Toast Aktie

All right. We are going to get started. My name is Will Nance. Joining us for day 2 of the conference and kicking us off is the Toast team. We have Co-Founder and CEO, Aman; and President and CFO, Elena. Thank you for joining us.

Thanks for having us.

Okay. I want to start a little bit big picture here as it's almost exactly the 5-year anniversary of the IPO. The company had about 50,000 locations. That's more than tripled since then. For 2021, recurring gross profit was roughly $400 million. EBITDA was negative. You've nearly 6x the top line. You're on track for nearly -- you're on track for over $800 million of adjusted EBITDA this year. You've been consistently GAAP profitable. So just a major scaling story ever since the IPO. What do you attribute that success to? And then how are you -- how do you think about measuring success from here?

Yes. First of all, good morning, everyone. Thank you for joining us. Day-to-day in our business, we're working so hard to execute day after day, month after month, quarter after quarter. And it's easy to lose sight of the progress we've made. And to your point, in 5 years, we have grown the business over 6x. We've scaled the business, both in the bottom line and the top line. And I think at its core, obviously, it comes back to the execution of the team.

You look at, I think, what we've been able to do, one, in our core business. This is the U.S. SMB restaurant business. We have established ourselves in a market leadership position, and we continue to scale at a strong clip. And then two, I think when we started the business 15 years ago, it was largely U.S. SMB restaurants. And when we went public 5 years ago, we started to talk about, okay, what is the long-term opportunity here beyond that core TAM. And 2, 3 years ago, we started to build ourselves -- build out our international business, our enterprise business, our retail business. And today, Toast primarily is a business that is in many countries. It is both in SMB and in enterprise, and it's, in many ways, maybe most importantly, also in many verticals. And we're seeing really good traction in those new TAM that we're going after. And I think that's a big part of the story as well.

As I think about really the next 5 years, I think, one, we are taking GPV share in our core business faster than any of the competitors we typically see. We've got the most GPV share in our core. And so continuing to lean in, and we think there's an opportunity to double the market share in our core business. That's the top priority.

And then in our new TAM, Elena and I have shared this before, but there's no question that as we take a 5- and 10-year outlook, these businesses could be very significant. And so across all these 3 TAMs, we see a massive opportunity to continue to grow and scale. We're adding sales capacity across them.

And then I think the last thing I'll say is when we went public, that was the beginnings of us really moving from a point-of-sale application to more of a platform. And so we have launched products for guests, employees, suppliers. Those were all pretty nascent. The ARPU at the IPO was maybe $8,000 or $9,000, and don't quote me on the exact numbers, but today, it's over $13,000. And so we're seeing this platform story evolve. And as we think about the next 5 years, with AI, there's a big opportunity to really expand and accelerate that growth, and we're seeing that with products like Toast IQ Grow. So I think those are some of the key focus areas in the next 5 years that we'll continue to lean into.

So I want to come back to some of this product and new vertical opportunities. But maybe we could start off just on the core. I think a lot of the success is still driven by the core and a lot has changed in the market since the IPO. How do you think about the growth algorithm going forward? And then what has changed in the competitive environment today versus when you went public?

I think the biggest thing that's changed is we have gone from maybe 4% or 5% market share to over 20% share on locations, more than that in GPV because bigger restaurants typically choose Toast. And I think as you look at the growth in our core, it's a couple of things. One is right from day 1, right, we have focused on building out the platform and going deep on the needs of the restaurant vertical.

I think one of the misunderstandings about the restaurant business is people think about it like one product with one set of needs. But actually, within restaurants, there are so many sub-verticals. And so one of the expressions I've used to talk about our business is to build out the thousand little things that our customers need, starting off with QSR restaurants and FSRs and bars and nightclubs, hotel restaurants, non-English-speaking restaurants, cafeterias, really the list goes on. And each of these TAMs has different needs.

Just recently, I was talking to a prospect, and they were talking about using our QR codes and scanning a QR code in a hotel environment to then add service charges and charge it to a room. Or if you look at sports and entertainment, their specific requirement is around all these different locations, managed across a shared kitchen, both for pickup and in-store orders. And so there's lots of different features and capabilities, and we're comfortable with that complexity, that vertical depth that's needed to support restaurants. And I think that is at the core of what's allowed us to continue to drive really strong win rates and the growth that we continue to see in our core business and have tons of conviction that as long as we continue to lean into that, we can continue to establish -- continue to see some really strong growth core.

And the second piece of it is our -- the sales and service motion that we've built out over the past decade, starting in the U.S. and then now internationally as well. I think that's a huge advantage in terms of serving these bigger customers that Toast typically serves, customers that have higher GPV, the more complex businesses. And our sales team, you look at the productivity of the team, we continue to see flywheel markets perform really well, more market-centric flywheel where we're seeing greater -- stronger productivity. I think that continues to be an area where we're performing really well as well.

And as I think about the next decade, I think one of the biggest opportunities back to vertical focus that I think we have is if you think about Toast, when we first started, it was a software platform, right? Customers would use our platform to use all the capabilities and workflows to manage employees, the suppliers or the guest experience and the operations of the restaurant. And now for the first time with AI, you're starting to see we can actually take on some of that work really, like with Toast IQ Grow, for example, we can share that in a little bit. And so it's 2 things. One is the intelligence layer and then also taking up on the manual work restaurateurs typically have had to outsource. And that I think allows us -- and the North Star there is can we help these SMB restaurateurs run a more profitable business. And I think if we can do that, I think we'll be well positioned in the market.

So Elena, Aman mentioned some of the ARPU stats over the last couple of years. Payments take rate, SaaS ARPUs kind of up and to the right, really consistently for the last couple of years. Most of that, I think, has been module adoption on the SaaS side and a lot of optimizations on the take rate side. But as you look ahead, how are you thinking about pricing as a lever for growth?

Yes, it's a great question. Look, at the highest level, the priority is market share gains, right? That's -- Aman just talked about our growth algorithm, and you said it in your question. It's really about driving location growth and then product attach. That's really the primary growth vector that we're leaning on today. Over the long term, certainly, pricing will be available to us. And our pricing philosophy really hasn't changed, right? We really are focused on very targeted small price moves where it makes sense, where we might see customers that are outliers relative to the current market rate, but those are small, surgical, very targeted. Our primary growth algorithm, again, is really driving locations and ARPU.

And when you think about our total monetization, RGP over GPV, that's about 100 basis points. It grew 5 basis points year-over-year. And that's again on the back of strong product adoption and then, of course, the COGS optimization that we've been working on for a very long time. So at the end of the day, we're very much focused on, if we drive customer outcomes and do some of this work that Aman talked about, we're very confident in our ability to monetize through pricing.

And Elena, I guess, you guys see such a broad aperture for consumer spending on restaurants. Any call-outs in the current quarter that you would make on just the environment and overall spending levels?

Yes. No, we're steady as she goes in line with expectations. Like we look at data in many different ways, but nothing new to report since earnings with daily. Yes.

No news is good news. So I wanted to shift to Toast IQ Grow. I think this has been one of the bigger stories of the past year. You just mentioned it, Aman, in your last question -- in your last answer, this is really how the company is thinking about attacking the opportunity for AI-enabled products. You mentioned this is on pace to be the fastest product to ever reach $10 million in ARR in the company's history. Maybe you can talk about just what you're hearing from restaurant customers and what they're demanding from Toast from an AI perspective.

Yes. For us, the -- when AI really started to take off, the obvious place that we first went to was, okay, we've got all this great data, right? Let's get it into an LLM so that it's accessible and searchable. And that was the beginnings of like, okay, you can start to analyze and get insights on what's going on in your business. And so one of the things that's been powerful already is people are using Toast IQ to load all of their data and get insight about what are the drivers of profitability in their business, which for an SMB operator is a big deal because historically, a lot of the data is not as accessible and hard to use. Even if you have customer reports, to really understand how do you generate the right view of your data is a lot of work. Whereas with the language interface, you just ask it a question about why were my sales down last week, why was cost of food was different versus a couple of weeks ago. And so that was step one.

And what we have seen more recently is when we talk to a lot of our customers, what they told us was, look, for a lot of the work that they're focused on like running great restaurants, great service, great food. And most successful restaurants in the SMB space are outsourcing things like demand and marketing. They're outsourcing things like bookkeeping. They're outsourcing -- the bookkeeper might help them with labor and their schedules, forecasting what demand might be.

And what we have been able to do is actually build a better version, truly a better version of what was out there before by leveraging our software, leveraging our data and then building the AI capability with humans in the loop to help them take on some of that work. Toast IQ Grow is the first example of it, where -- so what Toast IQ Grow is, all of our guest-facing products, right? So things like online ordering, websites, loyalty, CRM, marketing, advertising. And what we're doing is leveraging the data and leveraging AI to actually do the work of figuring out how to make sure your website is optimized for SEO, to make sure that your online ordering is set up such that it maximizes conversion. Your marketing and advertising campaigns are set up, again, I think, to drive engagement with your guests.

And what we've seen is customers that switch to it. This was a data point, frankly, that I -- I know it's early. We've shared it's approaching $10 million ARR, but the customers that have switched to it have seen sales growth. When you think about an SMB business, 40% sales growth when incremental demand is so expensive is a huge deal. And so that product actually right now is constrained on bringing customers live because of the impact that we're seeing on customer top line.

And what the opportunity is long term is if you think about a restaurant, there's no concept of looking at when they're busy and when they're not. And there's no concept of actually understanding your guests to say what might get them to engage with your marketing to actually come in. So if you're -- I'm making this up here, if you love margaritas and guacamole, like the messaging that might engage you is different than the average user. And so we've got all the data to look at when the restaurants are busy, when they're not busy and to look at all their guests and to better understand what sort of marketing we can generate.

So part 2 of this can be incredibly personalized in a way that I think historically has really not been available to restaurants, which allows us to create even more impact. And that's across, of course, demand, but then also across suppliers and the cost of food and all the supplies restaurants have, the demand forecast, the labor schedule. And the North Star is across all of these variables, that's what the team is working towards, can you improve profitability because it's such a low-margin business. And so I think that's what ultimately is going to drive our win rates. That ultimately is going to drive our ability to continue to take share. And the team on the core SMB side is -- that's our primary focus.

So Elena, maybe you can talk about this more from a financial perspective. How are you thinking about the potential for Toast IQ Grow and other AI products in the IQ suite to contribute to SaaS ARPU growth over time?

Yes, it's a great question. So first of all, it's really strong performance from Toast IQ Grow already out of the gate, which is really encouraging. The impact to ARPU meaningfully will take some time just because we're in the early days. But as Aman said, if we can take some of this work that our customers are doing and often, they're actually paying a third party to do for them, we have this opportunity not only to do it better, but also leverage the data, leverage the software and all the complexity that he just talked about puts us in a unique position to monetize. And so that's what we're really excited about.

I would even zoom out and say, AI has really presented a much bigger opportunity for us to drive ARPU growth over the long term. And IQ Grow is the first product that we're seeing really great traction. But you can imagine all the complexity that lives in a restaurant and all the services that we can do for them, for us, that presents an opportunity to take that data, which is an asset, take our software and then provide services to our customers. So I'm very confident over time, we can impact ARPU meaningfully.

Yes. Makes sense.

One thing I'll just add, Elena, is -- and you may have hit this, if you look at the services TAM that exists in the restaurant business, it's meaningfully bigger than the software TAM. If you look at what restaurants are spending on all the software from Toast or other partners that sit on top of our platform, relative to what they spend on bookkeeping or marketing or even to pick up the phone at the restaurant.

One of the things that I think maybe I didn't hit it -- I didn't hit earlier is there's all this work that we think with AI, we can do more efficiently and better. And so that opportunity in terms of -- again, we've got to prove it, right? But that opportunity to reaccelerate ARPU growth because we're going after the TAM where the spend is greater than what it is for software, I think, is a massive opportunity for us. Toast IQ Grow is the beginnings of it, and we'll keep you all updated as we launch more products. And it's everything from answering the phone with voice AI in a restaurant or a drive-thru to managing the book to scheduling labor to helping the cost of supplies. And I think a lot of that manual work, we've shown with Toast IQ Grow, which is our marketing AI product, we can take on for the first time.

That's great. Well, we could probably spend a lot more time talking about IQ. But I wanted to maybe pivot over and talk about some of the new TAMs and new verticals you mentioned upfront. Well, I think one of the highlights of this quarter was the record net adds and the disclosure that you expect the expansion TAMs, the ARR from these new verticals to roughly double this year to around $200 million. So with that, I was hoping you could do sort of a state of the union, 3 main verticals: retail, international and enterprise. Where do each of them stand? And how do you think about milestones for each of them as you look ahead?

Yes. So the retail, international and enterprise businesses, all of these businesses, really 2, 3 years ago were very nascent, sub-$10 million ARR. And it's exciting to see them grow and scale just like our core business did. We talked about how they'll double this year from $100 million to $200 million. And one of the things that we do is we comp these businesses to our core business a couple of years in because we've got that data. And what we see is these businesses, really all 3 of them, are growing faster and have higher ARPUs than the core did, right, 2, 3 years in. And I think that's really encouraging. And I think it really speaks to really the product market fit that Toast has beyond U.S. SMB restaurants.

Now each of these businesses, obviously, the constraints to growth and the customer reception and the feedback and the product road map is different. But fundamentally, the anchor product is the point-of-sale platform, that's consistent, right? The hardware, the networking, the software. The base is consistent. And that's why all of our customers, whether it's a hotel or enterprise chain or grocery store or restaurant, are all using a shared multi-tenant platform. It's not like we've split up the code base across all these different customers.

In our international business, the opportunity that we've seen as we launched in the U.K. and Canada and Australia and Ireland is we've got to focus on the Tier 1 cities where you've got really the restaurant GPV and the GDP per capita. And so as we think about the road map, we think we have a massive opportunity to open up the TAM by going into these Tier 1 cities globally, and you'll see us open up more cities over time. And that's not just for SMB restaurants, right? Initially, it will be focused on SMB restaurants, but already in the U.K., for example, we've got grocery. We see an enterprise opportunity internationally. And then, of course, longer term, we see an opportunity in retail as well more broadly.

In our enterprise business, we continue to see in the non-drive-thru TAM. So for context, we launched our drive-thru product about a year ago, just 4 months ago. We continue to take share at a strong clip. We've got probably the strongest pipeline we've had in the history of the company. And people see the value of our platform in terms of table turns, all the things we've seen in SMB, the digital platform. And then in drive-thru, it's early, but we're seeing -- again, we're starting to see because that's such a big part of the TAM as the product continues to get built out, we're seeing ourselves in more opportunities because of the Toast brands we've got. And so enterprise is really -- I'd say the blocker long term are the product investments to support the enterprise business. This is everything from building above-store, security compliance to guest products, upmarket, some of the AI products to support some of the use cases that will be different in enterprise. So it's really getting a product more than go-to-market.

And then in retail, it's interesting. When we first launched in retail, there's a lot of skeptics who said you're a restaurant company, what right do you have to win in retail. It turns out that business, in many ways, is the best business we've launched in the new businesses. The ARPU is the closest to our core business. We're investing heavily in the go-to-market capacity in that business right now. And it's because we're seeing really good signal on the ground for customers. We started off in restaurant retail, these hybrid concepts and then launched in grocery, in convenience stores, in liquor stores and have expanded from there as well. And we're focused on like the vertical depth that allowed us to succeed in restaurants. And that's been really, really positive.

In fact, one of the things that's, I think, a little bit misunderstood about Toast is just how varied our core U.S. SMB TAM is. Like what allowed us to succeed in restaurants was not that we built this generic horizontal platform, we were comfortable supporting all of the different sub-verticals that I talked about earlier and went deep on the thousand little things and the features, and we've been -- we like the complexity to support all the features this TAM needed, whether it's right from quick-serve, full-serve, bars, nightclubs, non-English-speaking pizzerias. I was amazed on how many features, by the way, this business, coming from e-commerce before, a company called Endeca.

And it turns out like in all these new TAMs, it's the same playbook. As we go into, whether it's sports and entertainment, or we go into convenience stores attached to the gas stations, it's the vertical depth of the platform that's necessary. And that has -- that really played to our strength. And so we've been able to lean in there and that's a big part of what's allowing us to succeed in these new verticals.

So I mean maybe you just addressed it, but I'd love to hear just how you think about the philosophy around evaluating new TAMs. I think this quarter, you talked about fuel and gas stations as kind of a sub-vertical in retail, sports and entertainment and on the enterprise side. So how do you think about entering these new sub-TAMs and verticals? And then how do you ensure that the vertical focus that's always been the differentiator for Toast is preserved as the company looks wider?

Yes. So we've got a top-down view. Every year we're doing it. I mean, we refresh our strategy in a 3-year plan. And we've got a top-down view of where we want to go, which countries, which cities, which verticals, enterprise, which sub-verticals, which target accounts. Of course, we want to -- number one is market leadership in our core business. So we evaluate all of this. And then we look bottoms up, get a lot of signal from customers.

And so for example, the fuel work was simply -- it turns out 80% of the convenience stores, and I was surprised by the stat, are attached to gas stations. And half of that market is actually SMB. When I thought of gas station, initially, I was like it's all Shell and Chevron. Actually, half of the market, it's actually SMB. And that really speaks to our strength. And so we did the work to integrate in the fuel controller. And I think our Board was pretty concerned when we brought in the fuel controller and a gas pump into the boardroom one time, but -- that capability. And we're seeing really good early pipeline there because that market is entirely legacy. They're using systems from the '80s and '90s often to run their businesses.

And then sports and entertainment, similarly, the push there was -- actually, there's a lot of overlap from some of the SMB TAMs. The product gap that existed for us in sports and entertainment, very similar to actually what a food hall needed in terms of multiple locations being often shared by a shared kitchen and the complexity of handling not just in-store, but also pickup and delivery as part of that operation and managing throughput. It was things like managing the reporting that is needed in that concept in terms of aggregating all that data across one concept where some configuration is shared and some isn't. And again, this goes back to the thousand little things and our comfort in building out the platform to support all these different sub-verticals.

And again, as I said earlier, this is very much in our DNA because it's how we got here. If you look at the 15-year journey we've been on in our core SMB business, the reason we have gotten to where we are is not because we've got the best sales team. Yes, we've got a great sales team, but it's also because we've got a great service motion and a great product that actually meets the needs of these customers. And so it's very natural for us to go after these new sub-verticals. Now one guiding principle that we use internally as we think about where we go is we look for parts of the TAM where there is typically higher GPV per location because that's correlated with a complex business, complex product needs, a higher touch sales and service motion, which we've built out over the decades in the past decade. And that's really where we see the biggest opportunity. We're not as interested in going after the parts of the TAM which are low GPV down market.

Makes sense. Maybe on that note, Elena, one of the kind of ongoing debates around the new TAM is always the impact on unit economics and maybe even more so the impact on some of the headline KPIs that investors focus on. So as these new verticals drive a larger share of the incremental location growth, how do you expect that to impact some of these KPIs?

Yes, it's a fair question. So as we've talked about, our priority in this moment is really to prioritize market share gains because we believe that will -- that's a key determinant of our long-term shareholder value. And so we're investing behind these TAMs that Aman just talked about. But you're right, as they scale, we're going to see a different complexion to our customer profile. But keep in mind, the core business is still a pretty big part of our business.

But the important thing is, I'll give you -- actually, let me give you a little texture. When we think about the core business around the same time as these new TAMs, each of our new TAMs already are at that same profile or even higher in terms of ARPU. And so that gives us a lot of confidence. If you think about where the core started and in a couple of years in, it was, call it, $6,000 in ARPU. And today, we're almost double that. Actually, more than double that. And so we have this opportunity to really follow that same playbook with these new TAMs as we build out more capabilities and drive more innovation. So that's a piece of texture. I think it's really helpful for us to study and understand.

And then when you think about the payback, that's really the most important thing we're focused on in each of these new TAMs, and we know the playbook, right? We've done it with the core business. We're going to do it with each of these new TAMs. And for each of them, it's a little bit different, right? Aman just talked about in international, we're really focused on Tier 1 cities, and we're honing our go-to-market motion. In retail, we're adding rep capacity. So we know we have extended payback periods right now, but we also know what the payback -- we know what steady state looks like in terms of rep capacity. So all in all -- all said, we feel really confident in our ability to drive that payback to what we think is healthy in a few years, sub-20 months.

And the other thing Aman said earlier is we're really drafting off the core platform in both R&D and then also in the company drafting off the G&A investment. So we're not spinning up another platform. We're not adding more investment. We're really drafting off the core business. So I feel really confident in our ability to manage those paybacks, which is, to us, what gives us confidence that these will be very profitable businesses over the long term.

Makes sense. Elena, coming into the quarter, memory costs and hardware were really top of mind for investors. I was wondering if you could provide an update in terms of what you're seeing today, the work that you've done over the last couple of quarters to mitigate some of those impacts. And I think, in particular, some of the commentary you had this past quarter about emerging on the other side of the cycle in a structurally better position from a margin perspective.

Yes. No, really proud of -- we have a hardware ops team, and this is what they've been living and breathing every day. And our priority, once the memory shortage emerged, was let's just make sure that we are never in a position where hardware constraints limit our growth. And so we've been able to secure inventory for this year and next year. We feel really good about that.

But then also, we took this opportunity to really go deep on everything on the entire end-to-end supply chain, whether it was the bill of materials, the product costs, et cetera. And in doing so, we identified certain areas where we could have even longer-term structural change to our P&L. And certainly, from where we started to where we are, we thought the expenses were going to be much higher. They're lower than we anticipated for 2026, but also for 2027. And to your point, structurally, we believe we have an opportunity to optimize the supply chain based on segments, et cetera, that will give us this opportunity to drive down costs and just have improved margins.

Some of the specific things we've done, we've -- in certain cases, we can use hardware with lower memory chip cost. We can use older generations of hardware in certain cases for a certain set of customers. And then opportunistically, we're in the spot market buying at favorable prices, and we're always looking at that and really being surgical about those buys. But all in all, I feel really good not only about our ability to manage it, but also our hardware margins structurally when we get out of this memory crisis, I'm very confident they'll be better than where they were before we started this.

Makes sense. Some of the other commentary you provided this quarter was the decision to invest against some of these longer-term initiatives. You had the tariff refund that I think was reinvested. Can you talk about the philosophy around growth-related investments? What are the signals that you're seeing that you're responding to? And then how it all kind of bakes into the near-term operating leverage profile?

Yes, absolutely. So the way we often think about, Aman just talked about, every year, we go through a strategy session, we look out several years. And when we think about that, we're thinking about positioning the company to drive durable growth for many years to compound and compounding our top line growth. And so in that context, we look at all the opportunities in front of us, and we're not opportunity constrained, like you heard Aman talk a lot about our ideas. And as we go deeper into the core, as we go deeper into these new TAMs, we uncover even more opportunities. So we're excited about that.

And so to that end, what we think about is we want to drive durable growth, but at the same time, expand margins gradually. And that's what we're executing to in '26, and you'll see us follow that same cadence in the coming years. And what gives us confidence to invest, right? We're actively choosing to invest right now is the progress we're seeing already in these new TAMs. And we talked about getting over $200 million in ARR in each of them and also the payback that I just talked about, we feel really good about our ability to drive that payback. So when you put that all together, we're investing behind driving this durable growth over the long term. And then overall, feeling really good about as we get into these new TAMs, we're seeing even more opportunity.

So when you think about more of the long-term margin profile, you had some optimistic commentary on both the margin profile of the core and what you think you can do in some of these new verticals. How has just the view of the margin potential of the business evolved over time?

Yes. It's -- at the highest level, we're operating in a really strong position of financial strength, like that's the core. If you think about our core business, operating that Rule of 60 essentially, growing over 20%, margins in our core business, 40% and growing. And we continue to drive efficiency up and down the P&L. That is really important to us. And that strength in that core business is enabling and fueling the growth in these new TAMs that we've talked about as well. So I feel really good about that. And then when you consider the AI opportunity and just how we're thinking about it across the company, reimagining how we work, that presents even more operating leverage for us over the long term.

So zooming out, when I think about the margin profile of this business, 40% plus, there's no question. I think there's a real opportunity to get there and maybe even expand that margin over the long term.

Got it. Well, I think that basically takes us to time. But thank you both for being here. Really enjoyed the conversation.

Thank you, everybody.

Thank you.

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

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

Thank you. Welcome to Toast Second Quarter 2026 Earnings Call. First, 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, products, business and investment strategy and guidance. Actual results may vary significantly, and we expressly disclaim any obligation to update the forward-looking statements made today. For a detailed discussion of risks, please refer to the cautionary language in today's press release and our SEC filings.

During this call, we will discuss certain non-GAAP financial measures, including, but not limited to, non-GAAP subscription services gross profit and non-GAAP financial technology solutions gross profit, which we refer to collectively as our recurring gross profit streams. These are the basis for our top line guidance. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures.

Unless otherwise stated, all references on this call to cost of revenue, gross profit and gross margin, sales and marketing expense, research and development expense and general and administrative expense are on a non-GAAP basis.

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

Thanks, Michael, and thank you all for joining us today. We had another great quarter. In Q2, we grew recurring gross profit streams over 28% and expanded GAAP operating income margins to 26%. We had a record 9,500 net location adds in the quarter, 1,000 more than our previous high watermark. Our core business continues to scale. Our new markets are growing rapidly, and we're reinventing our platform with AI to agents and software, working together to drive real business outcomes for customers. For example, Toast IQ Grow, our marketing agent is the fastest-growing product we have ever launched, and it's giving us more conviction in our AI opportunity and its potential to scale ARPU over time. I'm so thankful for our incredible Toast team who continue to execute and deliver at a very high level.

We're excited to announce a number of notable new customers to toast across the different market segments we serve. In our core business, we welcome Kung Fu Tea, a brand with over 300 locations. In Enterprise, we're thrilled to become an endorsed provider by a leading hospitality brand, Best Western, to continue our momentum across hotels. And internationally, we expanded our relationship with TGI Fridays in the U.K.

In addition to this momentum across our restaurant segments, in retail, we continue to see really strong traction including our very first gas stations where we're processing fuel payments for the very first time.

We've had a great first task, and our top priorities heading into the back half of 2026 remain unchanged. Number one, expand what Toast can do for customers with AI, from software to an Agentic platform that takes on critical work and delivers business outcomes for customers. Number two, expand the markets we serve. And lastly, reinvent how we work with AI to accelerate our most important goals and drive durable growth.

We are well positioned as a vertically integrated platform across software, hardware, payments and lending. Customers recognize the role we play as the most important technology partner and are looking to us to help them take advantage of the opportunity AI creates. I continue to believe executing against these priorities, sets us up to scale Toast $10 billion in ARR and beyond.

Okay. Let's jump into the priorities. Number one, expand what Toast can do for customers. Toast has spent 14 years evolving from a point-of-sale system to a system of record, software that helps restaurants manage their operations, staff, guests and suppliers. But many of our customers don't have the time to leverage everything those offers and end up outsourcing important functions, functions such as marketing, payroll and bookkeeping. With AI, we are showing that we can take on some of that work and do it even better. Digital marketing is the first Agentic workflow we launched, and we have seen tremendous success thus far. In fact, Toast IQ Grow is on track to become the fastest-growing product to $10 million in ARR. The early customer reception reinforces that we're solving a real problem and have a large opportunity to monetize our offerings. Toast IQ Grow brings together the tools and capabilities to improve a customer's website, SEO, digital ordering and social presence, leveraging the customer's data to build effective marketing campaigns that drive better guest conversion. I'll give you an example.

Spirits Food & Friends is a family-owned restaurant in Louisiana that started with Toast in 2025, consolidating more than 10 disparate systems onto a single platform across POS, payroll, scheduling and more. Now they're using Toast IQ Grow to power their marketing.

For the first time ever, they are segmenting marketing campaigns using their data and are able to conduct these campaigns directly to sales. As a result, they have not only cut their monthly agency spend by 70%, they've also generated over $100,000 in marketing attributed sales in just under 2 months.

We are uniquely positioned to bring the benefits of Toast IQ Grow to restaurants across our platform. We can optimize the full revenue cycle, the digital presence that gets restaurants discovered, drives orders and reaches new guests to customize advertising, the point-of-sale system that captures transactions in-store and online, and the multichannel marketing engine that brings guests back.

Fueled by transaction data, we know what guests ordered, how often they return and when they stop coming back. We know the restaurants too. the sales trends, the slow niches and the overall capacity. Toast IQ Grow will use all of that to drive guest back across e-mail, text, push notifications and social, moving us towards personalized on marketing at scale. And because we power the point of sale, we can close the loop with each campaign tied directly to the orders it drives.

As you can see, our success with Toast IQ Grow comes out of 2 things: data and context. That is the foundation of our Toast IQ ecosystem. First on data. As a customer's system of record, Toast understands how it operates, sales, guest preferences, scheduling, order flow and many changes are recorded as they happen. But data alone isn't the advantage. The context from that data and knowing how to read it is.

Over 14 years, we've watched good and bad operators to run their businesses, so long enough to learn what they do and how the best ones think and adapt. We know what a smart many change looks like versus a bad one, when a staffing pattern signals trouble and which pricing moves hold up in a given market.

Over time, we plan to build on Toast IQ Grow and roll out a series of agent products on top of our software platform using our data and content advantage. This opens up a market opportunity beyond software, marketing, scheduling and payroll and bookkeeping and tax, are services restaurants often pay for today. And in many cases, they're spending a multiple of what they spend on software.

Longer term, imagine a series of agents across these services. Working in concert, they'll be able to build restaurants projected demand, look at food cost and availability, labor schedules and projected guest patterns to drive suggestions that improve profitability. That's an incredibly exciting future, especially in an industry known for slim margins and long hours.

Okay. Let's shift gears now to our second priority, which is to expand the markets we serve. In our core business, our sales team continues to drive strong win rates. We're gaining GPV share faster than any other major provider in our space. Kung Fu Tea is a great example of a growing brand that chose Toast because they saw us as a leader and an innovative partner that will help them invest in automation and surface actionable intelligence to keep them step ahead.

Across our new terms, enterprise, international and retail, the vertical playbooks that build our restaurant business, product depth, operational expertise and local go-to market is working just as well. In fact, ARR in each of the new TAMs is both larger than the core was and scaling faster than the core did at the same stage of maturity. Internationally, we expanded our partnership with TGI Fridays in the U.K. They are 1 of dozens of customers that have locations with us across multiple countries now. These operators tend to be in the largest global cities around the world where average restaurant sales are higher, which is best aligned with our value proposition.

As we expand Toast to more of these Tier 1 markets, I'm confident we can continue to drive durable growth with strong aback periods.

In enterprise, we have momentum across the market in restaurants, hotels as well as sports and entertainment venues. We're excited to become an endorsed food and beverage vendor for Best Western giving us the opportunity to go after the thousands of hotel restaurants they have across the U.S. and Canada.

Sports and entertainment is a large TAM in the enterprise space, estimated to be a $500 million error opportunity in the U.S. alone. These customers across stadium and corporate dining environments like schools, museums and theme parks, represent an adjacent market to the traditional restaurant TAM we serve. And we have roughly doubled our location count in this market over the past year. It's brands such as VenuWorks, whose portfolio of arenas and stadiums include the Ford Center, which runs on Toast or Alaskan tour company, Allen Marine Tours, running our Toast Go 3 devices on their excursion vessels.

Next, shifting gears to retail. We continue to see great progress here as well with ARPUs that are closest to our core business. We have doubled our retail sales capacity over the last year, and we expect that to continue to scale to meet the market opportunity we see.

Today, we're primarily targeting grocery, convenience stores and bottle shops. Grocery remains a priority for us given that this part of the market has particularly attracted GPV and ARPU. We also recently launched fuel payments, bringing our first 2 gas station convenience stores out of the platform, a large opportunity for us over time. We're also testing into other parts of the broader retail TAM and will expand further where we see product market fit.

Internally, we talk a lot about how Toast emerged as the leading provider for restaurants over the past decade and how we have a broader opportunity to not to scale within restaurants that support local businesses of all types with our platform.

Over time, you should expect to see us launch in more sub verticals just as we have within grocery, convenience stores and bottle shops.

All right. To wrap it up, our third priority is to reinvent how we work, scale with AI and invest in durable growth. We are delivering world-class growth and margins at scale. The results of decisions we've made over time, leading to growth opportunities while simultaneously driving efficiency across the business.

Our core growth algorithm continues to deliver great results. We're gaining market share, increasing ARPU and our new AI offerings open up more opportunities to scale ARR over time. The margins in our core business are already over 40%, and we expect the margin to continue to scale and be meaningfully higher longer term.

In our new TAMs, we're scaling quickly and on a path to nearly ARR to $200 million this year. Given the strong market demand and the progress we have made on our unit economics, we're investing behind them to scale faster and expect them to be even larger drivers of growth over time.

In addition, we're also seeing longer-term bets in areas such as consumer, and new retail TAMs where our scale and platform advantage gives us a unique opportunity to compete and win.

Given these are earlier stage opportunities, we will be disciplined in how we invest, and we'll keep you updated as they progress.

As we have shared with you before, we want to compound this business over time to $10 billion in ARR and beyond. As margins continue to scale in our core business, we will remain disciplined in how we invest back into our newer TAMs and emerging bets and apply the same rigor around capital allocation that got us here.

I want to thank every Toaster for their dedication and commitment to Toast. We would not be here without all of your work. And thank you to our customers and investors for your continued support as well.

With that, I'll turn the call over to Elena.

Thank you, Aman, and everyone, for joining us today. I want to start by recognizing our team. Q2 came in ahead of expectations across the board, and our results reflect the consistent execution happening throughout the company every day. We posted strong top and bottom line results in the second quarter. ARR grew 25%, and our recurring gross profit streams increased 28% year-over-year. Adjusted EBITDA grew to $221 million and GAAP operating income was $152 million, a 26% margin. On a GAAP basis, we are operating above Rule of 50 with recurring gross profit growth plus operating margin reaching a high of 57% in 2Q, demonstrating the strength of our business model and persistent focus on balancing durable growth and profitability.

We added a record 9,500 net new locations in Q2, growing total locations 22% from a year ago to approximately 180,000. Our net add momentum reflects demand for the Toast platform and the strength of our go-to-market execution across our core and new TAMs.

The breadth of our platform and value we provide customers is also driving sustained growth in monetization. Total take rate measured by recurring gross profit as a percentage of GPV was 98 basis points in Q2, up 5 basis points from a year ago. SaaS ARR grew 27% year-over-year, driven by location volume and consistent mid-single-digit ARPU growth. Subscription gross profit increased 32%, outpacing subscription ARR and revenue growth, benefiting from continued margin expansion. SaaS gross margins were up approximately 240 basis points year-over-year from ongoing optimization efforts, including leveraging AI to transform customer support. Payments ARR grew 23% and fintech gross profit increased 26% in the second quarter versus a year ago. GPV was $61 billion, up 22% with GPV per location flat. In the core, GPV came in better than expected with strong same-store sales trends throughout the quarter, including a modest benefit from the World Cup at the end of June. Fintech net take rate was 59 basis points with Payments take rate at 50 basis points. Payments take rate grew year-over-year from the same levers we've seen over the last several quarters, adoption of new products, cost optimization efforts and small targeted pricing moves. Nonpayments fintech solutions led by Toast Capital contributed $57 million in gross profit and 9 basis points to take rate. Customer demand for capital remains strong and defaults remain within our expectations, thanks to our data advantage and disciplined underwriting approach.

Moving down the P&L. Hardware and Professional services gross profit was negative at 11% of our recurring gross profit streams. During the quarter, we received a tariff refund of approximately $10 million that was not contemplated in our Q2 guidance. Based on the current landscape, this represents the bulk of the refunds we expect to receive.

With respect to the dynamic memory market, we've taken several mitigation steps to manage hardware COGS in our supply chain and have already reduced the memory cost impact for 2026 and 2027 versus our original expectations. A few examples of actions we've taken, leveraging earlier generations of our hardware, transitioning certain hardware to lower-cost memory, and opportunistically buying at attractive prices in the spot market to complement our direct vendor relationships. We'll continue to pull these levers and evaluate other areas to lower costs while meeting customer demand and maintaining our best-in-class hardware. When the memory market stabilizes, we're going to come out with structurally better hardware margins than before, thanks to the optimization work we're doing across harbor product costs and supply chain.

Operating expenses increased 19% from a year ago, excluding $29 million of bad debt and credit-related expenses. Our investment priorities remain consistent, fueling continued share gains in the core scaling our new TAMs, building the AI product capabilities that will differentiate toast for years ahead and seeding long-term bets.

Sales and marketing expenses increased 22%, reflecting incremental investments to support our sustained strong location growth. In the core, we're growing our upsell and account management teams and going deeper across subsegments of the TAM like non-native English speaking customers, plus we're increasing our go-to-market presence across new TAMs.

R&D expenses grew 23%. We're investing to deepen the product capabilities that matter most: our Agentic platform, vertical-specific innovations in each new TAM and AI tooling across the organization to improve productivity. The early results with products like Toast IQ Grow give us confidence in our right to win when we harness our data and AI capabilities to do more for our customers.

In Q2, adjusted EBITDA grew 38% to $221 million and margins expanded 240 basis points to 37%. This reflects strong top line execution continued discipline across the cost structure and the tariff refund benefit.

Free cash flow was $130 million in the second quarter, down versus a year ago from our strategic decision to acquire and hold more hardware inventory in the near term. We expect the conversion of adjusted EBITDA into free cash flow to improve in the back half of 2026. Over time, we expect to see a corresponding benefit to free cash flow with higher conversion rates when we choose to scale down to more normalized inventory levels.

GAAP operating income was $152 million, and GAAP EPS was $0.26, both nearly doubling from a year ago. We're complementing strong growth with leverage down the P&L, reflecting disciplined expense management, including stock-based compensation and a lower diluted share count. SBC was 10% of recurring gross profit, down 400 basis points from a year ago, a function of disciplined equity grant practices and lapping the elevated grant values following our IPO.

Year-to-date, we repurchased over 19 million shares for $486 million. Approximately $100 million remains on our share repurchase authorization. We will continue to opportunistically buy back shares based on market conditions to support long-term shareholder value.

Turning to guidance. For the third quarter, we expect total subscription and fintech gross profit to grow 22% to 24% year-over-year and adjusted EBITDA to be $210 million to $220 million. On the back of our strong first half results, we're raising our full year 2026 outlook. We now expect recurring gross profit to grow 23% to 25% and adjusted EBITDA to be $805 million to $825 million. We strategically chose to reinvest the tariff refund into key growth initiatives and to see long-term growth. As a result, we're increasing our full year adjusted EBITDA guidance by less than the 2Q beat.

Let me provide some context on our guidance and how we're managing the business for the long term. We're building a generational company that compounds a top-tier growth rates over the next 5 to 10 years. We have a tremendous runway in front of us across core and Horizon 2 and the opportunity set to build new last curves keeps growing as we scale and expand. We remain disciplined capital allocators and manage our investments across these multiple horizons.

The core business is Horizon 1 with a proven growth algorithm and strong cash flow generation. It operates at Rule of 60 with over 20% growth and over 40% margins. We're balancing ongoing efficiency gains with investments in AI products to unlock the significant opportunity to do more for customers. Deploying AI tooling internally will unlock more efficiency and productivity gains as we automate work and the teams reimagine how they operate. This positions us to sustain Rule of 60 in the core with healthy growth and ongoing margin expansion on the path to meaningfully higher margins over time.

New TAMs, international enterprise and retail are Horizon 2, we expect total ARR to nearly double to $200 million this year, and each is on a path to healthy unit economics at scale. Given the positive signal, we're investing to scale even faster and accelerate our path to be a market leader in each.

With the potential for billions of ARR across these businesses and high terminal margins given the leverage they get from our core, we're confident these investments will have significant ROI.

Lastly, we're seeing longer-term Horizon bets like consumer and other retail verticals.

As we scale and add capabilities are right to win across more areas of local commerce expands. Our goal is for these businesses to become key growth drivers for the company 3 to 5 years out. We'll take the same gated approach to incubating them like we did with retail and international, only deploying more capital as we find product market that and meet certain success criteria. If we don't see success over a period of time, we'll pull the investment back and either redeploy to the next opportunity or expand margin.

With our momentum and the opportunities ahead, we believe reinvesting upside into long-term growth areas with high potential ROI is the best path to maximize our long-term enterprise value. In 2026, we're managing to modest margin expansion, consistent with the framework we laid out coming into the year and reiterated with today's guidance. We plan to continue operating with this general framework focused on sustained growth and gradual margin expansion as long as our investments are meeting our expectations. That keeps us on a path to 40% plus long-term adjusted EBITDA margins with the timing firmly in our control.

With the strength of our core and confidence in the margin potential in new TAMs, we believe there's a path to a much higher margin profile over time.

The first half of this year was a strong chapter for Toast. We're entering the back half with momentum and confidence in where we're headed, and we're incredibly excited about the opportunity ahead.

Now I will turn the call back over to the operator to begin Q&A.

[Operator Instructions]

All right. We'll get our Q&A started. First question is from Tim Chiodo at UBS.

Great. So Toast IQ Grow, this is a great example of an AI tool that's got a human aspect as well. It supports the restaurants, it supports your ARPU growth. You hit on this a little bit during the prepared remarks, meaning Toast IQ Grow might just be the first of many of these types of tools that could be supportive of both the restaurants and post ARPU. You touched on bookkeeping, tax, payroll scheduling. Maybe you could just talk a little bit more about these potential additional modules, if you will, and what they could mean to longer-term ARPU growth?

Tim, sure. That's exactly the vision over the long term to build out our Agentic platform.

Maybe just to zoom out for a second and look at the context of how we got here. Toast started off as a point-of-sale system and then evolved to be really this broader platform. And customers love the fact that it's an all-in-one integrated platform that's got a single point of support. And that's what buys a lot of our growth today.

One of the pieces of feedback we've gotten from operators over the past year is they have -- they find it hard to leverage everything Toast offer, the spread in -- they spread thin just to run their businesses. And so even when they're using the Toast software, they might outsource the function of like marketing, for example, or payroll and tax or inventory management or bookkeeping to a third-party provider. And so we saw that as an important opportunity for us where we said, could Toast take on not just the software that they either run the business, but actually take on some of that work, and we started off with this marketing agent, which is Toast IQ Grow.

And I think what has been really powerful about Toast IQ Grow is that, one, we're leveraging data across -- and learning across 150,000-plus customers to figure out, okay, what are the best ways to have a great online ordering presence or a website, optimized SEO, advertising, marketing. And we're also leveraging data on both when the restaurant is busy and when it's not as well as data on guest. And that's what's really allowing us to build a platform where it's actually outperforming what humans can do. Restaurants that switch to our Toast IQ Grow platform, agents rather, are seeing better results. And so are seeing same-store sales growth.

And so as we go beyond Toast IQ Grow, we're using the same approach and framework, and we're looking at what are areas where we cannot just provide software but start to take out some of that work. It's early. But you look at like something as simple as voice AI, for example, picking up the phone in the restaurant on the drive through. Over time, we're looking at use cases around scheduling in payroll and tax. So think about like kind of forecasting demand to be smarter about scheduling employees and then making sure that we're getting the best employees, the best shifts. And then we're also looking at use cases around inventory management, bookkeeping and accounting. And really, what we're focused on is, one, what are areas where restaurants are leveraging third-party services today and we have a right to win and create value that's outsized relative to -- because of the data and context we have.

Thanks, Tom. We'll take our next question from Harshita Rawat at Bernstein.

Just a follow-up on Toast IQ Grow. I know it's early days, but any indications on kind of how many locations are kind of converting from trial to paid and how should we also think about like the incremental ARPU here, because considering that some of the products are kind of all that restaurants are paying for, and then also considering the kind of dedicated marketing manager, how should we also be think about the long-term gross margin potential for this product considering some of the costs?

Yes. Great question, Harshita. One, as I shared, this product, incremental to the software we provide, this product is on track to be the fastest product to $10 million ARR. And we're seeing -- and that's really driven by really good traction, both -- especially in our upsell funnel where customers see the value, really, the main driver of that is we're showing that when customers take our platform, they're seeing same-store saw growth.

I think in terms of margins, the -- if you look at all AI passed out there in the market today, it's often pick a use case, building -- coding software or support. It's often in a combination of AI and humans. And it's the same approach that we've taken, where the AI is generating, leveraging all the data and context we have, the first task is like, okay, how do you optimize restaurants, social -- digital presence was the best attempted a marketing campaign and the copy on the marketing campaign or on advertising. And then we've got humans reviewing and approving those workflows. And so as we've done some early scale, we've already seen the gross margins improve. And frankly, I have no concerns long term about what the gross margins of that business could be. Like we're a lot more focused right now to your earlier question about product market fit and looking at the funnel really closely to make sure that there is a path here to really accelerate growth on that product.

Thanks, Harshita. All right. We'll move on. We'll take our next question from Will Nance at Goldman Sachs.

I wanted to ask a question on margins. I think delivering a pretty clear message tonight about the continued runway you have to drive efficiencies. We'll also maintaining the top line growth rates and reinvesting into the business. I heard the commentary on sustained Rule of 60 performance, margins in the core already being higher than 40%. And so I guess with the incremental commentary today, I'm wondering if you could just talk qualitatively about where some of that confidence is coming from. For instance, are you seeing -- is it coming more from the unlock and seeing more potential in the core to drive leverage over time? Or have you seen some more evidence on some of the expansion verticals that make you think that margins can trend significantly higher? I'm sure it's a mix of both, but maybe just qualitatively, what are some of the examples you've seen that's giving you that increased confidence?

Yes. Thanks, Will, for the question. So the short answer is it's both, right? So we are really proud of being really disciplined in terms of capital allocation. And like zooming out, our framework is, we're really positioning the company to be a much bigger company or we're building a generational company where we believe we can be much bigger than we are today. And some of that comes from both the way we manage our capital allocation and the discipline that we see but also to the point you made, our new TAMs are showing incredible signal already. Aman talked about reaching $200 million in ARR. So we've always said to the extent that we see success, we're going to actively choose to invest, and that's exactly what we're doing. And now we're going to do it in a very sustained in a very disciplined way, we're going to sustain growth, but at the same time, deliver gradual margin expansion. And so we're seeing all of the proper signals. And then, of course, AI presents an opportunity for us as a business to reimagine how we work and continue this effort that we've had for many years really around efficiency. And we think we can unlock even more efficiency. That's why the commentary and the script is around meaningfully higher margins, that's because we're going to continue this focus on efficiency, but also as we become an AI-native company, AI first company, we'll see some benefit from that as well.

We'll move on to our next question, Darrin Peller at Wolfe.

All right. Look, it's really nice to see the strength in the location adds this quarter. Can you just touch on the composition of the net adds look like? How would you assess the performance in the core NIM versus the expansion? I know you certainly are highlighting the success you're having in the ARR side. But just in terms of number of users that are showing up there and that's contributing?

Of course, yes. First off, if you -- the results we have in Q2 and really the first half are really, really strong. Really proud of the sales team's performance. We think we had a new watermark, 9,500 net adds this quarter. I think previously, the watermark was 8,500. And really, if you look at it, like the majority of that came from our core business, right? This is the SMB and mid-market business. We continue to see really strong win rates. We see -- I think we're taking stronger GPV in share gains versus anyone else in our core business. Haven't seen anything fundamentally change on the competitive side. I think this goes back to something I said earlier, which is I think 1 point that's maybe underappreciated a bit is if you look at why customers choose Toast, it's not just because of the point-of-sale, they're picking this all in 1 platform. Those -- that's what drives our win rate, it's capabilities around the operations of the restaurant, both front house and back of house. It's the guest experience and all the tools there. It's the employee experience, the suppliers, it's the fintech products, it's the lending product. And now increasingly, it's products like Toast IQ Grow. And so for us, that's the focus is to continue to drive more and more value for our customers, like we're big believers and continue to be customer obsessed and not competition obsessed. And that's showing up in our win rates and the productivity of the Toast.

We'll turn to Stephen Sheldon at William Blair for our next question.

I guess just wanted to go back to Grow. And I'm just curious what the early learnings have been around getting customers to implement and optimize around these Agentic capabilities. I know Grow is the only solution you have out there right now from the Agentic side. But how much handholding are you needing to provide to get customers up and running? And is that going to be pretty common as we look forward?

Yes, we're still learning. I'll just start by saying, I think it's -- in the context of our business and our scale, even though Toast IQ Grow is growing at rapid click, it's still very early. I think what we see is -- I'll go back to what I said earlier, actually, which is if you look at how we build software, it's incredible tools, but we still need human oversight on top of those tools to make sure we're getting the most out of AI. And I think it's the same mindset where our customers are coming to us and saying, look, we're outsourcing this work of marketing to somebody already. If you could take that on and you can do it better, right? That's awesome. And so our approach is we're using all the data and context we have, and we are letting AI drive the first half of what, for example, a great website looks like or what are the ways in which you have great online ordering, digital presence. What are the right offers you need to generate? What's the best attempt at a marketing campaign or an ad on social? And then you've got our marketing success managers are viewing and approving that work.

I think 1 of the reasons we've been able to see such strong impact where customers that switched to Toast IQ Grow increased same-store sales is because we've got like really unique data. An example is we're looking at the restaurants data in terms of when they're busy when they're not. What are the things that make that brand and the restaurant what it is. On the guest side, we know guest preferences. So over time, these campaigns can get hyper-personalized. And I think we're back to like we're learning a lot about what creates the best possible campaigns. But -- and I expect that over time, it will get better and better in terms of the quality of these campaigns at conversion rates.

But the early traction so far has been really positive. This business is running positive margins already, it's increasing. And of course, the growth has been solid.

We'll take our next question from Dan Dolev at Mizuho.

Great to see those results. I just wanted to ask a question about the hardware optimization cost. Maybe, Elena, can you unpack -- be a little more specific on some of the savings? And then maybe any initial views on the '27 impact, we're getting that a lot from investors today. Really appreciate the great results again.

Yes. Thanks, Dan, for the question. It's definitely a very, I would say, a fluid environment. I would expect the P&L impact in '27 to be greater than '26 just based on how we account for inventory. I think there's really 3 things I'll leave you with, 1 -- and I said this in my remarks, I'll just reinforce a few points. One is we've done a lot of work to improve the impact that we originally shared for both '26 and '27. And that's really the great work from the hardware ops team deploying mitigation strategies, I can talk about those. Two, we feel very confident about the supply, and we have supply for both '26 and '27. And then three, a really important point because we've done this deep dive over the long term, we're really confident that this work will lead to improved hardware margins over the long run after the memory market stabilizes. So we've done a lot of work to not only impact the near term but also structurally what the hardware margins look like over the long term. So I feel really great about the work, and we're going to continue to do that and optimize anywhere we can really across the hardware P&L.

We'll take our next question from Adam Frisch at Evercore.

Your message is crystal clear in the sense that you're investing for growth and for good reason. But for some who may question that, I thought I'd ask it a little bit differently. If you could ballpark it, how much of your increased operating cost is by choice, like your choice to invest in sales and product development and stuff like that? And how much is out of your control like memory costs? And then the question that we're getting tonight is, are you considering a rational -- a resource rationalization in the coming quarters?

Yes. I'll take these. So number one, while hardware is an important part of our P&L, like zooming out, there's a much bigger cost structure that we're managing, and we're actively choosing to invest. And we've sort of laid out the reasons why we have a ton of conviction around not only these new TAMs, we're placing Horizon 3 bets. But if you just think about the position we're in, we're in an incredibly strong position as a company with our core business at 40% margins, operating at Rule of 60. And now we're in this position where we want to sustain growth over the long term, but also do that in a very disciplined way, which is why we said we'll always have some gradual margin expansion. But we're seeing great signal. It's a positive sign. That means we're investing behind that great signal. So that's sort of the overarching kind of theme you should take from it.

In terms of head count and rationalization of head count, we're always incredibly disciplined frankly, around every head count we hire, and that's not going to change. And as we consider AI, that allows us to reimagine how we work and consider across the company how we can scale even more efficiently. So I do feel very confident in our ability to drive improved drive to meaningfully higher margins over the long term as we begin to adopt AI across the company. And that's not just for our customers, but just even in how we work.

I hope I got most of your questions answered.

Just to bellow what you said, just to get specific for a second, right? Like if you look at our plan this year, we saw some opportunity based on the performance in our strategic cuisine, the non English-speaking reps, and we've added some additional investment. With retail, we see opportunity to increase in sales investments, we've been green light of that. Toast IQ Grow similarly, we've seen some great early signal with our AI products.

And so that back to your question about choice, a lot of it's our choice. We are leaning into areas that are growth that will allow us to grow over the long term. I think as you can imagine, for example, our new TAMs getting from 100 million to 200 million this year gives us even more conviction, right, to say let's actually try to move even faster.

And while there's always puts and takes in terms of the EBITDA in year like at least my expectation is hardware over time will normalize back to what the margins were free this memory issue. Like the thing to take away is a lot of the focus investment. In fact, even beyond is a right to investment, some investments in consumer, for example, or these new verticals beyond the ones we're in today are by choice because we believe in the long-term potential.

We're going to take our last question today from Tien-Tsin Huang at JPMorgan.

I appreciate that. Kind of building on Adam's question there. I understand the incremental investment created by the tariff refund. It seems like the visibility on expenses is better, so building on what you just responded to, just I'm curious, just prioritization of your incremental investments, where are you seeing the fastest ROI? It sounds like there's a lot of interesting things going on like sports and entertainment. You mentioned fuel payments, things like that. Just hoping you could reorganize the -- where you're seeing the fastest ROI, if that makes sense?

Yes. Tien-Tsin, I think first of all, like we want to make sure that any opportunities that exist in our core business to maximize growth. We're focused on that. So we talked about some sales capacity in our core and strategic cuisines. This is the non-English part of the TAM. Toast IQ Grow, we've seen some early signals that's really positive, and we actually unlock some investment there. And some of that is actually also more broadly on AI products beyond Toast IQ Grow, it will take time to materialize, but we're seeing the signal that we can take on some of the work that's beyond the software and take on some of the services work for restaurants over time with AI.

And then our new TAMs, I think it's the -- I get this question internally a lot about authorization too. But I think that the -- maybe I'll start by saying in our retail business, we've got SaaS, ARPU is already there, closest just within a couple of years to our core business. And so we look at the self capacity we have and the productivity of the team that we have and we say we should try to go faster, especially because I think the team is building conviction that as we get to scale, we're going to see some of those liable effects where once you get to 3%, 4%, 5% market share and grow, we expect there to be tailwinds on top of funnel and conversion on win rate. And so we're leaning in there. And then I think internationally in an enterprise, we're being opportunistic. You said sports, entertainment is 1 example to find areas where we can invest.

And then I think whether you look at the future, we've only talked about this horizon framework, lots of investment in our core investments against our new TAMs. And then we've also got some investments against that set up longer-term future growth. So for example, in retail, you see fuel expansion, for example, recently, leading into grocery. We're also looking at additional sub-verticals, we're looking at best around consumer. We didn't talk a lot about that in today's call, but we've seen really good monthly active user growth on that app as its host local. And so really across the board, where we see opportunity we're leaning in, and Elena and team do a great job of making sure that while we're leaning into growth, we're also looking at all the opportunities to drive efficiency in the business, especially with what AI will make possible.

That wraps up our call for today. Thanks, everyone, for joining. Please reach out with any questions, and I hope everyone has a great evening.

This concludes today's call. Thank you for attending. You may now disconnect.

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.