Executive Summary / Key Takeaways

• Toast is establishing itself as a dominant, vertically integrated technology platform for the restaurant industry, moving beyond point-of-sale to become a comprehensive operating system powering front-of-house, back-of-house, guest engagement, and financial technology solutions.
• The company is demonstrating strong growth momentum, adding a record 8,000 net locations in Q2 2024 and approximately 140,000 total locations by Q1 2025, while also expanding average revenue per user (ARPU) through increasing product adoption across its platform.
• Recent financial performance highlights include significant revenue growth (24% YoY in Q1 2025), substantial Adjusted EBITDA expansion ($133 million in Q1 2025, achieving medium-term margin targets ahead of schedule), and achieving GAAP profitability, signaling increasing operating leverage and financial strength.
• Toast is strategically expanding its total addressable market by successfully penetrating enterprise restaurant chains (securing marquee wins like Applebee's and Topgolf), international markets, and food and beverage retail segments, which are expected to become material drivers of future location growth.
• The company's differentiated technology, including its all-in-one integrated platform and investments in AI-powered tools like Sous Chef and ToastIQ, creates a competitive moat by offering quantifiable benefits to restaurants (e.g., increased efficiency, higher check sizes, improved guest loyalty) that are difficult for more generalized competitors to replicate.

Toast, Inc. has carved out a significant position within the dynamic restaurant technology landscape by focusing relentlessly on the unique needs of this demanding industry. From its inception, the company adopted a vertical strategy, building a cloud-based, all-in-one digital technology platform designed to serve as the central operating system for restaurants. This approach, combining software-as-a-service (SaaS) products, integrated financial technology solutions, restaurant-grade hardware, and a broad ecosystem of third-party partners, connects front-of-house and back-of-house operations across diverse service models, from dine-in to delivery. This foundational strategy and a differentiated in-market go-to-market team have fueled a powerful flywheel effect in local markets, driving robust location growth and increasing market share, particularly within the core U.S. SMB and mid-market segments.

The company's technological differentiation lies in the depth and integration of its platform, purpose-built specifically for restaurants. Unlike more generalized POS or payment providers, Toast's system is designed for the specific workflows and complexities of restaurant operations. Key components include its core POS terminals, Toast Go handheld devices (enabling faster order taking and payment at the table), Kitchen Display Systems (KDS) for streamlined kitchen communication, and a growing suite of products spanning guest engagement (online ordering, branded apps, SMS marketing), employee management (payroll, scheduling), and back-office functions (inventory, reporting, supplier management). The integrated nature of these tools means they "work better together," offering efficiencies and insights that standalone systems or less specialized platforms cannot match. For instance, the integration of handhelds and KDS can significantly reduce order times and errors.

Toast is actively leveraging data and investing in artificial intelligence (AI) to further differentiate its platform and enhance customer value. Initiatives like Sous Chef, an AI agent and assistant currently being piloted, aim to provide restaurant operators with business insights, troubleshooting support, and the ability to execute actions across the platform via a conversational interface. ToastIQ, a broader AI-powered intelligence engine, is being built to embed AI capabilities across all Toast products. Early examples demonstrate tangible benefits: an AI-powered menu upsell tool has shown potential for higher average order volume, and an AI-powered advertising tool has driven high returns on ad spend for early customers. These developments are strategically important as they aim to make the platform easier to use and more powerful for time-strapped operators, strengthening the competitive moat by offering unique, data-driven advantages.

Toast's competitive positioning is rooted in its deep vertical specialization. While facing competition from broad technology companies like Square (SQ) with its extensive small business ecosystem and payments strength, and Lightspeed Commerce (LSPD) with its global reach and omnichannel focus, Toast's dedicated restaurant platform provides a distinct advantage. In the core U.S. SMB market, Toast reports strong win rates against key competitors, leveraging its integrated offering and local sales presence. Against more payments-centric players like Shift4 Payments (FOUR), Toast competes on the breadth and depth of its software suite beyond just transaction processing. In newer expansion areas like enterprise and food and beverage retail, Toast often competes against legacy on-premise systems or in-house solutions, where its cloud-based, integrated platform offers significant modernization benefits. The company's ability to secure marquee enterprise wins like Applebee's and Topgolf, which have complex operational needs, speaks to the increasing maturity and capability of its platform to serve larger, more demanding customers.

Performance and Financial Health

Toast's strategic focus and operational execution are increasingly reflected in its financial performance, demonstrating a clear path towards profitability and efficient growth. The first quarter of 2025 showcased strong momentum, with results exceeding expectations. Total revenue reached $1.337 billion, a 24% increase year-over-year. This growth was primarily driven by the recurring revenue streams: Subscription services revenue grew 38% to $209 million, and Financial technology solutions revenue increased 24% to $1082 million. Hardware and professional services revenue saw a 10% decline to $46 million.

Gross profit totaled $346 million in Q1 2025. Subscription services gross profit was $143 million, growing 45% year-over-year, benefiting from strong location growth, increasing SaaS ARPU (up 5% YoY on an ARR basis), and improved ARR to revenue conversion. Financial technology solutions gross profit grew 32% to $251 million, driven by the increase in Gross Payment Volume (GPV), which reached $42.2 billion in Q1 2025 (up 22% YoY). The payments net take rate was 48 basis points, up 3 basis points year-over-year due to ongoing cost optimization and targeted pricing adjustments. Non-payment fintech solutions, primarily Toast Capital, contributed $47 million in gross profit in Q1 2025, with originations showing solid growth and defaults remaining in line with expectations.

The company has made significant strides in improving profitability and operating leverage. Adjusted EBITDA reached $133 million in Q1 2025, representing a 32% margin on recurring gross profit streams. This achievement marks reaching the company's medium-term margin goal of 30-35% ahead of target. This margin expansion is a result of disciplined cost management and the benefits of scale, building on the operational efficiencies gained from the February 2024 restructuring plan. While sales and marketing expenses increased in Q1 2025 (up 24%) due to investments in sales capacity and brand marketing, R&D and G&A expenses remained relatively flat, indicating leverage in these areas. Toast also achieved GAAP operating income of $43 million in Q1 2025 and reported net income of $56 million, building on its first full year of GAAP profitability in 2024.

Liquidity and cash flow generation are also strengthening. Net cash provided by operating activities was $79 million in Q1 2025, a significant increase from $20 million in the prior year period, primarily driven by the improvement in net income. Free cash flow was $69 million in Q1 2025, compared to $33 million in Q1 2024.

Strategic Expansion and Outlook

Toast's growth story is increasingly defined by its strategic expansion into new addressable markets beyond its core U.S. SMB restaurant base. These new segments – enterprise, international, and food and beverage retail – are viewed as material drivers of future growth and areas where the company believes its vertical platform provides a right to win. Management expects to cross 10,000 locations across these new segments in 2025, demonstrating tangible progress.

In the enterprise space, recent marquee wins like Applebee's and Topgolf highlight the platform's ability to serve large, complex operations at scale. These deals often involve displacing legacy systems or in-house solutions, leveraging Toast's integrated POS, handhelds, KDS, and above-store management tools. The enterprise pipeline is reported to be strong, suggesting continued penetration upmarket.

International expansion in markets like the U.K., Canada, and Ireland is gaining momentum. The company is actively internationalizing its platform, recently expanding its offering to include loyalty, e-mail marketing, and guest book features. These expanded guest products are resonating with international customers, with guest attached rates doubling over the past year for recent go-lives. Management is confident that ARPU will continue to scale internationally as more of the platform is launched and adoption grows.

The food and beverage retail segment, encompassing grocery, convenience stores, and bottle shops, represents another significant TAM where Toast is applying its vertical approach. The company is building out specific retail platform capabilities, including inventory linking and the ability to accept EBT/SNAP benefits, which opens up more of this market. Early customer examples demonstrate the value proposition, such as streamlining inventory management and enabling seamless operations across different retail and food service components within a single location.

The outlook for 2025 reflects confidence in sustaining growth and expanding profitability. For the second quarter of 2025, Toast guided for total subscription and fintech gross profit growth in the range of 26% to 29% year-over-year and Adjusted EBITDA between $130 million and $140 million. Building on the strong start to the year, the full year 2025 outlook was raised. At the midpoint, the company now expects 26% growth in fintech and subscription gross profit and $550 million in Adjusted EBITDA, representing a 31% margin, a 5 percentage point increase compared to 2024. This guidance factors in stable consumer trends and slightly higher hardware tariff expenses, while management anticipates record net adds in Q2 2025 and expects GPV per location to remain down year-over-year in a similar range. The guidance underscores the strategy of balancing investment in long-term growth initiatives with continued margin expansion.

Key risks to the outlook include potential impacts from macroeconomic conditions, such as fluctuations in inflation, interest rates, and consumer spending, which could affect restaurant sales and GPV. Geopolitical events, including tariffs, also pose a risk, although the company has taken steps to diversify its supply chain. The competitive landscape remains dynamic, with both specialized and broad technology providers vying for market share. Toast's ability to maintain its strong win rates and drive product adoption will be crucial. Successfully executing the expansion strategy in new markets and integrating new capabilities, including AI, also carries execution risk. However, management emphasizes the resilience of the restaurant industry and the adaptability of the business, having navigated dynamic periods in the past.

Conclusion

Toast has successfully established itself as a leading technology partner for the restaurant industry, leveraging a deeply integrated, vertical platform to drive significant market share gains in its core U.S. SMB business. The company's strategic focus on providing a comprehensive operating system, coupled with ongoing innovation in areas like AI, creates a durable competitive advantage by delivering quantifiable operational and financial benefits to restaurants. Recent performance demonstrates strong top-line growth, accelerating profitability, and robust cash flow generation, highlighted by achieving GAAP profitability and medium-term Adjusted EBITDA margin targets ahead of schedule.

Looking ahead, Toast is well-positioned for continued durable growth by expanding its addressable market into enterprise, international, and food and beverage retail segments, which are poised to become increasingly material contributors to location growth. While macroeconomic uncertainties and competitive pressures remain, the company's disciplined investment approach, strong balance sheet, and commitment to balancing growth with margin expansion support a positive outlook. The investment thesis for Toast centers on its ability to execute against its strategic priorities, capitalizing on the large, underpenetrated restaurant technology market through its differentiated platform and expanding reach, ultimately driving long-term value for shareholders.