0001650164-22-000031.txt : 20220513 0001650164-22-000031.hdr.sgml : 20220513 20220513160329 ACCESSION NUMBER: 0001650164-22-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 77 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220513 DATE AS OF CHANGE: 20220513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Toast, Inc. CENTRAL INDEX KEY: 0001650164 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-40819 FILM NUMBER: 22922585 BUSINESS ADDRESS: STREET 1: 401 PARK DRIVE STREET 2: SUITE 801 CITY: BOSTON STATE: MA ZIP: 02215 BUSINESS PHONE: 617-297-1005 MAIL ADDRESS: STREET 1: 401 PARK DRIVE STREET 2: SUITE 801 CITY: BOSTON STATE: MA ZIP: 02215 10-Q 1 tost-20220331.htm 10-Q tost-20220331
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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 March 31, 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)
Delaware45-4168768
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, par value of $0.000001 per shareTOSTNew 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 filerSmaller 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 283,334,993 shares of Class A common stock and 228,545,225 shares of Class B common stock as of May 6, 2022.

i

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 and other global financial, economic and political events on our business and 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.

ii

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.

iii

TABLE OF CONTENTS
Page
iv

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TOAST, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions, except share and per share amounts)
March 31, 2022December 31, 2021
Assets:
Current assets:
Cash and cash equivalents$757 $809 
Marketable securities453 457 
Accounts receivable, net 56 55 
Inventories44 42 
Deferred costs, net32 30 
Prepaid expenses and other current assets135 92 
Total current assets1,477 1,485 
Property and equipment, net42 41 
Operating lease right-of-use assets79 79 
Intangible assets15 16 
Goodwill74 74 
Deferred costs, non-current30 25 
Other non-current assets17 15 
Total non-current assets257 250 
Total assets$1,734 $1,735 
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable$29 $40 
Operating lease liabilities18 22 
Deferred revenue42 44 
Accrued expenses and other current liabilities315 246 
Total current liabilities404 352 
Warrants to purchase common stock84 181 
Operating lease liabilities, non-current77 77 
Deferred revenue, non-current 8 12 
Other long-term liabilities18 22 
Total liabilities591 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 March 31, 2022 and December 31, 2021, 257,866,880 and 167,732,925 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
  
Class B common stock, $0.000001 par value- 700,000,000 shares authorized as of March 31, 2022 and December 31, 2021, 252,558,185 and 339,437,440 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
  
Additional paid-in capital2,271 2,194 
Accumulated deficit(1,125)(1,102)
Accumulated other comprehensive loss(3)(1)
Treasury stock, at cost— 225,000 shares outstanding at March 31, 2022 and December 31, 2021
  
Total stockholders’ equity 1,143 1,091 
Total liabilities and stockholders’ equity $1,734 $1,735 
The accompanying notes are an integral part of these consolidated financial statements.
1

TOAST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions, except share and per share amounts)
Three Months Ended March 31,
20222021
Revenue:
Subscription services$63 $31 
Financial technology solutions438 227 
Hardware29 21 
Professional services5 3 
Total revenue535 282 
Costs of revenue:
Subscription services25 10 
Financial technology solutions347 172 
Hardware52 21 
Professional services21 9 
Amortization of acquired technology and customer assets1 1 
Total costs of revenue446 213 
Gross profit89 69 
Operating expenses:
Sales and marketing71 32 
Research and development62 23 
General and administrative57 19 
Total operating expenses190 74 
Loss from operations(101)(5)
Other income (expense):
Interest income (expense), net (6)
Change in fair value of warrant liabilities79 (12)
Change in fair value of derivative liability (76)
Other income (expense), net(1) 
Loss before provision for income taxes(23)(99)
Provision for income taxes  
Net loss$(23)$(99)
Net loss per share attributable to common stockholders:
Basic$(0.05)$(0.48)
Diluted$(0.20)$(0.48)
Weighted average shares used in computing net loss per share:
Basic505,378,195 205,352,706 
Diluted507,037,246 205,352,706 
The accompanying notes are an integral part of these consolidated financial statements.
2

TOAST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in millions)

Three Months Ended March 31,
20222021
Net loss$(23)$(99)
Other comprehensive loss:
Unrealized losses on marketable securities, net of tax effect of $0
(2) 
Total other comprehensive loss(2) 
Comprehensive loss$(25)$(99)
3

TOAST, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited)
(in millions, except share amounts)

Convertible
Preferred
Preferred Stock
Common StockTreasury StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders' Deficit
SharesAmountSharesAmountSharesAmount
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 
Exercise of common stock options— — 1,957,980 — 2 — 2 
Stock-based compensation— — — — — 5 — 5 
Net loss— — — — — — — (99)(99)
Balances at March 31, 2021
253,832,025 $849 221,713,410 $ 225,000 $ $152 $(714)$(562)

Class A and Class B Common StockTreasury StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
SharesAmountSharesAmount
Balances at December 31, 2021
507,170,365 $ 225,000 $ $2,194 $(1,102)$(1)$1,091 
Repurchase of common stock(30,475)— — — — — —  
Issuance of common stock upon net exercise of common stock warrants371,573 — — — 18 — — 18 
Exercise of common stock options2,750,691 — — — 4 — — 4 
Issuance of common stock upon vesting of restricted stock units125,732 — — — — — — — 
Stock-based compensation expense— — — — 53 — — 53 
Vesting of restricted stock— — — — 1 — — 1 
Issuance of common stock for contingent consideration payment37,179 — — — 1 — — 1 
Unrealized loss on marketable securities— — — — — — (2)(2)
Net loss— — — — — (23)— (23)
Balances at March 31, 2022
510,425,065 $ 225,000 $ $2,271 $(1,125)$(3)$1,143 

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


4

TOAST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Three Months Ended March 31,
20222021
Cash flows from operating activities:
Net loss$(23)$(99)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization6 4 
Stock-based compensation53 5 
Amortization of deferred costs10 5 
Change in fair value of derivative liability 76 
Change in fair value of warrant liabilities(79)12 
Credit loss expense3 2 
Change in fair value of contingent consideration2  
Non-cash interest expense on convertible notes 6 
Changes in operating assets and liabilities:
Accounts receivable, net(2)(6)
Merchant cash advances and acquired loans repaid1  
Prepaid expenses and other current assets(15)(2)
Deferred costs, net(17)(8)
Inventories(2)1 
Operating lease right-of-use assets(6)5 
Accounts payable(12)(3)
Accrued expenses and other current liabilities39 12 
Deferred revenue(6)(3)
Operating lease liabilities4 (5)
Other assets and liabilities(3)(7)
Net cash used in operating activities(47)(5)
Cash flows from investing activities:
Capitalized software(1)(2)
Purchases of property and equipment(2)(6)
Purchases of marketable securities(30) 
Proceeds from the sale of marketable securities18  
Maturities of marketable securities12  
Net cash used in investing activities(3)(8)
Cash flows from financing activities:
Change in customer funds obligations, net27 10 
Proceeds from exercise of stock options4 2 
Payment of contingent consideration(2) 
Net cash provided by financing activities29 12 
Net decrease in cash, cash equivalents, cash held on behalf of customers and restricted cash(21)(1)
Effect of exchange rate changes on cash and cash equivalents and restricted cash (1)
Cash, cash equivalents, cash held on behalf of customers and restricted cash at beginning of period851 594 
Cash, cash equivalents, cash held on behalf of customers and restricted cash at end of period$830 $592 
Reconciliation of cash, cash equivalents, cash held on behalf of customers and restricted cash
Cash and cash equivalents$757 $570 
Cash held on behalf of customers62 21 
Restricted cash11 1 
Total cash, cash equivalents, cash held on behalf of customers and restricted cash$830 $592 
5

Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment included in accounts payable and accrued expenses$2 $ 
Issuance of Class B common stock upon exercise of common stock warrants18  
Issuance of Class B common stock for payment of contingent consideration1  
The accompanying notes are an integral part of these consolidated financial statements.
6

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 Consolidated Balance Sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. 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. There have been no changes to our significant accounting policies described in the 2021 Annual Report that have had a material impact on our consolidated financial statements and related notes.

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 and other global financial, economic and political events.

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 recommendations. 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.
7

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

Leases and Credit Losses

In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Codification, or ASC 842, Leases, or ASC 842, as amended, which superseded the guidance in former ASC 840, Leases. We adopted ASC 842 on January 1, 2021 on a modified retrospective basis.

In June 2016, the FASB issued ASC 326, Financial Instruments-Credit Losses, or ASC 326. We adopted the standard as of January 1, 2021 on a modified retrospective basis and recognized a cumulative-effect adjustment to the opening retained earnings as of that date.

Significant Accounting Policies

Other than the adoption of new accounting pronouncements as described above, 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.
8

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 March 31, 2022 Using
Level 1Level 2Level 3Total
Assets:
Money market funds$709 $ $ $709 
Commercial paper 135  135 
Certificates of deposit 21  21 
Corporate bonds 190  190 
Treasury securities 69  69 
Asset-backed securities 38  38 
$709 $453 $ $1,162 
Liabilities:
Warrants to purchase common stock$ $ $84 $84 
Contingent consideration  3 3 
$ $ $87 $87 

Fair Value Measurement at December 31, 2021 Using
Level 1Level 2Level 3Total
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 three months ended March 31, 2022, 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.

9

The following table indicates the weighted-average assumptions made in estimating the fair value for the three months ended March 31, 2022:
(in millions, except per share amounts)Three Months Ended March 31, 2022
Risk-free interest rate2.4 %
Contractual term (in years)5.19
Expected volatility54.0 %
Expected dividend yield %
Exercise price per share$17.15 

In February 2022, we issued 371,573 shares of Class B common stock as a result of warrants exercised during the three months ended March 31, 2022, and recognized a related remeasurement gain of $6 within “Other income (expense)”. The remaining outstanding warrants were remeasured at March 31, 2022 resulting in a total remeasurement gain of $73 recorded within “Other income (expense)” during the three months ended March 31, 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 three months ended March 31, 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.
10

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(79)2 
Settlement(18)(4)
Balance as of March 31, 2022
$84 $3 

Preferred
Stock Warrant
Liability (1)
Derivative
Liability (1)
Balance as of December 31, 2020
$11 $37 
Change in fair value and other adjustments12 76 
Balance as of March 31, 2021
$23 $113 

(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:
March 31, 2022
Amortized CostGross Unrealized LossesFair Value
Commercial paper$135 $ $135 
Certificates of deposit21  21 
Corporate bonds192 (2)190 
Treasury securities70 (1)69 
Asset-backed securities38  38 
Total$456 $(3)$453 

December 31, 2021
Amortized CostGross Unrealized LossesFair Value
Commercial paper$134 $ $134 
Certificates of deposit14  14 
Corporate bonds194 (1)193 
Treasury securities67  67 
Asset-backed securities49  49 
Total$458 $(1)$457 

11

The fair values of marketable securities by contractual maturities at March 31, 2022 :

  March 31,
2022
Due within 1 year$346 
Due after 1 year through 5 years107 
Total marketable securities$453 

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 significant for the securities held in our portfolio as of March 31, 2022 or December 31, 2021. There were no impairment losses or expected credit losses related to our marketable securities during the three months ended March 31, 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 $3 and $2, respectively, as of March 31, 2022 and December 31, 2021. Changes in the contingent liability were not significant for the three months ended March 31, 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 March 31, 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 months ended March 31, 2022 and 2021.

5. Lessee Arrangements

During the three months ended March 31, 2022, we entered into 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.

The components of lease expense were as follows for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
Operating lease expense$4 $6 
Variable lease expense1  
Total$5 $6 

12

The following table summarizes supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities during the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,
20222021
Operating cash flows for operating leases$(7)$(6)
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets/ (decreases) of lease liabilities due to lease terminations3  
Total$(4)$(6)

In March 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 in July 2022. Future lease payments are approximately $9 over the lease term.
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:
March 31,
2022
December 31,
2021
Cash and cash equivalents$757 $809 
Cash held on behalf of customers62 34 
Restricted cash11 8 
Total cash, cash equivalents, cash held on behalf of customers and restricted cash$830 $851 

Accounts receivable, net consisted of the following:

March 31,
2022
December 31,
2021
Accounts receivable$27 $20 
Unbilled receivables33 39 
Less: Allowance for credit losses(4)(4)
Accounts receivable, net$56 $55 
Our allowance for credit losses was comprised of the following:
13

Three Months Ended March 31,
20222021
Beginning balance$(4)$(4)
Impact of adopting ASU 2016-13— (2)
Additions(1) 
Write offs1  
Ending balance$(4)$(6)

Inventory consisted of the following:
March 31,
2022
December 31,
2021
Finished goods$44 $41 
Components of finished goods 1 
Capitalized overhead3 2 
Reserve for excess and obsolete inventory(3)(2)
$44 $42 

Prepaid expenses and other current assets consisted of the following:
March 31,
2022
December 31,
2021
Cash held on behalf of customers$62 $34 
Prepaid software subscriptions11 11 
Prepaid expenses5 8 
Loan servicing receivable 8 5 
Prepaid insurance4 6 
Deposits for inventory purchases32 21 
Other current assets13 7 
$135 $92 

Accrued expenses and current liabilities consisted of the following:
March 31,
2022
December 31,
2021
Accrued transaction-based costs$140 $120 
Accrued payroll and bonus19 24 
Customer funds obligation62 34 
Accrued expenses53 21 
Accrued commissions9 19 
Other liabilities32 28 
$315 $246 

14


7. Revenue from Contracts with Customers

The following table summarizes the activity in deferred revenue:
Three Months Ended March 31,
20222021
Deferred revenue, beginning of year56 58 
Deferred revenue, end of period50 55 
Revenue recognized in the period from amounts included in deferred revenue at the beginning of period$24 $11 
As of March 31, 2022, approximately $397 of revenue is expected to be recognized from remaining performance obligations for customer contracts. We expect to recognize revenue of approximately $379 from these remaining performance obligations over the next 24 months, with the balance recognized thereafter.
The following table summarizes the activity in deferred contract acquisition costs:
Three Months Ended March 31,
20222021
Beginning balance$55 $29 
Capitalization of sales commissions costs17 8 
Amortization of sales commissions costs(10)(5)
Ending balance$62 $32 
Three Months Ended March 31,
20222021
Deferred costs, current$32 $18 
Deferred costs, non-current30 14 
Total$62 $32 
8. Stock-Based Compensation

Stock-based compensation expense recognized for the three months ended March 31, 2022 and 2021, is as follows:
Three Months Ended March 31,
20222021
Costs of revenue$8 $1 
Sales and marketing13 1 
Research and development16 2 
General and administrative16 1 
Stock based compensation$53 $5 

Prior to consummation of our initial public offering, or IPO, no stock-based compensation expense was recognized for certain 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 $26 during the three months ended March 31, 2022.
15

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 three months ended March 31, 2022 and 2021:

(in millions, except per share amounts)Three Months Ended March 31,
20222021
Risk-free interest rate2.16 %0.99 %
Expected term (in years)6.066.31
Expected volatility51.41 %65.00 %
Expected dividend yield % %
Weighted-average fair value of common stock$17.76 $15.26 
Weighted-average grant date fair value$9.02 $9.11 
The following is a summary of stock option activity under our stock option plans for the three months ended March 31, 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 
Exercised2,750,691 1.50 
Forfeited771,776 14.51 
Outstanding, vested, and expected to vest as of March 31, 2022
59,652,319 $5.49 7.60$972 
Options exercisable as of March 31, 2022
55,332,801 $4.51 7.42$955 
(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 March 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.
The aggregate intrinsic values of options exercised during the three months ended March 31, 2022 and 2021 was $56 and $23, respectively. The total fair value of options vested during the three months ended March 31, 2022 and 2021 was $26 and $7, respectively.

As of March 31, 2022, total unrecognized stock-based compensation expense related to the option awards was $117 and is expected to be recognized over the remaining weighted-average service period of 3.69 years.
Restricted Stock Units 

The following table summarizes RSU activity during the three months ended March 31, 2022 :
16

RSU
Weighted
Average
Grant Date
Fair Value
Unvested balance as of December 31, 2021
15,384,809 $29.71 
Granted9,034,290 19.88 
Vested125,732 18.12 
Forfeited421,325 31.35 
Unvested balance as of March 31, 2022
23,872,042 $26.02 
The fair value of RSUs vested during the three months ended March 31, 2022 was $3. No RSUs vested during the three months ended March 31, 2021.
As of March 31, 2022, total unrecognized stock-based compensation expense related to the RSUs was $408 and is expected to be recognized over the remaining weighted-average service period of 3.71 years.

Restricted Stock

As of March 31, 2022 and December 31, 2021, 3,286,605 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 were subject to repurchase by us. As of March 31, 2022 and December 31, 2021, cash paid for unvested shares of $5 and $6, respectively, is included in “Other long-term liabilities” in the accompanying unaudited Consolidated Balance Sheets. During the three months ended March 31, 2022, 816,875 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:
March 31,
2022
December 31,
2021
Options to purchase Class A common stock and Class B common stock
59,652,319 58,917,018 
Restricted stock units
23,872,042 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
67,175,666 53,916,105 
Shares reserved for charitable donations
4,922,001