Toast (TOST) Q2 2025: Net Location Adds Hit 8,500 as New Segments Near $100M ARR
Toast’s second quarter showcased a robust blend of core execution and new segment traction, with net new locations reaching a record and enterprise, retail, and international segments on track for $100 million in annual recurring revenue. Margin expansion and disciplined investment signal confidence in long-term growth, even as management increases spending to accelerate new market penetration. With platform breadth, AI innovation, and deepening partnerships, Toast is positioning itself for durable gains across a broadening customer base.
Summary
- Segment Diversification Accelerates: New enterprise, retail, and international segments are scaling faster than expected, supporting platform breadth.
- Margin Expansion Delivers Operating Leverage: Strong cost discipline and higher ARPU drive significant profit margin improvement.
- Long-Term Growth Investments: Management is leaning into strategic spending to capture share in emerging verticals and geographies.
Performance Analysis
Toast delivered a record 8,500 net new locations in Q2, bringing total active locations to approximately 148,000, a 24% increase year over year. Recurring gross profit streams—encompassing subscription services and FinTech—grew 35% year over year, reflecting not only core SMB restaurant strength but also rapidly scaling enterprise, retail, and international segments. Adjusted EBITDA margin expanded to 35%, up eight points from last year, while GAAP operating income improved sharply, demonstrating the company’s ability to grow profitably even as it invests in expansion.
Growth was broad-based: Enterprise and food and beverage retail segments crossed 10,000 live locations and are on pace to collectively surpass $100 million in ARR by year-end, a milestone that took six years in the core business. ARPU for retail customers now exceeds $10,000, signaling both strong product-market fit and early success in upselling a broader suite of solutions. Internationally, the Australia launch marked Toast’s fourth market, leveraging prior localization investments to accelerate rollout. While GPV per location was down 1%, overall GPV still grew 23% year over year, and take rates improved, reflecting ongoing pricing and product optimization.
- Core Restaurant Momentum: Penetration and rep productivity remain highest in Toast’s most established markets, indicating the flywheel effect is compounding as market share grows.
- Retail and Enterprise Outperformance: Early ARPU and attach rates in retail are outpacing core business ramp, with dedicated sales teams and inventory tools driving traction.
- Operating Leverage: Margin gains stem from both scale and targeted cost management, even as investment in new segments rises.
Toast’s execution in both legacy and emerging segments is supporting a rare blend of growth and profitability, with management signaling further investment to sustain this trajectory into 2026 and beyond.
Executive Commentary
"We're seeing that opportunity play out as we grow market share in our core and accelerate our momentum across our new customer segments. In Q2, we crossed 10,000 live locations across enterprise, international, and food and beverage retail... These new customer segments are on track to surpass 100 million in ARR collectively by the end of the year."
Amon Narang, Chief Executive Officer
"Adjusted EBITDA was 161 million for the quarter, with margins expanding eight percentage points year over year to 35%... Our results reflect deeper penetration in our core customer segment, complemented by growing momentum across our new customer segments. We expect these new TAMs to become increasingly meaningful parts of our business over time and contribute to sustained long-term growth."
Elena Gomez, Chief Financial Officer
Strategic Positioning
1. Core Restaurant Flywheel and Market Share Gains
Toast’s core SMB restaurant business remains the foundation, with penetration exceeding 30% in top markets and rep productivity outpacing averages. The company’s direct go-to-market model—where Toast owns the end-to-end sales, onboarding, and support experience—continues to drive competitive differentiation and customer loyalty. Brand investments and customer feedback loops are reinforcing Toast’s leadership in key metro areas.
2. Rapid Scaling in New Segments (Enterprise, Retail, International)
New verticals are scaling much faster than the original core, with enterprise, international, and food and beverage retail segments collectively crossing 10,000 locations and on pace for $100 million in ARR. Retail ARPU above $10,000 and strong attach rates for inventory and payments solutions are supporting early margin and revenue expansion. The Australia launch demonstrates Toast’s ability to rapidly deploy localized solutions, leveraging prior R&D investments.
3. Platform Innovation and AI Differentiation
Product innovation remains central to Toast’s strategy. The launch of ToastGo 3, a handheld device with built-in cellular connectivity and AI-powered Toast IQ, is enabling seamless in-store operations and personalized guest experiences. The Sushif AI assistant is in beta, with positive customer feedback for its actionable insights and GPT-like interface tailored for restaurateurs. Data-driven upsell and cross-sell motions are expected to drive further ARPU growth as AI features proliferate.
4. Strategic Partnerships and Ecosystem Expansion
The new American Express partnership integrates reservation systems and loyalty data, aiming to create personalized diner experiences and broaden Toast’s ecosystem. This collaboration enhances both the guest and operator value proposition, potentially driving incremental demand and stickiness across the Toast platform.
5. Disciplined Investment and Margin Management
Toast is balancing aggressive investment in growth vectors with prudent cost control, achieving medium-term margin targets ahead of plan. While Q3 and Q4 margins will reflect increased spending and higher tariff costs, management remains confident in the long-term profit trajectory and is unlocking incremental investment in high-ROI segments.
Key Considerations
This quarter’s results highlight Toast’s ability to execute on multiple growth vectors while maintaining operational discipline. Investors should weigh the following:
Key Considerations:
- Segment Mix Shift: New segments are contributing a larger share of growth, with retail and enterprise ARPUs outpacing the legacy core, accelerating Toast’s move upmarket.
- AI and Product Expansion: Ongoing innovation in handheld hardware and AI-powered software is deepening Toast’s moat and expanding upsell potential.
- Tariff and Cost Headwinds: Second-half margin guidance incorporates higher tariff expenses and stepped-up investment, requiring careful monitoring of cost discipline.
- Sales Coverage Optimization: Direct sales remain the focus, but management is selectively expanding coverage in underpenetrated markets, balancing productivity and reach.
- Partner Ecosystem Leverage: Referrals from food distributors and technology partners account for 20% of new customers, supporting pipeline diversity.
Risks
Margin compression in the second half is expected due to increased investment in new segments and higher tariff costs. GPV per location softness and macro headwinds in restaurant same-store sales could pressure transaction-based revenue. Enterprise sales cycles remain lengthy, and international expansion requires sustained localization investment and execution. Competitive intensity, especially from legacy on-premise vendors and cloud-native upstarts, remains high in all segments.
Forward Outlook
For Q3 2025, Toast guided to:
- Total subscription and FinTech gross profit growth of 23% to 26% year over year
- Adjusted EBITDA between $140 million and $150 million
For full-year 2025, management raised guidance:
- FinTech and subscription gross profit growth of 29% at the midpoint
- Adjusted EBITDA of $575 million, a 32% margin (up five points from 2024)
Management highlighted incremental investment in new segments, higher second-half tariff costs, and continued focus on durable long-term growth. Guidance reflects prudent balancing of growth and margin, with an eye on sustaining outperformance into 2026.
- Q4 margin expected to be seasonally lower due to payments mix and tariffs
- Location net adds projected to exceed 2024 levels
Takeaways
Toast’s Q2 results reinforce its multi-segment growth story, with record net adds and strong margin expansion despite stepped-up investment. Platform breadth, AI innovation, and ecosystem partnerships are driving both ARPU growth and competitive differentiation, while disciplined go-to-market execution keeps core SMB momentum intact.
- Growth Engine Diversifies: New segments are scaling faster than the original core, with early signs of high ARPU and robust attach rates supporting the long-term model.
- Margin Flexibility Maintained: Operating leverage remains strong, but investors should monitor the impact of higher tariffs and investment on second-half profitability.
- AI and Platform Innovation Key to Upside: Continued product differentiation and rapid international rollout could unlock further upside if execution remains strong.
Conclusion
Toast’s Q2 marks a clear step forward in both breadth and depth of its growth strategy, with new segments gaining momentum and core execution remaining resilient. With a disciplined approach to investment and a robust innovation pipeline, Toast is well positioned for sustained expansion, though investors should watch for cost pressures and competitive responses as the company scales.
Industry Read-Through
Toast’s results highlight accelerating cloud adoption in hospitality technology, with legacy on-premise vendors increasingly displaced by integrated, data-rich platforms. AI-driven personalization and operational efficiency are emerging as key differentiators, suggesting that providers who can deliver actionable insights and seamless hardware-software integration will capture outsized share. Margin management amid rapid segment expansion and global rollout remains a universal challenge, with tariff and cost headwinds likely to impact other industry players pursuing similar growth vectors. Strategic partnerships between payment networks and software platforms are poised to reshape customer acquisition and loyalty dynamics across the sector.