Item 7. 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 our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
The Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes principal factors affecting the results of our operations, financial condition and liquidity, as well as our critical accounting policies and estimates that require significant judgment and thus have the most significant potential impact on our Consolidated Financial Statements included elsewhere in this Form 10-K. Our MD&A is organized as follows:
•Overview. This section provides a general description of our business, recent developments, and key business metrics.
•Results of Operations. This section provides an overview and analysis of our financial results for the fiscal year ended December 31, 2025 compared to the fiscal year ended December 31, 2024. Discussions related to the fiscal year ended December 31, 2023 and year-over-year comparisons between the fiscal years ended December 31, 2024 and 2023 are included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 26, 2025, and incorporated herein by reference.
•Liquidity and Capital Resources. This section provides an analysis of our liquidity and changes in cash flows, as well as a discussion of available borrowings and contractual commitments.
•Critical Accounting Policies and Estimates. This section discusses accounting policies and estimates that require us to exercise subjective or complex judgments in their application. We believe these accounting policies and estimates are important to understanding the assumptions and judgments incorporated in our reported financial results.
OVERVIEW
Toast is a cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community. We provide a comprehensive platform of software-as-a-service, or SaaS, products and financial technology solutions, including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across service models including dine-in, takeout, delivery, catering, and retail.
We define a live location, or Location, as a unique location that has used Toast Point of Sale, or POS, to record transaction volumes above a minimum threshold, and has not been marked as a churned location as of the date of determination. A Location can use Toast payment services, which we refer to as a Toast Processing Location, or for select enterprise customers, not use Toast’s payment services, which we refer to as a Non-Toast Processing Location. Customers of legacy solutions provided by companies that we have acquired that do not use Toast POS, are not included in our Location count.
As of December 31, 2025, approximately 164,000 Locations, an increase of 22% year over year, processing approximately $195 billion of gross payment volume in the trailing 12 months, partnered with Toast to optimize operations, increase sales, engage guests, and maintain happy employees.
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Seasonality
We experience seasonality in our financial technology solutions revenue, which is largely driven by the level of Gross Payment Volume, or GPV, processed through our platform. For example, customers typically have greater sales during the warmer months, though this effect varies regionally, and can be impacted by seasonal needs of our customers (which may also impact the total number of Toast Processing Locations in such a period that contributes to our GPV). As a result, our financial technology solutions revenue per Toast Processing Location has historically been stronger in the second and third quarters. We believe that financial technology solutions revenue from both existing and potential future products will continue to represent a significant proportion of our overall revenue mix, and seasonality will continue to impact our results of operations.
Key Business Metrics
Year Ended December 31,
As of December 31,
Total Annualized Recurring Run-Rate (ARR) $ 2,047 $ 1,626 26 %
Gross Payment Volume (GPV)
Gross Payment Volume represents the sum of total dollars processed through the Toast payments platform across Toast Processing 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.
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 as the sum of (i) our monthly billings of subscription services fees, which we refer to as the subscription component of MRR, and (ii) our in-month adjusted payments services fees, exclusive of estimated transaction-based costs, which we refer to as the payments component of MRR. MRR does not include fees derived from Toast Capital or related costs. MRR is also not burdened by the impact of SaaS credits offered. The MRR calculation includes all locations on the Toast platform and locations on legacy solutions, which have a negligible impact on ARR.
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.
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Components of Results of Operations
Revenue
We principally generate revenue from: (1) subscription services, (2) financial technology solutions, and (3) hardware and professional services.
Subscription services. Consists primarily of fees charged to customers for access to our software applications, generally over a term ranging from 12 to 36 months. 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. 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.
Hardware and professional services. Consists of hardware revenue from the sale of terminals, tablets, handhelds, and related devices and accessories, net of estimated returns. Hardware and professional services revenue also includes fees charged to customers for professional services which includes installation services, including business process mapping, configuration, and training.
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 and acquired intangible assets.
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.
Research and development. Research and development expenses consist primarily of uncapitalized employee-related costs associated with improvements to our platform and the development of new product offerings, as well as allocated overhead and expenses associated with the use of third-party software directly related to development of our products and services.
General and administrative. General and administrative expenses consist primarily of expenses related to management and administrative functions, including finance, legal, human resources, and information technology. General and administrative expenses also include costs related to fees paid for certain professional services, including legal, information technology, and tax and accounting services, as well as bad debt and credit-related expenses.
Restructuring expenses. Restructuring expenses consist of personnel-related costs, including employee transition and severance payments, employee benefits, and related facilitation costs.
Other Income (Expenses)
Our other income (expenses) consist of the following:
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Interest income, net. Consists primarily of interest earned on our cash and cash equivalents and marketable securities.
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 common stock. The warrant liability is remeasured at fair value at each reporting date which could have a significant effect on other income (expense) and our results of operations during each period.
Other income, net. Primarily represents gains from warrant repurchases, foreign currency transaction gains and losses, and gains and losses from our marketable securities.
Income Tax Benefit (Expense)
Income tax benefit (expense). Consists of U.S. federal and state income tax as well as international taxes in various foreign jurisdictions. 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
The following section discusses the fiscal years ended December 31, 2025 and 2024 and provides a year-over-year comparison between fiscal years ended December 31, 2025 and 2024. Discussions related to the fiscal year ended December 31, 2023 and year-over-year comparisons between the fiscal years ended December 31, 2024 and 2023 are included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 26, 2025, and incorporated herein by reference.
Revenue
Year Ended December 31, Change
Hardware and professional services 180 201 (21) (10) %
The increase in subscription services revenue during the fiscal year ended December 31, 2025 was attributed to growth in Locations on the Toast platform and the continued increase in product adoption.
The increase in financial technology solutions revenue during the fiscal year ended December 31, 2025 was primarily attributable to the increase in Locations on the Toast platform.
Costs of Revenue
Year Ended December 31, Change
Hardware and professional services 400 371 29 8 %
Amortization of acquired intangible assets 5 5 — — %
The increase in subscription services costs during the fiscal year ended December 31, 2025 was primarily driven by a $22 million increase in amortization of capitalized software and a $15 million increase in employee-related costs.
The increase in financial technology solutions costs during the fiscal year ended December 31, 2025 was due to an increase in GPV.
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Operating Expenses
Sales and Marketing
Year Ended December 31, Change
The increase in sales and marketing expenses during the fiscal year ended December 31, 2025 was primarily driven by a $64 million increase in employee-related costs and a $24 million increase in marketing expenses.
Research and Development
Year Ended December 31, Change
The increase in research and development expenses during the fiscal year ended December 31, 2025 was primarily attributable to an increase in employee-related costs.
General and Administrative
Year Ended December 31, Change
The increase in general and administrative expenses during the fiscal year ended December 31, 2025 was primarily driven by an increase in bad debt expense.
Restructuring Expenses
Year Ended December 31, Change
Restructuring expenses $ 12 $ 46 $ (34) (74) %
The decrease in restructuring expenses during the fiscal year ended December 31, 2025 was driven by significant restructuring and restructuring-related expenses incurred during fiscal year ended December 31, 2024 as part of the February 2024 Restructuring Plan. See Note 11, “Restructuring Plan” of the Notes to the Consolidated Financial Statements for further information.
Interest Income, net
Year Ended December 31, Change
Interest income, net $ 51 $ 42 $ 9 14 %
Interest income, net, increased by $9 million during the fiscal year ended December 31, 2025 compared to the prior fiscal year, primarily driven by increased cash and cash equivalent and marketable securities balances.
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Change in Fair Value of Warrant Liability
Year Ended December 31, Change
Change in fair value of warrant liability $ 3 $ (49) $ 52 (106) %
The change in fair value of the warrant liability during the fiscal year ended December 31, 2025 was primarily driven by a decrease in our stock price, as the number of outstanding warrants remained unchanged during the period. The prior year balance included a reduction of outstanding warrants primarily due to a warrant repurchase of 5 million shares of Class B common stock in July 2024, or the Warrant Repurchase. See Note 3, “Financial Instruments” of the Notes to the Consolidated Financial Statements for further information.
Other income, net
Year Ended December 31, Change
Other income, net $ — $ 13 $ (13) (100) %
The gain recognized in other income, net, for the fiscal year ended December 31, 2024 was primarily attributable to the one-time extinguishment gain of the warrant liabilities in connection with the Warrant Repurchase in July 2024.
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Non-GAAP Financial Measures
We use certain non-GAAP financial measures described below to supplement our consolidated financial statements prepared and presented in accordance with GAAP and to understand and evaluate our core operating performance. 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.
Net Income (Loss) (GAAP) and Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA is defined as net income (loss), adjusted to exclude stock-based compensation expense and related payroll tax expense, depreciation and amortization expense, interest income, net, income taxes and certain other items that are not considered to reflect our operating activities and performance within the ordinary course of business, such as restructuring and restructuring-related expenses, acquisition expenses, fair value adjustments on warrant liabilities, expenses related to early termination of leases (which includes associated asset impairments) and stock-based charitable contribution expense, as applicable. We have provided below a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA.
We believe Adjusted EBITDA is useful for investors in comparing our financial performance to other companies and from period to period. 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 income to Adjusted EBITDA for each of the periods presented:
Year Ended December 31,
Stock-based compensation expense and related payroll tax 255 256
Depreciation and amortization 67 46
Interest income, net (51) (42)
Gain on warrant extinguishment — (14)
Change in fair value of warrant liability (3) 49
Termination of leases 1 5
Stock-based charitable contribution expense 6 5
Restructuring and restructuring related expenses(1) 12 46
Income tax expense 4 3
(1) Restructuring and restructuring-related expenses for the fiscal years ended December 31, 2025 and 2024 include $9 million and $32 million of severance benefits, $3 million and $12 million of stock-based compensation expense and $— million and $2 million of accelerated amortization related to facilities, respectively.
Subscription Services and Financial Technology Solutions Gross Profit (GAAP) and Non-GAAP Subscription Services and Financial Technology Solutions Gross Profit (Non-GAAP)
Non-GAAP Subscription Services and Financial Technology Solutions Gross Profit is defined as subscription services gross profit and financial technology solutions gross profit, adjusted to exclude stock-based compensation expense and related payroll tax expense, and depreciation and amortization expense. We believe this non-GAAP measure is useful to view the resulting figures excluding the aforementioned non-cash charges because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and such amounts vary substantially from company to company depending on their financing and capital structures and the method by which their assets were acquired. We have provided below a reconciliation of Subscription Services and Financial Technology Solutions Gross Profit, the most directly comparable GAAP financial measure, to Non-GAAP Subscription Services and Financial Technology Solutions Gross Profit.
Year Ended December 31,
Revenue:
Costs of Revenue:
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Year Ended December 31,
Stock-based compensation expense and related payroll tax 16 20 20
Depreciation and amortization 53 32 17
Net Cash Provided by Operating Activities (GAAP) and Free Cash Flow (Non-GAAP)
Free cash flow is defined as net cash provided by (used in) operating activities reduced by purchases of property and equipment and capitalization of internal-use software costs (referred to as capital expenditures). We believe that free cash flow is a meaningful indicator of our sources of liquidity and capital requirements that provides information to management and investors in evaluating the cash flow trends of our business. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.
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 net cash provided by operating activities to the free cash flow for each of the periods presented:
Year Ended December 31,
Net cash provided by operating activities $ 661 $ 360
Capital expenditures (53) (54)
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash and cash equivalents and marketable securities. We also have access to external sources of liquidity through a credit facility as further described below. The following tables present selected financial information related to our liquidity:
Year Ended December 31,
Cash and cash equivalents $ 1,353 $ 903
Cash and cash equivalents and marketable securities $ 1,991 $ 1,417
Available credit facility $ 347 $ 325
(1) Excludes $159 million of cash held on behalf of customers and $71 million of restricted cash.
(2) Excludes $123 million of cash held on behalf of customers and $59 million of restricted cash.
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Year Ended December 31,
Net cash provided by operating activities $ 661 $ 360
Net cash (used in) investing activities (172) (39)
Net cash provided by financing activities 7 18
Cash, Cash Equivalents and Marketable Securities
The net increase in cash, cash equivalents and marketable securities was primarily due to increases from cash provided by operating activities from the fiscal year ended December 31, 2025 compared to the previous year. During the fiscal year ended December 31, 2025, the increase in net cash provided by operating activities as compared to the fiscal year ended December 31, 2024, was primarily driven by net income of $342 million during the fiscal year ended December 31, 2025 as compared to a net income of $19 million during the same period last year. This increase was partially offset by a higher use of cash for working capital primarily driven by increases in accrued expenses and other current liabilities due to the timing of payments.
The increase in net cash used in investing activities during the fiscal year ended December 31, 2025, as compared to the fiscal year ended December 31, 2024, was primarily driven by net cash outflows from marketable securities as compared to net cash inflows from marketable securities during last year. The decrease in net cash provided by financing activities during the fiscal year ended December 31, 2025, as compared to the same period last year, was primarily driven by cash outflows related share repurchases and payments of debt issuance costs, partially offset by cash inflows from the proceeds from the issuance of common stock.
Debt
During 2021 we entered into a senior secured credit facility, or the 2021 Facility, which we subsequently amended on March 2, 2023 to replace the London Interbank Offered Rate, or LIBOR, with the Secured Overnight Financing Rate, or SOFR. On May 6, 2025, we amended and restated our 2021 Facility to increase the available revolving commitments from $330 million to $350 million and to extend the term of the 2021 Facility to May 6, 2030. We were in compliance with all financial covenants as of December 31, 2025. As of December 31, 2025, there were no borrowings outstanding on the 2021 Facility and outstanding letters of credit totaled $3 million. As of December 31, 2025, our total available borrowing capacity under the 2021 Facility was $347 million. See Note 6, "Debt" of the Notes to the Consolidated Financial Statements for further information.
Share Repurchase Program
In February 2024, we announced the authorization of a share repurchase program for the repurchase of shares of our Class A common stock, in an aggregate amount of up to $250 million. In February 2026, our board of directors authorized an increase of $500 million to our share repurchase program. The repurchase program has no expiration date, does not obligate us to acquire any particular amount of our Class A common stock, and it may be suspended at any time at our discretion. The timing and actual number of shares repurchased may depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. See Note 17, “Subsequent Events (unaudited)" of the Notes to the Consolidated Financial Statements for further information.
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Dilution
We calculate our fully diluted share count on an unweighted basis taking our total outstanding share count in addition to unexercised stock options, unvested restricted stock, shares reserved for charitable donations and other securities that can be converted to common stock, such as our warrants to purchase common stock. As of December 31, 2025 our fully diluted share count was as follows:
(shares in millions)
Class A and B common stock issued and outstanding 589
Options to purchase Class A common stock and Class B common stock 21
Unvested restricted stock units 15
Warrants to purchase Class B common stock 1
Shares reserved for charitable donations 3
Total fully diluted share count 629
(1) Share amounts presented above do not give effect to potential repurchases of common stock under the treasury stock method.
For further information see Note 3, “Financial Instruments", Note 8, “Common Stock", and Note 9, “Stock-Based Compensation" of the Notes to the Consolidated Financial Statements for further information.
Other Capital Requirements
Recent and expected material cash and other capital requirements, in addition to the above also include the following:
•As of December 31, 2025, our non-cancellable purchase obligations to hardware suppliers totaled $106 million, all of which is due within the next 12 months.
•As of December 31, 2025, our non-cancellable contractual commitments with our cloud service providers and other vendors totaled $157 million of which $90 million is due within the next 12 months and $67 million thereafter.
In addition to the above material cash requirements, we also recognize liabilities associated with financial guarantees related to loan purchase activities. Such activities are further described within Note 2, "Summary of Significant Accounting Policies" and Note 15, "Commitments and Contingencies" of the Notes to the Consolidated Financial Statements for further information.
We expect continued utilization of our available cash resources to support our ongoing business operations. To the extent applicable, material changes in the mix and relative cost of such resources, or changes considered necessary to understand our liquidity and financial condition, may also be reflected in our discussion on the results of operations, disclosed within “Results of Operations” under Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations” within this Annual Report on Form 10-K.
We believe that our existing cash and cash equivalents, along with our available borrowing capacity under our credit 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 Part I, Item 1A, "Risk Factors” in this Annual Report on Form 10-K.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. By their nature, estimates are inherently subject to a degree of uncertainty. Although we believe that our estimates and the assumptions supporting our assessments are reasonable, actual results could differ materially from our estimates and assumptions. 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.
We believe that the critical accounting estimates summarized below involve a greater degree of judgment and complexity. Accordingly, these are the estimates and policies we believe are the most critical in fully understanding and evaluating our financial condition and results of operations. For further information on our critical accounting estimates and policies summarized below, refer to Note 2, "Summary of Significant Accounting Policies" included in this Annual Report on Form 10-K in the Notes to Consolidated Financial Statements. If the impact of changes in our critical accounting estimates are material or considered necessary to understand our results of operations for the periods presented, then such information is disclosed within this Annual Report on Form 10-K in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Revenue Recognition
We recognize transaction fees for payment processing on a gross basis. Determining whether to recognize revenue on a gross or net basis requires judgment in evaluating whether we are the principal or agent in contracts with customers. We have concluded that we are the principal in providing a managed payment solution. Substantially all of our financial technology solutions revenue relates to our managed payment solution.
Our contracts often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately as opposed to being combined may require judgment.
Recent Accounting Pronouncements
Refer to the sections titled “Recent Accounting Pronouncements” in Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K for more information.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have operations in North America, Europe and Asia, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign currency exchange risks.
Interest Rate Sensitivity
We are exposed to interest rate risk related primarily to our investment portfolio. Changes in interest rates affect the interest earned on our cash and cash equivalents and marketable securities, and the fair value of those securities. We had cash and cash equivalents of $1,353 million and marketable securities of $638 million as of December 31, 2025. Our cash and cash equivalents are held primarily in cash deposits and money market funds, and the securities are considered investment-grade debt securities and classified as available-for-sale. The securities are recorded at fair value in the Consolidated Balance Sheets with unrealized gains or losses, net of tax, reported as a separate component of stockholders’ equity within accumulated other comprehensive loss. The primary objective of our investment activities is to preserve capital and meet liquidity requirements without significantly increasing risk. We do not enter into investments for speculative purposes.
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Based on our investment portfolio balance as of December 31, 2025, a hypothetical 100 basis point increase or decrease in interest rates would not have materially affected our financial position. We do not expect that any change in prevailing interest rates will have a material impact on our results of operations.
Foreign Currency Risk
Most of our sales and operating expenses are denominated in U.S. dollars, and therefore, neither our revenue nor operating expenses are currently subject to significant foreign currency risk. A portion of our operating expenses are denominated in Euros, Canadian dollars, Indian rupees and other currencies and may be subject to fluctuations due to changes in foreign currency exchange rates and result in transaction gains and losses that we may need to recognize in our results of operations. To date, foreign currency transaction gains and losses have not been material to our results of operations, and we have not engaged in any foreign currency hedging transactions.
Credit Risk
We are exposed to credit risk on accounts receivable and our loan servicing activities. This risk is mitigated due to our diverse customer base, dispersed over various geographic regions. During the fiscal years ended December 31, 2025, 2024, and 2023, we had no customers individually that accounted for more than 10% of our total revenue. No customers individually accounted for more than 10% of our total receivables at December 31, 2025 and 2024. We maintain provisions for potential credit losses and evaluate on an ongoing basis the solvency of our customers and the impact of current and future conditions to determine if additional allowances for credit losses need to be recorded.
Inflation Risk
Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the lack of precise estimates, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you our business will not be affected in the future by inflation.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Reports of Independent Registered Public Accounting Firm 80
Consolidated Financial Statements
Consolidated Balance Sheets 83
Consolidated Statements of Operations 84
Consolidated Statements of Comprehensive Income (Loss) 85
Consolidated Statements of Stockholders’ Equity 86
Consolidated Statements of Cash Flows 87
Notes to Consolidated Financial Statements 89
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Toast, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Toast, Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 18, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
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Valuation of Toast Capital Contingent Liability for Expected Credit Losses
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Boston, Massachusetts
February 18, 2026
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Toast, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Toast Inc.’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Toast, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2025 and the related notes and our report dated February 18, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 18, 2026
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TOAST, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except for number of shares and par value)
December 31,
Assets:
Current Assets:
Cash and cash equivalents $ 1,353 $ 903
Accounts receivable, net 127 115
Property and equipment, net 105 98
Operating lease right-of-use assets 27 25
Intangible assets, net 14 20
Restricted cash 71 59
Other non-current assets 146 118
Total non-current assets 476 433
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 47 $ 37
Deferred revenue 68 59
Accrued expenses and other current liabilities 854 715
Total current liabilities 969 811
Warrants to purchase common stock 19 22
Operating lease liabilities, non-current 20 24
Other long-term liabilities 13 6
Commitments & Contingencies (Note 15)
Stockholders’ Equity:
Accumulated other comprehensive income (loss) 2 (1)
Total liabilities and stockholders’ equity $ 3,145 $ 2,408
The accompanying notes are an integral part of these consolidated financial statements.
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TOAST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Year Ended December 31,
Revenue:
Hardware and professional services 180 201 176
Costs of revenue:
Hardware and professional services 400 371 357
Amortization of acquired intangible assets 5 5 5
Operating expenses:
Restructuring expenses 12 46 —
Income (loss) from operations 292 16 (287)
Other income (expenses):
Change in fair value of warrant liability 3 (49) 3
Other income, net — 13 3
Income (loss) before income taxes 346 22 (244)
Income tax (expense) benefit (4) (3) (2)
Net income (loss) per share attributable to common stockholders:
Weighted-average shares used in computing net income (loss) per share:
The accompanying notes are an integral part of these consolidated financial statements.
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TOAST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
Year Ended December 31,
Other comprehensive income (loss):
Currency translation adjustments 3 (2) —
Total other comprehensive income (loss) 3 (1) 2
Comprehensive income (loss) $ 345 $ 18 $ (244)
The accompanying notes are an integral part of these consolidated financial statements.
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TOAST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
Shares Amount Shares Amount
Issuance of common stock under equity plans — — 19 — 38 — — 38
Stock-based compensation — — — 290 — — 290
Issuance of common stock in connection with business combination — — — 1 — — 1
Other comprehensive income, net of tax — — — — — 2 2
Issuance of common stock under equity plans — — 30 — 100 — — 100
Stock-based compensation — — — 267 — — 267
Share repurchases — — (2) — (56) — — (56)
Other comprehensive loss, net of tax — — — — — (1) (1)
Net Income — — — — 19 — 19
Issuance of common stock under equity plans — — 20 — 81 — — 81
Stock-based compensation — — — — 254 — — 254
Share repurchases — — (3) — (107) — — (107)
Other comprehensive income, net of tax — — — — — — 3 3
The accompanying notes are an integral part of these consolidated financial statements.
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TOAST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
Cash flows from operating activities:
Depreciation and amortization 64 46 32
Amortization of deferred contract acquisition costs 99 82 62
Change in fair value of warrant liability (3) 49 (3)
Stock-based charitable contribution expense 6 5 10
Asset impairments 3 5 15
Gain on warrant extinguishment — (14) —
Other non-cash items 8 (7) (17)
Changes in operating assets and liabilities:
Accounts receivable, net (33) (72) (3)
Other current assets (52) (15) (12)
Deferred contract acquisition costs (147) (130) (107)
Inventories, net 4 — (7)
Accounts payable 11 5 1
Accrued expenses and other current liabilities 21 48 81
Deferred revenue 6 23 (5)
Other assets and liabilities 5 (3) (8)
Net cash provided by operating activities 661 360 135
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired — — (9)
Capital expenditures (53) (54) (42)
Purchases of marketable securities (633) (473) (623)
Proceeds from the sale of marketable securities 178 126 35
Maturities of marketable securities 336 362 556
Other investing activities — — (3)
Net cash (used in) investing activities (172) (39) (86)
Cash flows from financing activities:
Payments of issuance costs of the revolving credit facility (3) — —
Proceeds from issuance of common stock 81 99 36
Change in customer funds obligations, net 36 36 27
Warrant repurchase — (61) —
Repurchases of Class A common stock (107) (56) —
Net cash provided by financing activities 7 18 63
Cash held on behalf of customers 159 123 87
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Supplemental disclosure of non-cash investing and financing activities:
Stock-based compensation included in capitalized software $ 12 $ 14 $ 13
Cash paid for amounts included in the measurement of lease liabilities 15 14 14
Issuance of common stock upon exercise of common stock warrants — 17 1
The accompanying notes are an integral part of these consolidated financial statements.
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TOAST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Toast Inc. ("Toast", "we," or the “Company”), is a cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community. We provide a comprehensive platform of software-as-a-service, or SaaS, products and financial technology solutions, including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across service models including dine-in, takeout, delivery, catering, and retail.
Basis of Presentation
The accompanying 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. The consolidated financial statements include the accounts of our Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Risks and Uncertainties
We are subject to a number of risks and uncertainties, including geopolitical events, presidential elections and transitions, natural disasters, public health concerns or epidemics, and macroeconomic conditions, such as changes in inflation and interest rates, which may also impact consumer behavior, the industries we serve, and our business.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that can affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from estimates.
Estimates, judgments, and assumptions in these consolidated financial statements include, but are not limited to, those related to revenue recognition, fair values and useful lives of assets acquired and liabilities assumed through business combinations, stock-based compensation expense, fair value measurements of warrants, the allowance for credit losses, liabilities associated with financial guarantees related to loan purchase activities, incremental borrowing rates applied in valuation of lease liabilities, accounting for income taxes, as well as the amortization period for deferred contract acquisition costs.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under U.S. GAAP. These include cash and cash equivalents, marketable securities, and warrants to purchase common stock. We also measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities primarily include assets acquired and liabilities assumed in business combinations and liabilities related to our obligation to perform under certain financial guarantees (See Note 2, "Summary of Significant Accounting Policies", "Assets and Liabilities Recorded with Loan Servicing Activities"). Impairments, if any, of property and equipment and/or intangible assets, are written down to fair value measured at such time on a nonrecurring basis. Other financial assets and liabilities are carried at cost with fair value disclosed, if required. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
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•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The fair value of our marketable securities is determined based on quoted market prices of similar assets and classified as Level 2 within the fair value hierarchy. (See Note 3, “Financial Instruments”). The carrying values of accounts receivable, accounts payable, and accrued expenses approximate their fair values due to their short-term nature.
Concentration of Credit Risk and Significant Customers
Financial instruments that subject us to significant concentrations of credit risk primarily consist of cash deposits and cash equivalents, marketable securities, and accounts receivable. We maintain a large portion of our cash deposits and cash equivalents primarily with one financial institution, which, at times, may exceed federally insured limits. We have not incurred any losses associated with this concentration of deposits. Our investment policy provides guidelines and limits regarding investment type, concentration, credit quality, and maturity aimed at maintaining sufficient liquidity to satisfy operating and working capital requirements along with strategic initiatives, preserving capital, and minimizing risk of capital loss while generating returns on our investments.
Accounts receivable are typically unsecured. We regularly monitor the creditworthiness of our customers and believe that we have adequately provided for exposure to potential credit losses. During the fiscal years ended December 31, 2025, 2024, and 2023, we had no customers that individually accounted for more than 10% of our total revenue and no customers that individually accounted for more than 10% of our total accounts receivable as of December 31, 2025 or 2024.
Segment Information
Our operations constitute a single operating and reportable segment. Operating segments are defined as components of an enterprise for which discrete financial information is available and is evaluated regularly by the chief operating decision maker, or CODM, in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer who reviews financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance.
Revenue Recognition
We principally generate revenues from: (1) subscription services from our SaaS products, (2) financial technology solutions, including loan servicing activities, and (3) hardware and professional services.
Determining whether products and services are considered distinct performance obligations that should be accounted for separately as opposed to being combined requires judgment. We allocate total arrangement consideration at the inception of an arrangement to each performance obligation using the relative selling price allocation method based on each distinct performance obligation’s standalone selling price, or SSP. We allocate variable fees earned from financial technology services revenue to those distinct performance obligations where pricing practices are consistent with the allocation objective.
We measure revenues based on the amount of consideration we expect to receive in exchange for our products and/or services. Customer credits represent variable consideration which is estimated based on historical experience and accounted for as a reduction to the transaction price. We record reductions to revenues for our estimates of customer credits and an increase to liabilities in the period that the related revenue is earned. Sales taxes collected from customers and remitted to government authorities are excluded from revenue and deferred revenue.
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Subscription Services
Subscription services revenue is generated from fees charged to customers for access to our software applications. 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. The performance obligation is satisfied ratably over the contract period as the service is provided, commencing when the subscription service is made available to the customer. Our contracts with customers are generally for a term ranging from 12 to 36 months.
Financial Technology Solutions
Financial technology solutions revenue includes transaction-based payment processing services for customers who are charged a transaction fee for payment-processing. This transaction fee is generally calculated as a percentage of the total transaction amount processed plus a fixed per-transaction fee, which is earned as transactions are authorized and submitted for processing. We incur costs of interchange and network assessment fees, processing fees, and bank settlement fees to the third-party payment processors and financial institutions involved in settlement, which are recorded as costs of revenues. We satisfy our payment processing performance obligations and recognize the transaction fees as revenue upon authorization by the issuing bank and submission for processing. The transaction fees collected are recognized as revenue on a gross basis as we are the principal in the delivery of the managed payments solutions to the customers.
We have concluded that we are the principal in this performance obligation to provide a managed payment solution because we control the payment processing services before the customer receives them, perform authorization and fraud check procedures prior to submitting transactions for processing in the payment network, have sole discretion over which third-party acquiring payment processors we will use and are generally ultimately responsible to the customers for amounts owed if those acquiring payment processors do not fulfill their obligations. We generally have full discretion in setting prices charged to the customers. Additionally, we are obligated to comply with certain payment card network operating rules and contractual obligations under the terms of our registration as a payment facilitator and as a master merchant under our third-party acquiring payment processor agreements, which make us liable for the costs of processing the transactions for our customers and chargebacks and other financial losses if such amounts cannot be recovered from the customer.
Financial technology solutions revenue is recorded net of refunds and reversals initiated by the customer and is recognized upon authorization by the issuing bank and submission for processing.
Financial technology solutions revenue also includes fees earned from marketing and servicing loans to customers through our wholly-owned subsidiary, Toast Capital, that are originated by a third-party banking partner. 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 to our bank partner until the loan is repaid. Toast Capital earns fees for the underwriting and marketing of loans, which are recognized upon origination of the loan, and loan servicing fees, based on a percentage of each outstanding loan, which are recognized as servicing revenue as the servicing is delivered in accordance with ASC 860, Transfers and Servicing. Servicing revenue is adjusted for the amortization of servicing rights carried at amortized cost, included within other current assets. The marketing and facilitation fees earned upon execution of these loan agreements with its customers are recognized as revenue on a gross basis.
Hardware and Professional Services
Hardware revenue is generated from the sale of terminals, tablets, handhelds, and related devices and accessories, net of estimated returns. We invoice end-user customers upon shipment of the products. Revenue for hardware sales is recognized at the point in time when the transfer of control occurs, which is upon product shipment. We accept returns for hardware sales and estimate returns as a reduction to the transaction price, at the time of the sale based on historical returns data and experience.
Professional services revenue is generated from fees charged to customers for installation services, including business process mapping, configuration, and training. The duration of providing professional services to the customer is relatively short and completed in a matter of days. The performance obligation for professional services is considered to be satisfied upon the completion of the installation.
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Cash, Cash Equivalents, Cash Held on Behalf of Customers and Restricted Cash
We define cash and cash equivalents as cash deposits, money market funds, and highly liquid investments with original maturities of 90 days or less at the time of purchase that are readily convertible to known amounts of cash.
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 other current assets, and the corresponding customer funds obligation is included within accrued expenses and other current liabilities on our Consolidated Balance Sheets.
Restricted cash represents cash held with commercial lending institutions. The restrictions are related to cash held as collateral pursuant to an agreement with the originating third-party bank for the working capital loans serviced by Toast Capital (See Note 4, "Loan Servicing Activities and Acquired Loans Receivable, Net").
Marketable Securities
Our marketable securities are classified as available-for-sale. We classify our marketable securities as current assets, including those with maturities greater than 12 months, as they are available for use in current operations or to satisfy other liquidity requirements.
Marketable securities are carried at fair value, and we report unrealized gains and losses as a component of accumulated other comprehensive income (loss), net of tax, until the security is sold or matures, except for changes in the allowance for expected credit losses, which are recorded in our results of operations. Gains or losses realized from sales of marketable securities are computed based on the specific identification method and recognized as a component of other income, net in the accompanying Consolidated Statements of Operations.
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. Credit losses are recognized up to the amount equal to the difference between the fair value and the amortized cost basis and recorded as an allowance for credit losses in the Consolidated Balance Sheets with a corresponding adjustment to earnings. Unrealized losses that are not related to credit losses are recognized in accumulated other comprehensive income (loss).
Accounts Receivable, net
Accounts receivable, net consists of trade accounts receivable and unbilled receivables (which we collectively refer to as accounts receivable), net of an allowance for credit losses. Unbilled receivables represent revenue recognized on a contract in excess of billings.
We record an allowance for expected credit losses for accounts receivable upon the initial recognition of an accounts receivable balance in accordance with ASC 326, Financial Instruments - Credit Losses, or ASC 326. The allowance for credit losses represents the best estimate of lifetime expected credit losses, based on customer-specific information, historical loss rates and the impact of current and future conditions, including an assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. Accounts receivable balances are written off against the allowance for credit losses when we determine that the balances are not recoverable. Provisions for the allowance for expected credit losses are recorded in general and administrative expenses in the Consolidated Statements of Operations. We evaluate the allowance for credit losses for the entire portfolio of accounts receivable on an aggregate basis due to similar risk characteristics of our customers based on similar industry and historical loss patterns.
Inventory
Inventory, which consists of tablets, printers, and networking equipment, are stated at the lower of cost or net realizable value and are accounted for using the average cost method. Substantially all inventory consists of finished goods. We evaluate ending inventory for estimated excess and obsolete inventory based primarily on
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historical sales levels by product and projections of future demand, as well as the impact of changing product design and technology. We recognize outbound freight, handling costs, and damaged inventory as current-period costs.
Assets and Liabilities Recorded with Loan Servicing Activities
We perform loan servicing activities through the Toast Capital loan program, where we partner with an industrial bank to provide working capital loans to qualified Toast customers based on the customer’s current payment processing and point of sale data. Under the program, our bank partner originates the loans and we market and service the loans and facilitate the loan application and origination process. These loans provide eligible customers with access to financing up to $300 thousand dollars, and loan repayment occurs automatically through a fixed percentage of every payment transaction processed on Toast’s platform.
Under the terms of our agreement with our industrial bank partner, we are obligated to purchase certain loans originated by our industrial banking partner in cases where the customer’s payments on the loan are missing or delayed for a defined period of time, and the loan is considered defaulted or delinquent (ineligible).Our obligation is limited to a specified percentage of the total loans originated, measured on a quarterly basis. The loan purchase, net of expected recoveries, reduces our potential liability with respect to the quarterly cohort of loans from which the ineligible loan originated. Refer to Note 2, "Summary of Significant Accounting Policies", "Acquired Loans Receivable, Net" for information on our accounting for purchased loans.
This obligation represents a financial guarantee with two aspects: a contingent liability accounted for under ASC 326 related to our contingent obligation to purchase ineligible loans, and a non-contingent liability accounted for under ASC 460, Guarantees, or ASC 460,related to our obligation to stand-ready to perform under the obligation, both of which are included in accrued expenses and other current liabilities in the Consolidated Balance Sheets. We measure a contingent liability for expected credit losses which is based on historical lifetime loss data, as well as macroeconomic forecasts, as applicable, applied to the loan portfolio. Probability of default curves are generated using historical default data for portfolios of guaranteed loans with similar risk characteristics. Loss severity estimates are generated using historical collections data for the loans purchased by us. Additionally, we may apply macroeconomic factors, such as forecasted trends in unemployment rates, which are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period. Projected loss rates, inclusive of historical loss data and macroeconomic factors, as applicable, are applied to the outstanding principal amounts of the guaranteed loans. We may also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of its current expected credit losses. The expected term of the loans guaranteed by us typically range from 90 to 360 days, and the reasonable and supportable forecast period reflects the expected period over which loans repay or become ineligible through delinquency or default, which varies based on loan term.
Contingent liabilities for expected credit losses are recorded as loans are originated, along with a corresponding non-cash charge recorded within general and administrative expense in the Consolidated Statements of Operations. We remeasure contingent liabilities each reporting period and reverse the liability upon loan purchase or upon the expiration of the obligation. We record a non-contingent liability at fair value as loans are originated, with a corresponding charge recorded within general and administrative expense in the accompanying Consolidated Statements of Operations. Subsequently, the liability is amortized on a straight-line basis over the average expected obligation term, which ranges from 90 to 360 days, and derecognized upon loan purchase. Fair value of a non-contingent liability is measured based on a discounted cash flow model under the income approach which reflects various inputs and assumptions, including the probability and amount of payments to be made under the guarantee based on probabilities of loan defaults and delinquency, as well as associated losses, and a discount rate reflecting our credit risk as the guarantor. The fair value measurement of the non-contingent liability is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.
Please refer to Note 4, “Loan Servicing Activities and Acquired Loans Receivable, Net” for additional information on the liabilities related to the financial guarantees.
Acquired Loans Receivable, net
We are obligated to purchase delinquent loans from our industrial bank partner. Such purchases, net of expected recoveries, are recorded as a reduction of contingent liabilities with respect to the quarterly cohort of
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loans from which the defaulted loan originated. We account for purchased loans in accordance with the guidance for purchased credit deteriorated, or PCD, assets as the loans experienced credit quality deterioration between their origination and purchase, and write off their unpaid principal balance at the time of purchase as collectability is not probable. However, when we have an expectation of collecting cash flows, a negative allowance is established for purchased loans based on our historical experience of expected recoveries across our portfolio.
Deferred Contract Acquisition Costs
Based on ASC 340-40, Other Assets and Deferred Costs, we capitalize and amortize incremental costs of obtaining a contract, such as sales commissions and related payroll taxes, over the period we expect to derive benefits from the contract. The period of benefit for commissions paid for the acquisition of initial subscription services is determined by taking into consideration the initial estimated customer life and the technological life of our subscription services platform and related significant features. We adjust the carrying value of the deferred commissions assets periodically to account for customer churn, which occurs when customers have ceased operations or otherwise discontinued using our subscription services and financial technology solutions. Amortization expense is included in sales and marketing expenses in the Consolidated Statements of Operations.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation, and are depreciated using the straight-line method over their estimated lives, as follows:
Property and Equipment Estimated Useful Life
Computer and other equipment 3 years
Office furniture and fixtures 3 years
Tooling and equipment 3 - 7 years
Capitalized software 3 years
Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining terms of the respective leases. Repair and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment.
We account for our internal use software and website development costs in accordance with the guidance in ASC 350-40, Internal-Use Software. The costs incurred prior to the application development stage and post implementation are expensed as incurred. Direct and incremental internal and external costs incurred during the application development stage are capitalized until the application is substantially complete and ready for its intended use, at which point amortization begins. Training and data conversion costs are expensed as incurred.
Operating Leases
We determine if an arrangement is or contains a lease at contract inception. Lease agreements generally contain lease and non-lease components, which we elect to combine for all asset classes as a single lease component. Payments under lease arrangements are primarily fixed. Variable payments typically represent non-lease components, which consist primarily of payments for maintenance, utilities, and management fees. Variable payments included in lease arrangements are expensed as incurred and excluded from the right-of-use assets and lease liabilities.
Right-of-use assets and lease liabilities for operating leases are initially measured on the lease commencement date based on a present value of lease payments over the lease term, net of any lease incentives received by the lessor. Lease payments are discounted to present value using our estimated incremental borrowing rate, because a readily determinable implicit rate is not available. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.
The lease term includes the non-cancelable term, unless it is reasonably certain that a renewal or termination option will be exercised.
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We do not record right-of-use assets and lease liabilities for leases with an initial term of 12 months or less and recognize lease expense on a straight-line basis over the lease term.
Business Combinations and Goodwill
We account for business combinations using the acquisition method of accounting in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values on the acquisition date. The fair value of the consideration transferred in a business combination, including any contingent consideration, is allocated to the assets acquired and liabilities assumed based on their respective fair values. The excess of the consideration transferred over the fair values of the assets acquired and the liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date or upon a final determination of asset and liability fair values, whichever occurs first, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Any subsequent adjustments are recorded on the Consolidated Statements of Operations.
Goodwill represents the excess of purchase price over the fair value of net tangible and identifiable intangible assets of the businesses acquired by us. We have one reporting unit and test goodwill for impairment at least annually in the fourth quarter or more frequently if indicators of potential impairment exist. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized for the excess of the carrying value of the reporting unit over its fair value. There were no goodwill impairment losses recognized during the fiscal years ended December 31, 2025, 2024, and 2023. Based on our quantitative goodwill impairment test, the reporting unit’s fair value significantly exceeded its carrying value at December 31, 2025.
During the quarter ended on December 31, 2025, we voluntarily changed the date of our annual goodwill impairment test from December 31 to October 1. We believe the change in goodwill impairment date does not result in a material change in the method of applying the accounting principle. This change provides us with additional time to complete the annual goodwill impairment testing in advance of year-end reporting. The change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change has been applied prospectively as retrospective application is deemed impracticable due to the inability to objectively determine the assumptions and significant estimates used in earlier periods without the benefit of hindsight.
Intangible Assets and Impairment of Long-lived Assets
Intangible assets primarily consist of finite-lived acquired technology and customer relationships. Finite-lived intangible assets are valued based on estimated future cash flows and amortized on a straight-line basis over their estimated useful lives. We evaluate the remaining estimated useful life of our intangible assets on an ongoing basis to determine whether events and circumstances warrant a revision to the remaining amortization period.
Acquired technology and customer relationships amortization is recorded within costs of revenue and sales and marketing expenses, respectively, within the Consolidated Statements of Operations.
The estimated useful lives for acquired technology and customer relationship intangible assets are as follows:
Estimated Useful Life
Acquired technology 3 - 10 years
Customer acquired intangible assets 5 - 6 years
We evaluate the recoverability of property and equipment and finite lived intangible assets for impairment whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable. For purposes of this assessment, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability is measured by comparing the carrying amount of an asset group to the estimated future undiscounted future net cash flows expected to be generated from their use and eventual disposal. If the carrying amount is not recoverable, the carrying amount is reduced to fair value and impairment loss is
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recognized. See Note 7, "Other Balance Sheet Information" for additional information related to property and equipment impairments.
Deferred Revenue
Deferred revenue represents our obligation to transfer products or services to customers for which consideration has been received and consists of amounts deferred from subscription services contracts, professional service engagements, and customer deposits received in advance. Amounts deferred under subscription service contracts are recognized ratably over the respective term of the customer contract.
Costs of Revenue
Costs of revenue primarily consists of costs associated with payment processing, personnel, and related infrastructure for operation of our cloud-based platform, data center operations, customer support, loan servicing and allocated overhead. Hardware costs consist of all product and shipping costs associated with tablets, printers, and other peripherals. Employee-related costs consist of salaries, benefits, bonuses, and stock-based compensation expense. Overhead consists of certain facilities costs, depreciation expense, and amortization costs associated with internally developed software and acquired intangible assets.
Payment processing costs include interchange fees, network assessment fees and fees paid to the acquiring payment processors.
Stock-Based Compensation Expense
We grant equity awards, including stock options which vest upon the satisfaction of service conditions and restricted stock units, or RSUs, which vest upon the satisfaction of service and/or performance conditions. We account for stock-based compensation expense related to equity awards in accordance with ASC 718, Compensation—Stock Compensation. Stock-based awards are measured at fair value on the grant date and compensation cost is recognized over the requisite service period, net of estimated forfeitures. We estimate a forfeiture rate to calculate the stock-based compensation expense for all awards based on an analysis of actual historical experience and expected employee attrition rates.
Compensation cost is recognized on a straight-line basis for stock-options, RSUs, and our 2021 Employee Stock Purchase Plan, or ESPP, and on an accelerated attribution basis for awards with a performance condition for each separately vesting portion of the award over the applicable vesting period and only if performance-based conditions are considered probable to be satisfied.
We use the Black-Scholes option-pricing model to determine the estimated fair value of stock option and ESPP awards based on the date of the grant. We estimate the following assumptions used in the option pricing model:
•Expected Volatility—We estimate the expected volatility of our Class A common stock based upon the weighted-average historical stock price volatility of our Class A Common stock and the average historical volatility of comparable publicly traded companies in our industry group over a period commensurate with the options' expected term.
•Expected Term—The expected term of our stock options represents the period that the stock-based awards are expected to be outstanding. We do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. As such, we estimate the expected term of the options based on the simplified method determined based on the midpoint of the stock options vesting term and contractual expiration period.
•Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve published as of the grant date, with maturities approximating the expected term of the options granted.
•Dividend Yield—We have not declared or paid dividends to date and do not anticipate declaring dividends. As such, the expected dividend is zero.
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Advertising Costs
We expense advertising costs as incurred. Advertising expense for the fiscal years ended December 31, 2025, 2024, and 2023, was $54 million, $43 million, and $29 million, respectively, and is included in sales and marketing expense in the accompanying Consolidated Statements of Operations.
Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We account for uncertain tax positions recognized in the consolidated financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interest and penalties, if applicable, related to uncertain tax positions would be recognized as a component of income tax expense.
Net Income (Loss) Per Share Attributable to Common Stockholders
Our Class A common stock and Class B common stock share proportionately, on a per share basis, in our net income (losses) and participate equally in the dividends on common stock, if declared. We allocate net income and losses attributable to common stock between the common stock classes on a one-to-one basis when computing net income (loss) per share attributable to common stockholders. As a result, basic and diluted net income (loss) per share of Class A common stock and Class B common stock are equivalent.
We compute net income (loss) per common share based on the two-class method required for multiple classes of common stock and participating securities. The two-class method requires income (loss) available to common stockholders for the period to be allocated between multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income (loss) for the period had been distributed.
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of our Class A and Class B common stock outstanding, adjusted for outstanding shares that are subject to repurchase and Class A restricted common stock. Diluted income (loss) per common share gives effect to all potentially dilutive securities which are excluded from the computation if the effect is antidilutive.
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Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires enhancement and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on either a prospective or retrospective basis, with early adoption permitted. The Company adopted ASU 2023-09 for the fiscal year ended December 31, 2025 on a prospective basis. See Note 12, “Income Taxes” for additional information.
Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure of disaggregated information about specific categories underlying certain income statement expense line items in the footnotes to the financial statements for both annual and interim periods. This ASU is effective for fiscal year beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard.
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which provides targeted improvements to the accounting for internal-use software costs by replacing the existing project-stage model with a principles-based approach to determine when capitalization of costs should begin. This ASU is effective for all entities for annual reporting periods beginning after December 15, 2027 on a prospective basis, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard.
3. Financial Instruments
The following table presents information about our financial assets and liabilities that were measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values (in millions):
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 951 $ — $ — $ 951
Commercial paper — 96 — 96
Certificates of deposit — 23 — 23
U.S. government agency securities — 7 — 7
Asset-backed securities — 142 — 142
Liabilities:
Warrants to purchase common stock $ — $ — $ 19 $ 19
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Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 671 $ — $ — $ 671
Commercial paper — 24 — 24
Certificates of deposit — 3 — 3
U.S. government agency securities — 7 — 7
Asset-backed securities — 147 — 147
Liabilities:
Warrants to purchase common stock $ — $ — $ 22 $ 22
During the fiscal years ended December 31, 2025 and 2024, there were no transfers amongst Level 1, Level 2 and Level 3.
We did not recognize any credit losses or non-credit-related impairments related to our available-for-sale marketable debt securities for the years ended December 31, 2025, 2024, and 2023. All unrealized losses were immaterial and recognized in other comprehensive income (loss).
The following table is an analysis of our debt securities in unrealized loss positions (in millions):
Fair Value Unrealized Losses Fair Value Unrealized Losses
Commercial paper $ 20 $ — $ 13 $ —
Corporate bonds 47 — 33 —
U.S. government agency securities — — 7 —
Treasury bonds — — 102 —
Asset-backed securities — — 13 —
Marketable Securities
The fair values of the marketable securities by contractual maturities at December 31, 2025 were as follows (in millions):
Due within 1 year $ 333
Due after 1 year through 5 years 291
Due after 5 years and thereafter 14
Total marketable securities $ 638
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Valuation of Warrants to Purchase Common Stock
The fair value of the warrants was determined using the Black-Scholes option-pricing model. The following table indicates the weighted-average assumptions made in estimating the fair value as of:
Risk-free interest rate 3.5 % 4.3 %
Contractual term (in years) 1 2
Expected volatility 45.7 % 57.5 %
Expected dividend yield — % — %
Exercise price per share $ 17.5 $ 17.5
Fair Value of Liabilities
The following table provides a roll-forward of the aggregate fair value of our common stock warrant liability for which fair value is determined using Level 3 inputs (in millions):
Common Stock Warrant Liability
Change in fair value 49
Warrant extinguishment (74)
Settlement (17)
Change in fair value (3)
On July 3, 2024, we repurchased a warrant, or the Warrant, to purchase 5 million shares of our Class B common stock for an aggregate purchase price of $61 million, or the Warrant Repurchase. The Warrant was canceled and is no longer outstanding. Immediately prior to the Warrant Repurchase, we recognized a remeasurement gain of $2 million within “Change in fair value of warrant liability” in the Consolidated Statements of Operations for the fiscal year ended December 31, 2024. Upon the Warrant Repurchase, we also recognized a gain on the extinguishment of the Warrant of $14 million within “Other income, net” in the Consolidated Statements of Operations for the fiscal year ended December 31, 2024.
As of December 31, 2025 and 2024, the maximum number of shares of our common stock that could be required to be issued upon the exercise of outstanding warrants was 1 million and 1 million, respectively.
4. Loan Servicing Activities and Acquired Loans Receivable, Net
Changes in the contingent liability for expected credit losses for the fiscal years ended December 31, 2025 and 2024 were as follows (in millions):
Year Ended December 31,
Beginning balance $ 29 $ 29
Credit loss expense 62 45
Reductions due to loan purchases (45) (45)
Ending balance $ 46 $ 29
The balance of the non-contingent stand-ready liability was $18 million and $10 million, as of December 31, 2025 and 2024, respectively, recorded in accrued expenses and other current liabilities on the Consolidated Balance Sheets.
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As of December 31, 2025 and 2024, $71 million and $59 million, respectively, were classified as restricted cash on the Consolidated Balance Sheets, representing cash held with commercial lending institutions. The restrictions are related to cash held as collateral pursuant to an agreement with the originating third-party bank for the working capital loans serviced by Toast Capital.
5. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the periods presented were as follows (in millions):
Amount
Acquisitions —
Acquisitions —
Intangible assets, net consisted of the following (in millions):
Technology Assets Customer Assets Total
Gross carrying amount $ 40 $ 7 $ 47
Accumulated amortization (28) (5) (33)
Intangible assets, net $ 12 $ 2 $ 14
Technology Assets Customer Assets Total
Gross carrying amount $ 40 $ 7 $ 47
Accumulated amortization (23) (4) (27)
Intangible assets, net $ 17 $ 3 $ 20
The total estimated future amortization of intangible assets as of December 31, 2025 was as follows (in millions):
Amount
Thereafter 1
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6. Debt
Revolving Line of Credit