Toast, Inc. Class A

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to TOAS First Quarter 2026 Earnings Conference Call. Today's call will be 45 minutes. I'll now turn the call over to Michael Seno, Senior Vice President of Finance. You may begin your conference.

Thank you. Welcome to TOAS First Quarter 2026 Earnings Call. TERS CEO, Aman Narang, and CFO, Elena Gomez, will open with prepared remarks, followed by Q&A. Before we start, I'd like to remind everyone that today's 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, 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 or 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.

Thanks, Michael, and thank you, everybody, for joining us today. 2026 is off to a strong start. In Q1, we grew recurring gross profit streams 27% and expanded GAAP operating income margins to 21%. We added 7,000 net locations and are broadening who we serve, from local restaurants across the U.S. to enterprise chains international markets, and retail by bringing our same playbook of depth and operational expertise that built our core business to each new market. I'm really proud of the Toast team. We are both delivering world-class results and reinventing ourselves at the same time. From how we build for, sell to, and support our customers with AI, as well as a series of AI investments across our platform to help our customers with the intelligence and the efficiency necessary to run a more successful and profitable business. Toast IQ is the foundation for our evolution from a software platform to an agent platform that can drive outcomes for our customers. And with the recent launch of Toast IQ Grow, which includes our first AI agent, we are already seeing this vision start to come to life. I'm excited to share more in a couple minutes as we break down our priorities. But what's incredibly exciting is we are just scratching the surface of what's possible here. Our progress in each of these areas is shaping our revised set of priorities in 2026. Number one, expand what Toast does for customers. Grow from a software to an agented platform that can do work and deliver outcomes for our customers. Number two, expand the markets we serve. And number three, reinvent the organization with AI and dramatically accelerate productivity. We are incredibly well positioned as a vertically integrated platform across software, hardware, and FinTech. We are a foundational technology partner for our customers, and they are looking to us to help them take advantage of the opportunities AI creates. We will lean into this opportunity while continuing to execute our strategy of expanding to new markets to scale this business to five and 10 billion and beyond. All right, so let's dig in to our priorities. Number one, grow from a software to an agentic platform that can do work and deliver outcomes for our customers. For 14 years, we've evolved from a point-of-sale solution into a comprehensive system of record, helping customers manage operations, employees, guests, and suppliers. As we've delivered more value and built out our platform, we've seen broader clients attach and hire our crews. But what I consistently hear from customers is that while they love our ambition and our innovation, They're stretched thin and don't have enough time to leverage everything we've built. As a result, small business owners outsource functions critical to running a profitable business. Things like marketing, bookkeeping, payroll and tax, and more. We've always provided the software and now with AI, we will provide the service that can actually do the work for them. They can leverage our growing agent layer to outsource capabilities that are not their core competency. and give them time back to do what they do best. Great food, great service, and great hospitality. Our advantage here is structural. The data that powers these functions, what guests order, how often and when they visit, how much our customers spend on labor and inventory, how the business is performing, already lives in Toast. That data has been built up over 14 years, and every new location and transaction makes it more valuable. and every agent we deploy deepens the value we can deliver for our customers. This advantage is already showing up in the product. Toast IQ has 40,000 weekly active locations and growing. Operators tell us Toast IQ is already helping them find revenue opportunities, save time, and identify trends they hadn't picked up on. For instance, Toast IQ helped a customer in California identify that they weren't covering their food and labor costs when opening an hour early for sporting events last fall. The customer adjusted their hours based on this insight and saved thousands of dollars. The first Toast IQ agent we've launched is a marketing agent within Toast IQ Grow, which brings together everything a restaurant needs to build a brand online, develop direct customer relationships, and drive demand. Toast IQ Grow includes websites, online ordering, advertising, and marketing capabilities. plus this new marketing agent and a marketing success manager to develop the marketing strategy for restaurants right alongside them. The marketing agent builds and optimizes a campaign from a customer's past performance data, their sales forecast, and soon upcoming events and weather. A full month of campaign across SMS, email, and social media in minutes. Campaigns designed by the marketing agent are already outperforming what restaurants can do on their own. with pilot customers using Toast IQ Grow seeing an average 8% increase in sales compared to similar Toast restaurants. Sahara Bistro Shawarma, a fast casual Middle Eastern concept, came to Toast with a fragmented marketing stack. By adopting Toast IQ Grow's marketing agent, they can now plan and schedule campaigns across email, SMS, Facebook, and Instagram weeks in advance. Nearly a third of sales in March were directly attributable to Toast marketing tools. and sales were up more than 30% compared to the prior four weeks. In addition to helping restaurants drive demand through Toast IQ Grow, we are investing in our consumer network, Toast Local. Toast Local connects restaurants and guests directly with zero commissions and no middlemen. Restaurants use Toast Local to attract new guests and re-engage their regulars through loyalty programs and targeted offers. For guests, They love the convenience of an app that saves them money at tens of thousands of restaurants through no-fee ordering, personalized loyalty rewards, and exclusive offers, whether they're ordering pickup, delivery, or dining in. That last part is important. Unlike aggregated marketplaces built around delivery, Toast Local extends into the on-premise experience where the majority of restaurant revenue is generated. We recently expanded that experience significantly. Toast Local now enables guests to discover and book a table at over 20,000 restaurants through Rezzy and Toast Tables, making it one of the largest reservation marketplaces. The early traction is strong. We have more than doubled weekly app downloads in the last quarter, and Toast Local is now one of the top apps in the app store's food and drink category. We plan to roll out a series of agentic products to tackle other work as well. Over time, We expect agents across restaurant operations, scheduling and payroll, inventory and food costs, and bookkeeping and accounting to complement Toast Psyche Grow. By working in concert, they will be able to look at a restaurant's projected demand, food costs and availability, labor schedules, and projected guest volume to drive suggestions to improve profitability. That's an incredibly exciting future because many of our customers don't have the time or the capability to do this effectively today. I'm moving on to priority two, which is to expand who we serve. The vertical playbook that built our restaurant business, product depth, operational expertise, and local go-to-market is now working in enterprise, international, and retail. In our core, we're well positioned to grow market share in 26 and beyond, and we're differentiating our both product and brand In product, customers are citing Toast IQ as the reason they're choosing Toast. Our brand campaign, Built for Busy, extends the differentiation into the market. Built for Busy reflects the fundamental truth about our customers. Busy is the ultimate sign of success, whether they're running a family restaurant, an enterprise chain, or a multi-location retailer. And it captures our product philosophy to shift solutions and products to help customers get and stay busy. From handheld increasing throughput to KDS keeping the kitchen in sync, and starting with the marketing agent, Coast IQ agents taking work off their plates. These differentiators are why we continue to win the majority of the time. We are increasing share across all market types, from the largest cities to smaller metro areas, and among high-GPD restaurants. In our most penetrated markets, we are still growing, giving us confidence in continued healthy share gains for many years to come. We're proud to announce that the Alenia Group, the world-renowned Chicago-based restaurant group that includes iconic Alenia, Next, the Aviary, and The Office, went live on Toast. They chose Toast as a key technology partner that shares the same DNA for relentless innovation, commitment to precision, and a passion for delivering a stellar guest experience. Across all of our teams, we're building more conviction in the long-term potential with every quarter. In each of our new TAMs, ARR is growing faster and has higher SAS ARPU than our core did at a similar time period. Demonstrating our proven vertical playbook is working. In Enterprise, we launched Toast for drive-through, opening up 140,000 locations, and we're going deeper in hotels, bringing preferred hotels out of the platform. We also continue to invest in specific product features to deeply serve important sub-verticals, like pizza, demonstrated by winning Hungry Howie's, a 500-unit national pizza chain, as well as Papa Murphy's. We continue to see strong growth, and with the pipeline in front of us, I'm confident Enterprise will be a meaningful growth driver for years to come. Internationally, we're scaling location count and growing our proof. We recently launched our TOSCO 3 handheld to further differentiate our platform. We see the best opportunity in Tier 1 cities in the countries we're in. where higher GPV restaurants align with our value proposition and drive stronger ARPU and unit economics. As we expand to new markets beyond Canada, UK, Ireland, and Australia, we plan to launch more tier one cities with high density of busy restaurants. And in retail, we're scaling quickly and focused on deepening product market fit with high value operators. Grocery, for example, is a near-term focus and represents a meaningful opportunity. There are over 20,000 independent grocers in the U.S., generating over $250 billion in sales. We're seeing strong traction with these larger, more complex operators, and now serve over 100 grocery locations with more than 5 million in sales, demonstrating our platform is capable of handling the volume and complexity the most demanding retail environments require. The capabilities we've built for restaurants, supplier connectivity, invoice workflows, skew-level complexity translate directly, letting us move fast to meet the needs of these customers. Our scale across restaurants and growing presence in retail give us a unique vantage point. And over time, we see it as the foundation to becoming the platform powering local commerce. We're on a path to significantly scale the locations we serve across our existing TAMs and further expand the opportunity to core adjacencies like membership in golf, more international markets, and new retail verticals. We will remain disciplined about where we expand, but our vertical playbook has proven, and with the TAM runway in front of us, I'm confident we can replicate our success that we've had in our core business. I'm moving on to priority three, which is to drive productivity through AI. AI is reshaping how we work. Engineering coding velocity is up over 60% year over year and accelerating in recent months. This helps us launch our marketing agent three months earlier than planned. In support, we've expanded AI coverage from chat to phone, and now have about 40% of our support interactions resolved by AI. We're seeing efficiencies as we do this, which is enabling us to invest more in account management and upsell for our highest value customers. As we drive productivity and efficiency, it frees up capital to invest in our top growth initiatives and support our path to 40 plus percent long-term margins. We see a clear path to materially scaling this business by going deeper in our core market, expanding what we do for existing customers, scaling the new markets we're already seeing great success in, and over time, opening up new ones. We are operating from a position of financial strength and leaning in to drive sustained long-term growth. We will remain disciplined about where we lean in, guided by customer feedback, and where we have conviction in building differentiated profitable businesses that deliver significant shareholder value. I'm excited about 2026. We are really well positioned for another record year. I want to thank each and every toaster for their dedication and commitment to Toast. And I want to thank our customers and investors for your continued support as well. Thank you. And with that, I'll turn the call over to Elena.