Modern, and their daily provisioned concepts. In addition to our Toast Go handheld point-of-sale and kitchen operations, USHG will manage their multiple concepts and menu configurations using our multi-location menu management. They are also planning on using toast for hotel restaurants to manage their Marta location, allowing them to seamlessly charge the hotel rooms during the payment process.

This quarter, we also expanded our relationship with Nothing Bundt Cakes, a national bakery chain. Nothing Bundt Cakes expanded its relationship with Toast, purchasing our product for 70 new locations in Q1, which would increase our partnership to over 500 locations in the next 12 months. They are using Toast to drive revenue and help build a seamless purchase process for their guests. Tacombi, a growing fast-casual Mexican food chain, expanded with Toast in Q1.

They were live with Toast in 13 locations using our Toast Go, our Toast Flex, and multi-location management products, and they signed a contract to add several more locations in the next 12 months using all of these products. Additionally, Tacombi is adding our kitchen display system in their current locations. In addition to our broad and growing platform, we also continue to grow our extensive partner ecosystem, which now includes more than 180 partners across large national food and beverage suppliers, technology integration partners, and local partners. This quarter, we extended our reseller partnership with U.S.

Foods, a leading foodservice distributor that works with approximately 250,000 restaurants and foodservice operators. We focused on continuing to strengthen our partner network to give our customers seamless access to every product and service they need, further enhancing the value our platform provides. Shifting to product innovation. I talk to many of our customers every quarter and a consistent theme I hear is they didn't get into the restaurant industry because they love technology, but they do realize that the industry is going through a digital transformation and they need a partner who they can grow with so they can do what they love.

That's why we consider Toast an extension of R&D for the restaurant industry. We give restaurants all the tools they need to run their business, integrated point-of-sale and payments mobile ordering and delivery, marketing and loyalty, team management, friction access -- frictionless access to capital, and a growing array of integrated services to meet the evolving needs of our customers. We've built an array of products that serve restaurant owners at their core, but also create a better experience for all stakeholders in the restaurant ecosystem, guests, employees, and suppliers. There tends to be a flywheel between happier employees, leading to happier restaurant guests and both contributing to more successful, better-run restaurants.

We're continuing to invest in products to further differentiate our platform by enhancing and deepening the touchpoints between restaurants and each stakeholder. And with our integrated platform, as restaurants add more of our products, it strengthens the flywheel, creating powerful network effects for our customers. In supplier management, we're making great progress with our xtraCHEF product, which provides accounts payable automation and inventory management. With restaurants facing supply chain challenges and inflation, we're seeing just how important it is to help our customers manage profitability by easily comparing the cost of a menu item versus what they're charging.

And longer term, we have opportunities to expand the services we offer restaurants in this area and further optimize and automate their supplier management. Our payroll and team management products speed up employee onboarding, simplify payroll and ensure employees are paid on time. With restaurants still facing labor challenges, if you're not providing a great employee experience and paying your employees quickly, it will be more difficult for you to hire and retain great talent, which impacts the guest experience and sales. We believe both selling payroll into our existing customer base and continuing to innovate in this space to help restaurants offer employees even more services that can differentiate them in this tough labor market represent meaningful growth opportunities going forward.

As we continue to build scale and drive growth in our core segments, another key growth strategy is to position Toast to increase penetration in all restaurant segments and expand to new markets. With our laser focus on serving the restaurant industry, we're uniquely able to adapt our platform to meet the specific needs of different types of restaurants. One example from this quarter is targeted for quick-service restaurants. We've built an offering that better suits the needs of these restaurants and helps them get results even quicker.

As I mentioned, we also announced Toast for Hotel Restaurants, a new solution designed to meet the unique needs of hotel restaurant operators. Toast now integrates with several hotel management software providers, allowing us to better serve this segment and we're focused on continuing to adapt our product and packaging to serve the specific needs of each type of restaurant in order to drive deeper penetration across segments. In addition, as we discussed last quarter, we've seeded an initial investment in international this year. We believe our best-in-class product offering and go-to-market approach translate well to other markets, which will enable us to tap into our broader TAM and become another driver -- growth driver longer term.

Before closing, I wanted to thank our customers and employees, the restaurant industry remains resilient even amid the many macro challenges across the globe, and we are incredibly proud to be able to partner with our customers as they navigate these challenges and thank you to our great employees for helping get Toast off to a great start in 2022 and build on our terrific operating momentum. We're still very early in our journey. And we're confident that by continuing to relentlessly execute on our strategy, we'll create significant value for our customers and shareholders over the long term. Finally, before I pass the call over to Elena to go through our financials, I want to congratulate her on her one-year anniversary at Toast.

What an incredible year it's been. Elena, I'm excited to partner with you on this journey ahead. And now, Elena, I'll turn it over to you.

Elena Gomez -- Chief Financial Officer

Thanks, Chris. One year went really fast. And equally, I'm excited about the partnership. And thank you, everyone, for joining.

To start, I wanted to echo Chris in thanking both our customers for their continued partnership and the entire Toast team, whose dedication and tireless work led to another great quarter. It's thanks to them that we got off to a great start in 2022 coming in ahead of our expectations across our key metrics. This is evidence of our solid operating momentum and the power of our industry-leading platform. We're still in the very early stages of this massive opportunity to provide restaurants with all the products and services they need as the industry transitions to digital and navigates new challenges.

As Chris mentioned, the number of net new locations added to our platform accelerated in Q1 to over 5,000 and we ended the quarter with approximately 62,000 locations. Driving location growth is one of our key priorities, and we're investing to build on this momentum and continue to efficiently increase our market penetration. Total revenue grew 90% year over year to $535 million and ARR hit $637 million as of the end of Q1, up 66% from last year. As we've discussed, ARR is our core operational metrics and the best indication of our underlying growth, and we continue to see healthy trends in both our recurring revenue streams, SaaS, and payments, which underpin our ARR growth.

Subscription services revenue growth accelerated to a robust 103% in the first quarter, driven by our strong growth in new locations, as well as increasing adoption of our portfolio of SaaS products by new and existing customers. As of March 31, 2022, 60% of our Toast locations used four or more core products, on top of our integrated POS and payment solutions compared to 51% a year ago, reflecting the benefit of our continued product innovation. With customers using more of our end-to-end platform, our SaaS ARPU continues to increase at a healthy clip. The growing ARPU is particularly evident in our new locations.

The average SaaS ARPU for new bookings in Q1 has more than doubled in just two years to nearly 6,000 as customers continue to adopt more of our products at booking. In addition, we still have a meaningful opportunity to drive deeper product adoption among our existing customer base over time. We believe the trends in new bookings and the upsell opportunities point to a long runway to drive continued ARPU growth. One example is the growing adoption of our payroll product, which Chris alluded to.

In Q1, approximately 30% of our total bookings included Toast payroll on initial sales, up from 15% last year. We're seeing early benefits from expanding our sales efforts to focus on existing restaurants that switch to the Toast platform. In addition, the majority of new restaurant openings coming on to our platform continue to attach Toast payroll at the time of booking. We're still early in this opportunity and as an example where we can continue to increase attach rates of bookings and drive upsell to existing customers to drive further ARPU growth.

Longer term, we have the potential to layer on more features and services for our restaurant employees, helping our customers differentiate themselves in a tight labor market while unlocking incremental monetization on our platform. Moving to financial technology solutions. Revenue grew 93% to $438 million. Fintech solutions gross profit, which is net of payment transaction costs and what we operationally -- what we operationally as a second component of our recurring revenue, was $91 million in the quarter, a 66% year-over-year increase.

That was driven by GPV growth of 98% to $18 billion. annualized GPV per processing location remained strong at an average of $1.2 million. As a reminder, we typically see seasonally higher GPV per processing locations in the second and third quarter. As we noted last quarter, our debit and credit mix has returned to pre-COVID trends, while the mix of card, not present volumes, continues to moderate with consumers increasingly returning to dining and restaurants.

Total gross profit grew 38% year over year and 23% quarter over quarter to $101 million. Gross margin improved by over 250 basis points compared to Q4 to 18.9%, boosted by improvements across our subscription services, fintech solutions, and hardware margins. Looking at our recurring revenue strength subscription and fintech growth profit totaled $135 million for a 73% increase year over year, reflecting the strong customer growth and healthy ARPU increases across both SaaS and fintech solutions. Turning to our customer acquisition costs.

We're focused on maintaining efficient unit economics as we invest to scale the business and our track record of attractive payback periods continue to give us the confidence to lean into the significant opportunity in front of us. As a reminder, operationally, we manage our hardware and professional services growth profit as customer acquisition costs. Hardware costs remain elevated and increased year over year due to higher freight and product costs related to supply chain dynamics. Compared to Q4, hardware costs improved quarter over quarter as trade expenses declined off peak levels, and we benefited from one-time adjustments.

We're in the process of strategically increasing our hardware inventory, enabling us to shift to lower-cost shipping methods while continuing to deliver products to our customers in a timely manner. While we expect hardware costs to remain high over the next few quarters, we believe they will normalize over time as we leverage lower-cost shipping methods and focus on optimizing other parts of our supply chain. Sales and marketing is our other customer acquisition expense. After reducing our sales force at the onset of COVID, we're investing to rebuild the team in order to continue to drive market share.

As part of that investment, we're strengthening our presence in less penetrated areas. The power of our go-to-market approach is that we increased market share in a territory, we see increasing inbound leads through referrals and from brand awareness, resulting in higher productivity for our sales reps. That flywheel effect enables us to scale efficiently as we gain traction. And we're investing to build the foundation to kick-start that flywheel in more and more markets.

Even as we increased investment in sales and marketing, we've maintained consistent efficiency. We believe measuring sales and marketing expense as a percentage of recurring revenue is the best indication of how we're executing. Sales and marketing as a percent of recurring revenue declined significantly after the cost cuts in the first half of 2020 and has now held in the same range, seven quarters since then. That's been driven by an increasing number of new locations we're adding to the platform each quarter and continued growth in ARPU.

This gives us further conviction to lean into the large opportunity we have ahead. As we do so, we continue to manage our unit economics, and we're confident that as we gain scale, we'll deliver leverage on our sales and marketing costs over time. Moving down the P&L. We're also investing in research and development to build out our platform.

This includes deepening the integration and features on newer products like payroll and xtraCHEF, which we believe represents strong monetization opportunities longer term. In addition, as Chris mentioned, we're adding capabilities to better serve different restaurant segments, which will position us to penetrate segments where we've typically had less of a presence. Similar to last quarter, the increase in general and administrative costs were mainly due to public company-related expenses. Overall, adjusted EBITDA of negative $45 million in Q1 was better than our expectations.

The outperformance reflects continued strength in GPV and SaaS revenue growth in addition to the progress on reducing hardware costs as we navigate the challenging macro environment. Now let me turn to guidance. For the second quarter, we expect revenues to be in the range of $635 million to $665 million, which represents 53% year-over-year growth at the midpoint. We expect the adjusted EBITDA to be in the range of $60 million to negative $50 million.

For the full year, we're increasing our revenue expectations by 6% at the midpoint to reflect the momentum in software revenue growth and our expectation for GPV growth to remain strong. We now expect full year revenue to be in the range of $2.5 billion to $2.55 billion, which represents 48% year-over-year growth at the midpoint. Following our strong Q1 performance, we're also raising our adjusted EBITDA guidance to be in the range of negative $195 million to negative $175 million for 2022. This reflects the targeted investments we're making across sales and marketing and research and development to drive the core growth strategies that Chris highlighted.

Given the incredible demand for our product, growing ARPU as customers do more with us, and the massive market opportunity in front of us, we're confident that these investments will deliver strong returns. While these investments are resulting in higher burn today, make no mistake, we remain focused on working toward long-term profitability and the current environment has only increased our urgency. We're actively driving efficiencies across the company and tightly managing all discretionary spend in order to help fund our key growth initiatives while improving profitability. Making sure we have a lean cost structure is a priority.

It will enable us to stay nimble as we rapidly grow and gain operating leverage with scale. Our guidance implies that EBITDA margins will improve by 200 basis points in the second half of the year compared to the first half, and we're positioning the business to continue to deliver consistent margin improvement with durable top-line growth in 2023 and beyond. In closing, we're off to a great start in 2022, evidence of our strong execution and industry-leading platform. The restaurant industry is going through a generational shift to digital.

And our priority is to further cement our leadership position as the trusted platform of choice for the restaurant industry. We believe through our portfolio of offerings, we can help restaurants boost sales, improve efficiency, retain employees, and thrive in one of the most competitive industries. And as we execute on that, we believe it will translate into strong durable growth and healthy profits over the long term. Now I'll turn the call back over to the operator to start our Q&A.

Questions & Answers:

Operator

Thank you, Elena. [Operator instructions] We'll pause here for just a moment to compile the Q&A roster. Your first question is from the line of Tien-Tsin Huang of J.P. Morgan.

Tien-Tsin, your line is open.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Hey. Thank you so much for the great results here. Appreciate all of your comments. Chris, I wanted to ask about your -- I think I wrote down here driving efficient growth, heightened discipline, those kind of things.

I think Elena, you also talked about watching discretionary expenses. Can you just elaborate on what that might look like? What investments are nonnegotiable for you in terms of growing? And where you might see a little bit of belt tightening, if you want to call it that? Thank you.

Elena Gomez -- Chief Financial Officer

Yeah. Chris, I can comment if you want and you can add.

Chris Comparato -- Chief Executive Officer

Sure.

Elena Gomez -- Chief Financial Officer

So at the highest level, great question. So things that are non -- not something we would not invest in, right? We're going to really focus -- continue to focus in sales. We're going to continue to focus on R&D. We're going to focus on areas that really drive high ROI, that's really important.

It's nonnegotiable for us to not go after this market opportunity given the momentum we're seeing, given the signals that we're getting from our customers, etc. So those are nonnegotiables for us. Areas where we're focused on discretionary -- on managing tightly are things such as overhead discretionary expenses, of course, the typical T&E type of things. And also, over time, really trying to gain leverage in our G&A functions.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Perfect. Thank you for that. My quick follow-up, just the 5,000 net new locations, records, ahead of where we had, can you keep it up? Is that nominal level sustainable, given what you see? Any call-outs on churn or types of restaurants or channels that did especially well? Thank you.

Chris Comparato -- Chief Executive Officer

Yeah. So I can try and my answer is that -- OK. I was going to say absolutely. We believe we're grabbing market share in multiple segments.

Our core segment, our core SMB segment is performing extremely well, and it continues to drive the largest portion of opportunity. And then we're continuing to see success upmarket, in mid-market, and enterprise. And we're seeing some pull in that market. So we absolutely believe that we can sustain the growth that we're seeing on location acquisition.

And I'll remind you that we're still very early in our TAM penetration. Today, we're only about 7% of the 860,000 restaurants across the U.S. So we're certainly focused on consistent execution. And our unit economics tells us that we should continue to go fast on that lens.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Appreciate it. Thank you.

Operator

Thank you, Tien-Tsin. The next question is from the line of Stephen Sheldon with William Blair. Stephen, your line is open.

Stephen Sheldon -- William Blair -- Analyst

Hey. Thanks for taking my questions. I wanted to kind of follow up on the location additions, great results there, and you just talked about some of the areas you're seeing growth. Curious if you've seen any changes on the churn levels? I mean I think you have some natural churn, just given the heavy weighting toward SMB, but your customers, I think, they're significantly better than industry average during the pandemic.

So curious if you continue to see moderation there and just general outperformance versus industry averages.

Elena Gomez -- Chief Financial Officer

Yeah. No, we've actually not seen that. We've actually seen churn remain low, something we're really proud of, and it's just a testament to the power of the platform. So we're really encouraged by the fact that churn has remained relatively low.

Stephen Sheldon -- William Blair -- Analyst

Got it. That's great to hear. On the expansion into QSR, I guess, from a product side, are you needing to build out or develop anything new to support these customers? And I guess, just as an example, clearly, QSRs have a much bigger focus on drive-thru. So just curious what the expansion into QSR could mean when you think about the product roadmap?

Chris Comparato -- Chief Executive Officer

Yes. So we have a solid QSR customer base today, but we feel we have the potential to grow faster moving forward. So think of the platform as we have this restaurant breadth and depth platform, but now we're adapting it to specific segments to further accelerate our growth. So take QSR, it's basically a tailored set of products that are packaged and priced in a way that makes sense for QSR businesses.

So tying mobile ordering to KDS and then the ability to SMS text message a guest when the order is ready, that's a superfast flywheel, and we're seeing results where restaurants are telling us, a good example is there's a restaurant chain called Velvet Taco. They're telling us when they apply that packaging and configuration to their concept, they're increasing throughput by more than 20%. So really think about our segmentation work as adapting the platform to be really concept specific, which allows these concepts to then move faster. So that's really what's happening with the segmentation strategy, which is -- QSR is just one example.

Toast for hotel restaurants is yet another example.

Stephen Sheldon -- William Blair -- Analyst

It's great to hear. Congrats on the results.

Operator

Thank you, Stephen. Next question is from the line of Timothy Chiodo of Credit Suisse. Timothy, your line is open.

Timothy Chiodo -- Credit Suisse -- Analyst

Great. Thanks a lot for taking the question. I wanted to ask about what's implied in the guide in terms of the payback periods? They've been incredibly impressive and stable. I was just wondering if you could just give a comment on what might be implied there for that stability for the rest of the year, particularly in light of the comments that you made around some of the cost savings initiatives in terms of the shipping costs that you might be looking at? And also, the potential for the hardware cost to normalize, maybe not this year but over time? Thanks a lot.

Elena Gomez -- Chief Financial Officer

Yeah. Great question. Thanks. So we actually have very healthy payback periods and consistent with what we -- and thus, despite the elevated hardware costs that we've experienced over the last couple of quarters.

Our goal, as I mentioned in the last call, continues to be in the mid-teens, and we have confidence we'll be able to accomplish that through this year.

Timothy Chiodo -- Credit Suisse -- Analyst

Excellent. Thank you, and very helpful. And a follow-up is on the financial technology solutions take rate. It was a little bit higher than maybe some of us would have expected.

Maybe you could just comment on was there anything that came through there maybe from the capital side that might have contributed? Or was that really just more the pure payments and net take rate was a little bit higher than maybe we had forecasted?

Elena Gomez -- Chief Financial Officer

Yes. That's -- Toast Capital continues to be just not material for our total results. But as I mentioned, some of the debit -- we had a little bit higher debit in Q1 than typical. So that's really the dynamic that is causing our take rates to be what it is.

I would just tell you that we believe the take rates that you see in Q1 is a reasonable take rate for the near term. And then I would always just take this opportunity to make sure to zoom out and just think about take rate is -- it's just one dimension of our business, right? We really think about our business beyond take rate. And you saw the performance in our SaaS business as well. So I would just encourage you to look at the broader picture beyond take rate.

Timothy Chiodo -- Credit Suisse -- Analyst

Excellent. Really helpful. Looks like there might have been something else there, but that's really helpful, clarify. Thank you.

Elena Gomez -- Chief Financial Officer

Sure.

Operator

Thanks, Timothy. The next question is from the line of Josh Baer of Morgan Stanley. Josh, your line is open.

Josh Baer -- Morgan Stanley -- Analyst

Great. Thanks for the question and congrats on a great quarter. I wanted to talk about GPV. I guess, to what extent from your data were restaurants able to pass on some higher cost to customers and just thinking about the benefit to you as far as your payments revenue stream from GPV? And then I have a follow-up.

Elena Gomez -- Chief Financial Officer

Yeah. We had a -- so thanks for the question. We've seen really healthy GPV per processing location. And obviously, we know that it's an inflationary environment, and we're seeing our customers, of course, play with pricing.

But really, the demand has been really strong. So we're encouraged by that. And that's really what's reflecting in our confidence, in our guide, but also just strong execution in Q1 and really strong demand all the way around.

Josh Baer -- Morgan Stanley -- Analyst

Great. And that's clear, especially given Omicron impacts were real in January and Q1. I guess like on the strong guide, maybe thinking month-to-month throughout Q1 or into April or even into May, just wondering if you are seeing like any signs of consumer weakening just given the focus on macro environment and inflation in thinking about forward expectations on GPV?

Chris Comparato -- Chief Executive Officer

I can jump in. Yeah. So we've not seen any material impact on the current sort of macro trends. There's no evidence of a slowdown from our perspective on restaurant spend.

In fact, like we feel restaurants are seeing healthy demand from consumers. And a good example is dine-in. If you look at restaurants across the U.S. running Toast, dine-in is up 46% year over year from Q1 of 2021 to Q1 of this year.

So that's a really healthy dynamic that tells us that consumers are going back into restaurants and doing it quite frequently, especially post-COVID. So we think that trend will continue, and we think the consumer demand is high, and we believe that restaurants have pricing power to play with pricing to continue to serve those consumers. So we don't see any evidence of the slowdown or a material risk on that front.

Josh Baer -- Morgan Stanley -- Analyst

Very helpful, thank you.

Operator

Thank you, Josh. Your next question is from the line of Will Nance with Goldman Sachs. Will, your line is open.

Will Nance -- Goldman Sachs -- Analyst

Hi, guys. Good afternoon and good evening. Thank you for taking my question. I wanted to maybe ask a few questions on the efficiency initiatives that you guys talked about.

Obviously, very nice to hear, particularly in the current environment about taking a second look at spending. I'm sure that will be well received. I guess my question is more longer term, and I totally get that investing in profitable growth is the focus for now. And there's no reason to slow down.

And I don't think any of us want to pin you down on a near-term target of profitability. But as you guys look out further on how this business can kind of scale to profitability over time, how do you think about the long-term profitability profile? And maybe what's the sort of the path of the building blocks to getting there?

Elena Gomez -- Chief Financial Officer

Yeah. Great question. I'll take that. So we don't have a specific target to share today.

But it's really important that we're balancing sustained sort of durable growth with improving profitability, which is a huge priority growth, which I hope came through in our scripts. And at the highest level, we're positioning the business for consistent margin improvement as we look into the back half of 2022, which was reflected in the guide. And going forward from there, we want to focus on consistent improvement in our margin profile. And longer term, we believe an integrated model, which we always talk about and we have multiple monetization streams which will be highly profitable in a steady state.

So when you look at the various components, you think about strong unit economics, you think about investing in R&D and then really getting scale in our G&A. So there's a bunch of levers we have, but we are focused on building a lean cost structure, which will allow us to pivot and really continue to sustain this high growth profile with a very lean cost structure along the way. So with that, I would say that we will see consistent improvement in margins over time, but I'm not going to share a specific time frame or target today.

Will Nance -- Goldman Sachs -- Analyst

Got it. OK. I appreciate the question. And, yeah, that definitely comes across in the script.

Second question unrelated is more on the software side. Interesting stat on the new business coming in at around 6,000 ARPU, it's like 50% higher than where the business is today. As you look -- maybe could you talk a little bit about the process of upselling on the existing customer base? What does that look like? And what's the success you've had in getting some of the existing customers to adopt, say, something like the payroll products or additional modules?

Elena Gomez -- Chief Financial Officer

Yeah. We've -- and Aman, I'll let you comment as well. But we've been investing in upsell. We started an upsell team in 2020.

We also have an ability for our customers to go on to Toast shop, which allows them to buy products online as well. But our upsell team is very much focused on building that muscle of selling incremental products to our existing installed base. And payroll has been a great example of that. We're early in that opportunity.

But we're definitely -- and this upsell team was an investment we made in 2020, built on it in 2021, and continue to invest and see good signal there as well. And that's what's reflected in all of our overall ARPU growth. And as well, even in the consistency of our execution and positioning the entirety of the platform naturally having impact across our entire sales base. But I'll let Aman comment.

Aman Narang -- Chief Operating Officer

Thanks, Elena. I think you hit it actually. We are focused on scaling up our sales and marketing team, both on new business, as well as upsell and we're also scaling up our self-service capability into the e-commerce and Toast shop to let our customers buy from us however they want.

Will Nance -- Goldman Sachs -- Analyst

Got it. Thanks for taking my questions. Appreciate all the color and very nice results today.

Aman Narang -- Chief Operating Officer

Thank you.

Operator

Thank you, Will. Your next question is from the line of Dave Koning with Baird. Dave, your line is open.

Dave Koning -- Baird -- Analyst

Hey, guys. A couple of questions. I guess, first of all, a little similar to the last one. Your subscription revenue up 103%.

I think it was mid-40s growth in locations and mid-40s growth in average revenue per location. But how much of that is just bigger locations? And then how much of it is kind of what you described before, just a lot more selling to your kind of existing group of locations.

Chris Comparato -- Chief Executive Officer

This is Chris. I don't think it's -- go ahead, Elena, if you want.

Elena Gomez -- Chief Financial Officer

It's a little bit of both. I mean, first, just kudos to the sales team for their great execution and what you're seeing in the SaaS growth being over -- up 100% and having record locations. It's really adoption from both new and existing customers and also higher sale of booking, which is -- which we talked about on the script. And that's really coming back to the positioning of the entirety of the platform upfront, which is obviously really important and an indicator of our confidence in our ability to position the entirety of the platform and have a higher booking -- ARPU booking at upfront.

Chris Comparato -- Chief Executive Officer

Yeah. One clarification is it's not -- one clarification is it's not bigger locations. It's just doing a much better job at selling the entirety of the platform, both upfront, as well as downstream. But it's not as if we're going after bigger locations.

It's really just making -- doing a better job at some of the platform story to existing locations that are similarly sized.

Dave Koning -- Baird -- Analyst

Yeah. Gotcha. That's what I was kind of getting at. So no, that's really -- that's great.

And I guess my second question, sequentially, I think your guidance is revenue up something like 19% to 24%. And I guess that's very normal seasonality to be up. But are all segments expected to be up kind of in that same range? Or is there going to be some divergence?

Elena Gomez -- Chief Financial Officer

Yeah. I would say we're seeing strength across our entirety of our business.

Dave Koning -- Baird -- Analyst

OK. Gotcha. A great job. Thank you.

Operator

Thank you, Dave. Your next question is from the line of Josh Beck with KeyBanc. Josh, your line is open.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Thank you for taking the question. I wanted to drill down on the subscription ARPU, certainly continues to grow at a really nice clip, even though the multiproduct adoption just very slightly expanded less. So does this mean that your customers are gravitating toward some of these larger products? Just not sure if there's any call out on the drivers there.

Elena Gomez -- Chief Financial Officer

Yeah. I mean I think --

Chris Comparato -- Chief Executive Officer

Yeah. I think what I'm hearing -- sorry, Josh. Effectively, our customers are telling us that they want more and more from the platform. So I think what you're seeing is you're seeing us better position the platform story upfront, as well as downstream.

And then they're telling us that they want to see even more innovation within those modules across the platform. So a good example is what Elena referenced for payroll. We're doing a much better job at attaching payroll upfront, as well as upselling it downstream. But then restaurants are coming back to us saying, over time, we'd love for you to -- when you look at the employee value proposition to recruit onboard, develop, manage, pay, retain employees, that has its own roadmap of opportunity, and that will be over the long haul that we continue to innovate on top of the existing ARPU base.

So we expect we will continue to see the modules used by average customer tick up but then we'll continue to evolve that module landscape over time.

Josh Beck -- KeyBanc Capital Markets -- Analyst

OK. Great. And maybe just a follow-up on the guidance. Certainly, you're taking up the full year revenue at the midpoint, nicely above the B, I think it's about $95 million.

Just listening to the answers, it sounds like it's pretty broad-based across the business. Any callouts where things just materialize quite a bit better than what you were maybe forecasting 90 days ago to drive this kind of upward revision in the full year?

Elena Gomez -- Chief Financial Officer

Yeah. No, I think heading into the year, if you think back 90 days ago, we had a little bit of Omicron ahead, that was a big macro that we factored into our guidance. And what we've really seen is strong GPV growth and strong momentum in our business. And so that's really what's reflected in the guide.

And actually, I would say that what we're balancing now is the same thing. We're balancing the macro, we're balancing, making sure we're investing in a lean cost structure and just being prudent with what we see.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Fantastic. Thank you both.

Operator

Thank you, Josh. Your next question is from the line of Brent Bracelin with Piper Sandler. Brent, your line is open.

Brent Bracelin -- Piper Sandler -- Analyst

Thank you. I guess one for Chris and a follow-up for Elena. Chris, you were excited about payroll, I think nine months ago, clearly, payroll continues to kind of perform well, both with new customer attach, and now it sounds like better cross on the installed base. You have 62,000 locations today, looking out three to five years, what's the potential here? Do you think a third of those locations could attach to payroll? Could you get that 50% penetration? Love to better understand based on success here, where it could look like in five years?

Chris Comparato -- Chief Executive Officer

Yeah. I'm not going to give you a number, but what I know in talking to restaurants every day is that they need more technology capability to not just pay their employees, but to recruit, onboard, develop them, plan their schedules, pay them, and then retain them. So we see that value chain just within the employee stakeholder, and we build out a roadmap from there on what this piece of the platform could become. And it excites us because we know every restaurant needs this.

Like every restaurant needs to get off of manual processes and spreadsheets to better attract and retain their employees and pay their employees and employees want to be paid faster. So we're excited about this section of the platform. It continues to perform well. But there's a long journey ahead on its potential.

I'm not going to give you a number, except that every restaurant grapples with how to attract and retain their employees. And we see opportunity there.

Brent Bracelin -- Piper Sandler -- Analyst

Got it. So like payroll is just the start of a much bigger ambition you have relative to layering on software?

Chris Comparato -- Chief Executive Officer

Exactly.

Brent Bracelin -- Piper Sandler -- Analyst

Perfect. And then Elena, as a follow-up, clearly, everyone is asking about the cost structure and payback and philosophy. So I'm going to ask it a slightly different way. If I look at the plan here to lean in, you clearly are going to have some heavier free cash flow investments here this year and next, but you do have a strong balance sheet, $1.2 billion in cash.

Even with those two years of heavy investments, it looks like you're going to have about $900 million in cash exiting 2023. My question for you is with that much cash, even after two years of heavy investments, is the model fully funded to a path to free cash flow? Or do you think you'd have to raise more money? Just trying to better understand how much cash you actually need to get to a positive free cash flow state. Thanks.

Elena Gomez -- Chief Financial Officer

Yeah. No, it's a fair question. And I feel like we're in a good position where with our performance and consistent execution, we're looking to get to free cash flow breakeven in the -- over the near term, I would say, Brent. So I'm not worried about additional funding needed to help us succeed and go after this opportunity.

Brent Bracelin -- Piper Sandler -- Analyst

That's helpful. Thank you. That's all I had.

Operator

Thank you, Brent. Next question is from the line of Andrew Bauch with SMBC Nikko. Andrew, your line is open.

Andrew Bauch -- SMBC Nikko Securities -- Analyst

Hey, guys. Thanks for taking my question. Just wanted to touch upon the international opportunity that you guys are starting to invest in this year. I mean, maybe what have you learned over the first three months? And what's the sort of timeline we should think about before you're actually launching live locations outside the U.S.?

Elena Gomez -- Chief Financial Officer

Yeah. No, that's a great question. We're in the early innings. And I would just remind you that our 2022 year is really a foundational year for us.

We've got a few customers live, and we're getting some really great feedback, and we're learning that the demand is strong. But that said, we're in the early innings, and this is sort of a multiyear journey for us. So I think we're a ways from having meaningful impact on our P&L, but we're encouraged by the early signal from the customers that we're engaging with.

Andrew Bauch -- SMBC Nikko Securities -- Analyst

Yeah, absolutely. I mean even having a couple of live is a good test run. And then touching on a more modeling point. You mentioned that the hardware cost of goods sold came down pretty considerably as freight costs kind of came off-peak.

I mean it's even more impressive on a net new location basis. So how confident are you that line item kind of remains relatively stable through the rest of 2022? And does it even have room to come down over time?

Elena Gomez -- Chief Financial Officer

Yeah. No, we -- so you're right. We had some benefit in Q1, some one-time benefits and also we had lower freight costs in Q1. I do expect a little bit of a tick-up in Q2.

But over the long term, I feel like we can keep -- definitely keep our payback periods in order, which is the goal of ours, but also I would remind you that we do anticipate hardware costs to remain elevated, but definitely something we can manage. And we've been strategically shifting to having more inventory, which is allowing us to lower that shipping cost. So I have a bit more visibility into that. But other than the uptick in Q2, I think we've got a good handle on it.

Andrew Bauch -- SMBC Nikko Securities -- Analyst

Great. Fantastic quarter. Thank you.

Operator

Thank you, Andrew. We will now take our last question from the line of Harshita Rawat of Bernstein. Harshita, your line is open.

Harshita Rawat -- AllianceBernstein -- Analyst

Hi. Good afternoon. I want to ask about B2B. So you acquired xtraCHEF last year, COGS is a significant portion of your restaurant expense base.

Tell us about how you're cross-selling xtraCHEF into your restaurants? And more importantly, in what ways can you participate in B2B or AP automation flows? Thank you.

Chris Comparato -- Chief Executive Officer

Yeah, great question. I'll remind everyone that it's still early for xtraCHEF, and we're excited about the opportunity ahead. We just enabled our entire sales force to position and sell xtraCHEF in Q1, so we're excited about their performance. It was ahead of our plan in Q1, but we're very much in the early stages of the product roadmap on B2B.

For example, xtraCHEF today does a great job of AP automation, great job at inventory management and recipe management, so we can do really good fleet cost optimization. But over time, the opportunity for this section of the platform is very similar to payroll. If you think about the opportunity to better manage the books and work with accountants, the opportunity to better work with suppliers and consider bill pay to suppliers. So we see a tremendous opportunity in the back office around supplier management, and we're very much in the infancy of this product roadmap.

So that's exactly why we went after xtraCHEF, and they've been an integral part of our Toast team in building out this vision, but a really good question.

Harshita Rawat -- AllianceBernstein -- Analyst

Thank you.

Operator

Thank you, Harshita. I would like to turn the call back over to the presenters at this time.

Chris Comparato -- Chief Executive Officer

Great. Well, thank you, everyone.

Michael Senno -- Vice President of Investor Relations and Treasury

Thank you, everyone.

Chris Comparato -- Chief Executive Officer

I think we're good. Thank you, everyone.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Michael Senno -- Vice President of Investor Relations and Treasury

Chris Comparato -- Chief Executive Officer

Elena Gomez -- Chief Financial Officer

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Timothy Chiodo -- Credit Suisse -- Analyst

Josh Baer -- Morgan Stanley -- Analyst

Will Nance -- Goldman Sachs -- Analyst

Aman Narang -- Chief Operating Officer

Dave Koning -- Baird -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Brent Bracelin -- Piper Sandler -- Analyst

Andrew Bauch -- SMBC Nikko Securities -- Analyst

Harshita Rawat -- AllianceBernstein -- Analyst

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