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(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding 471 million shares of Class A common stock and 97 million shares of Class B common stock as of November 1, 2024.

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations, financial condition, business strategy, plans and objectives of management for future operations, our market opportunity and the potential growth of that market, our liquidity and capital needs and other similar matters, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks, and changes in circumstances that are difficult to predict. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements concerning the following:

•our future financial performance, including our revenue, costs of revenue or expenses, or other operating results;

•our ability to successfully execute our business and growth strategy;

•anticipated trends and growth rates in our business and in the markets in which we operate;

•our ability to effectively manage our growth and future expenses;

•our anticipated investments in sales and marketing and research and development;

•our ability to maintain the security and availability of our platform;

•our ability to increase the number of customers using our platform;

•our ability to retain, and to sell additional products and services to, our existing customers;

•our ability to successfully expand in our existing markets and into new markets;

•our expectations concerning relationships with third parties;

•our estimated total addressable market;

•our ability to compete effectively with existing competitors and new market entrants;

•the attraction and retention of qualified employees and key personnel and the impact of our restructuring plan;

•the impact of our share repurchase program;

•our ability to maintain, protect and enhance our intellectual property;

•our ability to comply with modified or new laws and regulations applying to our business;

•our ability to successfully defend litigation brought against us;

•our ability to prevent and successfully remediate material weaknesses, if any, in internal controls over financial reporting;

•the impact of global financial, economic, political, and health events, such as rising inflation, capital market disruptions, sanctions, or economic slowdowns or recessions, on our business and the restaurant industry;

•our ability to source, finance, and integrate companies and assets that we have or may acquire; and

•the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors listed or described from time to time in our filings with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe such information provides a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Toast, Inc. (“we,” or “the Company”), is a cloud-based all-in-one digital technology platform purpose-built for the entire restaurant community. 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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and the rules and regulations of the Securities and Exchange Commission, or the SEC, regarding interim financial reporting. Accordingly, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly our financial position, results of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2024 or any other future interim periods.

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, or the 2023 Annual Report. As of September 30, 2024, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Annual Report on Form 10-K, unless otherwise discussed below.

We are subject to a number of risks and uncertainties, including global events and macroeconomic conditions such as inflation and its potential impact on consumer spending, rising interest rates, global supply chain issues, and any public health concerns, which may also impact consumer behavior, the restaurant industry, and our business.

The preparation of financial statements in conformity with U.S. GAAP requires management 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 at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values (in millions):

During the nine months ended September 30, 2024, there were no transfers into or out of Level 3 measurements within the fair value hierarchy.

The fair values of marketable securities by contractual maturities at September 30, 2024 were as follows (in millions):

The fair value of the warrants was determined using the Black-Scholes option-pricing model. The following table indicates the weighted-average assumptions made in estimating the fair value as of:

The following table provides a roll-forward of the aggregate fair value of our common stock warrant liability for which fair value is determined using Level 3 inputs (in millions):

On July 3, 2024, we repurchased a warrant, or the Warrant, to purchase 5 million shares of our Class B common stock for an aggregate purchase price of $61 million, or the Warrant Repurchase. The Warrant was canceled and is no longer outstanding. Immediately prior to the Warrant Repurchase, we recognized a remeasurement gain of $2 million within “Change in fair value of warrant liability” in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024. Upon the Warrant Repurchase, we also recognized a gain on the extinguishment of the Warrant of $14 million within “Other income (expense), net” in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024.

As of September 30, 2024, the maximum number of shares of our Class B common stock that could be required to be issued upon the exercise of outstanding warrants was 2 million.

Changes in the contingent liability for expected credit losses for the three and nine months ended September 30, 2024 and 2023 were as follows (in millions):

As of September 30, 2024 and December 31, 2023, the non-contingent stand-ready liability was $10 million and $11 million, respectively.

As of September 30, 2024 and December 31, 2023, $56 million and $55 million, respectively, were classified as restricted cash on the condensed consolidated balance sheets, representing cash held with commercial lending institutions. The restrictions are related to cash held as collateral pursuant to an agreement with the originating third-party bank for the working capital loans serviced by Toast Capital.

The components of lease expense were as follows for the three and nine months ended September 30, 2024 and 2023 (in millions):

Operating lease expense reflects the non-cash amortization of right-of-use assets.

The following table summarizes supplemental cash flow information related to operating leases during the nine months ended September 30, 2024 and 2023 (in millions):

Our allowance for credit losses was comprised of the following (in millions):

6. Revenue from Contracts with Customers

The following table summarizes the activity in deferred revenue (in millions):

As of September 30, 2024, approximately $783 million of revenue is expected to be recognized from remaining performance obligations for customer contracts. We expect to recognize revenue of approximately $734 million from these remaining performance obligations over the next 24 months, with the balance recognized thereafter.

The following tables summarize the activity in deferred contract acquisition costs (in millions):

Amortization expense attributable to deferred contract acquisition costs was $44 million for the nine months ended September 30, 2023.

The following table shows the changes in Class A and Class B shares of common stock (in millions):

Stock-based compensation expense recognized for the three and nine months ended September 30, 2024 and 2023, is as follows (in millions):

Stock-based compensation of $3 million and $10 million, respectively, was capitalized as software development costs for the three and nine months ended September 30, 2024. Stock-based compensation of $4 million and $10 million, respectively, was capitalized as software development costs for the three and nine months ended September 30, 2023.

The following is a summary of stock option activity under our stock option plans for the nine months ended September 30, 2024:

(1) The aggregate intrinsic value was determined as the difference between the closing price of the Class A common stock on the last trading day of September 2024, or the date of exercise, as appropriate, and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their in-the-money options at period end.

The aggregate intrinsic value of options exercised was $58 million and $292 million, respectively, during the three and nine months ended September 30, 2024.

As of September 30, 2024, total unrecognized stock-based compensation expense related to option awards was $64 million and is expected to be recognized over the remaining weighted-average service period of 2.4 years.

The following table summarizes restricted stock units, or RSU, activity during the nine months ended September 30, 2024:

The fair value of RSUs vested during the three and nine months ended September 30, 2024 was $73 million and $199 million, respectively.

As of September 30, 2024, total unrecognized stock-based compensation expense related to the RSUs was $384 million and is expected to be recognized over the remaining weighted-average service period of 2.5 years.

In February 2024, we announced the authorization of a share repurchase program for the repurchase of shares in our Class A common stock, in an aggregate amount of up to $250 million. The repurchase program has no expiration date, does not obligate us to acquire any particular amount of our Class A common stock, and may be suspended at any time at our discretion. The timing and actual number of shares repurchased may depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities.

During the three and nine months ended September 30, 2024, we repurchased $20 million and $56 million, respectively, in Class A common stock. At September 30, 2024, approximately $194 million remained authorized for repurchase under our share repurchase program.

In recognition of our values and commitment to local communities, we joined the Pledge 1% movement to fund our social impact initiatives through Toast.org, our social impact arm. During the year ended December 31, 2021, our Board approved reserving 5 million shares of Class A common stock that we may, but are not obligated to, issue over a certain period to fund the Company’s social impact initiatives through Toast.org. During the three and nine months ended September 30, 2024, we extended the anticipated period of issuance and recognized stock-based charitable contribution expense of $5 million for the fair value of the donated shares. During the three and nine months ended September 30, 2023, we recognized stock-based charitable contribution expense of $10 million for the fair value of the donated shares. Such expenses were recorded within general and administrative expenses in the Condensed Consolidated Statement of Operations.

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. In connection with this Restructuring Plan, we incurred restructuring and restructuring-related charges of $0 million and $46 million, respectively, during the three and nine months ended September 30, 2024. These charges were recorded within restructuring expenses on our Condensed Consolidated Statements of Operations, primarily consisting of cash severance costs and the acceleration of stock-based compensation for certain terminated employees. As of September 30, 2024, accrued restructuring expenses were immaterial. We expect immaterial costs to be incurred during the remainder of fiscal year 2024.

Our effective income tax rate was 1.6% and (0.2)% for the three months ended September 30, 2024 and 2023, respectively, and was (23.3)% and (0.5)% for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate for each period differs from the statutory rate primarily as a result of having a full valuation allowance maintained against our deferred tax assets, along with the release of a portion of our valuation allowance in the nine months ended September 30, 2023, as a result of an acquisition.

The income tax expense was $1 million and $0 million for the three months ended September 30, 2024 and 2023, respectively, and $3 million and $1 million for the nine months ended September 30, 2024 and 2023, respectively. The change in the provision is primarily driven by changes in the provision recorded on the earnings of our non-U.S. subsidiaries and a non-recurring benefit recognized in the nine months ended September 30, 2023 from the acquisition of Delphi of $1 million.

Basic earnings or loss per share is determined by dividing net income or loss by the weighted-average shares outstanding for the period. We analyze the potential dilutive effect of stock options, unvested restricted stock, RSUs, our employee stock purchase plan, and warrants to purchase common stock, during periods we generate net income, or when income is recognized related to changes in fair value of warrant liabilities.

Class A common stock and Class B common stock share proportionately, on a per share basis, in our net income (losses) and participate equally in the dividends on common stock, if declared. We allocate net income (losses) attributable to common stock between the common stock classes on a one-to-one basis when computing earnings (loss) per share. As a result, basic and diluted earnings (loss) per share of Class A common stock and Class B common stock are equivalent.

The following table sets forth the computation of basic and diluted earnings (loss) per share attributable to common stockholders for the periods presented (in millions, except per share amounts):

(1) During the three months ended September 30, 2024, we recorded a remeasurement gain of $2 million on the warrant liability immediately prior to the Warrant Repurchase on July 3, 2024 and a gain on the extinguishment of the Warrant upon the Warrant Repurchase of $14 million. During the three months ended September 30, 2023, we recorded a remeasurement gain of $18 million of our warrant liability. For purposes of computing diluted earnings (loss) per share, these gains were excluded from our net income (loss) and the corresponding weighted-average shares were also adjusted accordingly.

We excluded the following potential shares of common stock from the computation of diluted earnings (loss) per share because including them would have an anti-dilutive effect for the periods presented (in millions):

(2) During the three months ended September 30, 2024, we recorded a loss on fair value remeasurement of our remaining warrants outstanding after the Warrant Repurchase. These warrants were excluded from the computation of diluted net earnings (loss) per share due to their anti-dilutive impact. During the nine months ended September 30, 2024 and 2023, we recorded a loss on fair value remeasurement of our warrant liability and the warrants were excluded from the calculation of diluted earnings (loss) per share due to their anti-dilutive effect.

From time to time, we may be involved in legal actions arising in the ordinary course of business. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably. We establish accruals for losses that management deems to be probable and subject to reasonable estimates. We do not expect any claims with a reasonably possible adverse outcome to have a material impact on us, and, accordingly, have not accrued for any material claims.

Toast is a cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community. 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.

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. 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.

As of September 30, 2024, approximately 127,000 Locations, an increase of 28% year over year, processing approximately $151 billion of gross payment volume in the trailing 12 months, partnered with Toast to optimize operations, increase sales, engage guests, and maintain happy employees.

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.

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. For example, customers typically have greater sales during the warmer months, though this effect varies regionally, and customer sales 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). 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.

We use the following key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions: