Can Toast Maintain Strong Free Cash Flow Momentum Amid Expansion?

Core Insights - Toast Inc. (TOST) achieved a 25% revenue growth in Q2 2025, generating $208 million in free cash flow, with adjusted EBITDA at $161 million, reflecting a 35% margin [1][10] - The company added a record 8,500 net new locations, totaling 148,000 locations, a 24% increase year over year, with expectations for continued growth in 2025 [2][10] - TOST is leveraging free cash flow to expand its U.S. SMB restaurant market and international presence, aiming to exceed $100 million in ARR by year-end [3][10] Operational Strength - TOST's operational strength is underscored by a 31% growth in Annual Recurring Revenue (ARR) and a 35% increase in fintech and subscription gross profit [2] - The company has surpassed 10,000 live locations across various segments, indicating robust customer adoption [3] Strategic Expansion - Recent wins, such as partnerships with large QSR brands like Firehouse Subs, are expected to enhance upselling and platform expansion [4] - TOST has entered Australia as its fourth international market, following the UK, Ireland, and Canada, indicating a strategic push for global presence [4] Product Innovation - Focus on product innovation, including the Toast Go 3 Handheld and AI-powered ToastIQ platform, is anticipated to enhance platform stickiness and customer retention [4] Seasonal Considerations - Management cautioned that fourth-quarter margins may be lower due to seasonal payment volume fluctuations and increased tariff expenses in the latter half of the year [5] - Despite seasonal factors, TOST's growth scale and broad customer adoption are expected to support ongoing cash flow generation [5] Competitive Landscape - TOST competes with Oracle, Lightspeed, and Block in the restaurant POS space, each with different market approaches [6] - Oracle reported a negative free cash flow of $362 million, while Lightspeed and Block also faced negative adjusted free cash flows of $1.7 million and $193 million, respectively, indicating TOST's relative strength in cash generation [7][8][9]