TOST Q1 2025: Strong enterprise pipeline and confident Q2 net adds
- Robust Enterprise Pipeline & Attachment Rates: Executives highlighted an exceptionally strong enterprise win momentum with multiple marquee logos (e.g., Applebee’s, Marriott, Hilton) and emphasized that the majority of enterprise signings attach payments, bolstering revenue and profitability.
- Innovative AI Initiatives with Early Impact: The company’s push on AI through suchef and Toast IQ is already showing early customer impact, such as increased check sizes and improved operational efficiency, setting the stage for future monetization opportunities.
- Resilient Core Performance Amid Macro Uncertainty: Stable same-store sales and consistent new business formations were noted, with consumer trends remaining steady and sales productivity up year-over-year, underpinning a sustainable growth narrative even in a dynamic macro environment.
- Macro Sensitivity: Executives acknowledged that while consumer trends have remained stable, a deeper recession could force the company to pull back on non–revenue-generating spending, which might negatively affect growth and margin expansion.
- Competitive Pressure: The emergence of partners like DoorDash transitioning into direct competitors with their own POS systems poses a risk to Toast’s market share and long-term growth.
- Guidance Uncertainty: Reliance on strong Q1 productivity to drive record net adds in Q2 leaves room for caution; if the anticipated momentum falters amid a volatile macro environment, it may lead to lower-than-expected location growth.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +24% (from $1,075M in Q1 2024 to $1,337M in Q1 2025) | **The revenue jump was driven by robust growth in both Subscription Services and Financial Technology Solutions. The increase in the number of locations on the Toast platform and continued rise in product adoption that were seen in previous periods have compounded to drive this current period’s 24% increase in total revenue. ** |
Subscription Services Revenue | +38% (from $151M in Q1 2024 to $209M in Q1 2025) | **Growth in subscription revenue was primarily due to a significant expansion in the number of locations adopting the platform, continuing the momentum from prior periods where similar trends were observed. The current period’s 38% increase reflects both an increased customer base and higher product adoption levels. ** |
Financial Technology Solutions Revenue | +24% (from $873M in Q1 2024 to $1,082M in Q1 2025) | **The 24% increase in FinTech revenue is attributed to the accelerated number of locations using Toast’s financial services, a trend consistent with prior periods. Enhanced transaction volumes on the platform have led to higher revenues, mirroring the earlier growth seen in this segment. ** |
Hardware and Professional Services Revenue | –10% (from $51M in Q1 2024 to $46M in Q1 2025) | **The decline in this segment, down 10%, contrasts with gains seen in other areas and is likely due to softer demand or a strategic shift away from hardware provisioning, even though previous periods showed growth driven by new locations. ** |
Net Income | Turnaround from –$83M in Q1 2024 to +$56M in Q1 2025 | **A marked operational turnaround was achieved by leveraging increased total revenue and improved cost management compared to prior periods. This positive shift from a significant loss to profitability underscores a strong recovery in operational efficiency. ** |
Gross Profit | +8% (from $320M in Q1 2024 to $346M in Q1 2025) | **Moderate gross profit growth of 8% reflects both the benefits of higher revenue volumes and the impact of increased costs associated with expanding operations. This improvement, although less pronounced than revenue changes, follows the trend of improved operational adjustments from previous periods. ** |
Total Assets | +25% (from $2,052M in Q1 2024 to $2,564M in Q1 2025) | **The balance sheet strengthened as Total Assets rose by approximately 25%, driven by a substantial increase in current assets such as cash, other current assets, and non-current items. This growth is consistent with prior improvements in liquidity and overall financial positioning. ** |
Liquidity (Cash and Equivalents) | +63% (from $771M in Q1 2024 to $1,259M in Q1 2025) | **The dramatic increase in liquidity underscores improved cash management. Enhanced operating cash flows, favorable investing inflows (like marketable securities), and cost efficiencies led to a sizable cash balance boost over the previous period, reflecting a more robust financial profile. ** |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total subscription and fintech gross profit growth | Q1 2025 | no prior guidance | 27% to 30% | no prior guidance |
Adjusted EBITDA | Q1 2025 | no prior guidance | $100 million to $110 million | no prior guidance |
Recurring gross profit streams growth | FY 2025 | no prior guidance | 23% to 25% | no prior guidance |
Adjusted EBITDA | FY 2025 | no prior guidance | $510 million to $530 million, reflecting a 30% margin at the midpoint | no prior guidance |
Free cash flow | FY 2025 | no prior guidance | Anticipated to broadly mirror adjusted EBITDA for the full year, with typical seasonality (lower free cash flow in Q1 due to the payments business and timing of annual cash bonuses) | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total subscription & fintech gross profit growth | Q1 2025 | 27% to 30% | 35% (calculated from Q1 2024 gross profit of 291Vs. Q1 2025 gross profit of 394) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Enterprise Pipeline & Attachment Rates | In Q3 2024, the pipeline was noted for continuous enterprise growth and custom capabilities to serve large clients. Q2 and Q4 2024 provided no commentary on the topic. | Q1 2025 officials described the enterprise pipeline as “never been stronger” with marquee wins (Applebee’s, Marriott, etc.) and reiterated the significant role of high attachment rates in their growth strategy. | Consistent positive focus with increased emphasis in Q1 2025 on robust enterprise engagement and strong attachment, reinforcing its strategic importance. |
AI Initiatives & Product Innovation | Q2 2024 and Q4 2024 discussed data utilization, early-stage AI tools (like benchmarking and Sous Chef) and generative AI aspects, while Q3 2024 focused on new product features (SMS Marketing, Branded App) without explicit AI references. | In Q1 2025, Toast introduced innovative AI tools such as suchef and Toast IQ, building an AI-first culture and delivering measurable impact (e.g. 6% order uplift, 10x ad spend returns). | Shift toward a more advanced, AI-driven platform; the current period shows deeper integration of AI into product innovation compared to earlier broader product enhancements. |
Location Growth & Net Location Additions | Q2 2024 reported record net adds (around 8,000) and Q3 2024 highlighted 7,000 net additions with strong performance in core and flywheel markets, while Q4 2024 emphasized record annual growth with significant contributions from core SMB. | Q1 2025 added over 6,000 net locations to reach approximately 140,000 total, with strong momentum in the core U.S. segment and raised full‐year outlook. | Consistently strong and growing; the strategy remains steadfast with a raised outlook in Q1 2025 affirming continuous expansion. |
Macro Environment Impact & Same-Store Sales/GPV Trends | Q2, Q3, and Q4 2024 discussions indicated stable same‐store sales and a consistent 3% decline in GPV per location, with acknowledgment of external weather and macro factors. | Q1 2025 confirmed stable consumer trends with continued 3% GPV per location decline, while overall GPV grew robustly and management remained confident in navigating macro challenges. | Stability is maintained despite minor declines per location; overall sentiment shows resilience in managing macro and seasonal pressures across periods. |
Payments ARR Growth & Pricing Optimization | Q2 2024 showed 24% ARR growth with plans for targeted pricing increases, Q3 2024 reported 23% growth with minimal pricing tweaks, and Q4 2024 highlighted a 35% growth driven by a significant price change and cost optimization efforts. | Q1 2025 reported 31% ARR growth alongside a 4 basis point take rate improvement via ongoing cost optimization and targeted pricing initiatives. | Strong and consistent payments growth with incremental, measured pricing optimizations that continue to contribute positively to margins. |
Expansion into New Markets & International Segments | Q2 2024 detailed early international expansion (2,000 live locations) and entry into new segments like retail, while Q3 2024 emphasized product rollouts in retail and enterprise wins, and Q4 2024 focused on significant partnerships and a 50% boost in international ARPU. | Q1 2025 stressed a goal to cross 10,000 locations across international, retail, and enterprise segments, showcased flagship enterprise wins (Applebee’s) and pointed to continued international momentum with rising ARPU. | Continued strategic focus; the initiative is consistently prioritized with refined tactics and strong execution showcased in Q1 2025. |
Competitive Dynamics | No discussion or mention in Q2, Q3, or Q4 2024 earnings calls. | In Q1 2025, competitive concerns surfaced specifically with DoorDash being noted as an emerging competitor, prompting reiteration of Toast’s vertical, differentiated strategy. | A new discussion point in Q1 2025; the emergence of competitors like DoorDash has spurred heightened awareness and defensive strategy adjustments. |
Guidance Uncertainty & Revenue Sensitivity | Q2 2024 featured discussion on managing macro challenges and stable guidance; Q3 2024 mentioned generic forward-looking statements; Q4 2024 did not address the topic. | Q1 2025 provided a detailed discussion on guidance uncertainty and revenue sensitivity, citing stable consumer trends, raised full-year outlook, and effective management of macroeconomic variances. | More robust treatment in Q1 2025 with explicit acknowledgment of uncertainties and a confident, balanced approach—reflecting improved communication and strategic management. |
Customer Retention & Rising Churn Rates | Q2 2024 noted slightly over 10% churn (mostly out-of-business) with minimal ARR impact, while Q3 2024 reiterated that churn remains consistent and primarily driven by smaller restaurants; Q4 2024 did not mention churn. | Q1 2025 did not mention customer retention or rising churn rates. | The absence of discussion in Q1 2025 may indicate stable retention metrics, making it a lower priority in current strategic messaging. |
Early-Stage Revenue Streams & New Product Upsell Opportunities | Q2 2024 highlighted early-stage revenue from new product suites, digital upsell opportunities, and enhanced product adoption (e.g. upgraded tiers), while Q3 2024 focused on guest tools like the Branded App and SMS Marketing. | Q1 2025 strongly emphasized AI-driven upsell opportunities (suchef, Toast IQ) and an expanded role for early revenue streams including increased performance of Toast Capital, reinforcing monetization efforts through technology and data insights. | Evolving product monetization through innovative AI-driven tools shows an upswing in focus; transitioning from traditional upsell tools to advanced, integrated revenue streams. |
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Location Growth
Q: Confidence in Q2 location growth?
A: Our core business productivity is strong, and we remain confident that Q2 net adds will continue on an upward trajectory despite macro challenges. -
Take Rate Increase
Q: What drove take rate increase?
A: We improved our take rate by 4 basis points through a combination of pricing initiatives, cost optimization, and subtle product surcharges. -
Enterprise Payback
Q: What are enterprise deal paybacks?
A: Enterprise deals show attractive unit economics with payback periods in the mid-teens months, reflecting strong LTV-to-CAC dynamics. -
Applebee's Win
Q: Why was the Applebee's deal attractive?
A: Applebee's valued our advanced technology that boosts operational efficiency, marking a significant upmarket win that opens doors to similar large-scale deals. -
Software ARPU
Q: What drives software ARPU growth?
A: Effective ARR conversion and solid execution have pushed software ARPU into double-digit levels, underlining our growth levers. -
Macro Trends
Q: How are same-store sales and new deals?
A: Consumer trends and same-store sales remain stable, with strong sales productivity supporting steady gains in new business formations. -
Pricing Strategy
Q: How is pricing managed in the current macro?
A: We employ a balanced pricing approach focused on expanding ARR and maintaining healthy attach rates amid macro uncertainties. -
Cost Management
Q: How will costs be controlled in a recession?
A: If necessary, we will decisively cut non–revenue generating expenses while preserving critical long-term investments. -
Competitive Strategy
Q: How do you counter emerging POS competitors?
A: We continue investing in a comprehensive, vertically integrated platform that differentiates us from competitors and enhances local customer experiences. -
Enterprise Payment Attachment
Q: Are most enterprise deals attaching payments?
A: Yes, the vast majority of our enterprise agreements include payments, strengthening overall unit economics. -
Hardware Tariffs
Q: What’s the impact of hardware tariffs?
A: Diversification of our supply chain has rendered hardware tariff costs manageable, with ongoing assessments on pricing pass-through. -
International Traction
Q: How is international expansion faring?
A: International growth mirrors our early U.S. experience with healthy per-location performance, though referral traction is still emerging. -
Location Mix
Q: How balanced is new versus existing location growth?
A: Our core business drives the majority of growth with a well-balanced mix, as new segments gradually contribute more over time. -
Topgolf Deal
Q: What is the significance of the Topgolf win?
A: The Topgolf deal exemplifies our platform’s versatility, opening broader opportunities and expanding our total addressable market. -
AI Rollout
Q: What is the status of AI solutions rollout?
A: We are in the early stages with AI tools like Toast IQ and suchef, focusing on customer impact before broader monetization. -
AI Pricing
Q: Any insights on Toast IQ pricing?
A: AI pricing remains in an early phase, with our current efforts concentrated on demonstrating tangible value to customers. -
Legacy Competition
Q: How have legacy vendors reacted?
A: There has been minimal reaction from legacy vendors as we steadily grow our platform and expand into upmarket segments. -
Restaurant Credit Health
Q: How are restaurant credit metrics?
A: Credit health remains robust with default rates and originations aligning with our expectations, reflecting a stable risk profile.