Toast, Inc. (TOST) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Recurring Gross Profits Grew 33% year-over-year. This growth was attributed to strong incremental margins as the company scaled and doubled ARR in emerging TAMs like retail, international, and enterprise.
Adjusted EBITDA Margins Expanded to 34%, reflecting disciplined capital allocation and cost management.
Net Location Adds Added over 30,000 net locations in 2025, ending the year with 164,000 locations. This was driven by strong market share gains and customer adoption.
ARR (Annual Recurring Revenue) Grew 26% year-over-year, reaching over $2 billion. This growth was supported by increasing customer adoption and market share.
Payment Volume (GPV) $195 billion in 2025, up 22% year-over-year. Growth was driven by increased customer transactions and adoption of fintech solutions.
Adjusted EBITDA $633 million in 2025, up significantly from the previous year. This was due to strong top-line momentum and disciplined cost management.
Free Cash Flow $608 million in 2025, reflecting efficient scaling and strong cash generation.
GAAP Operating Income $292 million in 2025, up from $16 million in 2024. This increase was driven by strong adjusted EBITDA and tight management of stock-based compensation.
SaaS ARR and Subscription Revenue Each grew 28% year-over-year, supported by consistent mid-single-digit increases in SaaS ARPU and customer adoption of more products.
SaaS Gross Margins Expanded by 300 basis points year-over-year to 80% in Q4, driven by efficiency efforts and early benefits from AI in customer support.
SaaS Net Retention Rate 109% in 2025, led by upsell and location expansion from existing customers.
Payments ARR Grew 24% year-over-year, supported by cost optimization, new products, and price optimization.
Fintech Gross Profit Grew 25% year-over-year, with a net take rate of 58 basis points.
Hardware and Professional Services Gross Profit Negative 12% of recurring gross profit streams, impacted by higher tariff costs but offset by strong overall unit economics.
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Operating Highlights
ToastIQ: A conversational AI assistant that generates reports, insights, and executes tasks like menu management and inventory updates. It has been adopted by over half of Toast locations within four months of launch.
Toast Go 3: The latest handheld device designed to improve restaurant throughput, customer experience, and staff tips.
Toast Advertising: A new feature helping customers drive efficiency and guest demand.
Core U.S. SMB and mid-market restaurants: Toast now powers 20% of these restaurants in the U.S., nearly doubling its market share over the past three years.
Enterprise: Signed major customers like Applebee's, Firehouse Subs, and Papa Murphy's. Plans to launch a drive-thru product in 2026.
International: Launched in Australia, with strong growth in Canada, U.K., and Ireland. Plans to expand thoughtfully into new countries.
Retail: Built a dedicated go-to-market team, supporting businesses like convenience stores and grocery chains. Partnered with Instacart to sync in-store inventory with its marketplace.
Recurring gross profit growth: Increased by 33% in 2025, with adjusted EBITDA margins expanding to 34%.
AI in operations: Over half of customer support interactions now start digitally through an AI agent, with 70% resolved without human intervention.
Cost management: Achieved $633 million in adjusted EBITDA and $608 million in free cash flow in 2025.
Market share growth: Focused on doubling market share in core U.S. SMB and mid-market restaurants.
New TAMs: Investing in new markets like enterprise, international, and retail to drive long-term growth.
AI and data differentiation: Leveraging AI to automate workflows and enhance customer adoption of the platform.
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Risk or Challenges
Memory chip cost increase: Higher memory chip costs due to global demand surge are expected to negatively impact hardware costs, particularly in the second half of 2026. This could affect margins and profitability.
Tariff costs: Higher tariff costs are being absorbed, which could impact overall unit economics and profitability.
New TAMs payback periods: Payback periods for new Total Addressable Markets (TAMs) are currently higher than the core business, which could delay profitability in these areas.
Scaling new markets: Investments in international markets and retail expansion require significant resources, and there is a risk of slower-than-expected adoption or market penetration.
AI and product investments: Heavy investments in AI and product development could strain resources and may not yield immediate returns, impacting short-term financial performance.
Economic uncertainties: Potential economic uncertainties could affect customer spending and adoption of Toast's platform, particularly in the SMB restaurant sector.
Hardware and professional services gross profit: Negative gross profit in hardware and professional services could weigh on overall profitability.
Stock-based compensation: Stock-based compensation remains a significant expense, which could dilute shareholder value and impact financial metrics.
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Guidance & Outlook
Net Location Adds: Toast expects another year of record net location adds in 2026, building on the strong Q4 performance of 2025.
ARR Growth: Toast aims to grow its Annual Recurring Revenue (ARR) from over $2 billion today to $5 billion and $10 billion in the long term.
Market Share Expansion: Toast plans to double its market share in ARR over time, with a focus on U.S. SMB and mid-market restaurants, as well as new markets like retail, enterprise, and international.
New Market Growth: Toast expects new markets, including enterprise, international, and retail, to be material growth drivers in 2026 and beyond. The company plans to launch a drive-thru product in 2026 and expand its international presence thoughtfully.
AI and Product Innovation: Toast will continue to invest in AI capabilities, including evolving ToastIQ to automate workflows and eventually manage entire functions like marketing and payroll. The company also plans to enhance its platform for non-native English-speaking operators and specific verticals like bars and pizzerias.
Margin Expansion: Toast aims to gradually expand margins over time, targeting long-term margins of over 40%.
Hardware Costs: Toast anticipates approximately 150 basis points of negative impact from higher memory chip costs for hardware in 2026, particularly in the second half of the year.
Recurring Gross Profit Streams: Toast projects 20% to 22% growth in recurring gross profit streams for the full year 2026.
Adjusted EBITDA: Toast expects adjusted EBITDA of $775 million to $795 million for 2026, with slightly higher margins year-over-year.
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Shareholder Return Plan
Share Repurchase Program: Toast has repurchased approximately 8 million shares for $235 million since the inception of its buyback authorization in 2024, including 3 million shares for $107 million in 2025. The Board has approved a $500 million increase to the share repurchase authorization. The company does not have a specific timetable to complete the authorization and will opportunistically repurchase shares based on market conditions to support long-term shareholder value.
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Key Q&A
Q:Can you discuss the mid-single-digit SaaS ARR per location growth and the possibility of breaking out enterprise metrics separately?
A:Elena Gomez expressed confidence in SaaS ARPU growth remaining in mid-single digits, with core SaaS ARPU growing faster than the total company. She noted that new TAMs have lower SaaS ARPUs but are expected to grow as they scale. For enterprise, the focus is on total ARR, with strong unit economics due to higher ARRs, low CAC, and low churn. Breaking out enterprise metrics separately was not directly addressed.
Q:What is the mix of core versus new verticals for net adds, and how should success in new verticals be gauged?
A:Aman Narang stated that core locations remained stable, while incremental growth in net adds came from new TAMs. He expects a similar pattern in 2026, with new TAMs driving further growth. Success in new verticals can be gauged by their contribution to net adds and market share expansion.
Q:How does Toast view AI disruption in software, and what are its plans for leveraging AI?
A:Aman Narang emphasized that Toast is a critical technology for restaurants, offering software, hardware, fintech, and a partner ecosystem. He sees AI as an opportunity to enhance the platform, citing examples like ToastIQ for automating workflows, voice AI for order placement, and leveraging data for marketing and payroll. AI is viewed as a growth driver rather than a threat.
Q:Does Toast's margin framework allow for increased R&D investment in AI?
A:Elena Gomez confirmed that the margin framework supports R&D investment to sustain long-term growth, targeting 40% margins over time. Aman Narang added that the focus is on building a generational company, with R&D investments aimed at serving a larger TAM and increasing impact.
Q:Is ToastIQ influencing RFP wins, and which merchants find it most valuable?
A:Aman Narang stated that ToastIQ is gaining traction, particularly among SMBs, by simplifying workflows like data analysis and backend changes. Its purpose-built design for restaurants is driving adoption and influencing RFP wins.
Q:What is the status of the drive-thru product rollout, and does it open new market segments?
A:Aman Narang explained that the drive-thru product, set to launch this year, will open up new market opportunities, particularly in multilane drive-thru operations. Historically, Toast's focus has been on non-drive-thru segments.
Q:Are there other U.S. market segments that Toast plans to address in the future?
A:Aman Narang mentioned opportunities in non-English-speaking operators, bars, pizzerias, membership clubs, sports and entertainment, and golf. The product team prioritizes these based on market share and win rates.
Q:Is 2026 a peak investment year, and why does the initial guide imply back-half deceleration?
A:Elena Gomez stated that 2026 reflects conviction in new TAMs and long-term growth opportunities. The initial guide is balanced, with updates to follow as the year progresses. Investment timing and margin expansion are within the company's control.
Q:How does Toast plan to evolve beyond a software provider into a platform business?
A:Aman Narang highlighted Toast's broad platform, including software, fintech, and a partner ecosystem. He emphasized investments in AI to enhance the platform and support complex workflows, aiming to deepen the moat and simplify technology needs for restaurants.
Q:What are the top cross-sell modules, and how do they leverage AI?
A:Aman Narang mentioned modules like marketing, inventory management, and scheduling, which use AI to automate workflows. ToastIQ serves as the foundation for AI adoption, with plans to expand into more complex and agentic workflows.
Q:Will the location metric remain a key focus for investors in the future?
A:Aman Narang stated that while location growth is important, the focus is on driving ARR, recurring gross profit, and balancing growth with healthy margins. Location growth demonstrates the scalability of Toast's model beyond SMB restaurants.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether enterprise metrics would be broken out separately, despite the question being raised.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI agent
ARPUs
Alicart
Customer feedback
Full
Instacart
Papa Murphy
SKU
bookkeeping
butcher
capital
customer experience
depth
engine
example ToastIQ
feature
launch Toast
legacy prem
night
pizza chain
platform restaurant
plenty
prem solution
restaurant country
restaurant year
retail market
rollout
share platform
shop
size
success food
support
throughput
type
week
win rate
work
workflow
year market
TOST Transcript
Toast, Inc. (TOST) Q4 2025 Earnings Call Transcript
Positive2-12
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.
Toast, Inc. (TOST) Presents at UBS Global Technology and AI Conference 2025 Transcript
Neutral12-3
Toast, Inc. (TOST) Q3 2025 Earnings Call Transcript
Positive11-4
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.
Toast, Inc. (TOST) Presents At Goldman Sachs Communacopia + Technology Conference 2025 Transcript
Neutral9-10
TOST Report
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