Prepared remarks
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Toast Third Quarter 2026 Earnings Call - Prepared Remarks Emily Woodward, VP of Strategic Finance and Investor Relations Thank you. Welcome to Toastʼs third quarter 2026 earnings call. Weʼll start with prepared remarks from Toastʼs CEO, Aman Narang and CFO, Elena Gomez. Toastʼs incoming CFO Michael Senno will join Aman and Elena for Q&A. Before we start, I'd like to remind everyone that todayʼs call may include forward-looking statements, which are subject to risks and uncertainties and reflect our views and assumptions only as of today. These forward-looking statements include expectations around financial and operational metrics, products, business and investment strategy, and guidance. Actual results may vary significantly, and we expressly disclaim any obligation to update the forward-looking statements made today. For a detailed discussion of risks, please refer to the cautionary language in today's press release and our SEC filings. During this call, we will discuss certain non-GAAP financial measures, including but not limited to, non-GAAP Subscription Services gross profit and non-GAAP Financial Technology Solutions gross profit, which we refer to collectively as our recurring gross profit streams. These are the basis for our top-line guidance. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures. Unless otherwise stated, all references on this call to cost of revenue, gross profit and gross margin, sales and marketing expense, research and development expense and general and administrative expense are on a non-GAAP basis. With that, let me turn the call over to Aman. Aman Narang, CEO Thanks Emily, and thank you all for joining us today. We delivered another strong quarter in Q3. Recurring gross profit streams grew 27% year-over-year, and we expanded GAAP operating income margin to 26%. 1
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We added 8,500 net new locations in the quarter, with share gains across every customer segment. We continue to add world-class brands to the Toast platform including STARR Restaurantʼs newest concept, The Nora Hotel in Florida with 6 different food and beverage formats; Jean-Georgesʼ portfolio, including iconic restaurants like Jean Georges, ABC Kitchen, JoJo, and Perry Street; as well as Ruby Tuesdayʼs. Weʼre also bringing that same caliber of brands to Toast across our new market segments, including renowned deli and specialty retailer, Zingermanʼs Deli; Outback Steakhouseʼs Australian locations; and in enterprise, we are thrilled to welcome Bagel Brandsʼ 800 stores to Toast. We are evolving Toast to do more for our customers, moving beyond tools that help operators run their businesses towards agents that take on the work for them. This quarter, we added new agents to Toast IQ Grow and launched Toast IQ Team, which helps operators manage scheduling and staffing. Each step brings us closer to a platform that not only supports customers but actively delivers results for them. Our top priorities for 2026 remain unchanged: 1. Expand what Toast can do for customers with AI — from software to an agentic platform that takes on critical work and delivers business outcomes for customers. 2. Expand the markets we serve. 3. Reinvent how we work with AI to accelerate our most important goals and drive durable growth. Our results this year show our priorities at work. As a vertically integrated platform across software, hardware, payments, and lending, we have a foundation few can match, and our momentum across these priorities reinforces our confidence in delivering durable long-term growth. Letʼs jump into our priorities. Priority 1: Expand what Toast can do for customers Toast IQ Grow was built to help restaurants attract new guests and keep them coming back, from reaching new diners through ads to bringing them back through personalized marketing. Our latest launches build on that foundation, giving operators more ways to grow and measure whatʼs working. An SEO Agent that helps restaurants improve their visibility across traditional and AI-powered search. A Reviews Agent helps turn guest experiences into 2
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reviews that influence where diners choose to eat. And an Offers Agent that recommends offers to help convert first-time guests or win back lapsed ones. Morning Mugs – named Baltimore's Best Coffee Shop for the last five years – came to Toast in 2024 to consolidate their operations onto a single platform and find a partner invested in its growth. The owner wears many hats - something we often see among our SMB operators - and did not have the time to invest in marketing beyond social media. Since adopting Toast IQ Grow, Morning Mugs has increased its reach and grown marketing-attributed sales by almost $100,000 year-over-year. These outcomes are why Grow is seeing tremendous success. It remains our fastest growing product, on track to reach $10 million in ARR by the end of the year. Toast IQ Team is our first step in doing the back office work that can quietly cost operators money through overtime and over-staffing. Great operators run their businesses week to week off a forecast: they anticipate demand, then staff and plan around it. Managing a team is also one of the most time-consuming parts of running a great restaurant, and labor is often the largest cost restaurants face. Yet operators often piece together forecasting, scheduling, time tracking, payroll and tips across separate tools. Toast has these pieces in one platform along with the sales data that drives forecasting. Toast IQ Team brings it all together for operators to make staffing decisions based on expected demand and make labor costs more predictable. The Scheduling Agent builds a complete schedule in seconds based on expected sales, employee availability, and overtime risk. And weʼre already seeing great results - restaurants using our Scheduling Pro solution averaged 41% fewer overtime hours per employee, which opens up valuable savings for restaurants running on thin margins. Let me give you an example, Madi Group in San Diego is known for their well-beloved breakfast and lunch restaurants and recently opened a new location in Pacific Beach. Theyʼre using Toast IQ Team to help manage labor costs, and the director of their operations points to data-driven scheduling capabilities, automatic overtime flags, and weather and event forecasts to inform staffing decisions, as a contributor in reducing their labor costs as a percentage of sales from 28% to almost 24%. 3
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Toast IQ Team is our starting point in tackling back office work. Over time, we expect to take on more of these workflows, such as inventory management and bookkeeping. Weʼre building towards a team of agents that drive results for our customers: crafting marketing campaigns, forecasting demand with staffing to match, flagging low inventory before an out-of-stock, and protecting margin from swings in costs. Thatʼs an exciting future for an industry known for slim margins and long hours. It also opens a market well beyond software. Restaurants already pay for marketing, scheduling and payroll, and bookkeeping services, often several times what they spend on software. Toast has a structural advantage here. As our customers' system of record, Toast sees how restaurants operate: sales, guests, staffing, orders and menu changes. Our data and restaurant expertise show us which problems to solve and how the best operators work, and we build solutions designed specifically for them. Letʼs shift gears and talk about our second priority. Priority 2: Expand the markets we serve In our core US SMB and mid market customer segment, our momentum continues. Our win rates are strong, weʼre taking GPV share faster than any major competitor, and our largest share gains are coming from restaurants with over $2.5 million in sales. The award-winning STARR restaurant group, already a Toast partner at over 35 iconic, high-volume fine-dining locations including Pastis, Le Diplomate and the Michelin-starred Le Coucou, is expanding its partnership with Toast for one of their most ambitious projects yet - six food and beverage concepts at The Nora Hotel in West Palm Beach. STARR relies on Toastʼs innovative hardware, intuitive user interface and first-class support to operate their complex locations, and has enthusiastically embraced Toast IQ. They use automated custom reporting tools to run complex data queries - such as server sales performance or chef prep lists - saving them valuable time as the team manages multiple restaurants and openings across the East Coast. Weʼre also excited to welcome the legendary Ruby Tuesday to Toast. Theyʼre modernizing their technology across their restaurants to increase the speed of service as well as accuracy to improve the guest experience. 4
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Across our new TAMs - enterprise, international, and retail - our vertical playbook is gaining steam every quarter. Collectively, these three new markets are scaling to $200 million in ARR in about 4 years and will double for the second straight year, showing we have strong product-market-fit. Internationally, weʼre welcoming Outback Steakhouseʼs Australian restaurants. They chose Toast to modernize their operations and use a single platform across their footprint. In retail, Zingermanʼs Deli, a community of businesses in Ann Arbor, Michigan, operates concepts spanning from sandwich shops, to a café to a specialty grocer. Zingermanʼs expanded their footprint with Toast this quarter into Retail, and moved their 3,000 SKU specialty grocer onto our platform. And lastly, in enterprise, Bagel Brands will launch Toast in 800 locations across their beloved brands like Einstein Bros. Bagels, Brueggerʼs Bagels, Manhattan Bagel and Noahʼs New York Bagel. In total, weʼve already opened up a bigger market opportunity across our Horizon 2 areas than the Core market and weʼre investing to expand the product market fit across that opportunity. Two recent examples: our launch in Quebec with a fully translated French product, and our new Fuel offering in Retail. We plan to methodically expand the addressable market from here across both new countries and verticals. Weʼre incredibly proud of the progress weʼre making. With each new TAM in the early stages of a meaningful ARR opportunity, weʼre prioritizing market share gains and building towards the same flywheel benefits we have in the core. As we scale, we are proactively managing payback periods and will continue to see meaningful efficiencies from leveraging the Core platform. Letʼs shift to our last priority. Priority 3: Reinvent how we work with AI to accelerate our most important goals and drive durable growth. We are on track for another incredible year. We are delivering world class growth and margins at scale driven by our decisions over the last several years to lean into high performing growth opportunities while driving efficiency. In the core, we're gaining market share, increasing ARPU, and our new AI offerings open up more opportunities to scale ARR over time. Weʼre investing behind the success in our new 5
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TAMs, and seeding long-term bets where our scale and platform advantage give us a unique opportunity to compete and win. These are earlier stage opportunities. We will remain disciplined in how we invest and will keep you updated as they progress. With opportunities across multiple growth vectors, we have a clear path to driving durable, compounding growth for many years to come. Weʼll keep the capital allocation discipline that got us here. Core margins keep expanding, funding new TAMs and emerging bets that we expect to add to long-term growth and cash flow. I want to thank every Toaster for their dedication and commitment to Toast. We would not be here without all of your amazing work. And thank you as well to our customers and investors for your continued support. Before I turn the call over to Elena, I want to thank her for an incredible nearly 6 year run at Toast. Elena has been instrumental in guiding Toast through a period of tremendous growth and transformation. She has been a steady hand to me and the entire management team and we are incredibly grateful for all of her contributions. I am also excited for Michael Senno to become our next CFO at the start of the year. Over Michaelʼs nearly 5 years at Toast, he has become a trusted member of our leadership team. He knows Toastʼs business inside and out, and has been beside Elena in shaping Toastʼs financial strategy and investment approach. With that, Iʼll turn the call over to Elena. Elena Gomez, President & CFO Thank you Aman, and thanks to everyone for joining us today. Q3 was another great quarter, and I'm proud of our consistent execution quarter after quarter. ARR increased 24% and recurring gross profit grew 27% year-over-year. Adjusted EBITDA was $240 million and GAAP Operating Income nearly doubled year-over-year to $165 million, reaching a 26% margin. With our recurring gross profit growth plus operating margin at 55%, we continue to operate above the Rule of 50 on a GAAP basis. We added 8,500 net new locations, a double-digit growth in net adds from a year ago and ended Q3 with approximately 189,000 locations, up 21%. In addition to gaining share and winning new customers, weʼre also continuing to deliver more value for our customers and expanding monetization. Total take rate measured by 6
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recurring gross profit as a percentage of GPV reached 104 basis points in Q3, up 6 basis points from a year ago. In recent years, total take rate has steadily increased with growing contributions from our monetization engine - Software, Payments, and Capital - as customers adopt more of our all-in-one platform. We expect total monetization to continue to expand as we innovate and deliver outcomes for our customers. SaaS ARR grew 28% year-over-year, driven by location growth and consistent mid-single digit ARPU expansion. Subscription gross profit grew 36% and SaaS gross margin increased 320 basis points from a year ago. AI tools are handling a growing portion of support tickets, providing a better customer experience, and are an important contributor to that margin expansion. Payments ARR and fintech gross profit both increased 21% in the third quarter versus a year ago with GPV up 20% to $62 billion. Fintech net take rate was 61 basis points. Payments take rate was 50 basis points, up 1 basis point from a year ago driven by the same levers weʼve seen over the last several quarters: growing product adoption, processing cost efficiencies, and small, targeted pricing moves. Non-payments fintech solutions, led by Toast Capital, contributed $69 million in gross profit and 11 basis points to take rate. Customer demand for capital remains strong with defaults within our expectations. Moving down the P&L, Hardware and Professional Services gross profit was negative 12% of recurring gross profit streams. We are continuing to execute on our Hardware cost mitigation strategies and expect to structurally improve hardware margins longer term as a result of our efforts. Operating expenses grew 16% year-over-year, excluding $35 million of bad debt and credit-related expenses. Sales & marketing increased 23%, fueling our location momentum and a continued build-out of our go to market presence in our new customer markets. R&D grew 15%, with investment focused on our agentic platform, product depth in each new TAM, and scaling internal AI tools. Adjusted EBITDA grew 36% to $240 million and margins expanded 260 basis points to 37%, reflecting strong topline execution and continued discipline across the cost structure. As a reminder, margins are typically higher in 3Q due to the seasonality of payments. 7
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GAAP Operating Income was $165 million - nearly doubling from a year ago - and GAAP diluted EPS was $0.29, up from $0.16. The increase reflects our strong top line growth, complemented by operating leverage down the P&L, including lower stock based compensation expense as a percentage of recurring gross profit. Free Cash Flow totaled $181 million, a 75% conversion from Adjusted EBITDA. Conversion was lower than a year ago from our strategic decision to acquire and hold more hardware inventory in the near-term. We expect conversion to improve in 4Q. Over time, we expect to see a corresponding benefit to Free Cash Flow and higher conversion rates, when we choose to scale down inventory to more normalized levels. Now onto our outlook. For Q4, we expect Subscription and Fintech gross profit growth of 22 to 24% year-over-year and Adjusted EBITDA of $200 to $210 million. We're raising our full-year outlook to reflect the strong 3Q results and momentum in the business. We now expect recurring gross profit to grow 26% and Adjusted EBITDA of $840 to $850 million. Weʼre positioned to deliver durable top line growth over the next 5-10 years. We have a tremendous runway across the core and Horizon 2 TAMs, and the opportunity to build new S-curves keeps growing as we scale and expand. We will remain disciplined capital allocators and manage our investments across these multiple horizons. Horizon one is our core. The growth algorithm continues to deliver, and weʼre operating with margins over 40% that we expect to keep expanding. Horizon two is our new TAMs - International, Enterprise, and Retail. Aman touched on the attractive growth trajectory and weʼre confident these businesses will have an equally attractive long term financial profile. As these businesses scale, we expect their Adjusted EBITDA margins to converge with the core margin. The formula is straightforward - we plan to manage payback periods to 20 months or lower, ensuring strong unit economics, and expect significant leverage on R&D and G&A from our core platform and central functions. We have a proven playbook to improve payback periods and a clear roadmap in each area. First, the Retail and International go-to-market motions will gain efficiency as we reach steady-state sales capacity, build the flywheel effect and drive up rep productivity. Second, each new TAM has a path to expand ARPU as we launch more products. Third, we will gain efficiencies in hardware and onboarding as we scale. Weʼve already taken steps to improve unit economics. For instance, international ARPU is growing at a healthy clip as we roll out 8
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more products and weʼre improving the enterprise onboarding experience to lower the cost of acquisition. Across R&D, our new TAMs are built on the same platform weʼve spent more than a decade developing and we continue to innovate. They leverage the horizontal products and features we built for the core, like payments and fintech, hardware and Toast IQ. The incremental investments for new TAMs focus on the vertical specific features to drive differentiation in each customer group. Weʼre seeing that leverage come through - horizon 2 will reach $200 million dollars in ARR with 25% less direct R&D investment than what it took for the Core to reach that same milestone. And we expect that leverage to amplify as we scale. We have a multi-billion dollar growth opportunity with strong customer signal, a clear path to improving payback periods, and increasing leverage from our core platform and functions. Together, this gives us confidence our new customer segments will deliver both meaningful growth and cash flow generation over time. With momentum in our core, new TAMs on a rapid growth trajectory and emerging long-term growth opportunities, weʼre more excited than ever about the future and confident we will continue to deliver significant shareholder value. Thank you to all our employees who execute tirelessly every day and have us on track for an excellent year. Before we move to Q&A, Iʼd like to take a moment to share some closing thoughts. Itʼs been a privilege to serve as CFO of Toast and work alongside Aman and this incredible leadership team and I'm proud of what weʼve accomplished together. While Iʼm stepping away, I couldn't be more confident in the companyʼs future and in Senno, to work alongside this leadership team to continue building this generational company. Senno has worked alongside me in close partnership for several years and Iʼm confident this will be a seamless transition. With that, I'll turn it over to Senno. Michael Senno, SVP Finance and Incoming CFO Thank you Elena. Iʼm humbled and honored to step into the CFO seat. I want to thank Aman, and the board, for your trust and support. Elenaʼs made an indelible mark across Toastʼs business and culture, and is a key part of our success. Itʼs been an absolute privilege to partner with her on this journey for nearly 5 years and to learn from one of the best. As both Aman and Elena outlined, we have great momentum and Iʼm excited for the incredible opportunity ahead. 9