Toast, Inc. [TOST] Filings

10-Q 1 tost-20230630.htm 10-Q tost-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 001-40819

Toast, Inc.

(Exact name of registrant as specified in its charter)


Delaware		45-4168768
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

401 Park Drive
Boston,	Massachusetts	02215
(Address of principal executive offices)		(Zip code)

(617) 297-1005

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value of $0.000001 per share	TOST	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding 410,843,910 shares of Class A common stock and 124,789,025 shares of Class B common stock as of August 1, 2023.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations, financial condition, business strategy, plans and objectives of management for future operations, our market opportunity and the potential growth of that market, our liquidity and capital needs and other similar matters, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks, and changes in circumstances that are difficult to predict. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements concerning the following:

•our future financial performance, including our revenue, costs of revenue or expenses, or other operating results;

•our ability to successfully execute our business and growth strategy;

•anticipated trends and growth rates in our business and in the markets in which we operate;

•our ability to effectively manage our growth and future expenses;

•our ability to maintain the security and availability of our platform;

•our ability to increase the number of customers using our platform;

•our ability to retain, and to sell additional products and services to, our existing customers;

•our ability to successfully expand in our existing markets and into new markets;

•our expectations concerning relationships with third parties;

•our estimated total addressable market;

•our ability to maintain, protect and enhance our intellectual property;

•our ability to comply with modified or new laws and regulations applying to our business;

•the attraction and retention of qualified employees and key personnel;

•our anticipated investments in sales and marketing and research and development;

•our ability to successfully defend litigation brought against us;

•our ability to successfully remediate and prevent material weaknesses in internal controls over financial reporting;

•the increased expenses associated with being a public company;

•the impact of global financial, economic, political, and health events such as rising inflation, capital market disruptions, sanctions, economic slowdowns or recessions, or the COVID-19 pandemic on our business and the restaurant industry;

•our ability to compete effectively with existing competitors and new market entrants;

•our ability to source, finance and integrate companies and assets that we have or may acquire; and

•the sufficiency of our cash, cash equivalents, and investments to meet our liquidity needs.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe such information provides a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

iii

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TABLE OF CONTENTS


		Page
Part I. Financial Information		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

Part II. Other Information		33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 3.	Defaults Upon Senior Securities	81
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	82
	Signatures	83

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TOAST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except share and per share amounts)


	June 30, 2023		December 31, 2022
Assets:
Current assets:
Cash and cash equivalents	$	488	$	547
Marketable securities	502		474
Accounts receivable, net	115		77
Inventories, net	107		110
Deferred costs, net	52		44
Prepaid expenses and other current assets	191		155
Total current assets	1,455		1,407
Property and equipment, net	61		61
Operating lease right-of-use assets	25		77
Intangible assets, net	30		29
Goodwill	113		107
Restricted cash	43		28

Deferred costs, non-current	52		38
Other non-current assets	16		14
Total non-current assets	340		354
Total assets	$	1,795	$	1,761
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable	$	42	$	30
Operating lease liabilities	8		14
Deferred revenue	41		39
Accrued expenses and other current liabilities	493		413
Total current liabilities	584		496
Warrants to purchase common stock	90		68
Operating lease liabilities, non-current	25		80
Deferred revenue, non-current	12		7
Other long-term liabilities	5		12

Total liabilities	716		663
Commitments and Contingencies (Note 14)
Stockholders’ Equity:
Preferred stock- par value $0.000001; 100,000,000 shares authorized, no shares issued or outstanding	—		—
Class A common stock, $0.000001 par value; 7,000,000,000 shares authorized; 376,140,827 and 353,094,009 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Class B common stock, $0.000001 par value; 700,000,000 shares authorized; 156,795,897 and 169,933,289 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Treasury stock, at cost; 225,000 shares outstanding at June 30, 2023 and December 31, 2022	—		—
Accumulated other comprehensive loss	(2)		(2)
Additional paid-in capital	2,637		2,477
Accumulated deficit	(1,556)		(1,377)
Total stockholders’ equity	1,079		1,098
Total liabilities and stockholders’ equity	$	1,795	$	1,761

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except share and per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue:
Subscription services	$	121	$	76	$	227	$	139
Financial technology solutions	808		562		1,482		1,000
Hardware	41		30		72		59
Professional services	8		7		16		12
Total revenue	978		675		1,797		1,210
Costs of revenue:
Subscription services	39		27		75		51
Financial technology solutions	631		448		1,155		796
Hardware	67		61		123		113
Professional services	32		25		60		46
Amortization of acquired intangible assets	1		1		2		2
Total costs of revenue	770		562		1,415		1,008
Gross profit	208		113		382		202
Operating expenses:
Sales and marketing	100		77		199		148
Research and development	92		67		177		129
General and administrative	96		68		179		125
Total operating expenses	288		212		555		402
Loss from operations	(80)		(99)		(173)		(200)
Other income (expense):
Interest income, net	9		1		17		1
Change in fair value of warrant liability	(26)		44		(23)		123


Other income (expense), net	—		—		1		(1)
Loss before provision for income taxes	(97)		(54)		(178)		(77)
Provision for income taxes	(1)		—		(1)		—
Net loss	$	(98)	$	(54)	$	(179)	$	(77)
Net loss per share attributable to common stockholders:
Basic	$	(0.19)	$	(0.11)	$	(0.34)	$	(0.15)
Diluted	$	(0.19)	$	(0.11)	$	(0.34)	$	(0.39)
Weighted average shares used in computing net loss per share:
Basic	529,226,266		509,532,418		526,677,000		507,420,257
Diluted	529,226,266		509,532,418		526,677,000		508,176,495

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(98)	$	(54)	$	(179)	$	(77)
Other comprehensive loss:
Unrealized losses on marketable securities, net of tax effect of $0	(2)		(1)		—		(3)
Currency translation adjustments	—		(1)		—		(1)
Total other comprehensive loss	(2)		(2)		—		(4)
Comprehensive loss	$	(100)	$	(56)	$	(179)	$	(81)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in millions, except share amounts)

Six Months Ended June 30, 2023



	Class A and Class B Common Stock			Treasury Stock	Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares	Amount				Shares					Amount
Balances at December 31, 2022	523,027,298	$	—		225,000		$	—	$	2,477		$	(1,377)	$	(2)	$	1,098
Repurchase of common stock	(44,440)	—			—		—		—			—		—		—
Issuance of common stock upon net exercise of common stock warrants	19,494	—			—		—		1			—		—		1
Issuance of common stock upon exercise of common stock options	4,790,307	—			—		—		11			—		—		11
Issuance of common stock upon vesting of restricted stock units	4,791,017	—			—		—		—			—		—		—
Stock-based compensation expense	—	—			—		—		141			—		—		141
Vesting of restricted stock	—	—			—		—		2			—		—		2
Issuance of common stock under employee stock purchase plan	287,086	—			—		—		4			—		—		4
Issuance of common stock in connection with business combinations	65,962	—			—		—		1			—		—		1


Net loss	—	—			—		—		—			(179)		—		(179)
Balances at June 30, 2023	532,936,724	$	—		225,000		$	—	$	2,637		$	(1,556)	$	(2)	$	1,079

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in millions, except share amounts)

Six Months Ended June 30, 2022



	Class A and Class B Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' (Deficit) Equity
	Shares	Amount		Shares	Amount
Balances at December 31, 2021	507,170,365	$	—	225,000	$	—	$	2,194	$	(1,102)	$	(1)	$	1,091
Repurchase of common stock	(33,475)	—		—	—		—		—		—		—
Issuance of common stock upon net exercise of common stock warrants	371,573	—		—	—		18		—		—		18
Issuance of common stock upon exercise of common stock options	4,410,300	—		—	—		7		—		—		7
Issuance of common stock upon vesting of restricted stock units	1,450,869	—		—	—		—		—		—		—
Stock-based compensation expense	—	—		—	—		112		—		—		112
Vesting of restricted stock	—	—		—	—		2		—		—		2
Issuance of common stock in connection with business combination	37,179	—		—	—		1		—		—		1
Cumulative translation adjustment	—	—		—	—		—		—		(1)		(1)
Unrealized loss on marketable securities	—	—		—	—		—		—		(3)		(3)
Net loss	—	—		—	—		—		(77)		—		(77)
Balances at June 30, 2022	513,406,811	$	—	225,000	$	—	$	2,334	$	(1,179)	$	(5)	$	1,150

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in millions, except share amounts)

Three Months Ended June 30, 2023



	Class A and Class B Common Stock			Treasury Stock	Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	Shares	Amount				Shares					Amount
Balances at March 31, 2023	528,568,895	$	—		225,000		$	—	$	2,556		$	(1,458)	$	—	$	1,098
Repurchase of common stock	(44,440)	—			—		—		—			—		—		—
Issuance of common stock upon net exercise of common stock warrants	19,494	—			—		—		1			—		—		1
Issuance of common stock upon exercise of common stock options	1,999,541	—			—		—		5			—		—		5
Issuance of common stock upon vesting of restricted stock units	2,393,234	—			—		—		—			—		—		—
Stock-based compensation expense	—	—			—		—		74			—		—		74
Vesting of restricted stock	—	—			—		—		1			—		—		1



Unrealized loss on marketable securities	—	—			—		—		—			—		(2)		(2)
Net loss	—	—			—		—		—			(98)		—		(98)
Balances at June 30, 2023	532,936,724	$	—		225,000		$	—	$	2,637		$	(1,556)	$	(2)	$	1,079

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in millions, except share amounts)

Three Months Ended June 30, 2022



	Class A and Class B Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' (Deficit) Equity
	Shares	Amount		Shares	Amount
Balances at March 31, 2022	510,425,065	$	—	225,000	$	—	$	2,271	$	(1,125)	$	(3)	$	1,143
Repurchase of common stock	(3,000)	—		—	—		—		—		—		—

Issuance of common stock upon exercise of common stock options	1,659,609	—		—	—		3		—		—		3
Issuance of common stock upon vesting of restricted stock units	1,325,137	—		—	—		—		—		—		—
Stock-based compensation expense	—	—		—	—		59		—		—		59
Vesting of restricted stock	—	—		—	—		1		—		—		1

Cumulative translation adjustment	—	—		—	—		—		—		(1)		(1)
Unrealized loss on marketable securities	—	—		—	—		—		—		(1)		(1)
Net loss	—	—		—	—		—		(54)		—		(54)
Balances at June 30, 2022	513,406,811	$	—	225,000	$	—	$	2,334	$	(1,179)	$	(5)	$	1,150

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)


	Six Months Ended June 30,
		2023		2022
Cash flows from operating activities:
Net loss		$	(179)	$	(77)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		14		12
Stock-based compensation expense		135		110
Amortization of deferred costs		28		20
Change in fair value of warrant liability		23		(123)
Credit loss expense		25		7
Change in deferred income taxes		(1)		—
Asset impairments		15		—
Other		(12)		3
Changes in operating assets and liabilities:
Accounts receivable, net		(42)		(15)
Prepaid expenses and other current assets		(3)		(11)
Deferred costs, net		(50)		(35)
Inventories, net		4		(20)

Accounts payable		12		(4)
Accrued expenses and other current liabilities		24		76
Deferred revenue		7		(4)
Operating lease right-of-use assets and operating lease liabilities		1		—
Other assets and liabilities		(6)		(7)
Net cash used in operating activities		(5)		(68)
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired		(9)		—
Capitalized software		(17)		(5)
Purchases of property and equipment		(4)		(7)
Purchases of marketable securities		(351)		(140)
Proceeds from the sale of marketable securities		13		32
Maturities of marketable securities		315		78
Other investing activities		(1)		—
Net cash used in investing activities		(54)		(42)
Cash flows from financing activities:




Change in customer funds obligations, net		31		37

Proceeds from issuance of common stock		15		7
Payment of contingent consideration		—		(2)





Net cash provided by financing activities		46		42
Net (decrease) increase in cash, cash equivalents, cash held on behalf of customers and restricted cash		(13)		(68)

Cash, cash equivalents, cash held on behalf of customers and restricted cash at beginning of period		635		851
Cash, cash equivalents, cash held on behalf of customers and restricted cash at end of period		$	622	$	783
Reconciliation of cash, cash equivalents, cash held on behalf of customers and restricted cash
Cash and cash equivalents		$	488	$	697
Cash held on behalf of customers		91		72
Restricted cash		43		14
Total cash, cash equivalents, cash held on behalf of customers and restricted cash		$	622	$	783




Supplemental disclosure of non-cash investing and financing activities:


Issuance of Class B common stock upon exercise of common stock warrants		1		18

The accompanying notes are an integral part of these condensed consolidated financial statements.

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TOAST, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(amounts in millions, except share and per share amounts)

1. Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

Toast, Inc. (“we,” or “the Company”), is a cloud-based all-in-one digital technology platform purpose-built for the entire restaurant community. We provide a comprehensive platform of software as a service (SaaS) products and financial technology solutions, including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across dine-in, takeout, and delivery channels.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and the rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Accordingly, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly our financial position, results of operations, comprehensive loss, stockholders’ equity, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2023 or any other future interim periods.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 Annual Report. The Condensed Consolidated Balance Sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date.

Risks and Uncertainties

We are subject to a number of risks and uncertainties, including global events and macroeconomic conditions such as inflation and its potential impact on consumer spending, rising interest rates, global supply chain issues, and public health concerns, which may also impact consumer behavior, the restaurant industry, and our business.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Reclassifications

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation.

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2. Fair Value of Financial Instruments

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values:


	Fair Value Measurement at June 30, 2023 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	265	$	—	$	—	$	265
Commercial paper	—		104		—		104
Certificates of deposit	—		78		—		78
Corporate bonds	—		17		—		17
U.S. government agency securities	—		113		—		113
Treasury securities	—		134		—		134
Asset-backed securities	—		56		—		56
	$	265	$	502	$	—	$	767
Liabilities:
Warrants to purchase common stock	$	—	$	—	$	90	$	90

	$	—	$	—	$	90	$	90


	Fair Value Measurement at December 31, 2022 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	483	$	—	$	—	$	483
Commercial paper	—		140		—		140
Certificates of deposit	—		104		—		104
Corporate bonds	—		109		—		109
U.S. government agency securities	—		33		—		33
Treasury securities	—		60		—		60
Asset-backed securities	—		28		—		28
	$	483	$	474	$	—	$	957
Liabilities:
Warrants to purchase common stock	$	—	$	—	$	68	$	68
Contingent consideration	—		—		4		4
	$	—	$	—	$	72	$	72

During the six months ended June 30, 2023 and 2022, there were no transfers into or out of Level 3 measurements within the fair value hierarchy.

Valuation of Warrants to Purchase Common Stock

The fair value of the warrants was determined using the Black-Scholes option-pricing model. The following table indicates the weighted-average assumptions made in estimating the fair value as of June 30, 2023 and December 31, 2022:


	June 30, 2023			December 31, 2022
Risk-free interest rate	4.3		%	4.1		%
Contractual term (in years)	4			4
Expected volatility	61.4		%	60.3		%
Expected dividend yield	—		%	—		%
Exercise price per share	$	17.16		$	17.16

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Fair Value of Liabilities

The following tables provide a roll-forward of the aggregate fair value of our common stock warrant liability and contingent consideration liability for which fair value is determined using Level 3 inputs:


	Common Stock Warrant Liability		Contingent Consideration Liability
Balance as of December 31, 2022	$	68	$	4


Change in fair value	23		—
Settlement	(1)		(4)

Balance as of June 30, 2023	$	90	$	—


	Common Stock Warrant Liability		Contingent Consideration Liability
Balance as of December 31, 2021	$	181	$	5
Change in fair value	(123)		2
Settlement	(18)		(4)
Balance as of June 30, 2022	$	40	$	3

The contingent consideration liability relates to the Company’s acquisition of xtraCHEF, Inc., or xtraCHEF, in fiscal 2021. During the six months ended June 30, 2023, we paid $2 in cash and issued 38,908 shares of our Class A common stock to settle the remaining contingent consideration liability based on the achievement of 2022 revenue targets. During the six months ended June 30, 2022, we paid $2 in cash and issued 37,179 shares of our Class B common stock to settle the portion of our contingent consideration liability based on the achievement of 2021 revenue targets.

3. Marketable Securities

The amortized cost, gross unrealized holding losses and fair value of marketable securities, excluding accrued interest receivable, consisted of the following:


	June 30, 2023
	Amortized Cost		Gross Unrealized Losses		Fair Value
Commercial paper	$	104	$	—	$	104
Certificates of deposit	78		—		78
Corporate bonds	17		—		17
U.S. government agency securities	113		—		113
Treasury securities	136		(2)		134
Asset-backed securities	56		—		56
Total	$	504	$	(2)	$	502


	December 31, 2022
	Amortized Cost		Gross Unrealized Losses		Fair Value
Commercial paper	$	140	$	—	$	140
Certificates of deposit	104		—		104
Corporate bonds	110		(1)		109
U.S. government agency securities	33		—		33
Treasury securities	61		(1)		60
Asset-backed securities	28		—		28
Total	$	476	$	(2)	$	474

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The fair values of marketable securities by contractual maturities at June 30, 2023:


	June 30, 2023
Due within 1 year	$	337
Due after 1 year through 5 years	163
Due after 5 years through 10 years	2

Total marketable securities	$	502

We review marketable securities for impairment during each reporting period to determine if any of the securities have experienced an other-than-temporary decline in fair value. There were no impairment losses or expected credit losses related to our marketable securities during the three and six months ended June 30, 2023 and 2022.

4. Loan Servicing Activities and Acquired Loans Receivable, Net

We service loans originated by our bank partner and assume liability for loan defaults on a limited basis based on a specified percentage of the total loans originated, which are measured on a quarterly basis. If the merchant’s payments are delayed for a defined period of time, the loan is considered delinquent and we are required to purchase the loan from our bank partner. The loan purchase, net of expected recoveries, reduces our potential liability with respect to the quarterly cohort of loans from which the defaulted loan originated. This obligation represents a financial guarantee with a contingent aspect related to our contingent obligation to purchase defaulted loans, and a non-contingent aspect related to our obligation to perform under the guarantee.

We recognize a liability for both these elements which are included in accrued expenses and other current liabilities on our Condensed Consolidated Balance Sheets.

Changes in the contingent liability for expected credit losses for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning balance	$	19	$	3	$	14	$	2
Credit loss expense	10		3		22		5
Reductions due to loan purchase	(7)		(1)		(14)		(2)
Ending balance	$	22	$	5	$	22	$	5

The balance of the non-contingent stand-ready liability was $11 and $6, respectively, as of June 30, 2023 and December 31, 2022.

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5. Lessee Arrangements

During the three months ended June 30, 2023, we entered into an agreement to terminate the lease for a portion of our corporate headquarters in Boston, MA, and modify the remaining lease term to end on December 31, 2024. As a result, we agreed to pay a net fee of $11. We recorded a net charge of $12 within general and administrative expenses on our Condensed Consolidated Statement of Operations, inclusive of a loss on impairment of certain property plant and equipment associated with the terminated portion of the lease.

The components of lease expense were as follows for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease expense	$	4	$	7	$	8	$	11
Variable lease expense	—		1		1		2
Total	$	4	$	8	$	9	$	13

The following table summarizes supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities during the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
	2023		2022
Operating cash flows for operating leases	$	(11)	$	(13)
Supplemental non-cash amounts of increases in lease liabilities from obtaining right-of-use assets/ (decreases) of lease liabilities from lease terminations and modifications	(55)		3
Total	$	(66)	$	(10)

6. Debt

Revolving Line of Credit

On March 2, 2023, we entered into an amendment to our revolving credit facility agreement, as amended, the 2021 Facility, to replace the London Interbank Offered Rate, or LIBOR, with the Secured Overnight Financing Rate, or SOFR. Under the terms of the amendment, interest on loans will be determined based on loan type and accrue at an annual rate, as defined in the agreement, of 1.50% per annum; or 0.5% per annum plus the highest of: (i) the Prime Rate, (ii) the Federal Reserve Bank of New York Rate plus 0.5%, or (iii) the Adjusted SOFR based upon loan duration plus 1.00%. The 2021 Facility is subject to a minimum liquidity covenant of $250. As of June 30, 2023 and December 31, 2022, no amounts were drawn or outstanding under the 2021 Facility which had $330 available as of each period end.

7. Business Combinations

Delphi Display Systems, Inc.

On February 14, 2023, we acquired 100% of the outstanding capital stock of Delphi Display Systems, Inc., or Delphi, a provider of digital display solutions and drive-thru technology, for a total purchase price of $10, to extend our growing suite of products benefiting quick-service restaurants and enterprise brands.

We have not finalized the purchase price allocation. The purchase price was preliminarily allocated to goodwill, intangible assets and other net assets of $6, $3 and $1, respectively. Intangible assets consisted of $2 of developed technology and $1 of customer relationships, each with estimated useful lives of 5 years. Goodwill is not deductible for tax purposes, and primarily attributable to synergies expected to arise after the acquisition.

The operating results of Delphi have been reflected in our results of operations from the date of the acquisition, but were not material to our consolidated financial statements.

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8. Other Balance Sheet Information

Accounts receivable, net consisted of the following:


	June 30, 2023		December 31, 2022
Accounts receivable	$	72	$	45
Unbilled receivables	53		44
Less: Allowance for credit losses	(10)		(12)
Accounts receivable, net	$	115	$	77

Our allowance for credit losses was comprised of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning balance	$	(9)	$	(4)	$	(12)	$	(4)

Additions	(3)		(2)		(3)		(3)
Write offs	2		1		5		2
Ending balance	$	(10)	$	(5)	$	(10)	$	(5)

Prepaid expenses and other current assets consisted of the following:


	June 30, 2023		December 31, 2022
Cash held on behalf of customers	$	91	$	60

Prepaid expenses	24		27



Deposits for inventory purchases	13		20
Other current assets	63		48
	$	191	$	155

Accrued expenses and current liabilities consisted of the following:


	June 30, 2023		December 31, 2022
Accrued transaction-based costs	$	220	$	181
Accrued payroll and bonus	58		59
Customer funds obligation	91		60
Accrued expenses	48		45
Accrued commissions	20		15
Contingent liability for expected credit losses	22		14



Other liabilities	34		39
	$	493	$	413

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9. Revenue from Contracts with Customers

The following table summarizes the activity in deferred revenue:


	Six Months Ended June 30,
	2023		2022
Deferred revenue, beginning of year	$	46	$	56
Deferred revenue, end of period	53		52

Revenue recognized in the period from amounts included in deferred revenue at the beginning of period	$	40	$	35

As of June 30, 2023, approximately $579 of revenue is expected to be recognized from remaining performance obligations for customer contracts. We expect to recognize revenue of approximately $535 from these remaining performance obligations over the next 24 months, with the balance recognized thereafter.

The following tables summarize the activity in deferred contract acquisition costs and the classification of deferred costs:


	Six Months Ended June 30,
		2023		2022
Beginning balance		$	82	$	55
Capitalization of sales commissions costs		50		35
Amortization of sales commissions costs		(28)		(20)
Ending balance		$	104	$	70

10. Stock-Based Compensation

Stock-based compensation expense recognized for the three and six months ended June 30, 2023 and 2022, is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Costs of revenue	$	11	$	8	$	20	$	16
Sales and marketing	15		13		28		25
Research and development	25		18		46		34
General and administrative	21		19		41		35
Total Stock based compensation	$	72	$	58	$	135	$	110

Stock-based compensation expense of $3 and $6, respectively, was capitalized as software development costs during the three and six months ended June 30, 2023. Stock-based compensation expense of $1 and $2, respectively, was capitalized as software development costs during each of the three and six months ended June 30, 2022.

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Stock Options

The fair value of each option grant was estimated on its grant date using the Black-Scholes option-pricing model. The following table indicates the weighted-average assumptions made in estimating the fair value for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
	2023			2022
Risk-free interest rate	3.90		%	2.16		%
Expected term (in years)	6.08			6.06
Expected volatility	56.19		%	51.41		%
Expected dividend yield	—		%	—		%
Weighted-average fair value of common stock	$	18.01		$	17.76
Weighted-average grant date fair value	$	10.24		$	9.02

The following is a summary of stock option activity under our stock option plans for the six months ended June 30, 2023:


(in millions, except share and per share amounts)	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (1)

Outstanding as of December 31, 2022	53,728,512	$	5.98	6.94	$	655
Granted	3,147,911	18.01
Exercised	(4,790,307)	2.33
Forfeited	(433,118)	11.00
Outstanding as of June 30, 2023	51,652,998	$	7.01	6.77	$	806


Options vested and expected to vest as of June 30, 2023	49,280,264	$	6.72	6.68	$	783
Options exercisable as of June 30, 2023	44,051,781	$	5.11	6.34	$	767

(1) The aggregate intrinsic value was determined as the difference between the closing price of the Class A common stock on the last trading day of June 2023, or the date of exercise, as appropriate, and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their in-the-money options at period end.

The weighted average grant date fair value of options granted during the three months ended June 30, 2023 was $13.16. There were no options granted during the three months ended June 30, 2022. The aggregate intrinsic values of options exercised was $36 and $86, respectively, during the three and six months ended June 30, 2023 and $25 and $81, respectively, during the three and six months ended June 30, 2022.

As of June 30, 2023, total unrecognized stock-based compensation expense related to the option awards was $105 and is expected to be recognized over the remaining weighted-average service period of 2.94 years.

Restricted Stock Units

The following table summarizes RSU activity during the six months ended June 30, 2023:


	RSU	Weighted Average Grant Date Fair Value
Unvested balance as of December 31, 2022	31,242,263	$	22.11
Granted	12,483,091	$	18.43
Vested	(4,806,043)	$	21.93
Forfeited	(1,452,993)	$	22.09
Unvested balance as of June 30, 2023	37,466,318	$	20.90

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The weighted average grant-date fair value of RSUs granted during the three months ended June 30, 2023 and 2022 was $20.95 and $15.88, respectively. The weighted average grant-date fair value of RSUs granted during the six months ended June 30, 2022 was 18.59. The fair value of RSUs vested during the three months ended June 30, 2023 and 2022 was $45 and $26, respectively. The fair value of RSUs vested during the six months ended June 30, 2023 and 2022 was $93 and $29, respectively.

As of June 30, 2023, total unrecognized stock-based compensation expense related to the RSUs was $561 and is expected to be recognized over the remaining weighted-average service period of 3.14 years.

As of June 30, 2023, we had 67,430,636 shares of Class A common stock available for future issuance under our 2021 Plan.

2021 Employee Stock Purchase Plan

In 2021, our Board adopted, and our stockholders approved, the 2021 Employee Stock Purchase Plan ("ESPP") which became effective on September 23, 2021. As of June 30, 2023, 21,653,080 shares of our Class A common stock were authorized for issuance to participating employees who are allowed to purchase shares of Class A common stock at a price equal to 85% of its fair market value at the beginning or the end of the offering period, whichever is lower.

During the six months ended June 30, 2023, 287,086 shares were purchased under the ESPP at $15.65 per share, resulting in cash proceeds of $4. No shares were purchased under the ESPP during the six months ended June 30, 2022.

Restricted Stock

As of June 30, 2023 and December 31, 2022, we have issued 1,817,462 and 2,703,538 shares of Class A and B common stock subject to restrictions, respectively.

As of June 30, 2023, this included 452,180 shares of Class A common stock and Class B common stock issued upon the early exercise of stock options and 1,365,282 shares of restricted Class A common stock issued to certain members of management of Delphi and Sling, Inc. as part of their consideration in connection with the acquisitions.

As of December 31, 2022, this included 1,365,310 shares of Class A common stock and Class B common stock issued upon the early exercise of stock options and 1,338,228 shares of restricted Class A common stock issued to certain members of management of Sling, Inc. as part of their consideration in connection with the acquisition in 2022.

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11. Income Taxes

Our effective income tax rate was (0.8)% and (0.5)% for the three months ended June 30, 2023 and 2022, respectively, and was (0.5)% and (0.7)% for the six months ended June 30, 2023 and 2022, respectively. The effective tax rate for each period differs from the statutory rate primarily as a result of having a full valuation allowance maintained against our U.S. deferred tax assets.

The provision for income taxes was $1 and $0 for both the three and six months ended June 30, 2023 and June 30, 2022, respectively. The change in the provision for income taxes for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 is due to the tax expense recorded on the earnings of our profitable foreign subsidiaries, and also included a non-recurring benefit of $1 for the release of the valuation allowance as a result of the acquisition of Delphi. The release is due to taxable temporary differences resulting from the Delphi acquisition being available as a source of income to realize certain pre-existing Toast, Inc. deferred tax assets.

12. Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share is determined by dividing net loss by the weighted average shares outstanding for the period. We analyze the potential dilutive effect of stock options, unvested restricted stock, RSUs, our ESPP, and warrants to purchase common stock, during periods we generate net income, or when income is recognized related to changes in fair value of warrant liabilities.

During the three and six months ended June 30, 2023, we recorded a loss on fair value remeasurement of warrants to purchase common stock which are excluded from the computation of diluted net loss per share due to their anti-dilutive impact.

During the three and six months ended June 30, 2022, we recorded a gain on fair value remeasurement of warrants to purchase common stock. For the six months ended June 30, 2022, this was added back to the numerator to adjust net loss for the dilutive impact of the warrants with a corresponding adjustment to the denominator for the incremental dilutive shares using the treasury stock method. For the three months ended June 30, 2022, the exercise price for the warrants exceeded the average trading price of our Class A common stock, therefore, no adjustment was made to the numerator or denominator due to their anti-dilutive impact.

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The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the three and six months ended June 30, 2023 and 2022:


(in millions, except share and per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net loss, basic	$	(98)	$	(54)	$	(179)	$	(77)
Gain on change in fair value of warrant liability	—		—		—		123
Net loss, diluted	$	(98)	$	(54)	$	(179)	$

Toast, Inc. [TOST] Filings
10-Q	[2023-08-09]
10-Q	[2023-05-10]
10-K	[2023-03-01]
10-Q	[2022-11-14]
10-Q	[2022-08-12]
10-Q	[2022-05-13]
10-K	[2022-03-01]
10-Q	[2021-11-09]
S-1	[2021-08-27]