Financials

Financials — Reading Toast by Gross Profit, Not Revenue

Toast looks like a giant: $6.15 billion of FY2025 revenue, growing 24% [1]. But ~82% of that revenue is gross-basis payment processing that carries interchange straight through as cost, so the headline number flatters the business and the headline gross margin understates it. The right way to underwrite Toast is to ignore revenue dollars and watch three things: gross profit (the real top line), adjusted EBITDA / free cash flow (whether scale converts to cash), and share count (whether stock comp eats the equity). On all three, FY2025 was the year the model turned: gross profit grew 34%, free cash flow nearly doubled to $608 million, GAAP operating income swung to $292 million from break-even, and — remarkably — stock-based compensation fell in absolute dollars. This page teaches the metrics that matter for a payments-plus-SaaS hybrid and takes a view on whether the financial quality justifies the price.

Sources: revenue, gross profit and net income from the FY2025 Consolidated Statements of Operations [2]; adjusted EBITDA [3]; free cash flow and cash [4]; GPV [5].

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1. How Toast actually makes money — and why the gross margin lies

Toast sells three things: subscription software (the SaaS platform — point-of-sale, payroll, marketing, inventory), financial technology solutions (payment processing plus Toast Capital lending), and hardware & installation. In FY2025 those produced $936M subscription (+33%), $5,037M fintech (+24%), and $180M hardware/services [6].

The trap is the fintech line. Toast records payment processing on a gross basis: the full merchant fee — including the interchange it must pass to card networks — flows through revenue, and that interchange flows straight back out as cost of revenue. So fintech revenue of $5.0B sits on just $1,146M of gross profit (a ~23% margin), and it drags the blended gross margin down to 25.9%. That low number is an accounting artifact, not weak economics. The signal investors should track is the net take rate — gross profit earned per dollar of payment volume — which management puts at 58 basis points of GPV, up 5 bps year-over-year [7].

Subscription is the high-quality engine: $672M gross profit on $936M revenue, a ~72% GAAP margin (management cites ~80% on a non-GAAP basis in Q4 as AI lowers support cost) [8]. Hardware is sold at a deliberate loss (-$220M gross profit) as a customer-acquisition cost. The takeaway: gross profit, not revenue, is Toast's true top line, and it is increasingly software-shaped.

Source: segment revenue and gross profit as reported; FY2025 figures from the FY2025 10-K Consolidated Statements of Operations [9] and segment detail; earlier years as reported in prior 10-Ks.

Subscription gross profit has compounded from $106M (2021) to $672M (2025) — a 58% CAGR — and now contributes roughly the same gross profit as the entire fintech book did three years ago. Hardware loss is widening in dollars (-$220M) as Toast adds locations and absorbs higher tariff and memory-chip costs, a headwind management flagged for 2026 [10], but it is a controlled acquisition subsidy, not a structural leak.

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2. The standard year-wise statements (FY2019–FY2025)

All $ in millions except EPS and shares. Sources: FY2025 figures and FY2023–FY2025 columns from the FY2025 10-K statements of operations [11] and cash-flow reconciliation [12]; FY2020–FY2022 operating loss and free cash flow from the FY2022 10-K [13] [14]; pre-2022 as reported.

Two facts jump off this table. Gross margin has climbed every single year, from 9.3% (2019) to 25.9% (2025) — proof that mix is shifting toward software and that fintech is being monetized harder. And the operating line is a hockey stick the right way up: a $384M operating loss in 2022, the trough year, became a $292M operating profit in 2025 [15]. Note the equity line went negative in 2019–2020 (pre-IPO, when convertible preferred sat outside equity) and rebuilt to $2.1B post-IPO.

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3. Growth quality: a share-gaining flywheel, not a sugar high

The best evidence that growth is durable rather than promotional is that Toast's three operating KPIs all compound together: locations (164,000, +22%), gross payment volume ($195B, +23%), and annualized recurring run-rate ARR ($2.05B, +26%) [16] [17]. ARR is growing faster than locations, which means Toast is selling more software per restaurant — the definition of high-quality, expansionary growth. Management reports SaaS net retention of 109% and now powers ~20% of US SMB/mid-market restaurants, roughly doubled in three years [18].

Source: GPV and ARR from FY2025 10-K Key Business Metrics [19] [20]; prior years as reported in earlier filings.

Rule of 40, done correctly. For most software companies you add revenue growth to FCF margin; if the sum beats 40, the business is balancing growth and profitability. For Toast you must use gross profit, because revenue is payment-volume-inflated. On that basis: recurring-gross-profit growth of 33% + adjusted-EBITDA margin of 34% (measured on gross profit) = ~67 [21]. That is an elite reading and reframes the whole quality question: judged on revenue, Toast's FCF margin is a thin ~10%; judged the way the business actually works, it clears the bar with enormous room to spare.

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4. The profitability inflection — the single most important chart

For four years Toast posted operating losses that widened even as revenue exploded — the classic "is this just a low-margin payments reseller?" worry. FY2024 was break-even; FY2025 is the proof of operating leverage, with operating income of $292M and net income of $342M [22]. Adjusted EBITDA — which strips out stock comp and one-offs — nearly doubled to $633M from $373M [23].

Source: GAAP operating income from the Consolidated Statements of Operations [24]; 2022 trough loss from the FY2022 10-K [25]; adjusted EBITDA from the FY2025 10-K reconciliation [26].

The leverage is real because operating expense grew far slower than gross profit — management cites ~8 points of operating leverage, with total opex (ex-credit costs) up 15% against 33% recurring-gross-profit growth [27]. One caveat for the GAAP purist: net income of $342M sits on a near-zero tax rate; as Toast's deferred tax assets are utilized, a normalizing tax rate will eventually weigh on GAAP EPS even as pre-tax profit grows.

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5. Earnings quality: the cash is real (and bigger than the profit)

The acid test of earnings quality is whether reported profit becomes cash. Toast passes convincingly: operating cash flow of $661M and free cash flow of $608M both exceed GAAP net income of $342M [28]. Two structural reasons cash runs ahead of profit: capital intensity is trivial (capex of just $53M, under 1% of revenue) for a business that ships hardware, and large non-cash charges — $242M stock comp, $91M credit-loss provisions, $99M amortized contract costs — depress GAAP earnings without touching cash [29].

Source: FY2023–FY2025 from the FY2025 10-K cash-flow reconciliation [30]; FY2020–FY2022 from the FY2022 10-K [31].

The one place to keep watching is deferred contract acquisition costs: Toast capitalizes and amortizes sales commissions, and the cash outflow to build that asset was $147M in 2025, a real (if growth-driven) drag inside operating cash flow [32]. And credit-loss expense of $91M — tied to Toast Capital merchant lending — is a genuine cost of the fintech model that will scale with the loan book and deserves monitoring through a downturn. Neither undermines the core conclusion: this is high-quality, cash-backed earnings.

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6. Balance sheet: a fortress, by design

There is almost nothing to worry about here. Toast ended FY2025 with $1,353M of cash and equivalents (plus marketable securities), $2,124M of stockholders' equity, and no borrowings drawn [33]. Its only debt facility is an undrawn $350M revolving credit line (expanded from $330M and extended to May 2030 in 2025), against which just $3M of letters of credit are outstanding, leaving $347M available and full compliance with all covenants [34].

Source: balance sheet and equity from the FY2025 10-K Consolidated Balance Sheets [35]; undrawn revolver from MD&A liquidity [36].

With a 2.75x current ratio, no funded debt, and free cash flow now self-funding growth, the balance sheet is a strategic weapon, not a constraint: Toast can out-invest weaker rivals through a downturn and fund buybacks without touching the revolver. The only balance-sheet item that grows with the business is cash held on behalf of customers ($159M) and the associated obligation — a pass-through of merchant funds, not leverage.

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7. Capital allocation & dilution — the quietly bullish story

For years the bear case on Toast was dilution: stock comp issued shares faster than buybacks could absorb. That story is turning. Stock-based compensation has fallen in absolute dollars for three straight years — from $277M (2023) to $253M (2024) to $242M (2025) — even as revenue grew ~60% [37]. As a share of revenue, SBC dropped from ~7% to under 4%; management notes it fell ~5 points as a percentage of recurring gross profit in Q4 alone [38].

Source: SBC from the FY2025 10-K cash-flow statement (2023–2025) [39]; 2021–2022 as reported in the FY2022 10-K cash-flow statement; SBC % of revenue derived from reported financials.

Toast began returning cash in 2024. It has now repurchased ~8 million shares for ~$235M since the buyback's 2024 inception, including $107M in 2025, leaving ~$87M authorized [40], and the board added a $500M increase to the authorization in February 2026 [41]. Be honest about where this stands, though: diluted share count still rose from 591M to 607M in 2025 [42]. The buyback is currently slowing dilution, not reversing it — gross issuance from equity plans ($81M) and stock comp still outpace repurchases [13]. The direction of travel is right; the cross-over to genuine per-share shrinkage is still ahead. No dividend, which is appropriate for a 20%+ grower.

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8. Valuation: cheap on the wrong metric, fair on the right ones

At a recent price near $26.30 (≈$15–16B market cap, ≈$14.3B enterprise value after net cash), Toast trades at roughly 2.3x EV/revenue — which looks startlingly cheap for a 24% grower until you remember revenue is payment-volume-inflated. Price it the way the business works and it is reasonable, not a bargain:

Source: multiples derived from reported FY2025 financials [43], adjusted EBITDA [44] and free cash flow [45]; market price and consensus estimates from market data, as reported.

The cleanest read is ~18x forward adjusted EBITDA on management's $775–795M FY2026 guide [46] and ~15–20x forward adjusted EPS. For a business compounding gross profit at 20%+, throwing off rising free cash flow, carrying net cash, and improving margins, that is a defensible — even undemanding — multiple. The stock has notably de-rated from its post-IPO highs as the market shifted from rewarding revenue growth to demanding profit; the result is that today's price embeds far more skepticism than the FY2025 numbers warrant. Consensus analyst targets sit around a $34 mean (~29% above the recent price), reflecting that gap.

Where Toast sits against its POS / payments peers

Source: peer financials as reported in each company's latest annual filing; Block (XYZ) figures are gross/diversified (Cash App + Square) and not directly comparable on a revenue basis. Peer set per Toast's own competitive framing.

The peer comparison settles the "low-margin reseller" worry. The cloud-native restaurant pure-plays that are closest to Toast's model — PAR and Lightspeed — are still deeply loss-making (operating margins of -15% and -12%), while Toast is profitable and growing at 24%. Shift4 is the only other profitable, fast-growing payments peer, but it is more pure-payments and less software. Block and Fiserv (which owns the Clover POS) are far larger, diversified payment companies — useful for competitive context, not clean valuation comps. Toast's edge is that it reached profitability while still growing fastest among the software-led peers — a combination none of the cloud rivals can claim. That supports a premium to PAR/LSPD and roughly fair footing with Shift4.

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9. The bottom line

What the financials confirm: Toast is a genuine software-led compounder wearing a payments company's revenue optics. Gross profit is growing ~33%, the model has decisively inflected to GAAP profit and ~$608M of free cash flow, the balance sheet is net-cash with zero drawn debt, and dilution is finally being brought to heel. Measured on gross profit — the only honest way — the quality is high and the ~18x forward EBITDA multiple is reasonable.

What they contradict: the lingering bear narrative that Toast is a thin-margin payment reseller, and that stock comp will dilute shareholders indefinitely. Both are now demonstrably wrong on the trend, even if the share count has not yet started shrinking.

The risks that remain: growth is decelerating — management guides recurring-gross-profit growth down to 20–22% for 2026 from 33% — hardware costs (tariffs, memory chips) are a near-term ~150 bps EBITDA headwind, credit losses scale with Toast Capital, and a normalizing tax rate will pressure GAAP EPS [47].

The first financial metric to watch is recurring gross-profit growth. It is the one number management explicitly guides on, it is the true top line of this business, and the 2026 guide already bakes in a sharp step-down to ~21%. If recurring gross profit holds above 20% while adjusted-EBITDA margin keeps expanding, the compounding thesis is intact and the stock is too cheap; if growth slips toward the mid-teens, the deceleration debate — not profitability — becomes the whole story. Net take rate on GPV (58 bps and rising) is the second dial to watch, because it is how Toast monetizes every incremental restaurant.