Toast, Inc. Q4 FY2025 Earnings Call

Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to Toast's Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call will be 45 minutes. I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin your conference.

Thank you, operator. Welcome to Toast's Earnings Conference Call for the Fourth Quarter and Full Year ended December 31, 2025. On today's call are CEO, Aman Narang; and CFO, Elena Gomez, who will open with prepared remarks, which will be followed by our Q&A session. Before we start, I'd like to draw your attention to the safe harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of the Securities Act and the Exchange Act. All statements other than statements of historical facts are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, location growth, future profitability and margin outlook, business and investment strategy, expected growth and business outlook, including our financial guidance for the first quarter and full year 2026. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our SEC filings for a discussion of the risks and uncertainties that could cause actual results to differ materially from our expectations. During this call, we will discuss certain non-GAAP financial measures, including, but not limited to, non-GAAP subscription services gross profit and non-GAAP Financial Technology Solutions gross profit which we refer to collectively as our recurring gross profit streams. These are the basis for our top line guidance. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures. Unless otherwise stated, all references on this call to cost of revenue, gross profit and gross margin, sales and marketing expense, research and development expense and general and administrative expense are on a non-GAAP basis. Finally, the press release can be found on the Investor Relations website at investors.toasttab.com. After the call, a replay will be available on our website. With that, let me turn the call over to Aman.

Thanks, Michael, and thank you, everybody, for joining us today. I'm really proud of the Toast team for what we accomplished in 2025. We grew recurring gross profits 33%, expanded adjusted EBITDA margins to 34% and added over 30,000 net locations on the platform. Our core continues to grow at a rapid pace, with strong incremental margins as we scale while our emerging TAMs across retail, international and enterprise doubled ARR in 2025. We welcomed some amazing brands to the Toast platform in Q4, including iconic independent restaurants, such as Carmine's, Chef Daniel Boulud's restaurants, multiple enterprise chains, including Papa Murphy's and noteworthy retailers, including Meadow Lane. Our product team released over 500 new features, including ToastIQ, our conversational AI assistant. Customer feedback and adoption has been tremendous. ToastIQ not only generates reports and insights about restaurant performance, it executes tasks directly in Toast ranging from menu management to inventory updates. For example, ToastIQ can analyze and update menus, tell an operator why the Thursday nights might be slow or why a certain daypart is successful and analyze results across locations. It can also quickly answer questions like what events and weather should I pay attention to this week or who's working on a Friday night. Now AI is also reshaping how we work internally, from how we provide customer support to how we build software and how we sell and market our products. This is making our teams more productive, which opens up capital to invest against our most important long-term priorities. We have strong momentum as we head into 2026, building on top of a strong Q4, we expect another year of record net location adds and consistent ARPU growth as we execute against the priorities we laid out last year. Number one, growing market share in our core; number two, demonstrating that new markets will be material growth drivers: number three, increasing customer adoption of our platform; and lastly, gradually expanding margins as we invest with discipline. Longer term, if you do these well, we are positioned to drive durable growth from over $2 billion in the ARR today to $5 billion and $10 billion and beyond. Starting with our first priority, growing market share in our core U.S. SMB and mid-market restaurants. We continue to grow market share year after year and now power 20% of SMB and mid-market restaurants in the U.S. This has nearly doubled over the past three years. We have seen success across all market types, including urban, suburban and rural markets as well as ones that had high and lower density of Toast restaurants. In fact, our sales productivity in our top 10 geos continues to outperform our average, which shows that we have plenty of headroom to continue to gain share. Our vertical platform across software, hardware, fintech and networking is purpose-built for restaurants and continues to get better. Over the past year, we launched over 500 platform enhancements including Toast Go 3, the latest evolution of our handheld device designed to help restaurants drive throughput while elevating the customer experience and improving tips for staff. Other new releases include ToastIQ and Toast Advertising that are helping customers drive efficiency and guest demand. And Toast support has been reimagined with AI, with over half of our support interactions now starting digitally through an AI agent, and 70% of those never getting to a human. Our relentless focus to improve our platform for restaurants has helped us improve win rates with new customers and build a durable referral engine where two-thirds of our demand is inbound and existing customers are the largest source of referrals. And it's why many of the busiest and highly successful operators continue to choose Toast. A great example is Alicart, the group behind New York's legendary restaurants, including Carmine and Virgil's Barbecue. Carmine is one of the busiest independent restaurants in the country with over $40 million in annual sales and up to 3,000 covers per day. After 25 years with an existing provider, they decided on Toast for the depth, speed, and reliability necessary to support their scale. And their first few deployments have gone so well, they accelerated their Toast rollout across all locations to leverage the benefits our platform offers. We hear stories like this from successful operators all the time, and we're committed to building the best innovation engine to help restaurants of all types and sizes stay ahead during a time when the technology landscape is evolving rapidly. We have plenty of market share in front of us and continue to invest to serve deeper parts of the TAM. For example, in 2026, we will launch better support for non-native English-speaking operators and features to support bars, pizzerias and membership clubs even better. These investments in our products and our best-in-class go-to-market engine support our path to doubling market share in ARR over time. Our second priority is demonstrating that our new markets will be material growth drivers. 2025 was a great year for our new markets. We signed our two largest enterprise customers, Applebee's and Firehouse Subs, and successfully launched Australia, our fourth international market. And for the first time, we scaled a dedicated go-to-market team outside restaurants and have seen great results in retail. A few years in, each of these new markets is growing faster than our core was at a similar time period. This growth, combined with the size of TAM in these new markets gives me confidence they can be material drivers of growth over the long term. We are seeing the success because we're building on top of a proven vertical playbook. The vertical depth across product, go-to-market and customer success drove our early success in U.S. SMB restaurants, and we're applying the same approach when we build for retail, enterprise and international markets. We are very comfortable leaning into the product and platform complexity necessary in these markets versus a horizontal one-size-fits-all approach. We're seeing customers switch from legacy on-prem solutions, similar to what we saw in restaurants ten years ago. And as we continue to scale and our platform gets better, we're confident we will see even higher win rates, rep productivity, and ARPUs over time. In enterprise, our pipeline and active rollouts have never been bigger. In Q4, we expanded our relationship with MTY Group and signed Papa Murphy's, a 1,000-plus unit pizza chain. They chose Toast because of our flexible platform across multiple service models, including QSR and casual dining, as well as the feature depth necessary to support large pizza chains. In 2026, we will continue to invest in the platform to support the needs of our largest customers, including the launch of our drive-thru product, which is planned for later this year. We're confident that enterprise is well positioned to continue to drive strong growth in 2026 and beyond. Internationally, we're seeing strong location growth, including great early signals from our launch in Australia last year. Customer feedback and pull have been strong, and we hear from successful restaurants across Canada, the U.K. and Ireland that Toast is making their businesses better. As we continue to build up support for the full platform in these markets, including the launch of our Toast Go 3 handheld as well as inventory management, I'm confident we will drive even stronger win rates and ARPUs as we scale. Over the next few years, you should expect us to continue to scale in our current markets while opening up new countries thoughtfully where we have a right to compete and win. In retail, we built out our go-to-market team last year and have seen incredible results so far. Our product can already support convenience stores, grocery chains, bottle shops, butcher shops and more, because our platform offers the feature set necessary to support businesses with high SKU counts and complex inventory in high throughput environments. Many of these customers are coming from legacy on-prem solutions and have never experienced a cloud-based solution with the platform capabilities Toast offers across point of sale, guest-facing products, employee management, payments, capital and inventory. Customers especially love when we can support many different concepts within a single back end across their locations, from restaurants and retail shops in a hotel to the grocery store that also has a café or a restaurant inside it. A great example is La Carniceria Meat Market, a 25-location butcher and grocer who replaced guesswork with data by deploying our platform, automating inventory and invoices and understanding their costs better. Automated SKU management cut down manual work and the rollout was smooth, thanks to our Spanish-speaking sales and support. It's a clear example of how Toast helps operators run more efficient and profitable businesses. As we look to 2026, we're continuing to deepen the retail platform with more tailored onboarding support and integrations, including a new partnership with Instacart that allows retailers to sync in-store inventory with Instacart's marketplace. Our success in food and beverage retail reinforces something we believed for a long time. Our platform works well beyond restaurants. We're layering in the vertical-specific capabilities to meet the needs of different customer types. And we're starting to see early success with retail customers outside of food and beverage retail as well. Just as restaurants with hybrid restaurant retail concepts pull us into retail, we'll use the signals from our customers and our retail go-to-market team is testing new verticals and being disciplined about where we expand. Now zooming out, our new growth markets have been incredibly successful so far and will continue to drive outsized growth in 2026 and beyond. As we gain market share and invest in our platform, we expect these new TAMs to drive strong growth and profitability just as we have in our core. And over the long term, we will continue to invest to expand the opportunity from new verticals to new countries where we believe Toast has product market fit and can help these businesses run more successfully. Moving on. Our third priority is increasing customer adoption of our broad platform and driving differentiation through data and AI. For 13 years, we've been at the center of this shift in restaurant technology from on-premise to cloud. We spent that time listening to our customers and solving their toughest problems, which has allowed us to evolve from a point-of-sale solution into a comprehensive system of record to help them manage operations, employees, guests and suppliers. As we've delivered more value and build out the partner ecosystem, we've seen broader attach of our platform as well as high ARPUs. When talking to customers, what I consistently hear is while they love the Toast platform, they don't have enough time in their week to leverage everything we have to offer. Many of them are small business owners that are stretched thin to deliver great customer experience while managing their staff and suppliers. They don't have enough actionable alerts and insights to make good decisions about their business in real time, and they outsource a lot of the work, working for marketing, demand generation, bookkeeping, or accounting, all the work that is critical to ensuring they have a profitable business. We believe our AI roadmap built on years of data insights can help our customers get more from the Toast platform. ToastIQ is the foundation of the strategy. Less than four months post-launch, over half of all Toast locations have used ToastIQ, collectively sending over 8 million queries, and tens of thousands of locations are already using it each week. We believe this early success comes out of three things: ToastIQ is built on more than a decade of deep restaurant expertise. It's tightly integrated into the core Toast experience customers already rely on and is designed to take action, not just surface insights that can help operators run key workflows faster and get more done. We're seeing this impact firsthand with customers like Alicart, an early ToastIQ adapter that now uses it daily. ToastIQ helps our teams quickly make decisions and turn hours of menu analysis into clear, actionable insights in just minutes. Recently, the team used ToastIQ to identify many combinations to boost check sizes, helping them spot opportunities to improve service and drive sales at some of the busiest restaurants in the country. We're still in the early stages of what AI will enable. Today, customers are using it to get support, analyze data and make back-end configuration changes such as updating menus or generating content to build an email campaign. We're investing for ToastIQ to evolve from an assistant to automating workflows and eventually to running a team of agents that will handle more of the work restaurants have to do manually today. For example, we expect ToastIQ workflows like operating within a budget, optimizing marketing spend or understanding inventory levels and getting ahead of an out-of-stock scenario and then placing an order from approved vendors. And over the long term, we expect these AI agents to start to own whole functions from marketing to managing payroll and tax or accounting and bookkeeping. We believe because our data powers much of this work, we are uniquely positioned to both do it better and cheaper. Switching gears, our fourth priority is continuing to invest with discipline in our most important priorities while expanding margins over time. We're operating from a position of strength. We've achieved our medium-term margin targets, including 40% margins in our core ahead of schedule and have confidence we can both innovate and grow while working towards our long-term margins of 40% plus by holding a high bar on our execution and our capital allocation. I think we have an opportunity to build a much more material business over the next decade that can both have a much bigger impact for our existing customers and expand the opportunity across new markets where we're seeing great early success. I'm committed that we will be disciplined in how we invest and only lean into our biggest and highest conviction opportunities where we can build differentiated and highly profitable businesses that deliver significant shareholder value. My conviction ultimately comes from our incredible team of Toasters who care deeply about innovating on behalf of our customers. I want to thank each of them for their dedication and commitment to Toast. I also want to thank our customers and investors for their continued support. We had a great 2025, and we're confident in our momentum and our plans heading into 2026. Thank you. And with that, I'll turn the call over to Elena.

Thank you, Aman, and to everyone for joining us today. I also want to thank our team for another successful quarter and for the continued execution that led to our record performance throughout 2025. Our results showcased the strength of our business model in what was another outstanding year for Toast. Net adds increased every quarter versus a year ago, and we added a record 30,000 net locations in 2025, ending the year with 164,000 locations. ARR grew 26% and our recurring gross profit stream increased 33% for the year, an incredible accomplishment at our scale with over $2 billion in ARR and $195 billion in payment volume in 2025. On top of strong top line momentum, we are efficiently scaling the business through disciplined capital allocation and ongoing cost management. In 2025, we delivered adjusted EBITDA of $633 million and free cash flow of $608 million. GAAP operating income was $292 million, up from just $16 million a year ago, driven by our strong adjusted EBITDA and tight management of stock-based compensation. We entered 2026 in a strong financial position, enabling us to ostensibly lean into our key growth initiatives with a path to double market share in our core and accelerated expansion in our new TAMs. We are confident that continuing to invest behind these opportunities will lead to sustained top-tier growth for several years and create significant shareholder value. Turning to our fourth quarter results. Our recurring gross profit streams increased 28%. Total monetization measured by our recurring gross profit as a percentage of GPV hit 98 basis points. That's a 5 basis point increase from a year ago, reflecting our growing share of wallet and increasing value we provide to our customers. We added approximately 8,000 net locations in the quarter. We are consistently gaining market share in our core with increasing contributions across our new TAMs as they scale. Underpinning the location momentum across the business is our best-in-class vertical SaaS platform and local go-to-market execution. SaaS ARR and subscription revenue each grew 28% year-over-year. We are complementing our strong location growth with consistent mid-single-digit increases in SaaS ARPU on an ARR basis. SaaS ARPU in our core is growing even faster than total SaaS ARPU, driven by customers continuing to adopt more products across the platform. Subscription gross profit increased faster than top line at 33%, with SaaS gross margins expanding 300 basis points year-over-year to 80% in Q4. In addition to ongoing efficiency efforts across the business, the early benefits from leveraging AI to transform our customer support experience is contributing to margin expansion. Our SaaS net retention rate remained in a healthy range at 109% in 2025, led by solid contributions from upsell and location expansion from existing customers. Payments ARR grew 24% and fintech gross profit grew 25% in Q4. GPV was $51 billion, up 22% year-over-year with Q4 GPV per location down 1% versus last year. Fintech net take rate was 58 basis points. Payments take rate increased 2 basis points from a year ago to 48 basis points. We continue to drive year-over-year take rate expansion from cost optimization efforts, new products and ongoing price optimization even after lapping the benefit from the September 2024 pricing adjustments. Nonpayment Fintech solutions, led by Toast Capital, contributed $51 million in gross profit and 10 basis points in take rates. Overall, the program continues to grow at a steady clip, and defaults remain consistent and well within our risk guardrails. Hardware and professional services gross profit was negative 12% of our recurring gross profit streams. In addition to capitalizing on our customer acquisition momentum, we are absorbing higher tariff costs, and our strong overall unit economics and scale enable us to do this while maintaining a healthy payback period. Moving to expenses. We continue to balance investing in our highest priority initiatives across go-to-market and product while driving efficiencies across the business. Total full year OpEx, excluding bad debt and credit-related expenses grew 15%, providing 8 percentage points of operating leverage. In Q4, sales and marketing expenses increased 21%, we're investing to support our market share gains in the core, expanding our account management team and scaling the international and retail go-to-market teams to accelerate our progress. R&D increased 7% as we invest in product differentiation and add capabilities to expand our product market fit across our new growth markets. Adjusted EBITDA grew 47% to $163 million, a 32% margin. Stock-based compensation as a percentage of recurring gross profit was 12%, down nearly 5 percentage points versus a year ago. That contributed to GAAP operating income more than doubling to $85 million. We've dramatically expanded adjusted EBITDA over the last few years, reflecting the strong unit economics of our business and focused capital allocation. Dollar-based payback period for our portfolio remained in the mid-teen months in 2025, consistent with the last few years. Our new TAMs represent significant ARR opportunities and our early success and strong customer signal give us confidence in our right to win. Payback periods across our new TAMs are above the core today, given we are earlier in building our go-to-market and product offering. As we scale and mature in these areas, we are confident each one is on a path to under 20 months. We have a proven track record and clear road map to improve payback periods. In the core, payback dropped from 22 months in 2019 to 14 months in 2023. During that time, we expanded our product offering to increase ARPU and built the flywheel effect, growing referrals and scaling the go-to-market motion to increase rep productivity. We also enabled our team with customer acquisition guardrails that balance efficiency and win rate. Since 2023, we've held core payback steady, and we believe operating in this range provides the right balance of growth and discipline and supports our long-term margin profile of over 40%. We are taking the same approach in our TAMs, expanding product capabilities to increase win rates and ARPU and scaling go-to-market to build the flywheel. Our near-term priority is investing to gain share. Over time, we have a clear path to optimize and drive efficiencies in the unit economics as we've done in the core. These new areas also leverage our core platform and centralized functions giving us confidence that at scale, these new TAMs will drive meaningful profitability. Moving to capital allocation. We've repurchased approximately 8 million shares for $235 million since the inception of our buyback authorization in 2024, including 3 million shares for $107 million in 2025. Returning capital to shareholders is an important part of our approach to driving long-term shareholder value, and the Board has approved a $500 million increase to our share repurchase authorization. We do not have a specific timetable to complete the authorization, and we'll maintain the same approach to buybacks, opportunistically repurchasing shares based on market conditions to support long-term shareholder value. Turning to guidance and our outlook for the year ahead. Aman and I have highlighted our strong momentum across the board and our 2026 outlook builds on this trajectory. We remain well positioned to grow net location adds in 2026 compared to 2025 and sustain mid-single-digit SaaS ARPU growth on an ARR basis. For the full year, we expect 20% to 22% growth in our recurring gross profit streams and adjusted EBITDA of $775 million to $795 million, implying margins are slightly up year-over-year, consistent with the expectations we shared last quarter. In addition to the investments we're making in future growth and higher tariff costs, our guidance also includes approximately 150 basis points of negative impact from higher memory chip costs for our hardware. This headwind emerged since we shared our initial expectations last quarter with memory costs increasing from the surge in global demand for chips. We expect the cost pressure to be weighted towards the second half of the year as inventory with our higher cost parts roll out. We anticipate the market to stabilize over time. And while near-term hardware costs will be elevated, this does not structurally change our long-term financial profile. Over the past few years, we've demonstrated the power and leverage in our business model. Rapidly expanding margins to hit our medium-term targets faster than expected, while sustaining over 30% growth, investing in product innovation and building the next set of growth levers for the company. We are positioning costs to sustain high growth for the next 5 to 10 years and have high conviction and strong signal across our key growth opportunities. As we move through 2026, our bias is toward reinvesting potential top line upside to go even faster on our growth initiatives, including new TAMs, product and AI investments and seeding future growth bets. Our rigorous capital allocation approach is unchanged. We'll only invest where the customer signal and data weren't going faster. We are confident delivering durable compounding growth with the incredible leverage and cash flow generation in our business model will maximize long-term shareholder value. Turning to our first quarter guidance. We expect the same seasonal patterns in 2026 with Q1 being lighter quarters, both net adds and GPV compared to the rest of the year. That's reflected in our Q1 guidance for total fintech and subscription gross profit growth of 22% to 24% year-over-year and adjusted EBITDA of $160 million to $170 million. To wrap up, we are executing across the board, growing our core, expanding our TAM and maintaining healthy margins as we scale. Heading into 2026, we're laser-focused on sustaining our momentum and continuing to execute at a high level across the business. We're incredibly excited about what lies ahead for Toast and well positioned to capture the massive opportunity ahead.

Your first question comes from Timothy Chiodo with UBS.

I want to first start with SaaS ARR per location. So you mentioned for the full year of 2026 that you're confident and staying in that mid-single-digit range, which I think is great to hear. You mentioned that core and mid-market, so core SMB and mid-market are doing even better than that mid-single digit. There's a little bit of a drag on the front book from international food and beverage retail and enterprise. But I was hoping you could just break down a little bit of those components because international and food and beverage retail, yes, they're lower but there are good signs of them improving and getting closer and closer. Enterprise is sort of a different animal, right? Enterprise is sold differently. It's got a different LTV to CAC profile. It's very different. So really two questions related to this. One, if you could talk about the mid-single-digit SaaS ARR per location, maybe over the medium term. And then two is, if you could talk about if you've ever considered or would you consider just breaking out enterprise separately because some of these per location metrics would just look a little bit better if enterprise, again, sort of a different type of business was broken out separately.

Timothy, thanks for the question. So lots of confidence actually in SaaS ARPU growth to remain in mid-single digits similar to what we saw in 2025. And to your point, core SaaS ARPU is actually growing faster than the total company based on exactly what you said, right? Some of these new TAMs today have lower SaaS ARPUs, but it's early, and we expect that as we roll out more products, we will see ARPU grow over the long term. And in terms of enterprise, it's a really great point that it's a very different sales cycle. The way we look at it is different. We evaluate to be honest, deal by deal, and the LTV to CAC per deal is really strong, right, there's higher ARRs, low CAC, low churn, all of these elements really contributing to strong unit economics. So really encouraged by what we've seen in international. And as we add more products like drive-thru, which we've talked about, it's only an opportunity to continue to grow.

I wanted to ask on the net adds, really strong finish to close out the year in the fourth quarter and you're reiterating the expectation for net adds up this year. I think you mentioned in the prepared remarks that one of the goals this year is to prove out that the newer verticals can be a material driver of growth and you've kind of given us some data points on that along the way so far. Maybe you could just talk a little bit about the mix of core versus new verticals this year. What would be a good outcome? And what should we be looking to kind of gauge your success in those new parts of the business being a material contributor.

Yes. Will, so I think, first off, as you mentioned, we're really proud of our performance here in 2025. Every quarter in 2025, our net adds were up year-over-year. And in fact, in Q4 of 2025, the rate of growth accelerated to over a case. So I think that's really a testament to the team's performance. Now in terms of the composition, what we saw last year was the core was in the same range. And a lot of the incremental growth on net adds came from these new TAMs. Now if you think about the core locations, the market share has doubled over the past three years. And so when we look at this year now, what we expect is actually a very similar pattern to play out where the core should be in a similar range to 2025. And the new TAM should grow further, which is why we have a lot of confidence that net add growth in '26 should be even higher than '25. And some of that is, of course, we're investing in go-to-market capacity. We talked about that in retail. Some of it's the sales capacity we have added ramping. And then we're also doing some early testing. We're learning beyond food and beverage retail. And as we expand the TAM further, that will give us some upside over the long term as well.

Great. I appreciate that. And then if I could squeeze in a follow-up. I was wondering if you could maybe just address kind of the elephant in the room around AI disruption in software. We used to talk about Toast trading like a software company, as being the bull case, but now that has gotten caught up in this AI narrative. I was hoping I could just give you the floor and you could talk about how you think about the moats around this business and why not new entrants leveraging new technology are or aren't a threat to the business.

Certainly, Will. Toast is a crucial technology platform for restaurant operators, encompassing all aspects of their operations, from front-of-house and back-of-house management to analytics and customer engagement. Our offerings include everything from websites and online ordering to loyalty programs, finance, and employee management. We provide a comprehensive range of solutions that include both software and hardware, along with financial technology services like lending, payments, and payroll, all while navigating regulatory requirements. We facilitate a network of restaurants supported by hundreds of partners that enhance what our platform delivers. Our customers also rely on us to utilize our technology effectively, acting as an outsourced CIO with our sales and service teams that help them maximize their use of our solutions. I believe there is significant potential within the Toast platform, particularly with AI. We have begun automating key workflows, such as creating email campaigns and supporting inventory management. With ToastIQ, we have a tool that allows restaurant operators to harness our platform more effectively, providing data analysis, automating workflows, and enabling backend modifications. Voice technology presents another opportunity for us, allowing for automation in the order placement process at kiosks or drive-thrus. Moving forward, we are making substantial investments in ToastIQ to expand its capabilities. Restaurant operators typically outsource marketing, bookkeeping, payroll, and tax functions, which often rely on our data. We see a chance to enhance these workflows and make them more effective and cost-efficient. Thus, I view AI as a chance for Toast to innovate and provide greater value to our customers, rather than a threat to our business.

Nice results. Just to add on to your answer to Will's question there. Does your margin framework Aman, give you the leeway to lean harder into R&D to the extent that AI creates more opportunity, more tools, product services that you just talked about that customers demand? I'm just curious how you're balancing that, again, the leeway to lean in if you need to?

Yes, I'll start, and Aman maybe you go ahead. But Tien-Tsin you're exactly right. Part of the reason, in fact, when you just think about our margin profile, we're not expanding margins faster because we're investing in R&D to really sustain this long-term growth that we've talked about innovating for our customers, solving problems for them. That said, our margin framework is to hit that head on remains unchanged, right? We're targeting 40% margins over the long term. And that pace, this is really important. The pace at which we drive that margin is in our control. And then a lot of things that Aman has said around AI investment, we view that as an incredible opportunity to accelerate and do more for our customers over time.

Yes. That's well said, Elena. I just want to reinforce one point. We are here to build a generational company over the next decade. It's the reason we're investing across the business, including in R&D in a big way because we think we can serve many multiples of the current TAM that we serve, and we can increase the impact through investments we're making across the platform. And so that's why we're investing in R&D. And if we wanted to focus on near shorter-term margin expansion, we absolutely could do that. It's really about investing for the long term.

Aman really appreciate all the AI commentary so far. I just wanted to ask one more. Just curious with all of the broadening out of ToastIQ and everything it's doing for merchants, are you seeing ToastIQ kind of be a big reason why you're starting to win RFPs? And then, if so, what type of merchants find the most value in these tools?

Today, our primary focus is on our SMB business. We're observing that our go-to-market team and the data regarding usage and adoption are significant factors in why customers choose Toast. SMB restaurant owners particularly appreciate ToastIQ because it acts as a copilot for querying data. Instead of searching for specific subreports, they can quickly ask questions to analyze data. They can generate custom views that previously required exporting to Excel. Additionally, they can make backend changes to Toast, such as adjusting online ordering options. These vital workflows have proven to be invaluable for our customers, and we're witnessing this reflected in our sales cycles. Our sales team is enthusiastic about the impact of our purpose-built tool, which aligns closely with the workflows that matter to our customers. While it's still early, we see potential for automating more complex workflows over time. For instance, a restaurant could analyze demand during slower periods and use Toast Advertising to generate marketing spend to increase business. We're pleased with the initial progress and will continue to invest in enhancements based on customer feedback.

Changing gears a little bit. Could you expand on the drive-thru product rollout? I think that you acquired a company called Delphi several years ago that had drive-thru tech, and I'm just wondering if that's a segment of the market that you have been addressing already? Or does this rollout open up that market?

Yes. Until now, our focus on enterprise has been outside of drive-thru operations. All of our achievements and progress so far have been in casual dining and sit-down establishments, not in environments where drive-thru is the primary operation. However, we are planning to launch our drive-thru product this year, which will significantly expand our presence in that market compared to what has been possible in the past. While some customers with limited drive-thru functionality do use Toast, there is a lot to consider with multilane drive-thru operations and the complexities involved, which we are addressing with this launch.

Okay. That's really helpful. And along those lines, are there any other segments of the U.S. market that like you're not able to address today because of product, but maybe it's a potential on the product roadmap and opening that up down the road?

Yes. It's a good question. We're seeing across whether it's SMB or enterprise, there are parts of the TAM where we think we can create more value. And as I mentioned, like, for example, in SMB, for non-English-speaking operators, there's some work we've done and we are doing that I think will help. Even in parts of the TAM we're established, like bars or pizzerias or membership clubs, we're making some moves to a product that I think can drive further win rate. And then upmarket enterprise, there's opportunity in some segments of the market, like sports and entertainment, as an example, where we've got some traction, but we think improving the product can open up that opportunity further and then even other sub-TAMs, you think about golf for example where we think we've got some adoption, but not at scale. And so the product team is always looking at like all of our data in a deaveraged way where they're looking at what are our win rates, what's our market share across all these sub-TAMs and then using the size of the opportunity to prioritize the roadmaps.

Taking a step back to put '26 in perspective, you're still growing really well while investing heavily. Do you see it as a peak investment year at least as it relates to the current cycle? And then related to that your initial guide for RGP in '26 implies back half deceleration. Is there anything you'd like to call out there that's driving that initial guide or reasons it could prove conservative?

Yes. So I'll take the last question first. Just in terms of how we guide, right, as we start the year, we take a pretty balanced view, as you know, looking at past years. And obviously, with GPV, we want to be balanced, but we always aim to do better. So just keep that in mind as we progress, we'll update you on that over time. And then in terms of your first question on peak investment year, as Aman said earlier, we're really thinking about this over the long term. We're trying to build a generational business, right, and have an ambition to find opportunities where we have the right to win, where the customer signal is really strong. And so 2026 reflects our conviction behind these new TAMs that we talked about. We haven't changed our long-term margin profile, as I talked about earlier. In fact, we have a lot of conviction and more conviction because of the TAMs and the fact that we have a path to sub 20 months. So zooming out, what you're seeing in 2026, you've got confidence that we've identified new TAMs that will drive durable growth over the very long term. And like I said earlier, driving margin and the timing of that is really in our control.

Thanks for the question. Another question on AI. It's very much dominating the debate with investors. The key concern, of course, is software becoming more commoditized. So Aman, can you speak a bit more about Toast potentially evolving beyond a software provider into more of a platform business, particularly through the strength of your ecosystem partnerships. Any more additional color on that and how that ecosystem kind of deepens your moat over time would be really helpful.

Yes, sure, Dominic. If you look at Toast today, it is more than just a software provider for our customers. To address your point about deepening our competitive advantage, we are continually investing in making the platform better to support the various use cases our customers want, including through AI. The Toast platform features a broad range of software that powers operations, employees, guests, and fintech, which is less known as we also support the network in these restaurants. Additionally, a large ecosystem of partners enhances our offerings. A major reason why the average small to medium-sized restaurant owner chooses Toast is that we simplify their technology needs, helping them run their business effectively. They appreciate the all-in-one nature of our platform. We aim to keep improving our platform, as with ToastIQ and voice AI, to enhance its capabilities. Moreover, many restaurant owners spend significantly on part-time support for tasks like marketing, accounting, and payroll. The data we gather at Toast is instrumental in these areas. Our vision with ToastIQ is to support increasingly complex workflows over time, potentially handling some of the work in the future. Overall, Toast is already much more than just a software provider for our customers.

Last but not least, I have a quick question and a follow-up. Regarding the AI environment, could you discuss the top four to five cross-sell modules and their contribution to the SaaS ARR? Then I have a quick follow-up.

Dan, is the question specific to cross-sell modules tied to AI, or just to clarify the question.

Yes. Just like given that there's so much focus on like AI and software like what are the most kind of important modules that you're selling in terms of like SaaS for example.

Yes, that's a good question. If you examine how our platform has developed, initially, our focus with AI was on automating some of the simpler tasks that restaurant owners had to perform. For instance, when using our marketing module to generate demand, it’s extremely beneficial to create email campaigns with AI because we have a wealth of data, and generative AI allows for quicker campaign development. Similarly, when it comes to managing inventory for your shelf or online sales, utilizing our master catalog to produce images and descriptions with AI expedites that process. This demonstrates how AI is integrated across our platform. If we look at specific features for guests or employees, take scheduling for example; we are working on automating demand forecasting and schedule management to help restaurant owners create effective labor schedules more quickly. This AI integration is a comprehensive focus for our R&D teams as we strive to strengthen and enhance the platform. Regarding your question about our initiatives, the adoption of ToastIQ is foundational. We've seen positive uptake so far, which has improved our win rates. Over time, within the ToastIQ framework, we plan to introduce more advanced workflows, including agentic workflows in areas like marketing, payroll, and bookkeeping, ultimately managing those entire functions. We're also looking towards incorporating voice technology. Our current priority is to expand the adoption of the ToastIQ platform. Great. And maybe just like a quick follow-up on the location metric has been obviously like front and center. Like as we move forward in the outer years, is this still sort of the main metric? Or is there something else you would like investors and analysts to be focused on? Yes. Thanks, Dan. I can start. I think, look, at the end of the day, it's about driving durable growth. It's about driving ARR, recurring gross profit. We guide on recurring gross profit and balancing that with healthy margins as we continue to scale. The location growth, as I mentioned earlier, like I think the thing that gives me a lot of confidence there is it shows that what we did in SMB restaurants over the past 10 years is applying beyond SMB restaurants as well. And that's really the crux of why we think there is an opportunity to continue to drive durable net adds over the long term.

This concludes today's conference call. Thank you all for joining.