Toast, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Toast provides restaurant-focused cloud software, payment processing, hardware, and related services.
Business context and operating metrics
- Toast reported approximately 112,000 restaurant locations at March 31, up 32% year over year. Trailing-12-month gross payment volume (GPV) was approximately $134 billion.
- Q1 GPV was $34.7 billion, up 30%. Annualized recurring run-rate (ARR) was $1.305 billion at quarter-end, up 32%. ARR is a company-defined operating measure, not GAAP revenue or a revenue forecast.
Financial performance
| Metric (USD millions, except per-share amounts) | Q1 2024 | Q1 2023 |
|---|---|---|
| Subscription services revenue | $151 | $107 |
| Financial technology solutions revenue | $873 | $673 |
| Hardware and professional services revenue | $51 | $39 |
| Total revenue | $1,075 | $819 |
| Gross profit | $249 | $174 |
| Operating loss | $(56) | $(92) |
| Net loss | $(83) | $(81) |
| Net loss per share, diluted | $(0.15) | $(0.16) |
| Adjusted EBITDA (non-GAAP) | $57 | $(17) |
| Cash used in operating activities | $(20) | $(55) |
| Free cash flow (non-GAAP) | $(33) | $(65) |
Revenue increased 31%; subscription services grew 41%, financial technology solutions 30%, and hardware and professional services 31%. Gross margin was approximately 23.2%, versus 21.2% a year ago. Subscription and financial technology solutions gross profit was $291 million, compared with $221 million; hardware and professional services had a gross loss of $41 million, versus $46 million. Adjusted EBITDA and free cash flow are non-GAAP measures and should be considered alongside GAAP results.
Balance sheet, liquidity, and cash flow
- At March 31, cash and cash equivalents were $578 million and marketable securities were $537 million, totaling $1.115 billion. This excludes $136 million of customer funds and $57 million of restricted cash.
- The company reported $330 million available under its credit facility, with no borrowings outstanding and $5 million of letters of credit. The facility has a $250 million minimum-liquidity covenant. The filing does not report conventional funded debt outstanding.
- Total current assets were $1.651 billion and current liabilities $713 million. Total liabilities were $849 million; this includes a $100 million warrant liability, not just borrowing obligations.
- Cash used in investing activities was $29 million, including $13 million of capital expenditures; financing activities provided $73 million, including $49 million from the net change in customer funds obligations and $28 million from common-stock issuance.
- Management said existing cash, cash equivalents, and available borrowing capacity should be sufficient for working capital needs for at least the next 12 months. It did not provide quantified revenue or earnings guidance in this filing.
Material changes, outlook, and risks
- Operating loss narrowed to $56 million from $92 million, while GAAP net loss widened slightly to $83 million from $81 million. Adjusted EBITDA improved to $57 million from a loss of $17 million.
- Q1 included $41 million of restructuring and related charges, mainly severance and accelerated stock compensation. Toast estimated total plan costs of approximately $45 million to $50 million, expected to be fully incurred by year-end 2024.
- A $36 million loss from remeasuring the warrant liability compared with a $3 million gain in Q1 2023; the company attributed the change to an increase in the value of its common stock.
- In February, Toast authorized up to $250 million of Class A share repurchases. It repurchased $4 million during the quarter, leaving approximately $246 million authorized; the program has no expiration date and may be suspended.
- Management cited inflation and its effects on consumer spending, interest rates, supply-chain issues, and public-health concerns as risks to the business, restaurants, and consumer behavior. Financial technology revenue is seasonal and has historically been stronger in the second and third quarters.
- The company said there were no material changes to the risk factors in its 2023 Form 10-K. It reported ordinary-course litigation but did not expect reasonably possible adverse claims to have a material impact; no material claims were accrued. Disclosure controls were concluded effective as of March 31, 2024.
Important facts for investors to verify
- Whether location, GPV, and ARR growth translate into sustained GAAP gross-profit and cash-flow improvement, given negative free cash flow and working-capital needs.
- How much of the reported $57 million adjusted EBITDA reflects recurring operations versus exclusions, particularly restructuring, stock-based compensation, and warrant remeasurement.
- Restructuring charges and completion timing against the $45 million to $50 million estimate, and the pace and funding of any further share repurchases.
- Credit-facility availability and covenant compliance, while distinguishing customer-held and restricted cash from funds available for general corporate use.
- Potential share dilution: Toast reported a fully diluted share count of 634 million, including options, RSUs, and warrants, compared with 552 million issued and outstanding shares.