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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 001-40819

Toast, Inc.

(Exact name of registrant as specified in its charter)

Delaware						45-4168768
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
401 Park Drive,			Suite 801
Boston,			Massachusetts			02215
(Address of principal executive offices)						(Zip code)

(617) 297-1005

(Registrant's telephone number, including area code)

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

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Class A common stock, par value of $0.000001 per share			TOST			New York Stock Exchange

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.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

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 323,800,079 shares of Class A common stock and 192,783,936 shares of Class B common stock as of August 5, 2022.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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;

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

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

•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 ability to effectively manage our growth and future expenses;

•our estimated total addressable market;

•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;

•the attraction and retention of qualified employees and key personnel;

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

•our ability to successfully defend litigation brought against us;

•the increased expenses associated with being a public company;

•the impact of the COVID-19 pandemic, rising inflation, and other global financial, economic and political events on our business and the restaurant industry;

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

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

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 described in the section titled “Risk Factors” and elsewhere in 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.

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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. And 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.

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TABLE OF CONTENTS

						Page
Part I. Financial Information						1
Item 1.			Financial Statements (unaudited)			1
			Consolidated Balance Sheets			1
			Consolidated Statements of Operations			2
			Consolidated Statements of Comprehensive Loss			3
			Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)			4
			Consolidated Statements of Cash Flows			7
			Notes to Consolidated Financial Statements			9
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			36
Item 4.			Controls and Procedures			36
Part II. Other Information						37
Item 1.			Legal Proceedings			37
Item 1A.			Risk Factors			37
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			84
Item 3.			Defaults Upon Senior Securities			84
Item 4.			Mine Safety Disclosures			84
Item 5.			Other Information			84
Item 6.			Exhibits			85
			Signatures			86

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TOAST, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except share and per share amounts)

			June 30, 2022						December 31, 2021
Assets:
Current assets:
Cash and cash equivalents			$	697					$	809
Marketable securities			482						457
Accounts receivable, net			68						55
Inventories			62						42
Deferred costs, net			36						30
Prepaid expenses and other current assets			141						92
Total current assets			1,486						1,485
Property and equipment, net			45						41
Operating lease right-of-use assets			74						79
Intangible assets			13						16
Goodwill			74						74
Deferred costs, non-current			34						25
Other non-current assets			24						15
Total non-current assets			264						250
Total assets			$	1,750					$	1,735
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable			$	37					$	40
Operating lease liabilities			14						22
Deferred revenue			43						44
Accrued expenses and other current liabilities			363						246
Total current liabilities			457						352
Warrants to purchase common stock			40						181
Operating lease liabilities, non-current			78						77
Deferred revenue, non-current			9						12
Other long-term liabilities			16						22
Total liabilities			600						644
Commitments and Contingencies (Note 12)
Stockholders’ Equity:
Preferred stock- par value $0.000001; 100,000,000 shares authorized, no shares issued or outstanding			—						—
Class A common stock, $0.000001 par value- 7,000,000,000 shares authorized as of June 30, 2022 and December 31, 2021, 305,457,431 and 167,732,925 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			—						—
Class B common stock, $0.000001 par value- 700,000,000 shares authorized as of June 30, 2022 and December 31, 2021, 207,949,380 and 339,437,440 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			—						—
Additional paid-in capital			2,334						2,194
Accumulated deficit			(1,179)						(1,102)
Accumulated other comprehensive loss			(5)						(1)
Treasury stock, at cost— 225,000 shares at June 30, 2022 and December 31, 2021			—						—
Total stockholders’ equity			1,150						1,091
Total liabilities and stockholders’ equity			$	1,750					$	1,735

The accompanying notes are an integral part of these consolidated financial statements.

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TOAST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in millions, except share and per share amounts)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Revenue:
Subscription services			$	76					$	38					$	139					$	69
Financial technology solutions			562						354						1,000						581
Hardware			30						29						59						50
Professional services			7						5						12						7
Total revenue			675						426						1,210						707
Costs of revenue:
Subscription services			27						13						51						23
Financial technology solutions			448						280						796						452
Hardware			61						31						113						51
Professional services			25						12						46						21
Amortization of acquired technology and customer assets			1						1						2						2
Total costs of revenue			562						337						1,008						549
Gross profit			113						89						202						158
Operating expenses:
Sales and marketing			77						41						148						74
Research and development			67						50						129						73
General and administrative			68						49						125						68
Total operating expenses			212						140						402						215
Loss from operations			(99)						(51)						(200)						(57)
Other income (expense):
Interest income (expense), net			1						(6)						1						(12)
Change in fair value of warrant liabilities			44						(5)						123						(16)
Change in fair value of derivative liability			—						(27)						—						(103)
Loss on debt extinguishment			—						(50)						—						(50)
Other income (expense), net			—						—						(1)						—
Loss before benefit from income taxes			(54)						(139)						(77)						(238)
Benefit from income taxes			—						4						—						4
Net loss			$	(54)					$	(135)					$	(77)					$	(234)
Net loss per share attributable to common stockholders:
Basic			$	(0.11)					$	(0.64)					$	(0.15)					$	(1.13)
Diluted			$	(0.11)					$	(0.64)					$	(0.39)					$	(1.13)
Weighted average shares used in computing net loss per share:
Basic			509,532,418						211,799,234						507,420,257						207,091,280
Diluted			509,532,418						211,799,234						508,176,495						207,091,280

The accompanying notes are an integral part of these consolidated financial statements.

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TOAST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in millions)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Net loss			$	(54)					$	(135)					$	(77)					$	(234)
Other comprehensive loss:
Unrealized losses on marketable securities, net of tax effect of $0			(1)						—						(3)						—
Currency translation adjustments			(1)						—						(1)						—
Total other comprehensive loss			(2)						—						(4)						—
Comprehensive loss			$	(56)					$	(135)					$	(81)					$	(234)

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TOAST, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

(in millions, except share amounts)

Six Months Ended June 30, 2022

			Class A and Class B Common Stock																								Treasury Stock												Additional Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
			Shares						Amount																																	Shares												Amount
Balances at December 31, 2021			507,170,365						$	—																													225,000						$	—					$	2,194					$	(1,102)					$	(1)					$	1,091
Repurchase of common stock			(33,475)						—																														—						—						—						—						—						—
Issuance of common stock upon net exercise of common stock warrants			371,573						—																														—						—						18						—						—						18
Issuance of common stock upon exercise of common stock options			4,410,300						—																														—						—						7						—						—						7
Issuance of common stock upon vesting of restricted stock units			1,450,869						—																														—						—						—						—						—						—
Stock-based compensation expense			—						—																														—						—						112						—						—						112
Vesting of restricted stock			—						—																														—						—						2						—						—						2
Issuance of common stock for contingent consideration payment			37,179						—																														—						—						1						—						—						1
Cumulative translation adjustment			—						—																														—						—						—						—						(1)						(1)
Unrealized loss on marketable securities			—						—																														—						—						—						—						(3)						(3)
Net loss			—						—																														—						—						—						(77)						—						(77)
Balances at June 30, 2022			513,406,811						$	—																													225,000						$	—					$	2,334					$	(1,179)					$	(5)					$	1,150

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Six Months Ended June 30, 2021

			Convertible Preferred Preferred Stock												Common Stock												Treasury Stock												Additional Paid-in Capital						Accumulated Deficit												Total Stockholders' Deficit
			Shares						Amount						Shares						Amount						Shares						Amount
Balances at December 31, 2020			253,832,025						$	849					219,755,430						$	—					225,000						$	—					$	145					$	(616)											$	(471)
Cumulative adjustment due to adoption of ASC 842 and ASC 326			—						—						—						—						—						—						—						1												1
Repurchase of common stock			—						—						(4,000)						—						—						—						—						—												—
Issuance of common stock upon exercise of common stock options			—						—						3,387,905						—						—						—						3						—												3
Issuance of common stock upon exercise of common stock options in connection with promissory notes repayment			—						—						—						—						—						—						14						—												14
Issuance of common stock upon vesting of restricted stock units			—						—						52,790						—						—						—						—						—												—
Stock-based compensation expense (1)			—						—						—						—						—						—						59						—												59
Issuance of common stock in connection with business combination			—						—						569,400						—						—						—						15						—												15
Net loss			—						—						—						—						—						—						—						(234)												(234)
Balances at June 30, 2021			253,832,025						$	849					223,761,525						$	—					225,000						$	—					$	236					$	(849)											$	(613)

Three Months Ended June 30, 2022

			Class A and Class B Common Stock																								Treasury Stock												Additional Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
			Shares						Amount																																	Shares												Amount
Balances at March 31, 2022			510,425,065						$	—																													225,000						$	—					$	2,271					$	(1,125)					$	(3)					$	1,143
Repurchase of common stock			(3,000)						—																														—						—						—						—						—						—
Issuance of common stock upon net exercise of common stock warrants			—						—																														—						—						—						—						—						—
Issuance of common stock upon exercise of common stock options			1,659,609						—																														—						—						3						—						—						3
Issuance of common stock upon vesting of restricted stock units			1,325,137						—																														—						—						—						—						—						—
Stock-based compensation expense			—						—																														—						—						59						—						—						59
Vesting of restricted stock			—						—																														—						—						1						—						—						1
Issuance of common stock for payment of acquisition contingent consideration			—						—																														—						—						—						—						—						—
Cumulative translation adjustment			—						—																														—						—						—						—						(1)						(1)
Unrealized loss on marketable securities			—						—																														—						—						—						—						(1)						(1)
Net loss			—						—																														—						—						—						(54)						—						(54)
Balances at June 30, 2022			513,406,811						$	—																													225,000						$	—					$	2,334					$	(1,179)					$	(5)					$	1,150

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Three Months Ended June 30, 2021

			Convertible Preferred Preferred Stock												Common Stock												Treasury Stock												Additional Paid-in Capital						Accumulated Deficit												Total Stockholders' Deficit
			Shares						Amount						Shares						Amount						Shares						Amount
Balances at March 31, 2021			253,832,025						$	849					221,713,410						$	—					225,000						$	—					$	152					$	(714)											$	(562)
Repurchase of common stock			—						—						(4,000)						—						—						—						—						—												—
Issuance of common stock upon exercise of common stock options			—						—						1,429,925						—						—						—						1						—												1
Issuance of common stock upon exercise of common stock options in connection with promissory notes repayment			—						—						—						—						—						—						14						—												14
Issuance of common stock upon vesting of restricted stock units			—						—						52,790						—						—						—						—						—												—
Stock-based compensation expense (1)			—						—						—						—						—						—						54						—												54
Issuance of common stock in connection with business combination			—						—						569,400						—						—						—						15						—												15
Net loss			—						—						—						—						—						—						—						(135)												(135)
Balances at June 30, 2021			253,832,025						$	849					223,761,525						$	—					225,000						$	—					$	236					$	(849)											$	(613)

(1) During the three and six months ended June 30, 2021, stock-based compensation expense recorded within additional paid-in capital did not include $2 of expense recognized as a result of the acquisition of xtraCHEF due to accelerated vesting of acquiree option awards on the acquisition date (see Note 6).

The accompanying notes are an integral part of these consolidated financial statements.

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TOAST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

									Six Months Ended June 30,
															2022						2021
Cash flows from operating activities:
Net loss															$	(77)					$	(234)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization															12						9
Stock-based compensation expense															110						59
Amortization of deferred costs															20						11
Change in fair value of derivative liability															—						103
Change in fair value of warrant liabilities															(123)						16
Credit loss expense															7						1
Change in deferred income taxes															—						(4)
Change in fair value of contingent consideration															2						—
Loss on debt extinguishment															—						50
Non-cash interest expense on convertible notes															—						12
Other non-cash items															1						—
Changes in operating assets and liabilities:
Accounts receivable, net															(15)						(15)
Merchant cash advances and acquired loans repaid															2						1
Prepaid expenses and other current assets															(13)						(18)
Deferred costs, net															(35)						(18)
Inventories															(20)						(15)
Operating lease right-of-use assets															(1)						9
Accounts payable															(4)						—
Accrued expenses and other current liabilities															76						98
Deferred revenue															(4)						4
Operating lease liabilities															1						(10)
Other assets and liabilities															(7)						(8)
Net cash (used in) provided by operating activities															(68)						51
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired															—						(26)
Capitalized software															(5)						(4)
Purchases of property and equipment															(7)						(8)
Purchases of marketable securities															(140)						—
Proceeds from the sale of marketable securities															32						—
Maturities of marketable securities															78						—
Net cash used in investing activities															(42)						(38)
Cash flows from financing activities:
Extinguishment of convertible notes															—						(245)
Change in customer funds obligations, net															37						16
Proceeds from exercise of stock options															7						17
Payment of contingent consideration															(2)						—
Proceeds from issuance of restricted stock															—						10
Net cash provided by (used in) financing activities															42						(202)
Net decrease in cash, cash equivalents, cash held on behalf of customers and restricted cash															(68)						(189)
Cash, cash equivalents, cash held on behalf of customers and restricted cash at beginning of period															851						594
Cash, cash equivalents, cash held on behalf of customers and restricted cash at end of period															$	783					$	405
Reconciliation of cash, cash equivalents, cash held on behalf of customers and restricted cash
Cash and cash equivalents															$	697					$	376
Cash held on behalf of customers															72						27
Restricted cash															14						2
Total cash, cash equivalents, cash held on behalf of customers and restricted cash															$	783					$	405
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment included in accounts payable and accrued expenses															$	1					$	1
Stock-based compensation included in capitalized software															2						—

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Issuance of Class B common stock upon exercise of common stock warrants															18						—
Issuance of Class B common stock for payment of contingent consideration															1						—
Common stock issued for acquisition															—						15
Issuance of common stock warrants upon debt extinguishment															—						125
Deferred payments included in purchase price															—						5
Contingent consideration included in purchase price															—						2

The accompanying notes are an integral part of these consolidated financial statements.

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TOAST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Amounts in millions, except share and per share amounts)

1. Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

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

Basis of Presentation

The accompanying unaudited 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 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 consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly our financial position, results of operations, comprehensive 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, 2022 or any other future interim periods.

The unaudited 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, 2021, or the 2021 Annual Report. The Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date.

Risks and Uncertainties

We are subject to a number of risks common to emerging, technology-based companies, including a limited operating history, dependence on key individuals, rapid technological changes, competition from substitute products and larger companies, the ability to successfully develop, market, and outsource manufacturing of our products and services, as well as the impact of the novel coronavirus disease, or COVID-19, on the restaurant industry. Other global events, such as current or future military conflicts, political unrest, rising inflation and interest rates, and global supply chain issues, may also impact consumer behavior, the restaurant industry and our business.

Since early 2020, changes in consumers’ behavior and government-imposed restrictions because of the COVID-19 pandemic have impacted restaurants in various ways, including limiting service to takeout orders for a period of time or reducing capacity to accommodate social distancing measures. The extent of the impact of the COVID-19 pandemic over the longer term remains uncertain and will depend largely on future developments that cannot be accurately predicted at this time, including the duration and the spread of the pandemic both globally and within the United States, the introduction and severity of new variants of the virus and their resistance to currently approved vaccines, as well as the potential negative impact these and other factors may have on the restaurant industry and our business.

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Use of Estimates

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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates, judgments, and assumptions in these consolidated financial statements include, but are not limited to, those related to revenue recognition, allowance for credit losses, liabilities associated with financial guarantees (contingent liabilities for credit losses and related non-contingent liabilities), negative allowances for expected recoveries on repurchased loans, allowances for uncollectible loans, allowance for excessive and obsolete inventory, reserves for warranties on hardware sold, incremental borrowing rates applied in valuation of lease liabilities, reserves for sales returns, fair values of assets acquired and liabilities assumed through business combinations, useful lives of assets acquired in business combinations, stock-based compensation expense, warrants, as well as amortization periods for deferred contract acquisition costs. Actual results could vary from these estimates.

Recently Adopted Accounting Pronouncements

There have been no material changes to recently adopted accounting standards disclosed in Note 2, “Recently Adopted Accounting Pronouncements” included in the Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019 in our 2021 Annual Report.

Significant Accounting Policies

There have been no material changes to our significant accounting policies disclosed in Note 2, “Summary of Significant Accounting Policies” included in the Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019 in our 2021 Annual Report.

Reclassifications

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation.

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2. Fair Value of Financial Instruments

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:

			Fair Value Measurement at June 30, 2022 Using
			Level 1						Level 2						Level 3						Total
Assets:
Money market funds			$	554					$	—					$	—					$	554
Commercial paper			—						158						—						158
Certificates of deposit			—						26						—						26
Corporate bonds			—						209						—						209
Treasury securities			—						59						—						59
Asset-backed securities			—						30						—						30
			$	554					$	482					$	—					$	1,036
Liabilities:
Warrants to purchase common stock			$	—					$	—					$	40					$	40
Contingent consideration			—						—						3						3
			$	—					$	—					$	43					$	43

			Fair Value Measurement at December 31, 2021 Using
			Level 1						Level 2						Level 3						Total
Assets:
Money market funds			$	50					$	—					$	—					$	50
Commercial paper			—						134						—						134
Certificates of deposit			—						14						—						14
Corporate bonds			—						193						—						193
Treasury securities			—						67						—						67
Asset-backed securities			—						49						—						49
			$	50					$	457					$	—					$	507
Liabilities:
Warrants to purchase common stock			$	—					$	—					$	181					$	181
Contingent consideration			—						—						5						5
			$	—					$	—					$	186					$	186

During the six months ended June 30, 2022 and 2021, there were no transfers into or out of Level 3 measurements within the fair value hierarchy.

Valuation of Warrants to Purchase Common Stock

The fair value of the warrants was determined using the Black-Scholes option-pricing model, which considered as inputs the underlying price of our Class A common stock, strike price, time to expiration, volatility, risk-free interest rates, and dividend yield.

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The following table indicates the weighted-average assumptions made in estimating the fair value as of June 30, 2022 and 2021:

			June 30,
(in millions, except per share amounts)			2022						2021
Risk-free interest rate			3.0		%				1.1		%
Contractual term (in years)			4.94						5.94
Expected volatility			57.6		%				50.2		%
Expected dividend yield			—		%				—		%
Exercise price per share			$	17.16					$	17.16

During the six months ended June 30, 2022, we issued 371,573 shares of Class B common stock as a result of warrants exercised and recognized a related remeasurement gain of $6 within “Other income (expense)”. The remaining outstanding warrants were remeasured at fair value resulting in total remeasurement gains of $44 and $117, respectively, recorded within “Other income (expense)” during the three and six months ended June 30, 2022.

For further information on the warrants to purchase common stock, please refer to Note 15, “Warrants to Purchase Preferred and Common Stock”, in our Consolidated Financial Statements included in the 2021 Annual Report.

Contingent Consideration Liability

Fair value of the contingent consideration liability incurred in connection with the acquisition of xtraCHEF, Inc. is estimated based on a Monte Carlo simulation which performs numerous simulations utilizing certain assumptions, such as projected revenue amounts over the related period, risk-free rate, and risk-adjusted discount rate. The fair value measurement of contingent consideration is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The contingent consideration liability is subject to remeasurement each reporting period until the contingency is resolved and the liability is settled, and changes in the assumptions used could materially impact the estimated fair value of the liability. We recognize the change in fair value of the contingent consideration liability in our results of operations.

During the six months ended June 30, 2022, we paid $2 in cash and issued 37,179 shares of our Class B common stock to settle a portion of the contingent consideration.

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The following tables provide a roll-forward of the aggregate fair value of our common stock warrant liability, contingent consideration liability, preferred stock warrant liability, and derivative liability, for which fair value is determined using Level 3 inputs:

									Common Stock Warrant Liability												Contingent Consideration Liability
Balance as of December 31, 2021									$	181											$	5
Change in fair value									(123)												2
Settlement									(18)												(4)
Balance as of June 30, 2022									$	40											$	3

			Preferred Stock Warrant Liability (1)						Common Stock Warrant Liability						Derivative Liability (1)						Contingent Consideration Liability
Balance as of December 31, 2020			$	11					$	—					$	37					$	—
Fair value at issuance			—						125						—						—
Fair value on the acquisition date			—						—						—						2
Change in fair value and other adjustments			17						—						103						—
Settlement			—						—						(140)						—
Balance as of June 30, 2021			$	28					$	125					$	—					$	2

(1) Preferred stock warrant liability and derivative liability were settled during the year ended December 31, 2021. For further information, please refer to Note 4, “Fair Value of Financial Instruments” and Note 15, “Warrants to Purchase Preferred and Common Stock”, in our Consolidated Financial Statements included in the 2021 Annual Report.

3. Marketable Securities

The amortized cost, gross unrealized holding losses and fair value of marketable securities, excluding accrued interest receivable, consisted of the following:

			June 30, 2022
			Amortized Cost									Gross Unrealized Losses						Fair Value
Commercial paper			$	159								$	(1)					$	158
Certificates of deposit			26									—						26
Corporate bonds			211									(2)						209
Treasury securities			60									(1)						59
Asset-backed securities			30									—						30
Total			$	486								$	(4)					$	482

			December 31, 2021
			Amortized Cost												Gross Unrealized Losses						Fair Value
Commercial paper			$	134											$	—					$	134
Certificates of deposit			14												—						14
Corporate bonds			194												(1)						193
Treasury securities			67												—						67
Asset-backed securities			49												—						49
Total			$	458											$	(1)					$	457

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The fair values of marketable securities by contractual maturities at June 30, 2022 :

			June 30, 2022
Due within 1 year			$	438
Due after 1 year through 5 years			44
Total marketable securities			$	482

We review marketable securities for impairment during each reporting period to determine if any of the securities have experienced an other-than-temporary decline in fair value. Unrealized losses were not material for the securities held in our portfolio as of June 30, 2022 or December 31, 2021. There were no impairment losses or expected credit losses related to our marketable securities during the three and six months ended June 30, 2022.

4. Loan Servicing Activities and Acquired Loans Receivable, Net

We service loans originated by our bank partner and assume liability for loan defaults on a limited basis based on a specified percentage of the total loans originated, which are measured on a quarterly basis. If the merchant’s payments are delayed for a defined period of time, the loan is considered delinquent and we are required to purchase the loan from our bank partner. The loan purchase, net of expected recoveries, reduces our potential liability with respect to the quarterly cohort of loans from which the defaulted loan originated. This obligation represents a financial guarantee with a contingent aspect related to our contingent obligation to purchase defaulted loans, and a non-contingent aspect related to our obligation to perform under the guarantee. We recognize a liability for both these elements which is included in “Accrued expenses and other current liabilities” in the unaudited Consolidated Balance Sheets. The contingent liability for expected credit losses related to our guarantee was $5 and $2, respectively, as of June 30, 2022 and December 31, 2021. Changes in the contingent liability were not significant for the three and six months ended June 30, 2022 and 2021.

We repurchase delinquent loans and establish a negative allowance for expected recoveries when we have an expectation of collecting cash flows on the repurchased loans at the portfolio level. As of June 30, 2022 and December 31, 2021, we had a negative allowance for acquired loans and merchant cash advances receivable of $2 and $1, respectively, which are included within “Prepaid expenses and other current assets.” Changes in the negative allowance were not significant for the three and six months ended June 30, 2022 and 2021.

5. Lessee Arrangements

During the six months ended June 30, 2022, we entered into various operating leases for office space resulting in right-of use assets of $11, and related current and long-term operating lease liabilities of $11 in the accompanying unaudited Consolidated Balance Sheets. The right-of-use assets and lease liabilities are amortized over the 5-year lease terms of each lease. Additionally, during the six months ended June 30, 2022, we entered into a lease agreement for approximately 44 thousand square feet of office space located in Omaha, Nebraska. The lease term of approximately ten years is expected to commence during the three months ended September 30, 2022. Future lease payments are approximately $9 over the lease term.

The components of lease expense were as follows for the three and six months ended June 30, 2022 and 2021:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Operating lease expense			$	7					$	6					$	11					$	12
Variable lease expense			1						1						2						1
Total			$	8					$	7					$	13					$	13

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The following table summarizes supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities during the six months ended June 30, 2022 and 2021:

			Six Months Ended June 30,
			2022						2021
Operating cash flows for operating leases			$	(13)					$	(13)
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets/ (decreases) of lease liabilities due to lease terminations			3						—
Total			$	(10)					$	(13)

6. Other Balance Sheet Information

Cash held on behalf of customers represents an asset that is restricted for the purpose of satisfying obligations to remit funds to various tax authorities to satisfy customers’ payroll, tax, and other obligations. Cash held on behalf of customers is included within “Prepaid expenses and other current assets”, and the corresponding customer funds obligation is included within “Accrued expenses and other current liabilities” in the unaudited Consolidated Balance Sheets.

Restricted cash represents cash held with commercial lending institutions. The restrictions are related to cash collateralized letters of credit to cover potential customer defaults on third-party financing arrangements and cash held as collateral pursuant to an agreement with the originating third-party bank for the working capital loans serviced by Toast Capital (See Note 4). Restricted cash is included in within “Other non-current assets” in the unaudited Consolidated Balance Sheets.

Cash, cash equivalents, cash held on behalf of customers, and restricted cash consisted of the following:

			June 30, 2022						December 31, 2021
Cash and cash equivalents			$	697					$	809
Cash held on behalf of customers			72						34
Restricted cash			14						8
Total cash, cash equivalents, cash held on behalf of customers and restricted cash			$	783					$	851

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Accounts receivable, net consisted of the following:

			June 30, 2022						December 31, 2021
Accounts receivable			$	32					$	20
Unbilled receivables			41						39
Less: Allowance for credit losses			(5)						(4)
Accounts receivable, net			$	68					$	55

Our allowance for credit losses was comprised of the following:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Beginning balance			$	(4)					$	(6)					$	(4)					$	(4)
Impact of adopting ASU 2016-13			—						—						—						(2)
Additions			(2)						1						(3)						1
Write offs			1						—						2						—
Ending balance			$	(5)					$	(5)					$	(5)					$	(5)

As of June 30, 2022 and December 31, 2021, substantially all inventory balances of $62 and $42, respectively, consisted of finished goods.

Prepaid expenses and other current assets consisted of the following:

			June 30, 2022						December 31, 2021
Cash held on behalf of customers			$	72					$	34
Prepaid expenses			15						25
Deposits for inventory purchases			26						21
Other current assets			28						12
			$	141					$	92

Accrued expenses and current liabilities consisted of the following:

			June 30, 2022						December 31, 2021
Accrued transaction-based costs			$	157					$	120
Accrued payroll and bonus			37						24
Customer funds obligation			72						34
Accrued expenses			46						21
Accrued commissions			12						19
Other liabilities			39						28
			$	363					$	246

During the three months ended June 30, 2022, we finalized the purchase price allocation and fair values of assets acquired and liabilities assumed related to the acquisition of xtraCHEF, Inc. There were no purchase price adjustments recorded since the acquisition date. Please refer to Note 3, "Business Combinations" to the Company’s Consolidated Financial Statements, included in the 2021 Annual Report on Form 10-K for further information on the transaction.

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7. Revenue from Contracts with Customers

The following table summarizes the activity in deferred revenue:

			Six Months Ended June 30,
			2022						2021
Deferred revenue, beginning of year			$	56					$	58
Deferred revenue, end of period			52						62
Revenue recognized in the period from amounts included in deferred revenue at the beginning of period			$	35					$	33

As of June 30, 2022, approximately $449 of revenue is expected to be recognized from remaining performance obligations for customer contracts. We expect to recognize revenue of approximately $431 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 and the classification of deferred costs:

									Six Months Ended June 30,
															2022						2021
Beginning balance															$	55					$	29
Capitalization of sales commissions costs															35						18
Amortization of sales commissions costs															(20)						(11)
Ending balance															$	70					$	36

									June 30,
															2022						2021
Deferred costs, current															$	36					$	21
Deferred costs, non-current															34						15
Total															$	70					$	36

8. Stock-Based Compensation

Stock-based compensation expense recognized for the three and six months ended June 30, 2022 and 2021, is as follows:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Costs of revenue			$	8					$	1					$	16					$	1
Sales and marketing			13						2						25						3
Research and development			18						25						34						27
General and administrative			19						28						35						30
Stock based compensation			$	58					$	56					$	110					$	61

Stock-based compensation expense of $1 and $2, respectively, was capitalized as software development costs during the three and six months ended June 30, 2022. There were no such costs capitalized during the three and six months ended June 30, 2021.

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Prior to consummation of our initial public offering, or IPO, no stock-based compensation expense was recognized for certain restricted stock units, or RSUs, with an IPO-related vesting condition. Subsequent to the consummation of our IPO, we began recognizing stock-based compensation expense related to these awards which amounted to $21 and $47, respectively, during the three and six months ended June 30, 2022.

Stock Options

The fair value of each option grant was estimated on its grant date using the Black-Scholes option-pricing model. The following table indicates the weighted-average assumptions made in estimating the fair value for the six months ended June 30, 2022 and 2021:

(in millions, except per share amounts)			Six Months Ended June 30,
			2022						2021
Risk-free interest rate			2.16		%				1.01		%
Expected term (in years)			6.06						6.32
Expected volatility			51.41		%				65.00		%
Expected dividend yield			—		%				—		%
Weighted-average fair value of common stock			$	17.76					$	16.07
Weighted-average grant date fair value			$	9.02					$	9.60

The following is a summary of stock option activity under our stock option plans for the six months ended June 30, 2022:

(in millions, except share and per share amounts)			Number of Shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value (1)
Outstanding as of December 31, 2021			58,917,018						$	4.53					7.65						$	1,778
Granted			4,257,768						17.76
Exercised			(4,410,300)						1.66
Forfeited			(2,076,988)						10.69
Outstanding, vested, and expected to vest as of June 30, 2022			56,687,498						$	5.52					7.29						$	474
Options exercisable as of June 30, 2022			52,741,405						$	4.54					7.11						$	474

(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 June 2022, 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.

There were no options granted during the three months ended June 30, 2022. The weighted average grant date fair value per share of options granted was $12.55 during the three months ended June 30, 2021. The aggregate intrinsic values of options exercised was $25 and $81, respectively, during the three and six months ended June 30, 2022 and $28 and $52, respectively, during the three and six months ended June 30, 2021. The total fair value of options vested during the six months ended June 30, 2022 and 2021 was $48 and $14, respectively.

As of June 30, 2022, total unrecognized stock-based compensation expense related to the option awards was $104 and is expected to be recognized over the remaining weighted-average service period of 3.46 years.

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Restricted Stock Units 

The following table summarizes RSU activity during the six months ended June 30, 2022:

			RSU						Weighted Average Grant Date Fair Value
Unvested balance as of December 31, 2021			15,384,809						$	29.71
Granted			13,315,671						18.59
Vested			(1,456,968)						17.68
Forfeited			(1,045,173)						28.53
Unvested balance as of June 30, 2022			26,198,339						$	24.77

The weighted average grant-date fair value of RSUs granted during the three months ended June 30, 2022 and 2021 was $15.88 and $20.94, respectively. The weighted average grant-date fair value of RSUs granted during the six months ended June 30, 2021 was $17.85. The fair value of RSUs vested during the six months ended June 30, 2022 and 2021 was $29 and $1, respectively. The fair value of RSUs vested during the three months ended June 30, 2022 and 2021 was $26 and $1, respectively.

As of June 30, 2022, total unrecognized stock-based compensation expense related to the RSUs was $412 and is expected to be recognized over the remaining weighted-average service period of 3.55 years.

Restricted Stock

As of June 30, 2022 and December 31, 2021, 2,624,790 and 4,133,955 shares of Class A and B common stock, respectively, were outstanding from early exercise of stock options. Pursuant to the associated agreements, upon termination of employment, unvested shares held by such individuals are subject to repurchase by us. As of June 30, 2022 and December 31, 2021, cash paid for unvested shares of $4 and $6, respectively, is included in “Other long-term liabilities” in the accompanying unaudited Consolidated Balance Sheets. During the six months ended June 30, 2022, 1,502,995 shares vested that were previously issued upon early exercise of stock options. As of each Consolidated Balance Sheet date, we had reserved shares of Class A common stock and Class B common stock for issuance in connection with the following:

			June 30, 2022						December 31, 2021
Options to purchase Class A common stock and Class B common stock			56,687,498						58,917,018
Restricted stock units			26,198,339						15,384,809
Warrants to purchase Class B common stock			6,902,633						7,961,455
Shares available for future grant under the Stock Plans			64,823,345						53,916,105
Shares reserved for charitable donations			4,922,001						4,922,001
Shares available for issuance under 2021 Employee Stock Purchase Plan			16,709,893						11,638,189
			176,243,709						152,739,577

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9. Income Taxes

Our effective income tax rate was (0.5)% and 4.3% for the three months ended June 30, 2022 and 2021, respectively, and was (0.7)% and 2.1% for the six months ended June 30, 2022 and 2021, 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 U.S. deferred tax assets, along with the release of a portion of the valuation allowance as a result of the xtraCHEF acquisition as discussed further below.

There was no income tax benefit recorded for the three and six months ended June 30, 2022. We recorded an income tax benefit of $4 for the three and six months ended June 30, 2021. The benefit from income taxes for the six months ended June 30, 2021 was primarily due to a non-recurring benefit of $4 for the release of a portion of the Company’s valuation allowance due to taxable temporary differences resulting from the xtraCHEF acquisition being available as a source of income to realize certain pre-existing Toast, Inc. deferred tax assets.

10. Net Loss Per Share Attributable to Common Stockholders

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

During the three months ended June 30, 2022, the exercise price for the warrants to purchase common stock exceeded the average trading price of our Class A common stock for the period, and therefore the warrants were anti-dilutive and excluded from the computation of diluted net loss per share.

During the six months ended June 30, 2022, we recorded a gain on fair value remeasurement of warrant liabilities which was added back to the numerator to adjust net loss for the dilutive impact of the warrants. We adjusted the denominator for the incremental dilutive shares using the treasury stock method.

The following table sets forth the computation of basic and diluted net loss per share (in millions, except share and per share data) attributable to common stockholders for the three and six months ended June 30, 2022 and 2021:

(in millions, except share and per share amounts)			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Numerator:
Net loss, basic			$	(54)					$	(135)					$	(77)					$	(234)
Gain on change in fair value of warrant liabilities			—						—						123						—
Net loss, diluted			$	(54)					$	(135)					$	(200)					$	(234)
Denominator:
Weighted average shares of common stock outstanding—basic			509,532,418						211,799,234						507,420,257						207,091,280
Effect of dilutive securities:
Warrants to purchase Class B common stock			—						—						756,238						—
Weighted average shares of common stock outstanding—diluted			509,532,418						211,799,234						508,176,495						207,091,280
Net loss per share, basic			$	(0.11)					$	(0.64)					$	(0.15)					$	(1.13)
Net loss per share, diluted			$	(0.11)					$	(0.64)					$	(0.39)					$	(1.13)

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We excluded the following potential shares of common stock from the computation of diluted net loss per share because including them would have an antidilutive effect for the three and six months ended June 30, 2022 and 2021:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Options to purchase Class A common stock, Class B common stock and common stock			56,687,498						61,925,005						56,687,498						61,925,005
Unvested restricted stock			2,624,790						7,148,735						2,624,790						7,148,735
Unvested restricted stock units			26,198,339						5,085,865						26,198,339						5,085,865
Convertible preferred stock (as converted to common stock)			—						253,832,025						—						253,832,025
Warrants to purchase Class B common stock and common stock and preferred stock (as if converted to warrants to purchase common stock)			6,902,633						9,115,620						—						9,115,620
			92,413,260						337,107,250						85,510,627						337,107,250

11. Segment Information

We have significant operations in the United States, Ireland and India. We did not earn material revenue in any country other than the United States during the three and six months ended June 30, 2022 and 2021.

The following table sets forth the breakdown of long-lived assets based on geography:

			June 30, 2022						December 31, 2021
United States			$	109					$	119
Ireland			9						1
Other			1						—
			$	119					$	120

Tangible long-lived assets consist of property and equipment and operating lease right-of-use assets. Long-lived assets attributed to specific countries are based upon the country in which the asset is located.

12. Commitments and Contingencies

Purchase Commitments

We had non-cancelable purchase obligations to hardware suppliers and cloud service providers of $250 and $315, respectively, as of June 30, 2022 and December 31, 2021. Most of our purchase obligations are payable within the next 12 months.

Legal Proceedings

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 a reasonable estimate. We do not expect any claims with a reasonably possible adverse outcome to have a material impact.

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13. Subsequent Events

Acquisition

On July 6, 2022, we acquired 100% of the outstanding capital stock of Sling Inc., or Sling, an employee scheduling, communication and management solution. We made a total cash payment (net of cash acquired) of $42. Our initial accounting for the acquisition and the related purchase price allocation is in process.

In addition to the cash payment noted above, in conjunction with the acquisition we issued 1,338,228 shares of Class A common stock to certain members of Sling management as restricted stock at a fair market value of approximately $13.91 per share for a total of $19. The shares vest over a 1 to 3 year service period, and are subject to forfeiture upon termination of service during such vesting periods.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited consolidated financial statements, and the related notes that are included elsewhere in this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Special Note Regarding Forward-Looking Statements” and Item 1A. Risk Factors included elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Overview

Toast is a cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community. 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. As of June 30, 2022, approximately 68,000 restaurant locations, processing approximately $75 billion of gross payment volume in the trailing 12 months on the Toast platform, 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 for stakeholders across the restaurant ecosystem:

•Restaurant operators. 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. 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. 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.

•Suppliers. 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. 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. 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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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.

Recent Development in Macroeconomic Environment

Since early 2020, changes in consumers’ behavior and government-imposed restrictions because of the COVID-19 pandemic have impacted restaurants in various ways, including limiting service to takeout orders for a period of time or reducing capacity to accommodate social distancing measures. Though the exact long-term circumstances are difficult to predict, we believe that the COVID-19 pandemic will result in a lasting shift in consumer demand towards omnichannel consumption and increased guest demand for digital solutions such as Order & Pay. Depending on the extent to which the prevalence of takeout and delivery orders persists, our financial results may be impacted in a number of ways.

In addition to the ongoing COVID-19 pandemic, changes in macroeconomic conditions, including inflation and its potential impact on consumer spending, as well as continued global supply chain issues, have impacted and may continue to impact our business. 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 associated uncertainty they have produced or will produce among consumers and the restaurant industry.

Key Business Metrics

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:

			Three Months Ended June 30,																		Six Months Ended June 30,
(dollars in billions)			2022						2021						% Growth						2022						2021						% Growth
Gross Payment Volume (GPV)(1)			$	23.3					$	14.4					62		%				$	41.1					$	23.4					76		%

			As of June 30,
(dollars in millions)			2022						2021						% Growth
Annualized Recurring Run-Rate (ARR)			$	787					$	494					59		%

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. GPV is a key measure of the scale of our platform, which in turn drives our financial performance. 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.

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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. To calculate this metric, we first calculate recurring run-rate on a monthly basis. 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 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. 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. 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. ARR is an operational measure, does not reflect our revenue or gross profit determined in accordance with U.S. 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.

Seasonality

We experience seasonality in our financial technology solutions revenue, which is largely driven by the level of GPV processed through our platform. For example, customers typically have greater sales during the warmer months, though this effect varies regionally. As a result, our financial technology solutions revenue per 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.

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. 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.

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. 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. 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. 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% (or 30% in the case of a limited program offered during the winter of 2020-2021 related to the COVID-19 pandemic) of the total originated amount for each quarterly loan cohort. Toast Capital earns a servicing fee as well as a credit performance fee that is tied to the portfolio performance.

Hardware. We generate hardware revenue from the sale of terminals, tablets, handhelds, and related devices and accessories, net of estimated returns.

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Professional services. 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.

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. 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. 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. 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. Hardware costs consist of raw materials and the cost of manufacturing and shipping hardware sold to customers, including terminals, tablets, handhelds, card readers, printers, and other 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. Professional services costs consist primarily of employee-related costs and allocated overhead associated with our onboarding team, along with fees paid to third-party service providers engaged to perform installations and other services.

Amortization of acquired technology. Amortization of acquired technology costs is related to technologies acquired through acquisitions that have the capability of producing revenue.

Operating Expenses

Our operating expenses consist of the following:

Sales and marketing. Sales and marketing expenses consist primarily of employee-related costs incurred to acquire new customers and increase product adoption across our existing customer base. Marketing expenses also include fees incurred to generate demand through various advertising channels.

We expect that sales and marketing expenses will increase on an absolute dollar basis as we invest to grow our field-based sales team, increase demand generation, and enhance our brand awareness. We expect sales and marketing expenses as a percentage of revenue will vary from period-to-period over the short term and decrease over the long term.

Research and development. 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.

We plan to continue to hire employees to support our research and development efforts to expand the capabilities and scope of our platform and related products and services. As a result, we expect that research and development expenses will increase on an absolute dollar basis as we continue to invest to support these activities and innovate over the long term.

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General and administrative. General and administrative expenses consist primarily of expenses related to operations, finance, legal, human resources, information technology, and administrative personnel. General and administrative expenses also include costs related to fees paid for certain professional services, including legal, information technology, tax and accounting services, and credit loss expenses.

We expect that general and administrative expenses will increase on an absolute dollar basis as we add personnel and enhance our systems, processes, and controls to support the growth of our business as well as our increased compliance and reporting requirements as a public company. We expect general and administrative expenses as a percentage of revenue will vary from period-to-period over the short term and decrease over the long term.

Other Income (Expense)

Our other income and expenses consist of the following:

Interest income (expense), net. Consists of interest earned from cash held in money market accounts, interest earned on our marketable securities, and interest incurred on our convertible notes, which were issued in June 2020 and repaid in June 2021.

Change in fair value of warrant liability. 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. The fair value is based on the trading price of our Class A common stock and other relevant valuation inputs, including volatility of our Class A common stock, strike price, relevant risk-free interest rates, and time to expiration of the warrants, and may fluctuate in subsequent periods.

Change in fair value of derivative liability. Represents the change in fair value of derivative liability related to the conversion option provided for in the convertible notes which were repaid in June 2021.

Loss on debt extinguishment. Represents the loss on settlement of our convertible notes which were repaid in June 2021.

Other income (expense), net. Represents foreign currency transaction gains and losses, gains or losses realized from sales 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 Ireland and India. 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.

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three and six months ended June 30, 2022 and 2021:

			Three Months Ended June 30,												Six Months Ended June 30,
(dollars in millions)			2022						2021						2022						2021
Revenue:
Subscription services			$	76					$	38					$	139					$	69
Financial technology solutions			562						354						1,000						581
Hardware			30						29						59						50
Professional services			7						5						12						7
Total revenue			675						426						1,210						707
Costs of revenue:
Subscription services			27						13						51						23
Financial technology solutions			448						280						796						452
Hardware			61						31						113						51
Professional services			25						12						46						21
Amortization of acquired technology and customer assets			1						1						2						2
Total costs of revenue(1)			562						337						1,008						549
Gross profit			113						89						202						158
Operating expenses:
Sales and marketing(1)			77						41						148						74
Research and development(1)			67						50						129						73
General and administrative(1)			68						49						125						68
Total operating expenses			212						140						402						215
Loss from operations			(99)						(51)						(200)						(57)
Other income (expense):
Interest income (expense), net			1						(6)						1						(12)
Change in fair value of warrant liability			44						(5)						123						(16)
Change in fair value of derivative liability			—						(27)						—						(103)
Loss on debt extinguishment			—						(50)						—						(50)
Other income (expense), net			—						—						(1)						—
Loss before benefit from income taxes			(54)						(139)						(77)						(238)
Benefit from income taxes			—						4						—						4
Net loss			$	(54)					$	(135)					$	(77)					$	(234)

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(1)Includes stock-based compensation expense recognized for the three and six months ended June 30, 2022 and 2021 as follows:

Stock-Based Compensation Expense

			Three Months Ended June 30,												Six Months Ended June 30,
(dollars in millions)			2022						2021						2022						2021
Costs of revenue			$	8					$	1					$	16					$	1
Sales and marketing			13						2						25						3
Research and development			18						25						34						27
General and administrative			19						28						35						30
Total stock-based compensation expense			$	58					$	56					$	110					$	61

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Revenue

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Subscription services			$	76					$	38					$	38					100		%				$	139					$	69					$	70					101		%
Financial technology solutions			562						354						208						59		%				1,000						581						419						72		%
Hardware			30						29						1						3		%				59						50						9						18		%
Professional services			7						5						2						40		%				12						7						5						71		%
Total revenue			$	675					$	426					$	249					58		%				$	1,210					$	707					$	503					71		%

The increase in subscription services revenue during the three and six months ended June 30, 2022 was attributed to growth in live restaurant locations and the continued increase in the number of products adopted by both new and existing customers.

The increase in financial technology solutions revenue during the three and six months ended June 30, 2022 was attributable to the increase in live restaurant locations and the increase in GPV per processing location, which was due to both higher customer demand and higher average transaction values.

The increase in hardware revenue during the three and six months ended June 30, 2022 was largely driven by the growth in locations and upsells to existing locations.

The increase in professional services revenue during the three and six months ended June 30, 2022 was attributable to the increase in the number of restaurant locations going live, partially offset by a shift toward self-guided installations, which are more favorably priced for customers.

Costs of Revenue

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Subscription services			$	27					$	13					$	14					108		%				$	51					$	23					$	28					122		%
Financial technology solutions			448						280						168						60		%				796						452						344						76		%
Hardware			61						31						30						97		%				113						51						62						122		%
Professional services			25						12						13						108		%				46						21						25						119		%
Amortization of acquired technology and customer assets			1						1						—						—		%				2						2						—						—		%
Total costs of revenue			$	562					$	337					$	225					67		%				$	1,008					$	549					$	459					84		%

The increase in subscription services costs during the three and six months ended June 30, 2022 was primarily attributable to an increase in employee-related and overhead costs and contractor services to support our growth, as well as stock-based compensation expense.

The increase in financial technology solutions costs during the three and six months ended June 30, 2022 was due to an increase in GPV.

The increase in hardware costs during the three and six months ended June 30, 2022 was attributable to higher shipment volume as a result of growth in locations, as well as higher freight and product costs.

The increase in professional services costs during the three and six months ended June 30, 2022 was primarily due to an increase in employee-related and overhead costs and contractor services to support our growth, as well as stock-based compensation expense.

We utilize our hardware and related professional services as customer acquisition tools and price them competitively to reduce barriers to entry for new locations.

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Operating Expenses

Sales and Marketing

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Sales and marketing			$	77					$	41					$	36					88		%				$	148					$	74					$	74					100		%

The increase in sales and marketing expenses during the three and six months ended June 30, 2022 was primarily attributable to a $18 million and $36 million increase in employee-related and overhead costs, respectively, and an $12 million and $23 million increase in stock-based compensation, respectively, due to increased headcount.

Research and Development

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Research and development			$	67					$	50					$	17					34		%				$	129					$	73					$	56					77		%

The increase in research and development expenses during the three months ended June 30, 2022 was primarily attributable to an $18 million increase in employee-related and overhead costs because of increased headcount, partially offset by a $7 million decline in stock-based compensation due to secondary sale transactions. The increase for the six months ended June 30, 2022 was primarily attributable to a $38 million increase in employee-related and overhead costs because of increased headcount, and an $7 million increase in stock-based compensation.

General and Administrative

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
General and administrative			$	68					$	49					$	19					39		%				$	125					$	68					$	57					84		%

The increase in general and administrative expenses during the three and six months ended June 30, 2022 was primarily attributable to a $13 million and $25 million increase in employee-related and overhead costs, respectively, because of increased headcount, as well as increases in professional services fees. The increase during the three months ended June 30, 2022 was partly offset by a $9 million decline in stock-based compensation due to secondary sale transactions during the corresponding prior period.

Interest Income (Expense), Net

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Interest income (expense), net			$	1					$	(6)					$	7					(117)		%				$	1					$	(12)					$	13					(108)		%

The decrease in interest income (expense), net during the three and six months ended June 30, 2022 was primarily due to the payoff of outstanding convertible notes in June 2021.

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Change in Fair Value of Warrant Liability

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Change in fair value of warrant liability			$	44					$	(5)					$	49					(980)		%				$	123					$	(16)					$	139					(869)		%

The change in fair value of warrant liability for the three and six months ended June 30, 2022 was primarily attributable to a lower value of the common stock underlying outstanding warrants at the end of the period compared to the beginning of the period, as well as the issuance of additional common stock warrants in June 2021.

Change in Fair Value of Derivative Liability

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Change in fair value of derivative liability			$	—					$	(27)					$	27					(100)		%				$	—					$	(103)					$	103					(100)		%

The decrease in expense associated with the change in fair value of derivative liability was due to the repayment of our convertible notes in June 2021 and the extinguishment of the corresponding liability.

Loss on Debt Extinguishment

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Loss on debt extinguishment			$	—					$	(50)					$	50					(100)		%				$	—					$	(50)					$	50					(100)		%

The decrease in loss on debt extinguishment was due to the repayment of our convertible notes in June 2021.

Other Income (Expense), Net

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Other income (expense), net			$	—					$	—					$	—					100		%				$	(1)					$	—					$	(1)					100		%

Other income (expense), net, remained materially consistent during the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021.

Benefit from income taxes

			Three Months Ended June 30,												Change												Six Months Ended June 30,												Change
(dollars in millions)			2022						2021						Amount						%						2022						2021						Amount						%
Benefit from income taxes			$	—					$	4					$	(4)					(100)		%				$	—					$	4					$	(4)					(100)		%

Income tax benefit of $4 million for the three and six months ended June 30, 2021 is primarily due to the impact of a deferred tax benefit generated as a result of our acquisition of xtraCHEF.

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Non-GAAP Financial Measures

We use certain non-GAAP financial measures described below to supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP and to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered substitutes for, or superior to, the financial information prepared and presented in accordance with GAAP.

We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP metrics to provide investors insight to the information used by our management to evaluate our business and financial performance. We believe that these measures provide investors increased comparability of our core financial performance over multiple periods with other companies in our industry.

			Three Months Ended June 30,												Six Months Ended June 30,
(in millions)			2022						2021						2022						2021
Adjusted EBITDA			$	(33)					$	11					$	(78)					$	14

			Six Months Ended June 30,
(in millions)			2022						2021
Free Cash Flow			$	(80)					$	39

Adjusted EBITDA

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-related expenses, fair value adjustments on warrant and derivative liabilities, expenses related to early termination of leases, loss on debt extinguishment, charitable contribution stock-based expense, and income taxes, as applicable. 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. Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as depreciation and amortization, interest expense, and interest income, which can vary substantially from company to company depending on their financing and capital structures and the method by which their assets were acquired. In addition, Adjusted EBITDA eliminates the impact of certain items that may obscure trends in the underlying performance of our business. Adjusted EBITDA also 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. For example, although depreciation expense is a non-cash charge, the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new asset acquisitions. In addition, Adjusted EBITDA excludes stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs; interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces the cash available to us; or tax payments that may represent a reduction in cash available to us. The 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.

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The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods presented:

			Three Months Ended June 30,												Six Months Ended June 30,
(in millions)			2022						2021						2022						2021
Net loss			$	(54)					$	(135)					$	(77)					$	(234)
Stock-based compensation expense and related payroll tax			59						56						112						61
Depreciation and amortization			6						5						12						9
Interest (income) expense, net			(1)						6						(1)						12
Acquisition related expenses			1						1						1						1
Change in fair value of warrant liability			(44)						5						(123)						16
Change in fair value of derivative liability			—						27						—						103
Termination of leases			—						—						(2)						—
Loss on debt extinguishment			—						50						—						50
Income tax benefit			—						(4)						—						(4)
Adjusted EBITDA			$	(33)					$	11					$	(78)					$	14

Free Cash Flow

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. 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. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.

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. In addition, free cash flow does not reflect mandatory debt service and other non-discretionary expenditures that are required to be made under contractual commitments and does not represent the total increase or decrease in our cash balance for any given period.

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:

			Six Months Ended June 30,
(in millions)			2022						2021
Net cash (used in) provided by operating activities			$	(68)					$	51
Purchases of property and equipment			(7)						(8)
Capitalized software			(5)						(4)
Free cash flow			$	(80)					$	39

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Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents and marketable securities. As of June 30, 2022, we had cash and cash equivalents of $697 million, excluding cash held on behalf of customers of $72 million, restricted cash of $14 million, marketable securities of $482 million, and $330 million available under our 2021 Facility (as defined herein). Cash and cash equivalents consist of highly liquid investments with original maturities of 90 days or less at the time of purchase, other than those held for sale in the ordinary course of business. Marketable securities consisted of commercial paper, certificates of deposit, corporate bonds, U.S. Treasury securities, and asset-backed securities.

We believe that our existing cash and cash equivalents, along with our available borrowing capacity under our 2021 Facility, will be sufficient to meet our working capital needs for at least the next 12 months, including planned capital expenditures, strategic transactions, and investment commitments that we may enter into from time to time. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors”.

In the event that additional financing is required from outside sources, we cannot be sure that any additional financing will be available to us on acceptable terms, if at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

			Six Months Ended June 30,
(in millions)			2022						2021
Net cash (used in) provided by operating activities			$	(68)					$	51
Net cash used in investing activities			(42)						(38)
Net cash provided by (used in) financing activities			42						(202)
Net decrease in cash, cash equivalents and restricted cash			$	(68)					$	(189)

Operating Activities

For the six months ended June 30, 2022, net cash used in operating activities was $68 million as a result of our net loss for the period, adjusted for certain non-cash items, such as the change in fair value of our warrant liabilities, stock based compensation, depreciation and amortization, as well as a use of cash for working capital. The change in working capital was primarily driven by higher deferred costs, mostly related to sales compensation, higher inventory purchases and lower deferred revenue, partially offset by higher accrued expenses and other current liabilities related to our growth in GPV.

For the six months ended June 30, 2021, net cash provided by operating activities was $51 million. This resulted from our net loss for the period, adjusted for certain non-cash items, such as the change in fair value of derivative liability, loss on debt extinguishment, depreciation, amortization and stock based compensation, as well as a source of cash for working capital. The change in working capital was primarily driven by higher accrued expenses and other current liabilities related to our growth in GPV, partially offset by higher prepaid expenses as a result of hardware purchases and higher deferred costs mostly related to sales compensation.

Investing Activities

For the six months ended June 30, 2022, cash used in investing activities was $42 million, which consisted of cash paid for purchases of marketable securities, partially offset by proceeds from sales and maturities of marketable securities, as well as cash paid for purchases of property and equipment and capitalized software.

For the six months ended June 30, 2021, cash used in investing activities was $38 million, which consisted of cash paid for an acquisition, purchases of property and equipment and cash paid for capitalized software.

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Financing Activities

For the six months ended June 30, 2022, cash provided by financing activities was $42 million, which consisted primarily of the change in customer funds obligations and proceeds from the exercise of stock options.

For the six months ended June 30, 2021, cash used in financing activities was $202 million, which consisted of repayments of our convertible notes, partially offset by proceeds from the exercise of stock options, a change in customer funds obligations and proceeds from the issuance of restricted stock.

Credit Facilities

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. Interest on outstanding loans under the revolving line of credit is determined based on loan type and accrues at an annual rate, as defined in the agreement, of: (a) LIBO Rate multiplied by the Statutory Reserve Rate, plus 1.50% per annum; or 0.5% per annum plus the highest of: (i) the Prime Rate, (ii) the Federal Reserve Bank of New York Rate plus 0.5%, or (iii) the Adjusted LIBO Rate plus 1.00%. Subsequent to December 31, 2022, interest on outstanding loans will be accrued based on the Secured Overnight Financing Rate, or SOFR. The 2021 Facility is subject to a minimum liquidity covenant of $250 million. As of June 30, 2022 and December 31, 2021, no amount was drawn and outstanding under the 2021 Facility which had $330 million available for borrowings. As of June 30, 2022 and December 31, 2021, there were $11 million and $13 million of letters of credit outstanding, respectively.

Contractual Obligations and Commitments and Off-Balance Sheet Arrangements

As of June 30, 2022, our contractual obligations consisted of: (i) operating lease commitments of $123 million, of which $11 million is due in 2022 and $112 million is due thereafter, and (ii) purchase commitments of $250 million, a majority of which are due in 2022. Please refer to Note 5, “Lessee Arrangements” and Note 12, “Commitments and Contingencies” to our unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a discussion on our lease and purchase commitments.

Please refer to Note 4, “Loan Servicing Activities” to our unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a discussion of credit exposure related to our financial guarantees as of June 30, 2022.

Critical Accounting Policies and Estimates

The preparation of our unaudited consolidated 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. Our most significant estimates and judgments are related to revenue recognition, allowances for credit losses and uncollectible loans, business combinations, and other acquired intangible assets, stock-based compensation expense, and common stock and derivative liabilities valuation. Actual results may differ from these estimates. 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.

There have been no material changes to our critical accounting policies and estimates during the three and six months ended June 30, 2022, as compared to those included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2021 Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements

Refer to the sections titled “Recently Adopted Accounting Pronouncements” in Note 1 in the Notes to our unaudited Consolidated Financial Statements included in Item 1, “Consolidated Financial Statements” for more information.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates, as well as credit risk on accounts receivable and our loan servicing activities. Our exposure to market and credit risk has not changed materially since the presentation set forth in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on management’s review, with participation of our Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the quarter ended June 30, 2022, our disclosure controls and procedures were not effective.

As disclosed in Item 1A, “Risk Factors”, we identified material weaknesses in our internal control over financial reporting related to deficiencies in our controls over the financial statement close process and the controls related to unusual and infrequent transactions. Notwithstanding the identified material weaknesses, our management believes the unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with GAAP.

Remediation Plan for Material Weakness

Remediation generally requires making changes to how controls are designed and implemented, and then adhering to those changes for a sufficient period of time such that the effectiveness of those changes is demonstrated with an appropriate amount of consistency. We continue to take steps to remediate these material weaknesses through the development and implementation of systems, processes, and controls over the financial close and reporting process. In addition, we continue to enhance our control environment through hiring additional qualified accounting and financial reporting personnel, and engaging external consultants with appropriate expertise for more challenging technical accounting issues, which will add to the depth of our skilled and managerial resources, and allow us to scale our accounting processes to match growth and changes in the business and operations. We have also undertaken efforts related to our IT systems and related processes, to optimize automation to enhance our financial statement close process, reduce the number of manual journal entries, and facilitate review controls related to our significant classes of transactions.

Neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. In light of the material weaknesses that were previously identified, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses or significant deficiencies may have been identified.

Changes in Internal Control Over Financial Reporting

Except for the ongoing remediation measures in connection with the material weaknesses described above, there were no other changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any litigation or claims that, if determined adversely to us, would have a material adverse effect on our business operating results, financial condition, or cash flows. We are, from time to time, party to litigation and subject to claims in the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of the defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the trading price of our Class A common stock could decline.

Risk Factors Summary

The following is a summary of the principal risks that could materially adversely affect our business, results of operations, and financial condition. Additional discussion of the risks included in this summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q in its entirety before making investment decisions regarding our Class A common stock. This summary should not be relied upon as an exhaustive summary of the material risks facing our business.

•If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction, or adequately address competitive challenges.

•If we do not attract new customers, retain existing customers, and increase our customers’ use of our platform, our business will suffer.

•The ongoing COVID-19 pandemic has adversely impacted and may continue to adversely impact our business, financial condition, and results of operations.

•We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

•We have a history of generating net losses, and if we are unable to achieve adequate revenue growth while our expenses increase, we may not achieve or maintain profitability in the future.

•Our operating results depend in significant part on our payment processing services, and the revenue and gross profit we derive from our payment processing activity in a particular period can vary due to a variety of factors.

•We depend upon third parties to manufacture our products and to supply key components to our products. If these manufacturers or suppliers become unwilling or unable to provide an adequate supply of components, particularly of semiconductor chips, with respect to which there is a severe global shortage, we may not be able to find alternative sources in a timely manner and our business would be impacted.

•Our future revenue will depend in part on our ability to expand the financial technology services we offer to our customers and increase adoption of those services.

•We rely on third-party payment processors to facilitate payments made by guests and 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.

•The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.

•A majority of our customers are small- and medium-sized businesses, which can be more difficult and costly to retain than enterprise customers and are subject to increased impacts of economic fluctuations, which may adversely affect our business and operations.

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•We rely in part on revenue from subscription contracts, and because we recognize revenue from subscription contracts over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations.

•We are responsible for transmitting a high volume of sensitive and personal information through our platform and our success depends upon the security of this platform. Any actual or perceived breach of our system that would result in disclosure of such information could materially impact our business.

•Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.

•Our success depends upon our ability to continually enhance the performance, reliability, and features of our platform. Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.

•We are subject to additional risks relating to the financial products we make available to our customers, including relationships with partners, the ability of our customers to generate revenue to pay their obligations under these products, general macroeconomic conditions and the risk of fraud.

•If we fail to adequately protect our intellectual property rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue, and become subject to costly litigation to protect our rights.

•Our business is subject to a variety of U.S. and international laws and regulations, many of which are unsettled and still developing, and our or our customers’ failure to comply with such laws and regulations could subject us to claims or otherwise adversely affect our business, financial condition, or results of operations.

•The trading price of our Class A common stock may be volatile, and you could lose all or part of your investment.

•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 initial public offering, including our directors, executive officers and their respective affiliates. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may adversely affect the trading price of our Class A common stock.

•Our principal stockholders will continue to have significant influence over the election of our board of directors and approval of any significant corporate actions, including any sale of the company.

•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.

Risks Related to Our Business and Business Development

If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction, or adequately address competitive challenges.

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. To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our finance and accounting systems and controls, as well as our information technology, or IT, and security infrastructure. For example, we expect we will need to continue our investment in and seek to enhance our IT systems and capabilities, including with respect to internal information sharing and interconnectivity between various systems within our infrastructure.

We must also attract, train, and retain a significant number of qualified sales and marketing personnel, client support personnel, professional services personnel, software engineers, technical personnel, and management personnel, without undermining our corporate culture of rapid innovation, teamwork, and attention to customer success that has been central to our growth.

Failure to effectively manage our growth could also lead us to over-invest or under-invest in development and operations, result in weaknesses in our infrastructure, systems, or controls, give rise to operational mistakes, financial losses, loss of productivity or business opportunities, and result in loss of employees and

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reduced productivity of remaining employees. To support our growth, we expect to make significant sales and marketing expenditures to increase sales of our platform and increase awareness of our brand and significant research and development expenses to increase the functionality of our platform and to introduce additional related products and services. A significant portion of our investments in our sales and marketing and research and development activities will precede the benefits from such investments, and we cannot be sure that we will receive an adequate return on our investments. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our revenue may not increase or may grow more slowly than expected, and we may be unable to implement our business strategy.

If we do not attract new customers, retain existing customers, and increase our customers’ use of our platform, our business will suffer.

We derive, and expect to continue to derive, a majority of our revenue and cash inflows from our integrated cloud-based restaurant management platform, which encompasses software, financial technology, and hardware components. As such, our ability to attract new customers, retain existing customers, and increase use of the platform by existing customers is critical to our success.

Our future revenue will depend in large part on our success in attracting additional customers to our platform. Our ability to attract additional customers will depend on a number of factors, including the effectiveness of our sales team, the success of our marketing efforts, our levels of investment in expanding our sales and marketing teams, referrals by existing customers, and the availability of competitive restaurant technology platforms. We may not experience the same levels of success with respect to our customer acquisition strategies as seen in prior periods, and if the costs associated with acquiring new customers materially rises in the future, our expenses may rise significantly.

In addition, while a majority of our current customer base consists of small- and medium-sized businesses, or SMBs, we continue to pursue customer growth within the enterprise and mid-market segments of the restaurant market, as well as among SMBs. 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. Our business is subscription-based, and contract terms for our SaaS products generally range from 12 to 36 months. Customers are not obligated to, and may not, renew their subscriptions after their existing subscriptions expire. 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. 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. In addition, we may terminate our relationships with customers for various reasons, such as heightened credit risk, excessive card chargebacks, unacceptable business practices, or contract breaches.

Further, if customers on our platform were to cease operations, temporarily or permanently, or face financial distress or other business disruption, our ability to retain customers would suffer. This risk is particularly pronounced with restaurants, as each year a meaningful percentage of restaurants go out of business, and this risk has become particularly acute as a result of the ongoing COVID-19 pandemic, rising inflation and interest rates, and other recent global financial, economic and political events that may impact consumer behaviors and the restaurant industry.

In addition to attracting new customers and retaining existing customers, we seek to expand usage of our platform by broadening adoption by our customers of the various products included within our platform. Although in recent periods new customers have increasingly adopted our full suite of products, we cannot be certain that new customers will continue to adopt our full suite of products at existing rates or that we will be successful in increasing adoption of additional products by our existing customers. Further, while many of our customers deploy our platform to all of their restaurant locations, some of our customers initially deploy our platform to a subset of locations. For those customers, we seek to expand use of our platform to additional locations over time. Our ability to increase adoption of our products by our customers and to increase

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penetration of our existing customers’ locations will depend on a number of factors, including our customers’ satisfaction with our platform, competition, pricing, and our ability to demonstrate the value proposition of our products.

Our costs associated with renewals and generating sales of additional products to existing customers are substantially lower than our costs associated with entering into subscriptions with new customers. 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.

We may not be able to sustain our recent revenue growth in future periods.

We have grown rapidly over the last several years, and our recent revenue growth rate and financial performance should not be considered indicative of our future performance. In the three months ended June 30, 2022 and 2021, our revenue was $675 million and $426 million, respectively, representing a 58% growth rate. You should not rely on our revenue or key business metrics for any previous quarterly or annual period as indicative of our revenue, revenue growth, key business metrics, or key business metrics growth in future periods. In particular, our revenue growth rate has fluctuated in prior periods. We expect our revenue growth rate to continue to fluctuate over the short and long term. We may experience declines in our revenue growth rate as a result of a number of factors, including slowing demand for our platform, insufficient growth in the number of customers and their guests that utilize our platform, increasing competition, changing customer and guest behaviors, a decrease in the growth of our overall market, our failure to continue to capitalize on growth opportunities, the impact of regulatory requirements, and the maturation of our business, among others. In addition, SMBs comprise the majority of our customer base. If the demand for restaurant management platforms by SMBs does not continue to grow, or if we are unable to maintain our category share with SMBs, our revenue and other growth rates could be adversely affected.

The ongoing COVID-19 pandemic has adversely impacted and may continue to adversely impact our business, financial condition, and results of operations.

The COVID-19 pandemic has adversely affected workforces, consumers, economies, and financial markets globally. The adverse impact of the pandemic has been and may continue to be particularly acute among SMBs, which comprise the majority of our customer base, and many of which have been required to cease or substantially diminish business operations for an indeterminate period of time. The pandemic also has disrupted, and may continue to disrupt, our supply chains and relationships with third-party partners. The pandemic has also had, and may continue to have, a variety of additional effects on our business and operations, including reducing the demand for our platform, restricting our operations and sales and marketing efforts, impeding our ability to conduct product development and other important business activities, and decreasing technology spending.

For example, during the COVID-19 pandemic, we:

•furloughed approximately 12% of our employees and terminated approximately 48% of our employees in connection with a reduction in force in April 2020;

•re-prioritized our capital projects;

•instituted a temporary company-wide hiring freeze; and

•reduced salaries for management across the organization.

In addition, while adversely impacting the restaurant industry and our business, the COVID-19 pandemic has also increased the focus by restaurants on the need for a digital technology platform that can address the need for safe, frictionless, contact-free experiences in restaurants and address off-premise dining. While we believe these trends may positively impact our business in the longer-term, we cannot predict the extent to which the increased focus on the need for digital solutions such as those offered by our platform will persist. For example, we cannot predict the manner and extent to which the reemergence of on-premise dining and other

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types of in-person activity will impact our business, including with respect to levels of payment processing activity through our platform and our commission and margin rates on such payments.

Due to the uncertainty of the COVID-19 pandemic, including the highly transmissible variants thereof and any additional waves of infection, we will continue to assess the situation, including abiding by any government-imposed restrictions, market-by-market. We are unable to accurately predict the ultimate impact that the COVID-19 pandemic will have on our operations going forward due to uncertainties that will be dictated by the length of time that the disruptions resulting from the pandemic continue, which will, in turn, depend on the currently unknowable duration and severity of the COVID-19 pandemic, the impact of governmental regulations that might be imposed in response to the pandemic, the effectiveness and wide-spread availability of vaccines, the speed and extent to which normal economic and operating conditions will resume, and overall changes in consumer behavior. We also cannot accurately forecast the potential impact of additional outbreaks as government restrictions are relaxed, the impact of further shelter-in-place or other government restrictions that are implemented in response to such outbreaks, or the impact on our customers’ ability to remain in business, each of which could continue to have an adverse impact on our business.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our liquidity, our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We launched our operations in 2013, have grown significantly in recent periods, and have a limited operating history, particularly at our current scale. In addition, we operate in an evolving industry and have frequently expanded our platform features and services and changed our pricing methodologies. This limited operating history and our evolving business make it difficult to evaluate our future prospects and the risks and challenges we may encounter. 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 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

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•effectively manage our costs.

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. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations and our business, financial condition, and results of operations could be adversely affected.

Our platform includes our payment services, and our ability to attract new customers and retain existing customers depends in part on our ability to offer payment processing services with the desired functionality at an attractive price.

We sell subscriptions to our platform together with our payment services, and customers are unable to subscribe to our platform without also subscribing to our payment services. While we believe that offering a complete all-in-one platform that includes payment processing functionality along with all the other functionality of our platform offers our customers significant advantages over separate point of sale solutions, some potential or existing customers may not desire to use our payment processing services or to switch from their existing payment processing vendors. Some of our potential customers for our platform may not be willing to switch payment processing vendors for a variety of reasons, such as transition costs, business disruption, and loss of accustomed functionality. There can be no assurance that our efforts to overcome these factors will be successful, and this resistance may adversely affect our growth.

The attractiveness of our payment processing services also depends on our ability to integrate emerging payment technologies, including crypto currencies, other emerging or alternative payment methods, and credit card systems that we or our processing partners may not adequately support or for which we or they do not provide adequate processing rates. In the event such methods become popular among consumers, any failure to timely integrate emerging payment methods into our software, anticipate consumer behavior changes, or contract with processing partners that support such emerging payment technologies could reduce the attractiveness of our payment processing services and of our platform, and adversely affect our operating results.

Our operating results depend in significant part on our payment processing services, and the revenue and gross profit we derive from our payment processing activity in a particular period can vary due to a variety of factors.

Even if we succeed in increasing subscriptions to our platform and retaining subscription customers, the revenue we derive from payment processing services may vary from period to period depending on a variety of factors, many of which are beyond our control and difficult to predict. Our revenue from payment processing services is generally calculated as a percentage of payment volume plus a per-transaction fee and, accordingly, varies depending on the total dollar amount processed through the Toast platform across all of our customers’ restaurant locations in a particular period. This amount may vary, depending on, among other things, the success of our customers’ restaurant locations, the proportion of our customers’ payment volumes processed through our platform, ticket size, consumer spending levels in general, and overall economic conditions. In addition, the revenue and gross profit derived from our payment processing services varies depending on the particular type of payment processed on our platform. For example, card-not-present transactions, which are transactions for which the credit card is not physically present at the merchant location at the time of the transaction, are generally associated with higher payment processing revenue and gross profit compared to card-present transactions, and debit card transactions are generally also associated with higher gross profit compared to credit card transactions. During the COVID-19 pandemic, card-not-present transactions and debit card transactions accounted for a larger proportion of the total payment transactions processed through our platform than before the COVID-19 pandemic, which contributed to higher gross margins on those transactions than in prior periods. We expect the relative percentage of credit card transactions and transactions where the card is present to increase in future periods.

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A majority of our customers are SMBs, which can be more difficult and costly to retain than enterprise customers and are subject to increased impacts of economic fluctuations, which may adversely affect our business and operations.

A majority of our customers are SMBs and we expect they will continue to comprise a large portion of our customer base for the foreseeable future. We define SMBs in the context of our customer base as customers that have between one and ten restaurant locations. Selling to and retaining SMBs can be more difficult than retaining enterprise customers, as SMBs often have higher rates of business failure and more limited resources, may have decisions related to the choice of payment processor dictated by their affiliated parent entity and are more readily able to change their payment processors than larger organizations.

SMBs are also typically more susceptible to the adverse effects of economic fluctuations, including those caused by the COVID-19 pandemic and rising inflation and interest rates. Adverse changes in the economic environment or business failures of our SMB customers may have a greater impact on us than on our competitors who do not focus on SMBs to the extent that we do.

We rely in part on revenue from subscription contracts, and because we recognize revenue from subscription contracts over the term of the relevant subscription period, downturns or upturns in sales are not immediately reflected in full in our results of operations.

Subscription services revenue accounts for a significant portion of our total revenue. Sales of new or renewal subscription contracts may decline or fluctuate as a result of a number of factors, including customers’ level of satisfaction with our platform, the prices of our subscriptions, the prices of subscriptions offered by our competitors, reductions in our customers’ spending levels, or other changes in consumer behavior. If our sales of new or renewal subscription contracts decline, our revenue and revenue growth may decline. We recognize subscription revenue ratably over the term of the relevant subscription period, which generally ranges from 12 to 36 months in duration. As a result, much of the subscription revenue we report each quarter is derived from subscription contracts that we sold in prior periods.

Consequently, a decline in new or renewed subscription contracts in any one quarter will not be fully reflected in revenue in that quarter but will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in new or renewal sales of our subscriptions is not reflected in full in our results of operations in a given period. Also, it is difficult for us to rapidly increase our subscription revenue through additional sales in any period, as revenue from new and renewal subscription contracts must be recognized ratably over the applicable subscription period. Furthermore, any increases in the average term of subscription contracts would result in revenue for those subscription contracts being recognized over longer periods of time.

Our future revenue will depend in part on our ability to expand the financial technology services we offer to our customers and increase adoption of those services.

We offer our customers a variety of financial technology products and services, and we intend to make available additional financial technology products and services to our customers in the future. A number of these services require that we enter into arrangements with financial institutions or other third parties. For example, one of our bank partners, which is a Utah-chartered and Federal Deposit Insurance Corporation, or the FDIC,-insured industrial bank, offers qualified customers working capital loans, which we service. In order to provide these and future financial technology products and services, we may need to establish additional partnerships with third parties, comply with a variety of regulatory requirements, and introduce internal processes and procedures to comply with applicable law and the requirements of our partners, all of which may involve significant cost, require substantial management attention, and expose us to new business and compliance risks. 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.

We believe that maintaining and enhancing our brand identity and reputation is critical to our relationships with, and ability to attract, new customers, partners and employees. Accordingly, we have invested, and expect

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to continue to invest, increasing amounts of money in and greater resources to branding and other marketing initiatives, which may not be successful or cost effective. If we do not successfully maintain and enhance our brand and reputation in a cost-effective manner, our business may not grow, we may have reduced pricing power relative to competitors with stronger brands or reputations, and we could lose customers or partners, all of which would harm our business, financial condition, and results of operations.

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.

We depend on the experience and expertise of our senior management team and key technical employees, and the loss of any key employee could harm our business, financial condition, and results of operations.

Our success depends upon the continued service of our senior management team and key technical employees. Each of these employees could terminate his or her relationship with us at any time. Further, our competitors may be successful in recruiting and hiring members of our management team or other key employees, and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms, or at all.

The loss of any member of our senior management team or key technical employees might significantly delay or prevent the achievement of our business objectives and could harm our business and our customer relationships.

Our ability to recruit, retain, and develop qualified personnel is critical to our success and growth.

All our businesses function at the intersection of rapidly changing technological, social, economic, and regulatory environments that require a wide range of expertise and intellectual capital. For us to successfully compete and grow, we must recruit, retain, and develop personnel who can provide the necessary expertise across a broad spectrum of disciplines. In addition, we must develop, maintain and, as necessary, implement appropriate succession plans to ensure we have the necessary human resources capable of maintaining continuity in our business.

The market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. The trading price of our Class A common is likely to be volatile, could be subject to fluctuations in response to various factors and may not appreciate. If the perceived value of our equity awards declines for these or other reasons, it may adversely affect our ability to attract and retain highly qualified employees. Certain of our employees have received significant proceeds from sales of our equity in previous transactions and many of our employees may receive significant proceeds from sales of our equity in future transactions, which may reduce their motivation to continue to work for us.

We are also substantially dependent on our direct sales force to obtain new customers and increase sales to existing customers. There is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining a sufficient number of sales personnel to support our growth. If we are unable to hire, train, and retain a sufficient number of qualified and successful sales personnel, our business, financial condition, and results of operations could be harmed.

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From time to time, we are subject to various legal proceedings that could adversely affect our business, financial condition, or results of operations.

From time to time, we are or may become involved in claims, lawsuits (whether class actions or individual lawsuits), arbitration proceedings, government investigations, and other legal or regulatory proceedings involving commercial, corporate and securities matters; privacy, marketing and communications practices; labor and employment matters; alleged infringement of third-party patents and other intellectual property rights; and other matters. The results of any such claims, lawsuits, arbitration proceedings, government investigations, or other legal or regulatory proceedings cannot be predicted with any degree of certainty. Any claims against us, whether meritorious or not, could be time-consuming, result in costly litigation, require significant management attention, and divert significant resources. Determining reserves for our pending litigation is a complex and fact-intensive process that requires significant subjective judgment and speculation. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines, and penalties. These proceedings could also result in harm to our reputation and brand, sanctions, consent decrees, injunctions, or other orders requiring a change in our business practices. Any of these consequences could adversely affect our business, financial condition, and results of operations. Further, under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of our business, customers, and commercial partners and current and former directors and officers. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and adversely impact our ability to attract directors and officers.

Notwithstanding the terms of our agreements with our customers, it is possible that a default on such obligations by one or more of our customers could adversely affect our business, financial condition, or results of operations. For example, if a customer defaults on its obligations under a customer agreement or terminates a customer agreement prior to the contractual termination date, we may be required to assert a claim to acquire the amount in full due under the customer agreement, which we may choose not to pursue. However, if we choose to pursue any such claim, we may incur substantial costs to resolve claims or enter into litigation or arbitration, and even if we were to prevail in the event of claims, litigation or arbitration, such claims, litigation, or arbitration could be costly and time-consuming and divert the attention of our management and other employees from our business operations.

We also include arbitration and class action waiver provisions in our terms of service with the customers that utilize our platform and certain agreements with our employees. These provisions are intended to streamline the litigation process for all parties involved, as they can in some cases be faster and less costly than litigating disputes in state or federal court. However, arbitration can nevertheless be costly and burdensome, and the use of arbitration and class action waiver provisions subjects us to certain risks to our reputation and brand, as these provisions have been the subject of increasing public scrutiny. In order to minimize these risks to our reputation and brand, we may limit our use of arbitration and class action waiver provisions, or we may be required to do so in any particular legal or regulatory proceeding, either of which could cause an increase in our litigation costs and exposure. Additionally, we permit certain customers and other users of our platform to opt out of such provisions, which could cause an increase in our litigation costs and exposure.

Further, with the potential for conflicting rules regarding the scope and enforceability of arbitration and class action waivers on a state-by-state basis, as well as between state and federal law, there is a risk that some or all of our arbitration and class action waiver provisions could be subject to challenge or may need to be revised to exempt certain categories of protection. 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.

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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.

In July 2022, we closed our acquisition of Sling Inc, or Sling, an employee scheduling, communication and management solution. In 2019 and 2021, we closed our acquisitions of StratEx Holdco, LLC, or StratEx, and xtraCHEF, Inc., or xtraCHEF, respectively. In addition to these recent acquisitions, we may in the future acquire or invest in other businesses, products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities. We may not be able to fully realize the anticipated benefits of our past or future acquisitions.

We cannot forecast the number, timing or size of any future acquisitions or other similar strategic transactions. We may not be able to successfully identify future acquisition opportunities or complete any such acquisitions if we cannot reach agreement on commercially favorable terms, if we lack sufficient resources to finance the transaction on our own and cannot obtain financing at a reasonable cost, or if regulatory authorities prevent such transactions from being completed. In addition, the pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses related to identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. Further, we may have to pay cash, incur debt, or issue securities, including equity-based securities, to pay for acquisitions, joint ventures, or strategic investments, each of which could affect our financial condition or the value of our capital stock or result in dilution to our existing stockholders.

There are inherent risks in integrating and managing acquisitions. When we acquire additional businesses, we may not be able to assimilate or integrate the acquired personnel, operations, and technologies successfully or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including but not limited to: unanticipated costs associated with the acquisition, including but not limited to, integration and compliance costs; the inability to generate sufficient revenue to offset acquisition costs; the inability to maintain relationships with customers and partners of the acquired business; the difficulty of incorporating acquired technology into our platform and of maintaining quality and security standards consistent with our brand; harm to our existing business relationships as a result of the acquisition; and the potential loss of key employees. Acquisitions also increase the risk of unforeseen legal liability arising from prior or ongoing acts or omissions by the acquired businesses which are not discovered by due diligence during the acquisition process or that prove to have a greater than anticipated adverse impact. We have previously acquired and continue to evaluate companies that operate in highly regulated markets. There is no assurance that acquired businesses will have invested sufficient efforts in their own regulatory compliance, and we may need to invest in and seek to improve the regulatory compliance controls and systems of such businesses. Generally, if an acquired business fails to meet our expectations, or if we are unable to establish effective regulatory compliance controls with respect to an acquired business, our operating results, business, and financial condition may suffer.

In addition, we have previously acquired and continue to evaluate companies with extensive operations outside the United States. These types of acquisitions often involve additional or increased risks including:

•managing geographically separate organizations, systems and facilities;

•integrating personnel with diverse business backgrounds and organizational cultures;

•complying with additional regulatory and other legal requirements in connection with non-U.S. operations, including but not limited to, additional exposure to the European General Data Protection Regulation, or GDPR, and rules and programs administered by the Treasury Department’s Office of Foreign Assets Control, or OFAC;

•addressing financial and other impacts to our business resulting from fluctuations in currency exchange rates and unit economics across multiple jurisdictions;

•enforcing intellectual property rights outside of the United States;

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•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.

The diversion of management’s attention and any delays or difficulties encountered in connection with acquisitions and their integration could adversely affect our business, financial condition, or results of operations.

We do not have sufficient history with our subscription or pricing models to accurately predict optimal pricing strategies necessary to attract new customers and retain existing customers.

We have limited experience with respect to determining the optimal prices for our platform and services and we expect to make further changes to our pricing model from time to time. 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. 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. 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.

Our business is exposed to risks associated with the handling of customer funds.

Our business handles payroll processing administration for certain of our customers. 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. We are also potentially at risk if the financial institution in which we hold these funds suffers any kind of insolvency or liquidity event or fails, for any reason, to deliver their services in a timely manner. The occurrence of any of these types of events could cause us financial loss and reputational harm.

Any failure to offer high-quality customer support may adversely affect our relationships with our customers and could adversely affect our business, financial condition, and results of operations.

In deploying and using our platform, our customers depend on our 24/7 support team to resolve complex technical and operational issues, including ensuring that our platform is implemented in a manner that integrates with a variety of third-party platforms. We also rely on third parties to provide some support services, and our ability to provide effective support is partially dependent on our ability to attract and retain qualified and capable third-party service providers. As we continue to grow our business and improve our offerings, we will face challenges related to providing high-quality support services at scale. We may be unable to respond quickly enough to accommodate short-term increases in demand for customer support or to modify the nature, scope, and delivery of our customer support to compete with changes in customer support services provided by our competitors. Increased demand for customer support, without corresponding revenue, could increase costs and adversely affect our operating results. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could adversely affect our reputation and brand, our ability to benefit from referrals by existing customers, our ability to sell our platform to existing and prospective customers, and our business, financial condition, or results of operations.

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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. We have recently made an initial investment to establishing our international presence. However, we have limited experience with international customers and in selling our platform internationally. Accordingly, we cannot be certain that our business model will be successful, or that our platform will achieve commercial acceptance, outside the United States. We will face a wide variety of new business, sales and marketing, operational and regulatory challenges in markets outside the United States, including the presence of more established competitors, our lack of experience in those markets, and a wide variety of new legal and regulatory requirements to which we are subject or would become subject. Expanding our business internationally requires significant additional investment in our platform, operations, infrastructure, compliance efforts, and sales and marketing organization, and any such investments may not be successful or generate an adequate return on our investment.

Our risk management strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.

We operate in a rapidly changing industry. Accordingly, our risk management strategies may not be fully effective to identify, monitor, and manage all risks that our business encounters. In addition, when we introduce new services, focus on expanding relationships with new types of customers, or begin to operate in new markets, we may be less able to forecast risk levels and reserve accurately for potential losses, as a result of fraud or otherwise. If our strategies are not fully effective or we are not successful in identifying and mitigating all risks to which we are or may be exposed, we may suffer uninsured liability or harm to our reputation, or be subject to litigation or regulatory actions, any of which could adversely affect our business, financial condition, and results of operations.

Risks Related to Our Technology and Privacy

We are responsible for transmitting a high volume of sensitive and personal information through our platform and our success depends upon the security of this platform. Any actual or perceived breach of our system that would result in disclosure of such information could materially impact our business.

We, our customers, our partners, and other third parties, including third-party vendors, cloud service providers, and payment processors that we use, obtain and process large amounts of sensitive and personal information, including information related to our customers, their guests, and their transactions. We face risks, including to our reputation as a trusted brand, in the handling and protection of this information, and these risks will increase as our business continues to expand to include new products and technologies. Our operations involve the storage, transmission, and processing of our customers’ proprietary information and sensitive and personal information of our customers and their guests and employees, including contact information and payment information, purchase histories, lending information, and payroll information. Cyber incidents have been increasing in sophistication and frequency and can include third parties gaining access to employee or guest information using stolen or inferred credentials, computer malware, viruses, spamming, phishing attacks, ransomware, card skimming code, and other deliberate attacks and attempts to gain unauthorized access. In addition, these incidents can originate on our vendors’ websites or systems, which can then be leveraged to access our website or systems, further preventing our ability to successfully identify and mitigate the attack. As a result, unauthorized access to, security breaches of, or denial-of-service attacks against our platform (or any platform of our third-party vendors) could result in the unauthorized access to or use of, and/or loss of, such data, as well as loss of intellectual property, guest information, employee data, trade secrets, or other confidential or proprietary information.

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We have administrative, technical, and physical security measures in place and proactively employ multiple security measures at different layers of our systems to defend against intrusion and attack and to protect our information; however, we have experienced security incidents in the past, and we may face additional security incidents in the future. Because the techniques used to obtain unauthorized access to or to sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures that will be sufficient to counter all current and emerging technology threats. In addition, any security breaches that occur may remain undetected for extended periods of time. While we also have and will continue to make significant efforts to address any IT security issues with respect to acquisitions we make, we may still inherit such risks when we integrate these companies.

We also have policies and procedures in place to contractually require third parties to which we transfer data to implement and maintain appropriate security measures. Sensitive and personal information is processed and stored by our customers, software and financial institution partners and third-party service providers to whom we outsource certain functions. Threats to third-party systems can originate from human error, fraud, or malice on the part of employees or third parties, or simply from accidental technological failure, and/or computer viruses and other malware that can be distributed and infiltrate systems of third parties on whom we rely. While we select third parties to which we transfer data carefully, we do not control their actions, and these third parties may experience security breaches that result in unauthorized access of data and information stored with them despite these contractual requirements and the security measures these third parties employ.

If any security breach involving our systems or the systems of third parties that store or process our data or significant denial-of-service attacks or other cyber-attack occurs or is believed to have occurred, our reputation and brand could be damaged, we could be required to expend significant capital and other resources to alleviate problems caused by such actual or perceived breaches or attacks and remediate our systems. In addition, we could be exposed to a risk of loss, litigation, or regulatory action and possible liability, some or all of which may not be covered by insurance, and our ability to operate our business may be impaired. Unauthorized parties have in the past gained access, and may in the future gain access, to systems or facilities used in our business through various means, including gaining unauthorized access into our systems or facilities or those of customers and their guests, attempting to fraudulently induce our employees, customers, their guests, or others into disclosing usernames, passwords, payment card information, or other sensitive or personal information, which may in turn be used to access our IT systems or fraudulently transfer funds to bad actors.

If new or existing customers believe that our platform does not provide adequate security for the storage of personal or sensitive information or its transmission over the Internet, they may not adopt our platform or may choose not to renew their subscriptions to our platform, which could harm our business. Additionally, actual, potential, or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Our errors and omissions insurance policies covering certain security and privacy damages and claim expenses may not be sufficient to compensate for all potential liability. Although we maintain cyber liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

Further, because data security is a critical competitive factor in our industry, we may make statements in our privacy statements and notices and in our marketing materials describing the security of our platform, including descriptions of certain security measures we employ or security features embedded within our products. Should any of these statements be untrue, become untrue, or be perceived to be untrue, even if through circumstances beyond our reasonable control, we may face claims, including claims of unfair or deceptive trade practices, brought by the U.S. Federal Trade Commission, state, local, or foreign regulators (e.g., a European Union-based data protection agency), or private litigants.

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Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.

Our continued growth depends in part on the ability of our existing and potential customers to access our platform at any time and within an acceptable amount of time. Our platform is proprietary, and we rely on the expertise of members of our engineering, operations, and software development teams for our platform’s continued performance. We have experienced system outages this year and in prior years, including in some cases as a result of disruptions at our third-party vendors, and may in the future experience, disruptions, outages, and other performance problems related to our platform due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, delays in scaling our technical infrastructure if we do not maintain enough excess capacity and accurately predict our infrastructure requirements, capacity constraints due to an overwhelming number of users accessing our platform simultaneously, denial-of-service attacks, actions or inactions attributable to third parties, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks and other geopolitical unrest, computer viruses, ransomware, malware, or other events. Our systems also may be subject to break-ins, sabotage, theft, and intentional acts of vandalism, including by our own employees. Some of our systems are not fully redundant and our disaster recovery planning may not be sufficient for all eventualities. Further, our business and/or network interruption insurance may not be sufficient to cover all of our losses that may result from interruptions in our service as a result of system failures and similar events.

From time to time, we may experience limited periods of server downtime due to server failure or other technical difficulties. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our platform becomes more complex and our user traffic increases. If our platform is unavailable or if our users are unable to access our platform within a reasonable amount of time, or at all, our business would be adversely affected and our brand could be harmed. In the event of any of the factors described above, or certain other failures of our infrastructure, customer or guest data may be permanently lost. Moreover, a limited number of our agreements with customers provide for limited service-level commitments, and we may enter into additional agreements providing such commitments from time to time. 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.

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. We are committed to providing our customers high platform reliability, and may utilize significant time, human capital and other resources to analyze the root causes of these performance problems and address any gaps identified, which in turn may take away resources from other business activities. 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.

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Our success depends upon our ability to continually enhance the performance, reliability, and features of our platform.

The markets in which we compete are characterized by constant change and innovation, and we expect them to continue to evolve rapidly. Our success has been based on our ability to identify and anticipate the needs of our customers and their guests and design and maintain a platform that provides them with the tools they need to operate their businesses successfully. Our ability to attract new customers, retain existing customers, and increase sales to both new and existing customers will depend in large part on our ability to continue to improve and enhance the performance, reliability, and features of our platform. To grow our business, we must develop products and services that reflect the changing nature of restaurant management software and expand beyond our core functionalities to other areas of managing relationships with our customers, as well as their relationships with their guests. Competitors may introduce new offerings embodying new technologies, or new industry standards and practices could emerge that render our existing technology, services, website, hardware, and mobile applications obsolete. Accordingly, our future success will depend in part on our ability to respond to new product offerings by competitors, technological advances, and emerging industry standards and practices in a cost-effective and timely manner in order to retain existing customers and attract new customers. 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.

The success of these and any other enhancements to our platform depends on several factors, including timely completion, adequate quality testing and sufficient demand, and the accuracy of our estimates regarding the total addressable market for new products and/or enhancements and the portion of such total addressable market that we expect to capture for such new products and/or enhancements. Any new product or service that we develop may not be introduced in a timely or cost-effective manner, may contain defects, may not have an adequate total addressable market or market demand or may not achieve the market acceptance necessary to generate meaningful revenue.

We have scaled our business rapidly, and significant new platform features and services have in the past resulted in, and in the future may continue to result in, operational challenges affecting our business. Developing and launching enhancements to our platform and new services on our platform may involve significant technical risks and upfront capital investments that may not generate return on investment. For example, we may use new technologies ineffectively, or we may fail to adapt to emerging industry standards. We may experience difficulties with software development that could delay or prevent the development, introduction or implementation of new products and enhancements. Software development involves a significant amount of time, as it can take our developers months to update, code, and test new and upgraded products and integrate them into our platform. The continual improvement and enhancement of our platform requires significant investment, and we may not have the resources to make such investment.

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.

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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.

The software underlying our platform is highly complex and may contain undetected errors or vulnerabilities, some of which may only be discovered after the code has been released. Our practice is to effect frequent releases of software updates. Third-party software that we incorporate into our platform and our backend systems, hardware, or other technology systems, or those of third-party technology providers, may also be subject to defects, errors, or vulnerabilities. Any such defects, errors, or vulnerabilities could result in negative publicity, a loss of customers or loss of revenue, and access or other performance issues. Such vulnerabilities could also be exploited by bad actors and result in exposure of customer or guest data, or otherwise result in a security breach or other security incident. We may need to expend significant financial and development resources to analyze, correct, eliminate, or work around errors or defects or to address and eliminate vulnerabilities. Any failure to timely and effectively resolve any such errors, defects, or vulnerabilities could adversely affect our business, reputation, brand, financial condition, and results of operations.

Risks Related to Our Financial Condition and Capital Requirements

We have a history of generating net losses, and if we are unable to achieve adequate revenue growth while our expenses increase, we may not achieve or maintain profitability in the future.

We have incurred a net loss in each year since our inception and have a significant accumulated deficit. We incurred net losses of $54 million and $135 million for the three months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $1,179 million. These losses and our accumulated deficit are a result of the substantial investments we have made to grow our business. 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 also expect to incur additional general and administrative expenses as a result of our growth and expect our costs to increase to support our operations as a public company. In addition, to support the continued growth of our business and to meet the demands of continuously changing security and operational requirements, we plan to continue investing in our technology infrastructure. Historically, our costs have increased over the years due to these factors, and we expect to continue to incur increasing costs to support our anticipated future growth. If we are unable to generate adequate revenue growth and manage our expens