Toast, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Toast operates a cloud-based restaurant platform combining subscription software, payment processing, hardware, and services. This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $535 million | $282 million |
| Gross profit / gross margin | $89 million / 16.6% | $69 million / 24.5% |
| Operating loss | $101 million | $5 million |
| Net loss | $23 million | $99 million |
| Adjusted EBITDA (non-GAAP) | $(45) million | $4 million |
| Cash used in operating activities | $47 million | $5 million |
| Free cash flow (non-GAAP) | $(50) million | $(13) million |
- Revenue by source: subscription services $63 million (+103%); financial technology solutions $438 million (+93%); hardware $29 million (+38%); professional services $5 million (+67%). Total revenue grew 90%.
- Gross payment volume was $17.8 billion, up 98%. Annualized recurring run-rate was $637 million as of March 31, up 66% year over year. The company cautions ARR is an operational measure, not a revenue forecast.
- Operating expenses rose to $190 million from $74 million, including $53 million of stock-based compensation versus $5 million. Q1 2022 stock-based compensation included $26 million related to IPO-vesting RSUs.
- Q1 net loss included a $79 million gain from remeasurement of warrant liabilities, compared with a $12 million expense in Q1 2021. This non-cash fair-value item substantially affected the reported comparison; operating loss worsened.
Balance sheet, liquidity, and commitments
- At March 31, 2022, cash and cash equivalents were $757 million and marketable securities were $453 million. Separately, $73 million was cash held for customers or restricted. Total assets were $1.734 billion; total liabilities were $591 million.
- No borrowings were outstanding under the $330 million revolving credit facility; $11 million of letters of credit were outstanding. The facility includes a $250 million minimum-liquidity covenant.
- Management said available cash, cash equivalents, marketable securities, and facility capacity were expected to cover working-capital needs for at least the next 12 months.
- Commitments included $285 million of non-cancelable purchase obligations, most payable within 12 months, and $120 million of operating lease commitments. The filing also reports a $9 million future-payment commitment for a new Omaha office lease.
Changes, outlook, and risks
- Growth reflected more live restaurant locations, greater adoption of products, and higher payment volume per location. Costs rose faster than revenue in aggregate: total costs of revenue increased 109% against 90% revenue growth, and gross margin declined to 16.6% from 24.5%.
- Management expects sales and marketing, research and development, and general and administrative expenses to increase in absolute dollars as the company invests in growth, product development, staffing, and public-company requirements. The filing provides no numerical revenue, profit, or cash-flow guidance.
- Management cited seasonality: financial technology revenue per location has historically been stronger in the second and third quarters. COVID-19 effects and restaurant demand remain uncertain; the filing also highlights inflation, economic conditions, and global supply constraints, including semiconductor shortages and elevated freight costs.
- Other key exposures include dependence on payment processors, suppliers, AWS and a bank partner; customer credit and loan-servicing exposure; cybersecurity and service availability; competition; and evolving financial-services, payments, and privacy regulation. The company disclosed a $3 million contingent liability for expected credit losses on loan guarantees.
- Disclosure controls and procedures were not effective at quarter-end because of material weaknesses in financial-close controls and controls over unusual and infrequent transactions. Toast said remediation was underway through added personnel, consultants, systems, and process improvements. Management nevertheless stated the financial statements fairly present the company’s results and position.
- The company reported no litigation or claims expected to have a material adverse effect, while noting ordinary-course legal matters and related uncertainties.
Important facts for investors to verify
- Whether location growth, GPV, and ARR growth persist, and how payment volume translates into gross profit as payment mix and transaction costs change.
- Whether margins and cash use improve despite higher operating expenses, hardware costs, and stock-based compensation.
- Liquidity and covenant headroom, including the effect of purchase commitments, customer-fund obligations, and any future facility borrowing.
- Progress remediating material weaknesses and whether disclosure controls become effective.
- Developments in semiconductor availability, freight costs, restaurant-sector conditions, payment-processing relationships, and regulatory requirements for Toast Capital and money movement.