Toast - Earnings Call - Q2 2025

Executive Summary

• Record execution and broad-based strength: Toast added 8,500 net new locations, grew ARR 31% to $1.93B, GPV 23% to $49.9B, and delivered Adjusted EBITDA of $161M with GAAP operating income of $80M; recurring gross profit (non-GAAP subscription + FinTech) rose 35% YoY to $464M.
• Estimates beat and guidance raise: Q2 revenue of $1.55B and Primary EPS (normalized) topped S&P consensus; FY 2025 recurring gross profit guidance lifted to $1.815–$1.835B and Adjusted EBITDA to $565–$585M; Q3 guidance set at $465–$475M recurring gross profit and $140–$150M Adjusted EBITDA.
• Strategic catalysts: Multi-year American Express partnership to integrate reservations and enable personalized experiences; launch of Toast Go 3 handheld with cellular connectivity and ToastIQ; international expansion to Australia.
• Trajectory improving across segments: Enterprise/international/food & beverage retail surpassed 10,000 live locations; retail ARPU already >$10k, supporting mix shift and monetization; total take rate across SaaS and FinTech gross profit reached 93 bps.

What Went Well and What Went Wrong

What Went Well

• Location and ARR momentum: “We added a record 8,500 net new locations… recurring gross profit grew 35%… Adjusted EBITDA scaled to $161 million,” with total locations up 24% YoY to ~148,000 and ARR up 31% YoY to $1.9B.
• Upmarket and new segments: Enterprise, international, and food & beverage retail passed 10,000 live locations; Firehouse Subs (1,300+ units) joining Toast; first customer live in Australia, broadening global reach.
• Product innovation: Launch of Toast Go 3 with cellular + ToastIQ to drive upsells and reliability; management highlighted its 24-hour battery life and real-time guest context: “Our new Toast Go 3 handheld… combines ToastIQ… with built-in cellular connectivity”.

What Went Wrong

• Hardware/professional services drag: GAAP hardware/professional services gross profit was -$54M in Q2 (vs -$43M in Q2’24), indicating continued cost pressure in the hardware line.
• GPV per location modestly lower: “GPV was $50B growing 23% YoY with GPV per location down 1% versus last year,” implying macro/format mix headwinds despite strong volume.
• Second-half margin headwinds: Management flagged tariff expenses and incremental investment as reasons for lower margins in H2 despite raised FY guidance; “tariffs have a bigger impact in the second half of the year”.

Transcript

Speaker 3

Good afternoon, my name is Kate and I will be your conference operator today. At this time I would like to welcome everyone to Toast's second quarter 2025 earnings conference call. Today's call will be 45 minutes. I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin your conference.

Speaker 0

Thank you. Welcome to Toast's earnings conference call for the second quarter and the June 30, 2025. On today's call, our CEO Aman Narang and CFO Elena Gomez will open with prepared remarks, which will be followed by our Q and A session. Before we start, I'd like to draw your attention to the Safe Harbor statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of the Securities Act and the Exchange Act. All statements other than statements of historical facts are forward-looking statements, including those regarding management's expectations of future financial and operational performance, operational expenditures, location growth, future profitability and margin outlook, business and investment strategy, expected growth and business outlook, including our financial guidance for the third quarter 2025.

Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our SEC filings for a discussion of the risks and uncertainty that could cause actual results to differ materially from our expectations. During this call, we will discuss certain non-GAAP financial measures, including but not limited to non-GAAP Subscription Services Gross Profit and non-GAAP Financial Technology Solutions Gross Profit, which we refer to collectively as our recurring gross profit streams. These are the basis for our top line guidance. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures.

Unless otherwise stated, all references on this call to cost of revenue, gross profit and gross margin, sales and marketing expense, research and development expense, and general and administrative expense are on a non-GAAP basis. Finally, the press release can be found on the investor relations website at investors.toasttab.com. After the call, a replay will be available on our website, and with that, let me turn the call over to Aman.

Speaker 2

Thanks Michael and thank you to everyone for joining us today. We've had a great first half of the year. Q2 results came in ahead of expectations. We've added a record 8,500 net new locations. We grew recurring gross profits 35% and we've delivered $161 million of adjusted EBITDA. GAAP operating income reached $80 million. At Toast, our mission is to help restaurants delight their guests, do what they love and thrive. Our strong results reflect our consistent execution across the company, and more importantly, they reinforce our belief in the significant long term opportunity ahead of us. 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 and now serve approximately 148,000 locations across our customer segments.

We're excited to welcome Firehouse Subs, a 1,300 QSR enterprise brand, as well as Zabar’s, the iconic New York grocer. The Toast Platform further signaling our progress in enterprise and retail internationally, we launched in Australia. This is our fourth international market, extending our reach beyond the UK, Ireland and Canada, and another step towards building the leading global platform for restaurants. We're also thrilled to announce an exciting partnership with American Express. This collaboration will bring together reservation listings from Resy, Tock and Toast Tables into Toast Local, our mobile app, to make it easier to find and book tables. We also plan to use the reservation data and the power of our platform to enable personalized experiences for diners at the point of sale, including American Express Card members.

We're excited about the value our two companies can deliver together for both restaurants and diners through this exciting partnership. At the start of the year, we laid out four key priorities. Number one, scale locations and market share in our core U.S. restaurant business. Number two, demonstrate that these new market segments can be material drivers of growth. Third, increase customer adoption of our broad platform and drive differentiation through data and AI. Lastly, continue to hold ourselves to a high bar and invest against our most important priorities while gradually expanding margins. All right, let's jump into number one. Starting with our core restaurant business. We have strong momentum driven by our purpose-built restaurant platform and our local go-to-market teams. As a result of positive customer feedback and the brand investments we've made, we've seen the largest year-over-year increase in brand consideration in our peer set.

We grew share in nearly every SMB market we operate in. In our top 10 markets, we continue to see higher rep productivity and higher market share gains relative to our averages. The fact that we're still seeing strong gains in these markets where we have over 30% penetration across large and small metro areas is a clear sign. Our flywheel strategy is working. We're also expanding the breadth of our platform with new products and features like Toast Go 3 and our new AI-powered intelligence engine ToastIQ, which reflect the steady drumbeat of innovation that's core to our strategy. Behind every update is our focus on the thousand little things that make the Toast platform such a great tool for restaurants. An example of this is Supper Club, a neighborhood restaurant and market in Richmond, Virginia.

A deciding factor in their switch to Toast was our catering and events product, which replaced a third-party app that was cumbersome for them and their customers. Since switching to Toast, Supper Club has seen a nearly 40% jump in catering sales. Toast Catering is both easy to use and seamlessly integrates into the Toast platform, including our point-of-sale devices and handhelds, which has allowed them to take on significantly more business and even open a second location in March this year. It's a great example of how when our customers grow, we grow right alongside them. Now, moving gears, our second priority is demonstrating that these new market segments can be material drivers of growth.

We crossed 10,000 live locations across enterprise, food and beverage, retail, and international, and 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 in our core business. In enterprise, their vision is to have the most iconic restaurant brands in Toast and drive innovation for the entire industry. Our investments are paying off and we'll keep enhancing the platform to meet the needs of large-scale operators. We're also seeing strong interest from customers to use more of our platform, which will contribute to scaling enterprise ARPUs over.

Time.

In food and beverage retail, we're off to a strong start and the early signals are really promising. We're building deeper inventory management tools, expanding integrations, and scaling our dedicated sales team. Total ARPU for retail customers is already above $10,000, a clear indication our value proposition is resonating. Food retailers like Zabar’s New York City are using Toast Retail to handle their large, fast-paced operation, manage over 30,000 SKUs across a 20,000 square foot store, and process more than 2,500 transactions daily. Zabar’s shows how Toast supports complex, high-volume retail environments across the UK, Ireland, and Canada. Rolling out more of our products is driving a steady increase in booked ARPU. We're also seeing greater traction among full service restaurants, which now make up the majority of our new wins in these regions, showing that product improvement investments in our go-to-market teams are paying off.

We're launching Australia with the same products we have in our other international markets today. Our fast, comprehensive launch down under is thanks to the learnings and infrastructure from our first three markets and the localization investments we've made over the past few years. We took our first customer, Graze Craze, live in Australia this summer. Graze Craze is an existing Toast customer in the U.S. and we were top of mind when they decided to expand to Australia. They initially opted for a local provider at launch but couldn't find another POS provider that matched Toast's capabilities, so they were excited to transition to Toast when we could support their Australian operations. They're now using our guest-facing displays, kitchen display screens, and online ordering products to solve for the operational friction and reporting gaps they experienced with the local system at launch.

They plan to add more products like email marketing and loyalty to help drive demand and above store tools including multi-location management and reporting to power their continued expansion across Australia. Shifting gears, our third priority is increasing customer adoption of our platform and driving differentiation through data and AI. We were a pioneer in bringing purpose-built handhelds to market seven years ago, redefining in-store operations and service restaurants, and since then billions of orders have run through Toast Go handheld, giving us a deep understanding of what works on the restaurant floor. Our new Toast Go 3 handheld builds on that foundation and continues to push the industry forward. It's the only device that combines ToastIQ, Toast intelligence engine, with built-in cellular connectivity so staff can take orders, process payments, and print receipts seamlessly across Wi-Fi and cellular networks.

It does all this while being lighter, faster, and more durable than before with a 24-hour battery life. With ToastIQ, staff now get real-time context about their guests to help increase check sizes. Personalized notes and guest details from Toast tables show up directly into our Toast Go 3 handhelds and terminals, and our Amex partnership aims to build on this technology to deliver these personalized experiences for American Express Card members as well. Haywire Restaurant in Texas calls the Toast Go 3 a game changer. They used to lose Wi-Fi in certain areas of their three-story concrete building, but now with Toast Go 3 cellular functionality they can seamlessly transition between cellular and Wi-Fi to stay connected and take payments without getting interrupted.

The new handhelds meet the demands of the restaurants, including drops on their concrete floors or servers working double shifts who can now carry a handheld all day long without needing to charge it. Haywire also sees the Toast Go 3 as a tool for growth, giving them a reliable way to generate sales at community events and festivals, and opening the door to sales it wouldn't access otherwise. Lastly, our fourth priority is to continue to invest with discipline while expanding our margins. Our updated full-year outlook reflects the strength of our execution and the scalability of our business. We've reached the medium-term margin guidance we laid out at our investor day ahead of plan, and we're confident in our ability to continue investing behind what's most important to fuel long-term growth while balancing margins over time.

As I close out, I want to thank every Toaster, our customers, and our investors. The progress we're making is a direct result of the team's incredible execution and the confidence our customers and investors have in what we're building. Our platform helps local businesses thrive, and I've never been more excited about the opportunity that's in front of us. Thank you, and with that I'll turn the call over to Elena.

Speaker 1

Thank you Aman and to everyone for joining. To start, I would also like to thank our incredible team for another strong quarter which came in above our expectations. In the second quarter, ARR grew 31% and total FinTech and subscription gross profit. Our recurring gross profit streams increased 35% year over year. Total take rate across SaaS and FinTech gross profit was 93 basis points in the quarter, an increase of 8 basis points from a year ago, reflecting our growing share of wallet and the increasing value we are providing our customers. Adjusted EBITDA was $161 million for the quarter with margins expanding 8 percentage points year over year to 35%, and GAAP operating income was $80 million. We also increased our full year guidance to reflect our strong quarter and the operating momentum we have heading into the second half of the year.

We posted a record quarter with approximately 8,500 net location additions and we ended Q2 with 148,000 locations, up 24% from a year ago. Our results reflect deeper penetration in our core customer segment, complemented by growing momentum across our new customer segments. As Aman mentioned, across international enterprise and food and beverage retail, we crossed 10,000 locations in Q2. We're excited about the new bellwether brands like Firehouse Subs and Zabar’s, showing the versatility of our platform to serve a wide range of customers across all segments. The traction we're seeing is a testament to our investments to serve these new customer segments across both product and go to market, and our confidence in the trajectory of these new customer segments continues to grow. We expect these new TAMS to become increasingly meaningful parts of our business over time and contribute to sustained long term growth.

As a result, we are investing behind our success. We're building out the product to serve deeper parts of these new TAMS and scaling go to market to accelerate our progress. That includes expanding into new geographies over time, and we're excited to have our first customer live in Australia. Looking out to the remainder of the year, we remain on track for more location net adds in 2025 versus 2024, driven by our consistent go to market execution and comprehensive product offering in our core, complemented by the growing scale from new customer segments. SaaS ARR grew 30% year over year driven by location growth and a 5% increase in SaaS ARPU on an ARR basis, subscription revenue increased 37% and gross profit grew 43%, benefiting from the improved ARR to revenue conversion we discussed last year.

As a reminder, beginning next quarter we will lap the step up and the associated one-time benefits we saw in Q3 and Q4 of last year and therefore expect subscription revenue to more closely mirror SaaS ARR growth. Beginning in Q3, payments ARR increased 32% and FinTech gross profit grew 30% in the second quarter. GPV was $50 billion, growing 23% year over year with GPV per location down 1% versus last year. FinTech net take rate was 57 basis points and payments net take rate was 49 basis points. Both increased 3 basis points from a year ago from a combination of ongoing optimization efforts, small targeted pricing moves, and new products including surcharging non-payments. FinTech Solutions led by Toast Capital contributed $40 million in gross profit and 8 basis points in take rate.

Capital's take rate contribution was in line with Q2 last year and as a reminder is seasonally lower in Q2 due to higher GPV. Toast Capital remains healthy with solid demand from customers and defaults remain in line with our expectations. Looking ahead, we continue to expect Toast Capital's contribution and net take rate to remain in the 10 basis point range. Excluding $19 million of bad debt and credit related expenses, operating expenses increased 18% in Q2. That's primarily from a 28% increase in sales and marketing expenses as we grow our go-to-market footprint across international and retail. In the core, we're making targeted rep additions and supporting our brand campaign to deliver ongoing share gain. R&D grew 9%, reflecting investments in our highest priority areas in the core.

Toast Go 3 and newly launched ToastIQ features highlight continued focus on extending our product differentiation and driving tangible customer outcomes across our new customer segments. We are taking the same vertical approach that has driven our success in the core. We're serving the needs of our customers more deeply in each segment, such as enhancing our inventory management tools for retail, bringing Toast Go 3 internationally, and expanding our functionality and integrations in enterprise. Adjusted EBITDA was $161 million with a margin of 35%. Our strong Q2 results reflect healthy top line growth, including better than expected GPV, as well as our focused execution and disciplined capital allocation. In addition, the seasonality of GPV contributed to the seasonally high margin in the quarter. Free cash flow was $208 million, driven by strong adjusted EBITDA and a benefit from working capital due to the seasonality of our payments business.

GAAP operating income was $80 million, up from $14 million a year ago. That's both the strength in adjusted EBITDA and our prudent approach to managing stock-based compensation. Stock-based comp as a percentage of recurring gross profit was 14% in Q2, down 6 percentage points versus a year ago. We continue to be on a path for stock-based comp to be in low double digits as a percentage of recurring gross profit. Turning to guidance for the third quarter, we expect total subscription and FinTech gross profit to grow in the range of 23% to 26% year over year and adjusted EBITDA to be $140 million to $150 million. We raised our full year outlook due to our strong results and continued momentum across the business.

At the midpoints, we now expect 29% growth in FinTech and subscription gross profit and $575 million in adjusted EBITDA, a margin of 32%, up 5 percentage points versus 2024. Let me provide some context on our margin profile in the second half of the year. As a reminder, Q4 margin is typically lower relative to the rest of the year due to the seasonality of payments. In addition, we will have higher tariff expenses in the second half of the year. Take a disciplined approach to scaling the business, and based on positive signals in our growth initiatives, we are unlocking incremental investment across both core and our new customer segments to move faster in these areas and position ourselves for sustained long-term growth.

Overall, we are on track for another year of both strong top line growth and expanding profitability and are confident we can continue to deliver durable growth while driving towards our long-term margin target. To wrap up, we had a great first half reflecting our consistent execution. Our momentum in the core is strong, and we are really excited by our progress in new customer segments. Looking ahead, we're excited and confident about the opportunity in front of us and believe we are just getting started. Now, I'll turn the call back over to the operator to begin Q&A.

Speaker 3

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Real Nance at Goldman Sachs. Your line is open.

Hey guys, great results today. I wanted to ask a question on the new disclosure on retail ARPUs being, I think, north of $10,000, obviously. Great to see. You talked about this being a very large average merchant size. I was wondering if you could talk through that number and, you know, maybe give some context on the breakdown between payments and software. You mentioned further enhancements to the product. Where are you in kind of now versus where you want to be on the software suite for that vertical, and what types of things do you think could be on the roadmap?

Speaker 2

Appreciate it. Thanks for the question. You know, if you go back and look at our core business and you look at how we've been able to expand both SaaS ARPU and FinTech ARPU over time, it's taken a while to get us to where we are today, where our core ARPU is. If you look at how quickly we've been able to get retail ARPU up over $10,000, I think it just really shows that it's a really good opportunity for us. That's why we're investing in sales capacity. We're going to continue to invest in the balance of the year. I think the data we're seeing from some of the early reps that we've scaled up, this dedicated team for retail, is really, really positive. I think a lot of the products that we have, you think about payments, capital, payroll, scheduling, a lot of that applies.

There are also some very specific products around inventory that are very specific to retail that we continue to build out. By the way, they're specific to subcategories within retail. What's needed in grocery versus liquor stores versus convenience stores and such, there's some differences as well, but net net, I think if you look at where we are, I think we're ahead of expectations and the potential for my confidence in the potential of the business is the highest it's ever been.

That's great. I used the loyalty module at the grocery store in my neighborhood this weekend. Saved me $1.

Just.

On some of the macro dynamics in GMV, I was wondering if you could maybe provide latest and greatest breakdown of some of the GPV per location trends across the base. Obviously, as you just talked about, you've got maybe an up bias coming from retail, maybe a downward bias from some of the location adds internationally. We've been seeing negative same store sales for a while now in restaurants. Just kind of wondering if you could stack rank some of those drivers and talk about any notable changes there. Thanks.

Since we asked about retail right now, Will, even though at the analyst day we talked about how retail GPVs are higher than restaurants because we're newer, we're still growing into that and just want to clarify that. Overall, if you look at GPV trends, it's been largely flat for us and GPV per location was down 1%. It's been on this narrow band and mixed with a very small component of it. If you look at our customer base, overall, GPV has been largely about flat. I think it's up a very small amount. If you look at the rest of these segments, retail's a little bit higher, international is a little bit lower. Over time in each of these businesses, what Elena and team are doing a great job of is really looking at unit economics. They're looking at payback periods and margin.

We have confidence that all these businesses are great opportunities over time.

Awesome. Thanks for taking the question.

Thank you.

Speaker 3

Your next question comes from the line of J.P. Morgan. Your line is open.

Hey, thanks.

Speaker 2

Lots of fun momentum here. Just wanted to clarify on the third quarter, adjusted EBITDA expects to be sequentially down, it looks like. Is that the unlocking of certain investments that you called out there, Elena? Can you just elaborate on that maybe, and how discretionary that is? I also heard tariff expenses. I just want to get all that straight.

Thanks.

Speaker 1

Yeah, thanks. That's a great question. Look, we've got a lot of momentum in our customer segments. What you're seeing in the second half in terms of our margin is that we're increasing our investment in these areas to accelerate our progress. You heard Aman Narang talk about 10,000 live locations pacing to $100 million in arrangement. We want to continue to invest behind that, and that's really what you're seeing. Tariff is also playing a role, for sure. It's a fluid environment. Definitely, tariffs have a bigger impact in the second half of the year than the first half of the year. We've got a lot of conviction to invest, to grow, to drive sustained growth over the long term, which is what you're seeing us invest behind in the second half.

Speaker 2

Okay, great. My quick follow up just on Toast Go 3. Heard a lot of good things about this. Do you expect an upgrade cycle from existing customers using prior versions of Toast or is this more about attaching to new sales? Just trying to understand how that layers in. Yeah, I think it's both intentions. If you look at certainly new customers, they will likely start with Toast Go 3 device, but for a lot of existing customers, as their hardware refresh cycles come up, I think a lot of them are really excited about being able to use this device because it's got the cellular backup, especially if you've got big spaces. They like the ability to be able to use both Wi-Fi and cellular at the same time. Perfect. Thank you guys.

Speaker 3

Your next question comes from the line of Deji Heinz with Canaccord. Your line is open.

Thank you, guys. Congrats on the next quarter. Aman, we've had several quarters now with really nice enterprise momentum. I'm curious what you're seeing incumbent vendors at that end of the market doing to thwart the threat that Toast creates.

Speaker 2

Right.

Are they trying to innovate? Are they getting more aggressive on price? How price sensitive are the enterprise buyers? Any color on kind of competitive dynamics in the enterprise segment would be helpful.

Sure, DJ, if you zoom out and look at what's happened in the core independent restaurant business, the adoption of cloud was actually faster upmarket in enterprise. A lot of what we continue to see is a lot of legacy on-premise solutions that Toast is slicing. I don't think it's really about price, I think it's about leveraging modern tech where you can use the cloud, and that's really what's driving some of our growth. We're investing in a big way now with Firehouse Subs, not just in the non-drive-thru segment but also starting to invest now in the drive-thru segment. Certainly, if you look at the competitive environment, we've said this before, it's always been a very competitive environment in the space, and I think our focus is just on customers.

The more customer-obsessed we can be about solving the problems these enterprise brands have, I think that's what's really driving our growth and our success.

Speaker 1

Yeah, I would just build on DJ. We began investing in enterprise really a few years ago, and that's what you're starting to see show up as our capabilities have matured in a way where you're starting to see the likes of Applebee's Neighborhood Grill + Bar, and we closed Marriott a couple years ago. If you take Firehouse Subs as an example, one of the reasons they chose Toast was really about the capabilities in store. They really wanted to focus on performance in store. They wanted to increase staff efficiency, they wanted to improve guest experience reliability. To me, that's very much a capability. We were able to meet that demand, and that's why you're seeing our, that's just one example, but you're seeing our pipeline really improve as a result of this investment, which has taken a couple years to mature.

Speaker 2

Yeah, yeah.

Elena, can you just remind me, like a 1,500 location win, a 1,300 location win, how long does it take to stand those up? When do they start hitting into net ads?

Speaker 1

Yeah, it depends. We would collaborate with the new customer and decide what their pipeline is or when they're ready for implementation. It could be like Firehouse Subs. We already have some locations live, so it just depends on the velocity at which they want to go. Generally speaking, it's not that far after we book, and then it can take the course of one to two years, depending on how fast they want to go. Some customers want to go faster. Generally, a land like that could take four to six quarters on the outside, maybe two years.

Yep, perfect.

Speaker 2

Okay, thanks guys.

Congrats.

Thanks. Ej.

Speaker 1

Your next question.

Speaker 3

Your next question comes from the line of Timothy Cuda with UBS. Your line is open.

Great, thank you. I want to talk a little bit about what you mentioned in terms of the investment behind Go to Market. I want to keep it specific to core U.S. restaurants and not looking really at the growth market sales teams. I was hoping you could comment a little bit around your coverage in the major, major cities. I'm assuming you have salespeople in most of those, but is there more room to add in the major cities, or is that you've kind of got the coverage? Then, as you move into beyond those major markets, 50 miles outside of ABC major city, is there any kind of a plan to add coverage there, or would you consider more going with third party distribution partners, ISOs, banks, etc.? To the extent you could comment on the effectiveness of those channels in selling such a vertical specific product.

Thanks a lot.

Speaker 2

Thanks, Tim. It's a great question. It's actually one we debate internally all the time. If you look at the past five years we've spent, we've invested a lot to significantly increase our sales capacity. That's really what's driving the core of our growth. The great thing is you look at the supply effect we've talked about that continues. In these markets where we've got SMB coverage, you actually see productivity up year over year, this year as an example. It just shows that that strategy continues to work. In terms of what we're doing on coverage, I'd say in most markets, to your point, we've got coverage. That being said, there are some markets where we feel like we're underpenetrated. We're being surgical about saying in certain markets we want to add coverage. That's true whether they're metro areas or there are suburbs.

I think it just really depends on what our penetration is, what our productivity is. We use that to refine it, say on the edges. There's not a material step function change in terms of how much rep capacity we're adding. In terms of other channels, we've always had a really robust partner ecosystem. You know, 20% of our new customers come from referrals, that's food distribution partners, tech providers. That's certainly a key part of our funnel. We do think that it's important for us, to your point about this vertical product, that's restaurant specific, that we own the end to end experience. Whether it's the go to market, the onboarding, the support, we all own it all in house and we think that's a differentiator in addition to our platform. There aren't any plans right now to open that up beyond our core direct strategy.

We're certainly always exploring. It's a topic actually we talk about sometimes, all the time.

Thank you, Aman.

Yeah, thanks Tim.

Speaker 3

Your next question comes from the line of Matt Code with Charist. Your line is open.

Hey guys, thanks for taking the question here. Wanted to touch on ARPU again. You guys are rolling out a lot of different products that you talked about, whether it be on the AI front or some of the new hardware. Just curious if you could provide an update on kind of your strategy to price for value here.

Speaker 1

Yeah, sure. A couple things. One is, you know, our SaaS ARPU in Q2 was around 5%, and really how we think about our growth levers is really focusing on ARR and locations, and ARPU are both the vectors we think about. In terms of pricing, that's really just one small part of our ARPU growth. Absolutely we're focused on making sure we're driving value for our customers so that pricing is not an objection, if you will. If you zoom out and think about how can we drive ARPU growth over time, we have a lot of levers available to us. We know a lot of our products are not a terminal attached. We're going to continue to innovate. Data and AI will certainly play a role in that over time. We're still continuing to hone the upsell motion and really balance our land and expand motion.

Feeling really confident that the combination of our breadth of our platform will drive ARPU over time.

Thanks, Elena. Just for my quick follow up, the non-payment portion of gross profit, mainly Toast Capital, it was down, I think you said, to $40 million this quarter compared to $47 million last quarter. Could you unpack that a little bit for us? Is that kind of just timing related, that decline, or are you guys pulling back on certain loan growth right now?

Yeah, overall I would say the program is really healthy. There's seasonally some dynamic there in Q2, and there was a little softer demand at the start of the quarter. Overall, we feel really good about where Toast Capital's growth is. The defaults are in line with expectations. I feel really it's a good, healthy program for us and continues to be.

Speaker 3

Your next question comes from the line of Josh Baer with Morgan Stanley. Your line is open.

Speaker 2

Thanks for the question. Quick. One on Enterprise and one on International. Just wondering with regard to Firehouse Subs, talked about some of the reasons that they adopted Toast. Just wondering like how that translates into actual products are they using, if you can identify any of the suites that they're going to adopt and if payments is in there too. With regard to international and Australia, just wondering how we should think about it. Is it part of a broader wave two of international expansion and we're going to hear about other countries and GEOs, or is this kind of wave two and that's it for now?

Speaker 1

Yeah, on Firehouse Subs they're definitely taking payments, and in terms of the suite of products, obviously they're using our handhelds, are using our KDS and restaurant management suite. It's the breadth of our platform that they're using. I'll let Aman talk about international.

Speaker 2

Yeah, Josh, on Australia, I think your question was about is Australia, you know, part of a broader strategy on Wave two? Right. I think one of the things that's been great about this Australia launch is that we've been able to launch with the same products in Australia that we have actually in our H1 market. This is UK and Canada. It's the work, it's great work the R&D team has done to localize our platform where we can actually do that. As you know, it took us a long time in UK and Canada to get all these products out and the ARPU up. The fact that we can now launch into new countries with the full platform I think is a huge advantage for us.

In terms of this, in terms of whether or not we're going to add more countries, we're not ready to announce anything at this time. Certainly, I think, you know, it's a balance. On the one hand, we've got to make sure that in the countries we're in, we're not shortchanging ourselves, that we're set up to be successful. On the other hand, I think if you look long term, like to be aspired to do more internationally and more globally. Absolutely. The answer is yes. Okay, thank you. Appreciate it. Thanks.

Speaker 3

Josh, your next question comes from the line of Darien Peller with Wolfe Research. Your line is open, guys.

Speaker 2

Thanks.

Speaker 0

For the record net adds of 8,500, just how much of that was driven by the core business versus the TAM expansion and then just kind.

Speaker 2

Of doubling down on that. When you look at the 10,000 location.

Speaker 0

Goal, it's great to see you pass.

That for Enterprise, International, and FNB Retail.

Speaker 2

Is there any way to give us?

A bit more granularity around the composition.

Speaker 0

Of these 10,000 and just where they.

Speaker 2

Fit within those three buckets?

Thanks guys.

Hey Darren. If you look at our core business that's still driving, the core, the bulk of our growth, we've been at this obviously as we've said before, for more than a decade. If you look at the number of go lives, for example, in our core business that's never been higher, the rep productivity is at a really healthy level. The most penetrated markets are seeing healthy gains, like higher than the average markets where we have the most penetration. The core business is incredibly healthy. Now, are these new businesses contributing more as they're scaling? Yes. If you look at retail and national enterprise in terms of the % of net % of go lives, certainly that number is bigger than it's ever been just because we're now scaling in those markets as well. That's really what's driving the record net adds in the business.

We're on track not only for this quarter but for the year, as we said last quarter, to have record net adds for the year as well. In terms of the exact composition and breakdown across the three, only thing I'll say is across all of them we're seeing good momentum. If you look at retail, we're adding more sales capacity because the margin, the ARPUs are over $10,000, the rep productivity is healthy and that gives us signal that we should lean in and invest in international. We've increased ARPU and we're seeing rep productivity be comparable to what we've seen in our U.S. SMB business. Even though we don't have the level of, we don't have the brand or the penetration that we have in the U.S. and that's a good signal. Enterprise, I think enterprise is going to be gradual, right?

If you look at these wins, while they're awesome, enterprise wins the longer sales cycles and we expect them to be a gradual drip over time. All three of them are contributing in all three areas. We're investing to continue to open up the longer, longer term opportunity in front of us.

Speaker 0

That's great to hear, thanks. Just a quick follow-up would be on SaaS ARPU. It's still growing very well, and when we think about how much is driven by customers coming on with higher SaaS ARPU versus just the upsell team continuing to do well, how do we distinguish that? If you can help us out.

Speaker 2

Thanks guys.

Speaker 1

Yeah, so it's both, right? We're seeing ARPU both from customers and existing customers, and one thing we're talking about is floating our land and expand motion. The Upsell team is absolutely contributing to that in terms, and their execution is solid. I think over time obviously we want to continue to optimize our product market fit across our whole set of products and continue to drive that. Overall, seeing really good progress across both new and existing customers.

That's great. Thanks.

Speaker 2

Thanks guys.

Speaker 3

Your next question comes from the line of David Koning with Bear. Your line is open.

Speaker 2

Yeah. Hey guys, great job. I guess first of all, you know, between Q3 guidance and full year guidance, we have a little insight into Q4. It looks like 21, 22% at the midpoint in terms of recurring GP growth in IS. Is that a good, if that's the exit point, is that a good insight into kind of how next year starts and maybe what might be the moving parts that could kind of move it either way over time.

Speaker 1

Yeah, thanks for the question. A couple of things. One is, as you know, we always aim to do better, and that's really important in how we balance our guidance. Just keep in mind the first half of the year benefited from that ARR conversion. That's a dynamic at play in the second half of the year. GPV was better than our expectations in Q2. In terms of how we guide, we really focus on being prudent and balanced as we enter into any guidance cycle. The other thing I'll tell you is our investment that we have, you know, we've talked about on this call, is really in service of sustaining our growth over the long term. We're always going to aim to do better, and these investments really will position us for growth not only in 2026, but beyond.

Speaker 2

Great, thanks. Just quick follow up. July trends, you know, obviously Q2 got better with volume, which is great. July trends, like per location, did that start out pretty well? Yeah, it's in line with expectations. Yeah. Great. I think we're in good shape in July. Yep. Yeah.

Speaker 3

Your next question comes from the line of Dan Dolev with Mizuho Securities. Your line is open.

Hey guys, great results here as always. Can you please help us understand how the American Express partnership enhances the flywheel here? Because it seems very cool, you know, that deal that you're doing.

Speaker 2

Appreciate that.

Thank you.

Sure, Dan. What we're doing in this MX partnership is, one, we're combining inventory from Resy, Tock, and Toast Tables into our app. This is Toast Local, and the idea is you've got one place now where you can go find a place to book restaurants. It's a broad set of restaurants that are available now when you book on any of these platforms. When you check in at the restaurant, what the Toast platform can do is create a personalized experience for you. It's everything from, you think about allergies, notes, birthdays, but also being able to recommend menu items, whether it's your favorite drink or it is items that you love. If you think about most people, they've got these preferences in their taste profile.

The ability to empower the staff, the host, and the server in the kitchen with that data is really valuable in creating personalized experiences. I think those are two areas of focus: one, broaden the inventory within local, and two, provide a great experience for the guests, including for American Express card members.

Thank you so much. Great stuff again.

Appreciate it.

Speaker 3

We will now take our last question from the line of Harshita Rawat with Bernstein. Your line is open.

Speaker 1

Good afternoon. I want to ask about Sous Chef, which you announced last year. I know you're currently doing pilot. What are you hearing from your customers in terms of the problem they're solving with this AI-powered assistant and the.

Speaker 3

Value you're driving and how differentiated is.

Speaker 1

That product in the market?

Speaker 2

Thank you. Yeah, thanks for the question, Rashida. We are making really good progress with Sous Chef. The customer feedback has been really positive. I think what people like about the product in beta is if you think about most restauranteurs, you know, they're not CTOs, they're not CIOs. The ability to have a human interface to be able to get insights, to get recommendations, to be able to actually make changes, this is the ability to take action within the capability, is something that we're getting really good feedback and input on. I think ultimately our goal here is to build the world's best GPT-like interface for restaurants because we've got all this great data and we're taking feedback from customers. We plan to GA the platform at some point later this year. Thank you.

Speaker 3

This concludes today's conference call. Thank you for joining.