Toast (TOST) Q2 2025 earnings review
Record Location Adds & Profit Beat Tempered by Guided Deceleration
Toast delivered a powerful Q2, beating expectations by adding a record 8,500 net new locations and posting $161 million in Adjusted EBITDA. Momentum in new segments (Enterprise, Retail, International) is accelerating, with the company crossing 10,000 locations and securing major wins like Firehouse Subs. Despite the strong quarter and a raised full-year outlook, guidance for Q3 implies a significant deceleration in top-line growth and a sequential decline in profitability as the company laps tough comparisons and ramps up strategic investments from a position of strength.
🐂 Bull Case
The addition of 8,500 net new locations, a company record, demonstrates accelerating momentum and market share gains in the core U.S. restaurant business.
Toast surpassed 10,000 locations across its new segments and is on track for $100M in ARR by year-end. Key wins like Firehouse Subs (1,300 locations) and Zabar's validate the upmarket and retail strategy.
Adjusted EBITDA of $161 million and GAAP operating income of $80 million significantly beat expectations, showcasing the scalability of the business model and strong operational discipline.
🐻 Bear Case
Q3 guidance for recurring gross profit growth of 23-26% YoY is a significant step-down from 35% in Q2, raising questions about the normalized growth rate of the business.
Adjusted EBITDA is guided to decline sequentially in Q3 due to seasonality, higher tariffs, and increased investments, reversing a trend of strong sequential profit growth.
GPV per location was down 1% YoY, continuing a trend of soft same-store sales for restaurants, which remains a headwind to organic growth.
⚖️ Verdict: 🟢
Bullish. The operational execution in Q2 was exceptional, particularly the record location adds which is the primary driver of the business. While the guided deceleration is a key watch item, it is well-explained by tough comps and strategic reinvestment to fuel new growth vectors that are clearly gaining traction. The company is successfully balancing high growth with impressive profitability.
Key Themes
Core SMB Engine Fires on All Cylinders
Toast's core U.S. restaurant business showed accelerating momentum, adding a record 8,500 net locations in Q2, a significant jump from 6,000 in Q1. Management noted gaining share in nearly every SMB market, with rep productivity remaining high. This strong performance in its primary market underpins the company's growth and provides the foundation for expansion into new areas.
New Growth Vectors Reach Meaningful Scale
Toast's expansion strategy is bearing fruit. The company surpassed 10,000 locations across its enterprise, international, and food & beverage retail segments and is on track to exceed $100 million in ARR from these initiatives by year-end. Marquee wins with Firehouse Subs (1,300 QSR locations) and iconic grocer Zabar's prove the platform's versatility. Furthermore, the launch in Australia marks the fourth international market, extending the global runway for growth.
Profitability Set to Dip Sequentially from Reinvestment & Tariffs
Despite a stellar Q2, guidance for Q3 Adjusted EBITDA is $140M-$150M, a sequential decline from Q2's $161M. Management attributes this to three factors: typical seasonality, higher tariff expenses impacting the second half of the year, and a strategic decision to 'unlock incremental investments' to accelerate progress in new growth areas. While the reinvestment is a positive signal on long-term conviction, it will pressure margins in the near term.
Guided Top-Line Deceleration Creates Tough Comp Narrative
Guidance for Q3 recurring gross profit growth of 23-26% YoY is a stark contrast to the 35% growth posted in Q2. Per the CFO, this is primarily because the company will begin to lap a 'one-time benefit' from improved ARR-to-revenue conversion that started in Q3 2024. While a technical explanation, this creates a narrative of decelerating growth that the market will have to digest.
Platform Innovation Drives Differentiation
Toast continues to innovate with the launch of Toast Go 3, its next-generation handheld device featuring built-in cellular connectivity as a backup to Wi-Fi. It also integrates ToastIQ, the company's AI engine, to provide staff with real-time guest data and personalized recommendations. A new strategic partnership with American Express aims to further leverage this technology to deliver personalized experiences for card members and integrate reservation inventory across Resy, Tock, and Toast Tables.
Macro Headwinds Persist for Restaurants
GPV per location was down 1% YoY, consistent with trends from the past few quarters. This indicates that underlying same-store sales for Toast's restaurant customers remain soft. While management's guidance accounts for this stable but weak consumer environment, any further deterioration in consumer spending represents a risk to fintech revenue growth.
Other KPIs
Stable. Toast generated very strong Free Cash Flow of $208M in the quarter, up from $108M a year ago, driven by high profitability and seasonal working capital benefits. For the first half of 2025, FCF was $277M. The company is on track to meet its goal of full-year FCF broadly mirroring Adjusted EBITDA, showcasing strong cash conversion.
Stable. ARR grew 31% YoY to $1.93B, a slight deceleration from 32% growth in Q1. The growth was balanced between Subscription ARR (+30%) and Payments ARR (+32%), reflecting healthy contributions from both location growth and fintech volume.
Reversing. Gross profit from non-payment solutions, primarily Toast Capital, was $40M, a sequential decrease from $47M in Q1. Management noted this was due to seasonality and slightly softer demand at the beginning of the quarter, but stated the program remains healthy with defaults in line with expectations.
Guidance
Decelerating. The midpoint of $470M implies 24.3% YoY growth. This represents a significant deceleration from 34.9% growth in Q2 2025, primarily due to lapping a one-time benefit from improved ARR-to-revenue conversion in the prior year period.
Reversing Sequentially. The midpoint of $145M is up 28% YoY but marks a 10% decline from Q2's $161M. The sequential drop is attributed to a combination of planned reinvestments in growth, higher tariff expenses, and typical Q4 seasonality which pulls some impact into Q3 planning.
Accelerating. Toast raised its full-year guidance significantly. The new recurring gross profit range implies 29% YoY growth (up from 26% previously). The new Adjusted EBITDA range implies a 31.5% margin for the year, a 5.5 percentage point expansion over 2024 and well ahead of original expectations.