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.

Thank you. Welcome to Toast earnings conference call for the second quarter ended 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&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 and 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 of 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 uncertainties 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.

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 profit 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 to 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 U.K., Ireland and Canada and another step towards building the leading platform -- 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 Local by Toast, 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 the two companies can deliver together for both restaurants and diners through this exciting partnership.…

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 were 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…

[Operator Instructions] Your first question comes from the line of Will Nance with Goldman Sachs.

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 and you've talked about this being a very large average merchant side. I was wondering if you could talk through that number and maybe give some context on the breakdown between payments and software. And then you mentioned further enhancements to the product. Where are you kind of now versus where you want to be on the software suite for that vertical? And what types of things do you think to be on the road map. I appreciate it.

Yes. Well, thanks for the question. 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. And so if you look at how quickly we've been able to get retail ARPU up over $10,000, I think, 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. And 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, but there are also some very specific products around inventory and that are very specific to retail that we continue to build out. And by the way, they're specific to subcategories within retail. So what's needed in grocery versus liquor stores versus convenience stores and such, there are 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 to grocery store in the neighborhood this weekend, saved me $1. Just on the -- some of the macro dynamics in GMV, I was wondering if you could maybe provide kind of 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 upward 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. So just kind of wondering if you could stack rank some of those drivers and talk about any notable changes there?

Yes. Since you asked about retail right now, well, 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 so I just want to clarify that. But 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 mix is a very small component of it. Like if you look at our customer base overall, GPV has been largely been about flat. I think it's up like a very small amount. And then if you look at the rest of the segments, retail is a little bit higher. International is a little bit lower. But I think 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 margins. And we have confidence that all of these businesses are great opportunities over time.

Your next question comes from the line of Tien-Tsin Huang with JPMorgan.

Lots of fun momentum here. Just wanted to clarify on the third quarter EBITDA expected 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.

Yes. Thanks. It's a great question. Look, we've got a lot of momentum in our customer segments. So 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 talk about 10,000 live locations. Pacing to $100 million in ARR. So 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. But 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.

Okay. Great. Then my quick follow-up just on Toast Go 3. I heard a lot of good things about this. Do you expect an upgrade cycle from existing customers using prior versions of Toast Go or is this more about attaching to new sales? Just trying to understand how that layers in?

Yes, I think it's both, Tien-Tsin. If you look at, certainly new customers will likely start 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.

Your next question comes from the line of DJ Hynes with Canaccord.

So 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, right? Are they trying to innovate? Are they getting more aggressive on price? How price sensitive are the enterprise buyers? Just 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. And so a lot of what we continue to see is a lot of legacy on-premise solutions that Toast is facing. And so 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 but we're also starting to invest now in the drive- thru segment. And certainly, if you look at the competitive environment, we've said this before, it's always been a very competitive environment in this space. And I think our focus is just on customers like 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.

Yes. And I would just build on, DJ. We've begun investing in enterprise really a few years ago, and that's what you're starting to see show up is our capabilities have matured in a way where you're starting to see the likes of Applebee's, and we closed Marriott a couple of years ago. And if you take Firehouse, as an example, one of the reasons they chose Toast is 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. And so 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 is taken a couple of years to mature.

Yes, yes. And then, Elena, can you just remind me like a 1,500 location win, a 1,300 location win? Like how long does it take to stand those up? When do they start hitting into net adds?

Yes, it depends. We would collaborate with the new customer and decide what their pipeline is or when they're ready for implementation. But it could be -- like Firehouse, we already have some locations live. So it just depends on the velocity at which they want to go. But generally speaking, it's not that far after we book and then it can take the course of 1 to 2 years depending on how fast they want to go. Some customers want to go faster. But generally, a land like that will take -- could take 4, 6 quarters on the outside, maybe 2 years.

Your next question comes from the line of Timothy Chiodo with UBS.

I want to talk a little bit about what you mentioned in terms of the investment behind go-to-market, but I want to keep it specific to core U.S. restaurants and not looking really at the growth market sales teams. So 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. And then second, as you move into beyond those major markets, so 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, et cetera, and to the extent you could comment on the effectiveness of those channels in selling such a vertical-specific product.

Thanks, Tim. It's a great question. It's actually one we debate internally all the time. If you look at the past 5 years, we've invested a lot to significantly increase our sales capacity. And that's really what's driving the core of our growth. The great thing is you look at the flywheel effect we've talked about, that continues. So like in these markets where we've got SMB coverage, you actually see productivity up year-over-year this year as an example. So it just shows that, that strategy continues to work. Now in terms of like 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. So we're being surgical about saying in certain markets, we want to add coverage. And that's true whether they're metro areas or they're suburbs. And so I think it just really depends on kind of what our penetration is, what our productivity is. And so we use that to refine, I'd say on the edges, but it's not like a material step function change in terms of how much rep capacity we're adding. I think in terms of like other channels, we've always had a really robust partner ecosystem, like 20% of our new customers come from referrals, that's food distribution partners, tech providers. And so that's certainly a key part of our funnel. But we do think that like it's important for us, to your point about this vertical product that's restaurant-specific that we own the end- to-end experience. And so whether it's the go-to-market, the onboarding, the support we own it all in-house, and we think that's a differentiator in addition to our platform. And so there aren't any plans right now to open that up beyond our core direct strategy, but we're certainly always exploring it's a topic actually we talk about all the time.

Your next question comes from the line of Matt Coad with Truist.

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

Yes, sure. So a couple of things. One is 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. And in terms of pricing, that's really just one small part of our ARPU growth. But absolutely, we're focused on making sure we're driving value for our customers so that pricing is not an objection, if you will. But 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 -- A, 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. And then we're still continuing to hone the upsell motion and really balance our land and expand motion. So feeling really confident that the combination of our breadth of our platform will drive ARPU over time.

Yes, just for my quick follow-up, the nonpayment portion of gross profit, so 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 to that decline? Or are you guys pulling back on certain loan growth right now?

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

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

A quick one on the enterprise and one on international. Just wondering with regard to Firehouse, you 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? And then with regard to international and Australia, just wondering how we should think about it? Is it part of a broader wave 2 of international expansion, and we're going to hear about other countries and geos? Or is this kind of wave 2 and that's it for now.

Yes. 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. So it's the breadth of our platform that they're using. And I'll let Aman talk about international.

Yes, Josh. On Australia, I think your question was about is Australia part of a broader strategy on wave 2, 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 U.K. Ireland and Canada. And it's the work -- it's the 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 U.K., Ireland and Canada to get all these products out and the ARPU up. And so 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 whether or not we're going to add more countries, we're not ready to announce anything at this time. But certainly, like it's a balance, right? On the one hand, we've got to make sure that in the countries we're in, we're not shortchanging ourselves so that we're set up to be successful. On the other hand, I think if you look long term, like do we aspire to do more internationally and more globally? Absolutely, the answer is yes.

Your next question comes from the line of Darrin Peller with Wolfe Research.

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 of doubling down on that. When you look at the 10,000 location goal -- it's great to see you pass that for enterprise, international and F&B retail. Is there any way to give us a bit more granularity around the composition of these 10,000 and just where they fit within those three buckets?

Darrin, so if you look at our core business, that's still driving right? The bulk of our growth, we've been at this, obviously, as we've said this before, for more than a decade. And if you look at like the number of go-lives, for example, in our core business that's never been higher. The rep productivity is at really healthy level. The most penetrated markets are seeing healthy gains, in fact, higher than the average markets where we have the most penetration. So really, the core business is incredibly healthy. Now are these new businesses contributing more as they're scaling, yes, right? If you look at retail, international, enterprise in terms of the percentage of -- net percentage of go-lives, certainly that number is bigger than it's ever been, just because we were now scaling in those markets as well. And 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, the only thing I'll say is across all of them, we're seeing good momentum, right? If you look at retail, we're adding more sales capacity because the margin -- the ARPUs is over $10,000, the rep productivity is healthy. And so that gives a 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 so that's a good signal. And enterprise -- I think enterprise is going to be gradual, right? Because if you look at these wins, while they're awesome, enterprise wins, the longer sales cycles and so we expect them to be a gradual drip over time. And -- but all three of them are contributing in all 3 areas, we're investing to continue to open up the longer-term opportunity in front of us.

That's great to hear. Just a quick follow-up would be on SaaS ARPU. It is still growing very well. And so 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 could help us out.

Yes. It's -- so it's both, right? We're seeing ARPU both from customers and existing customers. And that's one thing we're talking about is honing our land and expand motion. But 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. But overall, seeing really good progress across both new and existing customers.

Your next question comes from the line of David Koning with Baird.

Great job. I guess, first of all, 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. 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.

Yes. Thanks for the question. So a couple of things. One is, as 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. So that's a dynamic at play in the second half of the year. And then GPV was better than our expectations in Q2. And so just 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 investments that we have, we've talked about on this call is really in service of sustaining our growth over the long term. So we're always going to aim to do better, and these investments really will position us for growth not only in '26 but beyond.

Great. And just a quick follow-up. July trends. Obviously, Q2 got better with volume, which is great. July trends, like per location, did that start out pretty well?

Yes, it's in line with expectations. Yes, I think we're in good shape in July.

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

Great results here, as always. Can you please help us understand how the Amex partnership enhances the flywheel here because it seems very cool. That deal that you're doing. Appreciate that.

Sure, Dan. If you -- so what we're doing in this Amex partnership is, one, we're combining inventory from Resy, Tock and Toast Tables into our app. This is Toast Local. And the idea is it's -- you've got one place now where you can go find, right, a place to book restaurants, 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. So it's everything from -- you think about allergies, notes, birthdays, but also be able to recommend menu items, whether it's your favorite drink or it is items that you love. So if you think about most people they've got these preferences and their taste profile. So to empower the staff, the host and the server and the kitchen with that data is really valuable in creating personalized experiences. So I think those are two areas to focus. One, broaden the inventory within local; and two, provide a great experience for the guests, including for Amex card members.

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

So I want to ask about Sous Chef, which we announced last year. I know you're currently doing pilots. What are you hearing from your customers in terms of the problem they're solving with this AI-powered assistant and the value you're driving? And how differentiated is that product in the market?

Yes. Thanks for the question, Harshita. We are making really good progress with Sous Chef. The customer feedback has been really positive. I think what people like about the product and data is -- if you think about most restaurant tours, they're not CTOs, they're not CIOs. And so the ability to have a human interface to be able to get insights to get recommendations to be able to actually make changes. So this is like -- this is the ability to take action within the Sous Chef capability is something that we're getting really good feedback and input on. And 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 so we're taking feedback from customers and then -- and we plan to GA the platform at some point later this year.

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