Toast, Inc. (NYSE: TOST) experienced a post-market decline of 1.7% on Tuesday, with shares trading at $33.22 as of 18:34 EDT, following a 3.1% gain during the regular session that closed at $33.81. The dip came despite the restaurant technology company surpassing revenue expectations and raising its full-year guidance, as investors weighed robust expansion against a notable deterioration in free cash flow.
The company reported second-quarter revenue of $1.908 billion, a 23% increase year-over-year and approximately 2% above the analyst consensus of $1.87 billion. Net new location additions reached a record 9,500, bringing total active locations to roughly 180,000, up 21.6% from 148,000 in the prior year. Gross payment volume (GPV) climbed 22% to $60.7 billion, yet GPV per location remained essentially flat at $337,222 compared to $337,162 a year earlier.
Chief Financial Officer Elena Gomez acknowledged that "GPV per location [was] flat," indicating that payment growth is currently driven by new customer acquisition rather than increased activity at existing locations. However, monetization metrics showed improvement, with annual recurring revenue (ARR) per location rising 2.7% to $13,383 and recurring gross profit per location up 5.4% to $3,306. The total take rate increased by five basis points, and subscription ARR grew 27%.
The primary concern for investors was cash flow. Operating cash flow declined by $79 million to $144 million, while free cash flow fell $78 million to $130 million, a 38% decrease from $208 million in the year-ago period. The company attributed this to a strategic buildup of hardware inventory, which consumed $81 million in cash compared to an $8 million release in the prior year. Inventory on the balance sheet surged to $217 million from $114 million at the end of December.
Gomez explained that the softer cash conversion was due to "our strategic decision to acquire and hold more hardware inventory in the near term," with management expecting stronger conversion in the second half of the year. The free cash flow to adjusted EBITDA ratio plummeted to 59% from 129%, a 70 percentage point decline.
Despite the cash flow headwinds, adjusted EBITDA increased 37% to $221 million, including a $10 million tariff refund. Excluding that one-time benefit, adjusted EBITDA would have been approximately $211 million, still up about 31%. Adjusted EBITDA margins expanded modestly to 35.5% of recurring gross profit, up from 34.7%.
Management raised its full-year 2026 outlook, increasing the recurring gross profit midpoint by $35 million to a range of $2.325–$2.355 billion and the adjusted EBITDA midpoint by $15 million to $805–$825 million. The company plans to reinvest the tariff refund and other gains into growth initiatives.
CEO Aman Narang highlighted the potential of Toast IQ Grow, describing it as the "fastest-growing product we have ever launched," with expectations to reach $10 million in ARR faster than any previous product.
Shares have risen approximately 4.6% over the past five sessions, and Wednesday's regular trading will be the first full session reacting to the results. The company is set to file its quarterly report after releasing earnings. Risks include reliance on new customer acquisition for growth, potential increases in hardware costs, and ongoing investment that may limit margin expansion. Credit-loss expense rose to $27 million from $18 million, though management noted defaults remained within expected levels.
