Summary
Toast closed the second quarter of fiscal 2023 with revenue of $978 million, up 44.9% year over year. Gross profit reached $208 million, up 84.1%, and gross margin was 21.3%, up 4.5 percentage points. The top line and gross profit gains came as the company added a record number of restaurant locations. Operating loss was $80 million, which narrowed from the prior-year quarter according to the reported figures. Net loss was $98 million, and the loss widened from the prior-year quarter. Diluted EPS was -$0.19, and that loss also widened. The gap between a narrower operating loss and a wider net loss reflects items below the operating line, including the remeasurement of the warrant liability. The operating loss narrowed even as revenue growth remained strong, which shows that cost growth did not outpace the top line at the operating level.
Operational momentum was strong. Annualized recurring run-rate passed $1 billion as of June 30, 2023, and the press release puts ARR at $1.1 billion, up 45% year over year. Gross payment volume rose 38% year over year to $32.1 billion, while total locations increased over 35% year over year to approximately 93,000. Toast added over 7,500 net new locations in the quarter. The MD&A notes that the platform processed approximately $110 billion of gross payment volume in the trailing 12 months. In June, Toast announced an agreement with Marriott International to make Toast for Hotel Restaurants technology available to food and beverage outlets within Marriott's Select service hotels in the United States and Canada. It also launched Toast Catering Events and selected a new Boston headquarters at 333 Summer Street, with plans to open in early 2024. Deferred revenue was $53 million, up 1.9% year over year, and remaining performance obligations were $579 million, up 29.0%. The location and ARR gains suggest Toast is still expanding its base even as restaurant operators face a mixed macroeconomic backdrop.
Profitability and cash generation improved at the adjusted level. Adjusted EBITDA was $15 million in the second quarter of 2023, compared with negative $33 million in the second quarter of 2022, and it was the first positive Adjusted EBITDA since the IPO. Operating cash flow was $50 million, up 338.1% year over year. Capital expenditures were $2 million, down 60.0% year over year. Free cash flow was $39 million, compared with negative $30 million in the prior-year quarter. The company's liquidity position includes cash, marketable securities, and available borrowing capacity under its 2021 Facility, with no amount drawn under that facility. The swing to positive Adjusted EBITDA and positive free cash flow marks a change from the prior-year quarter, when both measures were negative.
Guidance points to continued growth. For the third quarter ending September 30, 2023, management expects revenue of $1,010 million to $1,040 million and Adjusted EBITDA of $15 million to $25 million. For the full year ending December 31, 2023, the revenue outlook is $3,810 million to $3,870 million, up from a prior range of $3,710 million to $3,800 million. Full-year Adjusted EBITDA guidance is $15 million to $35 million, up from a prior range of negative $10 million to $10 million. Risks include inflation, rising interest rates, supply chain issues, and pressure on consumer spending and restaurant demand. Seasonality also matters because financial technology solutions revenue is typically stronger in the second and third quarters. The warrant liability remeasurement can swing results below the operating line, and credit exposure tied to Toast Capital remains a watch item. Management's outlook assumes the demand trends that supported the second quarter continue, but the macro environment and the credit profile of working capital loans are factors to monitor.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $978.0M | $819.0M | +19.4% | $675.0M | +44.9% |
| Gross profit | $208.0M | $174.0M | +19.5% | $113.0M | +84.1% |
| Gross margin | 21.3% | 21.3% | +0.0 pp | 16.7% | +4.5 pp |
| Research & development | $92.0M | $85.0M | +8.2% | $67.0M | +37.3% |
| Sales & marketing | $100.0M | $99.0M | +1.0% | $77.0M | +29.9% |
| General & administrative | $96.0M | $82.0M | +17.1% | $68.0M | +41.2% |
| Total operating expenses | $288.0M | $266.0M | +8.3% | $212.0M | +35.8% |
| Operating income (loss) | -$80.0M | -$92.0M | +13.0% | -$99.0M | +19.2% |
| Operating margin | -8.2% | -11.2% | +3.1 pp | -14.7% | +6.5 pp |
| Net income (loss) | -$98.0M | -$81.0M | -21.0% | -$54.0M | -81.5% |
| Net margin | -10.0% | -9.9% | -0.1 pp | -8.0% | -2.0 pp |
| Diluted EPS | -$0.19 | -$0.16 | -$0.03 | -$0.11 | -$0.08 |
Risks
Toast identified a material weakness in internal controls over financial reporting as of December 31, 2022, tied to ineffective IT general controls over user access for systems supporting revenue processes. Remediation is ongoing, and failure to remediate could lead to material misstatements or delayed reporting.
Toast Capital relies on a single bank partner to originate working capital loans and is obligated to purchase certain defaulted loans up to 15% of each quarterly cohort, exposing Toast to credit risk. MD&A reported general and administrative expenses rose $28 million in Q2 FY2023, including $10 million higher bad debt and credit related expenses driven by growth in Toast Capital.
Unfavorable restaurant industry or global economic conditions, including inflation, rising interest rates, and potential restaurant closures, could reduce demand and gross payment volume. MD&A states these macro factors have impacted and may continue to impact Toast's business results.
A majority of Toast customers are small- and medium-sized businesses with 1 to 10 restaurant locations, which have higher business failure rates and greater susceptibility to economic fluctuations. This concentration may amplify the impact of restaurant closures or reduced spending on Toast's results.
Financial technology solutions, primarily payment processing, generated $808 million of $978 million total revenue in Q2 FY2023, and gross profit can vary with card-present versus card-not-present and debit versus credit transaction mix. A decline in GPV or unfavorable mix could materially affect results.
Toast reported a net loss of $98 million in Q2 FY2023, wider than the $54 million net loss in Q2 FY2022, and had an accumulated deficit of $1,556 million as of June 30, 2023. Continued investments may keep losses elevated and require additional capital.
Toast and its partners may incorporate AI into products, but if competitors adopt AI more quickly or more successfully, Toast's ability to compete effectively may be impaired. AI also presents legal, reputational, and cybersecurity risks.
Toast transmits sensitive customer and guest data and has experienced security incidents in the past. Any actual or perceived breach could result in litigation, regulatory action, lost customers, and significant remediation costs.
Financial technology solutions revenue per Toast Processing Location has historically been stronger in the second and third quarters due to warmer-month restaurant sales. This seasonality can cause fluctuations in Toast's financial results.
SaaS KPIs
All quarters →Adjusted EBITDA
Free Cash Flow
Gross Payment Volume (GPV)
Total Locations
Net New Locations
Annualized Recurring Run-Rate (ARR)
Summary, forecast, risks and KPIs are extracted from Toast, Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.