Toast, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 27, 2024. This is an annual report, not a standalone fourth-quarter report. Comparisons below are principally with FY2022.
Business context
Toast provides restaurant-focused software, payment processing, hardware and related financial technology. At year-end, approximately 106,000 locations used its platform, up 34% year over year; trailing-12-month gross payment volume (GPV) was $126.1 billion. The company operates as one reportable segment and generated no material revenue outside the United States.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $3.865 billion | $2.731 billion | +42% |
| Subscription services revenue | $500 million | $324 million | +54% |
| Financial technology solutions revenue | $3.189 billion | $2.268 billion | +41% |
| Hardware and professional services revenue | $176 million | $139 million | +27% |
| Gross profit | $834 million | $511 million | +63% |
| Operating loss | $(287) million | $(384) million | Loss narrowed |
| Net loss | $(246) million | $(275) million | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $61 million | $(115) million | Improved |
| Operating cash flow | $135 million | $(156) million | Turned positive |
| Free cash flow (non-GAAP) | $93 million | $(189) million | Turned positive |
| GPV | $126.1 billion | $91.7 billion | +38% |
| Annualized recurring run-rate (ARR) | $1.218 billion | $901 million | +35% |
| Net retention rate (NRR) | 111% | 118% | Down 7 percentage points |
GAAP gross margin was approximately 21.6%, compared with 18.7% in FY2022. Subscription and financial-technology gross profit together were $1.020 billion, versus $688 million; management also reports a non-GAAP measure for these categories of $1.057 billion. Financial technology revenue is reported gross and carries substantial transaction-related costs. ARR is a company-defined operating measure, not GAAP revenue or a forecast.
Operating expenses rose to $1.121 billion from $895 million: sales and marketing $401 million, research and development $358 million, and general and administrative $362 million. FY2023 general and administrative expenses included $12 million of net headquarters lease termination charges. Stock-based compensation expense was $277 million, a significant recurring expense excluded from Adjusted EBITDA.
Liquidity, debt and capital resources
- Cash and cash equivalents were $605 million and marketable securities were $519 million at year-end, totaling $1.124 billion. These figures exclude $87 million of customer funds and $55 million of restricted cash.
- The revolving credit facility had $330 million available and no borrowings outstanding; $5 million of letters of credit was outstanding. The facility includes a $250 million minimum-liquidity covenant and a lien on substantially all assets.
- Management said existing cash and available borrowing capacity should cover working capital needs for at least the next 12 months.
- FY2023 investing cash outflow was $86 million and financing cash inflow was $63 million. Capital expenditures were $42 million.
- Hardware supplier purchase obligations totaled $84 million, all due within 12 months. Operating lease commitments were $51 million.
Material changes, outlook and notable items
- Growth in locations and customer product adoption drove subscription revenue; growth in locations and GPV drove financial-technology revenue. GPV and ARR grew, while NRR declined, indicating lower expansion and/or retention within the measured customer cohort.
- Operating cash flow improved substantially, but working capital included higher deferred contract acquisition costs. Credit loss expense was $64 million in 2023, versus $34 million in 2022.
- Toast reported a $29 million contingent liability for expected credit losses under its Toast Capital loan-purchase arrangements, up from $14 million, plus an $11 million non-contingent stand-ready liability. The contingent liability valuation was the auditor’s critical audit matter.
- In February 2024, Toast announced a restructuring affecting approximately 550 employees. It expects $45–$55 million in restructuring and related charges, mostly in Q1 2024, with completion by year-end 2024. Management expects near-term savings and slower operating-expense growth but still expects total operating expenses to increase.
- Also in February 2024, Toast authorized up to $250 million of Class A share repurchases. The program has no expiration date, does not require purchases, and may be suspended.
- Toast acquired Delphi Display Systems in February 2023 for $10 million. The company said Delphi’s contribution to reported results was not material.
- Management cited restaurant-industry and macroeconomic exposure, including inflation, interest rates, consumer spending, restaurant closures, competition, payment-processing economics, supplier concentration, cybersecurity and service availability, and evolving financial-services and privacy regulation. Toast Capital also depends on a bank partner and exposes Toast to specified loan purchase and credit-performance risks.
- The company reported no litigation or claims expected to have a material adverse effect and no material claims accrued at year-end. It remediated its previously reported IT general-controls material weakness; management and the auditor concluded internal control over financial reporting was effective as of December 31, 2023.
Important facts for investors to verify
- Whether NRR’s decline from 118% to 111% continues, and how location growth and product adoption translate into durable customer retention and revenue.
- Whether positive operating and free cash flow are sustainable, considering working-capital needs, customer-fund balances, capital spending and non-GAAP adjustments.
- How Toast Capital loan performance, credit losses and contingent purchase obligations evolve; specifically, the assumptions underlying the $29 million expected-credit-loss liability.
- Whether the 2024 restructuring delivers savings without impairing product development, service quality, employee retention or customer satisfaction, and how actual charges compare with the $45–$55 million estimate.
- Whether share repurchases proceed and how they compare with investment needs and potential dilution. At year-end, the company reported 636 million fully diluted shares on its stated unweighted basis.
- How much of the reported growth and margin profile reflects payment volume, transaction mix and gross revenue presentation, rather than subscription economics alone.