TOST Q2 Earnings Call Centers on AI-Led Reinvestment

TOST Makes AI Central to ARPU Growth

Co-Founder and CEO Aman Narang said Toast IQ Grow, the company’s marketing agent, is on track to become its fastest product to $10 million in annual recurring run-rate.

CEO Narang said Toast plans to extend the model into voice ordering, scheduling, payroll, tax, inventory management and bookkeeping. The strategy uses transaction and operating data to move beyond software into services restaurants often outsource.

A Bernstein analyst questioned adoption and margins. CEO Narang said the product already produces positive margins, with AI generating work and employees reviewing it, while early scaling has improved profitability.

Toast Extends Its Reach Beyond Restaurants

CEO Narang said enterprise, international and retail annual recurring run-rate is on track to nearly double to $200 million in 2026. Toast added Best Western as an endorsed provider, expanded TGI Fridays in the United Kingdom and began processing fuel payments.

Retail sales capacity has doubled over the past year, with grocery, convenience stores and bottle shops remaining the initial focus. Management plans to enter additional subverticals where product-market fit is established.

A Wolfe Research analyst asked about the record 9,500 net location additions. CEO Narang said most came from the core small and midsize business, where win rates remained strong and competition had not changed materially.

TOST Raises Outlook but Reinvests the Upside

CFO and president Elena Gomez guided third-quarter recurring gross profit to $615 million to $625 million, suggesting 22% to 24% growth. Adjusted EBITDA is expected between $210 million and $220 million.

For 2026, CFO Gomez raised recurring gross profit guidance to $2.325 billion to $2.355 billion, or 23% to 25% growth. Adjusted EBITDA guidance increased to $805 million to $825 million.

CFO Gomez said Toast will reinvest the $10 million tariff refund received in the quarter into growth initiatives. That decision explains why full-year adjusted EBITDA guidance rose by less than the second-quarter beat.

Toast Defends Its Margin Framework

Recurring gross profit streams rose 28%, while adjusted EBITDA increased 38% to $221 million. The adjusted EBITDA margin expanded 240 basis points to 37%, including the tariff refund benefit.

CFO Gomez said the core business operates above 40% margins and at Rule of 60. Toast intends to pair sustained growth with gradual margin expansion while funding AI and newer markets.

Goldman Sachs and Evercore ISI analysts pressed management on efficiency and spending. CFO Gomez said most incremental costs reflect deliberate investment choices, while AI adoption should create additional internal productivity and support meaningfully higher margins over time.

TOST Manages Hardware and Cash Flow Pressure

Free cash flow declined to $130 million as Toast increased hardware inventory. CFO Gomez expects adjusted EBITDA conversion to improve during the second half as inventory levels begin moving toward normal.

Toast has reduced its expected memory-cost exposure by using earlier hardware generations, lower-cost memory and spot purchases. In response to a Mizuho analyst, CFO Gomez said the 2027 income-statement effect should exceed the 2026 impact because of inventory accounting.

CFO Gomez said supply is secured for 2026 and 2027 and that the optimization work should produce structurally better hardware margins after memory markets stabilize.

Toast Keeps Growth and Discipline in Balance

CEO Narang prioritized core sales capacity, Toast IQ products and scaling enterprise, international and retail, while keeping longer-term consumer and retail bets subject to performance gates.

CFO Gomez paired that agenda with gradual margin expansion and disciplined capital allocation. Toast repurchased more than 19 million shares for $486 million through June, with about $100 million remaining under its authorization.

TOST Rank and Style Scores Send Mixed Signals

TOST carries a Zacks Rank #3 (Hold). Its Growth Score of A and VGM Score of B indicate favorable growth characteristics and a solid blended profile, while its Value Score of C is neutral. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Momentum Score of D is a weaker signal, and the Style Scores are most effective alongside a Zacks Rank #1 or 2 (Buy) stocks. The Zacks Rank can change as earnings estimates are revised following the newly reported results.

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