Can Toast Maintain Strong Free Cash Flow Momentum Amid Expansion?

Toast Inc. TOST is benefiting from the strategic efforts to expand its footprint, as reflected in 25% growth in revenues in the second quarter of 2025. It also generated $208 million in free cash flow, driven by adjusted EBITDA and a benefit from working capital, due to the seasonality of the payments business. Adjusted EBITDA was $161 million, representing a 35% margin. However, a key question for investors is whether this momentum is more than just seasonal strength.

Though seasonality played a role, TOST is witnessing strong operational strength. TOST added a record 8,500 net new locations, ending the quarter with 148,000 total locations, up 24% year over year. Management expects net adds in 2025 to top the figure of 2024. Also, this expansion, coupled with 31% ARR growth and a 35% rise in fintech and subscription gross profit, supports cash generation.

The company is using free cash flow to expand its core U.S. SMB restaurant market and international footprint, and scale new customer segments. Toast collectively surpassed 10,000 live locations across enterprise, international and food & beverage retail segments in the second quarter and is on track to top $100 million in ARR by year-end.

Wins such as Firehouse Subs highlight traction among large QSR brands. This will boost upselling and platform expansion. Toast also ventured into Australia, its fourth international market after the United Kingdom, Ireland and Canada.

Focus on product innovation (Toast Go 3 Handheld and AI-powered ToastIQ platform) and newer features is expected to drive platform stickiness.

Nonetheless, seasonal strength cannot be totally overlooked as management cautioned that fourth-quarter margins typically will be lower due to the seasonality of payment volumes, plus higher tariff expenses in the second half of the year. Despite this, TOST’s scale of growth and broad customer adoption are likely to cushion cash flow generation going ahead.

Let’s Take a Look at FCF Numbers for Peers

TOST competes with the likes of Oracle ORCL, Lightspeed LSPD and Block XYZ in the restaurant POS space. Each of these companies competes in varying degrees with Toast, although they approach the market differently.

Oracle is a tech behemoth with revenues coming mainly from cloud revenues. Its POS business comprises Oracle Retail Xstore and Oracle MICROS Simphony POS. As the company focuses on data center buildouts, free cash flow stood at a negative $362 million in the last reported quarter.

LSPD offers a cloud solution that transforms and combines online and physical operations, multichannel sales and aids in expansion to new locations. It also facilitates global payments, financing and connection to supplier networks. Driven by higher capitalized internal development costs, Lightspeed reported adjusted free cash flow of a negative $1.7 million in the last reported quarter.

Block’s Square for Restaurants POS platform competes directly with TOST’s offerings. Square’s POS serves a wide variety of businesses — retailers, service providers and restaurants — giving it a broad customer base that helps reduce risk tied to any single industry. Apart from Square, Cash App is powering Block’s fintech ecosystem. It delivered a negative adjusted free cash flow of $193 million in the last reported quarter. 

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