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    TOST
    Earnings call· Mar 2026(Q1 FY26)

    Toast Q1 FY26 earnings call TOST

    May 7, 2026 Source

    Executive summary

    Toast Q1 FY26 — Strong Growth in Recurring Gross Profit and Expanded Margins

    Toast delivered a strong first quarter, driven by robust recurring gross profit growth and significant margin expansion, while strategically investing in AI and new market expansion. The company is leveraging its vertical integration and AI capabilities to enhance customer value and productivity, positioning for sustained long-term growth across its core restaurant business and new segments like enterprise, international, and retail.

    Highlights

    5

    • Recurring gross profit streams grew 27% year-over-year.

    • GAAP operating income margins expanded to 21%, or $110 million.

    • Added 7,000 net locations, ending with 171,000 live locations, up 22% YoY.

    • Total monetization across SaaS and Fintech exceeded 1% of GPV for the first time, reaching 103 basis points.

    • Adjusted EBITDA grew 35% to $179 million, with a 34% margin.

    Concerns

    3

    • Hardware and Professional services gross profit was negative 13% of recurring gross profit streams due to customer acquisition momentum and higher tariff costs.

    • GPV per location was down 1% year-over-year in Q1.

    • Free cash flow conversion for the full year is expected to be slightly lower than in 2025 due to strategic inventory purchases of memory chips.

    Guidance & targets

    7
    CategoryTargetConfidence
    Total subscription and fintech gross profit growth
    22% to 24% year-over-year growth
    high materiality
    High
    Adjusted EBITDA
    $185 million to $195 million
    high materiality
    High
    Recurring gross profit growth
    21% to 23%
    high materiality
    High
    Adjusted EBITDA
    $790 million to $810 million
    high materiality
    High
    Long-term Adjusted EBITDA margin
    40-plus percent
    high materiality
    High
    Long-term growth
    Sustain high growth
    high materiality
    High
    Free cash flow conversion
    slightly lower than in 2025
    medium materiality
    Medium

    Operational metrics

    31
    Annual Recurring Revenue (ARR) growth
    26%YoY
    Q1 FY26
    Live locations
    171,000up 22% from a year ago
    Q1 FY26
    Net locations added
    7,000
    Q1 FY26
    SaaS ARR growth
    27%YoY
    Q1 FY26
    SaaS ARPU growth
    mid-single-digit
    Q1 FY26
    Subscription gross profit growth
    32%
    Q1 FY26

    Outpacing top line growth.

    SaaS gross margin
    81%expanded nearly 300 basis points from a year ago
    Q1 FY26

    Exceeded 80% for the first time.

    Payments ARR growth
    24%
    Q1 FY26
    Fintech gross profit growth
    24%
    Q1 FY26
    GPV per location
    1%down versus last year
    Q1 FY26

    Within a reasonable zone, Q2 similar.

    Fintech net take rate
    61
    Q1 FY26
    Payments take rate
    51increased 2 basis points year-over-year
    Q1 FY26

    Driven by cost optimization, new products, and targeted pricing.

    Non-payment fintech solutions gross profit
    $51 million
    Q1 FY26
    Non-payment fintech solutions take rate
    10
    Q1 FY26
    Hardware and Professional services gross profit
    -13%
    Q1 FY26

    Due to customer acquisition momentum and higher tariff costs.

    Bad debt and credit-related expenses
    $28 million
    Q1 FY26

    Excluded from operating expense growth calculation.

    Operating expenses growth (excluding bad debt)
    17%
    Q1 FY26
    Sales and marketing expenses growth
    20%
    Q1 FY26

    Reflecting strong location growth and investment in market share gains.

    R&D expenses growth
    20%year-over-year
    Q1 FY26

    Investing in product strategy, TAM expansion, and AI capabilities.

    Adjusted EBITDA
    $179 milliongrew 35%
    Q1 FY26
    Stock-based compensation as percent of recurring gross profit
    11%nearly half what it was just 2 years ago
    Q1 FY26

    Due to disciplined approach to managing stock compensation.

    Shares repurchased
    14 million shares for nearly $400 million
    YTD

    Opportunistic given market pullback and confidence in the business.

    Share repurchase authorization remaining
    $200 million
    Current

    Company will maintain an opportunistic approach.

    GAAP operating income
    $110 millionup over 150% from last year
    Q1 FY26

    Crossed 20% for the first time.

    GAAP EPS
    $0.20more than doubled
    Q1 FY26

    Resulted from strong financial results and decline in diluted share count.

    Engineering coding velocity
    60%up over year-over-year and accelerating
    Current

    Helped launch marketing agent 3 months earlier than planned.

    Support interactions resolved by AI
    40%
    Current

    Seeing efficiencies, enabling investment in account management and upsell.

    Toast IQ weekly active locations
    40,000
    Current

    And growing.

    Toast IQ Grow pilot sales increase
    8%
    Pilot

    Compared to similar restaurants.

    Toast Local weekly app downloads growth
    doubled
    Last quarter

    Toast Local is now one of the top apps in the app stores, food and drink category.

    Grocery locations served
    over 100
    Current

    Demonstrates platform capability for high volume and complexity.

    Industry KPIs

    3
    MetricValueDetails
    Capital returns$400 millionUSD
    Payments volume gdv$51 billionUSD
    Net revenue yield take rate103bps

    Product announcements

    6
    ProductTypeDetails
    Toast IQlaunch
    Toast Growth (including Marketing Agent)launch
    Toast Localexpansion
    Toast for drive-thrulaunch
    Toast Co 3 handheldlaunch
    Grocery productupdate

    Deals & partnerships

    4
    Daniella GroupThe world-renowned Chicago-based restaurant group, including iconic Allinea, NEXT, the ABR, and The Office, chose Toast as a key technology partner.

    The Daniella Group went live on Toast, selecting the platform for its relentless innovation, commitment to precision, and passion for guest experience.

    Hungry HowesA 500-unit national pizza chain.

    Toast won Hungry Howes, demonstrating success in serving specific sub-verticals like pizza within the Enterprise segment.

    Papa Murphy'sA pizza chain.

    Toast won Papa Murphy's, further demonstrating success in the pizza sub-vertical.

    ResyIntegration with Toast Local to enable table reservations.

    Toast Local now enables guests to discover and book tables at over 20,000 restaurants through Resy and Toast Tables, creating one of the largest reservation marketplaces.

    Risks & headwinds

    3
    Hardware supply chain / tariff costsQ1 FY26, FY26, FY27

    Hardware and Professional services gross profit was negative 13% of recurring gross profit streams in Q1 FY26; full-year FY26 FCF conversion expected to be slightly lower than 2025; 2027 P&L impact will be larger than 2026.

    Mitigation: Strategically purchasing memory chips and planning to hold more inventory to secure supply into 2027; managing margins to remain healthy in 2026 and 2027; no anticipated structural long-term impact to P&L.

    GPV per location declineQ1 FY26, Q2 FY26

    Down 1% year-over-year in Q1 FY26; Q2 trends similar.

    Mitigation: Consumer trends are stable; customers are resilient.

    Credit defaults (Toast Capital)Q1 FY26

    Defaults remain consistent and well within risk guardrails.

    Mitigation: Program continues to grow at a steady clip with risk guardrails in place.

    What to watch in Q2 FY26

    5

    Free Cash Flow Conversion

    over time as inventory moves to customers (majority of cash impact in Q2)
    Current$115 million (Q1 FCF), expected to be slightly lower than in 2025 (FY26 conversion)
    TargetNormalization of free cash flow impact as inventory moves to customers.

    Why it matters

    Indicates capital efficiency and the impact of strategic inventory build on cash flow.

    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.

    Q&A highlights

    8

    How does Toast's hardware, like Toast Go 3, differentiate its AI solutions and help restaurants make AI insights actionable in employee-guest interactions?

    Aman Narang stated that vertical integration of hardware and software allows faster development of AI capabilities. He cited examples like upsell visibility, digital check kits, and future voice AI applications at the table, emphasizing the advantage of having both components.

    “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.”

    asked by Stephen Sheldon · answered by Aman Narang

    2 min read6 chapters

    Detailed Narrative

    01

    AI-Driven Platform Evolution

    Toast is transitioning from a software platform to an 'agent platform' using AI, with Toast IQ as the foundation. This aims to drive outcomes for customers by automating tasks like marketing, bookkeeping, and payroll, leveraging Toast's proprietary data. The company believes its structural advantage lies in the vast amount of customer data already within its platform, which powers these AI agents.

    02

    Toast IQ and Marketing Agent Success

    Toast IQ has reached 40,000 weekly active locations, demonstrating strong adoption. The first AI agent, a marketing agent within Toast IQ Grow, builds and optimizes campaigns for restaurants. Pilot customers using Toast IQ Grow have seen an average 8% increase in sales, with nearly one-third of sales in March for one customer directly attributable to Toast marketing tools, highlighting the tangible value AI can deliver.

    03

    Expansion into New Markets

    Toast is successfully applying its vertical playbook to new markets, including Enterprise, International, and Retail. In Enterprise, new offerings like Toast for drive-thru and deeper hotel presence are driving growth, with Q1 FY26 bookings exceeding total customers in FY23. Internationally, the focus is on scaling locations and ARPU in Tier 1 cities, while in Retail, the company is gaining traction with independent grocers, serving over 100 locations.

    04

    Productivity Gains from AI

    AI is significantly improving internal productivity across Toast. Engineering coding velocity is up over 60% year-over-year, accelerating product launches like the marketing agent. Additionally, approximately 40% of customer support interactions are now resolved by AI, leading to efficiencies that free up capital for growth initiatives and support the company's long-term margin targets.

    05

    Toast Local Expansion

    Toast Local, the company's consumer network, has expanded its capabilities, now enabling guests to discover and book tables at over 20,000 restaurants through integration with Resy and Toast Tables. This expansion has led to a doubling of weekly app downloads in the last quarter, positioning Toast Local as one of the largest reservation marketplaces and a key channel for restaurants to drive demand with low commissions.

    06

    Hardware as a Differentiator

    Toast's vertical integration of hardware and software, exemplified by the Toast Go 3 handheld, provides a competitive advantage. This allows for faster development of AI-powered features at the table, such as upsell suggestions, digital check kits, and future voice AI applications. The company believes this integrated approach creates a superior experience and builds products faster for customers.

    AI-generated summary of the company’s earnings call. Not investment advice.