Toast Q2 FY26 earnings call TOST

Toast is transitioning from a point-of-sale system to an "Agentic platform," leveraging AI to automate critical restaurant operations. This evolution aims to move beyond providing software tools to actively taking on functions like marketing, payroll, and bookkeeping, delivering direct business outcomes for customers. The strategy is built on Toast's extensive data and operational context, positioning it as a key technology partner for restaurants.

The digital marketing agent, Toast IQ Grow, is the company's fastest-growing product, on track to reach $10 million in ARR. It utilizes restaurant and guest data to optimize digital presence, generate marketing campaigns, and drive sales, as exemplified by Spirits Food & Friends which saw over $100,000 in marketing-attributed sales in under two months. This success validates Toast's approach to AI-powered solutions that directly improve customer profitability.

Toast is aggressively expanding its reach into new Total Addressable Markets (TAMs) including international, enterprise, and retail segments. ARR in these new TAMs is scaling faster than the core business did at a similar stage, with new TAMs expected to nearly double to $200 million in ARR this year. The company has doubled its retail sales capacity and is seeing strong momentum in enterprise, including becoming an endorsed vendor for Best Western.

Despite challenges in the dynamic memory market, Toast has implemented several mitigation strategies to manage hardware Cost of Goods Sold (COGS). These actions include leveraging earlier hardware generations, transitioning to lower-cost memory, and opportunistic spot market buying. Management anticipates these efforts will lead to structurally better hardware margins once the memory market stabilizes, while ensuring supply for 2026 and 2027.

Toast is committed to a disciplined capital allocation framework, balancing sustained top-line growth with gradual margin expansion. The company strategically reinvests upside from strong performance, such as a $10 million tariff refund, into high-potential growth areas like new TAMs and emerging bets in consumer and retail verticals. This approach aims to maximize long-term enterprise value and achieve 40%+ adjusted EBITDA margins over time^⏳.

The company reported robust Q2 FY26 results, with recurring gross profit streams growing 28% and GAAP operating income margins expanding to 26%. Adjusted EBITDA increased 38% to $221 million, reaching a 37% margin. Toast also achieved a record 9,500 net location adds, bringing the total to approximately 180,000, reflecting strong demand and effective go-to-market execution.

Monetization continues to strengthen, with total take rate at 98 basis points, up 5 basis points year-over-year. SaaS gross margins improved by 240 basis points due to optimization efforts, including AI in customer support. Internally, Toast is deploying AI tooling to enhance productivity and efficiency, aiming for further operational leverage and sustained Rule of 60 performance in its core business.