Elena Gomez, President and CFO of Toast (NYSE: TOST), sat down with Julia Boorstin to discuss how the company is turning its restaurant network into a data-driven competitive moat. The anchor of her argument was straightforward: "We power over 160,000 restaurants. So you can imagine the data that sits in our platform." Toast ended 2025 with approximately 164,000 total restaurant locations globally, up 22% year over year, adding a record 30,000 net new locations across the full year. The company has grown ...

Core Viewpoint - The uncertainty brought by artificial intelligence (AI) has significantly impacted software stocks, with Toast experiencing a decline of over 40% from its summer high, contributing to a nearly $1 trillion sell-off in the industry this quarter [1] Company Overview - Toast has developed an operating system utilized by approximately 20% of small- and mid-market restaurants in the U.S., integrating terminals, payments, online ordering, and payroll into a single system [2] - The company achieved a record addition of 30,000 net locations last year, making it difficult for independent restaurant owners to switch to other systems once installed [3] Growth Potential - Future growth is anticipated from restaurant chains, international markets, and retail, which currently represent about 5% of annual recurring revenue [4] - Major customers include sit-down chains like Applebee's and TGI Friday's, while fast food chains like McDonald's and Domino's have developed their own systems [4] AI Integration - Toast has launched an AI assistant, Toast IQ, to assist customers in making quick decisions by performing tasks and analyzing data [5] - The advancements in AI are reducing the costs and timelines for software solutions, which may benefit smaller operators who prefer a single vendor [5] Market Challenges - National chains with engineering teams may prefer flexibility and are hesitant to commit to proprietary hardware, which could hinder Toast's appeal in the enterprise market [6] - Toast operates as a payment facilitator, maintaining a premium spread due to the utility of its software bundle, but AI advancements may challenge this premium over time [7] Financial Performance - Toast's software gross margins reached 80% in the fourth quarter, contributing to approximately 45% of total gross profit, despite payments accounting for 82% of total revenue [7] - The company has transitioned from cash burn to nearly doubling free cash flow to $608 million last year, with a current stock price reflecting a reasonable valuation at 27 times trailing free cash flow [8] Investor Sentiment - The discount on Toast's stock is understandable given the concerns about long-term survival in a competitive market, which may lead to a rapid decline in premium multiples [9]

Toast (NYSE: TOST) 2026 Conference Summary Company Overview - **Company**: Toast, Inc. - **Industry**: Restaurant technology and software solutions - **Market Position**: 20% market share in the U.S. SMB and mid-market restaurant segment, with a goal to continue growing Key Points and Arguments Business Strategy and Growth - **Market Share**: Toast has doubled its market share since its IPO three years ago, now holding 20% of the U.S. SMB restaurant market [8] - **Annual Recurring Revenue (ARR)**: The company has surpassed $2 billion in ARR, with a 32% growth in recurring gross profit last year [9] - **Focus on Core Business**: The primary focus remains on maintaining leadership in the core U.S. restaurant market while exploring opportunities in enterprise, international, and retail markets [10][11] - **AI Integration**: Toast is leveraging AI to enhance productivity for both customers and internal operations, with significant improvements in developer efficiency [12][13] Financial Performance - **Recurring Gross Profit Growth**: Expected growth of 20%-22% in recurring gross profit for 2026, driven by location expansion and improved productivity [15][16] - **Take Rate Expansion**: The company has seen an increase in take rates, attributed to cost optimization, pricing strategies, and new product development [41][42] Market Dynamics - **Consumer Trends**: Consumer spending trends remain stable, with restaurants showing resilience across various economic cycles [40] - **Location Growth**: Toast plans to add more net new locations in 2026 compared to the previous year, with a focus on high-penetration markets [56][58] International Expansion - **New Markets**: Toast has launched in four international markets (Canada, Ireland, the U.K., and Australia) and is focused on ensuring market leadership in these regions [64][72] - **Market Entry Strategy**: The company prioritizes entering tier one cities with high GPV per capita and successful restaurants [73] Product Development - **Toast IQ**: A new AI-driven platform that enhances customer engagement and operational efficiency, with over half of locations adopting it within the first four months [28][36] - **Retail Expansion**: Toast is expanding into retail, addressing similar challenges faced by restaurants, with ARPUs already exceeding $10K [87][90] Challenges and Risks - **Margin Pressures**: Short-term headwinds from higher memory chip costs and tariffs are expected to impact margins, but long-term margin targets remain intact [107][108] - **Payback Periods**: New initiatives currently have payback periods above 20 months, but the goal is to reduce this to sub-20 months as the business scales [94][95] Future Outlook - **Long-term Growth**: Toast is optimistic about the potential for significant ARR opportunities in new markets and product lines, with a disciplined approach to investment and growth [94][113] - **AI as a Competitive Advantage**: The integration of AI is seen as a way to strengthen Toast's market position and improve operational efficiency [116] Additional Important Insights - **Customer Engagement**: The company emphasizes the importance of understanding customer needs and leveraging data to drive marketing and operational decisions [36][38] - **Enterprise Business Growth**: Toast has successfully entered the enterprise market, signing significant customers like Applebee's and Firehouse Subs, and is focused on expanding its capabilities in this segment [76][80] This summary encapsulates the key insights from the Toast conference, highlighting the company's strategic focus, financial performance, market dynamics, and future growth opportunities.

Core Insights - Toast reported strong growth in Q4 2025, with SaaS ARR and subscription revenue each increasing by 28% year-over-year, and a SaaS net retention rate of 109% driven by upsell and location expansion [1][3][4] Financial Performance - Adjusted EBITDA for 2025 was $633 million, with free cash flow of $608 million, and GAAP operating income rose to $292 million from $16 million the previous year [3] - Recurring gross profit streams increased by 28% in Q4, with total monetization reaching 98 basis points, up 5 basis points from the previous year [2][3] - Payments ARR grew by 24% and fintech gross profit increased by 25% in Q4, with GPV at $51 billion, up 22% year-over-year [7] Growth and Expansion - The company added approximately 30,000 net locations in 2025, ending the year with 164,000 locations and an ARR of over $2 billion [3][6] - Toast's strategic priorities for 2026 include gaining market share in core U.S. SMB and mid-market restaurant businesses, expanding into new markets, and increasing customer adoption of its platform [10][11] AI and Product Innovation - Toast highlighted the rapid adoption of its AI-driven tool, Toast IQ, which has been used by over half of its locations, generating over 1 million queries [6][14] - The company plans to launch a drive-thru product in 2026 and expand its retail capabilities through partnerships, including with Instacart [11][13] 2026 Outlook - For 2026, Toast expects recurring gross profit growth of 20% to 22% and adjusted EBITDA between $775 million and $795 million, despite anticipated cost pressures from tariffs and memory chip prices [5][16] - The company guided for Q1 2026 total fintech and subscription gross profit growth of 22% to 24% year-over-year [17] Capital Allocation - Toast has repurchased approximately 8 million shares for $235 million since initiating its buyback authorization, with an additional $500 million increase to the share repurchase authorization approved [18]

Financial Data and Key Metrics Changes - Recurring gross profits increased by 33% in 2025, with adjusted EBITDA margins expanding to 34% [5][26] - Annual recurring revenue (ARR) grew by 26%, reaching over $2 billion, with payment volume hitting $195 billion [26] - GAAP operating income rose to $292 million from $16 million a year ago, driven by strong adjusted EBITDA and effective management of stock-based compensation [27][30] Business Line Data and Key Metrics Changes - SaaS ARR and subscription revenue each grew by 28% year-over-year, with SaaS ARPU in the core growing even faster than total SaaS ARPU [29] - Subscription gross profit increased by 33%, with SaaS gross margin expanding by 300 basis points year-over-year to 80% in Q4 [30] - Payments ARR grew by 24%, while fintech gross profit increased by 25% in Q4 [30] Market Data and Key Metrics Changes - The company added a record 30,000 net locations in 2025, ending the year with 164,000 locations [26] - The net retention rate remained healthy at 109% in 2025, supported by upsell and location expansion from existing customers [30] - The company powers 20% of SMB and mid-market restaurants in the U.S., nearly doubling over the past three years [8] Company Strategy and Development Direction - The company aims to double market share in its core U.S. SMB and mid-market restaurants, while also expanding into new markets [8][12] - Investments will focus on product differentiation, particularly in AI and customer support, to enhance operational efficiency [10][21] - The company plans to launch new products, including a drive-thru solution, to capture additional market segments [14][73] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining high growth for the next 5-10 years, driven by strong customer signals and market opportunities [38] - The company anticipates a 20%-22% growth in recurring gross profit streams for 2026, with adjusted EBITDA expected to be between $775 million and $795 million [36] - Management highlighted the importance of disciplined capital allocation while investing in high-priority initiatives [24][35] Other Important Information - The company has repurchased approximately 8 million shares for $235 million since the inception of its buyback authorization in 2024 [35] - The company is experiencing cost pressures from higher memory chip costs, which are expected to impact margins in the second half of 2026 [36][37] Q&A Session Summary Question: SaaS ARR per location and enterprise metrics - Management confirmed confidence in mid-single-digit SaaS ARPU growth for 2026, with core SaaS ARPU growing faster than total company metrics [41][44] - Enterprise sales cycles are different, and management evaluates them on a deal-by-deal basis, focusing on total ARR [44] Question: Net adds and new verticals - Management indicated that net add growth in 2026 is expected to be higher than in 2025, with a similar pattern of growth from core and new towns [48][50] Question: AI disruption and competitive landscape - Management views AI as an opportunity to enhance the platform rather than a threat, emphasizing the unique value Toast provides through its integrated solutions [51][56] Question: R&D investment and margin framework - Management confirmed that the margin framework allows for increased R&D investment to capitalize on AI opportunities while targeting long-term margins of 40% [60][62] Question: Drive-through product rollout - The company plans to launch a drive-through product this year, which will significantly expand its market reach [73][74]

Financial Data and Key Metrics Changes - Recurring gross profits increased by 33% in 2025, with adjusted EBITDA margins expanding to 34% [5][26] - Annual recurring revenue (ARR) grew by 26%, reaching over $2 billion, while payment volume hit $195 billion [26] - GAAP operating income rose to $292 million from $16 million a year ago, driven by strong adjusted EBITDA and tight management of stock-based compensation [27][30] Business Line Data and Key Metrics Changes - SaaS ARR and subscription revenue each grew by 28% year-over-year, with SaaS ARPU in the core growing even faster than total SaaS ARPU [29] - Subscription gross profit increased by 33%, with SaaS gross margin expanding by 300 basis points year-over-year to 80% in Q4 [30] - Payments ARR grew by 24%, and fintech gross profit increased by 25% in Q4 [30] Market Data and Key Metrics Changes - The company added a record 30,000 net locations in 2025, ending the year with 164,000 locations [26] - The SaaS net retention rate remained healthy at 109% in 2025, supported by upsell and location expansion from existing customers [30] - The company continues to gain market share in its core U.S. SMB and mid-market restaurants, now powering 20% of these restaurants [8][9] Company Strategy and Development Direction - The company aims to double its market share and ARR over time, with a focus on growing market share in its core and demonstrating that new markets will be material growth drivers [8][12] - Investments in product differentiation and AI are prioritized to enhance customer adoption and drive differentiation [18][21] - The company plans to launch new products, including a drive-thru solution, to capture additional market segments [72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining high growth for the next 5-10 years, with a focus on reinvesting in growth initiatives [38] - The company anticipates 20%-22% growth in recurring gross profit streams and adjusted EBITDA of $775 million-$795 million for 2026 [36] - Management highlighted the importance of disciplined capital allocation while expanding margins over time [24][35] Other Important Information - The company has repurchased approximately 8 million shares for $235 million since the inception of its buyback authorization in 2024 [35] - The company is experiencing cost pressures from higher memory chip costs, which are expected to impact margins in the second half of 2026 [36][37] Q&A Session Summary Question: SaaS ARR per location and enterprise metrics - Management confirmed confidence in mid-single-digit SaaS ARPU growth for 2026, with core SaaS ARPU growing faster than total company metrics [41][43] Question: Net adds and new verticals contribution - Management indicated that net add growth in 2026 is expected to be higher than in 2025, with new TAMs contributing significantly to this growth [47][49] Question: AI disruption and competitive landscape - Management views AI as an opportunity to enhance the platform and drive innovation rather than a threat, emphasizing the unique value Toast provides [50][54] Question: R&D investment and margin framework - Management confirmed that the margin framework allows for increased R&D investment to capitalize on AI opportunities while targeting long-term margin goals [58][62] Question: Drive-through product rollout - Management stated that the upcoming drive-through product will open up new market opportunities, particularly in enterprise [72][73]

Financial Data and Key Metrics Changes - Recurring gross profits increased by 33% in 2025, with adjusted EBITDA margins expanding to 34% [5][26] - The company added over 30,000 net locations, ending the year with 164,000 locations [26] - Annual recurring revenue (ARR) grew by 26%, reaching over $2 billion, with payment volume at $195 billion [26] - Adjusted EBITDA for 2025 was $633 million, with free cash flow of $608 million [27] - GAAP operating income rose to $292 million from $16 million a year ago [27] - Total monetization, measured by recurring gross profit as a percentage of gross payment volume (GPV), hit 98 basis points, a 5 basis point increase year-over-year [28] Business Line Data and Key Metrics Changes - SaaS ARR and subscription revenue each grew by 28% year-over-year [28] - Subscription gross profit increased by 33%, with SaaS gross margin expanding by 300 basis points to 80% in Q4 [29] - Payments ARR grew by 24%, while fintech gross profit increased by 25% in Q4 [29] - Hardware and professional services gross profit was -12% of recurring gross profit streams, impacted by higher tariff costs [31] Market Data and Key Metrics Changes - The company powers 20% of SMB and mid-market restaurants in the U.S., nearly doubling over the past three years [8] - The sales productivity in the top 10 geographies continues to outperform the average, indicating room for further market share gains [9] - New markets, including international expansions, are growing faster than the core market at similar time periods [12] Company Strategy and Development Direction - The company aims to double market share in its core U.S. SMB and mid-market restaurants while expanding into new markets [7][12] - Investments in AI and product enhancements are expected to drive efficiency and customer adoption [20][24] - The company plans to launch a drive-thru product and improve support for non-native English-speaking operators in 2026 [11][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining high growth for the next 5-10 years, driven by new TAMs and product innovations [38] - The company anticipates a 20%-22% growth in recurring gross profit streams for 2026, with adjusted EBITDA guidance of $775 million-$795 million [36] - Management highlighted the importance of disciplined capital allocation while investing in high-conviction opportunities [24][35] Other Important Information - The company has repurchased approximately 8 million shares for $235 million since the inception of its buyback authorization in 2024 [35] - The dollar-based payback period for the portfolio remained in the mid-teen months, with expectations to improve as new towns mature [33] Q&A Session Summary Question: SaaS ARR per location and enterprise metrics - Management expressed confidence in mid-single-digit SaaS ARR growth for 2026, with core SaaS ARPU growing faster than total company metrics [41][43] Question: Net adds and new verticals contribution - The company expects a similar pattern in net adds for 2026, with incremental growth from new towns and verticals [48][50] Question: AI disruption and competitive landscape - Management views AI as an opportunity to enhance the platform rather than a threat, emphasizing the unique value Toast provides [51][56] Question: R&D investment and margin framework - The company is committed to investing in R&D to sustain long-term growth while targeting 40% margins over time [60][64] Question: Drive-through product rollout - The company plans to launch a drive-thru product this year, which will open up new market opportunities [75] Question: Overall investment strategy and guidance - Management indicated that 2026 reflects a long-term vision for growth, with a balanced approach to guiding expectations [82][84]

Core Insights - Toast Inc. (TOST) is expected to report fourth-quarter 2025 earnings on February 12, with revenue estimated at $1.62 billion, reflecting a 21% increase year-over-year, and non-GAAP earnings per share projected at 24 cents, indicating a 380% year-over-year growth [1][2] Financial Performance - TOST has beaten the Zacks Consensus Estimate in two of the last four quarters, lagged in one, and matched in another, with an average surprise of -1.81%. The stock has decreased by 33.1% over the past year, compared to a 19.1% decline in the Zacks Internet-Software industry [2] - The fourth-quarter non-GAAP gross profit from subscription services and financial technology solutions is expected to be between $480 million and $490 million, representing a 22-25% year-over-year growth. Adjusted EBITDA is projected to be between $140 million and $150 million [4] Market Dynamics - Toast's fourth-quarter performance is anticipated to be influenced by record highs in Annual Recurring Revenue (ARR), strong revenue momentum, and increased adoption of AI-driven products. The company's ability to expand its total addressable market and leverage AI innovation is expected to enhance its long-term prospects [3][9] - A multi-year global partnership with Uber aims to enhance product innovation and market initiatives for restaurant growth, starting in the U.S. and Canada. This partnership will integrate Toast's POS platform with Uber's delivery network, improving digital ordering and guest experiences [5][8] Customer Growth - Toast added approximately 7,500 net new locations in the third quarter, bringing the total to 156,000 globally, a 23% year-over-year increase. This growth spans across small and medium-sized businesses (SMBs) as well as multi-location and enterprise customers, with ongoing international expansion [6][9] Strategic Initiatives - The company is positioning itself as a comprehensive operating system for restaurants, not just a point-of-sale provider. Recent product launches like Toast IQ and Toast Advertising are part of this strategy, aimed at optimizing operations and creating new revenue streams [9] - Management has indicated near-term challenges, including higher tariff costs and the need to manage payback periods while expanding into new markets. The company has also absorbed $31 million in bad debt and credit-related expenses [10]

Company Overview - Toast, Inc. is a Boston-based cloud software provider focused on the restaurant industry, offering an integrated point-of-sale and management platform built on Android. The company has positioned itself as a technology partner rather than just a payments provider, with an expanding suite of software, payments, and AI tools supporting long-term growth narratives [4]. Financial Performance - In the third quarter of 2025, Toast surpassed $2 billion in annual recurring revenue (ARR) for the first time, effectively doubling ARR in just two years, highlighting the scalability and resilience of its platform [3]. - DA Davidson analyst Peter Heckmann lowered the price target on Toast to $36 from $42 while maintaining a Neutral rating, expecting the company to modestly exceed its own forecasts and broader consensus, although growth and margin expansion are anticipated to be more measured than in the past four to six quarters [1]. Product Development - The rollout of AI-driven products such as Toast IQ and Toast Advertising has seen strong early adoption, with over 25,000 restaurants using Toast IQ more than 235,000 times since early October, reinforcing engagement across its customer base [3]. Market Position - Despite the normalization of near-term expectations, Toast's recurring Gross Payment Volume remains a key area of strength that could provide incremental upside [1].

Core Insights - Toast is a fintech company that has established a strong recurring revenue model, particularly in the restaurant sector, which is often overlooked by long-term investors [1][2] - The company’s Annualized Recurring Revenue (ARR) has grown approximately 30% year-over-year, surpassing $1.9 billion in mid-2025 and expected to exceed $2 billion by Q3 2025 [3] - Toast has achieved GAAP profitability for the first time in full-year 2024, reporting a net income of $19 million and Adjusted EBITDA of $373 million [5][6] Revenue Model - Toast's platform includes essential services for small business owners, such as point-of-sale software, payment processing, payroll, and analytics, which contribute to its recurring revenue [3][4] - The company has a significant market opportunity, with a total addressable market of approximately 1.4 million potential locations, while currently servicing around 156,000 restaurant locations [8] Growth and Expansion - Toast's new offerings, such as Toast IQ and Toast Advertising, are designed to enhance customer engagement and increase revenue per customer over time, indicating a strategy of expansion revenue [9] - The company is positioned as a subscription-first fintech with real earnings and improving margins, suggesting a long runway for growth and market share acquisition [10] Market Position and Strategy - Toast's business model is less dependent on restaurant sales volume, as its revenue is derived from software and payment fees, providing a more stable cash flow even during economic downturns [11] - The company is viewed as a long-term compounder, with a focus on deepening monetization rather than merely increasing the number of locations [12] Investment Considerations - Investors are advised to consider average entry points during market volatility, as restaurant spending is cyclical and sensitive to macroeconomic conditions [12] - Monitoring Toast's progress in enterprise and international expansion could be crucial for long-term valuation growth [12]