Shares of Toast (NYSE: TOST), the restaurant management technology company, were falling today after the company offered disappointing guidance in its third-quarter earnings report last night.
As a result, the stock was down 12.7% as of 1:12 p.m. ET. today.
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Toast continued to deliver solid results in the third quarter, with annual recurring revenue (ARR) up 40% to $1.22 billion and gross payment volume rising 34% to $33.7 billion. Overall revenue was up 37% to $1.03 billion, matching the analyst consensus, and it grew locations by 34% to 99,000, adding 6,500 in the quarter.
Toast, whose systems help restaurants with everything from point-of-sale to labor and inventory management, saw improvements in profit margins, and gross profit jumped 50% to $226 million. It also reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $35 million, up from a loss of $19 million in the quarter a year ago.
On a generally accepted accounting principles (GAAP) basis, the company reported a net loss of $31 million, or $0.09 per share, slightly ahead of estimates at a loss of $0.10 per share.
CEO Chris Comparato said, “Our focus on balancing durable top-line growth with efficiency led to our seventh consecutive quarter of Adjusted EBITDA margin expansion.”
Looking ahead to the fourth quarter, the company expects revenue of $1 billion-$1.03 billion, a sequential decline from the third quarter, which is typically the seasonal peak in the restaurant industry. That forecast was also slightly below the consensus at $1.03 billion and implies its top-line growth will slow to 32% in the fourth quarter. On the bottom line, the company expects adjusted EBITDA of $5 million-$15 million.
Overall, the slowing growth trend seems to be spooking investors as the stock is still high-priced and unprofitable. While the restaurant industry has enjoyed a rebound from the pandemic, that momentum may be starting to slow.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Toast. The Motley Fool has a disclosure policy.
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