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Toast (TOST) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 4, 2026

Source: earnings call transcript

Executive summary

Toast Q2 FY26 — Record Location Adds and AI-Driven ARPU Growth

Toast delivered strong Q2 results, marked by record location additions and significant growth in recurring gross profit, driven by its core business and expanding new markets. The company is strategically investing in AI-driven products like Toast IQ Grow, which is showing rapid adoption and ARPU growth potential, alongside scaling its new TAMs. Management remains focused on balancing sustained growth with gradual margin expansion, aiming for long-term value creation through disciplined capital allocation and efficiency gains.

Highlights

5

  • Recurring gross profit streams grew over 28% year-over-year in Q2.

  • GAAP operating income margins expanded to 26% in Q2.

  • Record 9,500 net location adds in Q2, growing total locations by 22% year-over-year to approximately 180,000.

  • Adjusted EBITDA grew 38% to $221 million in Q2, with margins expanding 240 basis points to 37%.

  • Toast IQ Grow is on track to become the fastest-growing product to $10 million in ARR.

Concerns

3

  • Hardware and Professional services gross profit was negative at 11% of recurring gross profit streams in Q2.

  • Free cash flow was $130 million in Q2, down year-over-year due to a strategic decision to acquire and hold more hardware inventory.

  • Full-year adjusted EBITDA guidance was raised by less than the Q2 beat, as a $10 million tariff refund was strategically reinvested into key growth initiatives.

Guidance & targets

CategoryTargetConfidence
Total subscription and fintech gross profit growth
22% to 24% year-over-year
high materiality
High
Adjusted EBITDA
$210 million to $220 million
high materiality
High
Recurring gross profit growth
23% to 25%
high materiality
High
Adjusted EBITDA
$805 million to $825 million
high materiality
High
New TAMs ARR
nearly double to $200 million
medium materiality
High
Long-term adjusted EBITDA margins
40% plus
high materiality
High
Long-term ARR
$10 billion and beyond
high materiality
High

TOST operating KPIs by quarter

TOST operating KPIs stated on its earnings calls, by fiscal quarter
KPI Mar 2026 Q1 FY26This call Jun 2026 Q2 FY26Change vs prior quarter
Net locations added
7,000 We added 7,000 net locations and are broadening who we serve from local restaurants across the US to enterprise chains, international markets and retail. Source: earnings call transcript
9,500 We had a record 9,500 net location adds in the quarter, 1,000 more than our previous high watermark. Source: earnings call transcript
+35.7%
Live locations
171K Building on last year's momentum, we added 7,000 net locations in Q1 and ended the quarter with 171,000 live locations, up 22% from a year ago. Source: earnings call transcript
~180K We added a record 9,500 net new locations in Q2, growing total locations 22% from a year ago to approximately 180,000. Source: earnings call transcript
—
Payments volume
$51B GPV was $51 billion, up 22% year-over-year with GPV per location down 1% versus last year. Source: earnings call transcript
$61B GPV was $61 billion, up 22% with GPV per location flat. Source: earnings call transcript
+19.6%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

ProductTypeDetails
Toast IQ Growlaunch
Fuel paymentslaunch

Deals & partnerships

Kung Fu Tea New customer adoption of Toast platform across over 300 locations.

Kung Fu Tea, a brand with over 300 locations, chose Toast as a leader and innovative partner to invest in automation and actionable intelligence.

Best Western Endorsed provider for food and beverage, targeting thousands of hotel restaurants.

Toast became an endorsed food and beverage vendor for Best Western, providing access to their hotel restaurants across the U.S. and Canada.

TGI Fridays Expanded partnership in the U.K. for international locations.

Expanded relationship with TGI Fridays in the U.K., adding to a growing list of customers with Toast locations across multiple countries.

VenuWorks Customer using Toast for its portfolio of arenas and stadiums, including the Ford Center.

VenuWorks, which manages arenas and stadiums like the Ford Center, runs on Toast, contributing to growth in the sports and entertainment TAM.

Allen Marine Tours Customer using Toast Go 3 devices on excursion vessels.

Alaskan tour company, Allen Marine Tours, uses Toast Go 3 devices on their excursion vessels, demonstrating Toast's reach into diverse adjacent markets.

Risks & headwinds

Dynamic memory market impact on hardware COGS 2026 and 2027

Hardware and Professional services gross profit was negative at 11% of recurring gross profit streams in Q2.

Mitigation:Leveraging earlier hardware generations, transitioning to lower-cost memory, opportunistic spot market buying, and supply chain optimization to achieve structurally better hardware margins long-term.

Reduced free cash flow due to strategic inventory build Q2 FY26

Free cash flow was $130 million in Q2, down versus a year ago.

Mitigation:Strategic decision to acquire and hold more hardware inventory in the near term; conversion of adjusted EBITDA into free cash flow expected to improve in H2 2026.

Reinvestment of tariff refund limiting EBITDA flow-through Full-year FY26

Full-year adjusted EBITDA guidance raised by less than the Q2 beat, due to reinvestment of a $10 million tariff refund.

Mitigation:Strategic choice to reinvest into key growth initiatives and seed long-term growth areas with high potential ROI.

What to watch in Q3 FY26

Hardware margins

After memory market stabilizes
Current Negative 11% of recurring gross profit streams in Q2
Target Structurally better hardware margins

Why it matters

Improvement in hardware margins is crucial for overall profitability and reflects the effectiveness of supply chain optimization efforts.

When the memory market stabilizes, we're going to come out with structurally better hardware margins than before, thanks to the optimization work we're doing across harbor product costs and supply chain.

Find out whether TOST delivers this. Inve re-checks your case every morning.

Q&A highlights

How will Toast IQ Grow and potential future AI modules like bookkeeping, tax, payroll, and scheduling contribute to longer-term ARPU growth and the Agentic platform vision?

Aman Narang explained that the vision is to build out an Agentic platform where Toast takes on critical work for restaurants, not just providing software. Toast IQ Grow, a marketing agent, leverages data across 150,000+ customers to optimize digital presence and marketing campaigns, outperforming human-only efforts and driving same-store sales growth. Future modules will follow a similar approach, focusing on areas where restaurants currently outsource services and Toast has a data advantage.

“Restaurants that switch to our Toast IQ Grow platform, agents rather, are seeing better results. And so are seeing same-store sales growth.”

asked by Timothy Chioda · answered by Aman Narang

2 min read 7 chapters

Detailed narrative

AI-Driven Platform Evolution

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.

Success of Toast IQ Grow

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.

Expansion into New Markets

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.

Hardware Supply Chain Management

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.

Disciplined Capital Allocation Strategy

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.

Strong Financial Performance

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 and Efficiency Gains

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.