Toast, Inc. Class A

Earnings Conference call. Today's call will be 45 minutes. I'll now turn the call over to Michael Fennell, Senior Vice President of Finance. You may begin your conference.

Thank you. Welcome to TOAS Earnings Conference call for the third quarter, ended September 30th, 2025. On today's call, our CEO, Amon Narang, and CFO, Elena Gomez, will open with prepared remarks, which will be followed by our Q&A session. Before we start, I'd like to draw your attention to the safe harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of the Securities Act and the Exchange Act. All statements other than statements of historical facts are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, location growth, future profitability and margin outlook, business and investment strategy, expected growth and business outlook, including our financial guidance for the fourth quarter and full year 2025. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our SEC filings for a discussion of the risks and uncertainty that could cause actual results to differ materially from our expectations. 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 the 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. Finally, the press release can be found on the investor relations website at investors.terstab.com. After the call, a replay will be available on our website. And with that, let me turn the call over to Oman.

Thanks, Michael, and thank you, everybody, for joining us this afternoon. We delivered another great quarter with 34% top-line growth, 35% margins, and continued year-over-year growth in net location ads. Our momentum and execution thus far has us well positioned to deliver a strong 2025. We surpassed $2 billion in ARR for the first time, and while I'm proud of this milestone, I'm even more energized about where we're headed. We are an industry leader here in the US in our core business with a clear path to doubling our market share as we scale locations and deliver customer-focused innovation for restaurants. This success enables us to invest in our fast-growing new market segments. We will continue to expand our TEM into new verticals, new geographies, while increasing the capabilities we provide for existing customers. This growth mindset is key to building a durable growth company that can scale to $5 and $10 billion in ARR and beyond. I want to thank the entire Toast team for an exceptional year so far, and I'm confident in our collective ability to keep raising the bar as we grow from here. This quarter, we secured numerous marquee wins, including large-scale operators such as Nordstrom's, TGI Fridays, and Everbull, brands that are turning to Toast to power their next stage of growth. I'm also excited to announce an expanded partnership with Uber, making it easier for restaurants to drive guest demand and better manage off-premise sales. We also plan to support each other in the field with joint go-to-market efforts, both here in the US as well as in our international markets. At the start of the year, we laid out four key priorities. Number one, scale locations and market share in our core US SMB business. Two, demonstrate that our new markets can be material drivers of growth, Three, increase customer adoption of our broad platform and drive differentiation through data and AI. And lastly, continue to invest with discipline in our most important priorities while expanding margins over time. Starting with number one, scaling locations in our US SMB and mid-market restaurant business. Today, about 95% of our ARR comes from our core US SMB and mid-market restaurant customers. Led by our best-in-class restaurant platform and strong go-to-market execution, we win the majority of decisions we're in, and our win rates against every major competitor are up year over year. Net ads in our core remain in the same range from a year ago, and this momentum puts us on a clear path to doubling our share of locations and GPV over time. Many of the best restaurants in the country run on toast. from new concepts to award-winning institutions. For example, 14 of Bon Appetit's 20 best new restaurants for 2025 chose Toast, and more than half of all Michelin-starred restaurants in the US are powered by our platform as well. A great example is Kenless, a Seattle landmark redefining hospitality for over 70 years. After struggling with reliability and uptime, they've turned to Toast for our simplicity, reliability, and hands-on support. They love that they no longer need to think about the technology to deliver one of the best dining experiences in the country. In their words, Toast works so well, we don't even have to think about it. We're also seeing strong traction in mid-market with a steady stream of wins each quarter. As I shared earlier, Nordstrom is rolling out Toast at nearly 200 dining locations nationwide, unifying multiple concepts on one platform. TGI Fridays is moving its U.S. footprint to Toast. simplifying operations across its restaurants. And Everbowl, a fast-growing 100-plus unit brand, chose Toast for our ability to deliver speed and simplicity at scale. These wins highlight the versatility of our platform to serve restaurants of every type and size. And our platform only grows stronger with the addition of new AI-driven capabilities that I'll touch on in a moment. So moving on to our second priority, demonstrating that these new market segments can be material drivers of growth. We continue to build momentum in international markets as we expand our platform and establish Toast's brand globally. Large, well-respected multi-concept hospitality groups, such as The Collective in Ireland, Caravan Group in the UK, and Happy Valley Group in Canada have chosen Toast because the CS is a best-in-class solution that can help them run a better business. We're rolling out new integrations, including with Uber, We've improved our online ordering and inventory management solutions and continue to regionalize key capabilities as we build towards the best global platform for restaurants. International SaaS ARPU is up 20% year over year, and we're confident that these investments will continue to drive both ARPU and win rates over time. In food and beverage retail, we continue to gain traction each quarter. We recently went live with Tri-County Meat Markets in Texas, the Lalo Italian Market in Pennsylvania, and Nature's Best in Illinois. They all came to toast for a modern all-in-one platform that allows them to manage everything from thousands of inventory items to efficient checkout lanes at scale. We're expanding our sales team and deepening our retail offering with features and integrations to support our vertical strategy. At the same time, it's exciting to see our customers leverage parts of our restaurant platform including our kitchen display screens, to power fulfillment in grocery stores as well as bottle shops. And lastly, in enterprise, our continued investment in the offshore and multi-location management capability is paying off. We've landed our two largest deals ever this year, and our pipeline has never been stronger. Across all these markets, our momentum is accelerating. We're confident in our path to become a market leader in each of these areas, and building them into meaningful growth engines for Toast. Over the long term, we believe these new TAMs have the potential to surpass our core business and enable us to scale from 156,000 locations today to 500,000 locations and beyond. Next, our third priority is expanding our platform adoption and driving differentiation through data and AI. Toast was built by listening to customers taking real problems from the restaurant floor and turn them into products that make a difference in their day-to-day. This customer-centric approach powers our next wave of innovation, where our unique scale and data are driving new AI products like Toast IQ and Toast Advertising. We recently evolved Sous Chefs into Toast IQ, a true AI assistant for restaurant operators. At Amici's, a casual pizza and wing spot in Georgia, The team uses Toast IQ daily to analyze sales, adjust menus, and make faster decisions. As an example, it flagged a drink promo costing them up to $700 a day and helped them fix it and build a happy hour menu that is even more effective. As they put it, Toast IQ feels like having a personal assistant. And that's the goal. Toast IQ gives fast answers, proactive insights, and direct actions to operators. Adoptions have been strong, and since rolling it out in early October, more than 25,000 restaurants have used Toast IQ over 235,000 times so far. Our mission is to help our customers drive real results by making Toast IQ the intelligent platform of the future. The product gets better every day as we expand its data sources and deepen integrations across the platform. As an example, we're also partnering with brands like Coca-Cola to help restaurants increase drink sales through data-driven recommendations. This is one example of the exciting new opportunities that this product unlocks. Our marketing and advertising tools are another way we're helping restaurants grow. We started with email and SMS, then layered in AI to automate and personalize outreach. With Toast advertising, operators can now launch campaigns across Google and Meta in just minutes. with AI-powered recommendations and clear ROI reporting. And it's driving real impact. During the peak season, Pizza by the Sea in Florida estimated 400,000 in sales across its four locations, which was attributed to Toast advertising campaigns, a more than 20x return on ad spend. Together, Toast IQ and Toast advertising are just the start of how we're combining AI, data, and deep restaurant expertise to make our platform smarter, more powerful, and indispensable to restaurants everywhere. And wrapping it up with our fourth priority, we're continuing to invest with discipline while expanding margins. Our goal is to maximize long-term shareholder value by building a durable growth business that compounds ARR over time. It took us more than 10 years to reach our first billion in ARR. and just two years to double it. We are a leader in our core US SMB business and have conviction that we can replicate that success across our new TAMs by using the same vertical strategy that has worked so well in our core across new verticals, new geographies, and new segments. With strong momentum across all areas, we're on track to increase net ads in 2025, as well as 2026. Enterprise, international, and food and beverage retail are collectively on pace to reach 100 million in ARR this year. And we see the potential for each of them to grow to a billion ARR over time. As we scale, we're also carefully managing our margins by prioritizing what's most important to build a long-term growth business. Our core business already operates at our target 40% EBITDA margin that we laid out at our investor day. giving us the flexibility to invest in new growth engines. Given the size of the opportunity, our growing conviction and leadership across new markets, and our line of sight to achieving strong unit economics at scale, we're investing to accelerate growth. We're executing against what we laid out at our investor day last year. We have momentum in our core, traction across new markets, expanding platform adoption, and strong execution across the business. I've never been more confident in our ability to create value for our customers and drive long-term shareholder value. To wrap up, I want to thank our entire team, our customers, as well as our investors. The progress we're making this year is a direct result of our team's hard work and dedication, our customer's trust, and of course, the support of all of our investors. Thank you. And with that, I'll turn the call over to Elena.