Toast, the payments company that caters to restaurants, has begun cutting 550 employees, about 10% of its headcount, after rapid expansion that proved unsustainable despite rising revenue.
“We've made the difficult, but right, decision to reduce our headcount by 10%,” Toast CEO Aman Narang told analysts on a call Thursday to discuss the company’s fourth-quarter earnings results. “As you know, Toast grew rapidly over the past few years to support a growing customer community. As I've taken a look across the organization, it has become clear that we grew our team too quickly in some areas, and we need to restructure the organization to best align with our most important priorities.”
Narang, a co-founder who took the top post in January after Chris Comparato stepped down last year, said that the eliminated jobs were primarily those that were not customer-facing. The company expects to complete its cost-cutting plan by the end of the year, according to the Thursday earnings release.
In addition to offering point-of-sale software services for restaurant clients, the company pitches related software services for online ordering, marketing, delivery, catering and other functions.
Despite the company’s growth, it’s still unprofitable, on a GAAP basis. For the fourth quarter, it narrowed its net loss to $36 million, from $99 million in the year-earlier period, according to the release. Still, it was wider than the $31 million net loss reported for the third quarter. For 2023, the company’s net loss narrowed to $246 million, from $275 million.
Nonetheless, Toast’s gross profit and revenue is climbing. Fourth-quarter gross profit jumped 43% to $226 million, from $158 million in the year-ago quarter, according to the release. Revenue for the fourth quarter rose 35% to $1.04 billion.
As of the end of last year, Toast had a presence in 106,000 mainly U.S. restaurant locations, up about 7% from 99,000 at the end of the third quarter.
The employee pullback is expected to provide $100 million in annual savings, with about two-thirds included in the company’s forecast for 2024 guidance, analysts at the financial firm William Blair said in a note to investment clients. “Toast announced a number of encouraging customer wins across the markets it serves, especially with enterprise customers, announcing it won Caribou Coffee (about 500 locations),” the note said.
For the moment, though, Toast will absorb restructuring charges of as much as $55 million in the current quarter mainly for employee severance expenses, according to the release.
The company plans to roll savings into growth efforts, including in expansion outside the U.S. It currently has operations in Canada, Ireland and the United Kingdom and it plans to continue to focus its growth in those countries for now. It was present in about 1,000 locations in those countries as of the end of the year, according to the William Blair note.
