Toast (NYSE: TOST)

Recommendation: Buy with a PT of $25 ~48% Upside

Julien Lin
Julian Brady
Matthew Davis
Jack Rutledge
Mila Jiang

March 7th, 2023

Toast (NYSE: TOST)
Toast sells POS systems specifically targeted towards restaurants and charges restaurants based
on a flat fee plus a percentage per transaction

Financial Technology Services

Total Revenue Integrated Payment Processing Financial Technology Products

Subscription Services

Restaurant Digital Ordering Marketing & Team

$2,474M Point of Sale
Operations & Delivery Loyalty Management
FY 2022

Hardware

Reporting & Analytics E-commerce API & Partner Ecosystems

Professional Services

Sources: Company Filings

How Toast Makes
Money 2
Toast’s mission is to digitalize restaurants
Technology enables restaurants to give customers more covenant options to order, while also
allowing them to focus on their craft of making food and good hospitality for those who dine-in

Technology has made the restaurant Steve Fredette is a visionary founder that sees
experience more pleasant for customers, further radical change in restaurant experience
employees and owners. in the next decade

MIT
Higher tips, better Improved service 2002-2005
employee experience quality

Mobile at Endeca
2005-2012
Happy Happy
Employees Guests Toast: Co-Founder
Stephen Fredette 2011-Now
Improved wage Co-Founder and President
& benefits access

Memorable & tailored

Restaurant experiences
“Remote Control to The World”
Success

Lower turnover, improved Greater sales,

operational efficiency Increase Loyalty

“And for when convenance isn’t the goal, the date night or family night out, technology gives the opportunity
to restaurants to do that job much more effectively to eliminate the administrative tasks and allow servers
to focus on enhancing the dine in experience”. – Steve Fredette

Sources: Toast Filings, Founders Project Podcast

3
Toast’s TAM is still greatly unpenetrated
Toast is still early on international expansion, while remaining legacy users and module products
in the U.S represent further domestic market share to capture

Cloud POS Market

Global TAM: $110B

Toast has not launched Hungry for New Technology
internationally
“At the same time, the restaurant industry
is undergoing foundational changes driven
U.S TAM: $55B by changing guest preferences and the
U.S Restaurant Spend: imperative to utilize technology and data
$800B (3% of GDP) to innovate.”
-Toast Management (2021 10K)

One of the largest International Expansion

tech verticals
“2022 is really a year of building the
foundation. So this is a multiyear journey
SAM: $15B for us. And like you said, very early innings,
but we're encouraged by what we see with
Conversion of the initial customers we have.”
legacy and
customer wins -Elena Gomez, Toast CFO
over Square

Source: Company Filings & Earnings Calls

4
Continued growth despite critical challenges
Toast’s business model proved to be resilient despite challenging operating conditions for
restaurants in the two years
Increased adoption of contactless Increased cross-selling capabilities Tailored and deeply integrated product
payment offerings and a reduction in staff and addition of new customers has offerings drove an increase in customers
lead to large revenue and margin growth been driving an increase in ARR using 4+ core modules

Toast Revenue and Margins ($M) Toast ARR ($M) % of Customers using 4+ Modules

1,705 901
868 62%
61%
787 60%
59%
57%
637
55%
544 568
494
823 51%
665 384

FY 2019 FY 2020 FY 2021 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

21 21 21 21 22 22 22 22 2021 2021 2021 2021 2022 2022 2022

Toast onboarded a record number of customers during the pandemic who, despite weak financials,
needed Toast to fulfill their online order backlog

Source: Company Filings & Earnings Calls

5
Toast’s tailored solutions for the pandemic push
After restaurants were forced to adapt, Toast provided restaurants with specific solutions that they
needed in order to run processes efficiently during lockdown

With POS solutions tailored to restaurants, Toast’s GPV grew through the acquisitions of smaller and newly
interested enterprise customers

Gross Payment Volume ($B)

25.2 25.5
23.3

Mobile and Online Ordering

17.8
17.1
16.5
14.4 Contactless Payments

9 Delivery at Low Take Rate

7.4 7.6
6.4

3.9

Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22

Source: Company Filings & Earnings Calls

6
New POS systems provide operational advantages
New POS systems are generally easier to use and provides improved store performance
compared to old legacy systems. The main reason for not switching is sunk cost fallacy

New POS systems provide crucial upgrades Improved operating metrics and unit
across all functions compared to Legacy economics across the organization

Function Legacy Cloud

Data Data is stored in

Data is stored locally
Storage cloud (AWS, Azure)

Must be physically
Can check business Increased Sales
Accessibility anywhere with any
present to access
internet device

One-time license fee

Pricing
(Average of ~$13k)
Monthly Subscription Faster Order Fulfillment
Technicians must Fast real-time
Updates
visit store to install updates (DIY)

Restaurant is
Data is always
Headcount Reduction
responsible for
Security backed up and can’t
security & data can’t
be lost
be recovered

Integrations Difficult Easy Decreased Data Loss

Each
license/hardware
Scalability Scalable SaaS plans
purchase is for one
location Operational Insights
Portable &
Heavy gear that is
Hardware Independent of
hard to install
Hardware

7
Toast is in an incredibly competitive market
Many competitors offer similar base products at competitive price points. These competitors have
similarly benefited from the pandemic, and have the scale to continuously compete

Competition exists within the new POS space, The modernization of older platforms
with both vertical and horizontal players creates dual sided pressure on pricing

2.5 % + $0.15
digital ordering, loyalty programs Integrated mobile payments
and gift cards, integrated capabilities with older POS systems
payment processing

3.2 % + $0.08 Software integration with Uber Eats

digital ordering, integrated and Grubhub. Mobile Payments.
payment processing Contactless Deliveries

2.6 % + $0.10 Integrated mobile payments

digital ordering, loyalty programs capabilities with older POS
and gift cards, integrated systems. Loyalty points recorder.
payment processing

Software integration with Uber

2.5 % + $0.15 Eats and Grubhub. Mobile
digital ordering, loyalty programs Payments
and gift cards, integrated
payment processing

Software integration with Uber

2.8 % + $0.15 Eats and Grubhub. Mobile
Payments
digital ordering, integrated
payment processing

8
Why are we here?
Reactionary pricing from recessionary concerns have mispriced a strong growth candidate in an
industry we believe is ripe for adoption very soon

Street View Trillium Capital View

In the long run, the verticality of

Larger and more developed players
Toast's business model offers better
are a more attractive buy compared
value to the end goal of enterprise
to Toast
adoption

Recession risk will push restaurants Restaurants have historically been

to cut spending, challenging Toast's resilient with the added pent-up
primary consumer base demand from COVID

9
Toast is positioned as a restaurant-only POS
Toast has the scale to develop features specifically for the restaurant market, which will be
beneficial in landing larger customers with specific needs

Many specific features in Toast’s lineup do not exist in other POS systems. They have shown the ability to
develop these in-house and through M&A

Delivery Kiosks Inventory Xtrachef

• Deliveries with low-take • Contactless payment • Inventory tracker and • Tracks food being used in
rate using on-demand kiosks given at a management system specific recipes to
drivers. discount understand cost
• Allows for instant re-orders fluctuations
• Deliveries are done through • Required for re-opening and insights for better
restaurant website rather of restaurants restocking timings and no
than through UberEats after COVID overflow

• Done on a flat fee, fixed

rate basis

"…[managing] your digital presence, how you manage your rewards, how you manage your employees, and how
you manage your menus and pricing strategies, obviously it’s very different, the software needs are different.”
– COO and Co-Founder Aman Narang

10
Toast is an attractive enterprise offering
Toast’s expansive product suite is attractive for even the most sophisticated food-service
enterprises. Enterprises will find it increasingly attractive to partner vs. build.

Toast has been in action at Jamba Juice As Toast spends more on R&D the cost-
locations since 2020 benefit of investing in-house diminishes

Toast R&D Spend

385

281

“… our team members and franchisees require

an agile, mobile, cloud-based technology…” 163

“We also needed a restaurant technology 109

platform that could keep up with our need for
real-time data and analytics.” 64

- Jyoti Lynch, CIO at Jamba Juice

2019 2020 2021 2022 2023E

“[Big chains] don't want to keep up with these [SaaS] providers who are investing hundreds of thousands of dollars
in [research and development]. They’d rather move the ball forward and would rather partner than build.”
– COO and Co-Founder Aman Narang

11
Vertical SaaS providers are preferable with scale
Horizontal SaaS companies tend to struggle as demands become more and more specific. This
generally occurs as restaurants scale

Vertical SaaS players generally land higher As other industries begin to shift towards
value enterprise customers vertical SaaS, F&B might be next

% of Customers with Target ACV % of Industry with Vertical SaaS

40
Restaurants
35 One of the most
underpenetrated
markets for
30 vertical SaaS
Government
25

20 Education

15
Healthcare
10

5 Transportation
0
Vertical Horizontal 0 50 100

>100 5 to 100 1 to 5 <1 2016 2022

12
Current customers are a funnel for growth
Toast have proven to have been able to increase the number of modules they have sold each
customers, creating an extremely profitable pipeline, especially through the pandemic

The increasing percentage of customers paying Remaining SaaS ARR growth driven operating
for 4+ services proves efficiency of up-selling system effect is being misunderstood by street

Locations SaaS ARR per Location

90k 50%

79k
80k
74k 48%

68k 46%
10.7k
70k

62k
57k 44%

Payroll
41%
60k

42%

50k

39% 40%

40k
37% 6.2k
30k
36% 38%

36%
Xtrachef 4.2k
20k

32% 34%

10k
32%

k 30%

Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Invoicing

Q4-21 Q4-22 Q4-26E
Locations $ of Locations Using 4+ Elective Products

Revenue growth not only can come from exploration of unmet TAM, but also increasing share of
wallet in their current customers, driving customer stickiness.

13
Americans prefer to dine out
Since the late 2000s, Americans have been spending more money on dining out than dining in, a
trend that continued through and beyond the pandemic

Food At Home Food Away from Home

58%

56% 55%

54%

52%

50%

48%

46%

44% 45%

42%
1997 2001 2005 2009 2013 2017 2021

Improvements in operation, customization and guest experiences have enhanced the restaurant
experience and led to a decline in cooking at home as a hobby and pastime

Source & Footnotes: GRID

14
What happened during last recession
During the Great Financial Crisis, restaurants were resilient as the consumer choose value and
experience over simply just saving dollars

Restaurants outperformed consumer Toast’s most actively targeted customers, Fast

discretionary sectors in SSS growth Casual and QSR, were the most resilient vertical

Restaurants Hotels Middle-Income Fashion Fine Dining Casual Dining Family Dining
Fast Casual QSR
10%
10%
8%

6%
5%
4%

2% 0%

(2%) -5%

(4%)
-10%
(6%)

(8%)
-15%
(10%)

(12%) -20%
2006 2007 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2013

Sources: Capital IQ & Trinity Capital

15
Psychological factors are a driving force
FAFH takes more consumers’ wallet share during recession, mainly to experience a “feel-good”
moment in an otherwise bleak economy.

FAFH growth outpacing FAH shows that people “Revenge consumption” leads to an increase
value restaurant experiences more than FAH in foot traffic but reduction in bill sizes by 1.3%

Post-pandemic foot traffic

68% 75% 70%

Adults Millennials Gen Z

“Restaurants are essential to their lifestyle and

thus, they consider dining out as non-discretional
experience”
— National Restaurant Association

16
Restaurants outperformed in last recession
FAFH has historically been more price-resilient during recession. This is due to a multitude of
factors, both psychologically and on a per-price basis

8%
YoY Monthly CPI Growth

6%

4%

2%

0%
Jan/2008 Jan/2009 Jan/2010 Jan/2011 Jan/2012

-2%

-4%

Food Away From Home Food at Home

”$3 of every $10 saved during recession is spent on food consumption outside of the home"
—— Sylvian Charlebois, University of Guelph’s Food Institute

18
Food is outpacing groceries in cost-inflation
While restaurants are still more expensive overall, grocery cost increases have made the overall
difference for certain items almost irrelevant

Food at home continues to become more The prices of many staple food items has
expensive relative to food away from home increased significantly over the last year

Food at Home Food Away from Home

43.0%
16.0%
13.1%
12.0%
26.7%
24.6%
8.0%
17.7%
7.6% 15.2% 14.9% 14.8%
4.0%

0.0%

Eggs Butter Flour Lettuce Potatoes Poultry Bread,

-4.0% Rice,
2014 2016 2018 2020 2022 Coffee

"We track, as many of you do, food at home versus food away from home. And right now, we’re seeing a
significant gap. In fact, we think, by our measure, it’s the largest gap we’ve seen in 50 years between food
at home and food away from home”
- Chris Kempczinski
McDonald’s CEO

Source & Footnotes: GRID

19
Valuation at a Glance
Toast is trading a discount to notable peers like Fiserv, Olo, Lightspeed, while the pace of revenue
growth makes them a comparable to top growth names trading at 2-2.5x premiums

Toast vs POS Peers: NTM Rev & GPV Multiples

5.4x
Mean: 3.0x 0.58x Mean: 0.3x
0.41x
2.5x 2.5x 2.5x
2.0x 2.0x 0.25x 0.26x
1.5x
0.12x 0.10x
0.04x

Toast vs High Growth SaaS: NTM Rev Multiples

9.5x
7.0x Mean: 7.2x 6.8x 8.2x

5.6x

2.5x

HubSpot Workday Senteniel One Shopify Paycom Toast

Sources: CapitalIQ

As of December 7, 2022
20
 Valuation at a Glance
Our DCF analysis projects considerable upside at the current share

Base Case Model

Historical 1 2 3 4 5 6Projections
7 8 9 10 11
x 2019A 2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E
($ in millions)
Revenues 665 823 1,706 2,731 4,133 5,956 7,897 9,892 11,984 14,366 16,618 18,390 19,926 21,516
% growth 23.8% 107.3% 60.0% 51.3% 44.1% 32.6% 25.3% 21.1% 19.9% 15.7% 10.7% 8.4% 8.0%
COGS (603) (679) (1,388) (2,216) (3,348) (4,557) (5,804) (7,172) (8,329) (9,410) (10,386) (11,310) (12,055) (12,802)
% margin 9.4% 17.5% 18.7% 18.9% 19.0% 23.5% 26.5% 27.5% 30.5% 34.5% 37.5% 38.5% 39.5% 40.5%
Gross Profit 62 144 318 515 785 1,400 2,093 2,720 3,655 4,956 6,232 7,080 7,871 8,714
Operating Expenses (276) (361) (540) (913) (1,075) (1,549) (2,053) (2,572) (3,116) (3,735) (4,321) (4,781) (5,181) (5,594)
% of revenues 41.5% 43.8% 31.6% 33.4% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0%
EBIT (213) (220) (222) (384) (289) (149) 39 148 539 1,221 1,911 2,299 2,690 3,120
% margin (32.1%) (26.7%) (13.0%) (14.1%) (7.0%) (2.5%) 0.5% 1.5% 4.5% 8.5% 11.5% 12.5% 13.5% 14.5%
(-) Taxes 3 - 3 2 69 36 (9) (36) (129) (293) (459) (552) (646) (749)
(% tax rate) 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24%
(+) D&A (7) (27) (21) (23) (33) (48) (63) (79) (96) (115) (133) (147) (159) (172)
(-) Change in Working Capital (28) (34) (49) (65) (82) (99) (119) (138) (152) (165) (178)
(-) Capex (12) (16) (45) (94) (165) (256) (370) (515) (679) (843) (1,013) (1,202)
UFCF (210) (193) (216) (351) (336) (182) 13 89 494 1,233 1,961 2,307 2,647 3,017
WACC
$26 11.00% 11.50% 12.00% 12.50% 13.00% 13.50% 14.00%
Output
Terminal Growth

2.25% $30.70 $28.22 $26.03 $24.08 $22.33 $20.77 $19.35

2.50% $31.38 $28.81 $26.53 $24.51 $22.71 $21.10 $19.64 Equity Value 13,305
2.75% $32.11 $29.43 $27.06 $24.97 $23.11 $21.44 $19.95 FDSO 521
3.00% $32.88 $30.08 $27.62 $25.45 $23.52 $21.80 $20.26 Share Price $25.55
3.25% $33.71 $30.78 $28.22 $25.96 $23.96 $22.18 $20.59 Current Price $18.50
3.50% $34.58 $31.52 $28.84 $26.50 $24.42 $22.58 $20.94 Implied Return 38.1%
3.75% $35.52 $32.30 $29.51 $27.06 $24.91 $23.00 $21.30

Our DCF analysis produced an implied share price of $25.55 and implied return upwards of 38%. This was
accomplished using a 10 year projection period to capture Toast’s extensive growth runway.

Source: Company Filings

As of December 7, 2022
21
Thank You
 Appendix I

Toast, Inc (TOST) - Drivers

($ in millions) FY FY FY FY FY FY FY FY FY FY FY FY FY FY
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E

Revenue Summary

Financial Technology Services 532 644 1,406 2,276 3,527 5,052 5,669 6,367 7,317 8,263 9,194 10,171 10,864 11,822
% growth 21.2% 118.2% 61.9% 55.0% 43.3% 12.2% 12.3% 14.9% 12.9% 11.3% 10.6% 6.8% 8.8%
% of total revenue 78.3% 82.4% 81.5% 78.5% 77.1% 69.1% 64.6% 61.7% 59.2% 57.0% 55.5% 53.3% 51.9%

Subscription Services 62 101 168 354 704 1,156 2,092 2,958 3,916 4,955 6,057 7,165 8,380 9,661
% growth 62.3% 66.1% 109.9% 99.0% 64.4% 80.9% 41.4% 32.4% 26.5% 22.3% 18.3% 17.0% 15.3%
% of total revenue 12.3% 9.9% 12.7% 15.7% 17.7% 25.5% 30.0% 33.0% 35.5% 37.6% 39.1% 41.1% 42.4%

Hardware 55 64 112 134 215 284 363 436 523 617 716 816 930 1,061
% growth 16.3% 75.4% 19.5% 60.1% 32.2% 28.0% 20.0% 20.0% 18.0% 16.0% 14.0% 14.0% 14.0%
% of total revenue 7.8% 6.6% 4.8% 4.8% 4.3% 4.4% 4.4% 4.4% 4.4% 4.4% 4.5% 4.6% 4.7%

Profressional Services 16 13 19 28 45 59 76 91 110 129 150 171 195 222

% growth (15.3%) 39.2% 51.5% 59.4% 31.8% 28.0% 20.0% 20.0% 18.0% 16.0% 14.0% 14.0% 14.0%
% of total revenue 1.6% 1.1% 1.0% 1.0% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 1.0% 1.0%

Total Revenue 665 823 1,705 2,792 4,490 6,552 8,201 9,853 11,865 13,964 16,117 18,323 20,369 22,766
% growth 23.8% 107.1% 63.7% 60.8% 45.9% 25.2% 20.1% 20.4% 17.7% 15.4% 13.7% 11.2% 11.8%

23
 Appendix II

Toast, Inc (TOST) - Drivers

($ in millions) FY FY FY FY FY FY FY FY FY FY FY FY FY FY
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E
2019 2020 2021 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E

KPI's

Total Live Locations 26,800 40,000 57,000 79,000 99,000 119,000 137,000 153,000 166,000 178,000 186,000 193,000 198,000 202,000
% Implied Market Share 4.7% 6.6% 9.2% 11.5% 13.8% 15.9% 17.8% 19.3% 20.7% 21.6% 22.4% 23.0% 23.5%

Total New Location Opens 10,000 14,000 22,000 20,000 20,000 18,000 16,000 13,000 12,000 8,000 7,000 5,000 4,000

SMB Opens
Enterprise Opens

U.S Restaurant Locations 860,000 860,000 860,000 860,000 860,000 860,000 860,000 860,000 860,000 860,000 860,000 860,000 860,000 860,000

Toast GPV 21,800 25,390 57,000 89,592 130,625 174,568 209,979 239,376 281,416 330,536 376,811 442,199 518,510 591,102
% of US GPV 4.2% 7.9% 10.4% 13.2% 15.3% 16.0% 16.0% 16.5% 17.0% 17.0% 17.5% 18.0% 18.0%

U.S Restaurant Spend (GPV) 600,877 724,294 862,904 992,339 1,141,190 1,312,368 1,496,100 1,705,554 1,944,331 2,216,538 2,526,853 2,880,613 3,283,898
% growth 20.5% 19.1% 15.0% 15.0% 15.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%

ARR 185 324 553 951 1,516 2,278 3,089 4,173 5,382 6,708 8,091 9,557 11,183 12,865

Total ARPU $6,900 $8,100 $9,700 $12,032 $15,315 $19,145 $22,550 $27,274 $32,421 $37,683 $43,502 $49,519 $56,479 $63,689

SaaS ARR 94 144 239 547 926 1,503 2,249 3,215 4,256 5,385 6,584 7,788 9,109 10,501
SaaS ARR per Live Location $3,500 3,600 $4,200 $6,930 $9,356 $12,630 $16,419 $21,016 $25,640 $30,255 $35,398 $40,354 $46,004 $51,984
% growth 65.0% 35.0% 35.0% 30.0% 28.0% 22.0% 18.0% 17.0% 14.0% 14.0% 13.0%

Payments ARR 91 180 314 403 590 775 840 958 1,126 1,322 1,507 1,769 2,074 2,364
Payments ARR per Live Location $3,400 $4,500 $5,500 $5,102 $5,959 $6,516 $6,131 $6,258 $6,781 $7,428 $8,103 $9,165 $10,475 $11,705
bps take rate of GPV 0.42% 0.7% 0.6% (0.07) 0.17 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%

24