Toast, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
Toast operates a cloud-based restaurant technology platform combining software subscriptions, payment processing, hardware and related services. This is the annual report for the fiscal year ended December 31, 2022, comparing full-year results with 2021; it does not provide standalone Q4 results. At year-end, approximately 79,000 restaurant locations used the platform, processing $91.7 billion in 2022 gross payment volume (GPV).
Financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $2.731 billion | $1.705 billion |
| Gross profit / gross margin | $511 million / 18.7% | $314 million / 18.4% |
| Operating loss | $(384) million | $(228) million |
| Net loss | $(275) million | $(487) million |
| Adjusted EBITDA (non-GAAP) | $(115) million | $(42) million |
| Operating cash flow | $(156) million | $2 million |
| Free cash flow (non-GAAP) | $(189) million | $(17) million |
| GPV | $91.7 billion | $57.0 billion |
| Annualized Recurring Run-Rate (ARR) | $901 million | $568 million |
| Net retention rate | 118% | 135% |
Revenue grew 60%. Financial technology solutions generated $2.268 billion, up 61%, and subscription services generated $324 million, up 92%; hardware revenue was $113 million, nearly flat. Gross profit increased, but operating expenses rose to $895 million from $542 million. Stock-based compensation expense was $228 million, up from $142 million.
At December 31, cash and cash equivalents were $547 million and marketable securities were $474 million; these exclude $60 million of customer funds and $28 million of restricted cash. The $330 million revolving credit facility was undrawn, with $8 million of letters of credit outstanding. The facility requires minimum liquidity of $250 million. Total debt outstanding under the facility was zero. Lease commitments were $112 million, and purchase commitments were $231 million, mostly due in 2023.
Material changes versus the prior comparable period
- GPV rose 61%, while ARR rose 59%; NRR fell to 118% from 135%.
- Gross profit grew 63%, but operating expenses increased 65%, widening the operating loss. Adjusted EBITDA loss widened to $115 million from $42 million.
- Net loss narrowed from $487 million to $275 million, in part because 2022 included a $95 million gain from remeasurement of warrant liabilities, compared with a $97 million loss in 2021. This non-cash fair-value change materially affected the comparison.
- Operating cash flow shifted from $2 million provided to $156 million used; free cash flow use increased to $189 million from $17 million. Management cited working-capital use, including higher inventory and deferred costs.
- Toast acquired Sling in July 2022 for reported total consideration of $49 million, expanding team scheduling and communications offerings. The acquisition accounting remained provisional at year-end.
Outlook, management commentary, risks and unusual items
Management provided no numerical revenue, margin, earnings or cash-flow guidance in the supplied filing text. It expects to continue investing in sales and marketing, research and development, customer support, technology infrastructure and compliance. It expects sales and marketing, R&D and general and administrative expenses to increase in absolute dollars; management said these expenses could decline as a share of revenue over the longer term. Toast described international expansion as an early-stage, long-term initiative.
Management said existing cash, cash equivalents and available credit should meet working-capital needs for at least the next 12 months, including planned capital expenditures and strategic transactions. Key risks include the economic health of restaurant customers—particularly small and medium-sized businesses—competition, payment-processing dependence, supply-chain and hardware costs, third-party processor and cloud-provider reliance, cybersecurity, and evolving financial-services and privacy regulation. Financial technology revenue is seasonal and has historically been stronger in the second and third quarters.
A material weakness in internal controls over financial reporting involved IT general controls, particularly user access to systems supporting revenue reporting. Management and the auditor concluded controls were not effective at year-end; the auditor issued an adverse opinion on internal control. The weakness did not result in identified material misstatements, and the financial statement audit opinion was unqualified. Management planned remediation during 2023, subject to implementation and testing.
The Toast Capital program also creates credit exposure: Toast may have to repurchase certain delinquent or defaulted bank-originated loans, subject to a cohort limit. At year-end, the contingent expected-credit-loss liability was $14 million and the stand-ready liability was $6 million. The filing discusses legal and regulatory uncertainties around lending partnerships, licensing, money transmission, payroll services and data privacy. The company reported no claims expected to have a material adverse effect.
Important facts for investors to verify
- Whether location growth, GPV, ARR and NRR trends sustain, and how lower NRR affects future expansion from existing customers.
- Whether rising operating costs and stock-based compensation can be managed while improving profitability and cash generation.
- How much of the net-loss improvement reflects operating performance versus the non-cash warrant remeasurement gain; review the non-GAAP Adjusted EBITDA reconciliation as well.
- Whether the IT-control material weakness is fully remediated and independently validated, and whether any additional weaknesses emerge.
- How restaurant closures, consumer spending, inflation and interest rates affect GPV, payment margins, customer credit and loan-repurchase exposure.
- Whether Toast can fulfill its $231 million purchase commitments and manage hardware supply, inventory and freight costs without impairing liquidity or margins.
- How the Sling acquisition performs and whether final purchase accounting changes the reported acquired asset values.