Toast, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter results filing. Toast operates a cloud-based restaurant platform combining subscription software, payment processing, hardware, and related services. At year-end, approximately 57,000 restaurant locations used Toast; trailing-12-month gross payment volume (GPV) exceeded $57 billion.
Financial and operating performance
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $1.705 billion | $823 million | +107% |
| Gross profit / gross margin | $314 million / 18.4% | $140 million / 17.0% | Margin +1.4 percentage points |
| Operating loss | $228 million | $220 million | Loss widened $8 million |
| Net loss | $487 million | $248 million | Loss widened $239 million |
| Adjusted EBITDA (non-GAAP) | $(42) million | $(94) million | Improved $52 million |
| Cash from operating activities | $2 million | $(125) million | Improved $127 million |
| Free cash flow (non-GAAP) | $(17) million | $(161) million | Improved $144 million |
| GPV | $57.0 billion | $25.4 billion | +124% |
| ARR (operational measure) | $568 million | $326 million | +74% |
| Net retention rate | 135% | 114% | +21 percentage points |
Financial technology solutions generated $1.406 billion, or about 82% of revenue, and grew 118%, largely with increased GPV. Subscription services revenue rose 67% to $169 million; hardware revenue increased 75% to $112 million. Toast reported no customer accounting for more than 10% of revenue.
At December 31, 2021, cash and cash equivalents were $809 million and marketable securities were $457 million. The $330 million revolving facility was undrawn, with $13 million of letters of credit outstanding. The facility carries a $250 million minimum-liquidity covenant. Toast said available cash, securities, and borrowing capacity were expected to cover needs for at least 12 months. Convertible notes were repaid in June 2021; no revolver borrowing was outstanding at year-end.
Material changes and unusual items
- Revenue growth accelerated from 24% in 2020 to 107% in 2021; GPV growth increased from 17% to 124%. Toast attributed revenue growth mainly to more locations and higher payment volume.
- Operating expenses rose to $542 million from $360 million as Toast expanded sales and marketing, research and development, and administrative teams. Stock-based compensation was $142 million versus $86 million, including recognition of IPO-related awards.
- Net loss included $97 million of warrant fair-value expense, $103 million of derivative fair-value expense, and a $50 million loss on repayment of convertible notes. The company noted that warrant-liability remeasurement depends partly on its share price.
- The September 2021 IPO raised approximately $944 million net of underwriting discounts and offering costs, according to the MD&A. Toast invested $500 million of proceeds in cash equivalents and marketable securities in October.
- The June 2021 xtraCHEF acquisition had a reported purchase price of $48 million; its results were not material to consolidated revenue or net loss. Toast recognized $19 million of stock-based charitable contribution expense for the first installment of its Toast.org pledge.
- FY 2021 included adoption of lease and expected-credit-loss accounting standards; comparative periods were not recast for those adoptions.
Outlook, commentary, and principal risks
Management gave no numerical revenue, earnings, or cash-flow guidance in the supplied filing. It plans to invest in sales capacity, customer support, product development, financial technology offerings, partnerships, and early-stage international expansion. It expects sales and marketing, research and development, and general and administrative expenses to increase in absolute dollars, and disclosed that losses may continue; profitability is not assured. Management cited opportunity to expand product adoption and location count, with Toast locations representing about 7% of U.S. restaurants.
- COVID-19’s effects on restaurants, consumer behavior, payment volume, and supply chains remained uncertain. Management expected durable interest in omnichannel dining and digital tools but could not predict the pandemic’s ultimate business impact.
- Hardware growth faces semiconductor shortages, supplier concentration, longer lead times, and elevated freight costs.
- Toast substantially depends on Worldpay for payment processing. Past interruptions temporarily prevented some customers from collecting payments; replacement would be difficult and disruptive.
- Financial technology and lending activities carry partner, credit-loss, fraud, licensing, and regulatory risks. Toast Capital loans are originated by a bank partner, while Toast has limited loan repurchase exposure under the program.
- The company reported $315 million in non-cancelable purchase commitments, most due in 2022, and $108 million in operating lease commitments.
- Management concluded disclosure controls were not effective at year-end and identified material weaknesses in financial-statement close controls and controls over unusual and infrequent transactions. Remediation was in progress. The auditor issued an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
- Class B shares carry ten votes each versus one vote for Class A shares, concentrating voting control among existing holders. Toast also warned of competition, data-security and service interruptions, regulation, and SMB customer financial stress.
Key facts for investors to verify
- Whether GPV, ARR, and retention-rate growth continued, and how much revenue and gross profit depend on payment processing.
- Whether improving operating cash flow and adjusted EBITDA persist, while distinguishing non-GAAP measures from GAAP losses and considering stock-based compensation.
- Current liquidity, the revolver’s minimum-liquidity covenant, purchase commitments, and any changes in debt or loan-related credit exposure.
- Progress in remediating material weaknesses and improving disclosure controls.
- Effects of semiconductor availability, freight costs, Worldpay reliance, and restaurant-sector conditions on growth and margins.
- Subsequent share dilution, warrant-liability changes, and the continuing impact of the dual-class voting structure.