Toast Posts Record Location Growth as ARR Growth Cools
Toast added roughly 9,500 net new restaurant locations in the second quarter, a record pace even as annual recurring revenue growth slowed to 25%.
Toast (TOST) added approximately 9,500 net new locations in the second quarter of 2026, a record for the restaurant-technology company and an acceleration from roughly 7,000 in the first quarter, 8,000 in the fourth quarter of 2025, and 7,500 in the third quarter of 2025. The location growth came even as annual recurring revenue growth decelerated to 25% year-over-year, reaching $2.4 billion, down from 26% in the prior quarter and 30% in the third quarter of 2025.
The divergence marks a shift in Toast's growth profile: the company is signing up restaurants faster than ever while the revenue those locations generate is growing at a slower clip than a year ago. Total Locations growth held at 22% year-over-year for a second straight quarter, reaching approximately 180,000, matching the fourth quarter of 2025's pace but down from 23% in the third quarter. Gross payment volume growth also held steady at 22% year-over-year, at $60.7 billion, a deceleration from 24% in the third quarter of 2025.
Revenue reached $1,908 million in the quarter, and GAAP operating income margin expanded to 26%, with operating income of $152 million, up from 21% and $110 million in the first quarter and roughly double the approximately 15% margins posted in the third and fourth quarters of 2025. Net income more than doubled year-over-year to $154 million from $80 million a year earlier, and rose sequentially from $126 million in the first quarter. Adjusted EBITDA climbed to $221 million from $161 million a year earlier, though the figure included a one-time tariff refund benefit of approximately $10 million that Toast is reinvesting rather than passing through to guidance.
Within Toast's recurring revenue base, subscription has overtaken payments as the larger and faster-growing component: Subscription ARR grew 27% year-over-year to $1,210 million, while Payments ARR grew 23% to $1,199 million. Non-GAAP recurring gross profit, which combines subscription and fintech revenue, grew 28% year-over-year to $595 million, holding near the pace set in the prior two quarters.
Free cash flow fell to $130 million from $208 million a year earlier, with operating cash flow declining to $144 million from $223 million, a reversal from the free-cash-flow growth Toast posted in the first quarter and fourth quarter of 2025.
For the third quarter, Toast guided to Adjusted EBITDA of $210 million to $220 million, implying a sequential step-down from the $221 million posted in the second quarter. The company raised its full-year 2026 Adjusted EBITDA guidance to $805 million to $825 million from $790 million to $810 million previously, and lifted its full-year non-GAAP recurring gross profit growth guidance to 23% to 25% from 21% to 23%, continuing a pattern of upward revisions at each of the past several earnings releases.
Toast repurchased $486 million of shares, or 19 million shares, year-to-date through June 30, 2026, up from $378 million and 14 million shares disclosed at the first-quarter release. The board had authorized a $500 million increase to the repurchase program at the fourth-quarter 2025 release.