Toast Expects 'Very Modest Margin Progression' In 2027, Choosing Investment Over Profit Gains
The restaurant software maker raised its 2026 outlook but says next year's margin gains will stay small to fund new markets and long-term bets.
Toast, the cloud platform that sells restaurants software, payment processing and hardware, expects "very modest margin progression next year," incoming CFO Michael Seno said on the company's third-quarter earnings call. The company is choosing to spend on new markets and early bets even after lifting its 2026 outlook.
Why margins will barely move
Answering a Jefferies analyst's question about 2027, Seno said Toast will finish this year at about 36% EBITDA margin, already above the medium-term target set at its investor day. The pace of margin expansion over the past couple of years, he said, was "faster than we had anticipated."
He called the opening in front of the company "a generational opportunity" and said Toast wants to retain flexibility so it can "offensively lean in." Core margins are already over 40% and expanding each year, he said, but the company-wide figure will depend on how much it chooses to invest in new growth areas and early-stage, long-term bets.
Formal 2027 guidance on both revenue and profit will come on the February earnings call, Seno said. He added that the company is set up to run the same growth algorithm next year and is confident in its framework of recurring gross profit growth of 20% plus.
A raised 2026 outlook and a CFO handoff
CFO Elena Gomez said Toast now expects recurring gross profit to grow 26% this year and adjusted EBITDA of $840 million to $850 million. For the fourth quarter, it expects subscription and fintech gross profit growth of 22% to 24% and adjusted EBITDA of $200 million to $210 million.
Third-quarter adjusted EBITDA grew 36% to $240 million, a 37% margin, Gomez said. GAAP operating income nearly doubled to $165 million, and recurring gross profit grew 27%. Toast added 8,500 net new locations and ended the quarter with about 189,000, up 21%.
Gomez is stepping away, and Seno becomes CFO at the start of the year, CEO Aman Narang said.
Bets that are meant to catch up to the core
The spending targets what management calls its second horizon: enterprise, international and retail. Narang said the three markets are scaling to $200 million in annual recurring revenue in about four years and will double for the second straight year.
Gomez said she expects their adjusted EBITDA margins to converge with the core's. Toast plans to hold payback periods to 20 months or lower, and she said the segment will reach $200 million in ARR with 25% less direct R&D than the core needed.
On the product side, Narang said restaurants using Scheduling Pro averaged 41% fewer overtime hours per employee, as Toast pushes AI agents that take on back-office work. Toast IQ Grow, its marketing agent product, is on track for $10 million in ARR by year-end.
Toast's February call is when management has said it will put numbers on how much margin it will trade for growth.
