Toast, Inc. (TOST) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance with increased GAAP operating income, SaaS ARR, and payments ARR. The Q&A section supports continued market share gains and resilient consumer behavior. Although some questions about technology contributions and monetization strategies were not fully addressed, the overall sentiment is positive due to strong financial metrics, optimistic guidance, and the potential for continued growth and innovation.
Key Financial Performance
ARR (Annual Recurring Revenue) Surpassed $2 billion for the first time, doubling in just 2 years. This represents a 30% year-over-year growth. The growth is attributed to the strength and diversity of the business model, with both payments and SaaS ARR each exceeding $1 billion for the first time.
Total fintech and subscription gross profit Increased 34% year-over-year, with a total take rate of 98 basis points across SaaS and fintech. This growth reflects the growing value the platform provides to customers.
Adjusted EBITDA $176 million for the quarter, with margins expanding 5 percentage points year-over-year to 35%. This improvement is due to robust top-line growth and efficiencies throughout the P&L.
GAAP operating income $84 million, up from $34 million a year ago. This increase is driven by strong adjusted EBITDA and disciplined management of stock-based compensation.
Net location adds Approximately 7,500 net locations added in Q3, ending the quarter with 156,000 total locations, up 23% from a year ago. This growth is attributed to consistent market share gains and traction in new TAMs.
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 and gross profit Subscription revenue increased 29%, and subscription gross profit grew 32%. SaaS gross margin improved to 79%, up from 77% a year ago, due to continued SaaS COGS optimization.
Payments ARR and fintech gross profit Payments ARR increased 31%, and fintech gross profit grew 35% year-over-year. GPV (Gross Payment Volume) was $52 billion, growing 24% year-over-year. Payments take rate increased 4 basis points from a year ago, benefiting from cost optimization, targeted pricing moves, and new products like surcharging.
Non-payments fintech solutions Contributed $58 million in gross profit and 11 basis points in take rate. Incremental origination volume was unlocked due to enhanced underwriting processes.
Free cash flow $153 million in Q3 and $564 million on a trailing 12-month basis, nearly 100% conversion from adjusted EBITDA.
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Operating Highlights
Toast IQ: An AI assistant for restaurant operators that provides fast answers, proactive insights, and direct actions. It has been adopted by over 25,000 restaurants since its rollout in early October, with over 235,000 uses so far.
Toast Advertising: A tool that allows operators to launch campaigns across Google and Meta with AI-powered recommendations and ROI reporting. It has shown significant impact, such as generating $400,000 in sales for Pizza by the Sea in Florida.
International Expansion: Toast is expanding its platform globally, with notable wins in Ireland, the U.K., and Canada. International SaaS ARPU is up 20% year-over-year.
Food and Beverage Retail: Gaining traction with customers like Tri-County Meat Markets and DeLallo Italian Market. Toast is expanding its sales team and retail offerings to support this vertical.
Enterprise Growth: Secured its two largest deals ever this year, with a strong pipeline for future growth. Enterprise, international, and retail segments are collectively on pace to reach $100 million in ARR this year.
ARR Growth: Annual Recurring Revenue (ARR) surpassed $2 billion, doubling in just two years. Both payments and SaaS ARR exceeded $1 billion for the first time.
Margin Expansion: Core business operates at a 40% EBITDA margin, with incremental margins tracking higher. Adjusted EBITDA for Q3 was $176 million, a 35% margin.
New TAMs (Total Addressable Markets): Investing in new verticals, geographies, and segments with the potential to surpass the core business. Aims to scale from 156,000 locations to 500,000 and beyond.
AI and Data Differentiation: Leveraging AI and data to enhance platform capabilities, such as Toast IQ and Toast Advertising, to drive customer adoption and differentiation.
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Risk or Challenges
Market Conditions: Economic uncertainties and market conditions could impact the company's ability to sustain growth, particularly in new TAMs and international markets.
Competitive Pressures: The company faces competition in its core U.S. SMB business and new markets, which could affect its ability to maintain high win rates and market share.
Regulatory Hurdles: Potential regulatory changes in international markets and the U.S. could pose challenges to the company's operations and expansion plans.
Supply Chain Disruptions: Higher tariff costs and potential supply chain issues could impact hardware and professional services gross profit.
Strategic Execution Risks: Investments in new TAMs and international markets require significant upfront costs, and there is a risk of not achieving the expected scale or market leadership.
Economic Uncertainties: Economic conditions could affect GPV growth and customer spending, impacting the company's financial performance.
Operational Challenges: Scaling operations in international markets and new verticals may present operational complexities and risks.
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Guidance & Outlook
Revenue and ARR Growth: Toast surpassed $2 billion in ARR for the first time and aims to scale to $5 billion and $10 billion in ARR over time. Management expects to sustain growth over 20% at a multibillion-dollar scale by 2026.
Market Expansion: Toast plans to expand its TAM into new verticals and geographies, aiming to scale from 156,000 locations to 500,000 locations and beyond. International SaaS ARPU is up 20% year-over-year, and enterprise, international, and food and beverage retail segments are collectively on pace to reach $100 million in ARR this year, with potential to grow to $1 billion ARR over time.
AI and Data-Driven Innovations: Toast is focusing on AI-driven products like Toast IQ and Toast Advertising to enhance customer experience and operational efficiency. Toast IQ has been adopted by over 25,000 restaurants since October, and Toast Advertising is driving significant ROI for customers.
Profitability and Margins: Toast's core business operates at a 40% EBITDA margin, and the company is investing in new growth areas while maintaining healthy payback periods. Adjusted EBITDA for 2025 is expected to reach $615 million, with margins expanding over time.
Guidance for Q4 2025: Toast expects total fintech and subscription gross profit to grow 22%-25% year-over-year in Q4 2025, with adjusted EBITDA projected between $140 million and $150 million.
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Shareholder Return Plan
Share Repurchase Program: 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.
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Key Q&A
Q:How much of the GPV per location increase was driven by mix or Toast customers outperforming peers?
A:GPV per location exceeded expectations in Q3 and normalized in October. The platform helps restaurants run more profitable businesses, with investments in handheld devices and other tools. Same-store sales have been balanced year-over-year.
Q:Can you address competitive concerns and the sustainability of recent market share gains?
A:Toast has seen increased net adds and win rates against competitors in both QSR and FSR. The go-to-market team is executing well, and the core platform continues to innovate. Market share gains are expected to continue, with net adds in the same range as last year.
Q:What does the dense network of Toast restaurants mean in terms of opportunity?
A:The dense network allows for innovations like Toast Tables, Toast Takeout, and partnerships with Resy and Tock. Features like intelligent offers during slow periods and loyalty tracking are being developed to enhance the guest experience and drive value.
Q:What are you seeing in terms of consumer behavior and macro trends?
A:The summer and Q3 were strong, with October normalizing slightly but still within expectations. Restaurants tend to be resilient during economic downturns, and Toast's customers are performing well.
Q:Are there any case studies or data points on the impact of Toast IQ?
A:Toast IQ is seeing high adoption, with features like digital chits enhancing guest experiences. The platform allows for natural language interfaces to manage back-end functions and gain business insights. Adoption and customer value are the current focus.
Q:How did the business perform during the AWS outage?
A:The platform held up well, allowing restaurants to operate offline and process payments later. There was no meaningful impact on Q4 guidance.
Q:How sustainable is the improving take rate?
A:The take rate has improved due to targeted pricing moves, cost optimization, and new products like surcharging. The company is confident in its ability to continue driving take rate improvements over time.
Q:What drove the upside in recurring gross profit, and what are the expectations for Q4?
A:Strong GPV trends in the summer and Toast Capital contributed to the upside. Q4 guidance reflects normalization, with 25% growth at the high end.
Q:What is the financial impact of Toast IQ, and is it being sold as a separate SKU?
A:Toast IQ is not currently sold as a separate SKU. The focus is on adoption and customer value. Future monetization may include usage-based models, and the platform offers opportunities for product-led growth.
Q:What happened with the pricing error on the website, and how is pricing being managed?
A:The pricing error was due to human error and was corrected. Pricing is managed through targeted changes, balancing market share potential with growth opportunities.
Q:What gives you confidence in increased net adds in '26?
A:Core net adds are consistent with last year, and new TAMs are contributing more. The overlap between the core platform and new TAMs is driving growth, with new TAMs expected to play a bigger role.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific contribution of Toast's technology versus customer selection bias in driving GPV per location. Additionally, there was limited detail on the financial impact of Toast IQ and its potential monetization strategies.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
ARR year
Everbowl
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IQ Toast
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SMB restaurant
TGI Fridays
Toast Advertising
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class
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core SMB
country
decision
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hospitality
integration
leader core
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share location
shareholder value
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The earnings call highlights strong financial performance, with a 35% YoY revenue increase and improved gross margins. Net losses have decreased significantly, and adjusted EBITDA has improved. These positive financial metrics suggest a favorable market reaction. However, the absence of strategic initiatives and risk discussion limits the potential for a stronger positive sentiment. Without market cap data, the prediction remains positive, as small-cap stocks tend to react more strongly to positive earnings.
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Toast, Inc. (TOST) Q4 2025 Earnings Call Transcript
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The earnings call reflects strong financial performance with a 24% growth in Payments ARR and a 25% growth in Fintech Gross Profit. SaaS Gross Margins expanded, and the company is investing in AI and new verticals. The Q&A section highlights confidence in growth and AI's role as a positive driver. Despite some unclear responses, the overall sentiment is optimistic with promising guidance and strategic plans. The stock price is likely to see a positive movement, considering the strong growth outlook and strategic investments.
TOST Report
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