Toast (NYSE:TOST) reported third-quarter results marked by continued location growth, higher recurring gross profit and expanding operating margins, while highlighting investments in artificial intelligence products, new customer segments and international markets.
Chief Executive Officer Aman Narang said recurring gross profit streams increased 27% year over year, while GAAP operating income margin reached 26%. The company added 8,500 net new locations during the quarter and ended the period with about 189,000 locations, up 21% from a year earlier.
Chief Financial Officer Elena Gomez said annual recurring revenue increased 24%, adjusted EBITDA rose 36% to $240 million, and GAAP operating income nearly doubled to $165 million. GAAP diluted earnings per share were $0.29, compared with $0.16 a year earlier.
Growth, Monetization and Guidance
Toast said its total take rate, measured as recurring gross profit as a percentage of gross payment volume, reached 104 basis points in the quarter, six basis points above the prior-year period. Gross payment volume rose 20% to $62 billion.
SaaS ARR grew 28%, supported by location growth and mid-single-digit ARPU expansion, according to Gomez. Subscription gross profit increased 36%, and SaaS gross margin expanded by 320 basis points from a year ago. Gomez said AI tools handling a growing share of support tickets contributed to the margin improvement.
Payments ARR and fintech gross profit each increased 21%. Non-payments fintech products, led by Toast Capital, produced $69 million in gross profit and contributed 11 basis points to take rate. Gomez said customer demand for capital remained strong and defaults were within the company’s expectations.
For the fourth quarter, Toast forecast subscription and fintech gross profit growth of 22% to 24% year over year and adjusted EBITDA of $200 million to $210 million. The company raised its full-year outlook and now expects recurring gross profit growth of 26% and adjusted EBITDA of $840 million to $850 million.
Free cash flow totaled $181 million, representing 75% conversion from adjusted EBITDA. Gomez said conversion was lower than a year ago because Toast chose to acquire and hold additional hardware inventory, though the company expects improvement in the fourth quarter.
AI Products Target Marketing and Labor Costs
Narang said Toast is developing from a software platform into an “agentic platform” designed to take on work for restaurant operators. During the quarter, the company added agents to Toast IQ Grow and launched Toast IQ Team, which focuses on scheduling and staffing.
Toast IQ Grow includes an SEO agent, a reviews agent and an offers agent intended to help restaurants increase visibility, encourage guest reviews and deploy targeted offers. Narang said the product remains Toast’s fastest-growing offering and is on track to reach $10 million in ARR by year-end.
In an example cited by the company, Morning Mugs, a Baltimore coffee shop, increased marketing-attributed sales by nearly $100,000 year over year after adopting Toast IQ Grow.
Toast IQ Team uses expected sales, employee availability and overtime risk to create schedules. Narang said restaurants using the company’s Scheduling Pro solution averaged 41% fewer overtime hours per employee. He cited Maddy Group in San Diego, where management attributed a reduction in labor costs as a percentage of sales from 28% to nearly 24% partly to Toast’s scheduling tools, overtime alerts and forecasts.
During the question-and-answer session, Narang said Toast measures IQ Grow customers’ sales lift against a control group and has seen “really good revenue growth.” He described Toast IQ Team as early in its rollout but said initial data on overtime reduction was encouraging.
Expansion Into New Markets
Toast continued to add restaurant and retail customers across its core market and newer segments. Narang highlighted new relationships with Starr Restaurants’ Nora Hotel concepts, Jean-Georges’ restaurant portfolio, Ruby Tuesday, Zingerman’s Deli, Outback Steakhouse’s Australian restaurants and Bagel Brands, which plans to launch Toast at 800 locations.
The company’s newer international, enterprise and retail markets are collectively scaling toward $200 million in ARR after roughly four years and are expected to double for the second consecutive year, Narang said.
Gomez said these “Horizon two” businesses reached the $200 million ARR milestone with 25% less direct research and development investment than Toast’s core business required to reach the same level. The company aims to maintain payback periods of 20 months or less in those markets and expects their adjusted EBITDA margins to eventually converge with core-market margins.
Incoming CFO Michael Senno said Toast expects to provide formal 2027 guidance on its February earnings call. He said the company remains confident in its previously communicated 20%-plus growth framework, but expects only modest margin progression next year as it retains flexibility to invest in growth opportunities.
Leadership Transition and Other Developments
Gomez is stepping down after nearly six years as CFO. Senno, who has spent nearly five years at Toast, will become CFO at the start of the year. Narang and Gomez described the transition as expected to be seamless.
Gomez also addressed Toast Capital’s increased use of the company balance sheet to fund some loans. She said holding loans provides better profitability because Toast retains the economics, although most originations will continue through its credit-risk-transfer program.
On an FTC lawsuit, Narang said Toast was “incredibly disappointed” by the agency’s decision to file suit and said the company believes the application of ROSCA to custom-negotiated business-to-business contracts would be unprecedented. He said Toast is prepared to defend its business practices.
About Toast (NYSE:TOST)
Toast, Inc (NYSE:TOST) provides a cloud-based technology platform designed for restaurants. Its integrated system combines point-of-sale software and hardware with payment processing, helping restaurants manage sales, orders, menus, guest interactions and day-to-day operations from a unified platform.
The company offers products and services including online ordering, delivery management, digital ordering and payment tools, restaurant websites, gift cards, loyalty programs, marketing, labor management, payroll, inventory management, reporting and analytics.
