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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.

Image source: Getty Images.

Toast delivers a solid quarter

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.”

But it sees slower growth ahead

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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