Toast (NASDAQ: TOST) raised its full-year adjusted EBITDA guidance by $30 million at the midpoint after a third quarter that showed the restaurant technology platform adding locations faster than it added profit margin.
Revenue hit $1.98 billion, up 21% year over year and a hair above the $1.97 billion consensus. Adjusted EBITDA climbed to $240 million from $176 million in Q3 2025. But diluted EPS of $0.29 missed the $0.36 estimate by a wide margin. The gap came from $50 million in stock-based compensation and related payroll taxes, plus a $6 million restructuring charge for severance.
The headline is the guidance raise. Toast now expects full-year 2026 non-GAAP subscription and fintech gross profit growth of roughly 26%, up from the prior 23-25% range. Adjusted EBITDA moves to $840 million to $850 million, from $805 million to $825 million. The Q4 guide for $610 million to $620 million in non-GAAP sub and fintech gross profit implies 22-24% growth, a deceleration from the 27% clip in Q3. Management is signaling confidence in the year without accelerating into the fourth quarter.
The location engine makes the guide credible. Toast added roughly 8,500 net new locations in Q3, bringing the total to about 189,000, up 21% year over year. Annualized recurring run-rate hit $2.5 billion, up 24%. Gross payment volume rose 20% to $61.8 billion. The subscription component of ARR grew faster than the payments component, 28% versus 21%, suggesting higher-margin software attach rates are improving as the platform adds both small independents and larger chains like Ruby Tuesday and Luke's Lobster.
Gross profit tells a more nuanced story. GAAP subscription services gross profit grew to $250 million from $177 million, a 41% increase. Financial technology solutions gross profit rose to $380 million from $313 million, up 21%. Hardware and professional services remained a drag, posting negative $85 million gross profit, worse than the negative $57 million a year ago. The company is still subsidizing hardware to acquire locations, and that cost is growing faster than the revenue it enables.
The operating income margin of 26% that the company touts uses a non-standard denominator: GAAP operating income divided by GAAP subscription and fintech gross profit, not total revenue. By the conventional measure, operating income as a percentage of total revenue was 8.3%, up from 5.1% a year ago. The improvement is real. The framing matters.
CFO Elena Gomez will step down at year end, with SVP of Finance Michael Senno taking over on January 1. Gomez led the company through its 2021 IPO and a period where revenue roughly sextupled. The transition comes when Toast is profitable, generating free cash flow of $181 million in Q3, and sitting on $1.2 billion in cash and equivalents. The new CFO inherits a clean balance sheet and a raised guide, not a turnaround.
Toast also launched Toast Fuel for independent fuel and convenience operators and expanded into Quebec, now covering all 10 Canadian provinces. The Fall Release added agentic AI features under the Toast IQ brand, including a Scheduling Agent and SEO tools. These are early-stage products, not yet material to revenue, but they signal where management sees the next layer of subscription attach.
The Q4 guide implies a sequential step-down in gross profit growth from 27% to 22-24%. This is less a warning than a reflection of harder comps and seasonally softer fourth-quarter restaurant volumes. The full-year raise, combined with 8,500 net adds in a single quarter, suggests the location acquisition cycle has not peaked. The question for the next CFO is whether the hardware subsidy that enables those adds narrows as the installed base scales.