Toast Aktie

My name is Tien-Tsin Huang. Thanks, everybody, for joining. Here to have Toast -- fireside chat with the Toast team. Aman Narang, the CEO and Co-Founder; and of course, Elena Gomez, CFO; and heavy IR team. Thank you all for being here. Always look forward to having this conversation.

Thanks for having us.

Thanks for having us, yes.

Yes. So a lot to cover. We'll try being efficient. But I thought just to kick it off with a big picture question for you, Aman, thinking about the quarter and what stood out to me, and you spoke with such conviction and confidence about winning AI race and pivoting the company on the AI front. And you talked about revising your priorities and evolving Toast to grow, I wrote down here. To grow a form a software platform to agentic platform. So I was thinking about that and thought you always do a good job on this. Can you explain to me how you would explain that to our restaurant client, especially one that loves Toast as it is today.

Sure, sure. So first off, I think we've been working on our AI evolution, both internally and for customers over the past couple of years. And I'd say as you look at like where we're going versus where we came from, it's really an evolution. At the end of the day, if you look at what Toast has been working on in the past decade plus is we've been growing locations, both in our core business as well as the new TAMs that we're working on. We continue to see really strong growth in our core. Our new TAMs are accelerating growth. That's why we've had net add growth every year that's been higher than the previous years. And we have a ton of conviction that we're going to do the exact same thing this year, right?

As we look at the surface area of the products that we offer, we've seen steady ARPU growth in our platform. And that's because when you talk to our customers, the thing you hear consistently is they want to use Toast for more. They like the idea of an all-in-one platform, especially SMBs, be able to use all of it in one place, manage all aspects of the house, the back up house or operations. And so we continue to see really good growth, both in terms of the number of customers using Toast, and what they're doing with it.

Now one of the evolutions that we've been working on in the past couple of years. If you talk to our customers, what they'll tell you is -- think about the average restaurateur, right? What they'll tell you is, we'd love to use more of your platform, but I'm just trying to keep my doors open, like make sure the service is good, the food is good. And so often, they will either like not have the bandwidth to leverage everything Toast offers, or they will outsource it. I'll give you an example. Marketing is a great example where -- most restaurants have some website. They may have some loyalty program. They may have an online ordering site.

But often like the execution of actually generating demand is subpar. And so the opportunity that we saw there was, okay, can we actually own the work by building an agentic capability. By the way, that's backstopped by a human, right, to help restaurants incrementally drive demand. And what we have seen with Toast IQ Grow, which is the first agent we launched with our early beta customers, the hundreds of customers, when they leverage the Toast way of doing this, they've seen sales go up 8% in our pilot.

And the reason that has happened is think about a website, well, step one, you got to make sure the SEO is optimized and people actually click through to your website. Then you want to make sure the images and the copy on the online ordering page actually has -- is well done to maximize conversion. You want to make sure your loyalty program that you offer is; a, done incredibly well; and two, it is as friction-free as possible, right, in terms of getting more and more guests to leverage it.

And then lastly, we're looking at data about when the restaurant is busy, when it's not, right, something most restaurants don't leverage. A marketer doesn't leverage, think about shorter periods to optimize yield to generate the right types of offers and to generate offers that will convert each user. Like one of the unique things that Toast has, including for everybody in this room, we know what your purchase history is, what your preferences are. And so the campaigns and the e-mails can be specific to you.

And so all of that work that we're doing, we just have seen this as an opportunity where we can actually create better marketing for our customers than what they can do through a factional outsourced marketer. And so this agentic push, whether it's in front of house or it's back of house or payroll tax, it's all about like can we do it cheaper and better. And that's really what the push has been in the past couple of years. We're seeing really good early signal, but it's early. I think we'll launch more and more agents over time on top of our platform.

And then lastly, internally, like third priority is really about leveraging. It's not unique to Toast to really leverage AI to rethink the work, right? We've got lots of toasters with access to the modern tools, whether it's Claude Cowork or engineering cloud code. And we're seeing engineering velocity up. We're seeing 40% of support tickets now handled through AI and increasing. And I think really across the business over the next few years, we will see an evolution where by leveraging what AI makes possible, we can reinvest more into some of these growth initiatives in the business.

And so back to like zooming out, like it's really not fundamentally the strategy of growing locations, growing the surface area of the product that we serve customers with hasn't changed. It's just leveraging AI both internally and externally has become a bigger focus.

And having empathy towards the restaurant and understanding how you can free up time and resources to get them to do something they haven't done yet.

Yes, absolutely. I mean I think this is where with most restaurateurs, even in our retail business, you see the same pattern. The biggest thing they struggle with is time, right? They would love to use more technology, but think about a restaurant owner, they're not a marketer, they're not payroll and tax expert. They're not a back-office accounting expert. Their activities and their passion is like great food and great service. And so the more we can help them leverage the Toast way to run a better restaurant, the better [indiscernible].

Okay. Good. So I'm sure we'll talk about AI a little bit more. But just coming back to the quarter, I know the topic of the day, right, with the quarter coming through, I was really surprised by the reaction. It seemed pretty extreme. And it seemed like, tell me if I'm wrong here, it seemed like it was two issues. One was some concern around memory cost and supply, and what that might do for the outlook?

And then secondly, some concerns around maybe competition picking up. So I thought maybe we could drill into both of those if that's okay. So thinking about the first one with memory. Just maybe, Elena or Aman, just go through the puts and takes there to help us think about memory impact to the P&L, not only this year, but also next year. I think you talked about of being a bigger impact next year. Can you just walk us through that?

Yes. Great. I'm happy to talk about that. So -- let me -- I'll get to your hardware question. I want to -- because hardware is one element of our P&L, so want to zoom out and talk a little bit about how we manage the P&L philosophically. And then I'll hit on your hardware question. But philosophically, our priorities haven't changed. It's really to deliver durable growth and continue to expand margins and deliver healthy margins. That's how we talk about it.

And so let me just unpack what that means. In 2026, we're having an incredibly strong -- 2025 we had a strong year. 2026, we're on track to have another strong year. And in that, we're going to deliver strong growth and expand margins. You'll see the same exact playbook in '27, deliver strong growth and expand margins. And so that's just philosophically how we plan the business. And the discipline that you've seen us employ over the course of the last couple of years had not changed.

We're looking at every account, we're looking at all the ways that we can drive efficiency. Now take what Aman just said about AI, and that presents even a greater opportunity to drive leverage in our business. And so when we think about that, we really think about our long-term margin opportunity. And we often have talked about the 40% long-term margin. We think that will be even higher. Just think about this AI opportunity. We're already seeing leverage in the business, Aman touched on that. We'll touch on that a little bit later, but our confidence in our long-term margin continues, and we feel really strong and convicted about the opportunity to drive that even higher.

Now let's get back to hardware. Hardware, like I said, is one element of our workflows. Near term, there's this memory constraint where many companies are navigating that. Our team is doing a great job of navigating that. One of the principles that we started with when the hardware memory shortage became obvious to us that there was a constraint was let's make sure that we do not disrupt customer growth, right? We've been -- we've added more net adds to our platform in 2025. We're going to do the same in 2026, really important that we set ourselves up to support that growth.

So what that means is as we've secured supply for both '26 and '27, there's going to be near-term pressure in our P&L, and that's what we talked about at the earnings call, both in '26 and '27. That said, we have a lot of confidence. We have many levers in the P&L to really manage that. We also are very confident that this will be near-term pressure, not something that structurally is going to change our ability to drive long-term operating margins. So we feel good about that.

And finally, I would just say the hardware operations team is executing quite well. It's a very tenured team, a very seasoned team. They've been through supply chain constraints before, and they've just done a really excellent job of not only keeping us informed and working with the partners, but just navigating the complexity of the supply chain.

And then the phasing of it, Elena, just thinking about '26 into '27? I know there's trade-offs that you're making all the time.

Absolutely. Yes, so '26, what you'll start to see is as the year progresses, there'll be greater hardware pressure. That said, we're still going to expand margins. We're still going to have a really strong year. Similar with '27, we have a bunch of levers that we're all working to mitigate any constraints we have, any pressure we have. So we'll continue to do that. Part of that is a full year impact of it. But the other piece is just the way our inventory gets into our customers' hands, has to do with when we ship finished goods, and that's what you're seeing in the dynamic between '26 and '27.

The bottom line is don't want to impact customer growth and customer impact. That's #1 priority.

Absolutely. That's a #1 priority. And the other point is we have many levers to manage the near-term pressure as well.

Okay. Maybe just to build upon -- just to build on what Elena just said, we're investing to drive durable growth in the 20s for a long time. This is why, like if you see the net add growth year-over-year in these new TAMs accelerating what's exciting is that those businesses crossed $100 million ARR last year. They're growing with hockey stick, really strong growth, and we're investing to open up those TAMs in a material way, while expanding margins despite the near-term impact of hardware.

And so I think Elena and the team are doing a great job, is pushing the team to make sure in our core business where we scale to drive efficiency each and every year. AI accelerates that. And then we're reinvesting some of that for longer-term growth.

Yes. And I don't want to spend too much time on it. I know it's a transient issue, but had to go through it, so appreciate that. So on the other subject, just thinking about the core, I think last year, I asked you both. I guess, Aman, you were here last year, the growth algorithm for the core, does it feel different to you now as we think about the next 6 to 12 months, the growth algorithm? Are you seeing any changes in the competitive landscape? Because a lot of your peers are talking quite a bit about some product velocity changes and making improvements. What are you seeing?

Yes. The first thing I'll say is this comes from a place of humility, like there's no shortage of POS systems in the restaurant space, right. If you look at our ability to grow and to establish ourselves as a key leader in the space, that's really the strength of our product, our service team or support, our go-to-market, which we have built over the past decade. And as we look at the competitive landscape, as we look at our win rates, as we look at our share that we're taking even in our most dense markets where we have the most share. So the flywheel effect we've talked about in the past, whether we look at our churn, fundamentally, what we see in our business, right, is we're seeing more location growth each and every year.

And we saw that last year. We expect to see that same thing this year. And so competitively, like, of course, our team is tracking it very closely, and we're investing in a big way in our platform to continue to differentiate and add value for our customers, but we've seen nothing that has changed. Now as you think about the growth algorithm and what are ways in which we continue to grow. I think I hit on some of this earlier. Fundamentally, it's about location growth. As we think about the longer-term opportunity for Toast, whether it's in terms of the AI opportunities we have and the data that -- or the network opportunities we have.

Both of those are predicated on location growth being a key driver because market leadership is so valuable for the second and third act. And so we continue to invest in a big way to drive location growth. We're seeing, as I just mentioned, really good signal there. And then the second piece of the algorithm is ARPU growth. And so we've seen steady ARPU growth, where customers use more and more of our platform. I think if there's one thing that will change over the next 6, 12, 18 months, the potential of AI-driven revenue, right, has upside for Toast.

Just like a couple of years back when we launched retail international enterprise to expand the TAM. If you look at our net add growth, there were a lot of questions about net add growth for Toast has accelerated in the past couple of years. And why that's happened is because we've been able to accelerate these new TAMs. And we even though -- and that has tremendous upside potential.

Similarly, you look at Toast IQ Grow as an example. Customers pay for all of our platform, round numbers, about $500 a month, I'm using round numbers. They may be $550, okay? For Toast IQ Grow, which is our marketing agent that's priced at $499 a month, right? And of course, there's an element -- human element to that, too, but we expect that to become more and more agentic over time. And so one of the areas of tailwind, I know it's early, is as we build out these agentic capabilities, there is potential to accelerate AI revenue.

And the reason that is, is if you talk to our customers, they'll tell you, they spend more on services than they do on software, right? They spend -- if you ask the average restaurateur, how much they spend on a bookkeeper and accountant on someone to help them payroll and tax or marketing, it's way more than what they're spending on the Toast software.

Yes. I'm glad you went through the example on the pricing. Can you spend a minute? It's just -- since you mentioned I had to ask it, just coming up with the pricing and the philosophy around the pricing on the AI work. And Aman, you're always very thoughtful about the pricing in my experience in talking to. Can you walk us through that a little bit?

Philosophically, the way I think about it is we want to be known in the industry as the best product with great value. And so like we could be optimizing near-term on pricing levers. I think certainly, that's a part of the growth algorithm, but the big focus is really on growth by adding more value to customers, by adding more locations and then adding more value to customers. And so specifically on Toast IQ Grow, if I'm honest with you, right now, the focus is on driving a tremendous amount of value for our customers, how the pricing model evolves, right? We have -- we are still learning transparently.

We could add a token-based, usage-based component to it because some of this in the back end, our COG will depend on how much usage -- how much the customer is using our back end to generate campaigns or copy or whatever it may be. But what I'm confident about is that if these platforms can drive the types of outcomes, like I shared the 8% lift in sales, then the pricing is the least of our problem, right? The ability to monetize that over time and with lot of conviction. And what we're focused on, first and foremost, is as we roll out this platform, staying really close to customers to make sure that we are actually landing products that can help them drive more successful business or help them save time.

So what have you learned? I know you're at NRA, I think, with -- in Chicago and Toast IQ is, what, 23% penetrated if you do the simple math there. What's the engagement trend looking like? How do you see that changing? What have you learned from Toast IQ so far before we get into growth?

Yes. I think that -- so first of all, like the -- if you go back and look at what customers use Toast for. On the one hand, it's like, okay, they use it for the software platform, and they love our software platform, but they also really value the human touch and the service. And in fact, like you talk to the average restaurateur, they almost look at Toast as the outsourced CIO. They'll like call our support line if the internet is down, which has nothing to do with Toast because they're like, we need help. And we help them, by the way, with anything and everything, including making changes to the back end of Toast.

We're happy to help them because often when they're in the restaurant floor, they want to move on to their next thing. Now what Toast IQ does is it's an always on capability that has a natural language interface, right? So you can talk to it and say things like, "I need support on any aspect of the platform." That's why we're seeing 40% ticket volume now handled through AI. You can go in and create custom data views. So if you're someone analyzing the data in a 5-location restaurant group, like in the past, you would go and try to find some specific report, and then if you wanted to understand some very specific nuance perspective, you would go in and say, okay, like, can you export the data into Excel maybe, and you create a custom view.

And now they can just go into Toast IQ and ask questions like I talked to restaurateur a while back, and they said, one of the use cases was really valuable was I just sort of look at year-over-year sales in what was going on, but I wanted to exclude certain categories that were net new because that opened up this catering business, and I didn't want to track that in year-over-year comp. And they were able to generate that view, right, in Toast IQ versus having to do that by exporting data.

We have customers telling us that they've been able to talk to Toast IQ and optimize their labor schedule where they really overstaffed in certain periods based upon demand. And so it's really moving from support to like to getting insight from Toast. We've seen customers now leverage it. We've launched some basic workflows and automations. So things like -- think about it like alerting, like getting access to like the voids or discounts or fraud, something that ticks up, they want alerts.

That's something you can set up now in Toast IQ as well as workflows. So a simple workflow might be at the end of the night, if someone forgets to clock out, make sure the manager is notified so that they adjust those hours correctly. And so -- and then the next phase of this is really this agentic capability that we've been talking about, where it's moving from -- so the simplist way to think about it is getting support to getting data views and access to insights to alerts and automations and then step -- Phase 3 is this agentic layer on top of all of our software.

And do you think -- from the engagement, are you encouraged about the adoption and the usage and the discovery and the awareness of Toast IQ and then ultimately Grow, I mean, how do you see that evolving? Is it very short, quick? I mean the engagement part is always so interesting to me.

Yes. I mean one good data point that I think is telling is I always look for -- versus our sales team, I always look for our customers telling other customers about the value of new product because it tells you a lot, and I'm seeing some of that signal when customers are engaging in buying Toast. We are seeing Toast IQ. We track all the sales calls as being a key reason why people are choosing Toast. And then also in our upsell motion, right? Our team is leading with Toast IQ as the foundational capability to bring all of this product together.

So seeing some really good early signal. And I think like that -- look, I will say, if you look at our TAM expansion work that we've done in the past couple of years, that is a little bit further along, right? With those businesses are -- while they're still early in terms of the TAM penetration of the potential, have very meaningful revenue that they've scaled up to. And we're working on delivering the same with our AI products. But the early signal so far with our customers has been really, really positive.

Okay. Good. I know it's early with Toast IQ and then Grow. You talked about on the call how this -- some future features that you're looking to roll out. But when could we expect that? What else can you share around sort of the road map here around that?

I've asked the team [ now ] these tools as fast as possible. We see -- it's interesting with a lot of the engineering velocity work on PRs. One of the things we're really pushing the team on and the team is doing a great job is actually start to say, okay, are we delivering the road map faster. And so I think we -- you will see us increase the rate at which we launch new products and get input from customers and signal from customers to improve those products.

And specifically in Toast IQ Grow, the opportunity here is -- so step one, maybe I shared some of this, but I'll try to break it down even further. Step one is if you leverage all of our tools, let's make sure that they're optimized the best they can be. And it turns out that AI actually does a phenomenal job. Just looking at your restaurant's website and your copy and your online ordering images or your marketing copy and e-mails and text campaigns to increase conversion.

We have seen that AI-generated campaigns are more effective at getting guests to come back in then human-generated campaigns because, again, there's leveraging data at scale, and they can see which campaigns are more effective versus not. Now what we haven't done, and frankly, really no one has done so far is, it's one thing to have campaigns and messages or offers that are largely like driven by intuition. An example would be, I've got a happy hour offer, right, come in earlier, come in later, we have some offers.

It's another thing to actually use data to be a lot smarter about looking at yield. And so one of the pieces we're working on Toast IQ is to go look at all of the kitchen capacity, the capacity in the dining room and figure out what are ways in which we can leverage all the channels that are accessible to our marketing, whether it's e-mail, text, Google, we have a partnership with them, social media, our local app to generate the right messages and offers that are personalized to the guest that also factor in restaurants availability and when they're busy and when they're not.

Because one of the things that we're trying to work on is the biggest opportunity really is how do you find ways to leverage times that are available to get more people in the door. And that's a problem that historically has been very -- has been done just through intuition and gut versus through data. And that's where we see the potential of the Toast marketing agent just be a lot smarter.

Think about like your airline or your hotel or any other industry, right? They're not using -- they're not like saying, "Oh, like maybe the week of Christmas, we can charge more." There's data that is being used to actually optimize the pricing in the schedule. And I think there is opportunity to leverage offers and campaigns to do the same.

Good. You speak with a lot of purpose and excitement, I can feel it. So we're definitely going to keep asking you about [indiscernible] over time. So I appreciate you going through all that. Let's bring it back in. I know we can spend a lot of time on AI, but I have to ask you this, thinking about AI and deploying it internally. We've been looking across our coverage of software fintech looking at gross profit per employee and trying to measure productivity, and Toast is a little below average across the spectrum. I know it's not perfect in terms of benchmarking because the world is a lot bigger than what I cover, but fair or foul, how do you look at productivity and measure where you can or could go with respect to AI efficiency?

Yes, I'll take that. So first of all, AI certainly presents a massive opportunity for us, both on the revenue -- across our P&L, both on revenue and on efficiency. And actually, as we deploy it further, the opportunity just increases. Aman talked a lot about the product and our opportunity. As long as we continue to deliver value for our customers, the monetization will follow. We feel very confident about that. And then in terms of efficiency, we're already starting to see some of that efficiency internally. We talked about 40% of our tickets are handled with AI. Our product velocity, we're seeing already early signal, and we get the products and features out to market -- to our customers faster. And so that's the principle behind how we operate is, how can we do more for our customers? And can we get them value faster?

And so very confident in our ability to drive that efficiency and in fact earlier, I talked about our 40% margin. I actually think it's going to be higher given this opportunity across the P&L in terms of both our opportunity to monetize, but also to drive efficiency. And then in terms of the relative comparison, every business model is different. We're definitely paying attention to gross profit per FTE. And as we deploy more AI, as we change how we work, definitely we see that increase over time. But just zooming out, when you think about the strength of our P&L, of our financials today, we've delivered a ton of leverage over the last several years, both on an adjusted EBITDA basis, but also on a GAAP basis, and we're incredibly proud about that. And we're going to continue to deploy that same level of discipline. And so AI complemented with the discipline that we've already been employing. We feel it just gives us this opportunity to continue to drive leverage and that 40%-plus margin is going to be higher as a result.

Yes. I just say like -- I'll just reinforce a really important point that Elena brought up. If you look at like the business in the past couple of years, and you look at what we have done and actually delivered in terms of growth, both in top line growth as well as an expansion of margin, right? That's Elena and team really focused on scaling this business in a thoughtful disciplined way.

And as you think about the future, there's one thing to take away like we do not need the same level of headcount growth to grow revenue in this new world. And that is why we have more conviction on the long-term margins being even stronger.

Yes. So we'll focus on the absolute margin. And look, you haven't sacrificed customer centricity either, right? So I think that's -- I know, I don't want to take it off for granted that we're all just looking at an Excel spreadsheet here, but thanks for going through that. So let's do, just for the sake of time, another big priority, of course, is expanding the Toast service. And you talked about it earlier, right? Every new TAM is growing ARR faster and higher SaaS ARPU than the core data at the same -- in the same time frame. So maybe I'll just ask which specific piece in stacking the TAM? What surprised you, Aman, Elena? Anything to call out here and magnify and give us a little bit more on what you've learned?

Yes. I mean we are very encouraged by the products we have seen in these new TAMs, as you mentioned. And sometimes people ask me about which business is not working. The reality is across retail, international enterprise, 2, 3 years into these businesses, both the ARR growth and the absolute ARR and the ARPUs are stronger than when the core restaurant business was 2, 3 years in. And we're very early in terms of the market share that we have. And so that's what encourages me and the team to go after it. And we're getting meaningful scale in terms of the revenue that we've achieved so far and the rate of which is growing.

In enterprise, we just opened up drive-through. That's a big part of the TAM. We see tremendous opportunity there to leverage AI, especially voice AI there to make that product even more differentiated in international. We're very focused on really going after all the Tier 1 cities and the countries we're in and eventually will open up more countries, and we're seeing our value prop resonate. And then in retail, I'd say like there's one area that really surprised me the most of your question. And I think there's a lot of skepticism internally even at the company about like what are we doing with restaurant company, we've been doing for 10-plus years in retail.

And the signal has been incredible. Like -- and I think the reason the signal has been incredible is because if you go talk to a lot of these food -- in the categories we're in, we started with restaurant retail and the food and beverage retail. This is like grocery stores, convenience stores, liquor stores, early even with gas stations and even beyond now, in general merchandise and B2B retail. Most of them are using on-prem systems. They were built literally before cloud. That's what surprised me the most.

And so when they see Toast with our modern platform and our full ecosystem, it's like the same feedback we got when we launched Toast in restaurants. And so I think that's the main thing that surprised me about just the product market fit in retail. And I kind of further reinforce that like if we want to build these businesses that serve just brick-and-mortar retail more broadly. The answer is vertical, it's not horizontal. You've got to go deep in each vertical, and that's what customers are looking for.

Okay. We're running out of time. I have to ask you about the consumer opportunity because I know Aman I've asked you about this so much because I feel like, right, the merchant platform is clear. And the opportunity around the consumer side is so, so interesting. So what's the latest on Toast Local. How has that app evolved? Are consumers using it as you expected? I know there's been some changes that you've made, but what's the vision? Has that changed?

We're building consumer DNA in the company. [ Historically, ] the company grew up as B2B. It's a new muscle for us. The positive thing is like over the past -- just even quarter-over-quarter, we have seen app downloads more than double. We have seen rankings in the App Store ranking food and beverage increase materially. And I think the key reason there is we've got a clear focus in terms of really about two things: Great value and a great experience when dinning out. That's the primary focus of the app. So what do I mean by that?

Signing up for loyalty programs across the tens of thousands -- tens of loyalty programs that are available across restaurants, is a lot work, right? Like getting a punch card or dealing with like something extra for each restaurant. One of the things that Toast Local does, you can track your loyalty without any friction across all those restaurants, earn points almost in the background. Think about like you swipe a card, you got the same card on Local, it just knows. Or you can link it on phone number, for example. And so the ability to get loyalty across all the restaurants, a lot of people really value.

Similarly, great offers that only we can create because we have the data on the restaurants throughput and when they're busy and when they're not. So we're building out an offer's platform to help restaurants automate the entire workflow of generating offers. And this is through actually part of Toast IQ Grow to drive incremental demand. And then lastly, we just did a partnership with Resy. And so now between Resy and Toast Table, we've got a lot of density of restaurants, you can book tables at.

And you can put a card on file when you book a table. And one of the things that this is very early. One of the things I'm really bullish on is, at the end of your meal, instead of having to pay for your check, you can just -- the service shows up [indiscernible]. And so the focus of the app is great value, great experience. We're seeing really good early signal.

Now look, restaurants are very local. So we don't need to go and do like a national campaign. We're trying to prove in a few cities the product market fit and the retention of users and all the metrics that matter to being -- to have conviction to invest even more. And that's what we're working through now.

Okay. No, it's exciting. I think it's a fun topic to keep tracking. Off the beat of the B2B piece, but I think it's important. Just staying with the consumer, anything to share. We just heard from Visa, but anything to share on what you're seeing on consumer health spending structure?

Oh, yes. Yes, look, it's -- Q1 consumer spending was in line with our expectations and Q2 is stable. So -- and that's sort of what we expect. We've studied restaurant cycles over time, and they've proven to be incredibly resilient. So not surprising to us that they're relatively stable. And what we've always said is our GPV per location, a metric that we look at is always within a narrow band. And actually what we're seeing in Q1, Q2. So overall, resilience is what I would say and stability.

Okay. Maybe just sneak one more and then the closing question. Just thinking about capital priorities. I have to ask that -- this in every conversation. There was a -- it feels like a bias more towards share repurchase. I know the authorization is there. Anything changed on the M&A front that's worth sharing here on stage?

No, I think with M&A, like our capital allocation discipline is always very much sort of a playbook that we execute against. In terms of M&A, the bar is high, right? We will look at -- we're always canvassing the market just as a normal course of business. And what we're really looking for is products or assets that would accelerate our road map, maybe get us to market faster. They have to be accretive, obviously, financially, culturally.

So there's a lot of factors that we look at, but the bar is really high because we have so much opportunity in our core, so much to invest in our new TAMs as well. And then in terms of repurchases, that's just us giving back to shareholders, delivering long-term shareholder value. So we'll continue to be opportunistic if the market dislocates, but we feel really good about our overall discipline here.

Okay. Good. So let's close it out. We talked about a lot. I can definitely sense the enthusiasm around AI. So Aman, we spin forward a year from now, and hopefully, we get you back here on stage? What's the one outcome or deliverable that you're most excited to lead the conversation with next year?

Some of it might be boring. It will be more of the same, delivering more location adds and more ARPU and all the basics that doesn't change. I think there is real potential in some of the AI revenue and that helping us accelerate the surface area of the product, just like you grow being the first many agents to come.

All right. We'll be watching out for that. Thank you for....

Yes, thanks, everybody.

Appreciate it.

Thank you.

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to Toast First Quarter 2026 Earnings Conference Call. Today's call will be 45 minutes.

I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin your conference.

Thank you. Welcome to Toast First Quarter 2026 Earnings Call. Toast's 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 strategies 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.

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's 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 of 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 has for customers, grow from a software to an agentic 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 $5 billion and $10 billion and beyond.

All right. So let's dig in to our priorities. Number one, growth 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 parts attached at higher ARPUs. 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 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 lived 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 haven't picked up on. For instance, Toast IQ helped the 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 save thousands of dollars. The first Toast IQ agent we've launched is a marketing agent within to 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 restaurant right alongside them.

The marketing agent builds and optimizes the campaign from our customers' past performance data, their sales forecast, and soon upcoming events and weather, a full month of campaign across SMS, e-mail and social media in minutes. Campaigns designed by the marketing agents 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 to 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 e-mail, SMS, Facebook and Instagram weeks in advance.

Nearly 1/3 of sales in March were directly attributable to Toast marketing tools and sales were up more than 30% compared to the prior 4 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 0 commissions and no middleman. Restaurants use Toast Local to attract new guests and reengage 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 aggregator marketplaces built around delivery, Toast Local extends into the on-premise experience where the majority of restaurant revenue is generated. We recently expanded and experienced significantly.

Toast Local now enables guests to discover and book a table at over 20,000 restaurants through Resy and Toast Tables, making it 1 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 1 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 IQ Grow. By working in concert, we will be able to look at a restaurant projected demand, food cost 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 capabilities to do this effectively today.

And moving on to priority 2, 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 not 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 their 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, Toast IQ agents taking work off their plate. 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-GPV 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 Alinea Group, the world-renowned Chicago-based restaurant group that includes iconic Alinea, 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 SaaS ARPU that our core did at a similar time period, demonstrating our proven vertical playbook is working. In enterprise, we launched Toast for Drive-Thru, 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 ARPU. We recently launched our Toast Go 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, U.K., Ireland and Australia, we plan to launch more Tier 1 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 of the most demanding retail environments require.

The capabilities we built for restaurants, supplier connectivity, invoice workflows, SKU 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 are on a path to significantly scale the locations we serve across our existing TAM and further expand the opportunity to core adjacencies like membership and 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.

Now moving on to priority 3, 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 3 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 margin. We see a clear path in materially scaling this business by going deeper in our core markets, 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 and 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 with their dedication and commitment to Toast. 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.

Thank you, Aman, and everyone, for joining us today. I would also like to thank our team for an excellent start to the year. Q1 results exceeded our expectations, reflecting the consistent high level of execution across the company. In the first quarter, ARR was up 26%. Our recurring gross profit streams increased 27% and total monetization across SaaS and fintech exceeded 1% of GPV for the first time, adjusted EBITDA was $179 million.

On a GAAP basis, operating income margin crossed 20% for the first time to 21%, or $110 million and EPS more than doubled to $0.20. Building on last year's momentum, we added 7,000 net locations in Q1 and ended the quarter with 171,000 live locations, up 22% from a year ago.

Our best-in-class vertical SaaS platform and local go-to-market execution continues to drive consistent share gains in our core complemented by increasing contributions across each of our new TAMs. SaaS ARR grew 27% versus a year ago, driven by the combination of our strong location growth and consistent mid-single-digit SaaS ARPU growth on an ARR basis. Subscription gross profit continues to outpace top line growth at 32%.

SaaS gross margin exceeded 80% for the first time, expanding nearly 300 basis points from a year ago, to 81%. In addition to ongoing efficiencies as we scale, we're seeing early gains from leveraging AI to transform our customer support experience. Payments ARR and fintech gross profit increased 24% in the first quarter. GPV was $51 billion, up 22% year-over-year with GPV per location down 1% versus last year. Fintech net take rate was 61 basis points and payments take rate was 51 basis points. Payments take rate increased 2 basis points year-over-year, as we continue to execute on cost optimization efforts, new products and targeted pricing adjustments. Non-payment fintech solutions led by Toast Capital contributed $51 million in gross profit and 10 basis points in take rate.

Overall, the program continues to grow at a steady clip, and defaults remain consistent and well within our risk guardrails. Our total monetization take rate measured by recurring gross profit as a percentage of GPV crossed 1% for the first time to 103 basis points. The 5 basis point increases versus a year ago demonstrates our growing share of wallet and value we provide our customers. We expect our total take rate to continue to grow as we evolve our platform with AI and deliver more outcomes for our customers.

Moving down the P&L, hardware and professional services gross profit was negative 13% of our recurring gross profit streams. We are leaning into our customer acquisition momentum across all of our TAMs and absorbing higher tariff costs. Our strong overall unit economics and scale enable us to absorb these costs while maintaining healthy payback periods. Excluding $28 million of bad debt and credit-related expenses, operating expenses increased 17% in the first quarter. We're investing in our highest priority areas across product and go-to-market and investing in AI tooling to evolve the ways we work and increase productivity.

Over time, AI efficiency gains will give us the flexibility to invest more in key growth initiatives and support our long-term margin profile. Sales and marketing expenses increased 20%, reflecting our strong location growth. We're investing to support our ongoing market share gains in our core and moving out sub-segments like non-native English speaking customers. We're also expanding our go-to-market presence in our new TAMs, which is accelerating our progress.

R&D expenses grew 20% year-over-year. We're investing in our product strategy to expand our TAM and drive location growth and differentiate our product with agentic workflows and providing our internal teams with AI capabilities to increase productivity.

In enterprise, we just launched our Drive-Thru offering. We're expanding Toast Go 3 internationally and deepening our grocery product for retail customers. And we're further differentiating our core products, most recently with the release of Toast IQ grow and relaunch of Toast Local. Adjusted EBITDA grew 35% to $179 million, a 34% margin. Our Q1 results reflect healthy top line growth as well as our continued focus on driving efficiencies throughout the P&L.

Free cash flow was $115 million. As a reminder, free cash flow is typically lower in Q1 and due to the timing of cash bonus payments and payment seasonality. For the full year, we expect our conversion of adjusted EBITDA into free cash flow to be slightly lower than in 2025. We are strategically purchasing memory chips and plan to hold more inventory in the near term. We expect the majority of this cash impact in Q2 and for the free cash impact to normalize over time as inventory moves to customers.

GAAP operating income was up over 150% from last year to $110 million. In addition to our strong adjusted EBITDA growth, we're benefiting from ongoing leverage and stock-based compensation. SBC as a percent of recurring gross profit was 11%. That's nearly half what it was just 2 years ago through our disciplined approach to managing stock compensation. Year-to-date, we've repurchased 14 million shares for nearly $400 million. We've been opportunistic given the market pullback and our confidence in the business, and we expect this to be an accretive use of capital.

We have approximately $200 million remaining on our share repurchase authorization, and we'll maintain an opportunistic approach to repurchases based on market conditions to support long-term shareholder value. The combination of our strong financial results and decline in our diluted share count resulted in GAAP EPS more than doubling to $0.20.

Turning to guidance, for the second quarter, we expect total subscription and fintech gross profit to grow 22% to 24% year-over-year and adjusted EBITDA to be $185 million to $195 million. We increased our full year 2026 guidance, reflecting our strong start to the year. We now expect recurring gross profit to grow 21% to 23% and adjusted EBITDA to be $790 million to $810 million.

We are positioning Toast to sustain high growth for the next 5 to 10 years. We're seeing positive results from the investments we've made to begin delivering agentic solutions for our customers, extend our lead in the core and accelerate progress in new TAMs across enterprise, international and retail. Our new TAMs are scaling rapidly, and we're confident each is on the path to be materially larger with healthy unit economics. Our bias remains to reinvest top line outperformance across our growth initiatives and into internal AI tools to transform how we operate. Our bar for investing remains high. It is grounded in customer feedback, improving unit economics and where we have conviction we can generate meaningful long-term cash flow.

To wrap up, we are executing our goals and are on track to deliver strong top and bottom line results in 2026 and while positioning the company for sustained high growth over the next decade as we lead the AI transformation for restaurants and across local commerce. We are more excited than ever about the massive opportunity that lies ahead of us. Now I will turn the call back over to the operator to begin Q&A.

[Operator Instructions]

Thanks, Krista. We'll kick off for Q&A. First question we will take from Stephen Sheldon at William Blair.

Maybe first here, I just wanted to -- I guess, as we think about the hardware, how much of a differentiator do you think your hardware solutions like Toast Go 3 could be? And does owning those touch points with employees and servers having them kind of in their hands, does that give you a big leg up in terms of, in your view, helping restaurants take AI-supported insights from Toast IQ and making them actionable in employee guest interaction. So I guess, how much does that -- this hardware serve as a differentiated? Or are there other things like that as you think about your platform that could serve as a big way up on the AI front?

Stephen, I think that's a great question. There's obviously lots of ways in which AI is helping us build across the platform. But I think specifically on hardware, I think we've learned over the years that being vertically integrated across software and hardware as a platform gives us an advantage where we can build capabilities for our customers faster. And so if you think about -- like to your point about how are we leveraging AI at the table or when a server interacting with guests, there's a few examples of things we've shared over the past few quarters. One example is menu upsells where the servers have visibility into what are the types of items that are most likely to increase check size.

More recently, we announced digital chits, which is basically if you book a table using Toast Tables in tune with Resy, you'll be able to get that data right on the handheld when a server is interacting with guests. And over time, the vision there, by the way, is not only to get the data that's stored in the CRM, but to actually look at the guests order history to learn what's most relevant for that guest, like allergy, for example.

We're also testing out things like walking in -- just walk out and pay. So if you've got a card on file when you book a table, you don't even have to go through the checkout experience. And so that's another example where the server validating that the bill was paid is really important on the handheld. And so I think there's lots of examples where the hardware and software working together, we think can create a great experience.

Another example is where there's a lot of discussion on voice AI and video AI. And with voice, of course, there's examples like the phone, picking up the phone to automate that experience, drive through but also things like kiosks and handhelds. Imagine walking into a restaurant and the server -- and the handheld listening to the order and they were getting to the kitchen even faster. And so I think there's lots of ideas, lots of opportunities. Another one is AI listening to the interaction to help coach SaaS better. And I think we certainly see the fact that we've got the hardware and the software together being a big advantage in terms of building products faster.

We're going to -- we'll move to our next question, Samad Samana from Jefferies.

I wanted to ask on Toast IQ. And obviously, there's a lot of focus on AI. And as you think more about monetization and agents and as you think about your own pricing model, would you ever, at some point, revisit how you're thinking about pricing, making it aligned more on maybe like a usage-based nature?

We've seen a lot of rapid change in other parts of software. I don't know if that would be kind of as well aligned for maybe the restaurants out there. So just help us think through that. And do you see that as maybe a potential upside driver over time if they're driving a lot of utilization and value out of it?

Hey, Samad. Good question. We're actively exploring not just the capabilities from an AI standpoint in Toast IQ, but also the pricing model. So I think it's topical for us and timely. I'd say, first and foremost, like what's exciting to see with Toast IQ is we have gotten now 40,000 customers that are weekly active customers using the platform. That was the first step. It was obviously critical to get usage up. And what we've heard from customers is it's actually useful. Like looking at 1 of the common use cases that I hear is being able to generate custom views on data versus just getting pre-canned reports.

But another area that was a bit of surprise was analyzing fraud and theft and getting visibility into what's going on there. And then, of course, making changes to the back end of the Toast, getting support more broadly with the chatbot. So I think there's been lots of ways in which Toast IQ is adding value for our customers. I shared the example on the call about a customer that adjusted their hours by chatting with Toast IQ and recognizing that there were hours they were open when they weren't generating enough profit.

I think -- and there are some examples of us also like some products like growth for software and hardware as well as part of the platform. But the biggest opportunity that I see right now is if you talk to our customers, one of the things you consistently hear is like, "Look, we're trying to keep our doors open. We're trying to make sure there's great food and great hospitality and that takes a lot." And so especially for these busy operators, often they're going to go outsource things like marketing, things like running their back office, payroll and tax or accounting and bookkeeping. And for a lot of these functions, the data that is necessary to do marketing is actually coming from Toast.

And so that's actually the key reason why Toast IQ Grow has seen such really good early signal where we're optimizing the digital presence and generating marketing campaigns for them, because all that data is already in Toast. And we've seen 8% lift in GPV, which is a really good early signal there. And

I think from a pricing and monetization standpoint, that's what's most important. Because as we take on some of this work, -- by the way, Toast IQ Grow. It's an agent, but it's actually also backed by a human that can help support these marketing campaigns. And as we can take on the work I think that's really the opportunity for monetization long term. But we're looking at usage-based to your question as a pricing model as well.

Thanks, Samad. We'll take our next question from Josh Baer at Morgan Stanley.

Great. Nice quarter. You highlighted 40% of the support interactions resolved by AI. And then on the engineering side, the velocity up by more than 60%. So seeing a lot of efficiency there. I guess the messaging is you're reinvesting into growth areas while still trending upward towards those long-term margin targets.

How -- can you talk a little bit about how you make that decision, the growth versus margin decision? And if we'd expect to see -- I guess, like how we should interpret that or measure that higher growth for longer or if growth does dip like we would flip higher on the margin side? Just a little help thinking about the growth versus margin philosophy.

Thanks, Josh, for the question. I'll take that. Yes. Look, I think, first of all, I do believe -- we believe that AI is absolutely going to change the way we work. And we're already seeing, as Aman said, efficiencies in our support organization, efficiencies really across the company, but it's -- we're still continuing to roll out.

So we want to be balanced with how we think about those benefits. But just zooming out and how we think about balancing growth and profitability, a couple of principles we think about. One is we're really positioning the growth of the company and thinking about our growth profile over the next 5 to 10 years, right? We're trying to position ourselves to invest behind growth initiatives. We believe we will deliver durable growth for a very long time. With that, we're also holding the bar high. You've seen us employ really strong discipline around capital allocation. That's not going to change. And the decisions we make to invest typically are customer signal, rep productivity.

We talk to our customers all the time. And so we're looking at signals across all of the businesses to make sure that we're excellent stewards of capital always. And so that's how we think about it. And then opportunistically, we'll continue to look at like, for example, we've repurchased shares, et cetera. So we have a capital allocation framework that we look at. What you should take is we have high conviction about our long-term 40% EBITDA plus margin profile. That has not changed. And you've seen us make a lot of progress in the GAAP profitability as well.

We'll turn to our next question from DJ Hynes at Canaccord.

Elena, I was hoping you could touch on enterprise across 2 axes. First, the pipeline you see in that cohort and maybe how that compares to this time a year ago. I mean, does it feel like there's any inflection happening there? And then second would be the backlog of deals that you've won that have yet to go live and what visibility that gives you into location growth over the next several quarters?

Yes. Look, I'll start and Aman, you can jump in as well. As -- first of all, we've been on this journey with enterprise. It's a multiyear journey. Let me just start there. And as you've seen through our wins that we've announced over the course of the last several years, we're definitely getting pulled into enterprise deals, which is healthy. The pipeline continues to be really healthy across -- like I said, you've seen us add more customers. And now with Drive-Thru, that opens up the opportunity even further. And so really excited about that offering. And the team is executing quite well across the enterprise TAM.

Yes, I think, Elena, you hit it. I mean there's one stat I'll share is in Q1 '26 alone, we booked more locations than we had total customers in '23. And so I think that momentum has not slowed down across both hotels, full-serve restaurants and Drive-Thru obviously, we just launched, but there's good customer signal there as well. And we're confident in our ability to hit the plans we set out to start the year.

We'll take our next question from Dominic Ball at Rothschild.

Aman, interesting comments on Toast Local following the commentary yesterday from DoorDash alongside seeing DoorDash POS active in San Francisco, Phoenix, New York. It seems like a formal launch is somewhat imminent. So they have a bundled offering, strong distribution channel. As this like delivery platform transition from a partner to a peer. Toast is the best POS system there is. So how do you really get Toast Local to be a real peer to DoorDash? And is there any other competitive responses available to Toast?

Yes. Dominic, I think first off, like we -- whether it's DoorDash or Uber or hundreds of other partners we have, they're critical partners for us because to deliver a great experience, right, our platform and their platforms have to work really well. That hasn't changed.

I think we were the first ones in the space to build a deep vertical platform for restaurants. That's really what has allowed us to grow and succeed and get to 20%-plus share in the market. We continue to see the same signals in terms of the growth and the potential that we have. And I think the way we're going to do that is by doing the same thing we did to start the business, which is to focus exclusively on -- focus on the needs of our customers. And so a lot of the focus we've got now on Toast IQ and the agent layer is very much about again, creating value for customers based upon customer feedback. And so I think as long as we continue to do that, as long as we continue to stay customer obsessed, I think we'll be just fine.

I think in terms of Local again, I'd say the biggest reason we're launching -- we're leaning into Local is based on, again, on customer feedback. Like what we hear consistently from customers is they'd love to have a low-commission, no-commission channel, where they can generate demand. And so the reason we brought in Resy inventory to combine with Toast Tables is now we've got 1 of the best inventory of restaurants to book tables on. And we think we can do some really unique things with that experience where, one, when you book a table and a card on file, you can make the experience to check out much better. You can personalize the experience at the table based upon the guests order history in Toast. And then we're also looking at data about both the guests and the restaurant in terms of when the restaurant is busy and when they're not to try to create the right set of offers that are personalized to the guests to again drive demand incrementally.

And so it's our focus on Local has really been about helping restaurants get more people in the door. And it's been -- One of the stats that I think is exciting, I'll share it apps download, I think I shared this on the call as well, are up 2x. Weekly app downloads are up 2x just the last quarter. And you can see the rankings go up in the app stores, food and drink category. And so I think really good early momentum, very much focused on bringing restaurants demand in store at a great value.

We'll take our next question from Tim Chiodo at UBS.

Great. Thank you. So a topic that I know a lot of investors would like to get a little bit more comfort with particularly into 2027, it's the hardware topic, right? So you previously said for 2026, it's about 150 basis points impact to EBITDA margins. I know earlier today, you mentioned some impact on free cash flow conversion as you build inventory. But I know this is a challenging topic and it's challenging to forecast. But to the extent that there's anything you could provide around how you're thinking about it for 2027, the supply that you think you'll have entering 2027 and how the kind of the process or conversations go with your suppliers?

Yes, Tim, it's a very relevant question. Thanks. So definitely, like you said, it's a very fluid environment. I think a couple of things that I'll just comment on. One is, it's really important to us to not have any customer disruption, and that's a principle that we're operating in. So to that end, we've increased inventory levels to secure the supply into '27. And of course, we'll remain opportunistic to add supply if it makes sense. But at the highest level, I have no concern about our ability to meet our growth. So that's number one.

Number two, the impact to the '27 P&L will be larger than the impact to '26. But as I say that, there's something you really should understand is, one, we're going to manage the margins in '26 and '27 as you've seen us manage it today. So we're going to have healthy margins in both '26 and '27 So we're actively planning for that.

And also the last thing I'll say is yes, there'll be near-term cost pressure, but we don't anticipate this will have any structural impact to our P&L over the long term. And as I said earlier, we're committed to that long-term margin profile that we've talked about. So all in all, I think the team is managing it well. We're actively managing it and feel very confident in our ability to manage margins, but more importantly, also the ability to get supply to our customers' hands.

We'll take our next question from Andrew Bauch at BMO.

I wanted to touch upon the international progress. It seems like over the last several months, we saw a lot of new headlines and new press releases from you. Anything you've seen so far that's working or anything that's materially different than the U.S. market, given that we're now a couple of years into this push?

Andrew, overall, really proud of the team's progress. We are -- continue to grow. The international business grew healthy clip last year, both in terms of locations as well as on ARPU. We recently launched our Toast Go 3 handheld internationally, which is a big missing piece really because it's such an important part of our platform. I think one of the learnings internationally has been that -- and I'd say most of our investment is set up this way already. But where we've seen the most success is these Tier 1 cities. Think anout like in the Canada, Vancouver or Toronto or in the U.K. London or in Australia, we are sensing really good early signal in Sydney and Melbourne. And the reason is these cities have the most high GPV busy restaurants where the Toast value proposition is most pronounced in terms of things like the handhelds or the operational capabilities we offer in our platform.

And so I think one of the things we've done is just leaning further into more of a Tier 1 city strategy, I'd say. And so certainly, we'll continue to grow outside of these cities and in these countries we're in. But as we open up more countries, it may look more like a Tier 1 city strategy versus going fully deep in every country. And so that's something that we're contemplating and looking at as we head into the back half of this year.

Yes, it would be great to see London as a flywheel market.

Couldn't agree more. Absolutely. That's what we're working on.

Thanks, Andrew. Okay. We're going to take our last question from Rayna Kumar at Oppenheimer.

I'm just wondering like what you're seeing for same-store sales into April. And if you saw any changes in the quarter as well.

Yes, I'll just take that. Overall, our consumer trends have been stable is what I would tell you. GPV per location in Q1 was down 1%, but very much within a reasonable zone and Q2 similar. So overall, customers are quite resilient. They've proven that over many cycles. So that's what we're seeing. And we looked at our own data as well, and it's stable.

That concludes our conference call today. I want to thank everyone for joining and have a good rest of the night.

All right. Before we begin, research disclosures, which I don't have but talk to your sales representatives. Now we can begin. My name is Josh Baer, software analyst at Morgan Stanley. I'm thrilled to have the Toast leadership team here today, Aman Narang, Co-Founder and CEO; and Elena Gomez, CFO. Thank you so much for joining us.

Thanks for having us, Josh.

Awesome. Aman, I want to start high level, if you think about the Toast story, maybe how it's evolved over the last couple of years, what parts of the operating playbook remain unchanged? What has changed?

Yes. First of all, thank you, everybody, for joining us. In many ways, the Toast playbook and strategy has not changed. If you look about -- if you look at what's happened in the business since we IPO-ed 3 years ago, in our core U.S. SMB business, we have doubled market share and now have 20% of all restaurants here in the U.S. in our SMB and mid-market segment and are seeing incredible momentum. And if there's one thing that's a top priority for us as a team, is to make sure that in our core business, we are leaders. We see tremendous opportunity to continue to grow. We -- in our -- as an example, in our flywheel markets where we have the most density, so the way we break down these markets is we look at penetration based upon market share. And we're still seeing above-average growth in our most penetrated markets that gives us some signal about what's possible. And a big part of why we're investing, right, is to continue to differentiate the platform and separate from the pack further, and I'll talk about that later, to continue to make sure we have the best possible platform for our customers.

In terms of numbers of scale, we've gone past $2 billion ARR. We grew recurring gross profit 33% last year. In terms of what we shared on margins, we are at our midterm goals in the mid-30s on margins. We think as we continue to grow and scale, the most important thing for us is to continue to grow and scale because the margin profile of the business, the incremental margins in our core are very good. And then part of the reason really 3 years ago, we said we need to go invest to open up the opportunity beyond the U.S. restaurant market is we saw that there was a lot of overlap between what we were doing in the restaurant business and markets that we were not in. So as an example, enterprise markets, upmarket, international markets, we've launched now 4 countries. And then retail, where we now support food and beverage retail in a big way. And those businesses are doing really, really well. We shared last year, they crossed $100 million in ARR. They doubled last year. There's a path to continue to grow and scale. Those businesses, that's a big part of our strategy. And then I think we're all talking about what's going on with AI and what does that mean for all businesses. And so one of the things that we are very -- there's 2 areas we're focused on. One, for our customers, there's tremendous opportunity to leverage AI to help them do a lot of the work today that they're doing manually. We'll share more about that later. And then internally, right, you've all heard about how AI is making developers more productive support. And so we're seeing our top developers now being twice as effective and twice as fast, in some cases, more by leveraging some of these AI tools. 1/3 of our support tickets never hit the [ human ] already. And the big focus there across really the entire organization to leverage AI is to say, how can we then accelerate growth? How can we take all of that investment and point it to the most important opportunities for our customers and continue to grow and scale the business.

Great overview. Elena, you've got a lot of momentum heading into 2026. You guided to 20% to 22% growth in your recurring gross profit metric. EBITDA margins are up. What's the biggest driver of that gross profit growth? How important are locations? What other factors could drive that to the high end or even above?

Yes. Great question. First of all, really excited about the team's execution through 2025. We had just an amazing year all the way through and locations was certainly part of it. In terms of our guidance for top line, 20% to 22% growth on RGP was where we started for the year. And as we always do, at the early part of the year, we're really balanced and prudent in how we approach the year. Just we have less visibility, obviously, as we get into the year. We always aim to do better. And in terms of what are the swing factors really that would drive that growth to be higher, there's a few things. One, GPV, always a dynamic in our business that we're managing too. Also, our TAMs, Aman just talked a lot about our TAMs and how we're investing behind those. To the extent we have data that tells us something is really working beyond our expectations, we may double down on that because that's a priority for us in terms of driving long-term growth. And then, of course, in our core business, which is the majority of our business, to the extent we see greater productivity that could drive upside to our plan. So those are the things I think about. And when you look back even at the last couple of years, GPV performance definitely played a role in our improvement versus starting the year. And the team outperformed as well over the last couple of years. So really proud of that execution. And then when you think about, okay, in that context, where would you invest more? It's behind those same things. It's behind going faster. If we have an opportunity to go faster in these TAMs to drive growth and the data proves that it's the right investment. We take a super disciplined data-driven approach to it. We will lean into it. Similarly, we would lean out if we saw something that didn't make sense. But overall, incremental investments beyond where we are today would be pointed at these innovations. And then Aman talked a lot about AI, and that's a really big opportunity for us as well. And so we'll take the opportunity to lean in there as well.

Let's stick on that topic of AI. Obviously, the market is concerned about the durability of moats and incumbents. And so I want to ask you directly, why is Toast well positioned? What happens if an AI native entrant shows up? And ultimately, does AI strengthen your position? Or does it eat away at it?

Yes. We really believe AI strengthens our position. We are the most important piece of technology our customers use to run their business. It's where they work. If you look at like a restaurateurs, how they spend a lot of their time, it's understanding across all of our capabilities, how their business is performing and what they can do to make sure whether it's the guest experience is as good, as great it can be, the employee experience, supplier and accounting inventory, of course, the operations of the restaurant. And it's often at the intersection of all of this technology that people are getting the most value. And it's like, there's software, there's hardware, there's fintech, there's payments and lending, there's very specific regulatory needs, compliance and regulatory challenges there. There is -- it's not well known, but we do all the networking for our restaurants, right, to make sure that our customers -- if the Internet is down, they call us to help us -- help them make sure that this platform is operating. As you imagine, it mission-critical at 9:00 pm at night when the restaurant is operating. No matter what happens, you got to keep -- you got to make sure things can continue. And so you've got hardware, software, payments, lending, payroll, across all that software, one of the things our customers really value, they almost look at us like an outsourced CIO [ and ] that they're leveraging our teams to make sure they're getting the most out of our platform. And so I think the opportunity for us is to look at some of this work that is often done through humans and it's manual to say, what are ways in which we can leverage AI to help them get more out of Toast and to help them run a better business. So I think ToastIQ is really -- we've shared what we've launched with ToastIQ is the foundation there where it's essentially a copilot that sits alongside the Toast platform. So when you log in a Toast, you can do things like ask a questions, get custom data and reports. You can do things like understand -- make changes to the back end based upon, let's say, something is out of stock or you want to update something on DoorDash and Uber Eats, for example, you can manage a lot of the config. And then over time, you can also -- we're building out custom workflows as well in the back end, which I'll share more about. And so I think there's a big opportunity to leverage AI to help make our customers more productive. Another example is voice and video. We have pilots going with voice AI, where you call a restaurant on the phone, the voice AI answer the call. But that's voice for phone is one modality, think about like walking up to a kiosk and being able to order. There's more complexity there with ambient noise, but over time is a solvable problem. Similarly, even with the terminal, you can imagine that there's so much opportunity with voice to be able to make the experience and the workflows more efficient. And then with video, there's a lot of opportunity. There's a lot of start-ups now looking at video feeds to detect fraud, to detect theft, to understand what's going on, even things like the restaurant is clean. And so they're just -- the biggest challenge for us really is to prioritize and say, what is the order in which we're going to leverage this -- what this technology enables and to land use cases that really matter for our customers.

Excellent. I want to double-click on ToastIQ. In the first 4 months, you mentioned over half of your locations had already started using ToastIQ. I want to ask about what monetization looks like down the road [ potential ] for impact to SaaS ARPU. And then also today, if you are seeing any impact to win rates or retention or just any general engagement trends there?

Yes. No, our win rates and our retention numbers are really good. We've shared that in the past, but our win rates last year -- last time we shared was up year-over-year, both for FSR and QSR. Retention numbers are strong in the business. As you mentioned, on ToastIQ, we've seen good adoption of the platform, but it's still early. Like I think in terms of monetization. My expectation is it's going to be very similar to most of these AI platforms where it's usage-based for the base agent. And then where I think there's a tremendous amount of value is to build on top. So I'll give you an example. Most of our customers are using fractional people that don't even work full time for the customer -- for the restaurant to do things like bookkeeping or accounting or marketing, even payroll and tax. And so one of the things we are piloting right now, we've got customers using it already, is on top of all of our products that we offer for demand generation marketing, so things like online ordering, gift card loyalty, CRM websites and our Toast advertising product, we have a team that is going in and saying, with our AI agent, we will optimize all of those channels, right? So it's things like making sure on your website, your online ordering has images that are compelling. It's making sure that the campaigns you're generating for marketing are compelling. AI does a very good job of that. It is getting those campaigns out to all of those different channels that matter, right, both online and through their data that they collect. That's Phase 1 of like -- and we're already seeing with that marketing agent that the usage and the value we're creating with our first-party software is greater because, again, restaurateurs don't have -- they're using fractional help to do it, and then we can do it better, and we can do it more efficiently. Now you think about like where this could go. Most restaurants don't do a great job of looking at when they're really busy and when they're slower to try to optimize yield, right? And so the opportunity that we have is we've got over 30 million accounts, Toast accounts in our back end that have signed up for Toast to get online orders, for example, or to set up a loyalty program. And so if you're a restaurateur, it's really valuable to say, okay, let's say our Mexican restaurant here. Who are the people that love Mexican food that have never been to my location, that live around here and are big spenders, right? And so for those folks, how can I generate the right custom messaging and offers to get them to try to our location. And that's why a big focus for us with our -- part of the reason we're investing in a big way in our local app is we want to get that audience number up, and so you'll see, for example, we just announced last year a partnership with Resy and Tock. And the idea is you can book a table on Resy and Tock as well as on our Tables product. And when you go to a restaurant now when you've booked a table to any of these platforms at the end of the transaction, right, one of the most painful parts about going it after eat is just like, having to wait for your check at the end, so you can just walk out with a card on file. And you can personalize the experience off of the data that now we have about you. And so as we build up that audience in local, right, we believe it's the opportunity for us to create the best experience for dining in and the best experience in terms of the best offers that are relevant to you based upon your dining history. And so I think there's -- hopefully that paints a vision for what AI can enable, where instead of it just being us being software providers, the vision is we can do a lot of the work more efficiently. And we may have some humans in the loop in the background, by the way, to support all of this, to actually drive incremental first-party demand. And we're doing this not just -- of course, we were testing with not just marketing, there's examples of how it's going in bookkeeping and accounting, some of the back-office tools. And the strategy is all of the software that we offer, we want to see whether agents can play a role to actually drive greater value for our customers.

Really helpful to lay out that vision. I want to shift gears and talk about payments and GPV and maybe starting with consumer spending and the backdrop there. There's a lot going on when you think about [indiscernible] tax refunds, changes in preference in dining. I mean what are you seeing as far as traffic, ticket sizes and consumer backdrop?

Yes, it's fair. There's always lots of puts and takes going on in the macro. But at the highest level, consumer trends are stable. And when you look at our GPV per location for several quarters, it's been within a narrow band. And to the point you're making on all the backdrop, restaurants have always proven to be really resilient. When we look back at data at various economic cycles, there's a resilience in restaurants and they know how to navigate. And so our confidence in that GPV per location staying in that narrow band continues as a result of just looking at this data time and time again.

That's helpful. And with regard to fintech monetization, your take rates have been expanding, which levers are repeatable looking ahead, think about pricing or mix or new products, which is the biggest opportunity?

Yes, it's a great question. We view there are several levers that are very durable for us over the long term, and we are very confident over the long term to drive our long-term take rate up. In the near term, really proud of the team's execution. They added 4 basis points of improvement year-over-year to our run rate, which is on the back of these initiatives you laid out, whether it's cost optimization, a little bit of pricing, new product development. And in fact, those are the same levers that they're maniacally focused on for the long term. So cost optimization at our scale of $200 billion in GPV, that affords us some negotiation leverage. It affords us even more scale on a per transaction basis. And then, of course, there's a whole team focused on how can we innovate around our platform to drive more value and deepen our relationship with our customers. To the extent, we can drive more digital transactions, obviously, that will impact the take rate.

And then pricing, we're following the same strategy and philosophy that we've talked about, which is really starting with small targeted improvements over time. And over time, as we continue to build our platform, there may be an opportunity to lean in more over time. But in the short run, we're going to really be focused on targeted moves.

Great. I want to shift the conversation to focus on locations. In the first couple of questions, we identified locations as location additions as the core growth driver of the model. I think you're now powering about 20% of SMB and middle market restaurants in the U.S. In your top 10 markets, you continue to have higher rep productivity showcasing the flywheel effect. And so how much longer can these high penetration markets display that flywheel type of growth?

And as a follow-up, you've guided to more net new locations this year in '26 versus last year, where you added, I think, over 30,000. What's the composition of this location growth across the core enterprise, international and retail?

Yes. So first off, like the past few years, we've been able to continue to add more and more net adds every year, and we expect to do the same this year. And I think that's really at its core, fundamentally starts with our core business, as I talked about earlier. And even Elena was talking about pricing earlier. The most important thing that we're focused on is to make sure in our core business, we have a path to market leadership. And that's why we're investing in a big way in the platform. The data signals we've seen from our most penetrated markets, right, shows that there's a path to continue to gain share in a big way based upon the share gains we're seeing. And I think for markets that we launched later, we have the same strategy where we're investing. There's a natural cycle to how restaurateurs buy this technology. And we want to make sure that we're in as many decisions, our win rates are strong. And the signals that we see internally tell us there's no reason why we cannot have in our core business, durable location growth like we have for the past 3 years, right, based upon the signals we've seen. We're still -- despite all the progress, we're [ at ] 20% share. And you look at SaaS category -- you look at like what it can be, if you're a leader in a category over time, it can be far greater. And the investments that we're making with AI and some of our data are all about reinforcing being -- having a path to continue to expand not just ARPU, but the differentiation in the market of the products that we offer.

In terms of the new TAMs, I think we always get feedback that I spend a lot of time talking about these new TAMs and they're smaller, right? And I am very excited about the potential here because if you look at -- whether it's a restaurant that is in Boston or San Francisco or London or Toronto or Vancouver, our strategy has always been from day 1, by the way, to really focus first and foremost on the busier restaurants that are more successful. And you look at like, as an example, handheld Toast Go 3, the thing that people say, time and -- if you go talk to restaurateur and the staff in restaurants, they'll tell you the thing they love about it is that it turns tables faster. The owners are happy, we get more in tips, right, and the guest experience is better. And so all the investments we make in our platform is focused on improving the experience, first and foremost, these busier restaurants. And if you look across the world in these Tier 1 cities, there's lots of busy restaurants. where Toast can help them run a better business. And so that's a big part of the strategy on these new TAMs in -- whether it's in international markets, enterprise upmarket. Enterprise restaurants just by nature, tend to be busier in terms of GPV per location versus SMB. And then in retail, it's been really interesting. This was the one area when we launched retail 2.5 years ago, we had more questions even internally from our team about like what is the strategy here? We've been so focused on restaurants for a decade plus. How do we think about the expansion in retail? And it turns out that like the challenges that we're solving in retail, we started with restaurant retail and now we're doing grocery and convenience in gas stations and liquor stores. That business has done tremendously well because the challenges they face in terms of using legacy technology, actually very similar to where restaurants were 10 years ago. And that's why we've seen the -- this market start to take off. And so I think as we think about like why we have so much confidence to our location growth, it's because we have confidence in our core business that we continue to take share. That's all the signal we see in our data. And we're focused very much on continuing to separate from the pack in terms of the differentiation our platform offers with AI. And then we're expanding the TAM in a big way to continue to serve -- to open up the opportunity with our platform.

Perfect. I want to ask a quick follow-up on some of the growth TAMs. Starting with international. You recently launched Australia. That's your fourth market, [ interestingly ] Canada, Ireland and the U.K. What factors go into your decision process determining what markets to enter? What should we expect as far as future expansion?

Yes. Elena and I talk about this a lot. I think the balance for us is how much -- I think with most strategy, at the end of the day, like how much you can take on, this goes back to like how much can you do well? Like that's the fundamental question, I think we're asking ourselves. And so the way we do that is we've committed to these countries that we launched so far, in the U.K., Canada, Australia and Ireland, and we're seeing really good success there. We're focused on making sure that in those markets, our strategy is working back to the busy restaurants, that we have a path to market leadership over time. And we're going to make sure, first and foremost, we invest in those markets right, to derisk our ability to have a path to a really great business because back to this flywheel effect, it really matters when you get to 5% share and 10% share because social proof is such a big factor in how people buy. And so the last thing we want to do in these markets is be spread too thin and don't -- not have a path, right, to market leadership. And we're seeing really good signal, by the way, in terms of productivity of our reps, fundamentally not that different than the U.S., which tells us that the -- and the customers are telling us that they see value in our platform.

Now in terms of new markets, back to like the strategy in busier locations, if you think -- if you just think about that for a second, like actually, that points to a strategy where you want to be more of -- if you want to be like really focused on the Tier 1 cities across the world versus going super deep in every -- across the entire TAM in these countries, right? And so part of what we're looking at is, as we think about Western Europe, as we think about other parts of the world where there are large cities that have high GDP per capita and restaurants [ team ] that's thriving, like what is the strategy to open up more of that TAM because, again, those customers can benefit from Toast. And the thinking there is, like any Horizons testing, we have a team that goes in and is doing future testing and learning to try to understand what -- when we launch, what -- and the signals are always, start with customer. What is the customer feedback? What is the team's feedback on the ground, what are our win rates, all the things we're looking in the U.S. and then we're also looking at the economics. So for example, in some markets, one of the questions we're asking ourselves is, do we want to go direct or do we want to go through a partnership where we may not get to some of those markets anytime soon and maybe there's a partnership opportunity there to scale. So those are -- I know I share a lot of texture there, but those are some of the factors that go into opening up new markets. But there's one thing I'll leave you with, it's making sure, and Elena reinforces to me all the time, is to make sure that in the markets we're in, we cannot end up #2 because we're spread too thin across too many priorities.

Great. So in enterprise, in '25, you signed 2 of your largest customers ever, Applebee's and Firehouse Sub, and you have a strong pipeline there. I guess I'm wondering what specific capabilities helped you win those large deals? And also, you're rolling out a drive-thru product. Does that change the game for you in enterprise?

Yes. For context for everybody, we didn't really have an enterprise business 3 years ago. Our core business was the U.S. SMB, and we had a really good penetration in mid-market, up to 500 units, but really not much of an enterprise business to speak of. And now we've scaled up and we've gotten many brands that are using the platform. And a part of that is just focus. We have like focused and invested to build out the above-store capabilities that are necessary in enterprise, and we've set up the organization. We have a dedicated leader who drives the enterprise business. And there's -- in terms of how customers buy there, how they're serviced, this level of support they expect, what they expect from a product, there are some differences. But the thing that got us conviction that we should invest here is, if you talk to franchisees or you look -- you walk into some of these restaurants that are enterprise brands, within the 4 walls of the restaurant, they still get a ton of value, right? So Applebee's, for example, like you walk in and you hear like, oh, the handheld is really helping us just like an SMB or you walk into a Firehouse Sub location and even with very early in the rollout, one of the things they saw was with our kiosk product, they were seeing better throughput, they were seeing higher check size and the cost to the franchisees were actually going down. And so often like within the store, there's lots of innovation that we've built in 10-plus years in the SMB really applies. And in terms of like what's gotten us to start to now open up the enterprise business, it's really like all the capability you need. So if you're managing 10,000 stores, like how do you manage across all of that in terms of things like your menu, your -- all the [ config at ] the Toast back end, the APIs that needed, the partner ecosystem, the security compliance needs, there are some just very specific needs that we were lacking, that we have built out. And what's exciting about the QSR opportunity is we're going to do a product in QSR this year. In enterprise in the U.S., QSR is 70% of the opportunity. And so that is a part of the market where -- and we see customer pull. Like we're getting into RFPs now that we never did because customers see the value of what Toast offers. And so that's an exciting launch for us where I think within drive-thru, not only will customers be able to benefit from the full platform that Toast offers, we're actively looking right now at how to leverage -- and I know it's still early. We're not quite there on this, but how to leverage voice AI because that's a key use case for drive-thru, where -- even if voice AI is not perfect at answering every interaction and there's some mechanical torque in the background to support you, it is -- it can be hugely productive. And so as we think about addressing product, we're looking both at partnerships as well as organic investments to see are there ways to create a really differentiated platform for this big part of the market.

Great. And one follow-up on retail. You mentioned that your retail adjacencies are facing some of the same challenges as your core restaurant opportunity. Are there capabilities that you need to build to fully serve the retail market?

Yes, for sure. I mean if you look at our retail business, a year ago, we had 7 people working and selling retail. And we saw enough signal with the product we had launched where we said, you know what, we should scale up the sales team. We -- like we never scaled the sales team beyond restaurants ever in the history of the business. And we, for the first time, did that last year, and the signal was strong enough that we said we should scale it again this year. And so I think the early signal in retail has been super positive. The ARPUs are already north of $10,000 in that business, not that different from our U.S. SMB restaurant business. And for context, 5 years ago, our SMB ARPU was $7,000, right, in our U.S. SMB business. And so those ARPUs will grow and scale over time. And I think back to what you said, like the reason we have seen a lot of early success is, we have built this platform that solves deeply for the needs of these retailers. So for example, in grocery, there are very specific product challenges. In liquor, there's some very specific product challenges, in convenience stores, down to like even integrating with the fuel pump, for example, to make sure you can process payments for fuel that we have built out or investing in. And we're replacing legacy on-prem solutions like we did with restaurants 10 years ago because no one in the cloud and the modern tech has done that. And that's really what's driving the win rate and the adoption. Now if you think about the road map moving forward, it's actually not that different again than restaurant. Like over the last 10 years, we've had to build out a lot of the product to support all these different restaurant types. And I remember when I started this company, I very much underappreciated how much complexity there is to support these businesses and all the different workflows that exist. And it's the same thing in retail, where you look at convenience stores, for example, very specific inventory needs or e-commerce needs. In grocery, there's a lot of needs around how to drive throughput in a checkout lane that are very specific in managing inventory while your grocery stores open has very specific needs. And so we're building out all the capabilities in the product. And then our sales team has been interesting. Like I'd say, maybe 80%, 90% of the sales we have done are in food and beverage retail. But we're actually seeing really good traction beyond that as well. It's very early. But whether it's in Home & Garden or even B2B retail, in a B2B retail, the very specific needs are invoicing and custom pricing, custom websites. It almost starts to become like ERP over time. But we're starting to see really good traction beyond even food and beverage retail where, again, we're learning. And I think that is going to be a part of our strategy. Like as we think about the next decade, part of it is going to be, of course, like making sure, again, we're focused on the TAMs we're in, where we're scaling. But I think a big part of it is going to be learning in these new TAMs because like if you just zoom out for a second, today, like Toast is going to power neighborhood restaurants. And like there's no reason, if you think longer term, why it couldn't actually power a lot of the neighborhood because there's so much overlap. Like you think about like walking into a retail location, the software and the hardware you need to take an order, take a payment, run payroll, run a schedule, like so much overlap with what we offer for restaurants. But if you can build specific capabilities in retail, I think there's a lot of upside there.

It's really helpful, Aman and some really exciting growth opportunities, a lot of momentum there. But Elena, how do you think about the economics of some of these new initiatives? One thing that you look at is payback period, like how does these new TAMs, the paybacks in these new TAMs differ from the core? What's acceptable from a payback threshold as you're scaling these new TAM?

Yes. No, really important question for us. So we've operated at mid-teens payback in our core for a very long time. And just zooming out, one of the reasons we're in these businesses, and you can hear the energy from Aman, is we believe there are significant ARR opportunities, and we also believe that they're a profitable business for us over the long term. And so back to payback periods, certainly, today, where we are because we're scaling, the paybacks are elevated above 20 months. But we have also taken the core business from above 20 months to mid-teen months. So we know that playbook, and we're going to execute against that playbook. And it's really across both honing the go-to-market motion, adding more product and really the intersection of both of those that we feel very confident we can drive each of them to payback periods of sub-20 months. And that's how we're operating the business that there's no scenario where we would operate a business over the long term that's not sub-20 months. So that's our operating principle. And then if you just take an example, Aman just talked about it, retail is already at a very healthy clip in terms of ARPU. We talked about the fact that we're increasing our rep capacity. So today, that rep capacity isn't in their -- what we believe is the long-term rep productivity. And so as they scale, that will contribute to payback. And then we're really excited about the product innovation, the capabilities that we're building across each of these segments. So that's just one example. But at the highest level, we're operating with a principle that we will run these businesses at sub-20 payback in a few years. Great.

Maybe [ once ] week reps retail productivity is very healthy for rev reps.

Yes.

Sticking to margins. You've called out some near-term headwinds related to higher memory chip costs, tariffs. What's the impact? How should we think about those? What's more structural or long term, what's transitory?

Yes. So first thing is our focus on long-term margins of 40% or greater has not changed despite this hardware, what we believe is a transitory impact. Certainly, in the near term, we'll have some pressure. We've talked about that in earnings for memory specifically, it's about 150 basis points in 2026. Tariffs has a bigger impact in '26 than '25. All of this, by the way, is reflected in our guidance. And what gives me confidence in how we're navigating this is a couple of things: One, we are working with long-standing relationships with our suppliers, two, we have a very seasoned team behind our hardware -- behind the hardware operations, and they're maniacal about trying to optimize the price and really thinking about not just near term, but what does long-term supply chain look like for us over time. So I feel really confident not only will we have the supply we need for '26, we have a line of sight into the supply for '27. And back to the first question, very confident, it will not impact our ability to deliver long-term margins of 40% or greater.

Excellent. Let's close out the conversation just framing profitable growth. You've hit your medium-term margin targets faster than expected. So what should we expect from here as far as margin expansion?

Yes, that's a debate that Aman and I -- we talk about a lot, right? Because -- was that payout? We talked this -- about this a lot. It really frames how we think about the company. First of all, you're right, we got to adjusted EBITDA margins earlier than we said at Analyst Day. And we also have a core business that's already at 40% margins with high incremental margins. And as Aman talked about earlier, that's the majority of our business. The reason we're investing in these new TAMs is because we really want to drive long-term growth. And as I said earlier, we believe not only will they contribute ARR in a significant way over time, but they are going to be profitable businesses for us. That maniacal focus on payback periods is what gives me confidence. And then when you think about it, a lot of these TAMs are drafting off the centralized operations that we have in R&D and G&A. So looking at that entire picture, I feel really good, not only about adjusted EBITDA margins, but really GAAP margins. Like we've done a lot of work to drive our stock-based compensation down. We've been incredibly disciplined in thinking about that as just like any other budget line item. And so when you look at the complexion of margins, both on an adjusted EBITDA basis and on a GAAP basis, we're really proud of how we're executing.

Yes. Only thing I'll just add to what Elena just said is to the extent that AI allows us to move faster in the business or to drive efficiency in the business, like we understand that, that is both a massive opportunity, right, and also can be an existential threat. And so we're going to make sure we're not left behind in terms of making sure that today, people talk about support and R&D being the areas across the business that we're leading when it comes to adoption, usage of AI to drive value for our customers and our internal efficiency internally in the business.

Perfect. Aman, Elena, we're over time. Thank you so much for the conversation.

Thanks, Josh.

Thank you.

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 Senno, 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 31, 2025. On today's call are 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 cautionary language in today's press release and our SEC filings for a discussion of the risks and uncertainties 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.toasttab.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% and expanded adjusted EBITDA margins were 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 TAMs across retail, international and enterprise doubled ARR in 2025. We welcomed some amazing brands to the Toast platform in Q4, including iconic independent restaurants, such as Carmine, Chef Daniel Baloo 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 Saas directly in to ranging from menu management or inventory updates. For example, Toast TIQ can analyze and update menus, tell them operator why the Thursday nights might be slow or why a certain daypart is successful and analyze results across locations. It can also 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 building on top of a strong Q4, we expect another year of record net location adds and system ARPU growth as we execute against the priorities we laid out last year. Number one, growing market share in our core; number two, demonstrate including 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 you can do these. Starting with our first priority, growing market share in our core U.S. SMB and mid-market restaurants.

We continue to grow market share year after year and now power 23% of SMB and mid-market restaurants in the U.S. This has nearly doubled over the past 3 years. We have seen success across all market types, including urban, suburban and rural markets as well as ones that had 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. Other new releases include Toast IQ and post advertising that are helping customers drive efficiency and guest demand. And Toast support has been reimagined with -- with over half of our 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 -- that'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 and Virgil's Barbecue. Carmine 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 to on Toast for the depth, speed and reliability necessary to support their scale. And the first few deployments have gone so well at accelerated their Toast roll out 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 in GitHub 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. For example, in 2026, we'll launch better support for non-native English speaking operators and features to support pizzerias and membership clubs even better. These investments in our products 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 our new markets. We signed our 2 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 TAM in these new markets gives me confidence they can be material drivers of growth over the long term. We are seeing the success because we're building on top of a proven vertical playbook. Vertical depth across product, go-to-market and customer success drove our early success in U.S. SMB restaurants, and we're applying the same approach when we build for retail, enterprise and international markets.

We are very comfortable winning 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 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 MTY Group and signed Pappa Murphy's 1,000-plus unit pizza chain. I chose host because of our flexible platform across multiple service models, including QSR and casual dining as well as the feature 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 through product, which is planned for later this year. We're confident Enterprise is well positioned to continue to drive strong growth in 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, U.K. and Ireland that Toast is making their businesses better. As we continue to build up support for the full platform in these markets, including the launch of our as well as inventory management, I'm confident we will drive even stronger win rates in ARPUs as we scale. Over the next few years, you should expect us to continue to scale in our current markets while opening up new countries artfully 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 chain, bottle shops, butcher shops and more because our platform offers the future depth necessary to support businesses with high SKU counts and complex inventory in high throughput environment. Many of these customers are coming from legacy on-prem solutions and have never experienced a cloud-based solution with the platform capabilities Toast 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 back end across their locations, from restaurants and retail shops in a hotel, the grocery store that also has a cafe or a restaurant inside it. A great example is meat market, a 2-location butter and grocer who replaced guesswork with data by deploying our platform, automating inventory and invoices and understanding their costs better. Automated management cut down mineral work and the rollout was smooth, thanks to our Spanish-speaking sales and support. It's a clear example of how Toast operators run more efficient capital 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 install inventory with Instacart's marketplace. Our success in food and beverage retail reinforces something we believe for a long time. Our platform works well beyond restaurants. We're layering in the vertical-specific capabilities to 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 into retail, use the signal from our customers and our retail go-to-market team is testing to 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 TAM 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 those 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 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 to help them manage operations, employees, guests and suppliers. As we've delivered more value and build out the partner ecosystem, we've seen broader attach of our platform as well as high ARPUs.

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 stretched thin to deliver 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 4 months post launch, over half of all Toast locations have Toast IQ, collectively sending over 8 million queries and tens and thousands of locations are already using it each week. We believe this early success comes out of 3 things: Toast so 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 first head with customers like, an early Toast IQ adapter that now uses it daily. Toast IQ upset teams quickly make decisions and turn hours of manual analysis into clear, actionable insights in just minutes.

Recently, the team used TostIQ to identify many 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 was enabled Today, customers are using it to get support, analyze data and make that and configuration changes such as updating menus or generating content to build an e-mail capi. We're investing 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 manual today. For example, we expect Toast IQ 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 agents to start to own whole functions for marketing, 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. Switching gears, our fourth priority is continuing 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 our existing customers and expand the opportunity across new markets where we're seeing great early success. I'm committed that we will be disciplined in how we invest and only 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 post. 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.

Thank you, Aman, and to everyone for joining us today. I also want to thank our team for another successful quarter and for the continued execution that led to our record performance throughout 2025. Our results showcased the strength of our business model in what was another outstanding year for Toast. Net adds increased every quarter versus a year ago, and we added a record 30,000 net locations in 2025, ending the year with 164,000 locations. ARR grew 26% and our recurring gross profit stream increased 33% for the year an incredible accomplishment at our scale with over $2 billion in ARR and $195 billion in payment volume in 2025.

On top of strong top line momentum, we are efficiently scaling the business through disciplined capital allocation and ongoing cost management. In 2025, we delivered adjusted EBITDA of $633 million and free cash flow of $608 million. GAAP operating income was $292 million, up from just $16 million a year ago, driven by our strong adjusted EBITDA and tight management of stock-based compensation. We entered 2026 in a strong financial position, enabling us to lean into our key growth initiatives with a path to double market share in our core and accelerated expansion in our new towns. We are confident that continuing to invest behind these opportunities will lead to sustained top-tier growth for several years and create significant shareholder value.

Turning to our fourth quarter results. Our recurring gross profit streams increased 28%. Total monetization measured by our recurring gross profit as a percentage of GPV hit 98 basis points. That's a 5 basis point increase from a year ago, reflecting our growing share of wallet and increasing value we provide to our customers. We added approximately 8,000 net locations in the quarter. We are consistently gaining market share in our core with increasing contributions across our new TAMs as they scale.

Underpinning the location momentum across the business is our best-in-class vertical SaaS platform and local go-to-market execution. SaaS ARR and subscription revenue each grew 28%, and year-over-year. We are complementing our strong location growth with consistent mid-single-digit increases in SaaS ARPU on an ARR basis. SaaS ARPU in our core is growing even faster than total SaaS ARPU, driven by customers continuing to adopt more products across the platform. Subscription gross profit increased faster than top line at 33%, with SaaS gross margins expanding 300 basis points year-over-year to 80% in Q4. In addition to ongoing efficiency efforts across the business, the early benefits from leveraging AI to transform our customer support experience is contributing to margin expansion.

Our SaaS net retention rate remained in a healthy range at 109% in 2025, led by solid contributions from upsell and location expansion from existing customers. Payments ARR grew 24% and fintech gross profit grew 25% in Q4. GPV was $51 billion, up 22% year-over-year with Q4 GPV per location down 1% versus last year. Fintech net take rate was 58 basis points. Payments take rate increased 2 basis points from a year ago to 48 basis points. We continue to drive year-over-year take rate expansion from cost optimization efforts new products and ongoing price optimization even after lapping the benefit from the September 2024 pricing adjustments.

Nonpayment Fintech solutions, led by Toast Capital, contributed $51 million in gross profit and 10 basis points in take rates. Overall, the program continues to grow at a steady clip, and defaults remain consistent and well within our risk guardrails. Hardware and Professional services gross profit was negative 12% of our recurring gross profit streams. In addition to capitalizing on our customer acquisition momentum, we are absorbing higher tariff costs, our strong overall unit economics and scale enable us to do this while maintaining healthy payback period.

Moving to expenses. We continue to balance investing in our highest priority initiatives across go-to-market and product while driving efficiencies across the business. Total full year OpEx, excluding bad debt and credit-related expenses grew 15%, providing 8 percentage points of operating leverage. In Q4, sales and marketing expenses increased 21%, we're investing to support our market share gains in the core, expanding our account management team and scaling the international and retail go-to-market teams to accelerate our progress. R&D increased 7% as we invest in product differentiation and add capabilities to expand our product markets across our new growth markets.

Adjusted EBITDA grew 47% to $163 million, a 32% margin. Stock-based compensation as a percentage of recurring gross profit was 12% and down nearly 5 percentage points versus a year ago. That contributed to GAAP operating income more than doubling to $85 million. We've dramatically expanded adjusted EBITDA over the last few years, reflecting the strong unit economics of our business and focused capital allocation. Dollar-based payback period for our portfolio remained in the mid-teen months in 2025, consistent with the last few years.

Our new towns represent significant ARR opportunities and our early success and strong customer signal give us confidence in our right to win. Payback periods across our new TAMs are above the core today, given we are earlier in building our go-to-market and product offering. As we scale and mature in these areas, we are confident each one is on a path to under 20 months. We have a proven track record and clear road map to improve payback periods. In the core, payback dropped from 22 months in 2019 to 14 months in 2023. During that time, we expanded our product offering to increase ARPU and build the flywheel effect, growing referrals and scaling the go-to-market motion to increase rep productivity. We also enabled our team with customer acquisition guardrails that balance efficiency and win rate.

Since 2023, we've held core payback steady, and we believe operating in this range provides the right balance of growth and discipline and support our long-term margin profile of over 40%. We are taking the same approach in our, expanding product capabilities to increase win rates and ARPU and scaling go-to-market to build the flywheel. Our near-term priority is investing to gain share. Over time, we have a clear path to optimize and drive efficiencies in the unit economics as we've done in the core. These new areas also leverage our core platform and centralized functions giving us confidence that at scale, these new TAMs will drive meaningful profitability.

Moving to capital allocation. We've repurchased approximately 8 million shares for $235 million since the inception of our buyback authorization in 2024, including 3 million or $107 million in 2025. Returning capital to shareholders is an important part of our approach to driving long-term shareholder value, and the Board has approved a $500 million increase to our share repurchase authorization. We do not have a specific timetable to complete the authorization and we'll maintain the same approach to buybacks, opportunistically repurchasing shares based on market conditions to support long-term shareholder value.

Turning to guidance and our outlook for the year ahead. Aman and I have highlighted our strong momentum across the board and our 2026 outlook builds on this trajectory. We remain well positioned to grow net location adds in 2026 compared to 2025 and sustain mid-single-digit SaaS ARPU growth on an ARR basis. For the full year, we expect 20% to 22% growth in our recurring gross profit stream and adjusted EBITDA of $775 million to $795 million, implying margins are slightly up year-over-year, consistent with the expectations we shared last quarter.

In addition to the investments we're making in future growth and higher tariff costs, our guidance also includes approximately 150 basis points of negative impact from higher memory chip costs for our hardware. This headwind emerged since we shared our initial expectations last quarter with memory costs increasing from the surge in global demand for chips. We expect the cost pressure to be weighted towards the second half of the year as inventory with our higher cost parts roll out. We anticipate the market to stabilize over time. And while near-term burger costs will be elevated, this does not structurally change our long-term financial profile.

Over the past few years, we've demonstrated the power and leverage in our business model. Rapidly expanding margins to hit our medium-term target faster than expected, while sustaining over 30% growth, investing in product innovation and building the next set of growth levers for the company. We are positioning cost to sustain high growth for the next 5 to 10 years and have high conviction and strong signal across our key growth opportunities. As we move through 2026, our bias is toward reinvesting potential top line upside to go even faster on our growth initiatives, including new TAM, product and AI investments and seeding future growth reps.

Our rigorous capital allocation approach is unchanged. We'll only invest where the customer signal and data going faster. We are confident delivering durable compounding growth with the incredible leverage and cash flow generation in our business model will maximize long-term shareholder value.

Turning to our first quarter guidance. We expect the same seasonal patterns in 2026 with Q1 being lighter quarters, both net adds and GPV compared to the rest of the year. That's reflected in our Q1 guidance for total fintech and subscription gross profit growth of 22% to 24% year-over-year and adjusted EBITDA of $160 million to $170 million. To wrap up, we are executing across the board, growing our core, expanding our TAM and maintaining healthy margins as we scale.

Heading into 2026, we're laser-focused on sustaining our momentum and continuing to execute at a high level across the business. We're incredibly excited about what lies ahead for TIs and well positioned to capture the massive opportunity ahead. Now I will turn the call back over to the operator to begin Q&A.

[Operator Instructions] Your first question comes from the line of Timothy Chiodo with UBS.

I want to first start with SaaS per location. So you mentioned for the full year of 2026 that you're confident and staying in that mid-single-digit range, which I think is great to hear. You mentioned that core and mid-market, so core SMB and mid-market are doing even better than that mid-single digit. There's a little bit of a drag on the front book from international food and beverage retail and enterprise. But I was hoping you could just break down a little bit of those components because international and food and beverage retail, yes, they're lower but there are good signs of them improving and getting closer and closer. Enterprise is sort of a different animal, right? Enterprise is sold differently. It's got a different LTV to CAC profile. It's very different.

So really 2 questions related to this. One, if you could talk about the mid-single-digit SaaS ARR per location, maybe over the medium term. And then 2 is, if you could talk about if you've ever considered or would you consider just breaking out enterprise separately because some of these per location metrics would just look a little bit better if enterprise, again, sort of a different type of business was broken out separately.

Thanks for the question. So lots of confidence actually in SaaS ARPU growth to remain in mid-single digits similar to what we saw in 2025. And to your point, core SaaS ARPU is actually growing faster than the total company based on exactly what you said, right? Some of these new TAMs today have lower SaaS ARPUs -- but it's early, and we expect that as -- we expect them to grow as a scale. And just 1 thing that we've looked at in our data, when you look across all 3 of our business , SaaS ARPU is ahead actually of where the core was at comparable times. So as we roll out more products, and we're planning on doing that across all of them, we will see ARPU grow over the long term.

And in terms of enterprise, it's a really great point that it's a very different sales cycle. The way we look at it is different. We looked at total ARR really when we look at enterprise. And we evaluate to be honest, steel by deal and the LTV to CAC per deal is really strong, right, there's high, low cap will turn all of these elements really contributing to strong unit economics. So really encouraged by what we've seen in international. And as we add more products like drive-thru, which we've talked about, it's only an opportunity to continue to grow.

Your next question comes from the line of Will Nance with Goldman Sachs.

I wanted to ask on the net adds, really strong finish to close out the year in the fourth quarter. and you reiterating the expectation for net adds up this year. I think you mentioned in the prepared remarks that 1 of the goals this year is to prove out that the newer verticals can be a material driver of growth and you've kind of given us some data points on that along the way so far. Maybe you could just talk a little bit about the mix of core versus new verticals this year. What would be a good outcome? And what should we be looking to kind of gauge your success in those new parts of the business being a material contributor.

Yes. Well, so I think, first off, as you mentioned, we're really proud of our performance here in 2025. Every quarter in 2025, our net adds were up year-over-year. And in fact, in Q4 of 2025, the rate of growth accelerated to over a case. So I think that's really a testament of the team's performance. Now in terms of the composition, what we saw last year was the core was in the same range. And a lot of the incremental growth on net adds came from these new TAMs. Now if you think about the core locations, the market share has doubled over the past 3 years. And so when we look at this year now, what we expect is actually a very similar pattern to play out where the core should be in a similar range to 2025.

And the new TAM should grow further, which is why we have a lot of confidence that net add growth in '26 should be even higher than '25. And some of that is, of course, we're investing in go-to-market capacity. We talked about that in retail. Some of it's the sales capacity we have added ramping. And then we're also doing some early testing. We're learning beyond food and beverage retail. And as we expand the TAM further, that will give us some upside over the long term as well.

Great. I appreciate that. And then if I could squeeze in a follow-up. I was wondering if you could maybe just address kind of the elephant in the room around AI disruption in software. We used to talk about post trading like a software company has been the bull case, but now that it's gotten up in this AI narrative I was hoping I could just give you before and you could talk about how you think about the moat around this business and why not new intricate leveraging new technology are a threat to the business?

Yes, sure will. Look, I think if you think about what Toast is, we're the most important piece of technology restauranteurs used around their business, like where all the work gets done, you think about like running the operations front of house, back of house, kitchen, all the reporting and analytics and data, the guest experience. Like a restaurant's website, online ordering, gift loyalty, employee management, finance. And it's really broad. If you think -- we don't talk enough about how you think about everything to stop or is it's software, it's also hardware. It's fintech, so things like lending and payments, payroll, with heavy regulatory and compliance needs.

We power the network of these restaurants. And then we've got hundreds of partners that sit on top of Toast to extend what our platform offers. And if you talk to our customers, the other thing you'll hear is, in addition to all the technology that we power. They also look to us to leverage all the technology, almost like an outsource CIO, like all of the sales and services team that enable our customers to leverage all of our technology. And so I think there's a lot to the toast platform.

I actually think AI is an opportunity for us to lean in even further. If you look on the customer side, and I talked a little bit about this in my prepared remarks, -- we are -- we started off early on by automating certain key workflows like generating an email campaign or maybe it's about getting inventory on the shelf faster. And now with Toast IQ, this copilot that actually can help restauranteurs leverage more of our platform, whether it's a dialysis or data, it's automating certain workflows and making changes to the post back end.

Voice, I think, is another opportunity. You think about walking up to a kiosk, going to drive through walking up to a terminal, was to automate some of the work of placing an order. And then longer term, we are investing in a big way in Toast IQ, to do even more. So I talked about how restauranteurs spent a lot of. They outsource work around generating demand with marketing or bookkeeping, payroll and tax, and we think there's an opportunity there because a lot of that is our data that's powering those experiences. There's an opportunity there to actually make some of those workflows more authentic than they have been in the past and to create institute them better and to do them cheaper. So I look at AI as an opportunity for to lean in and drive innovation and impact for our customers. And versus being a risk of the business.

Your next question comes from the line of Tien-Tsin Huang with JPMorgan.

Nice results. Just to add on to your answer to Will's question there. Is your margin framework Aman give you the leeway to lean harder into R&D to the extent that AI creates more opportunity, more tools, product services that you just talked about that customers demand. I'm just curious how you're balancing that, again, the leeway to lean in if you need to?

Yes, I'll start and on maybe you go ahead , as you're exactly right, a part of the reason, in fact, when you just think about our margin profile, we're not expanding margins faster because we're investing in R&D to really sustain this long-term growth that we've talked about innovating for our customers, solving problems for them. That said, our margin framework is to hit that head on remains unchanged, right? We're targeting 40% margins over the long term. And that pace, this is really important. The pace at which we drive that margin is in our control. And then a lot of things that Aman has said around AI investment, we view that as an incredible opportunity to accelerate and do more for our customers over time.

Yes. That's well said, Elena. I just want to reinforce one point. We are here to build a generational company over the next decade. If the reason we're investing across the business, including in R&D in a big way because we think we can there are many multiples of the current 10 that we serve, and we can increase the impact through investments we're making for us the platform. And so that's why we're investing in R&D. And if we wanted to focus on near shorter-term margin expansion, we absolutely could do that. It's really about investing for the long term.

Your next question comes from the line of Matt Coad with Truist Securities.

Aman really appreciate all the AI commentary so far. I just wanted to ask 1 more. Just curious with all of the broadening out of Toast IQ and everything it's doing for merchants, -- are you seeing to IQ kind of be a big reason why you're starting to win RFPs? I don't know if so, what type of merchants find the most value in these tools?

Yes. Today, the focus, I think, is really in our SMB business. And we're certainly seeing our go-to-market team and our customers some of the data in terms of usage and adoption, play a big role in terms of why people are picking costs. And I think what customers like about it, if you think about the average SMB restaurant owner. What they like about Toast IQ is that you've got this copilot that you can query. So whether it's simple things like asking questions to analyze data, it's much faster than finding the specific subreport that they need. You can generate custom views and data that maybe in the past have to export to excel and create a custom view on. You can make changes to the back end of the test as I mentioned. So if you want a for example, or change which shows up online for online ordering. All these workflows that are so crucial, the ability to do faster has really been valuable to our customers. And we're certainly seeing that in our sales cycles.

We're seeing sales team is super excited about it and sees the impact it has because our tool is really purpose built, right, for the restaurants because a lot of the data and the use cases are focused on the workflows that our customers care about. So it's a -- and again, I'd say it's early, as I mentioned earlier, I think over time, -- we think there's an opportunity to start to automate more complex workflows.

So think about like -- imagine most if I'm a restaurant, I want to think about demand when I'm slower, generating marketing spend through towards advertising to say, help me drive more demand. in a budget, for example, and then over time, start to make more of the work more agentic. So again, good to see the early progress, and we're going to continue to invest to make it better based upon customer feedback. .

Your next question comes from the line of Josh Baer with Morgan Stanley.

Changing gears a little bit. Could you expand on the drive-thru product rollout? I think that you acquired a company called Delphi several years ago that had, and I'm just wondering if that's a segment of the market that you have been addressing already? Or does this rollout open up that market?

Yes. So far, our focus upmarket in Enterprise has been a non-drive-thru. If you look at all of our wins so far and the progress we've made, right? It's been in casual dining, it's been in sit-down. It's not been where drive-through is the primary mode of their operations. And the investments we're making now, we're going to -- we're planning to launch our drug through product this year, which is going to open up that market in a much bigger way than has been available historically. It doesn't mean that some customers don't use that have got small drive-through, small amount of rights part of their business to us south, but there's a lot to supporting multilane director and some of the complexity that exists there that we're launching this year.

Okay. That's really helpful. And along those lines, are there any other segments of the U.S. market that like you're not able to address today because of product, but maybe it's a potential on the product road map and opening that up down the road?

Yes. That's a good question. We're seeing across whether it's SMB or enterprise, there are parts of the TAM where we think we can create more value -- and as I mentioned, like, for example, in SMB, for non-English-speaking operators, there's some work we've done and we are doing that I think will help. Even in parts of the tamer we're established, like bars or Pizza Ria or membership clubs, we're making some moves to a product that I think can drive for the win rate. And then upmarket enterprise, there's opportunity in some segments of the market, like Sports and Entertainment as an example, where we've got some traction but we think improving the product where they're looking at what are our win rates, what's our market share across all the sub cams and then using the size of the opportunity to prioritize their road maps.

Your next question comes from the line of Adam Frisch with Evercore ISI.

Taking a step back to put '26 in perspective, you're still growing really well while investing heavily. Do you see it as a peak investment year is at least as it relates to the current cycle? And then related to that your initial guide for RGP in 26 implies back half deceleration. Is there anything you'd like to call out there that's driving that initial guide or reasons it could prove conservative? .

Balance as you know, looking at last year. And obviously, with GPC, we want to be balanced, but we always aim to do better. So just keep that bind as we progress, we'll update you on that over time. And then in terms of your first question on peak investment year, as Aman said earlier, we're really thinking about this over the long term. We're trying to build a generational business, right, and have an ambition to find opportunities where we have the right to win, where the customer signal is really strong. And so 2026 reflects our conviction behind these new TAMs that we talked about. We haven't changed our long-term margin profile, as I talked about earlier. In fact, we have a lot of conviction and more conviction because of the TAM and the fact that we have a path to sub 2 months. So zooming out -- what you're seeing in 2026, you've got confidence that we've identified new TAMs that will drive durable growth over the very long term. And like I said earlier, driving margin and the timing of that is really in our control.

Your next question comes from the line of Dominick Gabriele with Compass.

Thanks for the question. Another question on AI. It's very much dominated in the debate with investors. The key concern, of course, is software becoming more commoditized. So man, do you speak a bit more about post potentially evolve and beyond a software provider into more of a platform business, particularly through the strength of your ecosystem partnerships. Any more additional color on how that kind of would be really helpful. .

Yes. Sure, Dominick. I mean, if you look at cost today, right, it is already, I'd say, more than right, a software provider for our customers. We've got -- and I think to your point about like how do you deepen the moat. It's continuing to invest to make the platform better and better to support the use cases that our customers want, including with AI. And so if you look at today, like the tools platform, it's got software. It's got a broad software platform class, powering operations, employees, guests, fintech, I think is less well known, we power the network in these restaurants as well. And then that, as you mentioned, this large part of our e-position that sits on top.

And so part of the reason the average SMB restauranteur picks Toast host is because we simplify all aspects, right, of the technology needs they have to help them run their business like they love the all-in-one nature of our platform. And so -- and I think the more we can continue to lean in to make our platform better and better. I mentioned some examples early on with Toast IQ, in voice AI. And then lastly, if you look at the average restauranteur or to manage our books or accounting and bookkeeping or to help you with parents. And those are the areas where the data, as I mentioned, comes from toast. And so we think with OIC, the vision is to start to support more and more complex workflows over time, which eventually, I think, could be actually doing some of the work. And so that's really the vision there in terms of where we're headed with AI -- and then I think in terms of your question on what Toast does the software provider I'd argue even already today, right, cost is a lot more than just a software provider.

And Mizuho.

Last but not least, I guess, quick question and a follow-up. On the -- back to the AI environment, can you maybe talk about sort of the top 4 to 5 cross-sell modules -- and how much of the SaaS ARR they represent? And then I have a quick follow-up.

Dan, is the question specific to cross-sell modules tied to -- or just to clarify the question.

Yes. Just like given that there's so much focus on like AI and software like what are the most kind of important modules that you're selling in terms of like staff.

Yes. It's a good question. If you look at the history of like how our platform has evolved. So initially with the , it was about automating some of the simpler work that a restaurant or had to do. So I'll give you a good example. If I'm using our market opening module to drive demand. It's really valuable to be able to actually generate those e-mail campaigns that they are because we've got less on e-commerce, the ability to leverage our master catalog and generate images with AI general descriptions, I just make that workflow faster. So that's really how we -- that's an example of how AI is actually embedded across our platform. And if you look at like features in guests or employee, for example, with scheduling, right, being able to forecast demand and be able to automate a schedule is an area that we're working on to automate the speed with which restauranteurs can drive efficient scheduled.

So it's really across the board in the platform that we've asked our R&D teams to focus on ways to leverage AI to make the platform stronger and better. And specifically on your question on where are we driving across that, Toast IQ and the adoption of TSEC is really the foundation. We've seen really good adoption so far, as I mentioned, it's helping us drive win rates. And over time, within that to framework and then, of course, with voice as well.

So that's where we're headed. And so forth and the focus really is right now is getting the TIQ platform more wide.

Great. And maybe just like a quick follow-up on the location metric has been obviously like front and center, like as we move forward in the outer years, is this still sort of the main metric? Or is there something else you would like investors and analysts to be focused on?

Great results. Yes. Thanks, Dan. I can start. I think, look, at the end of the day, it's about driving durable growth. It's about driving ARR, current gross profit, we guide under current gross profit and balancing that with healthy margins as we continue to scale. -- the location growth, as I mentioned earlier, like I think the thing that gives me a lot of confidence there is it shows that what we did in SMB restaurants over the past 10 years, is applying beyond SMB restaurants as well. And that's really the crux of why we think there is an opportunity to continue to drive durable net adds over the month.

This concludes today's conference call. Thank you all for joining.

All right. Welcome, everyone. We're so glad to have with us today the team from Toast here in Arizona. Joining us on stage, we have Elena Gomez, who is President and Chief Financial Officer. Also here in Arizona, we have Head of Investor Relations, Emily Woodward. So thank you to both Emily and Elena for joining us here in Arizona. A few years running now here at the conference. Elena, it's a pleasure to have you up here.

Thanks for having me.

All right. Great. Let's start it off with 2025 milestones and trends. So 2025 is shaping up to be another strong year for Toast. Your top line metric, which is recurring gross profit, looks like it's going to be growing at 32%. You're on pace to add more net locations this year than you did last year. Your adjusted EBITDA margins are expanding by more than 600 basis points. That's a lot of accomplishment. Maybe you could recap some of these highlights and to you, really what stood out this year and maybe a little bit of how you're thinking about heading into 2026. We'll clearly hit this in more detail later, but let's just set the table.

Yes. Great. Thanks for the question. At the highest level, 2025 was a strong operational execution year for us and love to see the maniacal focus on execution across the company and that momentum that you see us exiting 2025, and I'll get into some specifics, is really given us confidence in 2026.

And so in 2025, as you laid out, we crossed a $2 billion milestone, a really big achievement for this company. We're on pace to deliver 32% recurring gross profit and doing so at a healthy 33% margin. So I really feel great about the business, and we're heading our medium-term target that we laid out at Investor Day early. So just a testament to the execution of the team. And really what underpins it when I reflect on the year is our focus on 4 things, which Aman lays out all the time. One is penetrating the core TAM and going deeper into those markets. Two is expanding the TAM that we'll talk about a bit later. And three is this consistent focus on innovation. That's always been the pillar at Toast to consistently innovate for our customers and solve pain points, executing well there. And then obviously, all of that doing it with a very strong capital allocation framework in a very disciplined way. And so that playbook is really what gives us confidence as long as we continue to execute, we'll also build our foundation for 2026.

In terms of the emerging businesses, we've seen a lot of progress this year. We've talked about crossing $100 million in ARR, really just a lot of focus execution in those businesses as well. A lot to love. We launched Australia. In enterprise, we won some of our biggest deals in the company's history. So anyway, lots of momentum in the business, as you can tell, and I'm excited about 2026.

All right. That's a good intro. Let's segue a little bit into a little more detail on that. You mentioned some of those new markets. So the TAM is clearly expanding and the growth algorithm is evolving. We're adding enterprise, international and food and beverage retail, and you're having some great early success there. Maybe talk a little bit more about what's driving that success?

Yes. When you look at these businesses, it's really applying the same playbook that we've applied to become a leader in the U.S. SMB markets and applying that same playbook to these markets. And underpinning that is when you look at the patterns in each of these segments, there's -- what we see is legacy players. We see a fragmented market. And we also see an opportunity to modernize the tech stack, in particular, in retail. And so when you take our proven playbook and apply it to these TAMs, that's what gives us conviction that we have a right to win.

Internationally, we started, of course, in English-speaking countries. We're seeing really great traction. In retail, we're focused on building out the inventory capabilities, but that -- they're -- we're serving a lot of legacy. A lot of those customers have legacy players. So it just brings an opportunity for us to bring our modern platform to that market. And in enterprise, we've been building these above-store capabilities over time. So feel really good that we have a right to win there as well.

All right. Excellent. Well, sticking with these new TAMs, and this is a question we get often from investors. Maybe you could talk a little bit about the ARPU profiles of each of those markets, enterprise, international and food and beverage retail.

Yes, sure. So the way we think about these emerging businesses or new segments is they represent a significant ARR opportunity for the business, and we believe they will be significant cash flow generators over the long term. And so in that context, we also know that they'll all have very different ARPU profiles. But because we manage this business with healthy unit economics and payback periods, we're going to manage each of these individually with those same guardrails as well. And so that's sort of the big picture.

In total, obviously, in our core business, we've been at it longer. So the ARPU of the core business is higher. But we have an opportunity with these new businesses to expand ARPU over time. But in the total ARPU, the impact will be gradual as we get into these new businesses, total ARPU primarily driven by the core today. And in the core, we also have an opportunity to continue to expand that ARPU over time. And a lot of that is through product attach, et cetera. But overall, I feel really good about the complexion of the businesses where they are today, but even more excited about the opportunity with these businesses over the long term.

Excellent. All right. Well, you mentioned the core. It's a good transition into talking about that. So core SMB and mid-market location adds. So it's been a big topic for investors in terms of the net location adds. So you recently talked about on the earnings call that U.S. SMB net adds were in a similar range in 2025 as they were in 2024, and you expect them to also be in a similar range in 2026. When we look at it mathematically and we just think about this year base getting larger and larger, and of course, there is some degree of location churn from restaurants failing, that it would seem to us that at some point that the U.S. net add number would have to start to taper off a little bit. And maybe you could just talk about those dynamics.

Yes, sure. Let me just start with where our conviction comes from, which is sort of bringing together a best-in-class product and then the maniacal focus on execution and operational discipline of our field teams, that combination of those is really what gives us this confidence in delivering core net adds really for many years to come. And that's why core adds in '25 are in the same range as 2024, and we believe we'll be in the same range in '26. And so when you think about that, then you add on the emerging businesses, which, of course, will drive consistent net adds to Toast over the long term.

In terms of the core business, we still have many markets that are not flywheel. So it gives us an opportunity to turn more markets into flywheel. And to the point you made, as we get bigger, naturally, the core net adds will taper. That's just like the way the math works. But we're just not there yet because we still have plenty of runway to grow in the core. And that will happen gradually effectively. So that's how we think about it, but we're really excited to think about -- and actually, I should say the way we think about it is we want to continue to add net adds to the platform and the mix between core and emerging businesses will change gradually over time. But the goal we have is to continue to add net adds to our platform every year.

All right. Well, very much related to that. You stated a goal that was a really impressive one, which is to roughly double your market share in the core. With that comment, there's lots of questions around the competitive landscape. And maybe you could just talk about if there's anything that you've observed changing? And maybe just talk a little bit about related win rates or sales force productivity or payback periods.

Yes, sure. Look, I'm really proud of the team's execution. Aman mentioned this on the earnings call, our win rates are up. Our productivity is really strong. And we've built a really healthy business as far as it relates to unit economics and payback. And so we give our reps the tools to win in the market. That's really what's driving their win rates. We empower them to make the decision on the ground.

And look, they're really going after customers with high GPV. And in cases where they need to lean in, we focus on payback period and make sure they follow these guardrails that really feel good about their execution. And it all comes back to having a best-in-class product, having this focus on go-to-market execution. And ultimately, that's what you're seeing play out in our win rate and our success adding -- consistently adding share gains every quarter, every year.

All right. Excellent. So we've covered locations quite well. Let's move into SaaS ARR per location. So as a backdrop, SaaS ARPU or SaaS ARR per location has been solidly in the mid-single digits for some time now, and you've talked about sustaining that into the near term. Maybe just talk a little bit about some of the drivers there and what some of the mix impacts are having on that ARR per location growth.

Yes, sure. We feel really confident to be in that mid-single digits, just as we have been over the course of the last several quarters. And the one thing to note is our core ARPU is growing faster than our total ARPU. So that's just the dynamic, obviously, underneath the hood. And that makes sense, right? We've been in the core business much longer. We've been at it for 12 years. We've got these newer businesses, and we have the opportunity over time to add product to each of these segments to drive ARPU over the long term. But mid-single digits is a good range for us to be in the near term.

All right. Excellent. Covered that one. Very clear. Let's move on to GPV per location. So maybe you could just talk a little bit about macro-wise, what Toast is seeing in terms of any GPV per location trends with -- we're about 2/3 of the way into the quarter. And then maybe looking beyond that, how should investors be thinking about GPV per location?

Yes. Just like we said, nothing's really changed from our earnings call. We see trends to be relatively stable. And of course, we're watching the macro. But for us, the trends are -- have been very stable, like we said on the earnings call. As we zoom out and think about GPV per location over the long term, as we get into these new segments, we're going to see different profiles, of course, similar to ARPU. But because the core business is such a big part of our business today, the impact of adding these new segments will be super gradual. But feel really good about our ability, again, to grow the business. And GPV per location tends to stay in a narrow band, and that's exactly what we're seeing.

All right. Excellent. Let's move to the next topic, which is net payments take rate. So you recently had some strength, and I'd say this has been another one of the highlights of 2025. And you called out 3 distinct factors that have helped to drive this net take rate a little bit higher. So one is this cost optimization efforts. Two, or some surgical pricing that you've made along the way, and that's in addition to the more notable one last September. And then also the surcharging project product, which is still relatively nascent within your business. Maybe you could expand upon those.

Yes. I'm really pleased with the progress we've made. Take rate has been up year-over-year every single quarter in Q3 and is on pace for that in Q4. And that's really not any single item. It's what you laid out. It's pricing, it's COGS optimization and then advancing our digital products. So on pricing, just to unpack that a little bit more. What we've said is we will implement surgical, very targeted price changes. You'll never see sort of a step change in our pricing algorithm, but more steady targeted price change. So we executed against that, as you said, last year and continue to do that in pockets.

And then in terms of COGS optimization, we have a team that is really focused on looking at cost per transaction. And as we scale, we're processing over $200 billion in GPV, we have an opportunity to drive cost per transaction down. And so the team is really focused on that. And then in terms of surcharging, I would say that's just an example of our innovation. We can innovate for our customers, solve some of their problems that's what surcharging did and drive more digital products. As we do that, that presents an opportunity for us to also drive take rate. So zooming out, I think we have this opportunity to continue to drive an increase in our take rate over the long term, leveraging some combination of these levers over time.

All right. Excellent. Well, let's move on to some of the comments around 2026 and some of the investments that Toast is making. So at the most recent earnings call, you gave sort of an early outlook into 2026. You talked about net location adds growing in '26 versus 2025. You talked about recurring gross profit growth being above 20%. And then you talked about the margins being flat to slightly up. And when we look at what the OpEx that implies, it implies a little bit of a step-up in investment. We believe that's because you're seeing lots of opportunity and you want to go after it. Maybe you could talk a little bit about what you're going after in those new TAMs and why you had such confidence to lean into the investment.

Yes, sure. So at our earnings call -- our last earnings call, we laid out a financial framework for 2026, very much in line, by the way, with our Investor Day framework a couple of years ago. But let me unpack what we said at earnings. So we said really 2 things. One is our recurring gross profit will minimum grow 20%, consistent, like I said, with what we said at earnings. And we always aim to do better, and we've proven that we've done that over the course of the last couple of years.

In terms of margin, what we said is margins will be flat to slightly up. And the reason for that is we're operating from a position of strength. Our core business is generating 40% margins, and it's the lion's share of our business. The incremental margins are higher, which is fueling our ability to invest in these new verticals. So we feel really confident in our ability to -- and now is the time to make these upfront investments in these new verticals. And the reason for that is because each of them individually represent significant ARR opportunities. I talked about them becoming significant cash flow generators for us over the long term. In order to do that, we have to make some upfront investment, and that's what you're seeing us lean into in 2026.

Okay. A little follow-up on that. So in terms of those investments, when we think about breaking them down, maybe you could give us some more directional color around how much of that is for the core versus the new TAMs. And then in terms of the more functional investments. So some of that you mentioned is going to go-to-market and then some of that is going into product innovation or adding new modules, which is supportive of ARPU.

Yes, sure. So a couple of things. One, as I said, our core business is the lion's share of our business, and we continue to believe we have a ton of runway in our core business. We've talked about doubling market share. In order to do that, we're going to continue to invest in both go-to-market capacity in targeted areas, continuing to turn flywheel markets. And then we're going to continue to invest in product innovation. We've always really focused on being a differentiator and investing in innovation, things like Toast IQ, which we'll talk about, I'm sure, and some other product ideas. So definitely a lot of investment going into the core business.

And in terms of the emerging businesses, it's really a combination of rep capacity. You've seen us lean into rep capacity across all of them. Enterprise is a little bit different. Enterprise is really more of a product play. But for international and retail, it's really about investing in rep capacity and then building out the platform. In international, as you remember, we started with just some elements of the platform. We didn't build out the entire platform. So as we've added capabilities, we're seeing really good there. So that's ultimately where the investment is going. And zooming out, what I think about is we're seeing really positive customer signal, we're seeing really positive rep productivity and we're approaching these businesses in a very data-driven approach.

So in '26, as we invest, there may be times where we see something that's not working. And we -- because we're so data-driven, we may pull back. The flip side is we may see areas where we have a lot of success, and we want to lean into that investment. Regardless, we'll always manage back to these payback periods and take a very disciplined capital approach to invest in these new verticals. And zooming out even further, I would say the most important thing we're doing is investing in '26 for the long term. It's not just about '26, right? We're talking about building and sustaining growth over the long term, and these growth factors present that opportunity.

Excellent. And just a minor follow-up. You mentioned just now in terms of rep capacity, and you talked about the growth markets. But also, I know we've about this off stage, but there's also some additional investment behind rep capacity even in the core and that [indiscernible]. And the productivity of those reps is up. So the combination of more reps, higher productivity equals higher gross adds for the core.

Yes. No, that's exactly right. And in fact, in our core business, it still represents a big opportunity for us. If we're trying to double market share, clearly, we're going to have to make some investment there, both in obviously, product innovation but also targeted rep capacity as well.

All right. Excellent. Well, you also alluded to this, Elena, you talked about how the sales teams are managing to payback periods. And one component that goes into the payback calculation is hardware. So in the current environment, you've mentioned a few comments around the tariffs. And again, this is a tool that the sales teams have to them. And all this adds into the hardware cost that goes into the calculation. Maybe talk a little bit more about hardware and how the investment community should be thinking about that?

Yes. Sure. Hardware has always been a lever that our reps use on the ground, always been actually a differentiator for us. And a couple of things I would say, we really empower the reps. We have a very sort of strict payback period in guardrails that our reps follow and very clear escalation paths, if needed. But when a rep is dealing with a customer, at the end of the day, they're really managing a bunch of levers. They're managing what's the hardware that this customer, like what do they want to pay upfront, they're thinking about the SaaS and subscription. They're thinking about payment rates as well.

And so the rep has the tools to look at the total cost of ownership of a customer. And we empower them because we have this payback framework that they're very familiar with, and we train them a ton on it. They're empowered to leverage that. And in cases where they need to lean in on hardware, they will. And then the other thing I would say is we're on our third generation of our Toast Go 3 device, which is best-in-class. And in fact, I was with the customer watching and onboarding last month. And we got to talking and this business was the head of restaurants for this 200-footprint restaurant location. And she said, look, one of the reasons ultimately we chose you is because we wanted your Toast Go. devices. We wanted them in our cafes. We wanted them in our restaurants because we believe it's going to drive a better operation and a better customer experience. So that was music to my ears. But hardware is absolutely a differentiator and definitely something that the reps use in their toolkit.

All right. Excellent. With the time remaining, we're going to try and cover 2 more topics. One is Toast IQ and the other is partnerships. So Toast IQ, a recent product, really, it's a great example of some of the unique things that Toast can do with your scale and your data. Can you talk a little bit about this offering? And then maybe more broadly, just some of the other innovations and things that are in your product road map ahead?

Yes, sure. Really excited about Toast IG. I'll talk about that, but I just want to frame how we think about our road map. First of all, we've always said driving differentiation for our customers and helping them solve problems day-to-day in their workflows is really important. And so we're continuing to invest behind that. And we're also leveraging all the data that sits within our platform and leveraging AI now in Toast IQ with this data. And so Toast IQ specifically is really think about it almost as a copilot for the restaurant operator. They can ask it questions. It can drive insight. I was actually with a customer in Chicago, and she mentioned that she's using -- Toast IQ has changed how she runs her business. And tell me a little bit more.

And she said, "Look, it tells me when times are slow. It tells me what are the best selling items on my menu. It tells me which employee is -- has the highest sales" also tells her which employees have voids. So she's doing some performance management. But that's just the beginning. You can imagine that she's taking action as a result of some of these insights that she's getting from Toast IQ. And this is in the early stage. I can see the team already thinking about how to iterate on this product and make it even more powerful for our customers. So really excited about Toast IQ.

And then in general, it goes back to leveraging this data. Advertising is another example, where we're helping our customers with some of their marketing campaigns. And a lot of these customers, they don't have a CMO on site. They don't have someone who can really think about their advertising strategy. And so leveraging advertising is a great tool for them, and we've made it super simple. A lot of the customers that have been using it are seeing very specific ROI. And again, we're early in our journey on advertising, but can see that evolving more as we leverage the data in our platform.

Excellent. Let's move on to partnerships. So there were 2 big announcements this year, one with Amex and one with Uber. Maybe you could talk a little bit about these and the broader approach to partnerships that you take at Toast.

Yes, sure. Partners for us are really an important strategic asset, right? What we -- not only the partner ecosystem that we have, we have hundreds of partners that build on top of our platform. And then we have strategic partners like an Amex and an Uber, all with the focus on helping our customers be successful in making sure we give them the capabilities they need.

In terms of Amex, it presents an opportunity for us to improve the guest experience that we're uniquely positioned to offer and bringing all of the inventory with resi and tables all into one place. So -- and it's early on the Amex partnership. There's a lot more we can do together to mutually benefit both Amex and Toast. And then Uber presents another opportunity for us to together drive benefit to our mutual customers, have a better integration for customers with the Uber platform. And over time, we can see this relationship also continuing to expand as we do more with them and continue to build on the partnership. But it's early. And so we'll have more to update over time, but really excited about both these partnerships and look forward to sharing more over time.

Excellent. We have some time left here. I think we're going to try and get in another 1 or 2 here. Let's talk about a topic we get this question all the time from investors around enterprise payments attached. So you've announced some big and notable enterprise wins over the past few years. Applebee's, Potbelly, Perkins, Huddle House, just to name a few. And some of those came with payments opportunities, and some of them are potentially up for grabs for Toast to go get. So maybe you could talk a little bit about some of those focus areas and how you're driving better payments attached within some of these enterprise wins? And if you don't mind, maybe just longer term, what's the level of enterprise payments attached that investors should be thinking about?

Sure. So most of our customers today, most of our enterprise customers do take payments. There's only a handful that have not taken payments. I'll start there. And typically, that's because they already have existing relationships. But just zooming out in terms of the enterprise opportunity, we've been building the capabilities for enterprise over the course of the last several years. And what we're seeing now is we're getting pulled into deals. And often, when we get pulled into these deals, it's because we've got a modern platform. It's all in one place. We've built all this above-store capability. Payments just naturally becomes part of that conversation. So more often than not, we're actually seeing our customers take the payments as part of the overall better together platform, if you will.

All right. Excellent. A minor follow-up there. Just I gather there might be some nuance with some of the hotel chains. Maybe you could just elaborate on that a little bit.

Yes. So we -- you're probably talking about Marriott. When we launched Marriott, I want to say, it was 2 or 3 years ago, they already had an existing relationship with a payment provider. But the journey with Marriott has been wonderful. We have great partners continuing to add locations kind of at a steady rhythm in our profile. So we really feel good about that partnership. And hotels in general, has been a really great outcome for us. As we built on Marriott, what's happened is we've gotten inbound from other brands, which makes that a really healthy business for us. We launched Choice Hotels, as you recall, I think that was last year. So we've built that capability. And now what we're seeing is more pipeline from hotels, which is great.

All right. Excellent. Well, we can probably squeeze in just one more here. And we put some analysis out on this, and I don't think it's a super major topic for you guys. But the Visa and MasterCard recent settlement, right? We appreciate it, it's not even approved yet and this is going to take some time to be implemented. But the stated average reduction in interchange on a blended basis, not specific to Toast merchants is about a 10 basis point reduction. Maybe just talk a little bit about what this could mean to Toast down the road.

Yes, this is more of a long term. I think there's still -- as you know, they're still trying to sort through the final conclusions there. But I think what's important to remember for our business is it won't impact the entirety of our business. Not everyone is going to be impacted by this change. And so that's why, for us, to the point you made, it's not going to be a material factor. And we're thinking that if there's any impact, it would be beyond '27 and beyond, but likely not material for us.

Excellent. Well, on behalf of our team, we just want to say it's really a pleasure having you guys here, both Emily Woodward from Investor Relations and Elena, CFO. You guys joined our conference here many years in a row and you're a big part of it. We appreciate you being here.

Thank you for having me.

Good afternoon. My name is Danielle, and I will be your conference operator today. At this time, I would like to welcome everyone to Toast's Third Quarter 2025 Earnings Conference Call. Today's call will be 45 minutes. I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin your conference.

Thank you. Welcome to Toast earnings conference call for the third quarter ended September 30, 2025. On today's call are 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 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.toasttab.com. After the call, a replay will be available on our website.

And with that, let me turn the call over to Aman.

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 adds. 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 U.S. 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 TAM 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 the $5 billion 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, TGI Fridays and Everbowl, 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 U.S. as well as in our international markets. At the start of the year, we laid out 4 key priorities. Number one, scale locations and market share in our core U.S. SMB business; two, demonstrates that our new markets can be material drivers of growth; three, increased 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 U.S. SMB and mid-market restaurant business. Today, about 95% of our ARR comes from our core U.S. 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 adds in our core remained 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 contexts to award-winning institutions. For example, 14 of Bon Appetit 20 Best New restaurants for 2025 chose Toast and more than half of all [indiscernible] restaurants in the U.S. are powered by our platform as well.

A great example is [indiscernible], a Seattle landmark redefining hospitality for over 70 years. After struggling with liability 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 ending 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 drilling 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 restaurant 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 at 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 the new market segments can be material drivers of [indiscernible]. We continue to build momentum in international markets as we expand our platform and establish Toast brand globally. Large well-respected multi-concept hospitality groups such [indiscernible] in Ireland, Caravan Group in the U.K. and Happy Belly 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, DeLallo 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 [indiscernible] display screens, the power fulfillment in grocery stores as well as bottle shops.

And lastly, in enterprise, our continued investment in the upshore and multi-location management capabilities is paying off. We landed our 2 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 [indiscernible] 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 Suchet into Toast IQ, a true AI assistant for restaurant operators. [indiscernible] in Georgia, the team uses Toast daily to analyze sales, adjust menus and make faster decisions.

As an example, it lagged a drink promo custom up to $700 a day and help them fix it and build a happier 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. Adoption has 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 intelligence platform of the future. The product gets better every day as we expanded 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 this product on locks.

Our marketing and advertising tools are another way we're helping restaurants grow. We started with e-mail and SMS, then layered in AI to automate and personalized outreach. With Toast Advertising, operators can now launch campaigns across Google and Meta in just minutes with AI-powered recommendations and clear our line reporting. And it's driving real impact.

During the peak season, Pizza bytes in Florida estimated $400,000 in sales across the 4 locations, which was attributed to Toast advertising campaigns and 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 $1 billion in ARR and just 2 years to double it.

We are a leader in our core U.S. SMB business and have conviction that we can replicate that success across our new TAM 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 adds in 2025 as well as 2026. Enterprise, international and food and beverage retail are collectively pace to reach $100 million in ARR this year, and we see the potential for each of them to grow to $1 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 are craft me markets and our line of sight to achieving strong unit economics at scale. We're investing to accelerate growth. We're executing a guess 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 customers trust and, of course, the support of all of our investors. Thank you. And with that, I'll turn the call over to Elena.

Thank you, Aman, and to everyone for joining us today. To start, I would also like to thank our team for another strong quarter, which came in better than our expectations. We crossed $2 billion in ARR in the third quarter, just 2 years after hitting $1 billion. Doubling our ARR underscores the strength and diversity of our business model. with both payments and SaaS are each exceeding $1 billion for the first time.

We're proud of the milestone and sustaining strong ARR growth at scale that we're far from done. Our management team wakes up every day with the mindset of getting to $10 billion in ARR over the next decade.

Starting with our core business. Getting to this point took years of investment to establish the breadth of our product and go-to-market footprint. The result of these investments and our relentless focus on execution is a business with 40% margins that continues to scale. While our core business is already operating at our long-term margin profile, the incremental margins are tracking higher. That's even as we continue to invest with the goal of doubling our core market share and sustain healthy ARR growth.

In our new growth areas, we're employing the same proven disciplined approach to capital allocation. With growing evidence and conviction that each of these 3 new areas can be material businesses long term. We're leaning into the upfront investment to build the product capabilities and go-to-market footprint to scale into a market leader in each area.

We're confident we can scale efficiently and drive meaningful contributions to growth over time.

Turning to our quarterly results. ARR grew 30%, total fintech and subscription gross profit our recurring gross profit stream increased 34% year-over-year with a total take rate of 98 basis points across SEP and fintech. That's up 7 basis points from a year ago as we steadily increase adoption, reflecting the growing value our platform provides our customers.

Adjusted EBITDA was $176 million for the quarter, with margins expanding 5 percentage points year-over-year to $0.35. GAAP operating income was $84 million. We are consistently growing net adds year-over-year every quarter.

In Q3, we added approximately 7,500 net locations, and we ended the quarter with 156,000 total locations, up 23% from a year ago. We remain on track for more net adds in 2025 versus 2024. We're focused on executing the same algorithm sustaining consistent market share gains in our core combined with growing traction in new TAM, which sets us up well to continue to grow net adds in 2026.

SaaS ARR grew 28% year-over-year, driven by location growth and a mid-single-digit increase in SaaS ARPU on an ARR basis. Subscription revenue increased 29% and subscription gross profit grew 32%. SaaS gross margin was 79%, up from 77% a year ago due to continued SaaS COGS optimization.

Payments ARR increased 31% and fintech gross profit grew 35% in the third quarter versus a year ago. GPD was $52 billion, growing 24% year-over-year. GPD per location was up slightly versus last year due to stronger same-store sales trends in the summer.

Fintech net take rate was 61 basis points and payments net take rate was 49 basis points. Payments take rate increased 4 basis points from a year ago, benefiting from the same drivers we've seen all year. ongoing cost optimization efforts, small targeted pricing moves and new products, including surcharging.

Non-payment FinTech solutions, led by TosCapital, contributed $58 million in gross profit and 11 basis points in take rate. We continue to enhance our underwriting process which unlocked incremental origination volume in the quarter.

Overall, the program remains healthy and defaults remain in line with our expectations. Excluding $31 million of bad debt and credit-related expenses, operating expenses increased 17% in Q3. We are investing in our highest priority areas to drive durable growth while driving efficiencies throughout the P&L.

Sales and marketing expenses grew 23%, reflecting our healthy location growth and scaling our international and retail go-to-market presence. The added sales capacity positions us to gain market share faster and scale growth in these new TAM.

Our R&D expenses grew 12% and innovations like Toast IQ and Advertising are great examples of further differentiation of our core product. We're also adding capabilities to expand our product market fit across new customer segments and seeding longer-term horizon 3 opportunities that have the potential to become new growth vectors.

Hardware and Professional services gross profit was negative 10% of our recurring gross profit stream. We are leaning into our customer acquisition momentum to establish market share in new towns and continue to drive growth in the core.

We're also absorbing higher tariff costs -- we're doing this while staying within our guardrails to maintain healthy payback periods as we scale. Adjusted EBITDA was $176 million, a 35% margin. Our Q3 results reflect robust top line growth, driven in part by better-than-expected GPV as well as our continued focus on driving efficiencies throughout the P&L.

GAAP operating income was $84 million, up from $34 million a year ago. That's both from the strength in adjusted EBITDA and our disciplined approach to managing stock-based compensation. Stock-based comp as a percentage of recurring gross profit was 14% in Q3, down 3 percentage points versus a year ago.

Free cash flow grew to $153 million in Q3 and $564 million on a trailing 12-month basis, nearly 100% conversion from adjusted EBITDA. Moving to capital allocation. Year-to-date, through the third quarter, we repurchased 1.5 million shares or $54 million. We will continue to be opportunistic based on market conditions and act judiciously in support of building long-term shareholder value.

Now turning to guidance. For the fourth quarter, we expect total FinTech and subscription gross profit to grow in the range of 22% to 25% year-over-year and adjusted EBITDA to be $140 million to $150 million.

On the back of our strong year-to-date results and momentum heading into Q4, we raised our full year outlook. At the midpoint, we now expect 32% growth in fintech and subscription gross profit and $615 million in adjusted EBITDA.

I'm extremely proud of the financial profile we've built over the last few years. We've doubled ARR while investing in the next wave of businesses to sustain that growth. Our ability to drive strong growth and expand adjusted EBITDA margins at a healthy rate demonstrates the power and leverage of our business model which is also enabling us to invest in horizon 2 and 3 growth areas.

We take a deliberate gated approach to investing across our core and Horizon 2 and 3 growth areas. Our new TAM started as a small Horizon 3 bets that we gradually scaled as we gain momentum and saw initial product market fit. We have enough signal across each new TAM that we see a path to market leadership and healthy unit economics at scale. We are investing into that potential to position ourselves for success and to drive long-term growth and shareholder value while gradually expanding margins over time.

As Aman said, the strategy we laid out at Investor Day is working. We remain confident in our medium and long-term targets, specifically for 2026 at our multibillion-dollar scale, we will sustain growth over 20%, and our ambition is to exceed that. Our current expectation is that margins will be flat to slightly up year-over-year. That's underpinned by the strong core margin of 40% and and conviction to invest behind our new TAMs.

We are still in our 2026 planning cycle, and we'll provide an update in February when we issue guidance. Our commitment to disciplined capital allocation is unwavering. Our long-term margin target is within our control. we are choosing to reinvest in areas we have conviction can be meaningful long-term cash flow generators and add significant shareholder value.

To close out, we had an excellent quarter, and I'm proud of our team for consistently delivering results that outperform our expectations. 2025 is on track to be another year of impressive top line growth and margin expansion. Our momentum in the core is strong. And with new TAM scaling quickly, we're confident Toast is in a position to compound our top line at a healthy rate for the next decade and drive long-term shareholder value. Now I will turn the call back over to the operator to begin Q&A.

[Operator Instructions]

Your first question comes from the line of Josh Baer from Morgan Stanley.

Congrats on a strong quarter. I wanted to ask about GPV per location, which was up slightly year-over-year, I think, better than expected. Wondering how much of that was driven by mix, so just lower mix of customers in more pressured parts of the market or maybe and/or -- how much is coming from Toast customers just outperforming peers? And if that is part of the case, -- just wondering if you -- what kind of data do you look at? Is it more a selection bias as far as the customers that you land? Or how much is it your actual technology increasing sales?

Yes.Thanks for the question, Josh. We saw in Q3 in the summer was GPV per location, exceeded expectations. And as we looked at October, I think it normalized a little bit, but overall, it's in line with what we expected. I think certainly, our platform, a big part of what we build is to help restaurants run a more profitable and more successful business. And so a lot of the investments we continue to make handhelds, for example, in Tesco 3 is an example of that, restaurants on a better business. And same-store sales, I think, have been in a balanced place year-over-year. So nothing that has dramatically changed.

Okay. Great.

Our next question comes from the line of Will Nance from Goodman Sachs.

I think obviously, really nice results tonight. You talked about a clear path to doubling your market share in core SMB, and I think there's been really heightened focus on competition recently. And honestly, probably as a reaction to how much you yourselves have raised the bar and how to approach this market. Pretty much every competitor has doubled down trying to catch up.

So can you just speak to some of those competitive concerns, you mentioned win rates being up against peers. How are you thinking about the sustainability of your recent market share gains? And maybe how long it takes to reach that goal of ultimately doubling your share in the core market?

Yes. Thanks for the question. Well, first off, I just want to congratulate the team. We had a fantastic Q2. really had a fantastic year so far. Team's performing well -- if you look at our net adds, as I mentioned, they're up in Q3, they're tracking to be up every quarter this year. And it's really a direct result of the execution of the team, our win rates, as I mentioned, are up year-over-year against all major competitors. And that's actually both in and Epicor.

Our go-to-market team on the ground continues to execute at a high level. And one of the things they have is to maximize location growth. This is across our payments and our SaaS revenue. They've got the tools across upfront fees and hardware and services to make sure that they can go take the location down and win because we've got this upsell engine to complement the new location team. And then lastly, of course, the most important thing underpinning this growth is our core platform, right?

We were the first ones to build a restaurant-focused platform purpose built for this industry, and we continue to innovate and drive customer-focused innovation for our customers. Toast IQ is a great example of that, helping restaurants run a better business, our aspiration is ready to build the best GPT interface for the restaurant industry.

And I think in terms of the timing, you asked the question about Time Inc. double. I think if you look at our net adds, this year. In our core business, they're about the same range as last year. And it just shows you the market share gains we're gaining every year as we continue to grow on scale.

Our next question comes from Josh Baer from Morgan Stanley.

Already asked.

Our next question comes from Timothy Chiodo from UBS.

I want to shift gears a little bit to talk a little bit more about the opportunity that Toast has with consumers. So back when you had maybe 100,000 restaurants or so, maybe some of the stuff was less applicable because maybe the network wasn't quite as dense, but it's getting there and you're on your way to being north of $200,000. And I was wondering if you could just talk about -- what does that mean in terms of an opportunity? You've got some pieces, right? Toast tables, Toast take out, over partnership and much more, there could be of cards. Just talk a little bit about what that dense network gives you as an advantage versus some of your competitors? And what kind of products could come out of that?

Yes. That's a great question, Tim. If you look at our scale, and the impact that's already having. You already see examples of that even beyond consumer, just to for a second. You've got millions of restaurant employees using Toast and when you walk into those restaurants, a consistent theme that I hear is that they love Toast, and they want to work at tostrunretas. And another example is we launched about a year ago, we launched a benchmarking product. which was to help restaurants and venues and pricing insights to run better businesses just off the menu data.

So there are many examples where our scale and our network effects are playing a role. And in consumer, in fact, this morning, I woke up and the first thing I did was I went to a restaurant like Lexington, Massachusetts got a revival cafe. And 1 of my favorite things about the app is you can order ahead and just pick it up and leave. And similar to what Starbucks pioneered many years ago. And so we can do that across 100,000 plus those restaurants here in the U.S. People love that experience. In addition, I think where we have a unique opportunity is to bring diners into stores.

So whether it's our partnership with resi and talk as part of the Amex partnership or with -- to Stables, the ability to get a table, sit down -- and then 1 of the things that we're looking at is imagining the ability to just walk out and leave at the end of the transaction because you've got a card on file. And so there's a huge opportunity there in terms of providing a better guest experience, both in terms of bringing diners into the restaurant and then leaving the restaurant as well.

And within the app, one feature that a lot of people have heard love is because we've got such great data about the restaurants and when they're busy and when they're not, they be able to generate intelligent offers during their slow periods and the ability to track all of your loyalty in one place. It's another thing that we're getting some really good feedback on.

So I agree with you, there's a lot of potential here given the density of restaurants that we now have. And I think really the focus is on figuring out how we can build the best in-store experience and digitize that experience restaurants.

Our next question comes from Dan Dolev from Mizuho.

Obviously, great results here. I wanted to ask about just the consumer in general, like the macro, right? There's been a lot of like anxiety out there. And obviously, your results are looking great. So maybe you can talk to us what you're seeing kind of maybe in the quarter, but also more recently as we are in Q4 already, that would be fantastic.

Yes. Thanks for that. Look, the summer was strong. Q3 was strong. year-over-year. What we saw in October on the consumer has normalized a little bit, but really within our narrowband and in line with kind of what our expectations were. And -- and so our customers and our restaurants are performing well. One of the things we always look at is whether it's in boom markets or slower markets, we've not studied previous recessions in '01 and '08 and what we're seeing is that restaurants tend to be resilient. And what we're seeing so far in our data is our customers are holding up really well.

Next question comes from Dominic Ball from Rothschild & Co Redburn.

And I may just to start with, I mean to hear that you guys saying that hosting Doubles market share core talents amazing. With digital chips within Toast, it looks like 1 of the best products from our perspective that you launched over the last sort of 5 years, when we serve a private full-source restaurant owners, the dream is really to understand their customer when they walk in. And because wages and wages churn so much, it's really hard to do that, but this sort of product seems to be offering that. So there any case studies on any early data points and how this has gone so far?

Yes. Thanks, Dominic. We're saying just to zoom at for a second across TOast IQ, we're seeing lots and lots of use cases like that where customers are seeing the value of having all of their data actually drive value for them, right? So digital chip is a good example of that. In the past, if you're using a separate reservation system and a legacy point of sale, you're maybe printing that out on paper, but the ability to have that digitally on your handheld just makes that experience even more powerful because you can connect the guest experience to what's in the menu to drive upsell as well as to create a more personalized experience throughout the table.

So that's a good example of that. I think more broadly, within our Toast IQ platform, we're seeing really high adoption of our back end because customers love the fact that they can use more of a natural language interface, I think of a GPT like interface where they can go in and say, get support, make changes to their back end whether it's like 869, for example, or adding specials as well as just get insight about what's going on in their business in terms of profitability, in terms of which what's selling well and how they are going. And so there's a lot of use cases within the Toast IQ. Digital chips is a good example of that, but really excited to see the progress and the adoption so far and what the product can do for our customers.

Our next question comes from David Hynes from Canaccord Genuity.

Congrats Aman, I wanted to ask how you thought the business performed during the AWS outage. Anecdotally, I talked to is ones up here in the Boston area. It sounded like everyone kind of cut over to offline mode. It worked well. They're able to collect payment information. I assume run those later. I think they did have to shut down online ordering, which I'm sure it's factored into Elena's dates for Q4 as small as it was being a Monday launch, it seems.

What did you hear about competitive disruptions? Is this a differentiating point of cost? Like how did the business hold up during that period?

Yes. TJ, the business 1 fine because precisely because we've spent the past decade really building this platform for restaurants and 1 of the key requirements is if something is down, whether it's the Internet or AWS or wherever it may be, you got to be able to operate within the restaurant. And so our customers were able to take orders, sender to kitchens, take payments offline and as they came back as the system came back, they're able to process those off of offline mode. Certainly, we see that the need to leverage these digital channels, whether it's our first-party channels or our partner ecosystem that, that has grown, right, over the years.

And so we're looking at ways to continue to make that even more resilient. And -- but I think customers overall, we're able to work through it and I don't think there's a meaningful impact in terms of guidance for Q4.

Our next question comes from Rayna Kumar from Oppenheimer.

Great results. It was good to see the total take rate up 7 basis points from a year ago. I'm just wondering how sustainable an improving take rate is.

Yes. Thank you. Yes, I'm really proud also of the team here on their execution. Take rate was up -- the core net take rate was up 4 basis points. and the total take rate up about 5 basis points, and that's really the benefits we're seeing from the small targeted pricing moves, it's COGS optimization, which is a priority for that team. It's also a new product like surcharging, which small today and contributing a little bit.

But over time, that can back and drive that can be more meaningful as we get more customers on that product. But when you zoom out, we have a lot of confidence in our ability to drive take rate up over time, really using those same levers, driving cost optimization on a per transaction basis driving more digital innovation and continuing to scale just with our volume. So really view that as an opportunity.

Next question comes from Jason Kupferberg from Wells Fargo.

I wanted to ask about recurring gross profit. I mean you delivered, I think, about 1,000 basis points of upside on that metric in the quarter. It's a lot even by to standards. And I think this is against the lapping effect of last year's accounting change. And so I'm curious, as you kind of rank order, what kind of surprised you to the upside, GPV, to Capital other factors? And then just looking at typical Q4 seasonality on the recurring gross profit, I think it tends to be up kind of modestly quarter-over-quarter versus Q3. But if we look at the top end of the Q4 guidance, I think you'd be down a little bit.

So I'm just curious if there's any call-outs there. I mean, obviously, you've had a track record of being able to handily outperform but wanted to see if there's anything else we might be missing on that front.

Thanks, Jason. You actually summarized it quite well. So our guidance for Q4 is 25% growth at the high end. And we're always going to aim to do better -- we do take a balance view of GPV just given the macro dynamic. But as you said, we saw strong GPV trends in the summer.

We also had a strong quarter from -- to Capital -- and we're seeing that more normalized in Q4. So overall, we're really confident with the guidance that we've given.

Our next question comes from Stephen Sheldon from William Blair.

And great results. I wanted to follow up on a prior question on Toast IQ. Great to hear that I think that it was over 25,000 locations of used it, which is a lot more than I would have expected this early. So just wanted an update there on how we should think about the financial impact of that, including higher AI costs associated with hosting.

With that kind of adoption, I think in a month, I assume that you're not selling it as a separate SKU -- so am I right on that assumption? Do you plan to eventually sell it as a separate SKU? Or could that be used as part of the basis for SaaS pricing increases or better product attach rates as we think about the next year or.

Yes, great question, Stephen. I mean right now, the focus on Toast IQ is really on adoption and really driving customer value. As I mentioned, really excited about the early adoption from customers and the value they're getting. If you look at like what opportunities this creates for those. One, I think because people are using it so much to run their businesses, there's product-like growth opportunities to expand our platform.

Another area that we're starting to invest in is if you look at like our marketing platform, for example, we started off with e-mail tech and ad, but now we've got AI-driven automation to create personalized marketing campaigns because, as you can imagine, restaurant tours, especially, SMB restauranteurs they're busy and they're not marketers the time to generate these campaigns. And you can imagine the Gentech capabilities within TOS to start to recommend these campaigns when there's lower or at different times.

And so whether it's on marketing or it's on back office functions like accounting or bookkeeping or even payroll, -- we see lots of opportunities to drive key agent use cases within TOC to drive adoption and value I think in terms of monetization, it's early. We're looking at different ways. I think 1 obvious way that we're going to look at is just look at usage-based monetization on to. But the most important focus here right now is to make sure we're getting adoption and really good value for customers to help drive our growth.

Our next question comes from Samad Samana from Jefferies.

It's great to see the strong results. I guess I'm pretty focused here on pricing. It's going to be a little multiparter which first is the pricing on the website, fully realizing the disclosure the company made, but was there some intention that somebody was exploring maybe testing and targeting or AV testing? Just maybe help us understand what happened there.

And just the comments on the targeted fintech pricing moves that you've made, how much of the back book have you now maybe push price through. I know these are focusing on different pieces, but pricing, I think, is a really big focus right now for everybody. So I appreciate you for the questions.

Yes. Thanks, Samad, for the question. So I'll start with the website, which was human error. And as soon as we discovered it, we fixed it. You're right, we do test from time to time. This certainly was not a test. And actually, that part of the website gets 1% of our bookings, so not material overall. So we corrected that and moved on. In terms of pricing, -- our philosophy is unchanged. It's really the way we think about it. It's really just 1 lever of growth, and we'll still make targeted in surgical price changes. And we'll balance that with market share potential, of course.

And in the near term, gaining share is a high priority, and we know we can optimize price over time. In terms of how much of the back book, we haven't really disclosed that, but we feel confident as long as you're driving value we'll be able to drive price over time in small targeted ways. And as we bring customers onto our platform, they're coming in at the market rates.

Great. Really appreciate it you guys addressing, but that was really helpful.

We will now take our last question from the line of Darrin Peller from Wolfe Research.

Just maybe help us understand what gives you the confidence in your ability to see increased net adds in '26. Just how much might come from the TAM expansion areas driving the growth versus the core business versus the core business you've been adding so well so far?

Yes. Sure, Darrin. If you look at the trend we've seen in the past year, our core net adds in the same range as last year. And so if you look at how we've been able to drive record net adds every quarter this year, it's really from these new TAMs contributing more -- and we expect really the same trend to continue next year. We expect in the quarter continue to perform at a high level based on the signal we're seeing and then these new TAMs to play a bigger role. If you look at like the longer-term opportunity, use Luma for a second and see what's possible in these TAMs. I think what's exciting to me is there's so much overlap in the core platform between our core U.S. SMB business and these new tons, which is why we've been able to grow these businesses to close to $100 million there just in a couple of years. And that's what's really going to drive the incremental net adds in our business next year.

This concludes today's conference call. Thank you all for joining.

All right. We are going to kick off here. We're very excited yet again to have the Toast team here for another fireside chat. You guys have been here every year since the IPO, and we appreciate that, and we're looking forward to another conversation.

Thanks for having us.

Okay. Big picture, Aman, Elena, thank you for doing this. Starting off, you highlighted several key priorities at your Investor Day last year, so scaling in restaurants, expanding into new verticals and geographies, product innovation, driving growth while expanding margins. Looking at the business since then, how do you feel you've progressed and kind of what is left to do?

Yes, I think the business is performing really well. I think first off, if you look at the last what year and 3 quarters now, like really proud of the team's performance we've had in Q2 year-over-year recurring gross profit growth of 31%. We had talked about margins in the midterm margin goals and the 30%, 35%, we achieve those. And I think we're now adding north of $400 million in ARR in a year, trailing 12 months in scaling. So really proud of the team's performance.

And I think more importantly, we're setting the foundations for what we think can drive longer-term durable growth, some of the new vectors of growth you've talked about in retail and international and enterprise are performing ahead of plan. And in our core business, we continue to do really, really well as well. So I think overall, obviously, there's -- I like the expression better never done. There's a lot to do so. But overall, like I think, proud of where we are so far.

I think early -- during and post the IPO, there was this sort of TAM saturation argument where -- and it hasn't really played out. The growth has remained very consistent, particularly in the core SMB space. Could you maybe give us some context on where you are on the journey within that core SMB restaurant TAM? And how have your thoughts on terminal levels of penetration evolves over the years as you've continued to take share at a pretty rapid clip.

Yes. I think within the U.S. in the SMB, because it's a constrained TAM, and there's always questions about TAM saturation in our business just because it's a very specific TAM that we go after. If you look at the U.S. SMB and mid-market business, we think it's about 600,000 restaurants -- we're -- I think our penetration today is in the high teens. And the thing that -- most importantly, the thing that gives me confidence, and we've shared this a few times in earnings calls and such in previous forms, is -- if you look at like our markets where we have fiber status, we've got more penetration or you look at even our most penetrated MAC markets, like the top 10 markets that we're in and these are markets with over 30% share. And those markets, on average, in terms of share gains year-over-year are actually growing faster than the average market. So there's a question of like how do we get more markets in the flywheel, but that's fundamentally what's giving me and the team confidence that we continue to invest and continue to grow market share in the U.S. and restaurants.

Yes. And then I guess that leads us to how you're thinking about kind of growth-related investments in the core. You talked about rep productivity being up sounds like you're still adding new flywheel markets. Where do you see opportunities to lean into distribution? And are there certain cities today that are not flywheel markets where you're really focused on increasing the density?

Yes. Yes. Look, one more data point is the rep productivity year-over-year is actually up in our business. In Q2, we saw record net adds had 8,500 net adds in our business, which is a record. We see the same momentum in the back half of the year and continued to accept progress that we're making. And in terms of investments, I think one of the things that the team has been asking is, well, if you go look at these markets that are not fly, like, why? And some of it is just simply if you go look at like where we launched, like Boston, Chicago, Austin, et cetera, those are the earlier markets we have the most penetration in -- and I think at Investor Day last year, we talked about how 70% of restaurants that opened often open and test. And so we're trying to figure out like how do you get more of these markets to look like that. And so we're being surgical about some of these dense markets where we don't have [indiscernible] share. We're adding rep capacity to get there faster because we know that's helpful. .

We're investing in marketing. So we've made really good progress this year in terms of our brand consideration year-over-year to get top funnel up. And back to like the spill -- just to remind everyone, as you get more markets on flywheel, you see better top of funnel, you see better conversion and better productivity. So those are the key areas of focus on go-to-market. And then on R&D, there's -- in fact, I was talking to a customer last week. It's a 7-location customer in the Boston area, we're based in Boston. And -- this is asked him like why aren't you in toast. And he said, "Well, we've got this believe or not, like it's big first-party delivery business where because they've got of delivery demand, for their business. They've got lots of first-party drivers. And we don't have the level of support that they need. There's a specialty POS that they use. So there's -- in R&D, there's some work to continue to expand the time believe or not even 10 years in, there's continued work that we have to continue to invest in. One thing we're very focused on the road map is how do we drive more customer-focused innovation. There's a lot with AI that we're doing there. As we expand the platform, we're asking the team to go look at whether customers that use more of our platform are they're happier and stickier.

And then lastly, on the CS side, we're taking a page maybe this I think Intuit is well known for this, but our customers are not like CTOs and CIOs. They're not technologists. And so they need they need support at times to their platform. And so we're -- in addition to just really good support. We're looking at what are parts of the platform where it do it with me and a do-it-for-me approach can work. And when you think about these restaurants, they have to do bookkeeping. There's lots of questions on AI-driven bookkeeping. They have to think about payroll. They have to think about scheduling staff. And so we're thinking of what are ways in which we can build more of a dot with me and do it for me approach to help expand the platform as well.

Got it. Okay. And then rounding it out, you've continued to see healthy net add growth up every year since the IPO. You've talked about continued strength in the core we'll pivot to new verticals in a second, but you hit a milestone there of 10,000 locations. How do you think about the makeup of net adds between core and newer verticals going forward?

Yes, I'll take that. So first of all, as Aman said, super proud of the execution and record locations in Q2 of around 8,500. And primarily, most of that is from our core business. And the momentum we saw in the first half of the year is really why we have confidence that we're going to add more net adds in '25 than '24. We've said that all year. We feel really good about that. And to the point you made, since the IPO, we've been consistent in adding more net adds each year on the platform, and that's on the back of the execution of the team. So feel really good about that. As it relates to these new verticals -- really proud of the progress. That's why we mentioned the 10,000 locations. And when you look at the ARR, approaching $100 million in ARR, really proud of that execution. The way we think about that is that will drive growth over the long term. We've always said we want to expand the Toast platform and be a much big -- much have a much bigger global footprint than we have today. And in order to do that, that's why you're seeing us lean into these investments. But today, the majority of our business does come from the core.

Great. Okay. So then maybe to a bit over to the newer verticals starting with international things seem to be trending very well. What are the key investment areas in international across both product and distribution? And then what are some of the near-term milestones that you're hoping to achieve there?

If you look at the -- we launched this business initially in Canada, in the U.K. and in Ireland. And the progress we've seen so far has been really good. And part of that has to do with the platform expansion that we've seen. So initially, when we started, we just had like the core point of sale, and we didn't have the broader platform. And so we got a lot of feedback from customers that really what they saw, the value proposition was much stronger as you added more of the platform. .

And what you see as we've added more to the platform is rep productivity 2 years in is actually better in these international markets than it was in the U.S., 2 years into the business 2, 3 years in the business. We're seeing ARPU continue to grow at a healthy clip, which has been really positive. If you look at the share of full-serve restaurants, that's grown to being -- if you look at the net adds that we -- the locations that are coming out of the platform, more than 50% of those are now full-serve restaurants. And that's -- in this business, also restaurants are become more complex. And so we've added more of the platform that's helped expand in full serve.

I think on our payments take rate, we've negotiated pricing. So as we scale GPV internationally, we'll get the benefit there and tailwind of scale. And then the other thing the team has done is spent a lot of time looking at what are ways in which to build scalable internationalization of our platform. This is things like fiscalization, localization of the platform and some of the capabilities we need to build out. So if you look at Australia, we just launched a tally recently, we've got a bunch of customers that are now live and they're scaling there. And what was great is we launched with pretty much the same platform that we had in the U.K. and Canada because of the way the platform has been built. And so we've got a payment partnership that allows us to scale internationally as well. So that's been really positive. The team that allows the team to focus on of the local partnerships that you need to unlock to go into these markets.

And -- and I think the balance for us is as we think about international growth, we've got to make sure that we -- when we enter these markets, we've got a path to market leadership over time, so we've got to invest. But we're also looking at what is the right balance to invest in new markets as well. And so you'll see a good balance there across both. Scaling in the markets we're in, but then over the longer term, also expanding, we think Western Europe is a really good opportunity in the near term.

Great. Okay. So then on the enterprise side, kind of keeping with the theme, the sort of promises made, promises kept at the time of the IPO, I think enterprise was considered completely off the table. -- and you guys have had a consistent and steady stream of wins here. So one question we get a lot is how to think about the ARPU opportunity here. and where that is headed. And I'd love to hear your perspective as well and any color you might have on pipelines or your visibility on implementations into next year.

Yes. Happy to talk about that. First, I would just say we're really pleased with the progress the team has made and always said enterprise is a multiyear journey. And what you've seen is as we've invested in enterprise capability, it's given us a lot more conviction that we can win in the market. And you're seeing that on the back of these deals that we've won, whether it's Dine Brands and other brands that we've announced Marriott as an example.

And so as we've invested in these capabilities, we absolutely believe we can have greater share. But sort of that sort of the metal point. As it relates to ARPU, a couple of things. One is the way we think about the enterprise business is really on a customer by customer level as opposed to a per location level, which does make sense for the SMB business, of course. If you think of a ding brand, as an example, it was 1 customer with thousands of locations that will onboard over the next 18 to 24 months, as an example. So that's one thing. The other thing is when we do these deals, the ARR opportunity is significant. And when we look at the payback and LTV to CAC, we take that into consideration. We feel really optimistic and great about where the deals are landing today. And as we build more enterprise capabilities, there's opportunity to expand with those customers as well. So we feel really good about that.

And as it relates to pipeline, what you're seeing is as we're landing these customers, our credibility in the enterprise space is only increasing. And what we're seeing is we're getting pulled into deals that maybe 2, 3 years ago, we might have not gotten pulled into. And so having that -- the customer testament against these deals is really helping our pipeline. So -- and also helps with the visibility, right? Because once we land a customer we have visibility into when are those locations going to go live. And typically, that's anywhere from between 18 to 24 months.

The only thing I'll add, Elena, you hit it is 2, 3 years ago, we didn't have a business you get these first 8 or 10 marquee brands we've gotten those. And that's really been a tailwind in terms of getting just the brand out there. And on ARPU, I think One of the areas that if you look at what we do, just like international, we're very focused on the core operations of the restaurant and the point of sale and the infrastructure around that. We're adding some capabilities or drive-through. We don't have sophisticated guest products upmarket enterprise, and that's an opportunity for us over time.

Okay. And then lastly, the 3 big expansion verticals, food and beverage retail. I was hoping if you could give a status update on this. What is resonating the most with clients. Secondarily, you talked at our earnings call about ARPUs already being over $10,000. Can you help frame the opportunity in food and beverage retail for ARPUs longer term?

Yes. Food and beverage retail has been a really positive surprise. We -- price right term, but it's really positive in terms of the progress we've made. We -- we've put a dedicated team against it for the first time at the beginning of this year. That team is productive. The ARPU, as you mentioned are healthy. The economics of this business are really positive. And that's what's driving like more investment against it. And just for context for everybody, this business actually came because restauranteurs that had hybrid restaurant retail concept, said, hey, can you like help us with the retail part of the business is we set up this team. We have a program called New Ventures, where we give these teams autonomy to kind of go drive without being burdened by the scale of the business. And -- so a small team like figure out how to support hybrid restaurant retail. And then they came back to us like, I think a year later and said, actually, like a lot of what we've had to build here applies in retail more broadly. And so in convenience stores and bottle shops and gas stations and we've seen -- as we've opened up the dedicated sales team like really, really good progress.

Now it's -- if you look at our platform or even in restaurants, it's not just like a thin sheet -- it's not a thin layer of software with a lot of payments. It's most of the investment in the platform is the core point-of-sale platform and the infrastructure around it to support it. And even with retail, we're taking the same very vertically focused approach as we are going in. So if you look at we're building out support for grocery and what that means for inventory across all these segments, where self-checkout and grocery, we're building out liquor compliance rules that are needed -- we're building out capabilities to support [indiscernible] scale. And there's a lot here to support these verticals on the core point of sale, [indiscernible] the way near, I mentioned earnings and a is a good example in New York City of a brand that's got like 30,000 SKUs. I think they do over 2,500 transactions a day.

And we're getting a lot of these brands all over the country that are switching to toes. And these we believe are these linehouse accounts that others will follow. These are many of these accounts over $10 million in GPV. And so -- and so that's been -- it's been really positive. I think broader platform, another surprise, it's been positive is if you look at the broader platform like scheduling and payroll and lending and some of those things to supply out of the box. There hasn't been a lot of work to actually get that part of the platform to apply in retail.

If you look at the retail ARPU, it's over [indiscernible], which is great. But if you look at Investor Day, I think we talked about how -- the initial TAM that we see in the U.S. is about 220,000 locations and 3 million GPV per location. And as we scale, we actually think there's potential to grow that further because was just building out the brand right now. And so our GPV per location is lower than that 3 million today. And so over time, as we grow in scale, I think there's tremendous upside on that as well.

Awesome. So then just zooming out, we talked about the 3 new verticals. They're all kind of chugging along. -- still going strong in core SMB, new verticals picking up steam. We talked about the launch in Australia. You've done a lot to expand the TAM already. How do you think about further TAM expansion from here?

Yes. It's a balancing act. I think if you look at the history of the business, for the first 10 years, we said we're going to focus exclusively on U.S. SMB and mid-market restaurants, not even enterprise. We're going to focus on this very specific segment of the market. spent a lot of time building out the core and the platform that I think has really been the recipe to being successful because these customers wanted a purpose-built platform. They want it all in one. They wanted a dedicated support against the whole platform. And so we want to be careful not to try to dilute that too quickly either. And so we said, as we've expanded into these new verticals, like one North Star that we use in our planning is like anything we enter. You've got to have conviction that we have a right to play and win. We don't believe that like ultimately, there's a path to being really successful in it. We should really ask ourselves like why are we in that business to begin with.

I also think like there is -- you've got to look at these market segments and say, -- just like in SMB restaurants, we -- typically, our average EPV per location is higher than industry averages. And so then that speaks to the complexity of the platform we've built of the features we support rather. And so where similarly, we're looking at which segments of the market have great unit economics. That's another thing that we look at in terms of how we expand. And so that's why we chose initially these key countries in the U.K., Canada and Ireland, Australia, we've expanded [indiscernible] in enterprise. We've actually seen some interesting like growth at the intersection of these. So for example, there's some grocery stores in the U.K. that are using toast. You've got -- if you think about the retail business is also up market in enterprise, we're seeing some inbound interest against it's early, but it's interesting to see some of that pull Enterprise also there's international interest and so there's some things at the intersection that we're seeing.

And -- but back to what I said, how we think about TAM expansion is do we have a right to win, right? Is the adjacencies or core product there. what is the competitive environment like? And then can we build a great business here in terms of economics and the long-term potential in terms of what that could drive for all the core economic metrics.

Okay. right? So pivoting over to investing. The company has continued to emphasize the investments in the business across both product and go-to-market. And at the same time, you still expanded margins really rapidly over the last several years. So what are the main investment priorities in the company currently? And then how do you see that impacting the operating leverage trajectory over the next few years?

Yes. No, great question. Overall, our priority around growth and being disciplined in how we grow and driving shareholder value continues to be the priority. And it's the framework we use for all of our investment decisions internally. And you heard Aman talk a lot about the opportunity in these emerging markets, but also investing -- continuing to invest in the core business is important. And then as we see this opportunity in these emerging businesses, whether it's customer signal, the productivity we're seeing on the ground, there's a lot that we look at before we make that next investment and expand our TAM and all the things. And so hopefully, what you heard is in his talk track, a lot of discipline every time we make these investment choices.

Zooming out, the one thing we think about is our long-term margins that we announced at Investor Day are still -- we're still marching towards that. But in terms of how we get there, it may not be linear. It's pretty much in our control because we have this core business -- and as it's growing in profitability, it's really enabling us to invest in these emerging businesses, which we believe will drive long-term growth of the business for many years to come. And so that's how we think about it. We're really optimistic about our ability to drive long-term shareholder value, and these businesses we're investing in really give us -- put us in a position to continue on that trajectory.

And Elena we will stay with you here. On the payment side of the business, people always love to hear the latest in terms of what you're seeing from a macro perspective. What are your restaurant customers telling you about state of consumer spending? Have you seen any notable callouts over the last month or so?

Yes. I would say the first thing that comes to mind is stability. Like we're seeing very stable, healthy trends. Q2, obviously, there was some strength in same-store sales, but as they look into the quarter, very stable. And always, as we always say, our restaurants are very resilient. So if there were any macro turn, we would we feel like restaurants are very resilient can handle that. But right now, very stable. So you should hear.

Okay. Okay. And then I guess on Toast Capital, you called out some demand-related disruptions in the second quarter, presumably relating to the velocity of headlines and the market volatility over the course of the quarter. In the near term, is the expectation that, that should just snap back to prior levels? And then a bigger picture question, do you see [indiscernible] capital contributing more than the current 10 basis points to the fintech take rate?

Yes. So in terms of the first part of the question, absolutely, we expect the demand to continue to come back. And in fact, -- when we looked at the data, definitely had a slower start in Q2. We think that was more anomalous. But as the quarter continued, we saw that demand come back pretty much in line with our expectations. So really feel confident about the program, and it's continued to be healthy as we enter into Q3. 10 basis points is about the right zone for us in the near term. If you zoom out and think about the long-term opportunity, certainly, there's an opportunity for us to grow the program and potentially have it contribute more. But in the near term, our focus is being really prudent managing the program, managing the risk. And so that's why we talk about that 10 basis point range is a really good zone. .

Great. All right. And then on the product side, you've been expanding wallet share with a number of solutions. I was wondering if you could maybe talk about -- it seems like you have a module for everything. What is left to address with the customer experience today? SP1777080903 Yes. We haven't run out of modules.

I think, look, if you look at -- if you look at how long we've been in this core point-of-sale business, it's like 13 years in restaurants, and a lot of these products that are adjacencies are newer, like for payments paras, 5 years old, the accounting products are near some of the guest products, you've expanded the guests dramatically over the past few years. like websites and online ordering is older, but CRM and loyalty and some of the gift card programs and such. And so across all these products, if you look at the attach rates and you look at like customer feedback. Some of these products don't apply across the entire TAM. And so there's -- that work is never done. Like I still hear on the higher end of the market in the SMB business that there's some gaps in our apparel product, for example.

So -- there's a lot of investments we're making to make sure that these products continue to get better and better. And I think the thing that gives us a lot of confidence longer term is if you talk to customers, the thing you consistently hear is they would much rather use toast across the whole platform. because it's just so much easier when it comes to like service when it comes to having a single point of support when it comes to the interoperability of these solutions. And so I think there's still a lot of work back to the modules like just with the existing platform. to continue to invest and make them better.

I think there's also a unique opportunity right now with AI. I'm sure a lot of people are talking to you all about that. But restaurants, A simple example of this, I'll start with -- we talked about benchmarking a couple of years ago. And that's been really positively received by our customers because before they had a tool like this, like if you think about how to decide like how to price menus or what to put on menus, how to be smart about where open locations there wasn't a lot of data. And so we take our scale across 150,000 locations and expose that data to customers in a way that they can leverage that to make data-driven decisions, right?

And so that's been positive. There's a lot of manual work in restaurants. So you think about restaurants typically don't have the time and the capabilities to try to drive their own demand. We've seen some really good early progress with things like our AI-driven marketing assistant that can not only suggest campaigns, but actually create the campaigns across these different channels and show the value of that attributed demand back back in terms of -- especially if it's through offers in our platform. So we've seen some progress there. Even in a product like our retail product with AI, just being able to get SKUs onto the shelf faster, online faster by using AI to describe the different products and create images through a central repository that we have has been really positively received. So I think there's a lot on the AI front in terms of just data.

There's also there's lots of manual workflows in restaurants. So you think about voice, for example, like picking up the phone, drive through, there's a lot of work going on in restaurants right now, even just terminals, if you think about walking up to a terminal, I think it's only a matter of time before -- you're going to be able to talk to voice place the order because it's a very constrained use case. And so there's some work there that we're doing and getting some early feedback from customers. So I think in AI, there's a bunch of opportunity we're building Suchet, -- we talked about Sushi Investor Day. And the vision there, the ice the simplest way to think about it is we want to build the world's best [indiscernible] for restaurants.

In fact, talking to 1 of our customers, another 1 of our customers, this is an stone, Illinois, and is asking him like how things are going, and you brought up like Susheel beta, but he said it's really positive to ask him why he said, well, like it's hard to analyze the data in our business. And so they wanted to understand what is happening year-over-year over the past 2 years, but they wanted to take out some of these pop-ups they have got on the weekend on Fridays and Saturdays. And so I want to [indiscernible] analyze the data, but take out these pop-up events as marked this way. and it did it. And so in the past, with that, it would have to explore all data to Excel and create like a pivot table. And so just simplifying all a lot of that has been has been a big one because these restaurant tours are often doing at the time and the energy to do all that themselves.

And then I think there is -- one of the other areas that we're thinking a lot about is part of this like the Amex partnership we announced in the last earnings call was how do we take the data about the guest to create a personalized experience for the diner at the table. When you think about tolls like across 150,000 customers, we know what people like, items, drinks. We know allergies. We know what their taste profiles are. And so how do you create a more personalized experience at the table. That's an area where we're really looking at very carefully as part of what Amex partnership is about.

And then the last thing I think -- and this is a little bit further out, but -- if you think about it, like restaurants are 1 of the few categories where there's like no demand supply matching happening. And so one of the things we're thinking about in our marketing tools is how do we think more intelligently about the peak times and the slower times to better help restaurants optimize yield. And that's -- there's a team focus on that as well.

So I think there's -- again, there's there's a lot on the innovation front that we're leaning into. Obviously, like not everything here is going to work that I just talked about. But the approach we use is like the testliner and learn approach and see where we see the right signals. There's a lot we're doing to expand the surface area of what we offer within the core SMB restaurant business.

You gave a very tangible example of the AI platform, saving your customers' time and energy. How do you think about sort of the critical mass of AI-driven products where you can begin to think about monetization.

Yes. I think it's early. I mean I think we are very focused on whether it's internally within our own teams or with customers like the mantra we use is, it's got to be customer-focused innovation that's driving outcomes and impact. Because I think it can all get caught up in like all the hype of AI. So it'd be very careful to say, what are the things that matter to our end customers, to our teams. And so whether it's -- the Voice example that I gave, or Susie, which is our GPT that we want to build, a lot of the energy is focused on can we create the right outcomes and right value for customers. I think the monetization will follow.

Like I think it's very clear that if you've got tools that can help you with automation on some of the manual work they have in restaurants have really struggled with labor and the turnover in restaurants is very high. And then on the data side, if you can make them smarter, whether it's about making better -- more intelligent decisions about their menu or about their pricing or about how to think about demand. Those are the types of things where I think as we can do those things, the monetization will follow. And -- but the focus in energy right now is the customer outcomes of AI.

Okay. Let's talk on a little bit of the continued conversation around monetization. Pricing has been an ongoing conversation for the last few years. And I think your message has been pretty consistent saying you're not looking for step function changes in prices across the board. If we fast forward to today, we have seen very consistent SaaS ARPU growth. A lot of that has been driven by adoption. We've seen a modest amount of take rate expansion Actos capital, but not huge. So how are you thinking about the current levels of ARPU expansion kind of across the board -- and then price as a lever, kind of where are you in that journey?

Yes. Great question. So first, the way you characterize is right on really very targeted pricing moves and you won't ever see a step change, like I think that still continues to be our focus. But the underlying principle is really as long as we continue to drive customer outcomes, one of the things that Aman even said, the monetization follows, and that puts us in a position where if we want to monetize whether it's SaaS or fintech, we have that opportunity to do that. But we'll do it a small steady movement in our price as kind of normal course of business as opposed to a onetime massive price change. So I think that's a really important principle. And then when you look at the fintech side, the take rate up 3 basis points in Q2. And as we all know, take rate is really a function of many variables, Pricing is just one of them. Cost optimization continues to be something we're looking at, looking at every transaction, the cost per transaction. And then even innovation that can drive our take rate surcharging is a good example of a product that was added that added a little bit of movement on take rate. And over time, obviously, that will add more.

But what you should hear is pricing is a small element of that because there's just so many puts and takes to take rate. But something we believe over the long term, we can certainly improve take rate. And then on the SaaS side, being in mid-singles is a good zone for the near term. But if you just hear even what Aman just talked about in terms of AI and the opportunity to monetize that. And then you think about the breadth of the platform. I think you said we have -- I don't know how many modules -- but if you just think about the breadth of the platform and the opportunity to drive attach over time, plus the innovation that's coming, we feel we have a ton of conviction and the upsell team is still relatively new. We have a ton of opportunity over the long term to really move ARPU -- a long-term ARPU. And so across both sides, whether it's the SaaS side or fintech side, we have confidence we can move both of them.

Great. On last quarter's earnings call, you talked about expecting to see the impacts of tariffs come through on the hardware side. Can you expand a bit on what you're seeing and what you expect the second half and into '26 as that some of that higher cost inventory starts to work its way through the numbers?

Yes, it's a great question. So first of all, it's a super dynamic environment, and so we're paying close attention -- but I think what you should hear is very manageable in terms of how we see the landscape, both in '25 and '26. We set a strategy several years ago to sort of move away from China. Since then, some of the tariffs have expanded to other countries. Obviously, we're monitoring that. But we feel very confident that, again, it's manageable because of the timing of when inventory comes in and then ultimately, when it gets into customers' hands, that does have an impact where you will not see as big of an impact in '25 and then you'll have the full year impact in '26. But all in, we feel very confident we can manage it.

Very good. And then last question here on capital allocation. You've done some bolt-on acquisitions historically, things like Extra Chef -- what's your appetite for M&A today? And if you could just talk about where the bar is relative to history on pulling that lever.

Yes, sure. So we have a really clear framework on capital allocation, and it starts with let's invest in our core business, and that's what we're really good at. And then as we continue to drive that profitability in the core, it allows us to invest in these longer-term opportunities international enterprise, et cetera. These are all opportunities that we see signal to drive that long-term growth. And then opportunistically, of course, we're canvassing the market for opportunity in the M&A landscape. .

The hurdle is high as we've always said that, it's been really high for us because we've got such a great execution machine in our core business that we want to make sure we don't disrupt that. Things we're looking for are do the economics make sense? Is it a natural adjacency to our core strategy. Will it accelerate time to market, think the normal things and as well as culturally, is it a fit. So there's a hurdle and a set of criteria we look at. So yes, it's an opportunity, but again, the hurdle is high.

Very good. Well, I think with that, we're just about out of time. But thank you so much for joining us again. Really [indiscernible].

Thanks for having us.

Good afternoon. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Toast Second Quarter 2025 Earnings Conference Call. Today's call will be 45 minutes. I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin your conference.

Thank you. Welcome to Toast earnings conference call for the second quarter ended June 30, 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 stock. 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 third quarter of 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 uncertainties 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 the 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 investor.textab.com. After the call, a replay will be available on our website. And with that, let me turn the call over to Aman.

Thanks, Michael, and thank you to everyone for joining us today. We've had a great first half of the year. Q2 results came in ahead of expectations. We've added a record 8,500 net new locations. We grew recurring gross profit 35%, and we've delivered $161 million of adjusted EBITDA. GAAP operating income reached $80 million. At Toast, our mission is to help restaurants delight their guests do what they love and thrive. Our strong results reflect our consistent execution across the company and more importantly, they reinforce our belief in the significant long-term opportunity ahead of us. We're seeing that opportunity play out as we grow market share in our core and accelerate our momentum across our new customer segments.

In Q2, we crossed 10,000 live locations across enterprise, international and food and beverage retail and now serve approximately 148,000 locations across our customer segments. We're excited to welcome Firehouse subs, a 1,300 QSR enterprise brand as well as [indiscernible] the iconic New York grocer to the Toast platform, further signaling our progress in enterprise and retail. Internationally, we launched in Australia. This is our fourth international market, extending our reach beyond the U.K., Ireland and Canada and another step towards building the leading platform global platform for restaurants. We're also thrilled to announce an exciting partnership with American Express.

This collaboration will bring together reservation listings from [indiscernible], talk and Toast Tables into Local by Toast, our mobile app to make it easier to find and book tables. We also plan to use the reservation data and the power of our platform to enable personalized experiences for diners at the point of sale, including American Express Card members.

We're excited about the value our 2 companies can deliver together for both restaurants and diners through this exciting partnership. At the start of the year, we laid out 4 key priorities: Number one, scale locations and market share in our core U.S. restaurant business; number two, demonstrate that these new market segments can be material drivers of growth; third, increased customer adoption of our broad platform and drive differentiation through data and AI; and lastly, continue to hold ourselves to a high bar and invest against our most important priorities while gradually expanding margins. All right.

So let's jump into number one, starting with our core restaurant business. We have strong momentum driven by our purpose-built restaurant platform and our local go-to-market team. As a result of positive customer feedback and the brand investments we've made, we've seen the largest year-over-year increase in brand consideration in our peer set. We grew share in nearly every SMB market we operate in. In our top 10 markets, we continue to see higher rep productivity and higher market share gains relative to our averages. The fact that we're still seeing strong gains in these markets where we have over 30% penetration across large and small metro areas is a clear sign our flywheel strategy is working. We're also expanding the breadth of our platform with new products and features like Toast Go III and our new AI-powered intelligence engine, Toast IQ, which reflects a steady drumbeat of innovation that's core to our strategy.

Beyond every update is our focus on the thousand little things that make the Toast platform such a great tool for restaurant. An example of this is Supper Club, a neighborhood restaurant market in Richmond, Virginia. A deciding factor in the switch to Toast was our catering and events product, which replaced a third-party app that was cumbersome for them and their customers. Since switching to Toast, Supper Club has seen a nearly 40% jump in catering cells. Toast catering is both easy to use and seamlessly integrates into the toast platform, including our point-of-sale devices and handhelds which has allowed them to take out significantly more business and even open a second location in March this year. It's a great example of how when our customers grow, we grow right alongside them. Now second, move gears.

Our second priority is demonstrating that these new market segments can be material drivers of growth. We crossed 10,000 live locations across enterprise, food and beverage retail and international, and these new customer segments are on track to surpass $100 million in ARR collectively by the end of the year, a milestone that took 6 years in our core business. In enterprise that our vision is to have the most iconic restaurant bands and Toast and drive innovation for the entire industry. Our investments are paying off, and we'll keep enhancing the platform to meet the needs of large-scale operators. We're also seeing strong interest from customers to use more of our platform, which will contribute to scaling enterprise over time.

In Food and Beverage retail, we're off to another of a strong start, and the early signals are really promising. We're building deeper inventory management tools, expanding integrations and scaling our dedicated sales team. Total ARPU for retail customers is already above 10-K. A clear indication our value opposition is resonating. Food retailers like [ Zabar's ] New York City are using Toast Retail to handle their large SaaS-based operation manage over 30,000 SKUs across the 20,000 square foot store and process more than 2,500 transactions daily. Zabar shows how Toast supports complex high-volume retail environments.

Across the U.K., Ireland and Canada, rolling out more of our products is driving a steady increase in booked ARPU. We're also seeing greater traction among full-service restaurants which now make up the majority of our new wins in these regions, showing that product improvement investments in our go-to-market teams are paying -- and in our go-to-market teams are paying off. We're launching Australia with the same products we have in our other international markets today. Our fast comprehensive launch down under is thanks to the learnings and infrastructure from our first 3 markets and the localization investments we've made over the past few years. We took our first customer, Braceras live in Australia this summer.

[ Grace Craze ] is an existing cost customer in the U.S. and we were top of mind when they decided to expand Australia. They initially opted for a local provider at launch but couldn't find other POS provider that matched toasts capabilities. So they were excited to transition it to us when we would -- when we could support the Australian operations. They're not using our guest-facing displays, kitchen display screens and online ordering products to solve for the operational friction and reporting gaps they experienced with the local system at launch. And they plan to add more products like e-mail marketing and loyalty to help drive demand. and above-store tools, including multi-location management and reporting to power their continued expansion across Australia.

Shifting gears, our third priority is increasing customer adoption of our platform and driving differentiation through data and AI. We were a pioneer in bringing purpose-built handheld to market 7 years ago, redefining in-store operations and service for restaurants. And since then, billions of orders have run through Toast nind and Health giving us a deep understanding of what works on the restaurant floor. Our new Toast GO III handheld build on that foundation and continues to push the industry forward. It's the only device that combines to IQ, Toast Intelligence engine with built-in cellular connectivity, so staff can take orders, process payments and print receipts seamlessly across WiFi and cellular networks. It does all this while being lighter, faster and more durable than before. with a 24-hour battery life.

With Toast IQ, staff now get real-time context about their guests to help increase check sizes. Personalized notes and guest details from to tables show up directly into our Toast Go III handheld and terminals. And our Amex partnership aims to build on this technology to deliver these personalized experiences for Amex card members as well. [indiscernible] restaurant in Texas calls to Toast Go III a game changer. They used to lose WiFi in certain areas of their 3-story concrete building, but now with Toast Go III cellular functionality they can seamlessly transition between cellular and WiFi to stay connected and take payments without getting interrupted. The new handheld meet the demand of the restaurants, including drops on their concrete floors or servers working double shifts to now carry handheld all day long, without needing to charge it.

Haywire also sees that Toast Go as a tool growth, giving them a reliable way to generate sales of community events and festivals and open the door to sales that wouldn't access otherwise. Now lastly, our fourth priority is to continue to invest with discipline while expanding our margins. Our updated full year outlook reflects the strength of our execution and the scalability of our business. We have reached the medium-term margin guidance we laid out at our Investor Day ahead of plan, and we're confident in our ability to continue investing behind what's most important to fuel long-term growth while balancing margins over time. As I close out, I want to thank every coaster, our customers and our investors.

The progress we're making is a direct result of the team's incredible execution and the confidence our customers and investors have in what we're building. Our platform helps local businesses thrive and I've never been more excited about the opportunity that's in front of us. Thank you. And with that, I'll turn the call over to Elena.

Thank you, Aman, and to everyone for joining. To start, I would also like to thank our incredible team for another strong quarter, which came in above our expectations. In the second quarter, ARR grew 31% and total fintech and subscription gross profit, our recurring gross profit stream increased 35% year-over-year. Total take rate across SaaS and fintech gross profit was 93 basis points in the quarter, an increase of 8 basis points from a year ago, reflecting our growing share of wallet and the increasing value we are providing our customers.

Adjusted EBITDA was $161 million for the quarter, with margins expanding 8 percentage points year-over-year to 35%. And gas operating income was $80 million. We also increased our full year guidance to reflect our strong quarter and the operating momentum we have heading into the second half of the year. We posted a record quarter with approximately 8,500 net location additions, and we ended Q2 with 148,000 locations, up 24% from a year ago. Our results reflect deeper penetration in our core customer segment complemented by growing momentum across our new customer segments. As Aman mentioned, across international, enterprise and food and beverage retail, we crossed 10,000 locations in Q2.

We were excited about the new bellwether brands like Firehouse Subs and [indiscernible] showing the versatility of our platform to serve a wide range of customers across all segments. The traction we're seeing is a testament to our investments to serve these new customer segments across both product and go-to-market and our confidence in the trajectory of these new customer segments continues to grow. We expect these new TAMs to become increasingly meaningful parts of our business over time and contribute to sustained long-term growth. As a result, we are investing behind our success. We're building out the product to serve deeper parts of these new TAMs and scaling go-to-market to accelerate our progress. That includes expanding into new geographies over time and we're excited to have our first customer live in Australia.

Looking out to the remainder of the year, we remain on track for more location net adds in 2025 versus 2024. We driven by our consistent go-to-market execution and a comprehensive product offering in our core, complemented by the growing scale from new customer segments. SaaS ARR grew 30% year-over-year, driven by location growth and a 5% increase in SaaS ARPU on an ARR basis. Subscription revenue increased 37% and gross profit grew 43%, benefiting from the improved ARR to revenue conversion we discussed last year.

As a reminder, beginning next quarter, we will lap the step up and the associated onetime benefits we saw in Q3 and Q4 of last year and therefore, expect subscription revenue to more closely mirror SaaS ARR growth beginning in Q3. Payments ARR increased 32% and fintech gross profit grew 30% in the second quarter was $50 billion, growing 23% year-over-year with GPV per location down 1% versus last year. Fintech net take rate was 57 basis points, and payment net take rate was 49 basis points. Both increased 3 basis points from a year ago from a combination of ongoing optimization efforts small targeted pricing moves and new products, including surcharging. Non-payment fintech solutions led by TOs Capital contributed $40 million in gross profit and 8 basis points in take rate.

Capital take rate contribution was in line with Q2 last year. And as a reminder, is seasonally lower in Q2 due to higher GP. To capital remains healthy with solid demand from customers and defaults remain in line with our expectations. Looking ahead, we continue to expect Toast Capital's contribution and net take rate to remain in the 10 basis point range, excluding $19 million of bad debt and credit-related expenses operating expenses increased 18% in Q2. That's primarily from a 28% increase in sales and marketing expenses as we grow our go-to-market footprint across international and retail. In the core, we're making targeted rep editions and supporting our brand campaign to deliver ongoing share gains. R&D grew 9%, reflecting investments in our highest priority areas.

In the core, Toast Go 3 and newly launched ToastIQ features have our continued focus on extending our product differentiation and driving tangible customer outcomes. Across our new customer segments, we are taking the same vertical approach that has driven our success in the core. We're serving the needs of our customers more deeply in each segment, such as enhancing our inventory solutions for retail, bringing Toast Go 3 internationally and expanding our functionality and integrations in enterprise. Adjusted EBITDA was $161 million with a margin of 35%. Our strong Q2 results reflect healthy top line growth, including better-than-expected GPV and as well as our focused execution and disciplined capital allocation.

In addition, the seasonality of GPV contributed to the seasonally high margin in the quarter. Free cash flow was $208 million, driven by strong adjusted EBITDA and a benefit from working capital due to the seasonality of our payments business. GAAP operating income was up $80 million, up from $14 million a year ago. That's both the strength in adjusted EBITDA and our prudent approach to managing stock-based compensation. The stock-based comp as a percentage of recurring gross profit was 14% in Q2. We down 6 percentage points versus a year ago. We continue to be on a path for stock-based comp to be in low double digits as a percentage of recurring gross profit.

Turning to guidance. For the third quarter, we expect total subscription and fintech gross profit to grow in the range of 23% to 26% year-over-year and adjusted EBITDA to be $140 million to $150 million. We raised our full year outlook due to our strong results and continued momentum across the business. At the midpoint, we now expect 29% growth in fintech and subscription gross profit and $575 million in adjusted EBITDA, a margin of 32%, up 5 percentage points versus 2024. Let me provide some context on our margin profile in the second half of the year. As a reminder, Q4 margin is typically lower relative to the rest of the year due to the seasonality of payments. In addition, we will have higher tariff expenses in the second half of the year. We take a disciplined approach to scaling the business and based on positive signals in our growth initiatives, we are unlocking incremental investments across both core and our new customer segments to move faster in these areas and position ourselves for sustained long-term growth.

Overall, we are on track for another year of both strong top line growth and expanding profitability and are confident we can continue to deliver durable growth while driving towards our long-term margin target. To wrap up, we had a great first half, reflecting our consistent execution. Our momentum in the core is strong, and we are really excited by our progress in new customer segments. Looking ahead, we're excited and confident about the opportunity in front of us and believe we are just getting started. Now I'll turn the call back over to the operator to begin Q&A.

[Operator Instructions]. Your first question comes from the line of Will Nance with Goldman Sachs.

Great results today. I wanted to ask a question on the new disclosure on retail ARPUs being, I think, north of 10,000. Obviously, great to see and you've talked about this being a very large average merchant side. I was wondering if you could talk through that number and maybe give some context on the breakdown between payments and software. And then you mentioned further enhancements to the product. Where are you kind of now versus where you want to be on the software suite for that vertical? And what types of things do you think to be on the road map. I appreciate it.

Yes. Well, thanks for the question. If you go back and look at our core business and you look at how we've been able to expand both SaaS ARPU and fintech ARPU over time. It's taken a while to get us to where we are today, where our core ARPU is. And so if you look at how quickly we've been able to get retail ARPU up over 100, I think, just really shows that it's a really good opportunity for us. That's why we're investing in sales capacity. We're going to continue to invest in the balance of the year.

And I think the data we're seeing from some of the early reps that we've scaled up this dedicated team for retail is really, really positive. I think a lot of the products that we have, you think about payments, capital, payroll, scheduling, a lot of that applies, but there are also some very specific products around inventory and that are very specific to retail that we continue to build out. And by the way, they're specific to subcategories within retail. So what's needed in grocery versus liquor stores versus convenience stores and such, there are some differences as well. But net-net, I think if you look at where we are, I think we're ahead of expectations and the potential for my confidence in the potential of the business is the highest it's ever been.

That's great. I use the loyalty module to grocery store in the neighborhood this weekend, save me a dollar. Just on some of the macro dynamics in GMV, I was wondering if you could maybe provide kind of latest and greatest breakdown of some of the GPV per location trends across the base. Obviously, as you just talked about, you've got maybe an upper bias coming from retail, maybe a downward bias from some of the location ads internationally. We've been seeing negative same-store sales for a while now in restaurants. So just kind of wondering if you could stack rack some of those drivers and talk about any notable changes there?

Yes. Since we asked about retail right now, well, even though at the Analyst Day, we talked about how retail GPVs are higher than restaurants because we're newer. We're still growing into that. And so I just want to clarify that. But overall, if you look at GPV trends it's been largely flat for us, and GPV per location was down 1%. It's been on this narrow band. And mix is a very small component of it. Like if you look at our customer base overall, GPV has been largely a bit about flat. I think it's up like a very small amount. And then if you look at the rest of the segments, retail a little bit higher. International is a little bit lower. But I think over time, in each of these businesses, what Lena and team are doing a great job of is really looking at [indiscernible]. They're looking at Payback periods and margins. And we have confidence that all of these businesses are great opportunities over time.

Your next question comes from the line of Tien Tsin Huang with JP Morgan.

Lots of fun momentum here. Just wanted to clarify on the third quarter EBITDA expected to be sequentially down, it looks like. Is that the unlocking of certain investments that you called out there, Elena, can you just elaborate on that maybe and how discretionary that is? I also hurt tariff expenses. I just want to get all that straight.

Yes. Thanks. It's a great question. Look, we've got a lot of momentum in our customer segments. So what you're seeing in the second half in terms of our margin is that we're increasing our investment in these areas to accelerate our progress. You heard Aman talk about 10,000 live locations. Pacing to $100 million in ARR. So we want to continue to invest behind that. And that's really what you're seeing. Tariff is also playing a role for sure. It's a fluid environment, definitely tariffs. A bigger impact in the second half of the year than the first half of the year. But we've got a lot of conviction to invest to grow -- to drive sustained growth over the long term, is what you're seeing us that's behind in the second half.

Okay. Great. Then my quick follow-up just on Toast Go 3. I heard a lot of good things about this. Do you expect an upgrade cycle from existing customers using prior versions of Toast Go or is this more about attaching to new sales? Just trying to understand how that layers in?

Yes, I think it's both, Tien Tsin.If you look at certainly new customers will likely start to go through device. But for a lot of existing customers as their hardware refresh cycles come up, I think a lot of them are really excited about being able to use this device. Because it's got the cellular backup, especially if you've got big spaces, they like the ability to be able to use both WiFi and cellular at the same time.

Your next question comes from the line of DJ Hynes with Canaccord.

So Aman, we've had several quarters now with really nice enterprise momentum. I'm curious what you're seeing incumbent vendors at that end of the market doing to sort the threat that toast creates, right? Are they trying to innovate? Are they getting more aggressive on price? How price sensitive are the enterprise buyers? Just any color on kind of competitive dynamics in the enterprise segment would be helpful.

Sure, DJ. No matter and look at what's happened in the core independent restaurant business, the adoption of cloud was actually faster upmarket in enterprise. And so a lot of what we continue to see is a lot of legacy on-premise solutions that doses a slicing. And so I don't think it's really about price. I think it's about leveraging modern tech, where you can use the cloud. And that's really what's driving some of our growth. We're investing in a big way now with Firehouse not just the non-drive-through segment, we're also starting to invest now in the drive-through segment. And certainly, if you look at the competitive environment, we've said this before, it's always been a very competitive environment in this space. And I think our focus is just on customers like the more customer obsessed we can be about solving the problems these enterprise brands have I think that's what's really driving our growth and our success.

Yes. And I would just build on we've begun investing in enterprise really a few years ago, and that's what you're starting to see show up is our capabilities have matured in a way where you're starting to see the likes of Applebee's, and we closed Marriott a couple of years ago. And if you take Firehouse. As an example, one of the reasons they chose Toast is really about the capabilities in store. They really wanted to focus on performance in store. They wanted to increase staff efficiency. They wanted to improve guest experience. reliability. And so to me, that's very much a capability, we were able to meet that demand. And that's why you're seeing our -- that's just one example, but you're seeing our pipeline really improve as a result of this investment, which is taken a couple of years to mature.

Yes, yes. And then, Lena, can you just remind me like a 1500 location win, a 1,300 location win? Like how long does it take to stand those up? When do they start hitting into net adds?

Yes, it depends. We would collaborate with the new customer and decide what their pipeline is or when they're ready for implementation. But it could be -- like FIREHOUSE, we already have some locations live. So it just depends on the velocity at which they want to go. But generally speaking, it's not that far after we book and then it can take the course of 1 to 2 years depending on how fast they want to go. Some customers want to go faster. But generally, a land like that will take -- could take 4, 6 quarters on the outside, maybe 2 years.

Your next question comes from the line of Timothy Chiodo with UBS.

I want to talk a little bit about what you mentioned in terms of the investment behind go-to-market, but I want to keep it specific to core U.S. restaurants and not looking really at the growth market sales teams. So I was hoping you could comment a little bit around your coverage in the major, major cities. I'm assuming you have salespeople in most of those, but is there more room to add in the major cities? Or is that you've kind of got the coverage. And then second, as you move into beyond those major markets, so 50 miles outside of ABC Major City. Is there any kind of a plan to add coverage there? Or would you consider more going with third-party distribution partners, ISOs, banks, et cetera, and to the extent you could comment on the effectiveness of those channels and selling such a vertical-specific product.

Thanks, Tim. It's a great question. It's actually one we debate and currently all the time. If you look at the past years we've invested a lot to significantly increase our sales capacity. And that's really what's driving the core of our growth. The great thing is you look at the supply wheel effect we've talked about, that continues. So like in these markets where we've got SMB coverage, you actually see productivity up year-over-year this year as an example, so just shows that, that strategy continues to work. Now in terms of like what we're doing on coverage.

I'd say, in most markets, to your point, we've got coverage. That being said, there are some markets where feel like we're underpenetrated. So we've been surgical about saying in certain markets, we want to add coverage. And that's true whether they're metro areas or there are suburbs. And so I think it just really depends on kind of what our penetration is, what our productivity is. And so we use that to refine, I'd say on the edges, but it's not like a material step function change in terms of how much rep capacity we're adding. I think in terms of like other channels, we've always had a really robust partner ecosystem, like 20% of our new customers come from referrals. That's food distribution partners, tech providers. And so that's certainly a key part of our funnel.

But we do think that like it's important for us, to your point about this vertical product that's restaurant-specific that we own the end-to-end experience. And so whether it's the go-to-market, the onboarding to support we own it all in-house, and we think that's a differentiator in addition to our platform. And so there aren't any plans right now to open that up beyond our core direct strategy, but we're certainly always exploring it's a topic actually we talk about all the time.

Your next question comes from the line of Matt Coad with Truist.

Wanted to touch on SES ARPU again. You guys are rolling out a lot of different products that you talked about, whether it be on the AI front or some of the new hardware. So just curious if you could provide an update on kind of your strategy to price for value here.

Yes, sure. So a couple of things. One is our SaaS ARPU in Q2 was around 5%. And really how we think about our growth levers is really focusing on ARR and locations and ARPU are both the vectors we think about. And in terms of pricing, that's really just one small part of our ARPU growth. But absolutely, we're focused on making sure we're driving value for our customers so that pricing is not an objection, if you will. But if you zoom out and think about how can we drive ARPU growth over time, we have a lot of levers available to us.

We -- A, we know a lot of -- our products are not a terminal attached. We're going to continue to innovate. Data and AI will certainly play a role in that over time. And then we're still continuing to home upsell motion and really balance our land and expand motion. So feeling really confident that the combination of our breadth of our platform will drive ARPU over time.

yes, just for my quick follow-up, the nonpayment portion of gross profit, so mainly tos Capital it was down, I think you said to $40 million this quarter compared to $47 million last quarter. Could you unpack that a little bit for us? Is that kind of just timing related to that decline? Or are you guys pulling back on certain loan growth right now?

Yes. Overall, the program is really healthy. There's seasonally some dynamic there in Q2. And then there was a little softer demand at the start of the quarter. But overall, we feel really good about where Toast Capital's growth is, the defaults are in line with expectations. So feel really -- it's a good healthy program for us and continues to be.

Your next question comes from the line of Josh Baer with Morgan Stanley.

A quick one on enterprise and one on international. Just wondering with regard to FIREHOUSE, you talked about some of the reasons that they adopted to -- just wondering like how that translates into actual products? Are they using -- if you can identify any of the suites that they're going to adopt and if payments is in there too. And then with regard to international and Australia, just wondering how we should think about it? Is it part of a broader wave 2 of international expansion, and we're going to hear about other countries and geos? Or is this kind of wave 2 and that's it for now.

Yes. On Firehouse subs, they're definitely taking payments. And in terms of the suite of products, obviously, they're using our handhelds are using our KDS and restaurant management suite. So it's the breadth of our platform that they're using. And I'll let Aman talk about international.

Yes, Josh. On Australia, I think your question was about is Australia part of a broader strategy on Wave 2, right? I think One of the things that's been great about this Australia launch is that we've been able to launch with the same products in Australia that we have actually in our H1 market, this is U.K. and Canada. And it's the work it's the great work the R&D team has done to localize our platform, where we can actually do that. As you know, it took us a long time in U.K. and Canada to get all these products out and the ARPU up. And so the fact that we can now launch into new countries with the full platform, I think, is a huge advantage for us. In terms of whether or not we're going to add more countries but not ready to announce anything at this time. But certainly, like it's a balance, right? On the one hand, we've got to make sure that in the countries we're in, we're not shortchanging ourselves so that we're set up to be successful.

On the other hand, I think if you look long term, like to be aspire to do more internationally and more globally, absolutely, the answer is yes.

Your next question comes from the line of Darrin Peller with Wolfe Research.

For the record net adds of 8,500, just how much of that was driven by the core business versus the TAM expansion? And then just kind of doubling down on that. When you look at the 10,000 location goal -- it's great to see you pass that for enterprise, international and F&B retail. Is there any way to give us a bit more granularity around the composition of these 10,000 and just where they fit within those 3 buckets?

DarrIn. So if you look at our core business, that's still driving right? The bulk of our growth, we've been at this, obviously, as we've said this before, for more than a decade. And if you look at like the number of go-lives, for example, in our core business that's never been higher. The rep productivity is at really healthy level. The most penetrated markets are seeing healthy gains back higher than the average markets where we have the most penetration. So really, the core business is incredibly healthy.

Now are these new businesses contributing more as they're scaling, yes, right? If you look at retail and natural enterprise, in terms of the percentage of net percentage of go-lives, certainly that number is bigger than it's ever been, just because we were now scaling in those markets well. And that's really what's driving the record net adds in the business. We're on track not only for this quarter, but for the year, as we said last quarter, to have record net adds for the year as well. In terms of the exact composition and breakdown across the 3, the only thing I'll say is across all of them, we're seeing good momentum, right? If you look at retail, we're adding more sales capacity because the margin. The ARPUs are over 100, the rep productivity is healthy. And so that gives a signal that we should lean in and invest.

In international, we've increased ARPU and we're seeing rep productivity be comparable to what we've seen in our U.S. SMB Business. Even though we don't have the level of -- we don't have the brand or the penetration that we have in the U.S. And so that's a good signal. And enterprise -- I think enterprise is going to be gradual, right? Because if you look at these wins, while they're awesome, enterprise wins, the longer sales cycles and we expect them to be a gradual dip over time. And -- but all 3 of them are contributing in all 3 areas, we're investing to continue to open up the longer-term opportunity in front of us.

That's great to hear. Just a quick follow-up would be on SaaS ARPU. It's still growing very well. And so when we think about how much is driven by customers coming on with higher SaaS ARPU versus just the upsell team continuing to do well. How do we distinguish that if you could help us out.

Yes. It's -- so it's both, right? We're seeing ARPU both from customers and existing customers. And that's one thing we're talking about is owning our land and expand motion. But the upsell team is absolutely contributing to that in terms -- and their execution is solid. I think over time, obviously, we want to continue to optimize our product market fit across our whole set of products and continue to drive that. But overall, seeing really good progress across both new and existing customers.

Your next question comes from the line of David Koning with Baird.

Great job. I guess, first of all, between Q3 guidance and full year guidance, we have a little insight into it looks like 21%, 22% at the midpoint in terms of recurring GP growth. Is that a good -- if that's the access point, is that a good insight into kind of how next year starts? And maybe what might be the moving parts that could kind of move it either way over time.

Yes. Thanks for the question. So a couple of things. One is, as we always aim to do better, and that's really important in how we balance our guidance. Just keep in mind, the first half of the year benefited from that ARR conversion. So that's a dynamic at play in the second half of the year. And then GPV was better than our expectations in Q2. And so just in terms of how we guide, we really focus on being prudent and balanced as we enter into any guidance cycle. The other thing I'll tell you is our investment that we have we've talked about on this call is really in service of sustaining our growth over the long term. So we're always going to aim to do better, and these investments really will position us for growth not only in '26 but beyond.

Great. And just a quick follow-up. July trends. Obviously, Q2 got better with volume, which is great. July trends, like per location, did that start out pretty well?

Yes, it's in line with expectations. I think we're in good shape in July.

Your next question comes from the line of Dan Dolev with Mizuho Securities.

Great results here, as always. Can you please help us understand how the MX partnership enhances the flywheel here because it seems very cool. That deal that you're doing. Appreciate that.

So, Dan, if you -- so what we're doing in this AMEX partnership is, one, we're combining inventory from resi talk and to tables into our app. This is Toast local. And the idea is it's -- you've got one place now where you can go find a place to book restaurants, a broad set of restaurants that are available. Now when you book on any of these platforms, when you check in at the restaurant, what the toast platform can do is create a personalized experience for you. So it's everything from -- you think about allergies, notes, birthdays, but also be able to recommend menu items, whether it's your favorite drink or it is items that you love. So if you think about most people they've got these preferences and their taste profile. So to empower the staff, the host and the server and the kitchen with that data is really valuable in creating personalized experiences. So I think 2 areas to focus. One, broaden the inventory within local; and two, provide a great experience for the guests, including for Amex card members.

We will now take our last question from the line of Harshita Rawat with Bernstein.

So I want to ask about Sous Chef, which we announced last year. I know you're currently doing pilots. What are you hearing from your customers in terms of the problem they're solving with the AI powered assistant and the value you're driving? And how differentiated is that product in the market.

Yes. Thanks for the question, Harshita. We are making really good progress with Sous Chef. The customer feedback has been really positive. I think what people like about the product and data is -- if you think about most restaurant tours, they're not CTOs, they're not CIOs. And so the ability to have a human interface to be able to get insights to get recommendations to be able to actually make changes. So this is like -- this is the ability to take action within the Sous Chef capability is something that we're getting really good feedback and input on. And

I think ultimately, our goal here is to build the world's best like interface for restaurants because we've got all this great data. And so we're taking feedback from customers and then -- and we plan to GA the platform at some point later this year.

This concludes today's conference call. Thank you for joining.