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What changed in Toast, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Toast, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+452 added−504 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-01)

Top changes in Toast, Inc.'s 2023 10-K

452 paragraphs added · 504 removed · 319 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

72 edited+32 added−13 removed58 unchanged
Biggest changeThrough in-app messaging and multi-location team management, Sling for Toast helps restaurants staff more efficiently, better manage labor costs, and increase employee job satisfaction. • Toast Pay Card & PayOut: Toast Pay Card & PayOut allows customers to offer eligible workers instant access to a portion of their tips and wages as soon as their shift ends, or in some cases, the next day. 1 • Tips Manager: Our Tips Manager product automates the tip-pooling process, allowing customers to manage tips in one place, with credit card and cash tips automatically pulled through to Toast Payroll & Team Management. • Partner-Enabled Products (Insurance & Benefits) : Toast offers workers compensation, business owner policy, or BOP, insurance, automated 401k, as well as restaurant-specific add-ons, such as liquor liability insurance, through our partners therefore simplifying the procurement process for restaurants and providing much-requested benefits to their teams.
Biggest changeThrough in-app messaging and multi-location team management, Sling by Toast helps restaurants staff more efficiently, better manage labor costs, and increase employee job satisfaction. • Toast Pay Card & PayOut 1 : Toast Pay Card & PayOut allows customers to offer eligible employees instant access to a portion of their tips and wages as soon as after their shift. 1 Toast Pay Cards are issued by Sutton Bank, Member FDIC, pursuant to license by Mastercard®.
Our restaurant-grade hardware is custom built to withstand the rigors of a restaurant, combining durability needed for the restaurant environment, with aesthetically pleasing designs and in-store branding, serving as the tool that helps deliver our end-to-end solutions. ◦ Toast Flex : Our proprietary hardware can be used for on-counter order and pay, but can also be used as a server station, guest kiosk, kitchen display system, or order fulfillment station, allowing the restaurant to “flex” our hardware to fit their specific needs.
Our restaurant-grade hardware is custom built to withstand the rigors of a restaurant, combining durability and flexibility needed for the restaurant environment, with aesthetically pleasing designs and in-store branding, serving as the tool that helps deliver our end-to-end solutions. ◦ Toast Flex : Our proprietary hardware, Toast Flex, can be used for on-counter order and pay, but can also be used as a server station, guest kiosk, kitchen display system, or order fulfillment station, allowing the restaurant to “flex” our hardware to fit their specific needs.
Additionally, as we grow our business internationally, international privacy legislation such as the European General Data Protection Regulation, or the GDPR, the United Kingdom GDPR (and other local legislation) and Canada’s Personal Information Protection and Electronic Documents Act along with provincial legislation will similarly impact our operations.
Additionally, as we grow our business internationally, international privacy legislation such as the European Union General Data Protection Regulation, or the GDPR, the United Kingdom GDPR (and other local legislation) and Canada’s Personal Information Protection and Electronic Documents Act along with provincial legislation will similarly impact our operations.
While personal information that we process that is subject to the GLBA is exempt from the CCPA and many of these other state laws, the CCPA, the VCDPA and these additional state laws will regulate other personal information that we collect and process and impose new consumer rights and limitations around personal information.
While personal information that we process that is subject to the GLBA is exempt from the CCPA and many of these other state laws, the CCPA and these additional state laws will regulate other personal information that we collect and process and impose new consumer rights and limitations around personal information.
Corporate Information We were incorporated under the laws of Delaware in December 2011 under the name Opti Systems, Inc. We changed our name to Toast, Inc. in May 2012. Our principal executive offices are located at 401 Park Drive, Suite 801 Boston, Massachusetts 02215 and our telephone number is (617) 297-1005. Our website address is www.toasttab.com.
Corporate Information We were incorporated under the laws of Delaware in December 2011 under the name Opti Systems, Inc. We changed our name to Toast, Inc. in May 2012. Our principal executive offices are located at 401 Park Drive, Boston, Massachusetts 02215 and our telephone number is (617) 297-1005. Our website address is www.toasttab.com.
We may also be required to provide an opt-out from certain sharing. 19 Table of Contents Since the California Consumer Privacy Act, or the CCPA, took effect on January 1, 2020, our California business operations have been directly impacted in addition to an indirect impact on our operations nationwide.
We may also be required to provide an opt-out from certain sharing. 20 Table of Contents Since the California Consumer Privacy Act, or the CCPA, took effect on January 1, 2020, our California business operations have been directly impacted in addition to an indirect impact on our operations nationwide.
If enacted, those proposals could affect PayOut’s operating environment in substantial and unpredictable ways. These proposals may impact our ability to offer PayOut in a particular jurisdiction, or at all. Stored Value Services Stored value cards, gift cards and electronic gift certificates may trigger various federal and state laws and regulations.
If enacted or adopted, those proposals or issuances could affect PayOut’s operating environment in substantial and unpredictable ways. These proposals or issuances may impact our ability to offer PayOut in a particular jurisdiction, or at all. Stored Value Services Stored value cards, gift cards and electronic gift certificates may trigger various federal and state laws and regulations.
Toast Partner Connect is a portal within Toast that allows customers to discover, select, and seamlessly connect their restaurant to our partners. Our suite of bi-directional application programming interfaces, or APIs, connects our partners to our workflows and data, and also allows our customers to connect custom applications and software to our ecosystem.
Toast Partner Connect is a portal within Toast that allows customers to discover, select, and seamlessly connect their restaurant to our technology partners. Our suite of bi-directional application programming interfaces, or APIs, allows our technology partners to connect to our workflows and data, and also allows our customers to connect custom applications and software to our ecosystem.
We also expect to see continued location growth among our existing customers, both as they open new locations and as we continue to roll out the Toast platform to more of our customers’ existing locations. • Increase adoption of our full suite of products.
We also expect to see continued location growth among our existing customers, both as they open new locations and as we continue to roll out the Toast platform to more of our customers’ existing locations. • Increase adoption of our products.
We offer a number of specialized Diversity, Equity and Inclusion, or DEI, programs and initiatives to equip Toasters with the tools necessary to develop and promote an environment of inclusion and respect that leads to better engagement, productivity, and innovation.
We offer a number of specialized Diversity, Equity and Inclusion, or DEI, programs and initiatives to equip Toasters with the tools necessary to develop and promote an environment of inclusion and respect, which leads to better engagement, productivity, and innovation.
State advertising, loan brokering, loan servicing, and debt collection laws may apply to the marketing and loan administration services we provide to our bank partner that makes the loans facilitated by Toast Capital. 18 Table of Contents FTC Act and Unfair and Deceptive Acts and Practices Section 5 of the Federal Trade Commission Act, or FTC Act, prohibits unfair or deceptive acts or practices.
State advertising, loan brokering, loan servicing, and debt collection laws may apply to the marketing and loan administration services we provide to our bank partner that makes the loans facilitated by Toast Capital. FTC Act and Unfair and Deceptive Acts and Practices Section 5 of the Federal Trade Commission Act, or FTC Act, prohibits unfair or deceptive acts or practices.
We believe our all-in-one, integrated platform approach is well-suited to a customer base that has historically struggled to adopt technology at the same pace as other industries due to a lack of dedicated information technology resources. 13 Table of Contents • Invest in and expand our product platform.
We believe our all-in-one, integrated platform approach is well-suited to a customer base that has historically struggled to adopt technology at the same pace as other industries due to a lack of dedicated information technology resources. • Invest in and expand our product platform.
Hardware • User-friendly, durable, and designed to last. Our custom-designed hardware is pre-configured to enable self-installation with limited support and is created to be spill- and drop-proof with a long battery life to withstand the rigors of the restaurant environment. • Device management.
Hardware • User-friendly, durable, and designed to last. Our custom-designed hardware is pre-configured to enable self-installation with limited support and is created to be spill- and drop-proof with a long battery life to withstand the rigors of the restaurant environment. 13 Table of Contents • Device management.
Other trademarks and trade names referred to in this Annual Report on Form 10-K are the property of their respective owners. 20 Table of Contents
Other trademarks and trade names referred to in this Annual Report on Form 10-K are the property of their respective owners. 21 Table of Contents
By providing restaurants with a software-based platform to take off-premise orders directly, we reduce phone orders, minimize double entry and other costly errors, and optimize the balance between dine-in and takeout. • First-Party Delivery, Toast Delivery Services : Toast enables restaurants to offer delivery services in a variety of ways that can be tailored to their needs and operations.
By providing restaurants with a software-based platform to take off-premise orders directly, our products help reduce phone orders, minimize double entry and other costly errors, and optimize the balance between dine-in and takeout. ◦ First-Party Delivery, Toast Delivery Services : Toast enables restaurants to offer delivery services in a variety of ways that can be tailored to their needs and operations.
With restaurants operating in an increasingly dynamic environment, it is critical that we provide our customers with the tools they need to drive revenue and best serve their guests. As the diversity of how guests order, where guests eat, and the means guests use to pay continues to grow, restaurants must constantly adapt to support these trends.
With restaurants operating in an increasingly dynamic environment, it is critical that we provide our customers with the tools they need to drive revenue and best serve their guests. As diversity grows in how guests order, where guests eat, and the means guests use to pay, restaurants must constantly adapt to support these trends.
Our cloud-based reporting enables access to performance data regardless of physical location, and our automatic nightly email sends key business metrics directly to our customers, sharing the critical daily insights they need to successfully operate their business.
Our cloud-based reporting products enable access to performance data regardless of physical location, and our automatic nightly email sends key business metrics directly to our customers, sharing the critical daily insights they need to successfully operate their business.
Despite our rapid growth and scale, we estimate that our current locations account for less than 10% of restaurant locations in the United States. We expect the restaurant industry to continue to shift toward innovative, digital, cloud-based solutions as restaurants seek to leverage technology to drive more growth and operate more efficiently.
Despite our rapid growth and scale, we estimate that our current locations account for just above 10% of restaurant locations in the United States. We expect the restaurant industry to continue to shift toward innovative, digital, cloud-based solutions as restaurants seek to leverage technology to drive more growth and operate more efficiently.
Additionally, state employment and payroll regulations impose regulations on the use of payroll cards to disburse wages and other compensation. Further, proposals to adopt or change the statutes or regulations affecting on-demand pay services, such as PayOut, may periodically be promulgated by federal or state legislatures and government agencies.
Additionally, state employment and payroll regulations impose regulations on the use of payroll cards to disburse wages and other compensation. Further, proposals to adopt or change the statutes or regulations affecting on-demand pay services, such as PayOut, or the issuance of agency guidance related thereto, may periodically be promulgated by federal or state legislatures and government agencies.
Our Toasters are directly involved in maintaining an inclusive and equitable culture through our Toast Communities and our Council of Advocates for Equity, which leverage their combined perspectives to advocate for an equitable experience for all, across our business strategy and company culture.
Our Toasters are directly involved in maintaining an inclusive and equitable culture through our Toast Communities and our Council of Advocates for Equity, which advocate for an equitable experience for all, across our business strategy and company culture.
Our platform provides a comprehensive suite of software as a service, or SaaS, products, financial technology solutions including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across dine-in, takeout, and delivery channels.
We provide a comprehensive platform of software-as-a-service, or SaaS, products and financial technology solutions, including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across service models including dine-in, takeout, delivery, catering, and retail.
Item 1. Business Our Mission Our mission is to empower the restaurant community to delight their guests, do what they love, and thrive. Overview Toast is a cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community.
Item 1. Business Our Mission Our mission is to empower the restaurant community to delight their guests, do what they love, and thrive. Overview Toast, Inc., which we refer to as Toast, we, or the Company, is a cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community.
This capability allows customers to continue to place orders, print tickets and receipts, and take credit card payments. In this offline mode, all credit card information is securely encrypted and stored on the Toast device until it regains connection. • Partner APIs.
This capability allows customers to continue to place orders, print tickets and receipts, and take credit card payments. Many customers can also send orders to Kitchen Display Systems in offline mode. In offline mode, all credit card information is securely encrypted and stored on the Toast device until it regains connection. • Partner APIs.
As a part of this initiative, in each of 2021 and 2022, we transferred 546,889 shares of Class A common stock, which represent our first two annual installments of the total 5,468,890 shares reserved by our Board of Directors as bona fide gifts to a charitable organization to fund our social impact initiatives through Toast.org.
As a part of this initiative, in each of 2021, 2022, and 2023, we transferred 0.5 million shares of Class A common stock, which represent our first three annual installments of the total 5.5 million shares reserved by our Board as bona fide gifts to a charitable organization to fund our social impact initiatives through Toast.org.
Toast has curated a portfolio of over 200 restaurant technology partners that utilize Toast APIs to deliver a broad range of specialized solutions. Payments Toast provides fast and secure, integrated payment processing through its POS devices, standalone contactless reader, or Toast Tap, and online ordering applications. 12 Table of Contents • Security and compliance .
Toast has curated a portfolio of over 200 restaurant technology partners that utilize Toast APIs to deliver a broad range of specialized solutions. Payments Toast provides fast and secure, integrated payment processing through its POS devices, standalone contactless reader, or Toast Tap, and online ordering applications. • Security and compliance . Toast is a PCI-DSS compliant Level 1 Service Provider.
We have also developed a patent program and a strategy to identify, apply for, and secure patents for innovative aspects of our platform and technology. As of December 31, 2022, we have 50 U.S. patent applications allowed/granted, and in addition we have 17 U.S. patent applications pending. Our issued patents are estimated to expire between 2036 and 2039.
We have also developed a patent program and a strategy to identify, apply for, and secure patents for innovative aspects of our platform and technology. As of December 31, 2023, we have 62 U.S. patent applications allowed/granted, and in addition we have 6 U.S. patent applications pending. Our issued patents are estimated to expire between 2034 and 2042.
Our Android-based software has been custom built for the restaurant industry and is the foundation that powers each of our vertically integrated solutions.
Restaurant Operations & Point of Sale • Software . Our Android-based software has been custom built for the restaurant industry and is the foundation that powers our single platform of vertically integrated solutions.
Toast Go enables real-time menu updates, accelerated service, easy and accurate ordering, and contactless payments. ◦ Toast Tap : Our proprietary card reader supports the acceptance of EMV-contactless payments for payment methods using Near Field Communication, or NFC, technology, EMV-dip payments for payment cards with an integrated chip, and magnetic stripe payments, creating a frictionless experience for our guests. ◦ Kiosk: Our proprietary self ordering Kiosk puts guests in control of their dining experience, while freeing up staff to handle other duties.
Toast Go 2 enables real-time menu updates, accelerated service, easy and accurate ordering, contactless payments, and with optimal system settings and usage can have an up to 24-hour battery life built to keep up with restaurants' needs. ◦ Toast Tap : Our proprietary card reader supports the acceptance of EMV-contactless payments for payment methods using Near Field Communication, or NFC, technology, EMV-dip payments for payment cards with an integrated chip, and magnetic stripe payments, creating a frictionless experience for our guests. ◦ Kiosk: Our proprietary and fully-integrated self ordering Kiosk puts guests in control of their dining experience, while freeing up staff to handle other tasks.
What was once primarily an on-site experience with antiquated solutions is now becoming an omnichannel experience with restaurants employing technology to enable a range of additional service models, including curbside pick-up, delivery, wholesale, and catering. Consumer preference towards omnichannel dining options has continued to accelerate following the COVID-19 pandemic.
What was once primarily an on-site experience with antiquated solutions is now becoming an omnichannel experience with restaurants employing technology to enable a range of additional service models, including curbside pick-up, delivery, wholesale, catering, and retail. Over the last several years, consumer preference towards omnichannel dining options has accelerated.
State Licensing Requirements Certain of our payment technology solutions are or may become subject to state money transmitter or payroll processor laws and regulations. TPS is licensed as a money transmitter in most states and is seeking licenses to operate as a money transmitter in connection with its payroll processing activities in certain other states.
State Licensing Requirements Certain of our payment technology solutions are or may become subject to state money transmitter or payroll processor laws and regulations. TPS is licensed as a money transmitter in most states.
We also engage consultants as needed to support our business and operations from time to time. Core to our success is our passionate and diverse team of Toasters, led by a skilled and experienced leadership team with a proven track record of scaling leading platforms and organizations.
We also engage consultants as needed to support our business and operations from time to time. In February 2024, we announced the Restructuring Plan, impacting approximately 550 employees. Core to our success is our passionate and diverse team of Toasters, led by a skilled and experienced leadership team with a proven track record of scaling leading platforms and organizations.
We also are, or may be in the future, subject to rules promulgated and enforced by multiple authorities and governing bodies in the United States, including federal, state and local agencies, payment card networks and other authorities, and internationally. These descriptions are not exhaustive, and these laws, regulations, and rules frequently change and are increasing in number.
We also are, or may be in the future, subject to rules promulgated and enforced by multiple authorities and governing bodies in the United States, including federal, state and local agencies, payment card networks and other authorities, and internationally.
Supply Chain & Accounting • xtraCHEF by Toast: xtraCHEF provides a suite of back-office tools for restaurants, including accounts payable automation, inventory management, ingredient price tracker, and recipe costing. xtraCHEF arms operators to take control of rising inventory costs, automate accounts payable, and streamline back-office tasks to help increase overall profitability.
Supply Chain & Accounting • xtraCHEF by Toast: xtraCHEF provides a suite of back-office tools for restaurants, including accounts payable automation, inventory management, ingredient price tracking, and recipe costing. xtraCHEF provides operators with insights designed to help them take control of changing inventory costs, automate accounts payable, and streamline back-office tasks to proactively manage margins and increase overall profitability.
Our proprietary software enables seamless connectivity across restaurant operations, guests, and employees, and drives a differentiated dining experience. ◦ Toast POS : Our core software module integrates payment processing with point of sale functionality tailored for the needs of restaurants of all types and sizes. Our products help drive reduced wait times, optimize operations, and seamlessly handle payments.
Our proprietary software enables seamless connectivity across restaurant operations, guests, and employees, and drives a differentiated dining experience. 8 Table of Contents ◦ Toast POS : Our core software module integrates payment processing with point of sale functionality tailored for the needs of restaurants of all types and sizes.
We maintain competitive and clear pricing, our systems are in compliance with PCI Security Council standards, and our hardware supports EMV and NFC payment technology. 1 Toast Pay Cards are issued by Sutton Bank, Member FDIC, pursuant to license by Mastercard ® . 11 Table of Contents • Toast Capital : Toast Capital offers restaurants access to fast and flexible funding via loans advanced by our bank partner that are repaid along with fees through a daily holdback of credit card receipts.
We maintain competitive and clear pricing, our systems are in compliance with PCI Security Council standards, and our hardware supports EMV and NFC payment technology. • Toast Capital : Toast Capital offers eligible restaurants access to fast and flexible funding via loans issued by our bank partner and repaid along with fees generally through a daily holdback of payment card receipts.
Our credit-card linked loyalty program automatically accrues points each time the guest swipes their card and offers can be customized by the restaurant to drive repeat visits and increased spend over time. • Email Marketing : Our data driven insights allow restaurants to easily create and send email campaigns based on POS data such as visit frequency and spending patterns that are automatically built through daily guest interactions across our product suite. • Toast Gift Cards : Toast allows customers to sell gift cards on their website or online ordering site and through physical branded cards.
Our credit-card linked loyalty program automatically accrues points each time the guest pays using their card and special offers can be customized by the restaurant to help drive repeat visits and increased spend over time. • Email Marketing : Our data driven insights allow restaurants to easily create and send pre-built email campaigns based on guest interactions across our product suite, such as visit frequency and spending patterns. • Toast Gift Cards : Toast allows customers to sell physical and electronic gift cards, designed to help customers increase sales and guest retention.
We estimate that on any given day, approximately two-thirds of Toast locations engage with reporting in their restaurant dashboard. • Toast Partner Connect and APIs : Toast’s partner ecosystem allows our customers to customize their technology stack to meet their business needs, choosing from a curated portfolio of over 200 partners that deliver a broad spectrum of specialized solutions.
We estimate that on any given day, approximately two-thirds of Toast locations engage with reporting in their restaurant dashboard. • Toast Shop : Toast Shop is an e-commerce website available to Toast's pre-existing customers that allows customers to easily purchase additional hardware or software offerings from Toast. 12 Table of Contents • Toast Partner Connect and APIs : Toast’s partner ecosystem allows our customers to customize their technology stack to meet their business needs, choosing from a curated portfolio of over 200 technology partners that deliver a broad spectrum of specialized solutions.
We believe that we compete favorably with respect to these factors. Furthermore, we expect that our industry will continue to attract new market entrants, including smaller emerging companies, which could introduce new offerings.
We believe that we compete favorably with respect to these factors. Furthermore, we expect that our industry will continue to attract new market entrants, including smaller emerging companies, which could introduce new offerings. We may also expand into new markets and encounter additional competitors in such markets.
BSA and FinCEN Regulation Certain of our payment technology solutions are or may become subject to anti-money laundering laws and regulations under the Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001, or the BSA.
These descriptions are not exhaustive, and these laws, regulations, and rules frequently change and are increasing in number. 18 Table of Contents BSA and FinCEN Regulation Certain of our payment technology solutions are or may become subject to anti-money laundering laws and regulations under the Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001, or the BSA.
Our sales team is organized by three main functional areas: an acquisition team that is focused on new location growth and organized by restaurant size (i.e., number of locations per customer), an upsell team that focuses on expansion into the install base, and a growth team focused on sales enablement and operations. 14 Table of Contents To generate and capture demand we invest heavily in the primary discovery channels for restaurant operators.
Our sales team is organized by three main functional areas: an acquisition team that is focused on new location growth and organized by restaurant size (i.e., number of locations per customer), an upsell team that focuses on expansion into the install base, and a growth team focused on sales enablement and operations.
The BSA requires certain financial institutions, including banks and money services business, or MSBs (such as money transmitters), to register with the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, as MSBs and to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity, and maintain transaction records, among other things. 17 Table of Contents Our subsidiary, Toast Processing Services LLC, or TPS, is registered as an MSB with FinCEN in its capacity as a money transmitter.
The BSA requires certain financial institutions, including banks and money services business, or MSBs (such as money transmitters), to register with the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, as MSBs and to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity, and maintain transaction records, among other things.
As an MSB, we are required to maintain a written anti-money laundering program, or AML Program, that meets the standards set forth in the FinCEN regulations implementing the BSA.
Our subsidiary, Toast Processing Services LLC, or TPS, is registered as an MSB with FinCEN in its capacity as a money transmitter. As an MSB, we are required to maintain a written anti-money laundering program, or AML Program, that meets the standards set forth in the FinCEN regulations implementing the BSA.
Integrated POS and payroll create a single employee record across systems, allowing for hours, tips, and employee data to synchronize seamlessly and helping managers get valuable time back. • Sling for Toast: Employee management tools, such as Sling for Toast, provide streamlined scheduling and team communication.
Integrated POS and payroll create a single employee record across systems, allowing for hours, tips, and employee data to synchronize seamlessly - helping managers save time and improving the employee experience. • Sling by Toast: Sling by Toast provides streamlined scheduling and team communication.
For example, when a dish is ready, kitchen staff can alert the server right on their Toast Go or send a text message directly to a guest for a pick-up order. ◦ Toast Invoicing : Our invoicing product allows restaurants to easily send invoices to customers and collect payment, streamlining operations and simplifying transactions for all types of orders and events. 9 Table of Contents ◦ Toast Mobile Order & Pay : Our order and pay solutions allow guests to scan a QR code to browse the menu, order, and pay, all from their mobile device.
For example, when a dish is ready, kitchen staff can alert the server right on their Toast Go or send a text message directly to a guest for a pick-up order. ◦ Toast Mobile Order & Pay : Our order and pay solutions allow guests to scan a QR code to browse the menu, order, and pay, all from their mobile devices.
Subsequently, on January 1, 2023, the California Privacy Rights Act of 2020, an amendment to the CCPA, took effect along with the Virginia Consumer Data Protection Act, or the VCDPA. Additional US state-specific laws in Colorado, Connecticut and Utah will also become effective in 2023.
Subsequently, on January 1, 2023, the California Privacy Rights Act of 2020, an amendment to the CCPA, took effect along with the Virginia Consumer Data Protection Act, or the VCDPA.
We offer competitive compensation and benefits that support our employees’ overall well-being, including healthcare, mental health support programs, and parental and family leave, as well as retirement savings and company match.
We offer competitive compensation and benefits that support our employees’ overall well-being, including healthcare, mental health support programs, and parental and family leave, as well as equity compensation, retirement savings, and company 401k match. 16 Table of Contents Diversity, Equity & Inclusion At Toast, we power successful restaurants of all sizes.
We see a significant opportunity to increase sales to both new and existing customers, expand the usage of our platform outside the United States, and address the diverse needs of new and existing restaurant industry stakeholders. 8 Table of Contents Our Products and Platform Toast’s all-in-one platform powers the entire restaurant community.
We believe we are in the early stages of capturing our addressable market opportunity and we see a significant opportunity to increase sales to both new and existing customers, expand the usage of our platform outside the United States, and address more of the diverse needs of restaurant industry stakeholders.
As Toast continues to grow, so does the importance of brand recognition and our investments into strengthening it. This brand recognition will help continue to drive growth in the restaurant community and increase referrals.
This approach provides multiple entry points into the Toast platform ranging from a single terminal point of sale to a multi-product setup for a complex restaurant. As Toast continues to grow, so does the importance of brand recognition and our investments into strengthening it. This brand recognition will help continue to drive growth in the restaurant community and increase referrals.
We believe that the success of our business comes only with the success of all our employees. We bake inclusive principles into our design, build cultural competence and equity in our practices, and ensure opportunities for growth and rewards by investing in developing our managers and employees through a number of live, in-person and self-directed programs.
We bake inclusive principles into our design, build cultural competence and equity into our practices, and ensure opportunities for growth and rewards through manager and employee development via a number of live, in-person, and self-directed programs.
Our research and development teams are located in the United States, Europe, and India. Each location has a combination of product management, user experience design, software engineering, and quality assurance personnel. Competition The market is competitive and evolving rapidly.
Our research and development teams are located in the United States, Europe, and India. Each location has a combination of product management, user experience design, software engineering, and quality assurance personnel. Restructuring Plan In February 2024, we announced a restructuring plan, or the Restructuring Plan, designed to promote overall operating expense efficiency.
Our programs include access to 0% interest financing and Toast Easy Pay for investments made in Toast products. Toast Easy Pay allows customers to pay for hardware, onboarding and implementation, shipping and handling, and taxes as a percentage of sales with a 180-day lease. The flexibility we offer has had a measurable impact on our rapid location growth.
Depending on customer type and eligibility, our programs include access to 0% interest financing and Toast Easy Pay for investments made in Toast products. Toast Easy Pay is a 180-day lease that allows customers to make daily payments for hardware, onboarding and implementation, shipping and handling, and taxes through a percentage of sales.
Team Management • Payroll & Team Management : Employee performance and satisfaction are important elements of a restaurant’s success. We have created a centralized hub that streamlines the entire employee onboarding, management, and payroll process.
Guests can redeem gift cards in store and online through Toast Online Ordering and Toast TakeOut. Team Management • Payroll & Team Management : Employee satisfaction is an important element of a restaurant’s success. We have created a centralized hub that streamlines the entire employee onboarding, management, and payroll process.
In general, restaurants operate with low margins, high employee turnover, highly perishable products, and complex regulations. At the same time, the restaurant industry is undergoing foundational changes driven by heightened food cost due to inflation, labor constraints, evolving guest preferences, and the imperative to utilize technology and data to innovate.
Our Market R estau rants are highly diverse and complex and generally operate with low margins, high employee turnover, highly perishable products, and complex regulations. At the same time, restaurants operate in a dynamic environment with changing food costs, labor constraints, evolving guest preferences, and the imperative to utilize technology and data to innovate.
Our portfolio spans several product categories: restaurant operations & point of sale, digital ordering & delivery, marketing & loyalty, team management, supply chain & accounting, financial technology solutions, and platform & insights. Alongside this platform, our commitment to customer success drives a differentiated customer experience, powers operational innovation, and enables our and our restaurants’ long-term growth and success.
Our Products and Platform Toast’s all-in-one platform powers the entire restaurant community. Our portfolio spans several product categories: restaurant operations & point of sale, digital ordering & delivery, marketing & loyalty, team management, supply chain & accounting, financial technology solutions, and platform & insights.
The NACHA Rules and Operating Guidelines impose obligations on us and our partner financial institutions, such as audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations.
The NACHA Rules and Operating Guidelines impose obligations on us and our partner financial institutions, such as audit and oversight by the financial institutions and the imposition of mandatory corrective action, including termination, for serious violations. 19 Table of Contents State Loan Disclosure Requirements and Other Substantive Lending Regulations Loans facilitated by Toast Capital are subject to state laws and regulations that impose requirements related to commercial loans, including loan disclosures and terms, credit discrimination, and credit reporting.
To better serve the growing sophistication of our customers and improve the upfront cost burden, we launched a remote onboarding offering in 2019. We offer multi-channel customer support 24 hours per day, 7 days a week, 365 days per year via chat, phone, or web.
We invest in scalable and efficient onboarding solutions that offer a differentiated customer experience. We currently offer on-site, remote, and self-guided implementation options to our customers. We offer multi-channel customer support 24 hours per day, 7 days a week, 365 days per year via chat, phone, or web.
We are uniquely positioned to provide our restaurants with access to capital using patented systems for loan origination that incorporate data science models, historical point of sale data, and payment processing volume, and have created a straightforward process that can deliver urgently needed funds as soon as the next business day. • Purchase Financing : We also offer a number of ways for customers to finance the upfront cost of Toast products, often one of the largest barriers to switching to or purchasing a new POS system.
Toast Capital provides applicants with a straightforward process that can deliver funds as soon as the next business day after signing a credit agreement, allowing restaurateurs to focus on running and growing their businesses. • Purchase Plans : We also offer a number of ways for customers to reduce the upfront cost of our products, often one of the largest barriers to switching to or purchasing a new POS system.
Social Commitment At Toast, we are committed to supporting causes that solve critical food issues and enrich the food experience for all. Driven by our commitment to local communities, in 2019 we launched a philanthropic branch, Toast.org, dedicated to solving critical food issues that impact communities across the United States.
Driven by our commitment to positioning our business as a force for good in the world, in 2019, we launched our social impact arm, Toast.org, which is dedicated to solving critical issues in the food ecosystem that impact communities and the planet.
We believe there is a significant opportunity to expand usage of our platform outside of the United States. This growth strategy is in the early stages and is a long-term initiative. We are in the process of building an international sales team and investing in targeted research and development efforts to address this market opportunity.
We believe that the scale of our partner ecosystem provides additional visibility into what products would be most valuable to our customers. • Expand internationally. We believe there is a significant opportunity to expand usage of our platform outside of the United States. This growth strategy is in the early stages and is a long-term initiative.
Toast POS is easy to use, leverages consumer technology, allows restaurant employees to quickly get up to speed on the software and seamlessly use it throughout their day. We provide color coded tables and kitchen tickets, mobile alerts, and guest text messaging to help keep restaurant staff on top of their service.
Our products help drive reduced time to take an order, optimize operations, and seamlessly handle payments. Toast POS is easy to use, leverages consumer technology, allows restaurant employees to quickly get up to speed on the software and seamlessly use it throughout their day.
With first-party delivery, restaurants can manage their own fleet of drivers and customize delivery hours, zones, fees, and minimum ticket sizes.
If a restaurant has its own delivery drivers, it can use Toast's first-party delivery solutions to manage deliveries, dispatch drivers, and customize delivery hours, zones, fees, and minimum ticket sizes.
Toast Delivery Services enables restaurants to utilize a partner network of delivery drivers so restaurants can offer delivery to guests without needing their own fleet. • Third-Party Delivery Integrations and Orders Hub: Through Toast Delivery Partners, we provide POS integrations for restaurants using third-party delivery services to streamline order intake, eliminate the need for extra third-party tablets, and sync menus in real-time. 10 Table of Contents Marketing and Loyalty • Loyalty : Toast has designed a suite of guest-focused products to enhance a restaurant’s cash flow by driving further engagement with their guests.
If a restaurant does not have its own drivers, it can use Toast Delivery Services to dispatch an on-demand driver from our partner network of delivery drivers. ◦ Third-Party Delivery Integrations and Orders Hub: Through Toast Delivery Partners, we provide POS integrations for restaurants using third-party delivery services to streamline order intake, eliminate the need for extra third-party tablets, and sync menus in real-time.
We have seen this pattern result in an increase in the number of service models restaurants offer, allowing guests to choose the type of service that best suits them. We believe we are in the early stages of capturing our addressable market opportunity.
We have seen restaurants expanding into new service models in recent years, allowing guests to choose the type of service that best suits them.
Toast Flex comes in different formats optimized for specific use cases and built to stand the real-world environment in a restaurant. ◦ Toast Go : Our fully-integrated, handheld POS device enhances the guest experience and improves table turn times through tableside ordering and payment acceptance.
Guests can view and track their orders by price and item and view their bills in real-time. ◦ Toast Go 2 : Our fully-integrated, handheld POS device enhances the guest experience and improves table turn times through tableside ordering and payment acceptance.
Customer Success Our customer success team supports our customers through their entire lifecycle beginning with onboarding and extending to ongoing customer care, including product enablement and education around industry best practices. We invest in scalable and efficient onboarding solutions that offer a differentiated customer experience. We currently offer on-site, remote, and self-guided implementation options to our customers.
We have a small and growing international sales team and are investing in research and development efforts to address this market opportunity. 14 Table of Contents Customer Success Our customer success team supports our customers through their entire lifecycle beginning with onboarding and extending to ongoing customer care, including product enablement and education around industry best practices.
This allows restaurants to have additional flexibility in staffing while providing a great restaurant experience, driving sales, capturing guest insights, and reducing table turn times. ◦ Kitchen Display System : Our proprietary Kitchen Display System software seamlessly connects the front of the house with the kitchen staff.
This allows restaurants to have additional flexibility in staffing while still providing a great restaurant experience, and is designed to help drive sales, capture guest insights, and reduce table turn times. ◦ Toast Catering & Events: Our catering and events software integrates with the POS to allow restaurants to manage catering orders and streamline event planning.
We combine our demand generation efforts with pricing and packaging that is designed to increase platform adoption and simplify the buying process for restaurants. This approach provides multiple entry points into the Toast platform ranging from a single terminal point of sale to a multi-product setup for a complex restaurant.
To generate and capture demand we invest heavily in the primary discovery channels for restaurant operators. We combine our demand generation efforts with pricing and packaging that is designed to increase platform adoption and simplify the buying process for restaurants.
Digital Ordering & Delivery • Toast Online Ordering & Toast TakeOut : Our commission-free online ordering and consumer Toast TakeOut application simplifies the digital ordering experience for guests, increases order accuracy, and allows restaurants to reduce reliance on third parties for driving online orders.
Delphi provides indoor and outdoor digital menu boards that allows restaurants to dynamically adjust menu items and drive thru technology that is designed to increase order sizes and improve speed of service. 10 Table of Contents Digital Ordering & Delivery • We provide software solutions that allow customers to take control of and consolidate digital ordering and delivery across Toast-provided solutions and third-party ordering channels: ◦ Toast Online Ordering & Toast TakeOut : Our commission-free, first-party online ordering product and consumer Toast TakeOut application simplify the digital ordering experience for guests, increases order accuracy, and allows restaurants to reduce reliance on third parties for driving online orders.
Our software fully integrates all ordering stations with the kitchen, automates firing by prep time, and instantaneously notifies servers when orders are ready. ◦ Multi-Location Management : Our Multi-Location Management tool allows our customers to manage and standardize their operations and easily configure menus across multiple locations and channels, including online ordering and delivery.
For example, if a kitchen is busy with in-restaurant dining, an operator can turn off first- and third-party digital ordering to support a manageable flow of orders to the kitchen. ◦ Multi-Location Management : Our Multi-Location Management tool allows our customers to manage their operations and easily configure menus across multiple locations and channels, including online ordering and delivery.
This guest data can then fuel our marketing and loyalty solutions, increasing the likelihood of a return visit to the restaurant, thus helping increase sales or drive more guests to the restaurant’s online ordering channel with Toast, eliminating a third-party commission driving incremental margin for the restaurant. Restaurant Operations & Point of Sale • Software .
For example, as restaurants adopt our digital ordering solutions such as Order & Pay and Online Ordering, they can use data they collect through these solutions to fuel their Toast marketing and loyalty programs, increasing the likelihood of return visits, and even driving more guests to the restaurant’s online ordering channel with Toast, which, in turn, helps restaurants save on third-party commissions, ultimately driving incremental margin for the restaurant.
In furtherance of Toast’s values and these goals, we have joined the Pledge 1% movement.
In furtherance of Toast’s values and these goals, we joined Pledge 1%, a global movement that encourages and empowers companies of all sizes and stages to donate 1% of their staff time, product, profit, and/or equity to the philanthropic pursuits of their choosing.
We have not experienced any work stoppages and consider our employee relations to be strong. Diversity, Equity & Inclusion At Toast, we power successful restaurants of all sizes. The restaurant industry is one of the most diverse industries and we embrace that diversity by encouraging it within our company.
The restaurant industry is one of the most diverse industries - we embrace that diversity and encourage inclusivity and equity for all within our company. We believe that the success of our business comes only with the success of all our employees.
Removed
As of December 31, 2022, approximately 79,000 restaurant locations, processing over $92 billion of gross payment volume in the trailing 12 months, partnered with Toast to optimize operations, increase sales, engage guests, and maintain happy employees. Our Market The approximat ely 860,000 restau rant locations in the United States are highly diverse and complex.
Added
Alongside this platform, our commitment to customer success drives a differentiated customer experience, powers operational innovation, and enables our and our customers' long-term growth and success. As restaurants adopt more of our platform, our solutions work better together to help drive even more success for them.
Removed
As of December 31, 2022, the locations on our platform represented less than 10% of the approximat ely 860,000 r estaurant locations in the United States. Similarly, our Annualized Recurring Run-Rate, or ARR, as of December 31, 2022 was only about 2% of our total U.S addressable market opportunity of approximately $55 billion.
Added
We provide solutions designed to give restaurants the option to take orders at the counter or at the table, leveraging software feature sets that support speed and help meet hospitality needs. Additionally, through an integrated payment solution, we are able to offer key payments features from the POS.
Removed
As restaurants adopt more of our platform, our solutions work better together to drive even more success for them. For example, as restaurants adopt our digital ordering solutions such as Order & Pay and Online Ordering, they can collect guest data that was previously not available to them.
Added
Our integrated solution helps to increase speed of checkout with a suite of products built for restaurant needs. ◦ Toast Now: Our proprietary mobile application is designed to allow restaurant owners and operators to manage their restaurants, get real-time reporting, and communicate with staff on their mobile devices.
Removed
Customers can set location-specific items and prices or keep them consistent across the brand, and centralize data across all locations for a single, clear view of business performance. • Hardware .
Added
It allows owners and operators to view sales data across multiple locations, view which employees are currently working, manage employee breaks, and view menu items that have sold out.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese factors could include: • declining economies and the pace of economic recovery which can change consumer spending behaviors; • low levels of consumer and business confidence typically associated with inflationary or recessionary environments; • high unemployment levels, which may result in decreased spending by consumers; • budgetary concerns in the United States and other countries around the world, which could impact consumer confidence and spending; • restrictions on credit lines to consumers or limitations on the issuance of new credit cards; • uncertainty and volatility in the performance of our customers’ businesses, particularly SMBs; • customers or consumers decreasing spending for value-added services we market and sell; and • government actions, including the effect of laws and regulations and any related government stimulus.
Biggest changeThese factors could include: • restrictions on credit lines to consumers or limitations on the issuance of new credit cards; • uncertainty and volatility in the performance of our customers’ businesses, particularly SMBs; • customers or consumers decreasing spending for value-added services we market and sell; • declining economies and the pace of economic recovery which can change consumer spending behaviors; • low levels of consumer and business confidence typically associated with inflationary or recessionary environments; • high unemployment levels, which may result in decreased spending by consumers; • budgetary concerns in the United States and other countries around the world, which could impact consumer confidence and spending; and • government actions, including the effect of laws and regulations and any related government stimulus.
A failure by us to comply with these covenants or payment requirements specified in the revolving credit and guaranty agreement could result in an event of default under the agreement, which would give the lenders the right to terminate their commitments to provide additional loans and extensions of credit and to declare any and all debt outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
A failure by us to comply with these covenants or payment requirements specified in the revolving credit and guaranty agreement could result in an event of default under the agreement, which would give the lenders the right to terminate their commitments to provide loans and extensions of credit and to declare any and all debt outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
In particular, with laws and regulations such as the CCPA, VCDPA and similar laws in the United States imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices and may incur significant costs and expenses in an effort to do so.
In particular, with laws and regulations such as the CCPA and similar laws in the United States imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices and may incur significant costs and expenses in an effort to do so.
We and our bank partner may face litigation, government enforcement, or other challenge, for example, based on claims that the bank did not establish loan terms that were permissible in the state in which it is located or did not correctly identify the home or host state in which it is located for purposes of interest exportation authority under federal law.
We and our bank partner may face litigation, government enforcement, or other challenge, for example, based on claims that the bank did not establish loan terms that were permissible in the state in which it is located or did not correctly identify the home or host state in which it is located, or in which the borrower is located, for purposes of interest exportation authority under federal law.
As a public reporting company, we are subject to the rules and regulations established from time to time by the SEC and the Public Company Accounting Oversight Board, or PCAOB. These rules and regulations will require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting.
As a public reporting company, we are subject to the rules and regulations established from time to time by the SEC and the Public Company Accounting Oversight Board, or PCAOB. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting.
If we are unable to successfully develop new products or services, enhance the functionality, performance, reliability, design, security, and scalability of our platform in a manner that responds to our customers’ and their guests’ evolving needs, or gain market acceptance of our new products and services, or if our estimates regarding the total addressable market and the portion of such total addressable market which we expect to capture for new products and/or enhancements prove inaccurate, our business and operating results will be harmed. 33 Table of Contents Defects, errors, or vulnerabilities in our applications, backend systems, hardware, or other technology systems and those of third-party technology providers could harm our reputation and brand and adversely impact our business, financial condition, and results of operations.
If we are unable to successfully develop new products or services, enhance the functionality, performance, reliability, design, security, and scalability of our platform in a manner that responds to our customers’ and their guests’ evolving needs, or gain market acceptance of our new products and services, or if our estimates regarding the total addressable market and the portion of such total addressable market which we expect to capture for new products and/or enhancements prove inaccurate, our business and operating results will be harmed. 34 Table of Contents Defects, errors, or vulnerabilities in our applications, backend systems, hardware, or other technology systems and those of third-party technology providers could harm our reputation and brand and adversely impact our business, financial condition, and results of operations.
When establishing the factor rate and payment structures that are charged to borrowers on loans we market and service, our bank partner relies on certain authority under federal law to export the interest requirements of the state where the bank is located to borrowers in all other states.
When establishing the factor rate and payment structures that are charged to borrowers on loans we market and service, our bank partner relies on certain authority under federal law to export the interest requirements of the state where the bank is located to borrowers located in other states.
If these provisions were found to be unenforceable, in whole or in part, or specific claims are required to be exempted, we could experience an increase in our costs to litigate disputes and in the time involved in resolving such disputes, and we could face increased exposure to potentially costly lawsuits, each of which could adversely affect our business, financial condition, and results of operations. 27 Table of Contents We have closed multiple acquisitions and may acquire or invest in other companies or technologies in the future, which could divert management’s attention, fail to meet our expectations, result in additional dilution to our stockholders, increase expenses, disrupt our operations, or harm our operating results.
If these provisions were found to be unenforceable, in whole or in part, or specific claims are required to be exempted, we could experience an increase in our costs to litigate disputes and in the time involved in resolving such disputes, and we could face increased exposure to potentially costly lawsuits, each of which could adversely affect our business, financial condition, and results of operations. 28 Table of Contents We have closed multiple acquisitions and may acquire or invest in other companies or technologies in the future, which could divert management’s attention, fail to meet our expectations, result in additional dilution to our stockholders, increase expenses, disrupt our operations, or harm our operating results.
Our second amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware, or the Chancery Court, will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of, or a claim based on, a breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, or the Delaware Forum Provision.
Our third amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware, or the Chancery Court, will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of, or a claim based on, a breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, or the Delaware Forum Provision.
We expect the competitive landscape in the restaurant technology industry will continue to change in a variety of ways, including: • rapid and significant changes in technology, resulting in new and innovative payment methods and programs, that could place us at a competitive disadvantage and reduce the use of our platform and services; • competitors, including third-party processors and integrated payment providers, customers, governments, and/or other industry participants may develop products and services that compete with or replace our platform and services, including products and services that enable payment networks and banks to transact with consumers directly; • competitors may also elect to focus exclusively on one segment of the restaurant industry and develop product offerings uniquely tailored to that segment, which could impact our addressable market and reduce the use of our platform and services; • participants in the financial services, payments, and payment technology industries may merge, create joint ventures, or form other business alliances that may strengthen their existing business services or create new payment services that compete with our platform and services; and • new services and technologies that we develop may be impacted by industry-wide solutions and standards related to migration to Europay, Mastercard, and Visa standards, including chip technology, tokenization, and other safety and security technologies.
We expect the competitive landscape in the restaurant technology industry will continue to change in a variety of ways, including: • rapid and significant changes in technology, resulting in new and innovative payment methods and programs, that could place us at a competitive disadvantage and reduce the use of our platform and services; • competitors, including third-party processors and integrated payment providers, customers, governments, and/or other industry participants may develop products and services that compete with or replace our platform and services, including products and services that enable payment networks and banks to transact with consumers directly; 40 Table of Contents • competitors may also elect to focus exclusively on one segment of the restaurant industry and develop product offerings uniquely tailored to that segment, which could impact our addressable market and reduce the use of our platform and services; • participants in the financial services, payments, and payment technology industries may merge, create joint ventures, or form other business alliances that may strengthen their existing business services or create new payment services that compete with our platform and services; and • new services and technologies that we develop may be impacted by industry-wide solutions and standards related to migration to Europay, Mastercard, and Visa standards, including chip technology, tokenization, and other safety and security technologies.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not anticipate declaring or paying any dividends to holders of our capital stock in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not anticipate declaring or paying any dividends to holders of our capital stock in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our Board.
Certain provisions in our charter documents and Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove members of our board of directors or current management and may adversely affect our stock price.
Certain provisions in our charter documents and Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove members of our Board or current management and may adversely affect our stock price.
Further, proposals to change the statutes affecting working capital loans facilitated through the Toast Capital platform may periodically be introduced in Congress and state legislatures. If enacted, those proposals could affect Toast Capital’s operating environment in substantial and unpredictable ways.
Proposals to change the statutes affecting working capital loans facilitated through the Toast Capital platform may periodically be introduced in Congress and state legislatures. If enacted, those proposals could affect Toast Capital’s operating environment in substantial and unpredictable ways.
The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
In addition, the CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
The Payment Network Rules require us to also comply with the Payment Card Industry Data Security Standard, or the Security Standard, which is a set of rules and standards designed to ensure that all companies that process, store, or transmit payment card information maintain a secure environment to protect cardholder data. 41 Table of Contents If we fail to, or are alleged to have failed to, comply with the Payment Network Rules or the Security Standard, we may be subject to fines, penalties, or restrictions, including, but not limited to, higher transaction fees that may be levied by the Payment Networks for failure to comply with the Payment Network Rules.
The Payment Network Rules require us to also comply with the Payment Card Industry Data Security Standard, or the Security Standard, which is a set of rules and standards designed to ensure that all companies that process, store, or transmit payment card information maintain a secure environment to protect cardholder data. 42 Table of Contents If we fail to, or are alleged to have failed to, comply with the Payment Network Rules or the Security Standard, we may be subject to fines, penalties, or restrictions, including, but not limited to, higher transaction fees that may be levied by the Payment Networks for failure to comply with the Payment Network Rules.
If we are unsuccessful in closing sales after expending significant funds and management resources, or we experience delays or incur greater than anticipated costs, our business, financial condition, and results of operations could be adversely affected. 40 Table of Contents Risks Related to Our Partners and Other Third Parties We rely on third-party payment processors to facilitate payments made by guests, payments made to customers, and payments made on behalf of customers, and if we cannot manage risks related to our relationships with our current or future third-party payment processors, our business, financial condition, and results of operations could be adversely affected.
If we are unsuccessful in closing sales after expending significant funds and management resources, or we experience delays or incur greater than anticipated costs, our business, financial condition, and results of operations could be adversely affected. 41 Table of Contents Risks Related to Our Partners and Other Third Parties We rely on third-party payment processors to facilitate payments made by guests, payments made to customers, and payments made on behalf of customers, and if we cannot manage risks related to our relationships with our current or future third-party payment processors, our business, financial condition, and results of operations could be adversely affected.
To support our growth, we expect to continue to invest in sales and marketing to increase sales of our platform and increase awareness of our brand and continue to invest in research and development to increase the functionality of our platform and to introduce additional related products and services.
To support our growth, we expect to continue to invest in sales and marketing activities to increase sales of our platform and increase awareness of our brand and continue to invest in research and development to increase the functionality of our platform and to introduce additional related products and services.
Our failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of our financial statements and could cause us to fail to meet our periodic reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our Class A common stock. 66 Table of Contents We incur significant costs as a result of operating as a public company.
Our failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of our financial statements and could cause us to fail to meet our periodic reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our Class A common stock. 65 Table of Contents We incur significant costs as a result of operating as a public company.
We have experienced significant growth in recent periods, which puts a strain on our business, operations, and employees. We anticipate that our operations will continue to rapidly expand.
We have experienced significant growth in recent periods, which puts a strain on our business, operations, and employees. We anticipate that our operations will continue to expand.
Our second amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
Our third amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
We do not currently have similar partnerships with other financial institutions and are solely reliant on our bank partner to support this program.
We do not currently have similar partnerships with other financial institutions and are reliant on our bank partner to support this program.
Our second amended and restated bylaws further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision.
Our third amended and restated bylaws further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision.
As a result of this potential repurchase obligation, and our servicing fee and credit performance fee, we are subject to credit risk on the loans extended by our bank partner under this program. Accordingly, if we fail to accurately predict the likelihood of default or timely repayment of loans, our business may be materially and adversely affected.
As a result of this potential purchase obligation, and our servicing fee and credit performance fee, we are subject to credit risk on the loans extended by our bank partner under this program. Accordingly, if we fail to accurately predict the likelihood of default or timely repayment of loans, our business may be materially and adversely affected.
Of the federal NOLs, $513 million have an indefinite carryforward period but may not offset more than 80% of current taxable income annually in accordance with the Tax Cuts and Jobs Act of 2017, and $85 million will expire at various dates through 2037. Of the state NOLs, the majority will begin to expire in 2034.
Of the federal NOLs, $635 million have an indefinite carryforward period but may not offset more than 80% of current taxable income annually in accordance with the Tax Cuts and Jobs Act of 2017, and $85 million will expire at various dates through 2037. Of the state NOLs, the majority will begin to expire in 2034.
These provisions include: • a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • the denial of any right of our stockholders to remove members of our board of directors except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of the total voting power of all our outstanding voting stock then entitled to vote in the election of directors; • the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • provide for a dual-class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chairperson of our board of directors, chief executive officer, or by the board of directors acting pursuant to a resolution adopted by a majority of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; • certain amendments to our amended and restated certificate of incorporation will require the approval of two-thirds of the then-outstanding voting power of our capital stock; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. 63 Table of Contents These provisions may discourage proxy contests and delay or prevent attempts by our stockholders to replace or remove our board of directors and to cause us to take corporate actions they desire.
These provisions include: 62 Table of Contents • a classified Board with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our Board; • the denial of any right of our stockholders to remove members of our Board except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of the total voting power of all our outstanding voting stock then entitled to vote in the election of directors; • the ability of our Board to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the exclusive right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our Board; • provide for a dual-class common stock structure in which holders of our Class B common stock have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chairperson of our Board, chief executive officer, or by the Board acting pursuant to a resolution adopted by a majority of our Board, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; • certain amendments to our amended and restated certificate of incorporation will require the approval of two-thirds of the then-outstanding voting power of our capital stock; and • advance notice procedures with which stockholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Any of these results could harm our business, financial condition, and results of operations. 57 Table of Contents Our platform makes use of open-source software components, and a failure to comply with the terms of the underlying open-source software licenses could negatively affect our ability to sell our products and subject us to possible litigation.
Any of these results could harm our business, financial condition, and results of operations. 58 Table of Contents Our platform makes use of open-source software components, and a failure to comply with the terms of the underlying open-source software licenses could negatively affect our ability to sell our products and subject us to possible litigation.
Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products. 56 Table of Contents In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.
Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products. 57 Table of Contents In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.
We have registered domain names that we use in, or are related to, our business, most importantly www.toasttab.com.
We also have registered domain names that we use in, or are related to, our business, most importantly www.toasttab.com.
As a result, even though the number of customers using our platform has grown rapidly in recent years, there can be no assurance that we will be able to retain these customers or any new customers that may enter into subscriptions.
As a result, even though the number of customers using our platform has grown steadily in recent years, there can be no assurance that we will be able to retain these customers or any new customers that may enter into subscriptions.
Certain recent litigation and regulatory enforcement has challenged, or is currently challenging, the characterization of bank partners as the “true lender” in connection with programs involving marketing, processing, and/or servicing relationships between a bank partner and non-bank lending platforms.
Certain recent litigation and regulatory enforcement have challenged, or is currently challenging, the characterization of bank partners as the “true lender” in connection with programs involving marketing, processing, and/or servicing relationships between a bank partner and non-bank lending platforms.
This risk could materially adversely affect our business, financial condition, results of operations, and prospects. 60 Table of Contents The dual-class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our capital stock prior to our IPO, including our directors, executive officers and their respective affiliates.
This risk could materially adversely affect our business, financial condition, results of operations, and prospects. The dual-class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our capital stock prior to our IPO, including our directors, executive officers and their respective affiliates.
In addition, any such action, particularly to the extent we were found to have engaged in violations or otherwise liable for damages, would damage our reputation and adversely affect our business, financial condition, and results of operations. We cannot yet fully determine the impact these or future laws, rules, regulations, and industry standards may have on our business or operations.
In addition, any such action, particularly to the extent we were found to have engaged in violations or otherwise liable for damages, would damage our reputation and adversely affect our business, financial condition, and results of operations. 54 Table of Contents We cannot yet fully determine the impact these or future laws, rules, regulations, and industry standards may have on our business or operations.
We cannot be sure that our current or future financial technology services will be widely adopted by our customers or that the revenue we derive from such services will justify our investments in developing and introducing these services. 25 Table of Contents Failure to maintain and enhance our brand recognition in a cost-effective manner could harm our business, financial condition, and results of operations.
We cannot be sure that our current or future financial technology services will be widely adopted by our customers or that the revenue we derive from such services will justify our investments in developing and introducing these services. Failure to maintain and enhance our brand recognition in a cost-effective manner could harm our business, financial condition, and results of operations.
To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected. 32 Table of Contents Our success depends upon our ability to continually enhance the performance, reliability, and features of our platform.
To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected. Our success depends upon our ability to continually enhance the performance, reliability, and features of our platform.
Additionally, if customers try to pass along increased operating costs by raising prices for their guests, order volume may decline, which we expect would adversely affect our financial condition and results of operations. We depend upon third parties to manufacture our products and to supply key components necessary to manufacture our products.
Additionally, if customers try to pass along increased operating costs by raising prices for their guests, order volume may decline, which we expect would adversely affect our financial condition and results of operations. 44 Table of Contents We depend upon third parties to manufacture our products and to supply key components necessary to manufacture our products.
In addition, while we believe we have defensible arguments in support of our positions that our involvement in our transaction processing services is not subject to federal MSB registration and state money transmitter licensing, we have not expressly obtained confirmation of such positions from FinCEN or all state regulators that administer the state money transmission or payroll processor laws.
While we believe we have defensible arguments in support of our positions that our involvement in our transaction processing services is not subject to federal money services business, or MSB, registration and state money transmitter licensing in all states, we have not expressly obtained confirmation of such positions from FinCEN or all state regulators that administer the state money transmission or payroll processor laws.
These decisions may not be consistent with the expectations of investors and may not produce the long-term benefits that we expect, in which case our business may be materially and adversely affected. Unfavorable conditions in the restaurant industry or the global economy could limit our ability to grow our business and materially impact our financial performance.
These decisions may not be consistent with the expectations of investors and may not produce the long-term benefits that we expect, in which case our business may be materially and adversely affected. 35 Table of Contents Unfavorable conditions in the restaurant industry or the global economy could limit our ability to grow our business and materially impact our financial performance.
However, we do not believe that such transfer to, or the addition of, new cloud infrastructure service providers would cause substantial harm to our business, financial condition, or results of operations over the longer term. 44 Table of Contents We depend on the interoperability of our platform across third-party applications and services that we do not control.
However, we do not believe that such transfer to, or the addition of, new cloud infrastructure service providers would cause substantial harm to our business, financial condition, or results of operations over the longer term. We depend on the interoperability of our platform across third-party applications and services that we do not control.
We are subject to taxation in the United States and certain other jurisdictions in which we operate. Changes in applicable tax laws or regulations may be proposed or enacted that could materially and adversely affect our effective tax rate, tax payments, results of operations, financial condition and cash flows.
Changes in tax law may adversely affect us or our investors. We are subject to taxation in the United States and certain other jurisdictions in which we operate. Changes in applicable tax laws or regulations may be proposed or enacted that could materially and adversely affect our effective tax rate, tax payments, results of operations, financial condition and cash flows.
Each of those segments of the overall market poses different sales and marketing challenges, and has different requirements, and we cannot be sure that we will achieve the same success in those market segments as we have achieved to date in sales to SMBs. Our business also depends on retaining our existing customers.
Each of those segments of the overall market poses different sales and marketing challenges, and has different requirements, and we cannot be sure that we will achieve the same success in those market segments as we have achieved to date in sales to SMBs. 22 Table of Contents Our business also depends on retaining our existing customers.
If we are unable to accurately match the timing and quantities of component purchases to our actual needs or successfully implement automation, inventory management, and other systems to accommodate the increased complexity in our supply chain and parts management, or if we are affected by adverse global supply chain dynamics, we may incur unexpected production disruption, storage, transportation, and write off costs, which may harm our business and operating results.
If we are unable to accurately match the timing and quantities of component purchases to our actual needs or successfully implement automation, inventory management, and other systems to accommodate the increased complexity in our supply chain and parts management, or if we are affected by adverse global supply chain dynamics, such as fluctuation in freight costs, we may incur unexpected production disruption, storage, transportation, and write off costs, which may harm our business and operating results.
These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers.
These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as our executive officers.
Any determination that we are in fact required to be licensed may require substantial expenditures of time and money and could lead to liability in the nature of penalties or fines, costs, legal fees, reputational damage, or other negative consequences as well as cause us to be required to cease operations in some of the states we service, which would result have a material adverse effect on our business, financial condition, results of operations, and reputation.
Any determination that we are in fact required to be licensed in a state that we have not already had a license may require substantial expenditures of time and money and could lead to liability in the nature of penalties or fines, costs, legal fees, reputational damage, or other negative consequences as well as cause us to be required to cease operations in some of the states we service, which would result have a material adverse effect on our business, financial condition, results of operations, and reputation.
As the market for our platform matures, or as competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models that we have used historically.
Furthermore, as the market for our platform matures, or as competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing and packaging models that we have used historically.
Our transaction processing services are subject to the National Automated Clearing House Association Rules, or NACHA Rules. Any changes in the NACHA Rules that increase our cost of doing business or limit our ability to provide processing services to our customers will adversely affect the operation of our business.
In addition to payment cards, our transaction processing services are subject to the National Automated Clearing House Association Rules, or NACHA Rules. Any changes in the NACHA Rules that increase our cost of doing business or limit our ability to provide processing services to our customers will adversely affect the operation of our business.
Factors that could cause fluctuations in the trading price of our Class A common stock include, but are not limited to, the following: • actual or anticipated changes or fluctuations in our results of operations; • the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; • announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships, or capital commitments; • industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • price and volume fluctuations in the overall stock market from time to time; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of our executive officers, directors and their affiliates; • actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally; 59 Table of Contents • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • actual or perceived privacy or security breaches or other incidents; • developments or disputes concerning our intellectual property rights, our products, or third-party proprietary rights; • announced or completed acquisitions of businesses or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • any significant changes in our management or our board of directors; • general economic conditions, such as rising inflation and interest rates, global recessionary conditions, and slow or negative growth of our markets; and • other events or factors, including those resulting from hostilities or wars (such as the conflict between Russia and Ukraine), incidents of terrorism, natural disasters, public health concerns or epidemics (such as the COVID-19 pandemic), or responses to these events.
Factors that could cause fluctuations in the trading price of our Class A common stock include, but are not limited to, the following: • actual or anticipated changes or fluctuations in our results of operations; • the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; • announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships, or capital commitments; • industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • price and volume fluctuations in the overall stock market from time to time; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, the downgrading of our stock or our industry, or the stock of any of our competitors, the publication of inaccurate or unfavorable research about our business, or our failure to meet these estimates or the expectations of investors; • whether investors or securities analysts view our stock structure unfavorably, particularly our dual-class structure and the significant voting control of our executive officers, directors and their affiliates; • actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • actual or perceived privacy or security breaches or other incidents; • developments or disputes concerning our intellectual property rights, our products, or third-party proprietary rights; • announced or completed acquisitions of businesses or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • any significant changes in our management or our Board; 60 Table of Contents • general economic conditions, such as rising inflation and interest rates, global recessionary conditions, and slow or negative growth of our markets; and • other events or factors, including those resulting from hostilities or wars (such as the Israel-Hamas war and Russia-Ukraine war), incidents of terrorism, natural disasters, public health concerns or epidemics, or responses to these events.
In addition, as our business continues to develop and expand, and we create new product offerings, we may become subject to additional rules, regulations, and industry standards.
As our business continues to develop and expand, and we create new product offerings, we may become subject to additional rules, regulations, and industry standards.
We have identified a material weakness in our internal controls over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
We previously identified material weaknesses in our internal controls over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
If we experience significant periods of service downtime in the future, we may be subject to claims by our customers against these service level commitments. These events have resulted in losses in revenue, though such losses have not been material to date. System failures in the future could result in significant losses of revenue.
If we experience significant periods of service downtime in the future, we may be subject to claims by our customers against these service level commitments. These events have resulted in losses in revenue, though such losses have not been material to date.
In connection with our financial technology solutions, we must comply with a number of federal, state and local laws and regulations, including state and federal unfair, deceptive, or abusive acts and practices laws, the Federal Trade Commission Act, the Equal Credit Opportunity Act, the Servicemembers Civil Relief Act, the Electronic Fund Transfer Act, the Gramm-Leach-Bliley Act, and the Dodd Frank Act.
In connection with our financial technology solutions, we must comply with a number of federal, state and local laws and regulations, including state and federal unfair, deceptive, or abusive acts and practices laws, the Federal Trade Commission Act, the Equal Credit Opportunity Act, the Servicemembers Civil Relief Act, the Electronic Fund Transfer Act, the Gramm-Leach-Bliley Act, and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd Frank Act.
Any failure, real or perceived, by us to comply with our posted privacy statements or notices, changing customer and guest expectations, or with any evolving regulatory requirements, interpretations, or orders, other local, state, federal, or international privacy, data protection, information security, or consumer protection-related laws and regulations, industry standards, or contractual obligations could cause our customers to reduce their use of our products and services, disrupt our supply chain or third-party vendor or developer partnerships, and materially and adversely affect our business. 54 Table of Contents Changes in tax law may adversely affect us or our investors.
Any failure, real or perceived, by us to comply with our posted privacy statements or notices, changing customer and guest expectations, or with any evolving regulatory requirements, interpretations, or orders, other local, state, federal, or international privacy, data protection, information security, or consumer protection-related laws and regulations, industry standards, or contractual obligations could cause our customers to reduce their use of our products and services, disrupt our supply chain or third-party vendor or developer partnerships, and materially and adversely affect our business.
As a result, we may have increased difficulty in establishing or maintaining such arrangements, each of which could have a material adverse effect on our business, financial condition, and results of operations.
Going forward, we may have increased difficulty in establishing or maintaining such arrangements, each of which could have a material adverse effect on our business, financial condition, and results of operations.
The cost of obtaining and maintaining licenses can be material. Our subsidiary, Toast Insurance Services, Inc., and certain personnel hold insurance related licenses.
The cost of obtaining and maintaining licenses can be material. 48 Table of Contents Our subsidiary, Toast Insurance Services, Inc., and certain personnel hold insurance related licenses.
If we fail to compete successfully, our business will be harmed. 39 Table of Contents Potential changes in competitive landscape, including disintermediation from other participants in the payments chain, could harm our business.
If we fail to compete successfully, our business will be harmed. Potential changes in competitive landscape, including disintermediation from other participants in the payments chain, could harm our business.
Consequently, at any given time, we may be holding or directing funds of customers, while payroll payments are being processed. This function creates a risk of loss arising from, among other things, fraud by employees or third parties, execution of unauthorized transactions, or errors relating to transaction processing.
Consequently, at any given time, we may be holding or directing funds of customers, while payroll payments are being processed. This function creates a risk of loss arising from, among other things, fraud by employees or third parties, execution of unauthorized transactions, or errors relating to transaction processing, which risk may not be effectively mitigated despite risk management strategies.
If a court or a state or federal enforcement agency were to deem Toast or Toast Capital, rather than our bank partner, the “true lender” for loans facilitated through our platform, and if for this reason (or any other reason) the loans were deemed subject to and in violation of certain state lender licensing and usury laws, we could be subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas), and other penalties or consequences, and the loans could be rendered void or unenforceable in whole or in part, any of which could have a material adverse effect on our business (directly, or as a result of adverse impact on our relationships with our bank partner).
If a court or a state or federal enforcement agency were to deem Toast or Toast Capital, rather than our bank partner, the “true lender” for loans facilitated through our platform, and if for this reason (or any other reason) the loans were deemed subject to and in violation of certain state lender licensing and usury laws, we could be subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas), and other penalties or consequences, and the loans could be rendered void or unenforceable in whole or in part, any of which could have a material adverse effect on our business (directly, or as a result of adverse impact on our relationships with our bank partner). 50 Table of Contents Last, terms of certain loans facilitated through the Toast Capital platform could, or may in the future, be challenged as violating applicable lending regulations.
Furthermore, as the number of our customers with higher volume sales increases, so does the need for us to offer increased functionality, scalability, and support, which requires us to devote additional resources to such efforts.
As the number of our customers with higher volume sales and more locations increases on our platform, so does the need for us to offer increased functionality, scalability, and support, which requires us to devote additional resources to such efforts.
We identified a material weakness in our internal controls over financial reporting as of December 31, 2022, related to ineffective information technology general controls, or ITGCs, in the area of user access over certain IT systems that support our revenue financial reporting processes.
We previously identified a material weakness in our internal controls over financial reporting for the fiscal year ended December 31, 2022, related to ineffective information technology general controls, or ITGCs, in the area of user access over certain IT systems that support our revenue financial reporting processes.
While we believe that our integrated software and payments platform offers significant advantages over such point solutions, customers who have specific needs that are addressed by these point solutions, and customers who do not want to change from an existing payment processing relationship to use our payment processing services, may believe that products and services offered by competitors better address their needs.
While we believe that our integrated software and payments platform offers significant advantages over such point solutions and permit certain enterprise brands to utilize third-party payment service, customers who have specific needs that are addressed by these point solutions, and customers who do not want to change from an existing payment processing relationship to use our payment processing services, may believe that products and services offered by competitors better address their needs.
We incurred net losses of $275 million and $487 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $1,377 million. These losses and our accumulated deficit are a result of the substantial investments we have made to grow our business.
We incurred net losses of $246 million and $275 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $1,623 million. These losses and our accumulated deficit are a result of the substantial investments we have made to grow our business.
We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our intellectual property rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate.
Our success is dependent, in part, upon protecting our intellectual property rights. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our intellectual property rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate.
Moreover, while SMBs comprise the majority of our customer base, we have and will continue to seek subscriptions from enterprise customers, which may be more likely to demand substantial price concessions.
Moreover, while SMBs continue to comprise the majority of our customer base, we have and will continue to seek subscriptions from enterprise customers, which may be more likely to demand price concessions or request customized features and packaging.
The Payment Network Rules are set by their boards, which may be influenced by card issuers, and some of those issuers are our competitors with respect to these processing services. Many banks directly or indirectly sell processing services to customers in direct competition with us.
Increases in Payment Network fees or new regulations could negatively affect our earnings. The Payment Network Rules are set by their boards, which may be influenced by card issuers, and some of those issuers are our competitors with respect to these processing services. Many banks directly or indirectly sell processing services to customers in direct competition with us.
As a result, in the future, we may be required to reduce our prices, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow. 28 Table of Contents Our business is exposed to risks associated with the handling of customer funds. Our business handles payroll processing administration for certain of our customers.
As a result, we may be required to adjust our prices and product offerings for certain customers, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow. Our business is exposed to risks associated with the handling of customer funds. Our business handles payroll processing administration for certain of our customers.
These risks and challenges include, but are not limited to, our ability to: • accurately forecast our revenue and plan our operating expenses; • increase the number of and retain existing customers and their guests using our platform; • successfully compete with current and future competitors; • successfully expand our business in existing markets and enter new markets and geographies; • anticipate and respond to macroeconomic changes and changes in the markets in which we operate; • maintain and enhance the value of our reputation and brand; • comply with regulatory requirements in highly regulated markets; • adapt to rapidly evolving trends in the ways customers and their guests interact with technology; • avoid interruptions or disruptions in our service; • develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle significant surges of usage by our customers and their guests as compared to historic levels and increased usage generally, as well as the deployment of new features and services; • maintain, scale, and effectively manage our internal infrastructure systems, such as information strategy and sharing and interconnectivity between systems; • hire, integrate, and retain talented technology, sales, customer service, and other personnel; • effectively manage rapid growth in our personnel and operations; and • effectively manage our costs. 23 Table of Contents Further, because we have limited historical financial data relevant to our current scale and operations and operate in a rapidly evolving market, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.
These risks and challenges include, but are not limited to, our ability to: • accurately forecast our revenue and plan our operating expenses; • increase the number of and retain existing customers and their guests using our platform; • successfully compete with current and future competitors; • successfully expand our business in existing markets and enter new markets and geographies; • anticipate and respond to macroeconomic changes and changes in the markets in which we operate; • maintain and enhance the value of our reputation and brand; • comply with regulatory requirements in highly regulated markets; • adapt to rapidly evolving trends in the ways customers and their guests interact with technology; • avoid interruptions or disruptions in our service; • develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle significant surges of usage by our customers and their guests as compared to historic levels and increased usage generally, as well as the deployment of new features and services; • maintain, scale, and effectively manage our internal infrastructure systems, such as information strategy and sharing and interconnectivity between systems; • hire, integrate, and retain talented technology, sales, customer service, and other personnel; • effectively manage rapid growth in our personnel and operations; and • effectively manage our costs.
Renewals of subscriptions may decline or fluctuate as a result of a number of factors, including dissatisfaction with our platform or support, the perception that a competitive platform, product or service presents a better or less expensive option, or our failure to successfully deploy sales and marketing efforts towards existing customers as they approach the expiration of their subscription term.
Renewals of subscriptions may decline or fluctuate as a result of a number of factors, including the level of satisfaction with our platform or support; the perception that a competitive platform, product or service presents a better or less expensive option; changes in our customers' spending levels; changes in consumer behavior; or our failure to successfully deploy sales and marketing efforts towards existing customers as they approach the expiration of their subscription term.
The long-term potential of our business may be adversely affected if we are unable to expand our business successfully into international markets. Although we currently do not derive significant revenue from customers located outside the United States, the long-term potential of our business will depend in part on our ability to expand our business into international markets.
Although we currently do not derive significant revenue from customers located outside the United States, the long-term potential of our business will depend in part on our ability to expand our business into international markets.
As of December 31, 2022, we had accumulated $597 million and $573 million of federal and state net operating loss carryforwards, or NOLs, respectively, available to reduce future taxable income.
As of December 31, 2023, we had accumulated $720 million and $773 million of federal and state net operating loss carryforwards, or NOLs, respectively, available to reduce future taxable income.
Additionally, the Delaware Forum Provision and the Federal Forum Provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits.
Additionally, the Delaware Forum Provision and the Federal Forum Provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits, even though an action, if successful, might benefit our stockholders.
Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations; • different pricing environments, sales cycles, and collections issues; 29 Table of Contents • financial and other impacts to our business resulting from fluctuations in currency exchange rates and unit economics across multiple jurisdictions; • increased financial accounting and reporting burdens and complexities; • enforcing intellectual property rights outside of the United States; • difficulty entering new non-U.S. markets due to, among other things, difficulties in achieving consumer acceptance of our platform in new markets and more limited business knowledge of these markets; and • general economic and political conditions.
Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations; • different pricing environments, sales cycles, and collections issues; • financial and other impacts to our business resulting from fluctuations in currency exchange rates and unit economics across multiple jurisdictions, including the possibility of use of hedging arrangements to reduce potential foreign currency exchange exposure; • increased financial accounting and other reporting burdens and complexities, including rapidly changing requirements with respect to corporate sustainability reporting; • enforcing intellectual property rights outside of the United States; • difficulty entering new non-U.S. markets due to, among other things, difficulties in achieving consumer acceptance of our platform in new markets and more limited business knowledge of these markets; and • general economic and political conditions.
Accordingly, our business model relies to a significant extent on our ability to renew subscriptions and sell additional products to existing customers, and, if we are unable to retain revenue from existing customers or to increase revenue from existing customers, our operating results would be adversely impacted even if such lost revenue were offset by an increase in revenue from new customers. 22 Table of Contents We may not be able to sustain our recent revenue growth in future periods.
Accordingly, our business model relies to a significant extent on our ability to renew subscriptions and sell additional products to existing customers, and, if we are unable to retain revenue from existing customers or to increase revenue from existing customers, our operating results would be adversely impacted even if such lost revenue were offset by an increase in revenue from new customers.
In addition, any negative publicity about our company or our management, including about the quality, stability, and reliability of our platform or services, changes to our products and services, our privacy and security practices, litigation, regulatory enforcement, and other actions involving us, as well as the perception of us and our products by our customers and their guests, even if inaccurate, could cause a loss of confidence in us and adversely affect our brand.
In addition, any negative publicity about our company or our management, including about the quality, pricing and fee arrangement, stability, and reliability of our platform or services, changes to our products and services, our privacy and security practices, litigation, regulatory enforcement, and other actions involving us, as well as the perception of us and our products by our customers and their guests, even if inaccurate, could cause a loss of confidence in us and adversely affect our brand. 26 Table of Contents We depend on the experience and expertise of our management team and qualified personnel.
Licensing determinations are matters of regulatory interpretation and could change over time. For example, certain states may have a more expansive view than others of what activities qualify as lending, loan brokering, loan servicing, debt collection, on-demand pay, money transmission, or payroll processing and require a license.
For example, certain states may have a more expansive view than others of what activities qualify as lending, loan brokering, loan servicing, debt collection, on-demand pay, money transmission, or payroll processing and require a license.
We have and may, from time to time, voluntarily provide certain credits to our customers to compensate them for the inconvenience caused by a system failure or similar event, to support our customers and for the benefit of the restaurant community as part of our ongoing goodwill efforts.
System failures in the future could result in significant losses of revenue. 33 Table of Contents We have and may, from time to time, voluntarily provide certain credits to our customers to compensate them for the inconvenience caused by a system failure or similar event, to support our customers and for the benefit of the restaurant community as part of our ongoing goodwill efforts.
For example, our manufacturers may experience temporary or permanent disruptions in their manufacturing operations due to equipment breakdowns, labor strikes or shortages, natural disasters, disease outbreaks (such as the recent COVID-19 pandemic), civil unrest, hostilities or wars (such as the ongoing conflict between Russia and Ukraine), component or material shortages, cost increases, acquisitions, insolvency, changes in legal or regulatory requirements, or other similar problems.
For example, our manufacturers may experience temporary or permanent disruptions in their manufacturing operations due to equipment breakdowns, labor strikes or shortages, natural disasters, disease outbreaks, civil unrest, hostilities or wars, component or material shortages, cost increases, acquisitions, insolvency, changes in legal or regulatory requirements, or other similar problems.
We rely on customers on our platform to provide quality foods, beverages, and service and experience to their guests. Further, an increase in customer operating costs could cause customers on our platform to raise prices, cease operations, or renegotiate processing rates, which could in turn adversely affect our financial condition and results of operations.
Further, an increase in customer operating costs could cause customers on our platform to raise prices, cease operations, or renegotiate processing rates, which could in turn adversely affect our financial condition and results of operations.
Certain other state laws, such as the VCDPA, impose similar privacy obligations as the CCPA and we anticipate that more states may enact legislation similar to the CCPA, the VCDPA and the forthcoming state privacy laws in 2023, which provides consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers.
We anticipate that more states may enact legislation similar to the CCPA and the forthcoming state privacy laws, which provide consumers with new privacy rights and increase the privacy and security obligations of entities handling certain personal information of such consumers.
We expect our costs will increase over time and our losses to continue as we expect to continue to invest significant additional funds in expanding our business, sales and marketing activities, research and development as we continue to build software and hardware designed specifically for the restaurant industry, and maintaining high levels of customer support, each of which we consider critical to our continued success.
We expect our costs will increase over time and our losses to continue, in the near-term, as we continue to invest in expanding our business, building software and hardware designed specifically for the restaurant industry, and maintaining high levels of customer support, each of which we consider critical to our continued success.
Loans facilitated by Toast Capital are made by our bank partner in reliance on the position that the bank is the “true lender” for such loans.
We may also be challenged that our bank partner is not the “true lender” of the loans. Loans facilitated by Toast Capital are made by our bank partner in reliance on the position that the bank is the “true lender” for such loans.
Our business, financial condition, and results of operations could be adversely affected if the cost per claim, premiums, or the number of claims significantly exceeds our historical experience and coverage limits; we experience a claim in excess of our coverage limits; our insurance providers fail to pay on our insurance claims; we experience a claim for which coverage is not provided; or the number of claims under our deductibles or self-insured retentions differs from historical averages. 38 Table of Contents Risks Related to Competition, Sales, and Marketing The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.
Our business, financial condition, and results of operations could be adversely affected if the cost per claim, premiums, or the number of claims significantly exceeds our historical experience and coverage limits; we experience a claim in excess of our coverage limits; our insurance providers fail to pay on our insurance claims; we experience a claim for which coverage is not provided; or the number of claims under our deductibles or self-insured retentions differs from historical averages.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters is located in Boston, Massachusetts, pursuant to an operating lease that expires in 2029. We use this facility for administration, sales and marketing, technology and development and professional services. We lease additional offices in North America, Europe and Asia for sales, professional services, and other personnel.
Biggest changeThe new lease commenced on December 1, 2023, with its term expiring on June 30, 2028, unless earlier terminated pursuant any provision therein. We use our corporate headquarters for administration, sales and marketing, technology and development and professional services. We also lease additional offices in North America, Europe and Asia.
We believe that these facilities are generally suitable to meet our current needs. We intend to expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.
We believe that these facilities are generally suitable to meet our current needs. We intend to expand our facilities or add new facilities as we enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.
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Item 2. Properties Our corporate headquarters is located in Boston, Massachusetts, pursuant to an operating lease, a portion of which was terminated as of June 2023 and a portion of which expires in December 2024. In the second half of 2023, we entered into a new lease agreement to relocate our corporate headquarters to 333 Summer Street, Boston Massachusetts 02210.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. 67 Table of Contents Item 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeRegardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePerformance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Toast, Inc. under the Securities Act, or the Exchange Act.
Biggest changeAny future determination regarding the declaration and payment of dividends will be at the discretion of our Board and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our Board may deem relevant. 68 Table of Contents Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Toast, Inc. under the Securities Act, or the Exchange Act.
An investment of $100 is assumed to have been made in our Class A common stock and in each index on September 22, 2021, the date our Class A common stock began trading on the New York Stock Exchange, and its relative performance is tracked through December 31, 2022.
An investment of $100 is assumed to have been made in our Class A common stock and in each index on September 22, 2021, the date our Class A common stock began trading on the New York Stock Exchange, and its relative performance is tracked through December 31, 2023.
The actual number of stockholders is greater than this number of record holders and includes an indeterminate number of stockholders who are beneficial owner s but whose shares are held in street name by brokers and other nominees. As of December 31, 2022, there were 100 holders of record of our Class B common stock.
The actual number of stockholders is greater than this number of record holders and includes an indeterminate number of stockholders who are beneficial owner s but whose shares are held in street name by brokers and other nominees. As of December 31, 2023, there were 62 holders of record of our Class B common stock.
Our Class B common stock is neither listed nor traded. Holders of Record As of December 31, 2022, there were 357 holders of record of our Class A common stock.
Our Class B common stock is neither listed nor traded. Holders of Record As of December 31, 2023, there were 266 holders of record of our Class A common stock.
Recent Sales of Unregistered Securities In November 2022, we issued and donated 546,889 shares of Class A common stock to an independent donor advised fund to further our philanthropic goals through our Toast.org initiative, for consideration consisting of the benefit to the Company related to the purpose of the independent donor advised fund.
Recent Sales of Unregistered Securities In September 2023, we issued and donated 1 million shares of Class A common stock to an independent donor advised fund to further our philanthropic goals through our Toast.org initiative, for consideration consisting of the benefit to the Company related to the purpose of the independent donor advised fund.
The offer, sale, and issuance of the securities were deemed to be exempt from registration under Section 4(a)(2) of the Securities Act under the Securities Act as a transaction by an issuer not involving a public offering.
The offer, sale, and issuance of the securities were deemed to be exempt from registration under Section 4(a)(2) of the Securities Act under the Securities Act as a transaction by an issuer not involving a public offering. Issuer Purchases of Equity Securities None. Item 6. [Reserved] 69 Table of Contents
Data for the S&P 500 and the S&P 500 Information Technology Index assume reinvestment of dividends. 68 Table of Contents The returns shown are based on historical results and are not intended to suggest future performance.
The graph uses the closing market price on September 22, 2021 of $62.51 per share as the initial value of our Class A common stock. Data for the S&P 500 and the S&P 500 Information Technology Index assume reinvestment of dividends. The returns shown are based on historical results and are not intended to suggest future performance.
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Any future determination regarding the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.
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The graph uses the closing market price on September 22, 2021 of $62.51 per share as the initial value of our Class A common stock.
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Use of Proceeds From the IPO Our initial public offering of our Class A common stock was effected pursuant to a Registration Statement on Form S-1 (File No. 333-259104) which was declared effective by the SEC on September 21, 2021.
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There has been no material change in the planned use of proceeds from our initial public offering as described in our Registration Statement and other periodic reports filed with the SEC. Issuer Purchases of Equity Securities None. Item 6. [Reserved] 69 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe expenses and other items which are excluded from the calculation of Adjusted EBITDA may differ from the expenses and other items that other companies may exclude from Adjusted EBITDA when they report their financial results. 81 Table of Contents The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods presented: Year Ended December 31, (in millions) 2022 2021 2020 Net loss $ (275) $ (487) $ (248) Stock-based compensation expense and related payroll tax 232 144 86 Depreciation and amortization 24 21 27 Interest (income) expense, net (11) 12 12 Other (income) expense, net 1 — 1 Acquisition expenses 2 1 — Change in fair value of warrant liability (95) 97 8 Change in fair value of derivative liability — 103 7 Reduction of workforce — — 10 Termination of leases (1) 1 3 Loss on debt extinguishment — 50 — Charitable contribution stock-based expense 10 19 — Income tax benefit (2) (3) — Adjusted EBITDA $ (115) $ (42) $ (94) Net Cash (Used in) Provided by Operating Activities (GAAP) and Free Cash Flow (Non-GAAP) Free cash flow is defined as net cash provided by (used in) operating activities reduced by purchases of property and equipment and capitalization of internal-use software costs.
Biggest changeThe expenses and other items which are excluded from the calculation of Adjusted EBITDA may differ from the expenses and other items that other companies may exclude from Adjusted EBITDA when they report their financial results. 77 Table of Contents The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods presented: Year Ended December 31, (in millions) 2023 2022 Net loss $ (246) $ (275) Stock-based compensation expense and related payroll tax 288 232 Depreciation and amortization 32 24 Interest income, net (37) (11) Termination of leases 14 (1) Stock-based charitable contribution expense 10 10 Change in fair value of warrant liability (3) (95) Acquisition expenses 1 2 Other (income) expense, net — 1 Income tax expense (benefit) 2 (2) Adjusted EBITDA $ 61 $ (115) Subscription Services and Financial Technology Solutions Gross Profit (GAAP) and Non-GAAP Subscription Services and Financial Technology Solutions Gross Profit (Non-GAAP) Non-GAAP Subscription Services and Financial Technology Solutions Gross Profit is defined as subscription services gross profit and financial technology solutions gross profit, adjusted to exclude stock-based compensation expense and related payroll tax expense, and depreciation and amortization expense.
We have provided below a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. We believe Adjusted EBITDA is useful for investors in comparing our financial performance to other companies and from period to period.
We have provided below a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA. We believe Adjusted EBITDA is useful for investors in comparing our financial performance to other companies and from period to period.
As our customers generate more sales and therefore more GPV, we generally see higher financial technology solutions revenue. 1 Please note that numbers may not tie due to rounding to the nearest hundred million. 72 Table of Contents Annualized Recurring Run-Rate (ARR) We monitor Annualized Recurring Run-Rate as a key operational measure of the scale of our subscription and payment processing services for both new and existing customers.
As our customers generate more sales and therefore more GPV, we generally see higher financial technology solutions revenue. 1 Please note that numbers may not tie due to rounding to the nearest hundred million. 71 Table of Contents Annualized Recurring Run-Rate (ARR) We monitor Annualized Recurring Run-Rate as a key operational measure of the scale of our subscription and payment processing services for both new and existing customers.
Represents the change in the fair value of our warrant liability related to warrants issued to purchase shares of our convertible preferred stock and our common stock. The warrant liability is remeasured at fair value at each reporting date which could have a significant effect on other income (expense) and our results of operations during each period.
Represents the change in the fair value of our warrant liability related to warrants issued to purchase shares of our common stock. The warrant liability is remeasured at fair value at each reporting date which could have a significant effect on other income (expense) and our results of operations during each period. Other income (expense), net.
This section provides an overview and analysis of our financial results for the year ended December 31, 2022 compared to the year ended December 31, 2021 and for the year ended December 31, 2021 compared to the year ended December 31, 2020. • Liquidity and Capital Resources .
This section provides an overview and analysis of our financial results for the year ended December 31, 2023 compared to the year ended December 31, 2022 and for the year ended December 31, 2022 compared to the year ended December 31, 2021. • Liquidity and Capital Resources .
Financial technology solutions. Revenue from financial technology solutions consists primarily of transaction-based fees paid by customers to facilitate their payment transactions, which are generally calculated as a percentage of the total transaction amount processed plus a per-transaction fee. The transaction fees collected are recognized as revenue on a gross basis.
Consists primarily of transaction-based fees paid by customers to facilitate their payment transactions, which are generally calculated as a percentage of the total transaction amount processed plus a per-transaction fee. The transaction fees collected are recognized as revenue on a gross basis.
Research and development expenses consist primarily of employee-related costs associated with improvements to our platform and the development of new product offerings, as well as allocated overhead and expenses associated with the use of third-party software directly related to development of our products and services. 74 Table of Contents General and administrative.
Research and development expenses consist primarily of uncapitalized employee-related costs associated with improvements to our platform and the development of new product offerings, as well as allocated overhead and expenses associated with the use of third-party software directly related to development of our products and services. General and administrative.
Our platform provides a comprehensive suite of SaaS products, financial technology solutions including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across dine-in, takeout, and delivery channels.
Our platform provides a comprehensive suite of SaaS products, financial technology solutions including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across service models including dine-in, takeout, delivery, catering, and retail.
Monthly Recurring Run-Rate, or MRR, is measured on the final day of each month for all restaurant locations live on our platform as the sum of (i) our monthly billings of subscription services fees, which we refer to as the subscription component of MRR, and (ii) our in-month adjusted payments services fees, exclusive of estimated transaction-based costs, which we refer to as the payments component of MRR.
Monthly Recurring Run-Rate, or MRR, is measured on the final day of each month as the sum of (i) our monthly billings of subscription services fees, which we refer to as the subscription component of MRR, and (ii) our in-month adjusted payments services fees, exclusive of estimated transaction-based costs, which we refer to as the payments component of MRR.
To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. 84 Table of Contents We believe that the accounting policies described below involve a greater degree of judgment and complexity.
To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. 81 Table of Contents We believe that the critical accounting estimates summarized below involve a greater degree of judgment and complexity.
The expected volatility of stock options is based upon the average historical volatility of a number of publicly traded companies in a similar industry. We estimate a forfeiture rate to calculate the stock-based compensation expense for the awards based on an analysis of actual historical experience and expected employee attrition rates.
The expected volatility of stock options is based upon the average historical volatility of a number of publicly traded companies in a similar industry. We also estimate a forfeiture rate to calculate the stock-based compensation expense for options and restricted stock units, or RSUs, based on an analysis of actual historical experience and expected employee attrition rates.
Accordingly, these are the policies we believe are the most critical in fully understanding and evaluating our financial condition and results of operations. For further information, see Note 2, "Summary of Significant Accounting Policies" to our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.
Accordingly, these are the estimates and policies we believe are the most critical in fully understanding and evaluating our financial condition and results of operations. For further information on our critical accounting estimates and policies summarized below, refer to Note 2, "Summary of Significant Accounting Policies" included in this Annual Report on Form 10-K in “Notes to Consolidated Financial Statements”.
We utilize our hardware and related professional services as customer acquisition tools and price them competitively to reduce barriers to entry for new locations. 77 Table of Contents Operating Expenses Sales and Marketing Year Ended December 31, 2022 to 2021 Change 2021 to 2020 Change (dollars in millions) 2022 2021 2020 Amount % Amount % Sales and marketing $ 319 $ 190 $ 138 $ 129 68 % $ 52 38 % The increase in sales and marketing expenses during the year ended December 31, 2022 was primarily attributable to a $77 million increase in employee-related and overhead costs and a $26 million increase in stock-based compensation.
We utilize our hardware and professional services as customer acquisition tools and price them competitively to reduce barriers to entry for new Locations. 74 Table of Contents Operating Expenses Sales and Marketing Year Ended December 31, Change (dollars in millions) 2023 2022 Amount % Sales and marketing $ 401 $ 319 $ 82 26 % The increase in sales and marketing expenses during the year ended December 31, 2023 was primarily attributable to an increase in employee-related costs of $71 million.
Represents foreign currency transaction gains and losses, changes in fair value of our marketable securities, refundable research and development tax credits, and other items. Income Tax Benefit (Expense) Income tax benefit (expense). Consists of U.S. federal and state income tax as well as international taxes in various foreign jurisdictions for the year ended December 31, 2022.
Primarily represents foreign currency transaction gains and losses and changes in fair value of our marketable securities. Income Tax Benefit (Expense) Income tax benefit (expense). Consists of U.S. federal and state income tax as well as international taxes in various foreign jurisdictions.
The following table presents a reconciliation of free cash flow to the net cash provided by (used in) operating activities for each of the periods presented: Year Ended December 31, (in millions) 2022 2021 2020 Net cash (used in) provided by operating activities $ (156) $ 2 $ (125) Purchase of property and equipment (16) (12) (28) Capitalized software (17) (7) (8) Free cash flow $ (189) $ (17) $ (161) LIQUIDITY AND CAPITAL RESOURCES Upon completion of the IPO, we received net proceeds of $950 million after deducting underwriting discounts and commissions and invested them into interest-generating marketable securities and money market accounts. 82 Table of Contents Our principal sources of liquidity are cash and cash equivalents and marketable securities.
The following table presents a reconciliation of net cash provided by (used in) operating activities to the free cash flow for each of the periods presented: Year Ended December 31, 2023 2022 (in millions) Net cash provided by (used in) operating activities $ 135 $ (156) Capital expenditures (42) (33) Free cash flow $ 93 $ (189) LIQUIDITY AND CAPITAL RESOURCES Upon completion of the IPO, we received net proceeds of $950 million after deducting underwriting discounts and commissions and invested them into interest-generating marketable securities and money market accounts.
We have limited historical stock option activity and therefore estimate the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period.
Stock-Based Compensation Expense We use the Black-Scholes option-pricing model to determine the estimated fair value of stock option awards. We have limited historical stock option activity and therefore estimate the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period.
Please refer to Note 9, "Debt" to our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for further information on this transaction.
See Note 8, "Debt" to our Consolidated Financial Statements included in “Notes to Consolidated Financial Statements” included in this Annual Report on Form 10-K for further information.
Key Business Metrics Year Ended December 31, 2022 to 2021 2021 to 2020 (dollars in billions) 2022 2021 2020 % Growth % Growth Gross Payment Volume (GPV) $ 91.7 $ 57.0 $ 25.4 61 % 124 % As of December 31, 2022 to 2021 2021 to 2020 (dollars in millions) 2022 2021 2020 % Growth % Growth Annualized Recurring Run-Rate (ARR) $ 901 $ 568 $ 326 59 % 74 % As of December 31, 2022 to 2021 2021 to 2020 2022 2021 2020 % Change % Change Net Retention Rate (NRR) 118 % 135 % 114 % (17) % 21 % Gross Payment Volume (GPV) 1 Gross Payment Volume represents the sum of total dollars processed through the Toast payments platform across all restaurant locations in a given period.
Key Business Metrics Year Ended December 31, (dollars in billions) 2023 2022 % Growth Gross Payment Volume (GPV) $ 126.1 $ 91.7 38 % As of December 31, (dollars in millions) 2023 2022 % Growth Annualized Recurring Run-Rate (ARR) $ 1,218 $ 901 35 % As of December 31, 2023 2022 % Change Net Retention Rate (NRR) 111 % 118 % (7) % Gross Payment Volume (GPV) 1 Gross Payment Volume represents the sum of total dollars processed through the Toast payments platform across Toast Processing Locations in a given period.
Financial technology solutions revenue also includes fees earned from marketing and servicing working capital loans to our customers through Toast Capital that are originated by a third-party bank.
Financial technology solutions revenue also includes fees earned from marketing and servicing working capital loans to our customers through Toast Capital that are originated by a third-party bank. Hardware and professional services. Consists of hardware revenue from the sale of terminals, tablets, handhelds, and related devices and accessories, net of estimated returns.
The increase in hardware costs during the year ended December 31, 2022 was attributable to higher shipment volume as a result of growth in new restaurant locations and higher product costs.
The increase in hardware and professional services costs during the year ended December 31, 2023 was attributable to higher hardware shipment volume as a result of growth in Locations and higher employee related costs, partially offset by lower hardware freight costs.
Higher employee-related costs were driven primarily by increased employee headcount. The increase in financial technology solutions costs during the year ended December 31, 2022 was due to an increase in GPV.
The increase in financial technology solutions costs during the year ended December 31, 2023 was due to an increase in GPV.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period.
These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period.
Determining whether to recognize revenue on a gross or net basis requires judgment in evaluating whether we are the principal or agent in contracts with customers.
Determining whether to recognize revenue on a gross or net basis requires judgment in evaluating whether we are the principal or agent in contracts with customers. We have concluded that we are the principal in providing a managed payment solution. Substantially all of our financial technology solutions revenue relates to our managed payment solution.
Other companies may calculate free cash flow or similarly titled non-GAAP measures differently, which could reduce the usefulness of free cash flow as a tool for comparison.
Free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Other companies may calculate free cash flow or similarly titled non-GAAP measures differently, which could reduce the usefulness of free cash flow as a tool for comparison.
We generate subscription services revenue from fees charged to customers for access to our software applications, generally over a term ranging from 12 to 36 months. Our subscription services revenue is primarily based on a rate per location, and this rate varies depending on the number of software products purchased, hardware configuration, and employee count at each location.
Our subscription services revenue is primarily based on a rate per location, and this rate varies depending on the number of software products purchased, hardware configuration, and employee count at each location. Financial technology solutions.
We will continue to use judgment in evaluating the expected volatility, expected term and forfeiture rate utilized in our stock-based compensation expense calculation on a prospective basis. As we continue to accumulate additional data related to our Class A common stock and forfeiture rates, we may adjust our estimates, which could materially impact our future stock-based compensation expense.
We will continue to use judgment in evaluating the expected volatility, expected term and forfeiture rate utilized in our stock-based compensation expense calculation for stock option awards on a prospective basis.
Determining whether products and services are considered distinct performance obligations that should be accounted for separately as opposed to being combined may require judgment. We allocate total arrangement consideration at the inception of an arrangement to each performance obligation using the relative selling price allocation method based on each distinct performance obligation’s standalone selling price, or SSP.
We allocate total arrangement consideration at the inception of an arrangement to each performance obligation using the relative selling price allocation method based on each distinct performance obligation’s standalone selling price, or SSP. Determining the SSP for each distinct performance obligation requires significant judgement.
As of December 31, 2022, approximately 79,000 restaurant locations, processing approximately $92 billion of gross payment volume in the trailing 12 months, partnered with Toast to optimize operations, increase sales, engage guests, and maintain happy employees. By enabling these capabilities through a single, integrated platform, Toast improves experiences across the restaurant ecosystem: • Restaurant operators.
As of December 31, 2023, approximately 106,000 Locations, an increase of 34% year over year, processing approximately $126 billion of gross payment volume in the trailing 12 months, partnered with Toast to optimize operations, increase sales, engage guests, and maintain happy employees.
ARR is an operational measure, does not reflect our revenue or gross profit determined in accordance with GAAP, and should be viewed independently of, and not combined with or substituted for, our revenue, gross profit, and other financial information determined in accordance with GAAP.
Generally Accepted Accounting Principles, or GAAP, and should be viewed independently of, and not combined with or substituted for, our revenue, gross profit, and other financial information determined in accordance with GAAP. Further, ARR is not a forecast of future revenue and investors should not place undue reliance on ARR as an indicator of our future or expected results.
The excess of total consideration over the fair values of the assets acquired and the liabilities assumed is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets.
Business Combinations The acquisition purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets.
Our effective tax rate fluctuates from period to period due to changes in the mix of income and losses in jurisdictions with a wide range of tax rates, the effect of acquisitions, changes resulting from the amount of recorded valuation allowance, and permanent differences between U.S. generally accepted accounting principles and local tax laws. 75 Table of Contents RESULTS OF OPERATIONS Comparison of the Years Ended December 31, 2022, 2021, and 2020 Discussions related to year-over-year comparisons between 2021 and 2020 are included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 1, 2022, and incorporated herein by reference.
Discussions related to the fiscal year ended December 31, 2021 and year over year comparisons between the fiscal years ended December 31, 2022 and 2021 are included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023, and incorporated herein by reference.
Research and Development Year Ended December 31, 2022 to 2021 Change 2021 to 2020 Change (dollars in millions) 2022 2021 2020 Amount % Amount % Research and development $ 282 $ 163 $ 109 $ 119 73 % $ 54 50 % The increase in research and development expenses during the year ended December 31, 2022 was primarily attributable to a $75 million increase in employee-related and overhead costs and a $24 million increase in stock-based compensation.
Research and Development Year Ended December 31, Change (dollars in millions) 2023 2022 Amount % Research and development $ 358 $ 282 $ 76 27 % The increase in research and development expenses during the year ended December 31, 2023 was primarily attributable to an increase in employee-related costs of $67 million.
Since our founding, we have translated our love for restaurants into a commitment to innovation and digital transformation for the restaurant industry. As we have expanded our platform, launched new products, and added new partners over time, we have rapidly grown the number of restaurant locations on the Toast platform.
Since our founding, we have translated our love for restaurants into a commitment to innovation and digital transformation for the restaurant industry.
Costs of Revenue Costs of revenue consists of expenses that are directly related or closely correlated to revenue generation, including, but not limited to, employee-related costs for customer support and certain operational roles as well as allocated overhead. Employee-related costs consist of salaries, benefits, bonuses, and stock-based compensation expense.
Hardware and professional services revenue also includes fees charged to customers for professional services which includes installation services, including business process mapping, configuration, and training. 72 Table of Contents Costs of Revenue Costs of revenue consists of expenses that are directly related or closely correlated to revenue generation, including, but not limited to, employee-related costs for customer support and certain operational roles as well as allocated overhead.
We believe this approach provides an indication of our scale, while also controlling for short-term fluctuations in payments volume. Our ARR may decline or fluctuate as a result of a number of factors, including customers’ satisfaction with our platform, pricing, competitive offerings, economic conditions, or overall changes in our customers’ and their guests’ spending levels.
Our ARR may decline or fluctuate as a result of a number of factors, including customers’ satisfaction with our platform, pricing, competitive offerings, economic conditions, or overall changes in our customers’ and their guests’ spending levels. ARR is an operational measure, does not reflect our revenue or gross profit determined in accordance with U.S.
Further, ARR is not a forecast of future revenue and investors should not place undue reliance on ARR as an indicator of our future or expected results. Net Retention Rate (NRR) To calculate our Net Retention Rate, or NRR, we first identify a cohort of customers, or the Base Customers, in a particular month, or the Base Month.
Net Retention Rate (NRR) To calculate our Net Retention Rate, or NRR, we first identify a cohort of customers, or the Base Customers, in a particular month, or the Base Month.
Net Loss (GAAP) and Adjusted EBITDA (Non-GAAP) Adjusted EBITDA is defined as net income (loss), adjusted to exclude stock-based compensation expense and related payroll tax expense, depreciation and amortization expense, interest income (expense) net, other income (expense), net, acquisition expenses, fair value adjustments on warrant and derivative liabilities, expenses related to COVID-19 pandemic initiatives resulting from a reduction of workforce in 2020, expenses related to early termination of leases, loss on debt extinguishment, charitable contribution stock-based expense, and income taxes.
Net Loss (GAAP) and Adjusted EBITDA (Non-GAAP) Adjusted EBITDA is defined as net income (loss), adjusted to exclude stock-based compensation expense and related payroll tax expense, depreciation and amortization expense, interest income (expense) net, income taxes and certain other items that are not considered to reflect our operating activities and performance within the ordinary course of business, such as restructuring and restructuring-related expenses, acquisition expenses, fair value adjustments on warrant liabilities, expenses related to early termination of leases (which includes associated asset impairments) and stock-based charitable contribution expense, as applicable.
The change in working capital was primarily driven by higher inventory balances, in part due to the opening of a new facility, as well as higher deferred costs, partially offset by higher accrued expenses and other current liabilities related to our growth in GPV. For the year ended December 31, 2021, net cash provided by operating activities was $2 million.
Cash generated from operating activities was impacted by use of cash for working capital, primarily driven by higher deferred contract acquisition costs, resulting, in part, from continued growth in Locations, partially offset by higher accrued expenses and other current liabilities due to higher financial technology solutions expenses related to our growth in GPV.
General and Administrative Year Ended December 31, 2022 to 2021 Change 2021 to 2020 Change (dollars in millions) 2022 2021 2020 Amount % Amount % General and administrative $ 294 $ 189 $ 113 $ 105 56 % $ 76 67 % The increase in general and administrative expenses during the year ended December 31, 2022 was primarily attributable to employee-related and overhead costs and stock-based-compensation due to increased headcount, as well as bad debt and credit related expenses mainly due to growth in our Toast Capital product offering.
General and Administrative Year Ended December 31, Change (dollars in millions) 2023 2022 Amount % General and administrative $ 362 $ 294 $ 68 23 % The increase in general and administrative expenses during the year ended December 31, 2023 was primarily attributable to an increase in bad debt and credit related expenses of $30 million driven by growth in our Toast Capital product offering, an increase in employee-related costs of $28 million, and $12 million, net, in lease termination expenses related to our corporate headquarters in Boston, MA.
MRR does not include fees derived from Toast Capital or related costs. MRR is also not burdened by the impact of SaaS credits offered. ARR is determined by taking the sum of (i) twelve times the subscription component of MRR and (ii) four times the trailing-three-month cumulative payments component of MRR.
MRR does not include fees derived from Toast Capital or related costs. MRR is also not burdened by the impact of SaaS credits offered. The MRR calculation includes all locations on the Toast platform and locations on legacy solutions, which have a negligible impact on ARR.
Please refer to Note 8, "Lessee Arrangements" and Note 18, "Commitments and Contingencies" to our Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for a discussion on our lease and purchase commitments.
Recent Accounting Pronouncements Refer to the sections titled “Recent Accounting Pronouncements” in Note 2 of the "Notes to Consolidated Financial Statements" included in Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for more information.
Costs of Revenue Year Ended December 31, 2022 to 2021 Change 2021 to 2020 Change (dollars in millions) 2022 2021 2020 Amount % Amount % Subscription services $ 112 $ 63 $ 40 $ 49 78 % $ 23 58 % Financial technology solutions 1,792 1,120 509 672 60 % 611 120 % Hardware 215 152 85 63 41 % 67 79 % Professional services 96 52 45 44 85 % 7 16 % Amortization of acquired intangible assets 5 4 4 1 25 % — — % Total costs of revenue $ 2,220 $ 1,391 $ 683 $ 829 60 % $ 708 104 % The increase in subscription services costs during the year ended December 31, 2022 was primarily attributable to an increase in employee-related and overhead costs and contractor services as well as stock-based compensation expense.
Costs of Revenue Year Ended December 31, Change (dollars in millions) 2023 2022 Amount % Subscription services $ 166 $ 112 $ 54 48 % Financial technology solutions 2,503 1,792 711 40 % Hardware and professional services 357 311 46 15 % Amortization of acquired intangible assets 5 5 — — % Total costs of revenue $ 3,031 $ 2,220 $ 811 37 % The increase in subscription services costs during the year ended December 31, 2023 was primarily attributable to an increase in employee-related costs.
Pricing and packaging of bundled sales benefited revenue in the prior year compared to a negative impact in the current year. The increase in professional services revenue during the year ended December 31, 2022 was primarily driven by the increase in new live locations.
The increase in financial technology solutions revenue during the year ended December 31, 2023 was primarily attributable to the increase in Locations on the Toast platform. The increase in hardware and professional services revenue during the year ended December 31, 2023 was primarily driven by growth in new Locations.
We believe that free cash flow is a meaningful indicator of liquidity that provides information to management and investors about the amount of cash generated from operations and used for purchases of property and equipment, capitalization of software costs, and investments in our business.
We believe that free cash flow is a meaningful indicator of our sources of liquidity and capital requirements that provides information to management and investors in evaluating the cash flow trends of our business. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.
Components of Results of Operations Revenue We generate revenue from four main sources that are further described below: (1) subscription services, (2) financial technology solutions, (3) hardware, and (4) professional services. Our total revenue consists of the following: Subscription services.
Components of Results of Operations Revenue We principally generate revenue from: (1) subscription services, (2) financial technology solutions, and (3) hardware and professional services. Subscription services. Consists primarily of fees charged to customers for access to our software applications, generally over a term ranging from 12 to 36 months.
As of December 31, 2022 and 2021, there were $8 million and $13 million of letters of credit outstanding, respectively. As a result of entering into the 2021 Facility, we became obligated to prepay or redeem convertible notes issued in June 2020.
As of December 31, 2023 and 2022, total available funds under the 2021 Facility were $330 million and no amounts were drawn or outstanding. In addition, as of December 31, 2023 and 2022, there were also $5 and $8 million in letters of credit outstanding, respectively.
The increase in professional services costs during the year ended December 31, 2022 was primarily due to an increase in employee-related and overhead costs and contractor services as well as stock-based compensation expense.
During the year ended December 31, 2023, the change in net cash provided by (used in) operating activities as compared to the year ended December 31, 2022, was driven by a lower net loss, an increase in non-cash adjustments, primarily related to stock-based compensation expense, amortization of deferred contract acquisition costs, and credit loss expenses, and favorable changes in operating assets and liabilities.
Allocated overhead includes certain facilities costs, depreciation expense, and amortization costs associated with internally developed software. Below are descriptions of the types of costs classified within each component of costs of revenue: Subscription services.
Employee-related costs consist of salaries, benefits, bonuses, and stock-based compensation expense. Allocated overhead includes certain facilities costs, depreciation expense, and amortization costs associated with internally developed software and acquired intangible assets. Operating Expenses Our operating expenses consist of the following: Sales and marketing.
Debt On June 8, 2021, we entered into a senior secured credit facility, or the 2021 Facility, which includes a revolving line of credit equal to $330 million.
Debt During 2021 we entered into a senior secured credit facility, or the 2021 Facility, which we subsequently amended on March 2, 2023 to replace the London Interbank Offered Rate, or LIBOR, with the Secured Overnight Financing Rate, or SOFR. The 2021 Facility is subject to a minimum liquidity covenant of $250 million.
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We arm restaurants with a wide range of products and capabilities to address their specific needs regardless of size, location, or business model. As a result, restaurants using Toast often see higher sales and greater operational efficiency. • Guests. We are laser focused on helping our customers deliver memorable guest experiences at scale.
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We define a live location, or Location, as a unique location that has used Toast Point of Sale, or POS, to record transaction volumes above a minimum threshold, and has not been marked as a churned location as of the date of determination.
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Guests can place orders easily, safely, and accurately across web, mobile, and in-person channels for dine-in, takeout, or delivery. In addition, our platform empowers restaurants to utilize their guest data to deliver targeted and personalized experiences with loyalty programs and marketing solutions. • Employees. Our easy-to-learn and easy-to-use technology improves the experience of restaurant employees across Toast customers.
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A Location can use Toast payment services, which we refer to as a Toast Processing Location, or for select enterprise customers, not use Toast’s payment services, which we refer to as a Non-Toast Processing Location. Customers of legacy solutions provided by companies that we have acquired that do not use Toast POS, are not included in our Location count.
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Employees are core to delivering great hospitality, and it is critical for restaurants to engage and retain employees in an increasingly competitive labor market. Our products enable new employees to learn quickly through guided workflows, facilitate faster table turns and safer, streamlined operations, and provide greater transparency around, and timely access to, employees’ wages. 70 Table of Contents • Suppliers.
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As we have expanded our platform, launched new products, and added new partners over time, we have rapidly grown the number of Locations on the Toast platform. 70 Table of Contents Seasonality We experience seasonality in our financial technology solutions revenue, which is largely driven by the level of Gross Payment Volume, or GPV, processed through our platform.
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Our supplier management and accounting products give restaurants the tools to optimize their back-office operations. Managing supplier networks and procurement, and having high visibility into costs, are critical to efficiently operating a restaurant. Our products enable customers to automate manual billing processes, manage inventory, and improve profitability with real-time cost insights on menu items.
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For example, customers typically have greater sales during the warmer months, though this effect varies regionally, and can be impacted by seasonal needs of our customers (which may also impact the total number of Toast Processing Locations in such a period that contributes to our GPV).
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The seamless integration across our end-to-end platform gives our customers the rich data and reporting capabilities to efficiently operate and manage their restaurants. The benefits to all stakeholders using the Toast platform create a powerful, virtuous cycle that amplifies our impact on restaurants. Guest satisfaction generates loyalty to restaurants, driving repeat sales, word-of-mouth referrals, and larger checks and tips.
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As a result, our financial technology solutions revenue per Toast Processing Location has historically been stronger in the second and third quarters. We believe that financial technology solutions revenue from both existing and potential future products will continue to represent a significant proportion of our overall revenue mix, and seasonality will continue to impact our results of operations.
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This promotes employee satisfaction, helping reduce turnover and motivating employees to continue to raise the bar on the guest experience. In addition, our integrated software and payments platform consolidates data on restaurant sales and operations, which enables our reporting and analytics as well as financial technology solutions, such as working capital loans, to further support our customers’ success.
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ARR is determined by taking the sum of (i) twelve times the subscription component of MRR and (ii) four times the trailing-three-month cumulative payments component of MRR. We believe this approach provides an indication of our scale, while also controlling for short-term fluctuations in payments volume.
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On September 24, 2021, we completed our initial public offering, or IPO, in which we issued and sold 25,000,000 shares of our Class A common stock at the public offering price of $40.00 per share, which included the full exercise of the underwriters’ option to purchase additional 3,260,869 shares.
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Our effective tax rate fluctuates from period to period due to changes in the mix of income and losses in jurisdictions with a wide range of tax rates, the effect of acquisitions, changes resulting from the amount of recorded valuation allowance, and permanent differences between GAAP and local tax laws. 73 Table of Contents RESULTS OF OPERATIONS The following section discusses the fiscal years ended December 31, 2023 and 2022 and provides a year over year comparison between fiscal years ended December 31, 2023 and 2022.
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We received net proceeds of $944 million after deducting underwriting discounts, commissions, and other offering costs. 71 Table of Contents Recent Developments in Macroeconomic Environment Global events and macroeconomic conditions such as inflation and its potential impact on consumer spending, rising interest rates, global supply chain issues and the COVID-19 pandemic have impacted and may continue to impact our business.
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Revenue Year Ended December 31, Change (dollars in millions) 2023 2022 Amount % Subscription services $ 500 $ 324 $ 176 54 % Financial technology solutions 3,189 2,268 921 41 % Hardware and professional services 176 139 37 27 % Total revenue $ 3,865 $ 2,731 $ 1,134 42 % The increase in subscription services revenue during the year ended December 31, 2023 was attributed to growth in Locations on the Toast platform and the continued increase in products adopted by customers.
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While our business results remain positive, it is difficult to predict the potential impact these factors may have on our future business results because of the uncertainty they have produced or will produce among consumers and the restaurant industry.
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Restructuring Plan In February 2024, we announced a restructuring plan, or the Restructuring Plan, designed to promote overall operating expense efficiency, including a reduction in force and certain other actions to reorganize our facilities and operations.
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In these arrangements, Toast Capital’s bank partner originates all loans, and Toast Capital then services the loans using Toast’s payments infrastructure to remit a fixed percentage of daily sales until the loan is paid back.
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As part of this Restructuring Plan, we expect to incur restructuring and restructuring-related charges of approximately $45 to $55 million, primarily related to severance and severance related costs, and certain other costs related to facilities.
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Toast Capital is responsible for purchasing from our bank partner loans in default (or that have been or are scheduled to be charged off) until the aggregate principal amount of such purchased loans equals 15% of the total originated amount for each quarterly loan cohort.
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We expect to complete the Restructuring Plan and incur all related charges by the end of fiscal year 2024 and expect to incur substantially all of these charges in the first quarter of fiscal year 2024.
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Toast Capital earns a servicing fee as well as a credit performance fee that is tied to the portfolio performance. 73 Table of Contents Hardware. We generate hardware revenue from the sale of terminals, tablets, handhelds, and related devices and accessories, net of estimated returns. Professional services.
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Although we expect certain cost savings in the near-term resulting from the Restructuring Plan, and a reduction in the rate of growth in our operating expenses, as compared to comparative periods, we still expect to see a continued increase in overall total operating expenses.
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We generate professional services revenue from fees charged to customers for installation services, including business process mapping, configuration, and training. These services can be delivered on-site, remotely, or on a self-guided basis.
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Interest Income (expense), net Year Ended December 31, Change (dollars in millions) 2023 2022 Amount % Interest income $ 37 $ 11 $ 26 N/M N/M - Not meaningful The increase in interest income during the year ended December 31, 2023 was attributable to higher interest rates on our investments in marketable securities. 75 Table of Contents Change in Fair Value of Warrant Liability Year Ended December 31, Change (dollars in millions) 2023 2022 Amount % Change in fair value of warrant liability $ 3 $ 95 $ (92) (97) % The decrease in the change in fair value of warrant liability during the year ended December 31, 2023 was attributable to the change in our stock price from the beginning of the period to the end of period in 2023 when compared to 2022. 76 Table of Contents Non-GAAP Financial Measures We use certain non-GAAP financial measures described below to supplement our consolidated financial statements prepared and presented in accordance with GAAP and to understand and evaluate our core operating performance.
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Subscription services costs consist of customer support and associated employee-related costs, hosting costs, professional services costs, other software costs to support our cloud-based platform, and amortization costs associated with internally developed software. Financial technology solutions.
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We believe this non-GAAP measure is useful to view the resulting figures excluding the aforementioned non-cash charges because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and such amounts vary substantially from company to company depending on their financing and capital structures and the method by which their assets were acquired.
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Financial technology solutions costs consist primarily of transaction-based costs, which are mostly fees and costs paid to issuers and card networks as well as other related fees associated with third-party payment processors and fraud management. Hardware.
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We have provided below a reconciliation of Subscription Services and Financial Technology Solutions Gross Profit, the most directly comparable GAAP financial measure, to Non-GAAP Subscription Services and Financial Technology Solutions Gross Profit.
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Hardware costs consist of raw materials and the cost of manufacturing and shipping hardware sold to customers, including terminals, tablets, handhelds, and related devices and accessories. Included in the manufacturing and shipping costs are employee-related costs, professional services costs, and allocated overhead associated with our supply chain and fulfillment teams. Professional services.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe securities are recorded at fair value in the Consolidated Balance Sheets with unrealized gains or losses, net of tax, reported as a separate component of stockholders' equity within "Accumulated other comprehensive loss." The primary objective of our investment activities is to preserve capital and meet liquidity requirements without significantly increasing risk.
Biggest changeOur cash and cash equivalents are held primarily in cash deposits and money market funds, and the securities are considered investment-grade debt securities and classified as available-for-sale. The securities are recorded at fair value in the Consolidated Balance Sheets with unrealized gains or losses, net of tax, reported as a separate component of stockholders' equity within accumulated other comprehensive loss.
While it is difficult to accurately measure the impact of inflation due to the lack of precise estimates, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our business will not be affected in the future by inflation. 87 Table of Contents
While it is difficult to accurately measure the impact of inflation due to the lack of precise estimates, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our business will not be affected in the future by inflation. 83 Table of Contents
During the years ended December 31, 2022, 2021, and 2020, we had no customers that accounted for more than 10% of our total revenue. No customers accounted for more than 10% of our total receivables at December 31, 2022 and 2021.
During the years ended December 31, 2023, 2022, and 2021, we had no customers individually that accounted for more than 10% of our total revenue. No customers individually accounted for more than 10% of our total receivables at December 31, 2023 and 2022.
Changes in interest rates affect the interest earned on our cash and cash equivalents and marketable securities, and the fair value of those securities. We had cash and cash equivalents of $547 million and marketable securities of $474 million as of December 31, 2022.
Changes in interest rates affect the interest earned on our cash and cash equivalents and marketable securities, and the fair value of those securities. We had cash and cash equivalents of $605 million and marketable securities of $519 million as of December 31, 2023.
Foreign Currency Risk Most of our sales and operating expenses are denominated in U.S. dollars, and therefore, neither our revenue nor operating expenses are currently subject to significant foreign currency risk.
We do not expect that any change in prevailing interest rates will have a material impact on our results of operations. Foreign Currency Risk Most of our sales and operating expenses are denominated in U.S. dollars, and therefore, neither our revenue nor operating expenses are currently subject to significant foreign currency risk.
We do not enter into investments for speculative purposes. Based on our investment portfolio balance as of December 31, 2022, a hypothetical 100 basis point increase or decrease in interest rates would not have materially affected our financial position. We do not expect that any change in prevailing interest rates will have a material impact on our results of operations.
The primary objective of our investment activities is to preserve capital and meet liquidity requirements without significantly increasing risk. We do not enter into investments for speculative purposes. Based on our investment portfolio balance as of December 31, 2023, a hypothetical 100 basis point increase or decrease in interest rates would not have materially affected our financial position.
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Our cash and cash equivalents are held primarily in cash deposits and money market funds, and the securities are considered investment-grade debt securities and classified as available-for-sale.

Other TOST 10-K year-over-year comparisons