TOST Q1 Earnings Call: Revenue Misses Estimates, Margin Expansion and Enterprise Growth Highlighted

Restaurant software platform Toast (NYSE: TOST) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 24.4% year on year to $1.34 billion. Its non-GAAP profit of $0.24 per share was 30.1% above analysts’ consensus estimates.

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StockStory’s Take

Toast’s first quarter results were shaped by accelerating customer adoption across its core U.S. small and medium restaurant segment and expanding presence in new markets, including enterprise and international. CEO Aman Narang pointed to over 6,000 net new locations added and highlighted marquee wins such as Applebee’s and Topgolf as evidence of Toast’s ability to serve both traditional restaurants and complex, large-scale operations. Management attributed performance to increased attach rates for its platform solutions and ongoing investments in sales productivity and product differentiation, particularly in AI-powered tools like Sous Chef and ToastIQ.

For the rest of the year, management’s guidance reflects expectations of sustained location growth, stable consumer demand, and margin expansion—tempered by a cautious approach to macroeconomic uncertainty and hardware tariff impacts. CFO Elena Gomez stated, “We are on track for another year of strong top line growth and expanding profitability, while continuing to invest in our highest priority long-term growth initiatives." The company is maintaining a balanced approach to pricing and cost control, with an emphasis on scaling its platform and carefully navigating potential macro headwinds.

Key Insights from Management’s Remarks

Management’s commentary emphasized the company’s multi-pronged growth strategy and the operational drivers behind the quarter’s performance. Key drivers included strong execution in Toast’s core segments, early traction in new markets, and a focus on product innovation.

• Core SMB Segment Growth: Toast’s main source of expansion came from increasing its footprint among small and medium-sized U.S. restaurants, supported by higher sales productivity and targeted go-to-market initiatives.
• Enterprise and Upmarket Momentum: Wins with brands like Applebee’s and Topgolf showcased Toast’s increasing ability to serve large chains and complex operations. Management cited lower churn, attractive payback periods, and healthy average revenue per user (ARPU) in enterprise deals.
• International and New Verticals Expansion: Progress in international markets and ventures into food and beverage retail and non-traditional formats illustrated the scalability of Toast’s platform. Management expects new segments to become more meaningful contributors over time.
• AI-Driven Product Differentiation: Investments in products such as Sous Chef and ToastIQ are aimed at simplifying restaurant operations and increasing customer value. Early pilots have shown improvements in order size and marketing effectiveness, though monetization remains at an early stage.
• Cost Discipline and Margin Focus: Operating expenses were managed tightly, with sales and marketing investments prioritized for growth areas. Efforts to optimize payments and hardware costs, along with supply chain diversification to mitigate tariffs, supported margin expansion.

Drivers of Future Performance

Looking ahead, management expects location growth and product attach rates to remain the main drivers of revenue, while ongoing investments in AI and international expansion will shape the company’s margin profile.

• Expansion Across Core and New Markets: Sustained growth in the U.S. core restaurant market and increasing contributions from enterprise, international, and retail segments are expected to drive both top-line and recurring revenue expansion.
• AI and Platform Integration: Further development and rollout of AI-powered features, such as ToastIQ and Sous Chef, are projected to enhance customer value and platform differentiation, though management cautions that monetization will occur gradually as adoption grows.
• Macroeconomic and Tariff Uncertainty: The company is monitoring consumer spending trends and potential tariff impacts on hardware, with plans to balance pricing actions and cost management to maintain attractive payback periods and margin growth.

Top Analyst Questions

• Timothy Chiodo (UBS): Asked about differences in payback periods for large enterprise wins like Applebee’s versus SMB clients. Management responded that paybacks remain attractive due to scale and low churn, and most enterprise deals include payments.
• Darrin Peller (Wolfe Research): Questioned macro trends and the degree of conservatism in guidance. Management indicated stable consumer and new business formation trends but acknowledged monitoring for any changes.
• Stephen Sheldon (William Blair): Sought updates on the timing and monetization of AI solutions such as Sous Chef and ToastIQ. CEO Aman Narang said the focus is on driving customer impact, with monetization to follow as adoption grows.
• Dominic Ball (Redburn Atlantic): Inquired about competition from emerging POS providers, including DoorDash’s hospitality suite. Narang emphasized Toast’s vertical platform strategy and ongoing investment in differentiation.
• Harshita Rawat (Bernstein): Asked about hardware tariffs and supply chain strategy. CFO Elena Gomez said incremental costs are manageable, with supply chain diversification reducing exposure and pricing actions considered holistically.

Catalysts in Upcoming Quarters

In future quarters, the StockStory team will be watching (1) whether Toast can sustain net new location growth in both core and enterprise segments; (2) the commercial rollout and customer adoption of AI-powered features like ToastIQ and Sous Chef; and (3) the company’s ability to manage hardware costs and tariff impacts without eroding margins. Progress in international and retail verticals will also serve as a measure of Toast’s long-term expansion potential.

Toast currently trades at a forward price-to-sales ratio of 3.5×. Should you load up, cash out, or stay put? The answer lies in our free research report.

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