Executive Summary / Key Takeaways

• Transformational Growth & Profitability: Toast (NYSE:TOST) has successfully transitioned to GAAP profitability in 2024, demonstrating strong execution with a record 28,000 net location additions and 34% recurring gross profit stream growth, validating its disciplined investment strategy.
• Deepening Moat Through Vertical Integration & AI: The company's purpose-built, all-in-one platform, enhanced by innovations like Toast Go 3 and the AI-powered ToastIQ, delivers quantifiable operational efficiencies and revenue uplift for restaurants, creating a sticky ecosystem that differentiates it from broader competitors.
• Accelerated TAM Expansion: Toast is rapidly expanding beyond its core U.S. SMB market into enterprise, international, and food & beverage retail segments, with these new vectors on track to collectively surpass $100 million in ARR by year-end 2025, signaling significant long-term growth potential.
• Strong Financial Outlook: Management has raised its full-year 2025 guidance, projecting 29% recurring gross profit growth and $575 million in Adjusted EBITDA, reflecting confidence in sustained top-line momentum and continued margin expansion despite strategic investments.
• Competitive Edge & Operational Efficiency: Toast's specialized focus, robust go-to-market engine, and data-driven insights enable it to consistently win market share against both legacy and cloud-based rivals, while maintaining healthy unit economics and improving free cash flow generation.

The Restaurant Operating System: A Foundation of Specialization and Innovation

Toast, Inc. (NYSE:TOST), founded in 2011, embarked on a singular mission: to build the world's best cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community. This vertical-specific strategy has been foundational to its success, allowing Toast to develop a deeply integrated ecosystem that connects front-of-house and back-of-house operations across diverse service models, from dine-in to delivery. This specialized approach has enabled Toast to carve out a leadership position and significantly deepen its market share within the U.S. small and medium-sized business (SMB) and mid-market restaurant segments.

The restaurant technology landscape is highly competitive, featuring broad payment and POS providers like Square (NYSE:SQ) and Fiserv's (NYSE:FISV) Clover, as well as more specialized players such as Lightspeed Commerce (LSPD) and Shift4 Payments (FOUR). Toast differentiates itself by offering a comprehensive, end-to-end platform that goes beyond mere transaction processing. Its vertically integrated suite includes Point-of-Sale (POS), team and vendor management, multi-location tools, kitchen display systems (KDS), mobile order and pay, catering, and financial technology solutions like integrated payment processing and Toast Capital.

Toast's core technological advantage lies in its purpose-built hardware and software, designed specifically for the rigors and unique workflows of the restaurant environment. A prime example is the new Toast Go 3 handheld, which redefines in-store operations. This device is the only handheld that combines ToastIQ, Toast's intelligence engine, with built-in cellular connectivity, allowing staff to seamlessly take orders, process payments, and print receipts across Wi-Fi and cellular networks. It is also "lighter, faster and more durable than before with a 24-hour battery life," a critical feature for demanding restaurant shifts. Customers like Haywire Restaurants laud it as a "game changer" for its cellular functionality, eliminating Wi-Fi dead zones in large venues, and its durability on concrete floors. This translates into tangible benefits: increased staff efficiency, improved guest experience, and enhanced reliability, directly impacting a restaurant's top and bottom line.

Further enhancing its technological moat, Toast is leveraging artificial intelligence (AI) to drive differentiation. ToastIQ, the company's intelligence engine, powers features that provide real-time context to staff, enabling personalized guest experiences and potentially increasing check sizes. For instance, Mission Boat House, an early adopter, saw approximately 6% higher average order volume with ToastIQ's new menu upsell tool. Similarly, Felipe's Taqueria achieved over 10x return on ad spend using Toast's AI-powered advertising tool for Google Ad campaigns. The Sous Chef AI agent, currently in pilot, aims to be a "restaurant copilot," offering business insights, troubleshooting common issues, and executing actions like managing menus or employee schedules. This innovation is expected to GA later in 2025. These AI capabilities, combined with Toast's extensive restaurant data, empower operators to make smarter decisions, streamline operations, and drive demand, solidifying Toast's competitive edge against less specialized platforms.

A Trajectory of Growth and Profitability

The year 2024 marked a pivotal moment for Toast, as it achieved GAAP profitability for the first time in its history, alongside record growth. The company added a record 28,000 net locations, including approximately 7,000 net adds in Q3 2024 and 7,000 in Q4 2024, culminating in approximately 134,000 total locations by year-end 2024. This momentum carried into 2025, with over 6,000 net locations added in Q1 2025 and a record 8,500 net new locations in Q2 2025, bringing the total to approximately 148,000 locations as of June 30, 2025, a 24% year-over-year increase.

Toast's financial performance reflects the scalability of its platform and disciplined execution. For the three months ended June 30, 2025:

• Total Revenue reached $1,550 million, up 25% year-over-year.
• Subscription Services Revenue grew 37% year-over-year to $227 million, driven by location growth and product adoption.
• Financial Technology Solutions Revenue increased 25% year-over-year to $1,276 million, primarily due to the increase in locations and Gross Payment Volume (GPV).
• Hardware and Professional Services Revenue was $47 million, down 11% year-over-year, reflecting the strategic emphasis on recurring revenue streams.
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Profitability metrics also showed significant improvement.

• Gross Profit for Q2 2025 was $392 million, up from $286 million in Q2 2024.
• Adjusted EBITDA reached $161 million in Q2 2025, with a robust margin of 35%, expanding 8 percentage points year-over-year. This strong performance allowed Toast to reach its medium-term margin guidance ahead of plan.
• GAAP Operating Income was $80 million in Q2 2025, a substantial increase from $5 million in Q2 2024, underscoring the company's operational leverage.

• Free Cash Flow for Q2 2025 was $208 million, driven by strong Adjusted EBITDA and seasonal working capital benefits. For the six months ended June 30, 2025, net cash provided by operating activities was $302 million, a significant increase from $104 million in the prior year period.

The company's recurring gross profit streams (Subscription Services and Financial Technology Solutions) increased 35% year-over-year in Q2 2025. The total take rate across these streams was 93 basis points, an 8 basis point increase from a year ago, reflecting growing share of wallet and increasing value provided to customers. This improvement is attributed to ongoing optimization efforts, small targeted pricing moves, and new products like surcharging. Toast Capital, the non-payment fintech solution, contributed $40 million in gross profit in Q2 2025, with defaults remaining in line with expectations, highlighting the health of this program.

Expanding Horizons: New Markets and Strategic Partnerships

Toast's growth narrative extends beyond its core U.S. SMB market. The company is strategically expanding its total addressable market (TAM) into new customer segments and geographies, which are proving to be material drivers of growth. In Q2 2025, Toast proudly announced crossing 10,000 live locations across its enterprise, international, and food and beverage retail segments. These new customer segments are "on track to surpass $100 million in ARR collectively by the end of the year," a milestone that took six years to achieve in its core business.

In the enterprise segment, Toast has secured marquee wins that demonstrate its ability to serve large, complex operations at scale. Recent additions include Firehouse Subs (a 1,300-location QSR brand) and Zabar's (an iconic New York grocer), building on previous successes with Applebee's (DIN) (Toast's largest win in committed locations), Marriott (MAR), Hilton Hotels & Resorts (HLT), and Topgolf (MODG). These wins underscore the versatility of the Toast platform and its ability to meet the sophisticated needs of large-scale operators, often replacing legacy on-premise solutions.

The food and beverage retail segment is showing promising early signals, with total ARPU for retail customers already above $10,000. Toast is building out deeper inventory management tools and expanding integrations, resonating with customers like Kelly's Market, which uses Toast to streamline purchasing, receiving, and inventory workflows, saving over 10 hours a week. The company has also expanded product functionality to accept EBT/SNAP benefits, opening up more of the grocery and convenience store TAM.

Internationally, Toast launched in Australia in Q2 2025, marking its fourth international market after the U.K., Ireland, and Canada. Graze Craze, an existing U.S. Toast customer, became its first live customer in Australia, highlighting the platform's global appeal and the benefits of its localized infrastructure. The company is seeing increased booked ARPU in its international markets as more products, such as loyalty, e-mail marketing, and the Toast Now mobile operator app, are rolled out. SaaS ARPU for international locations that went live in Q4 2024 was up 50% year-over-year, indicating strong product-market fit and monetization potential.

A significant strategic partnership was forged with American Express (AXP) in Q2 2025. This collaboration integrates reservation listings from Resy, Tock (SQSP), and Toast Tables into Local by Toast, aiming to make it easier for diners to find and book tables. Furthermore, it plans to leverage reservation data and the Toast platform to enable personalized experiences for diners at the point of sale, including American Express card members. This partnership enhances Toast's guest engagement capabilities and strengthens its position within the broader hospitality ecosystem.

Outlook and Risk Considerations

Toast has raised its full-year 2025 outlook, reflecting its strong performance and continued momentum. For the third quarter of 2025, the company expects total subscription and fintech gross profit to grow in the range of 23% to 26% year-over-year, with Adjusted EBITDA projected to be between $140 million and $150 million. For the full year 2025, Toast now anticipates 29% growth in fintech and subscription gross profit (at the midpoint) and Adjusted EBITDA of $575 million (at the midpoint), representing a 32% margin, a 5 percentage point increase over 2024.

This guidance is underpinned by several assumptions. Management plans to unlock incremental investments across both its core and new customer segments in the second half of the year to accelerate progress and position for sustained long-term growth. This will lead to higher sales and marketing expenses as the company grows its go-to-market footprint across international and retail. Additionally, the company expects higher tariff expenses related to hardware in the second half of the year, though it has diversified its supply chain to manage these costs. GPV per location is anticipated to remain down in a similar range year-over-year, consistent with recent trends. Subscription revenue is expected to more closely mirror SaaS ARR growth starting in Q3 2025, as the company laps one-time benefits from improved ARR to revenue conversion seen in Q3 and Q4 2024.

While Toast's trajectory is compelling, investors should consider potential risks. Macroeconomic conditions, including inflation and interest rates, could impact consumer spending and restaurant operations. The competitive landscape remains intense, with established players and new entrants vying for market share. Toast's ability to effectively manage its rapid growth, integrate new acquisitions, and attract and retain qualified employees will be crucial. However, the company's disciplined approach to capital allocation, its strong liquidity position with $1.194 billion in cash and cash equivalents and $508 million in marketable securities as of June 30, 2025, and its proactive share repurchase program (with $163 million remaining authorized) provide a solid financial buffer.

Conclusion

Toast has evolved from a specialized POS provider into a comprehensive, AI-powered operating system for the restaurant industry, demonstrating a powerful combination of robust growth and disciplined profitability. Its relentless focus on vertical integration and technological innovation, exemplified by the Toast Go 3 and ToastIQ, creates a formidable competitive moat, driving tangible value for its customers and fostering deep loyalty. This differentiated approach allows Toast to consistently gain market share in its core U.S. business while successfully expanding into high-potential enterprise, international, and food & beverage retail segments.

The company's strong financial performance, highlighted by record location additions, accelerating recurring gross profit streams, and expanding Adjusted EBITDA margins, underscores the scalability and efficiency of its business model. With a clear strategic roadmap, a healthy balance sheet, and a commitment to balancing growth investments with profitability, Toast is well-positioned to capitalize on the vast, underserved restaurant technology market. For discerning investors, Toast represents a compelling opportunity to participate in the digital transformation of a resilient industry, driven by a company that is not just selling software, but truly serving up success for restaurants globally.