Toast, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited consolidated results. Toast provides cloud-based restaurant software, payment processing, hardware, and related services.
Business context and operating metrics
- At quarter-end, approximately 68,000 restaurant locations used Toast. Trailing-12-month gross payment volume (GPV) was approximately $75 billion.
- Q2 GPV was $23.3 billion, up 62% year over year; first-half GPV was $41.1 billion, up 76%.
- Annualized recurring run-rate (ARR) was $787 million at June 30, up 59% year over year. ARR is a company-defined operational measure, not GAAP revenue or a forecast.
Financial performance
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Revenue | $675 million (+58%) | $426 million | $1.210 billion (+71%) | $707 million |
| Gross profit | $113 million | $89 million | $202 million | $158 million |
| Gross margin | 16.7% | 20.9% | 16.7% | 22.3% |
| Operating loss | $99 million | $51 million | $200 million | $57 million |
| Net loss | $54 million | $135 million | $77 million | $234 million |
| Adjusted EBITDA | $(33) million | $11 million | $(78) million | $14 million |
| Operating cash flow | Not stated here by quarter | $(68) million | $51 million | |
| Free cash flow | Not stated here by quarter | $(80) million | $39 million |
Q2 subscription revenue doubled to $76 million; financial technology solutions revenue rose 59% to $562 million. In H1, those categories increased 101% to $139 million and 72% to $1.000 billion, respectively. Hardware revenue was $30 million in Q2 (+3%), while hardware cost of revenue rose 97% to $61 million, contributing to margin pressure.
Operating expenses were $212 million in Q2, up from $140 million; first-half expenses were $402 million, up from $215 million. Stock-based compensation was $58 million in Q2 and $110 million in H1. Q2 net loss improved year over year, but results included a $44 million gain from remeasuring warrant liabilities; H1 included a $123 million gain. These fair-value changes are non-cash and volatile.
Liquidity, debt, and cash flow
- At June 30, cash and cash equivalents were $697 million and marketable securities were $482 million. Cash held for customers ($72 million) and restricted cash ($14 million) are not equivalent to unrestricted liquidity.
- The $330 million revolving facility was undrawn; $11 million of letters of credit were outstanding. The facility requires at least $250 million of liquidity. Management said available cash, securities, and borrowing capacity should cover needs for at least 12 months.
- First-half operating cash use was $68 million, versus $51 million provided in the prior-year period. Management cited higher deferred costs and inventory purchases, partly offset by higher accrued liabilities. Investing used $42 million; financing provided $42 million.
- The filing reports no outstanding revolver borrowings. Contractual obligations included $250 million of purchase commitments, mostly due within 12 months, and $123 million of operating lease commitments.
Changes, outlook, risks, and unusual items
- Revenue growth reflected more live locations, increased product adoption, and higher GPV per location. Management noted higher average transaction values and customer demand. Seasonality typically supports financial technology revenue per location in Q2 and Q3.
- Management expects sales and marketing, research and development, and general and administrative expenses to rise in absolute dollars as the company invests in growth; the filing provides no numeric revenue, earnings, or cash-flow guidance.
- Hardware and professional-services costs increased with volume, higher freight and product costs, and staffing. The company cited semiconductor shortages and supply-chain uncertainty, inflation and interest rates, and possible pressure on restaurant customers’ spending.
- On July 6, 2022, after quarter-end, Toast acquired employee-management company Sling for $42 million net cash and issued restricted stock valued at approximately $19 million. Purchase-price accounting was still in process.
- Toast said disclosure controls were not effective at quarter-end due to material weaknesses in the financial close process and controls over unusual and infrequent transactions. Remediation included hiring, outside consultants, and systems and process improvements; management cautioned remediation may not be sufficient.
- Other key exposures include competition, customer retention and restaurant closures, payment-processing and third-party partner dependence, cybersecurity and service outages, regulatory and licensing uncertainty around financial products and customer funds, and credit exposure from loan servicing. The company reported no litigation expected to have a material adverse effect.
Investor verification priorities
- Track gross-margin trends, especially payment-processing economics and hardware costs, freight, and supply availability.
- Assess whether GPV, locations, subscription adoption, and ARR growth translate into improving GAAP profitability and cash generation.
- Reconcile reported losses with warrant fair-value gains and review the scale and persistence of stock-based compensation and potential dilution.
- Monitor operating cash use, unrestricted liquidity, the $250 million minimum-liquidity covenant, and purchase commitments.
- Verify remediation and independent-auditor assessment of the disclosed material weaknesses and ineffective disclosure controls.
- Review Sling integration and final purchase accounting, along with Toast Capital credit exposure and evolving financial-services regulation.