You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited consolidated financial statements, and the related notes that are included elsewhere in this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2021. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled "Special Note Regarding Forward-Looking Statements" and Item 1A. Risk Factors included elsewhere in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Toast is a cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community. Our platform provides a comprehensive suite of SaaS products, financial technology solutions, including integrated payment processing, restaurant-grade hardware, and a broad ecosystem of third-party partners. We serve as the restaurant operating system, connecting front of house and back of house operations across dine-in, takeout, and delivery channels. As of March 31, 2022, approximately 62,000 restaurant locations, processing approximately $66 billionof gross payment volume in the trailing 12 months on the Toast platform, partnered with Toast to optimize operations, increase sales, engage guests, and maintain happy employees.
By enabling these features through a single, integrated platform, Toast enhances experiences for restaurant ecosystem stakeholders:
•Restaurant operators. We arm restaurants with a wide range of products and capabilities to address their specific needs regardless of size, location, or business model. As a result, restaurants using Toast often see higher sales and greater operational efficiency. •Guests. We are laser focused on helping our customers deliver memorable guest experiences at scale. Guests can place orders easily, safely, and accurately across web, mobile, and in-person channels for dine-in, takeout, or delivery. In addition, our platform empowers restaurants to utilize their guest data to deliver targeted and personalized experiences with loyalty programs and marketing solutions. •Employees. Our easy-to-learn and easy-to-use technology improves the experience of restaurant employees across Toast customers. Employees are core to delivering great hospitality, and it is critical for restaurants to engage and retain employees in an increasingly competitive labor market. Our products enable new employees to learn quickly through guided workflows, facilitate faster table turns and safer, streamlined operations, and provide greater transparency around, and timely access to, employees' wages. •Suppliers. Our supplier management and accounting products give restaurants the tools to optimize their back-office operations. Managing supplier networks and procurement, and having high visibility into costs, are critical to efficiently operating a restaurant. Our products enable customers to automate manual billing processes, manage inventory, and improve profitability with real-time cost insights on menu items. The seamless integration across our end-to-end platform gives our customers the rich data and reporting capabilities to efficiently operate and manage their restaurants. The benefits to all stakeholders using the Toast platform create a powerful, virtuous cycle that amplifies our impact on restaurants. Guest satisfaction generates loyalty to restaurants, driving repeat sales, word-of-mouth referrals, and larger checks and tips. This promotes employee satisfaction, helping reduce turnover and motivating employees to continue to raise the bar on the guest experience. In addition, our integrated software and payments platform consolidates data on restaurant sales and operations, which enables our reporting and analytics as well as financial technology solutions, such as working capital loans, to further support our customers' success. 20
Since our founding, we have translated our love for restaurants into a commitment to innovation and digital transformation for the restaurant industry. As we have expanded our platform, launched new products, and added new partners over time, we have rapidly grown the number of restaurant locations on the Toast platform. Impact of COVID-19 Since early 2020, changes in consumers' behavior and government-imposed restrictions because of the COVID-19 pandemic have impacted restaurants in various ways, including limiting service to takeout orders for a period of time or reducing capacity to accommodate social distancing recommendations. Though the exact long-term circumstances are difficult to predict, we believe that the COVID-19 pandemic will result in a lasting shift in consumer demand towards omnichannel consumption and increased guest demand for digital solutions such as Order & Pay. Depending on the extent to which the prevalence of takeout and delivery orders persists, our financial results may be impacted in a number of ways. In light of the evolving nature of the COVID-19 pandemic and the uncertainty it has produced around the world, it is not possible to predict the cumulative and ultimate impact of the pandemic on our future business operations, results of operations, financial position, liquidity, and cash flows despite progress in vaccination efforts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments that cannot be accurately predicted at this time, including the duration of the spread of the pandemic both globally and within
the United States, the introduction and severity of new variants of the virus and their resistance to currently approved vaccines, the impact on capital, foreign currency exchange, and financial markets, the impact of governmental or regulatory orders that impact our business, and the effect on global supply chains, all of which are highly uncertain and cannot be predicted. Key Business Metrics We use the following key business metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions: Three Months Ended March 31, (dollars in billions) 2022 2021 % Growth Gross Payment Volume (GPV)(1) $ 17.8 $ 9.098 % As of March 31, (dollars in millions) 2022 2021 % Growth Annualized Recurring Run-Rate (ARR) $ 637 $ 38466 %
Gross Payment Volume (GPV)(1)
Gross Payment Volume represents the sum of total dollars processed through the Toast payments platform across all restaurant locations in a given period. GPV is a key measure of the scale of our platform, which in turn drives our financial performance. As our customers generate more sales and therefore more GPV, we generally see higher financial technology solutions revenue. _________________
(1) Please note that numbers may not be identical due to rounding to the nearest hundred million.
21 -------------------------------------------------------------------------------- Table of Contents Annualized Recurring Run-Rate (ARR) We monitor Annualized Recurring Run-Rate as a key operational measure of the scale of our subscription and payment processing services for both new and existing customers. To calculate this metric, we first calculate recurring run-rate on a monthly basis. Monthly Recurring Run-Rate, or MRR, is measured on the final day of each month for all restaurant locations live on our platform as the sum of (i) our monthly subscription services fees, which we refer to as the subscription component of MRR, and (ii) our in-month adjusted payments services fees, exclusive of estimated transaction-based costs, which we refer to as the payments component of MRR. MRR does not include fees derived from
Toast Capitalor related costs. MRR is also not burdened by the impact of SaaS credits offered. ARR is determined by taking the sum of (i) twelve times the subscription component of MRR and (ii) four times the trailing-three-month cumulative payments component of MRR. We believe this approach provides an indication of our scale, while also controlling for short-term fluctuations in payments volume. Our ARR may decline or fluctuate as a result of a number of factors, including customers' satisfaction with our platform, pricing, competitive offerings, economic conditions, or overall changes in our customers' and their guests' spending levels. ARR is an operational measure, does not reflect our revenue or gross profit determined in accordance with U.S.Generally Accepted Accounting Principles, or GAAP, and should be viewed independently of, and not combined with or substituted for, our revenue, gross profit, and other financial information determined in accordance with GAAP. Further, ARR is not a forecast of future revenue and investors should not place undue reliance on ARR as an indicator of our future or expected results.
We experience seasonality in our financial technology solutions revenue, which is largely driven by the level of GPV processed through our platform. For example, customers typically have greater sales during the warmer months, though this effect varies regionally. As a result, our financial technology solutions revenue per location has historically been stronger in the second and third quarters. We believe that financial technology solutions revenue from both existing and potential future products will continue to represent a significant proportion of our overall revenue mix, and seasonality will continue to impact our results of operations. Components of Results of Operations
We generate revenue from four main sources that are further described below: (1) subscription services, (2) financial technology solutions, (3) hardware, and (4) professional services.
Our total turnover is made up of the following:
Subscription services. We generate subscription services revenue from fees charged to customers for access to our software applications, generally over a term ranging from 12 to 36 months. Our subscription services revenue is primarily based on a rate per location, and this rate varies depending on the number of software products purchased, hardware configuration, and employee count at each location. Financial technology solutions. Revenue from financial technology solutions consists primarily of transaction-based fees paid by customers to facilitate their payment transactions, which are generally calculated as a percentage of the total transaction amount processed plus a per-transaction fee. The transaction fees collected are recognized as revenue on a gross basis. Financial technology solutions revenue also includes fees earned from marketing and servicing working capital loans to our customers through
Toast Capitalthat are originated by a third-party bank. In these arrangements, Toast Capital'sbank partner originates all loans, and Toast Capitalthen services the loans using Toast's payments infrastructure to remit a fixed percentage of daily sales until the loan is paid back. Toast Capitalis responsible for purchasing from our bank partner loans in default (or that have been or are scheduled to be charged off) until the aggregate principal amount of such purchased loans equals 15% (or 30% in the case of a limited program offered during the winter of 2020-2021 related to the COVID-19 pandemic) of the total originated amount for each quarterly loan cohort. Toast Capitalearns a servicing fee as well as a credit performance fee that is tied to the portfolio performance.
Material. We generate hardware revenue from the sale of terminals, tablets, handhelds and related devices and accessories, net of estimated returns.
Professional services. We generate professional services revenue from fees charged to customers for installation services, including business process mapping, configuration and training. These services can be offered on-site, remotely or independently.
Costs of revenue consists of expenses that are directly related or closely correlated to revenue generation, including, but not limited to, employee-related costs for customer support and certain operational roles as well as allocated overhead. Employee-related costs consist of salaries, benefits, bonuses, and stock-based compensation expense. Allocated overhead includes certain facilities costs, depreciation expense, and amortization costs associated with internally developed software. Below are descriptions of the types of costs classified within each component of costs of revenue:
Subscription Service. Subscription Services costs include customer support and associated employee costs, hosting costs, professional services costs, other software costs to support our cloud-based platform and depreciation costs associated with internally developed software.
Financial technology solutions. Financial technology solutions costs consist primarily of transaction-based costs, which are mostly fees and costs paid to issuers and card networks as well as other related fees associated with third-party payment processors and fraud management.
Material. Hardware costs include raw materials and the cost of manufacturing and shipping hardware sold to customers, including terminals, tablets, handhelds, card readers, printers and other accessories. Manufacturing and shipping costs include employee costs, professional services costs, and allocated overhead associated with our supply chain and fulfillment teams.
Professional services. Professional services costs consist primarily of employee-related costs and allocated overhead associated with our onboarding team, along with fees paid to third-party service providers engaged to perform installations and other services.
Amortization of acquired technology. The amortization of costs related to acquired technologies is related to technologies acquired in the context of acquisitions likely to generate revenues.
Our operating expenses consist of the following items:
Sales and marketing. Sales and marketing expenses consist primarily of employee-related costs incurred to acquire new customers and increase product adoption across our existing customer base. Marketing expenses also include fees incurred to generate demand through various advertising channels. We expect that sales and marketing expenses will increase on an absolute dollar basis as we invest to grow our field-based sales team, increase demand generation, and enhance our brand awareness. We expect sales and marketing expenses as a percentage of revenue will vary from period-to-period over the short term and decrease over the long term. Research and development. Research and development expenses consist primarily of employee-related costs associated with improvements to our platform and the development of new product offerings, as well as allocated overhead and expenses associated with the use of third-party software directly related to development of our products and services. We plan to continue to hire employees to support our research and development efforts to expand the capabilities and scope of our platform and related products and services. As a result, we expect that research and development expenses will increase on an absolute dollar basis as we continue to invest to support these activities and innovate over the long term. 23
General and administrative. General and administrative expenses consist primarily of expenses related to operations, finance, legal, human resources, information technology, and administrative personnel. General and administrative expenses also include costs related to fees paid for certain professional services, including legal, information technology, tax and accounting services, and credit loss expenses. We expect that general and administrative expenses will increase on an absolute dollar basis as we add personnel and enhance our systems, processes, and controls to support the growth of our business as well as our increased compliance and reporting requirements as a public company. We expect general and administrative expenses as a percentage of revenue will vary from period-to-period over the short term and decrease over the long term.
Other income (expenses)
Our other income and expenses consist of the following:
Interest income. Interest income includes interest earned on cash held in money market accounts and interest earned on our marketable securities.
Interest charges. Interest expense primarily represents interest incurred on our convertible notes, which were issued in
Change in fair value of warrant liability. Represents the change in the fair value of our warrant liability related to warrants issued to purchase shares of our convertible preferred stock and our common stock. The warrant liability is remeasured at fair value at each reporting date which could have a significant effect on other income (expense) and our results of operations during each period. The fair value is based on the trading price of our Class A common stock, as well as other relevant valuation inputs, including volatility of our Class A common stock, strike price, relevant risk-free interest rates, and time to expiration of the warrants.
Change in fair value of derivative liability. Represents the change in fair value of the derivative liability related to the conversion option provided for in the convertible notes that were redeemed in
Other income (expenses), net. Represents gains and losses on foreign currency transactions, realized gains or losses on the sale of our marketable securities, refundable research and development tax credits and other items.
Tax benefit (expense)
Income tax benefit (expense). Consists of
U.S.federal and state income tax as well as international taxes in Irelandand India. Our effective tax rate fluctuates from period to period due to changes in the mix of income and losses in jurisdictions with a wide range of tax rates, the effect of acquisitions, changes resulting from the amount of recorded valuation allowance, and permanent differences between GAAP and local tax laws. 24
Results of Operations
Comparison of the three months ended
The following table summarizes our operating results for the three months ended
Three Months Ended March 31, (dollars in millions) 2022 2021 Revenue: Subscription services $ 63
$ 31Financial technology solutions 438 227 Hardware 29 21 Professional services 5 3 Total revenue 535 282 Costs of revenue: Subscription services 25 10 Financial technology solutions 347 172 Hardware 52 21 Professional services 21 9 Amortization of acquired technology and customer assets 1 1 Total costs of revenue(1) 446 213 Gross profit 89 69 Operating expenses: Sales and marketing(1) 71 32 Research and development(1) 62 23 General and administrative(1) 57 19 Total operating expenses 190 74 Loss from operations (101) (5) Other income (expense): Interest income (expense), net - (6) Change in fair value of warrant liability 79 (12) Change in fair value of derivative liability - (76) Other income (expense), net (1) - Loss before provision for income taxes (23) (99) Provision for income taxes - - Net loss $ (23) $ (99)_________________
(1)Includes stock-based compensation expense recognized for the three months ended
Stock-based compensation expense
Three Months Ended March 31, (dollars in millions) 2022 2021 Costs of revenue
$ 8 $ 1Sales and marketing 13 1 Research and development 16 2 General and administrative 16 1 Total stock-based compensation expense $ 53 $ 525
Table of Contents Revenue Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % Subscription services $ 63
$ 31 $ 32103 % Financial technology solutions 438 227 211 93 % Hardware 29 21 8 38 % Professional services 5 3 2 67 % Total revenue $ 535 $ 282 $ 25390 %
The increase in subscription services revenue during the quarter ended
The increase in fintech solutions revenue during the quarter ended
The increase in hardware revenue during the three months ended
was largely driven by location growth and upselling to existing locations.
The increase in professional services revenue in the three months ended
Costs of Revenue Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % Subscription services
$ 25 $ 10 $ 15150 % Financial technology solutions 347 172 175 102 % Hardware 52 21 31 148 % Professional services 21 9 12 133 % Amortization of acquired technology and customer assets 1 1 - - % Total costs of revenue $ 446 $ 213 $ 233109 %
The increase in subscription services costs during the quarter ended
Fintech solutions cost increases in the three months ended
The increase in hardware costs during the three months ended
March 31, 2022was attributable to higher shipment volume as a result of growth in locations, as well as higher freight and product costs, and employee-related and overhead costs. The increase in professional services costs during the three months ended March 31, 2022was primarily due to an increase in employee-related and overhead costs to support our growth, including stock-based compensation expense.
We use our hardware and related professional services as customer acquisition tools and price them competitively to lower barriers to entry for new locations.
Table of Contents Operating Expenses Sales and Marketing Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % Sales and marketing $ 71
$ 32 $ 39122 %
The increase in sales and marketing expenses during the quarter ended
Research and Development Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % Research and development $ 62
The increase in research and development expenses during the three months ended
March 31, 2022was attributable to a $34 millionincrease in employee-related and overhead costs because of increased headcount, of which $14 millionwas stock-based compensation expense. General and Administrative Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % General and administrative $ 57 $ 19 $ 38200 % The increase in general and administrative expenses during the three months ended March 31, 2022was primarily attributable to a $26 millionincrease in employee-related and overhead costs because of increased headcount, of which $15 millionwas stock-based compensation expense.
Interest income (expense), net
Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % Interest income (expense), net $ -
$ (6) $ 6(100) % The decrease in interest income (expense), net during the three months ended March 31, 2022was due to the payoff of outstanding convertible notes in June 2021.
Change in fair value of warrant liability
Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % Change in fair value of warrant liability $ 79
$ (12) $ 91(758) % Change in fair value of warrant liability resulted in income of $79 millionfor the three months ended March 31, 2022, as compared to an expense of $12 millionfor the three months ended March 31, 2021. The change was primarily attributable to a lower value of the common stock underlying outstanding warrants at the end of the period compared to the beginning of the period, as well as the issuance of additional common stock warrants in June 2021. As of March 31, 2022, fair value of the liability related to warrants issued to purchase our Class A common stock was $84 million. The actual change in fair value of warrant liability in subsequent periods will depend in part on the future trading price of our Class A common stock, as well as other relevant valuation inputs, including volatility of our Class A common stock, relevant risk-free interest rates, and time to expiration of the warrants. 27
Change in fair value of derivative liability
Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount %
Change in fair value of derivative liability – $ –
(100) % The decrease in expense associated with the change in fair value of derivative liability was due to the repayment of our convertible notes in
June 2021and the extinguishment of the corresponding liability.
Other income (expenses), net
Three Months Ended March 31, Change (dollars in millions) 2022 2021 Amount % Other income (expense), net $ (1) $
Other income (expenses), net, remained substantially constant during the three months ended
Non-GAAP Financial Measures We use certain non-GAAP financial measures described below to supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP and to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors' overall understanding of our financial performance and should not be considered substitutes for, or superior to, the financial information prepared and presented in accordance with GAAP. We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP metrics to provide investors insight to the information used by our management to evaluate our business and financial performance. We believe that these measures provide investors increased comparability of our core financial performance over multiple periods with other companies in our industry. Three Months Ended March 31, (in millions) 2022 2021 Adjusted EBITDA $ (45)
$ 4Three Months Ended March 31, (in millions) 2022 2021 Free Cash Flow $ (50) $ (13)Adjusted EBITDA Adjusted EBITDA is defined as net income (loss), adjusted to exclude stock-based compensation expense and related payroll tax expense, depreciation and amortization expense, interest income, interest expense, other income (expense) net, acquisition expenses, fair value adjustments on warrant and derivative liabilities, expenses related to early termination of leases, loss on debt extinguishment, charitable contribution stock-based expense, and income taxes, as applicable. We have provided below a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. We believe Adjusted EBITDA is useful for investors in comparing our financial performance to other companies and from period to period. Adjusted EBITDA is widely used by investors and securities analysts to measure a company's operating performance without regard to items such as depreciation and amortization, interest expense, and interest income, which can vary substantially from company to company depending on their financing and capital structures and the method by which their assets were acquired. In addition, Adjusted EBITDA eliminates the impact of certain items that may obscure trends in the underlying performance of our business. Adjusted EBITDA also has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. For example, although depreciation expense is a non-cash charge, the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new asset acquisitions. In addition, Adjusted EBITDA excludes stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs; interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces the cash available to us; or tax payments that may represent a reduction in cash available to us. The expenses and other items which are excluded from the calculation of Adjusted EBITDA may differ from the expenses and other items that other companies may exclude from Adjusted EBITDA when they report their financial results.
The following table reflects the reconciliation of net loss and adjusted EBITDA for each of the periods presented:
Table of Contents Three Months Ended March 31, (in millions) 2022 2021 Net loss $ (23)
$ (99)Stock-based compensation expense and related payroll tax 53 5 Depreciation and amortization 6 4 Interest (income) expense, net - 6 Change in fair value of warrant liability (79) 12 Change in fair value of derivative liability - 76 Termination of leases (2) - Adjusted EBITDA $ (45) $ 4Free Cash Flow Free cash flow is defined as net cash provided by (used in) operating activities reduced by purchases of property and equipment and capitalization of internal-use software costs. We believe that free cash flow is a meaningful indicator of liquidity that provides information to management and investors about the amount of cash generated from operations and used for purchases of property and equipment, capitalization of software costs, and investments in our business. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. Free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Other companies may calculate free cash flow or similarly titled non-GAAP measures differently, which could reduce the usefulness of free cash flow as a tool for comparison. In addition, free cash flow does not reflect mandatory debt service and other non-discretionary expenditures that are required to be made under contractual commitments and does not represent the total increase or decrease in our cash balance for any given period. The following table presents a reconciliation of free cash flow to the net cash provided by (used in) operating activities for each of the periods presented: Three Months Ended March 31, (in millions) 2022 2021 Net cash used in operating activities $ (47)
Purchases of property and equipment (2) (6) Capitalized software (1) (2) Free cash flow $ (50)
$ (13)Liquidity and Capital Resources Our principal sources of liquidity are cash and cash equivalents and marketable securities. As of March 31, 2022, we had cash and cash equivalents of $757 million, excluding cash held on behalf of customers and restricted cash of $73 million, marketable securities of $453 million, and $330 millionavailable under our 2021 Facility (as defined herein). Cash and cash equivalents consist of highly liquid investments with original maturities of 90 days or less at the time of purchase, other than those held for sale in the ordinary course of business. Marketable securities consisted of commercial paper, certificates of deposit, corporate bonds, U.S.government agency securities, U.S. Treasurysecurities, and asset-backed securities. We believe that our existing cash and cash equivalents, along with our available borrowing capacity under our 2021 Facility, will be sufficient to meet our working capital needs for at least the next 12 months, including planned capital expenditures, strategic transactions, and investment commitments that we may enter into from time to time. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under "Risk Factors". 30
In the event that additional funding is required from outside sources, we cannot be sure that any additional funding will be available to us on acceptable terms, if at all. If we are unable to raise additional capital when desired, our business, results of operations and financial condition could be adversely affected.
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31, (in millions) 2022 2021 Net cash used in operating activities $ (47)
$ (5)Net cash used in investing activities (3) (8) Net cash provided by financing activities 29 12
Net decrease in cash, cash equivalents and restricted cash $
$ (1)Operating Activities For the three months ended March 31, 2022, net cash used in operating activities was $47 million. This resulted from our net loss of $23 million, adjustments for non-cash charges of $5 million, and a net use of cash from a change in operating assets and liabilities of $19 million. The non-cash charges were primarily related to changes in fair value of the warrant liability of $79 million, offset by stock-based compensation expense of $53 million, amortization of deferred costs of $10 millionand depreciation and amortization of $6 million. The net use of cash from a change in operating assets and liabilities was primarily related to increases in deferred costs of $17 million, increases in prepaid expenses and other current assets of $15 million, decreases in accounts payable of $12 million, increases in operating right-of-use assets of $6 millionand decreases in deferred revenue of $6 million. These changes were partially offset by increases in accrued expenses and other current liabilities of $39 million. For the three months ended March 31, 2021, net cash used in operating activities was $5 million. This consisted of a net loss of $99 millionand a net use of cash from a change in operating assets and liabilities of $16 million, partially offset by adjustments for non-cash charges of $110 million. The non-cash charges were related to changes in fair values of derivative and warrant liabilities of $88 million, non-cash interest on convertibles notes of $6 million, stock-based compensation expense of $5 million, and amortization of deferred costs of $5 million. The use of cash from a change in operating assets and liabilities primarily related to increases in deferred costs of $8 million, a net decrease from changes in other assets and liabilities of $7 million, increases in accounts receivable of $6 million, and decreases in operating lease liabilities of $5 million. These changes were partially offset by increases in accrued expenses and other current liabilities of $12 millionand decreases in right-of-use assets of $5 million.
For the three months ended
March 31, 2022, cash used in investing activities was $3 million, which consisted of purchases of marketable securities of $30 million, purchases of property and equipment of $2 million, and cash outflows for capitalized software of $1 million. These cash outflows were partially offset by proceeds from sales and maturities of marketable securities of $30 million. For the three months ended March 31, 2021, cash used in investing activities was $8 million, which consisted of purchases of property and equipment of $6 millionand cash outflows for capitalized software of $2 million.
For the three months ended
March 31, 2022, cash provided by financing activities was $29 million, which consisted of the change in customer funds obligations of $27 millionand proceeds from the exercise of stock options of $4 million, partially offset by the payment of contingent consideration of $2 million. 31
For the three months ended
March 31, 2021, cash provided by financing activities was $12 million, which consisted of the change in customer funds obligations of $10 millionand proceeds from the exercise of stock options of $2 million.
June 8, 2021, we entered into a senior secured credit facility, or the 2021 Facility, which includes a revolving line of credit equal to $330 million. Interest on outstanding loans under the revolving line of credit is determined based on loan type and accrues at an annual rate, as defined in the agreement, of: (a) LIBO Rate multiplied by the Statutory Reserve Rate, plus 1.50% per annum; or 0.5% per annum plus the highest of: (i) the Prime Rate, (ii) the Federal Reserve Bank of New York Rateplus 0.5%, or (iii) the Adjusted LIBO Rate plus 1.00%. Subsequent to December 31, 2022, interest on outstanding loans will be accrued based on the Secured Overnight Financing Rate, or SOFR. The 2021 Facility is subject to a minimum liquidity covenant of $250 million. As of March 31, 2022and December 31, 2021, no amount was drawn and outstanding under the 2021 Facility which had $330 millionavailable for borrowings. As of March 31, 2022and December 31, 2021, there were $11 millionand $13 millionof letters of credit outstanding, respectively.
Contractual obligations and commitments and off-balance sheet arrangements
March 31, 2022, our contractual obligations consisted of: (i) operating lease commitments of $120 million, of which $18 millionis due in 2022 and $102 millionis due thereafter, and (ii) purchase commitments of $285 million, a majority of which are due in 2022. Please refer to Note 5, "Lessee Arrangements" and Note 12, "Commitments and Contingencies" to our unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a discussion on our lease and purchase commitments. Please refer to Note 4, "Loan Servicing Activities" to our unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a discussion of credit exposure related to our financial guarantees as of March 31, 2022. Critical Accounting Policies and Estimates The preparation of our unaudited consolidated financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments are related to revenue recognition, allowances for credit losses and uncollectible loans, business combinations, and other acquired intangible assets, stock-based compensation expense, and common stock and derivative liabilities valuation. Actual results may differ from these estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2022, as compared to those included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our 2021 Annual Report on Form 10-K for the year ended December 31, 2021. Recent Accounting Pronouncements Refer to the sections titled "Recently Issued Accounting Pronouncements" in Note 1 in the Notes to our unaudited Consolidated Financial Statements included in Item 1, "Consolidated Financial Statements" for more information.
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