Toast (TOST) Q1 2025: Recurring Gross Profit Streams Jump 37% as Platform Expansion Accelerates
Toast’s Q1 saw recurring gross profit streams surge, driven by robust location growth and deeper product adoption across new verticals and enterprise. The company’s platform strategy is delivering strong attach rates and margin expansion, while early AI investments are beginning to show tangible operator impact. Raised guidance and record net location adds set up Toast for continued durable growth as it scales beyond its core SMB base.
Summary
- Platform Expansion Drives Growth: Toast’s broadening use cases and enterprise wins are unlocking new addressable markets.
- Margin Gains Outpace Expectations: Sustained cost discipline and pricing initiatives are fueling earlier-than-expected profitability targets.
- AI and Product Attachments Show Early Promise: Initial results from AI pilots and product bundling point to future monetization upside.
Performance Analysis
Toast’s Q1 performance was marked by a 37% year-over-year increase in recurring gross profit streams, reflecting robust momentum in subscription and fintech revenue. The company added over 6,000 net new locations, pushing its installed base to roughly 140,000, up 25% from the prior year. Annualized recurring revenue (ARR) climbed 31% year-over-year, with subscription ARR up 32% and payments ARR up 31%, highlighting balanced growth across core business levers.
Adjusted EBITDA reached $133 million, with margins expanding 13 percentage points to 32%, notably ahead of the company’s medium-term goals. Free cash flow came in at $69 million, seasonally lower but expected to track EBITDA for the year. Payments gross profit and net take rate both improved, supported by targeted pricing and cost optimization. Toast Capital, the company’s embedded lending business, contributed $47 million in gross profit and continues to see healthy originations and stable defaults.
- Enterprise and New Verticals Fueling Upside: Major wins like Applebee’s and Topgolf validate Toast’s ability to serve complex, large-scale operations and expand its total addressable market (TAM).
- Product Attach and AI Pilots Driving ARPU: Higher attach rates and early AI-powered upsell modules are boosting average revenue per user (ARPU) and customer stickiness.
- Cost Management and Pricing Levers: Margin expansion was propelled by disciplined R&D and G&A spend, alongside ongoing cost per transaction initiatives and selective surcharging.
Toast’s core SMB segment remains the primary engine of growth, but contributions from enterprise, international, and retail are becoming increasingly material. The company’s ability to win in new segments and drive multi-product adoption underpins its raised outlook and confidence in long-term growth.
Executive Commentary
"In Q1, we saw strong momentum in our bookings across all of our market segments, including marquee wins in Applebee's and Topgolf that speak to our ability to serve large complex operations at scale. While we're paying close attention to what's going on in the macro environment around us, we remain confident in our ability to execute."
Aman Narain, CEO and Co-founder
"Adjusted EBITDA was $133 million with a margin of 32%, achieving our medium-term margin goal of 30% to 35% well ahead of target. The strong Q1 results reflect a healthy top line growth and solid execution, along with our commitment to prudently scale the business while investing in our growth areas."
Elena Gomez, CFO
Strategic Positioning
1. Core U.S. Restaurant Market Share Expansion
Toast’s vertical platform approach and in-market sales execution are driving high win rates in its core SMB segment. The company’s differentiated product suite, including handhelds and multi-location management, is resonating with both independent operators and chains. Sales productivity gains and above-average rep efficiency in flywheel markets are sustaining durable location growth.
2. Enterprise, International, and Retail Diversification
Landmark wins like Applebee’s and Topgolf showcase Toast’s ability to serve large, complex enterprises. The company is replicating its U.S. playbook internationally, with early traction in Canada, the UK, and Ireland. In retail, advanced inventory and multi-channel capabilities are attracting hybrid concepts, broadening Toast’s TAM and reducing reliance on the core restaurant market.
3. Product Attach and AI Differentiation
Increasing attach rates for modules such as digital tipping, marketing, and inventory are lifting ARPU and customer lifetime value. AI initiatives, including Sous Chef (an operator-facing AI assistant) and Toast IQ (an intelligence engine powering upsell and marketing tools), are delivering measurable results in pilot phases, such as higher order volumes and improved ad campaign ROI.
4. Margin Expansion and Disciplined Investment
Toast is ahead of schedule on its medium-term margin targets, fueled by cost control in R&D and G&A and selective sales and marketing investment. Hardware tariff exposure is managed via supply chain diversification, and pricing remains a “small lever” with a balanced approach to customer impact and profitability.
5. Embedded Fintech and Credit
Toast Capital’s ability to underwrite risk using proprietary customer data is supporting healthy lending growth without outsized defaults. The fintech layer, including payments and lending, is a critical margin and stickiness driver as Toast deepens its platform integration with customers.
Key Considerations
Toast’s Q1 demonstrates the compounding effect of platform breadth, operational discipline, and early AI adoption. The company’s strategy is to deepen wallet share in core SMB while methodically expanding into adjacent verticals and enterprise, all while maintaining margin discipline.
Key Considerations:
- Enterprise Adoption Validates Platform: Applebee’s and Topgolf wins highlight Toast’s ability to displace legacy systems and serve high-complexity operations.
- International and Retail Early but Promising: International rollout is tracking ahead of plan, though network effects and referral momentum are still developing.
- AI Monetization Still Nascent: Early AI pilots are delivering operational impact, but monetization will depend on broader rollout and customer adoption.
- Hardware Tariffs and Supply Chain: Tariff-related hardware cost increases are manageable for now, but ongoing supply chain diversification will be critical for cost stability.
- Payments and Fintech Resilience: Net take rate improvement and stable Toast Capital performance suggest embedded fintech remains a durable margin driver.
Risks
Macro uncertainty, especially consumer spending and new business formation, could pressure location growth and transaction volumes. Hardware tariffs, while currently manageable, remain a potential cost headwind if conditions change. Competitive pressure from cloud-native POS entrants and evolving partner-competitor dynamics (e.g., DoorDash) could challenge market share and pricing power. AI adoption and monetization remain unproven at scale, and international expansion may require sustained investment before achieving U.S.-level productivity.
Forward Outlook
For Q2, Toast guided to:
- Total subscription and fintech gross profit growth of 26% to 29% year-over-year
- Adjusted EBITDA of $130 million to $140 million
For full-year 2025, management raised guidance:
- 26% growth in fintech and subscription gross profit
- $550 million in adjusted EBITDA, a 31% margin
Management cited stable consumer trends, record net location adds, and ongoing traction in enterprise and new verticals as drivers of the raised outlook. Tariff-related hardware costs are included in current guidance, and free cash flow is expected to broadly track EBITDA for the year.
- Continued sales productivity and product attach are expected to support growth.
- Enterprise and international contributions will become more material in the second half.
Takeaways
Toast’s execution in Q1 2025 signals a step-change in platform scale, operational leverage, and addressable market expansion.
- Multi-Segment Growth Engine: Core SMB remains robust, but enterprise, retail, and international are emerging as credible new growth vectors, diversifying revenue streams and reducing concentration risk.
- Margin and Cash Flow Inflection: Toast is delivering on margin expansion ahead of plan, with disciplined investment and early returns from pricing and product attach strategies.
- AI and Embedded Fintech Optionality: Early AI results and steady Toast Capital performance provide optionality for future monetization and deeper customer integration, but scaling and monetization remain key watchpoints.
Conclusion
Toast’s Q1 results reflect the compounding benefits of a broadening platform, disciplined execution, and early AI leadership. With raised guidance and strong new segment momentum, Toast is positioned for durable multi-year growth, but continued execution across enterprise, international, and product innovation will be essential to sustain its trajectory.
Industry Read-Through
Toast’s results underscore the ongoing shift from legacy on-premise to cloud-based POS and restaurant management platforms, with increasing demand for integrated payments, embedded fintech, and AI-driven operational tools. Enterprise adoption signals that even large, complex operators are willing to migrate to modern platforms, raising the bar for incumbents and new entrants. Early evidence of AI impact in hospitality workflows suggests a coming wave of automation and data-driven optimization across the sector. Hardware tariff management and supply chain diversification will remain key for all vendors as global trade dynamics evolve.