Toast, Inc. Class A

Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to Toast's fourth quarter and full year 2025 earnings conference call. Today's call will be 45 minutes. I'll now turn the call over to Michael Ceno, Senior Vice President of Finance. You may begin your conference.

Thank you, operator. Welcome to Toast's earnings conference call for the fourth quarter and full year ended December 31st, 2025. On today's call, our CEO, Aman 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 first quarter and full year 2026. 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 questionary language in today's press release and our SEC filings for 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 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. Finally, the press release can be found on the Investor Relations website at investors.tostab.com. After the call, a replay will be available on our website. With that, let me turn the call over to Aman.

Thanks, Michael. And thank you everybody for joining us today. I'm really proud of the Toast team for what we accomplished in 2025. We grew recurring gross profits 33%, expanded adjusted EBITDA margins to 34%, and added over 30,000 net locations on the platform. Our core continues to grow at a rapid pace, with strong incremental margins as we scale, while our emerging teams across retail, international, and enterprise doubled ARR in 2025. We welcomed some amazing grants to Toast platform in Q4, including iconic independent restaurants, such as Carmine's, Chef Daniel Boulud's restaurants, multiple enterprise chains, including Papa Murphy's, and noteworthy retailers, including Metal Lane. Our product team released over 500 new features, including Toast IQ, our conversational AI assistant, Customer feedback and adoption has been tremendous. Toast IQ not only generates reports and insights about restaurant performance, it executes tasks directly in Toast ranging from menu management to inventory updates. For example, Toast IQ can analyze and update menus, tell an operator why their Thursday nights might be slow, or why a certain day part is successful, and analyze results across locations. It can also quickly answer questions like, what events and weather should I pay attention to this week? or who's working on a Friday night. Now, AI is also reshaping how we work internally, from how we provide customer support to how we build software and how we sell and market our products. This is making our teams more productive, which opens up capital to invest against our most important long-term priorities. We have strong momentum as we head into 2026. Building on top of a strong Q4, we expect another year of record net location ads and consistent ARPU growth as we execute against the priorities we laid out last year. Number one, growing market share in our core. Number two, demonstrating that new markets will be material growth drivers. Number three, increasing customer adoption of our platform. And lastly, gradually expanding margins as we invest with discipline. Longer term, if we can do these well, We are positioned to drive durable growth from over 2 billion in the RRR today to 5 and 10 billion and beyond. Starting with our first priority, growing market share in our four US SMB and mid-market restaurants. We continue to grow market share year after year and now power 20% of SMB and mid-market restaurants in the US. This has nearly doubled over the past three years. We have seen success across all market types, including urban, suburban, and rural markets, as well as ones that have high and lower density of those restaurants. In fact, our sales productivity in our top 10 geos continues to outperform our average, which shows that we have plenty of headroom to continue to gain share. Our vertical platform across software, hardware, FinTech, and networking is purpose-built for restaurants and continues to get better. Over the past year, we launched over 500 platform enhancements, including Tosco 3, the latest evolution of our handheld device designed to help restaurants drive throughput while elevating the customer experience and improving tips for staff. Other new releases include Toast IQ and Toast Advertising that are helping customers drive efficiency and guest demand. And Toast Support has been reimagined with AI, with over half of all support interactions now starting digitally through an AI agent. and 70% of those never getting to a human. Our relentless focus to improve our platform for restaurants has helped us improve win rates with new customers and build a durable referral engine where two-thirds of our demand is inbound and existing customers are the largest source of referrals. And it's why many of the busiest and highly successful operators continue to choose toast. A great example is Alicart. the group behind New York's legendary restaurants, including Carmine's and Virgil's Barbecue. Carmine's is one of the busiest independent restaurants in the country, with over 40 million in annual sales and up to 3,000 covers per day. After 25 years with an existing provider, they decided on Toast for the depth, speed, and reliability necessary to support their scale. And their first three deployments have gone so well It accelerated their post rollout across all locations to leverage the benefits our platform offers. We hear stories like this from successful operators all the time. And we're committed to building the best innovation engine to help restaurants of all types and sizes stay ahead during a time when the technology landscape is evolving rapidly. We have plenty of market share in front of us and continue to invest to serve deeper parts of the tier. For example, in 2026, we'll launch better support for non-native English-speaking operators and features to support bars, pizzerias, and membership clubs even better. These investments in our product and our best-in-class go-to-market engine supports our path to doubling market share in ARR over time. Our second priority is demonstrating that our new markets will be material growth drivers. 2025 was a great year for new markets. We signed our two largest enterprise customers, Applebee's and Firehouse Subs, and successfully launched Australia, our fourth international market. And for the first time, we scaled a dedicated go-to-market team outside restaurants and have seen great results in retail. A few years in, each of these new markets is growing faster than our core was at a similar time period. This growth, combined with the size of CAM, in these new markets gives me confidence they can be material drivers of growth over the long term. We're seeing the success because we're building on top of a proven vertical playbook. Vertical depth across product, go-to-market, and customer success prove our early success in U.S. S&B restaurants. We're applying the same approach when we build for retail, enterprise, and international markets. We are very comfortable leaning into the product and platform complexity necessary in these markets versus a horizontal, one-size-fits-all approach. We're seeing customers switch from legacy on-prem solutions similar to what we saw in restaurants 10 years ago. And as we continue to scale and our platform gets better, we're confident we will see even higher win rates, rep productivity, and ARPUs over time. In enterprise, our pipeline and active rollouts have never been bigger. In Q4, we expanded our relationship with NPY Group and signed Papa Murphy's, a thousand plus unit pizza chain. They chose Toast because of our flexible platform across multiple service models, including QSR and casual dining, as well as the feature depth necessary to support large pizza chains. In 2026, we will continue to invest in the platform to support the needs of our largest customers, including the launch of our drive-thru product, which is planned for later this year. We're confident Enterprise is well-positioned to continue to drive strong growth into 2026 and beyond. Internationally, we're seeing strong location growth, including great early signals from our launch in Australia last year, customer feedback, and pull has been strong. And we hear from successful restaurants across Canada, UK, and Ireland that Toast is making their businesses better. As we continue to build up support for the full platform of these markets, including the launch of our Toast Plus 3 handheld, as well as inventory management, I'm confident we will drive even stronger win rates in our crews as we scale. Over the next few years, you should expect us to continue to scale in our card markets while opening up new countries, possibly, where we have a right to compete and win. In retail, we built out our go-to-market team last year and have seen incredible results so far. Our product can already support convenience stores, grocery chains, bottle shops, butcher shops, and more because our platform offers the feature depth necessary to support businesses with high SKU counts and complex inventory in high throughput environments. Many of these customers are coming from legacy on-prem solutions and have never experienced a cloud-based solution with the platform capabilities Coast offers across point of sale, guest-facing products, employee management, payments, capital, and inventory. Customers especially love when we can support many different concepts within a single backend across their locations, from restaurants and retail shops in a hotel to a grocery store that also has a cafe or a restaurant inside it. A great example is Lockhart's Area Meat Market, a 25-location butcher and grocer who replaced guesswork with data by deploying a platform, automating inventory invoices and understanding their costs better. Automated queue management kept on manual work And the rollout was smooth thanks to our Spanish-speaking sales and support. It's a clear example of how Coastal helps operators run more efficient, profitable businesses. As we look to 2026, we're continuing to deepen the retail platform with more tailored onboarding support and integrations, including a new partnership with Instacart that allows retailers to sync in-store inventory with Instacart's marketplace. Our success in food and beverage retail reinforces something we've believed for a long time. Our platform works well beyond restaurants. We're layering in the vertical specific capabilities that meet the needs of different customer types. And we're starting to see early success with retail customers outside of food and beverage retail as well. Just as restaurants with hybrid restaurant retail concepts pull us into retail, we'll use the signal from our customers and our retail go-to-market team that's testing the new verticals and be disciplined about where we expand. Now zooming out. Our new growth markets have been incredibly successful so far, and we will continue to drive outsized growth in 2026 and beyond. As we gain market share and invest in our platform, we expect these new TAMs to drive strong growth and profitability, just as we have in our core. And over the long term, we will continue to invest to expand the opportunity from new verticals to new countries where we believe Toast has product market fit and can help these businesses run more successfully. Moving on, Our third priority is increasing customer adoption of our broad platform and driving differentiation through data and AI. For 13 years, we've been at the center of this shift in restaurant technology from on-premise to cloud. We've spent that time listening to our customers and solving their toughest problems, which has allowed us to evolve from a point of sale solution into a comprehensive system of record that helps them manage operations, employees, guests, and suppliers. As we've delivered more value and built up a partner ecosystem, we've seen broader attach of our platform as well as higher outputs. When talking to customers, what I consistently hear is while they love the Toast platform, they don't have enough time in their week to leverage everything we have to offer. Many of them are small business owners that are stressed thin to deliver a great customer experience while managing their staff and their suppliers. They don't have enough actionable alerts and insights to make good decisions about their business in real time. And they outsource a lot of the work, work for marketing, demand generation, bookkeeping, or accounting, all the work that is critical to ensuring they have a profitable business. We believe our AI roadmap built on years of data insights can help our customers get more from the Toast platform. Toast IQ is the foundation of the strategy. Less than four months post-launch, over half of all Toast locations have used Toast IQ, collectively sending over a million queries, and tens of thousands of locations are already using it each week. We believe this early success comes out of three things. Toast IQ is built on more than a decade of deep restaurant expertise. It's tightly integrated into the core Toast experience customers already rely on and is designed to take action, not just surface insights. that can help operators run key workflows faster and get more done. We're seeing this impact firsthand with customers like Alicornt, an early Toast IQ adopter that now uses it daily. Toast IQ helps our teams quickly make decisions and turn hours of manual analysis into clear, actionable insights in just minutes. Recently, the team used Toast IQ to identify menu combinations to boost check sizes. helping them spot opportunities to improve service and drive sales at some of the busiest restaurants in the country. We're still in the early stages of what AI will enable. Today, customers are using it to get support, analyze data, and make backend configuration changes such as updating menus or generating content to build an email campaign. We're investing for Toast IQ to evolve from an assistant to automating workflows, and eventually to running a team of agents that will handle more of the work restaurants have to do manually today. For example, we expect HostIQ to run workflows like operating within the budget, to optimize marketing spend, or to understand inventory levels and get ahead of an out-of-stock scenario and then place an order from approved vendors. And over the long term, we expect these AI agents to start to own whole functions, from marketing to managing payroll and tax, or accounting and bookkeeping. We believe because our data powers much of this work, we are uniquely positioned to both do it better and cheaper. With Stripping Gears, our fourth priority is to continue to invest with discipline in our most important priorities while expanding margins over time. We're operating from a position of strength. We've achieved our medium-term margin targets, including 40% margins in our core ahead of schedule, and have confidence we can both innovate and grow while working towards our long-term margins of 40% plus by holding a high bar on our execution and our capital allocation. I think we have an opportunity to build a much more material business over the next decade that can both have a much bigger impact for existing customers and expand the opportunity across new markets where we're seeing great early success. I'm committed to that we will be disciplined in how we invest and only lean into our biggest and highest conviction opportunities where we can build differentiated and highly profitable businesses that deliver significant shareholder value. My conviction ultimately comes from our incredible team of toasters who care deeply about innovating on behalf of our customers. I want to thank each of them for their dedication and commitment to Toast. I also want to thank our customers and investors for their continued support. We had a great 2025, and we're confident in our momentum and our plans heading into 2026. Thank you, and with that, I'll turn the call over to Elena.