The quarterly location increase exceeded Toast's previous record by 1,000. New business included bubble tea chain Kung Fu Tea and an expanded relationship with TGI Friday's locations in the United Kingdom. Annualized recurring run rate, the company's preferred top-line growth measure, increased 25% year over year.
Toast's platform connects restaurant operations ranging from supply orders and accounts payable to digital menus and point-of-sale devices. It can send an order directly to the kitchen and integrates with services including Uber Eats and American Express's Resy reservations platform.
The company has also introduced Toast IQ, an AI agent that can perform tasks such as updating menus and analyze operating data. The product arrives after investor concerns that AI agents could threaten software-as-a-service businesses, a category that includes Toast.
Management measures progress partly through the relationship between gross profit and adjusted earnings before interest, taxes, depreciation and amortization. In the second quarter, adjusted EBITDA represented 37% of gross profit. Gross profit grew 28% year over year, while adjusted EBITDA rose 37%.
The long-term target is a conversion rate of at least 40%. Chief executive Aman Narang says the mature core business already exceeds that level, while investment in international operations, retail and enterprise customers keeps the companywide figure lower.
Toast is expanding both its product range and the markets it serves. It sees scope to sell more services, including marketing tools, to existing customers. It has entered the supermarket market and expects retail and other newer activities to become important growth contributors over the next three to five years.
The company has improved its profitability measure faster than its earlier plan suggested. The adjusted EBITDA-to-gross-profit ratio was 19% in 2024, when management outlined a path toward 30% to 35% in 2026 or 2027. Its full-year outlook now targets 34.8%, following the 37% second-quarter result.
Chief financial officer Elena Gomez says the current approach supports growth and gradual margin expansion, with the timing of the 40%-plus goal under management's control. The company has not announced a revised date for reaching that milestone.
The operating gains contrast with the stock's record: shares are down 17% from their first-day closing price after the 2021 public listing and 6% this year. Management sees newer markets as larger than Toast's core market, but their contribution and the timing of further profitability gains remain forward-looking expectations.