Toast, Inc. 2026 Q2 Earnings Call

Thank you. Welcome to Toast's second 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, products, business and investment strategy, and guidance. Actual results may vary significantly, 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, 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, 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 opportunities and its potential to scale ARR 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 leading hospitality brand Best Western to continue our momentum across hotels. 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 half, 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. 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 to $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.

Many of our customers don't have the time to leverage everything Toast offers and end up outsourcing important 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 workload 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 AI 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're segmenting marketing campaigns using their data and are able to connect 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 two 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 through customized advertising. The point-of-sale system that captures transactions in-store and online, and the multi-channel 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 nights, and the overall capacity. Toast IQ Grow will use all of that to drive guests back across email, text, push notifications, and social, moving us towards personalized, one-on-one marketing at scale. 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 two 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 menu changes are recorded as they happen. 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 run their businesses long enough to learn what they do and how the best ones think and adapt. We know what a smart menu 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 agentic products on top of our software platform using our data and context advantage. This opens up a market opportunity beyond software. Marketing, scheduling and payroll, and bookkeeping and tax are services restaurants often pay for today. 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 a restaurant's 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 a step ahead.

Across our new TAMs, enterprise, international, and retail, the vertical playbook that built 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, the U.K. They are one 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 payback 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 ARR opportunity in the U.S. alone. These customers across stadiums 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.

Shifting gears to retail. We continue to see great progress here as well with ARPU 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 attractive GPV and ARPU. We also recently launched fuel payments, bringing our first few gas stations convenience stores onto 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.