TOST Q2 2025: Q3 EBITDA guidance cut by investments and tariffs
- High Retail ARPU Growth: Analysts noted that retail customers are already delivering ARPUs north of $10k, underlining a significant value proposition and the potential for sustained recurring revenue growth in this segment.
- Innovative Product Upgrades Driving Demand: The introduction of the Toast Go Three—with features like built‑in cellular connectivity—creates an upgrade cycle for existing customers and attracts new sales, reinforcing product differentiation and enterprise momentum.
- Strategic Partnerships Boosting Customer Experience: The collaboration with American Express integrates reservation and personalization capabilities into Toast’s platform, enhancing the guest experience and further driving customer loyalty and attraction.
- Margin Pressure from Higher Investments and Tariff Impacts: Management noted that increased investments in sales, marketing, and new product initiatives—along with higher tariff expenses expected in the second half of the year—could pressure margins, possibly resulting in lower near-term profitability.
- Slower Enterprise Adoption and Sales Cycle Concerns: The enterprise segment, while showing momentum, is characterized by longer sales cycles (potentially up to two years) and a gradual ramp-up of revenues, which might delay material contributions to overall growth.
- Weakness in the Non-Payment Segment (Toast Capital): The Q&A highlighted a decline in non-payment gross profit (from $47,000,000 to $40,000,000), indicating potential softness in loan growth or timing issues that could impact overall recurring profitability.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Subscription and FinTech Gross Profit Growth | Q3 2025 | no prior guidance | Expected to grow in the range of 23% to 26% year over year | no prior guidance |
Adjusted EBITDA | Q3 2025 | no prior guidance | Expected to be $140,000,000 to $150,000,000 | no prior guidance |
FinTech and Subscription Gross Profit Growth | FY 2025 | no prior guidance | Expected to grow 29% | no prior guidance |
Adjusted EBITDA | FY 2025 | no prior guidance | Expected to be $575,000,000, with a margin of 32% (up five percentage points versus 2024) | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Retail ARPU Growth | Q1 emphasized strong ARPU and multiple levers to drive growth ; Q4 noted early-stage healthy economics ; Q3 mentioned slightly higher ARPU in CPG retail and careful monitoring of unit economics | Q2 showcased retail ARPU exceeding $10K with deeper inventory tools, expanded integrations, and dedicated sales investments | Positive momentum with improved realized value and targeted investments. |
Innovative Product Upgrades | Q1 focused on AI-driven enhancements like Suchef and Toast IQ ; Q3 introduced branded app and SMS marketing with several new features ; Q4 had limited details beyond enterprise capability investments | Q2 announced the new Toast Go 3 device with cellular backup, SUSHift pilot, enhanced retail inventory solutions, and an Amex partnership | Enhanced innovation with a stronger AI and hardware focus that differentiates the product suite. |
Enterprise Adoption Dynamics | Q1 highlighted strong enterprise signings, a robust pipeline, and consistent wins ; Q3 and Q4 underscored momentum with notable enterprise wins and product investments | Q2 emphasized accelerated adoption of cloud-based solutions in enterprise, mature pipeline investments, and significant wins with brands like Firehouse Subs | Consistent strategic priority with matured execution and continued high-growth potential. |
Strategic Partnerships | Q1 and Q3 provided little detail, while Q4 mentioned exploring international distribution strategies | Q2 introduced a significant strategic partnership with American Express, integrating reservation listings across platforms to personalize guest experiences | New and more robust focus on partnerships, expanding both reach and capabilities. |
Margin Pressure from Investments and Tariff Impacts | Q1 described balancing margin expansion with growing investments and manageable tariff impacts ; Q4 focused on disciplined investments with margin expansion while not addressing tariffs; Q3 did not mention this topic | Q2 detailed increased margin pressure driven by higher investments and tariff impacts, with CFO noting a bigger tariff impact expected later in the year | An ongoing challenge now accentuated in Q2 as investment and tariff pressures slightly increase. |
Weakness in the Non-Payment Segment (Toast Capital) | Q1 and Q3 emphasized healthy growth, strong demand, and defaults in line with expectations ; Q4 highlighted consistent gross profit growth and improved bad debt management | Q2 reported seasonally softer demand with gross profit slightly lower than the previous quarter, though defaults remain aligned with expectations | A hint of softness emerges in revenue metrics, yet overall fundamentals remain solid. |
Innovative AI Initiatives | Q1 showcased AI initiatives with Suchef and Toast IQ generating positive customer outcomes ; Q4 highlighted benchmarking tools and sous chef initiatives for operational insights ; Q3 did not include AI updates | Q2 reinforced AI leadership via integration in Toast Go 3 and piloting SUSHift for real‐time recommendations and actions | A consistent and evolving focus on AI that builds on previous successes and expands its utility. |
Macro Sensitivity and Economic Uncertainty | Q1 discussed stable consumer trends with cautious pricing and cost management ; Q3 briefly mentioned monitoring macro trends ; Q4 did not address macro dynamics | Q2 mentioned minor GPV fluctuations and highlighted tariff impacts, subtly reflecting ongoing economic uncertainties | Stable sentiment overall but with new nuances from tariff impacts adding a layer of concern. |
Competitive Pressure from Evolving Partners | Q1 noted competition from evolving partners like DoorDash and emphasized platform differentiation ; Q3 and Q4 offered little commentary | Q2 reiterated competitive pressure in the enterprise space, stressing modern cloud technology and customer-centric solutions to counter legacy competitors | Recurring competitive dynamics with an ongoing shift toward technology-led differentiation. |
Record Location Growth and New Market Expansion | Q1, Q3, and Q4 consistently reported strong net location additions and expansion into enterprise, international, and retail segments with significant wins | Q2 reported a record 8,500 net new locations, reaching 148,000 total, and highlighted continued expansion across enterprise, international, and retail segments | Continued robust growth across core and new markets, reinforcing sustained expansion strategies. |
Payments ARR Growth and Pricing Strategy | Q1 achieved 31% ARR growth with balanced, targeted pricing moves ; Q3 showed 23% growth with incremental pricing adjustments ; Q4 recorded 35% growth with gradual pricing changes | Q2 demonstrated 32% ARR growth alongside targeted pricing (including surcharging) that improved net take rates | Stable ARR growth underpinned by consistent pricing strategies aimed at optimizing unit economics. |
Declining GPV per Location and Operational Metrics Visibility | Q1 observed a 3% decline in GPV per location yet strong overall metrics and visibility ; Q3 noted a 3% drop with consistent guidance ; Q4 reported a 1% decline and discussed ARR conversion dynamics affecting visibility | Q2 indicated a 1% decline in GPV per location accompanied by record location growth and strong operational performance, enhancing overall visibility | A persistent challenge with slight improvements in the rate of decline as robust operational metrics offset GPV headwinds. |
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Margin Guidance
Q: Why is Q3 EBITDA lower?
A: Management explained that Q3 EBITDA is expected to be lower due to increased investments and tariff expenses, setting the stage for long‐term growth. -
Hardware Upgrade
Q: Will customers upgrade to Toast Go three?
A: They expect both new customer sales and natural hardware refresh cycles, with the cellular backup feature driving customer interest. -
Retail ARPU
Q: What drives retail ARPU over 10k?
A: The robust retail performance is attributed to a dedicated sales team and tailored vertical-specific products that push ARPU above $10,000. -
GPV Trends
Q: How is GPV per location trending?
A: GPV per location edged down by 1%, reflecting the mix across segments while overall unit economics remain healthy. -
Enterprise Competition
Q: How are incumbents responding in enterprise?
A: Management noted that competitors rely on outdated legacy systems, while Toast’s modern, cloud-based approach continues to win over customers. -
Win Timeline
Q: How fast do enterprise wins add locations?
A: For large-scale wins, such as a 1,300-site deal, sites typically go live within 1–2 years, depending on customer demand and implementation pace. -
Sales Coverage
Q: Are major cities fully covered?
A: The team has strong coverage in key markets and is selectively adding capacity in underpenetrated regions to enhance productivity. -
SaaS ARPU & Non-Payment
Q: How is SaaS ARPU growing and what about Toast Capital?
A: Both new customer acquisitions and upsell efforts are boosting SaaS ARPU, while the non-payment segment (Toast Capital) delivered around $40M in gross profit, despite seasonal variations. -
Guidance & July Trends
Q: What do guidance and July trends indicate?
A: Management’s guidance remains prudent, with July trends aligning with expectations, reinforcing steady momentum for the balance of the year. -
Amex Partnership
Q: How does the Amex deal boost the platform?
A: The partnership integrates broader inventory with a personalized dining experience for Amex card members, strengthening the platform’s flywheel effect. -
AI Assistant
Q: What progress has been made on the AI assistant?
A: Early pilots of the SUSHift AI assistant have shown positive customer feedback for actionable insights, positioning it for a future general availability launch.
Research analysts covering Toast.