What Happened:
Shares of restaurant software platform Toast (NYSE:TOST) jumped 14.3% in the morning session after the company reported first quarter results with strong gross margin improvement. This powered other bottom-line metrics, with adjusted EBITDA and free cash flow coming in ahead of expectations. Key topline metrics, including ARR, billings, and revenue, all outperformed Wall Street's estimates. Notably, the topline strength was broad-based, with fintech, subscription, and hardware segment revenues all exceeding consensus. Overall, we think this was a really good quarter that should please shareholders.
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What is the market telling us:
Toast's shares are very volatile and over the last year have had 26 moves greater than 5%. But moves this big are very rare even for Toast and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock gained 21.3% on the news that the company reported fourth-quarter results that narrowly topped analysts' revenue and billings expectations. We also found the continuing momentum in free cash flow promising. However, revenue guidance for the next quarter fell below expectations, while adjusted EBITDA guidance was roughly in line. During the earnings call, the company announced plans to lay off roughly 10% of its workforce, with the cuts mostly impacting noncustomer-facing roles. As part of the plan, the company is expected to incur $45 million to $55 million in restructuring and related charges. However, in the longer term, it expects to achieve $100 million in annualized savings from the restructuring alongside lower hiring. Zooming out, this was a decent quarter, showing that the company is staying on target.
Toast is up 48.9% since the beginning of the year. Investors who bought $1,000 worth of Toast's shares at the IPO in September 2021 would now be looking at an investment worth $430.29.
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