Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  Square, Inc.    SQ

SQUARE, INC.

(SQ)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

SQUARE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2020 | 04:27pm EST
You should read the following discussion and analysis in conjunction with the
information set forth within the condensed consolidated financial statements and
the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as
well as our Annual report on Form 10-K. The statements in this discussion
regarding our expectations of our future performance, liquidity and capital
resources, our plans, estimates, beliefs and expectations that involve risks and
uncertainties, and other non-historical statements in this discussion are
forward-looking statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to, the risks and
uncertainties described under "Risk Factors" and elsewhere in this Quarterly
Report on Form 10-Q. Our actual results may differ materially from those
contained in or implied by any forward-looking statements.

Overview

We started Square in February 2009 to enable businesses (sellers) to accept card
payments, an important capability that was previously inaccessible to many
businesses. However, sellers need many innovative solutions to thrive, and we
have expanded to provide them additional products and services and to give them
access to a cohesive ecosystem of tools to help them manage and grow their
businesses. Similarly, with Cash App, we have built a parallel ecosystem of
financial services to help individuals manage their money.

Our seller ecosystem is a cohesive commerce ecosystem that helps sellers start,
run and grow their businesses, and consists of over 30 distinct software,
hardware, and financial services products. We monetize these products through a
combination of transaction, subscription, and service fees. Our suite of
cloud-based software solutions are integrated to create a seamless experience
and enable a holistic view of sales, customers, employees, and locations. With
our offering, a seller can accept payments in person via magnetic stripe (a
swipe), EMV (Europay, MasterCard, and Visa) (a dip), or NFC (Near Field
Communication) (a tap); or online via Square Invoices, Square Virtual Terminal,
or the seller's website. We also provide hardware to facilitate commerce for
sellers, which includes magstripe readers, contactless and chip readers, Square
Stand, Square Register, Square Terminal, and third-party peripherals. Square
Card, a business prepaid card, enables sellers to spend the balance they have
stored with Square. Sellers can also deposit funds into their Square stored
balance so they can manage all of their business expenses in one place. Sellers
also gain access to business loans through Square Capital based on the seller's
payment processing history. We have grown rapidly to serve millions of sellers
that represent a diverse set of industries (including services, food-related
business, and retail businesses) and sizes, ranging from a single vendor at a
farmers' market to multi-location businesses. Square sellers also span
geographies, including the United States, Canada, Japan, Australia, and the
United Kingdom.

Our Cash App ecosystem provides financial tools for individuals to store, send,
receive, spend and invest money. With Cash App, customers can fund their account
with a bank account or debit card, send and receive P2P (peer-to-peer) payments,
and receive direct deposit payments. Customers can make purchases with their
Cash Card, a Visa prepaid card that is linked to the balance stored in Cash App,
or withdraw funds from an ATM. With Cash Boost, customers receive instant
discounts when they make Cash Card purchases at designated merchants. Customers
can also use their stored funds to buy and sell bitcoin and equity investments
within Cash App.

Effective June 30, 2020, the Company changed from one reportable segment to two
reportable segments to reflect the way management and its chief operating
decision maker ("CODM") review and assess performance of the business. Our two
reportable segments are Seller and Cash App. Seller includes managed payment
services, software solutions, hardware and financial services products offered
to sellers, while Cash App includes financial tools available to individuals
such as P2P (peer-to-peer) payments, Cash Card transactions, bitcoin and stock
investing. The primary financial measures used by the CODM to evaluate
performance and allocate resources are revenue and gross profit.

In April 2020, we were licensed to participate in the Paycheck Protection
Program ("PPP") administered by the Small Business Administration ("SBA") that
was enacted in March 2020 under the Coronavirus Aid, Relief, and Economic
Security Act ("CARES Act") in response to the COVID-19 pandemic. The PPP is
intended to provide relief to eligible businesses impacted by COVID-19, and to
incentivize businesses to keep their workers on the payroll. As of June 30,
2020, we facilitated the issuance of $873.4 million in loans to our customers
under the PPP through an external bank partner, of which we sold $399.0 million
to an investor. These loans are guaranteed by the U.S. government. Additionally,
the loans are eligible for forgiveness if the borrowers meet certain criteria.

                                         40
--------------------------------------------------------------------------------

On June 2, 2020, we entered into the Paycheck Protection Program Liquidity
Facility ("PPPLF") agreement with the Federal Reserve Bank of San Francisco to
secure additional credit in an aggregate principal amount of up to $500.0
million. The program was established by the Federal Reserve to supplement the
SBA's PPP to support the economy in response to the COVID-19 crisis. The
facility is intended to bolster the effectiveness of the PPP and provide
liquidity to credit markets, helping to stabilize financial institutions
supporting COVID-19 relief efforts. Borrowings under the facility accrue
interest at a rate of 0.35% and advances must be collateralized with loans
originated under the PPP. The maturity date of any PPPLF advance will be the
maturity date of the PPP loan pledged to secure the advance, and will be
accelerated upon the occurrence of certain events of default. The advances under
this facility are also repayable if the associated PPP loans are forgiven,
repaid by the customer, or settled by the government guarantee. As of June 30,
2020, $447.8 million of PPPLF advances were outstanding and collateralized by
the same value of the PPP loans.

On March 5, 2020, we issued $1.0 billion in aggregate principal amount of
convertible senior notes (2025 Notes) that mature on March 1, 2025, unless
earlier converted or repurchased pursuant to their terms, and bear interest at a
rate of 0.1250% payable semi-annually on March 1 and September 1 of each year.
We intend to use the net proceeds for general corporate purposes, which may
include capital expenditures, investments, working capital, and potential
acquisitions and strategic transactions. From time to time, we evaluate
potential strategic transactions and acquisitions of businesses, technologies,
products or talent.

Impact of COVID-19 on Current Trends and Outlook


In March 2020, the World Health Organization declared the COVID-19 outbreak
(COVID-19) a global pandemic. We operate in locations that have been impacted by
COVID-19, and the pandemic has impacted and could further impact our operations
and the operations of our customers as a result of quarantines, various local,
state and federal government public health orders, facility and business
closures, and travel and logistics restrictions. Conditions may improve or
worsen further as governments and businesses continue to take actions to respond
to the risks of the COVID-19 pandemic. While the COVID-19 pandemic continues to
cause uncertainty in the global economy and restrictive measures by governments
and businesses remain in place, we expect our business and results of operations
to be materially and adversely affected.

Beginning in the middle of March, the outbreak of COVID-19 led to adverse
impacts on the U.S. and global economies, bringing uncertainty to our operations
and customer demand. Various local governments issued orders requiring the
closure of non-essential businesses and to curtail all unnecessary travel, and
requiring individuals to comply with various shelter-in-place and social
distancing orders. Certain of our customers in those areas recorded a
significant decline in sales and thus, we experienced a slowdown in revenues
during the month of March 2020, which continued into the second quarter of 2020.
We have experienced some improvements as some of these shelter in place orders
were relaxed, but as new outbreaks arise and new measures to mitigate such
outbreaks are imposed, we may experience further slowdowns in future revenues.

Our customers are exposed to and face a variety of uncertainties that have and
could continue to negatively impact their continued use of our products and
services, their ability to repay outstanding amounts, or even their ability to
continue in business. As a result, we may experience reduced revenues in the
future and we may incur increased charges related to transaction and loan losses
if these conditions continue into future periods. We have revised our estimates
and assumptions to reflect such increases in transaction and loan losses in our
financial statements. We also expect reduced operating cash inflows from our
business operations.

Additionally, we have evaluated the potential impact of the COVID-19 outbreak on
our financial statements, including, but not limited to, the impairment of
goodwill and intangible assets, impairment of long-lived assets including
operating lease right-of-use assets, property and equipment, valuation of loans
held for sale, as well as determination of accrued transaction losses. We have
concluded that our goodwill and other long lived assets are not impaired. Where
applicable, we have incorporated judgments and estimates of the expected impact
of COVID-19 in the preparation of the financial statements based on information
currently available. These judgments and estimates may change, as new events
develop and additional information is obtained, and are recognized in the
consolidated financial statements as soon as they become known.

We also have taken steps to assist our customers that we believe will be in the
best interests of our sellers in the long term, including refunding software
subscription fees to sellers during the months of March and April 2020.
Additionally, we have introduced options for sellers to temporarily suspend
subscriptions based on their circumstances. As mentioned above,
                                       41
--------------------------------------------------------------------------------

as of June 30, 2020, we facilitated approximately 80,000 PPP loans totaling $873.4 million to sellers through a bank partner, with the average loan size being less than $11,000.


We continue to actively monitor the situation and may take further actions that
alter our operations and business practices as may be required by federal, state
or local authorities or that we determine are in the best interests of our
partners, customers, suppliers, vendors, employees and shareholders. While the
disruption is currently expected to be temporary, the extent to which the
COVID-19 outbreak will further impact the Company's financial results will
depend on future developments, which are unknown and cannot be predicted,
including the duration and ultimate scope of the pandemic, advances in testing,
treatment and prevention, as well as actions taken by governments and
businesses.

Results of Operations
Revenue (in thousands, except for percentages)
                                                           Three Months Ended                                                                                                            Six Months Ended
                                                                June 30,                                                                                                                     June 30,
                                   2020                 2019              $ Change             % Change                2020                 2019               $ Change             % Change
Transaction-based revenue     $   682,572$   775,510$ (92,938)                   (12) %       $ 1,440,673$ 1,432,272$     8,401                    1  %
Subscription and
services-based revenue            346,275              251,383             94,892                     38  %       $   642,510$   470,240$   172,270                   37  %
Hardware revenue                   19,322               22,260             (2,938)                   (13) %            39,997               40,472          $      (475)                  (1) %
Bitcoin revenue                   875,456              125,085            750,371                    600  %       $ 1,181,554$   190,613$   990,941                  520  %
Total net revenue             $ 1,923,625$ 1,174,238$ 749,387                     64  %       $ 3,304,734$ 2,133,597$ 1,171,137                   55  %


Total net revenue for the three and six months ended June 30, 2020 increased by
$749.4 million or 64% and $1,171.1 million or 55%, respectively, compared to the
three and six months ended June 30, 2019.
Transaction-based revenue for the six months ended June 30, 2020 increased $8.4
million or 1%, compared to the six months ended June 30, 2019. The slight
increase was primarily attributable to the following events and factors:

•In January and February of 2020, we benefited from the growth in payment volume
processed by existing sellers, in addition to meaningful contributions from new
sellers. GPV generated by our Seller business increased by 29% compared to the
same period in the prior year, which included a benefit from the impact of the
leap year;

•In the second half of March through mid-April, 2020, as a result of the
COVID-19 outbreak and subsequent shelter in place restrictions, we experienced a
significant slowdown in transaction-based revenue, with GPV generated by our
Seller business decreasing compared to the prior year;

•Beginning in mid-April 2020, we started to experience improving trends in GPV
generated by our Seller business, as some states started to relax shelter-in
place measures, sellers adapted their businesses to contactless commerce, new
sellers joined Square and various government assistance programs led to an
increase in consumer spending;

•Additionally, during the second quarter of 2020, we experienced positive growth
of GPV from card-not-present transactions as sellers shifted their businesses to
adapt to the COVID-19 outbreak.

Overall, while GPV for the six months ended June 30, 2020 was lower than the
comparable period in 2019 by 2%, the revenue generated increased by 1%. The
increase in transaction-based revenue, while GPV decreased, was driven by growth
in higher-priced card-not-present transactions as sellers shifted their
businesses to adapt to the COVID-19 outbreak and the impact from our November
2019 card-present price change. Since the end of the second quarter of 2020,
changes to shelter-in-place restrictions, the timing of re-openings, impact of
various government stimulus assistance and changes in consumer behavior had
varying impacts on the GPV growth in certain regions, and are expected to
continue to impact our revenues in the future.

Transaction-based revenue for the three months ended June 30, 2020 decreased by
$92.9 million or 12%, compared to the three months ended June 30, 2019. The
decrease was primarily attributable to the decline in GPV processed which
decreased by 15%, offset by a higher percentage of card-not-present transactions
which earn higher fees.
                                       42
--------------------------------------------------------------------------------


Subscription and services-based revenue for the three and six months ended June
30, 2020 increased by $94.9 million or 38% and $172.3 million or 37%,
respectively, compared to the three and six months ended June 30, 2019. On
October 31, 2019, we completed the sale of the Caviar business, and,
accordingly, Caviar no longer contributes to subscription and services-based
revenue. Excluding Caviar, Subscription and services-based revenue grew by
$138.3 million, or 66%, and $262.2 million, or 69%, for the three and six month
ended June 30, 2020, respectively compared to the three and six months ended
June 30, 2019 driven primarily by Cash App. Cash App subscription and
services-based revenue is primarily comprised of transaction fees from Cash App
Instant Deposit and Cash Card, with a small portion generated from interest
earned on customer funds. In March and April 2020 in an effort to support our
sellers we suspended charging and refunded software subscription fees we had
charged the sellers. Square Capital, which has historically been a significant
component of the subscriptions and services revenue, suspended facilitating
loans to sellers in the second quarter of 2020, other than PPP loans.
Hardware revenue for the three and six months ended June 30, 2020 decreased by
$2.9 million or 13% and $0.5 million or 1%, respectively, compared to the three
and six months ended June 30, 2019. The decrease primarily reflects a
deceleration in hardware unit sales beginning in the latter half of March 2020
and continuing into the second quarter as a result of the COVID-19 outbreak,
partially offset by an increase in sales of contactless hardware noted in May
and June of 2020, as compared to April 2020.
Bitcoin revenue for the three and six months ended June 30, 2020 increased by
$750.4 million or 600% and $990.9 million or 520%, respectively, compared to the
three and six months ended June 30, 2019. The increase was due to growth in the
number of active bitcoin customers, as well as growth in customer demand. The
amount of bitcoin revenue recognized will fluctuate depending on the volatility
of bitcoin prices in the market and customer demand.
Cost of Revenue (in thousands, except for percentages)
                                                           Three Months Ended                                                                                                         Six Months Ended
                                                                June 30,                                                                                                                  June 30,
                                   2020                2019             $ Change              % Change                2020                 2019              $ Change            % Change
Transaction-based costs       $   388,106$ 490,349$ (102,243)                   (21) %       $   853,885$   899,418$ (45,533)                  (5) %
Subscription and
services-based costs               50,169             60,119              (9,950)                   (17) %            90,880              120,642            (29,762)                 (25) %
Hardware costs                     28,315             33,268              (4,953)                   (15) %            62,687               60,209              2,478                    4  %
Bitcoin costs                     858,041            122,938             735,103                    598  %         1,157,467              187,634            969,833                  517  %
Amortization of acquired
technology                          2,231              1,719                 512                     30  %             4,551                3,095              1,456                   47  %
Total cost of revenue         $ 1,326,862$ 708,393$  618,469                     87  %       $ 2,169,470$ 1,270,998$ 898,472                   71  %



Total cost of revenue for the three and six months ended June 30, 2020 increased
by $618.5 million or 87% and $898.5 million or 71%, respectively, compared to
the three and six months ended June 30, 2019.

Transaction-based costs for the three and six months ended June 30, 2020
decreased by $102.2 million or 21% and $45.5 million or 5%, respectively,
compared to the three and six months ended June 30, 2019. The decrease was
primarily attributable to the decline in GPV processed of 15% and 2%, for the
three and six months ended June 30, 2020, respectively, compared to the three
and six months ended June 30, 2019. The decrease in transaction-based costs was
higher than the decrease in GPV driven mainly by a higher percentage of debit
card transactions and increase in average value per transaction which have lower
costs.

Subscription and services-based costs for the three and six months ended June
30, 2020 decreased by $10.0 million or 17% and $29.8 million or 25%,
respectively, compared to the three and six months ended June 30, 2019. The
decrease was mainly a result of the sale of the Caviar business on October 31,
2019. Caviar contributed approximately 50% and 54% of total subscription and
services-based costs in the three and six months ended June 30, 2019,
respectively. Excluding Caviar, subscription and services-based costs increased
driven mainly by growth in costs associated with Cash Card and Instant Deposit.

                                       43
--------------------------------------------------------------------------------

Hardware costs for the three months ended June 30, 2020 compared to the three
months ended June 30, 2019 decreased by $5.0 million or 15%, primarily due to a
deceleration in hardware unit sales, as described above. Hardware costs for the
six months ended June 30, 2020 compared to the six months ended June 30, 2019
increased by $2.5 million or 4%, primarily due to increased sales of hardware in
our international markets, in the early part of the year, offset in part by the
reduced sales after the COVID-19 outbreak. We however experienced an increase in
sales of contactless hardware in May and June of 2020 as compared to April 2020,
as we offered promotions on the contactless hardware.

Bitcoin costs for the three and six months ended June 30, 2020 increased by
$735.1 million or 598% and $969.8 million or 517%, respectively, compared to the
three and six months ended June 30, 2019. Bitcoin costs of revenue comprises
amounts we pay to purchase bitcoin, which will fluctuate in line with bitcoin
revenue.


Operating Expenses (in thousands, except for percentages)

                                                     Three Months Ended                                                                                                    Six Months Ended
                                                          June 30,                                                                                                             June 30,
                              2020               2019             $ Change            % Change                2020                2019             $ Change           % Change

Product development $ 206,825$ 174,201$ 32,624

                  19  %       $   401,811$ 328,551$  73,260                  22  %
% of total net revenue           11  %              15  %                                                         12  %              15  %

Sales and marketing $ 238,096$ 156,421$ 81,675

                  52  %       $   432,631$ 290,134$ 142,497                  49  %
% of total net revenue           12  %              13  %                                                         13  %              14  %
General and
administrative            $ 136,386$ 100,508$  35,878                    36  %       $   265,881$ 202,106$  63,775                  32  %
% of total net revenue            7  %               9  %                                                          8  %               9  %
Transaction and loan
losses                    $  37,603$  34,264$   3,339                    10  %       $   146,486$  62,105$  84,381                 136  %
% of total net revenue            2  %               3  %                                                          4  %               3  %
Amortization of acquired
customer assets           $     905$   1,294$    (389)                  (30) %       $     1,795$   2,588$    (793)                (31) %
% of total net revenue            -  %               -  %                                                          -  %               -  %

Total operating expenses $ 619,815$ 466,688$ 153,127

                 33  %       $ 1,248,604$ 885,484$ 363,120                  41  %



Product development expenses for the three and six months ended June 30, 2020
increased by $32.6 million or 19% and $73.3 million or 22%, respectively,
compared to the three and six months ended June 30, 2019, due primarily to the
following:

•an increase of $20.4 million and $53.0 million in personnel costs for the three
and six months ended June 30, 2020, related to our engineering, data science,
and design teams, as we continue to improve and diversify our products. The
increase in personnel related costs includes an increase in share-based
compensation expense of $13.4 million and $28.2 million for the three and six
months ended June 30, 2020; and

•an increase of $8.7 million and $12.7 million in software and data center
operating costs for the three and six months ended June 30, 2020, as a result of
increased capacity needs and expansion of our cloud-based services.

Sales and marketing expenses for the three and six months ended June 30, 2020
increased by $81.7 million or 52% and $142.5 million or 49%, respectively,
compared to the three and six months ended June 30, 2019, primarily due to an
increase of $79.6 million and $127.7 million in Cash App marketing costs for the
three and six months ended June 30, 2020, associated with increased volume of
activity with our Cash App peer-to-peer service and related transactions losses,
Cash Card issuance costs in line with an increase in customers, and advertising.
We offer the Cash Card and certain peer-to-peer services to our Cash App
customers for free, and we consider these to be marketing tools to encourage the
usage of Cash App.
General and administrative expenses for the three and six months ended June 30,
2020 increased by $35.9 million or 36% and $63.8 million or 32%, respectively,
compared to the three and six months ended June 30, 2019, primarily due to the
following:
                                       44
--------------------------------------------------------------------------------


•an increase of $7.0 million and $14.5 million in general and administrative
personnel costs for the three and six months ended June 30, 2020, mainly as a
result of additions to our customer support, finance, legal and compliance
personnel as we continued to add resources and skills to support our long-term
growth as our business continues to scale. The increase in personnel related
costs includes an increase in share-based compensation expense of $2.2 million
and $3.4 million for the three and six months ended June 30, 2020; and

•the remaining increase was primarily due to facilities expansion, software and
subscription costs, local business-related taxes, third-party legal and other
professional fees and other administrative expenses, as well as impact of
revisions to our statutory reserves.

Transaction and loan losses for the three and six months ended June 30, 2020
increased by $3.3 million or 10% and $84.4 million or 136%, respectively,
compared to the three and six months ended June 30, 2019, primarily due to the
following:

•transaction losses increased by $9.1 million and $74.4 million for the three
and six months ended June 30, 2020. During the first quarter of 2020, we had
recorded incremental provisions for our Seller business due to the expected
impact of the COVID-19 outbreak and the subsequent shelter in place orders that
resulted in significant slowdown in business. During the second quarter of 2020,
we revised our estimate of transactions loss reserves recorded in the first
quarter of 2020 due to better than expected realized transaction losses. This
revision to our first quarter of 2020 reserve partially offset the incremental
transaction loss reserve recorded for the second quarter of 2020.

•loan losses for the three months ended June 30, 2020 decreased by $5.8 million
compared to the three months ended June 30, 2019, while the losses increased
$9.9 million in the six months ended June 30, 2020 compared to the six months
ended June 30, 2019. During the first quarter of 2020, we recorded incremental
provisions for loan losses associated with the COVID-19 outbreak, and to a
lesser extent the growth and aging of our Square Capital loan portfolio. During
the second quarter of 2020, we noted improvements in businesses as some states
started reopening and relaxing the shelter-in place measures and have
accordingly adjusted the provisions for loan losses. Additionally, other than
PPP loans, we suspended offers for new loans in the second quarter of 2020 which
contributed to the decrease in loan losses.

Interest Expense, Net, and Other Expense (Income), Net (in thousands, except for
percentages)
                                              Three Months Ended                                                                                                Six Months Ended
                                                   June 30,                                                                                                         June 30,
                         2020              2019            $ Change            % Change              2020              2019             $ Change           % Change
Interest expense,
net                  $  14,769$ 5,143$   9,626                  187  %       $  23,975$  9,824$  14,151                144  %
Other expense
(income), net        $ (25,591)$ 1,230$ (26,821)              (2,181) %       $ (19,729)$ 12,529$ (32,258)              (257) %



Interest expense, net, for the three and six months ended June 30, 2020
increased by $9.6 million and $14.2 million, respectively, compared to the three
months ended June 30, 2019. The increases were primarily due to higher interest
expense related to our convertible notes as a result of the issuance of the 2025
Notes in March 2020, in addition to a decrease in interest income earned on our
investments in marketable debt securities due to lower interest rates prevailing
in the market.

The other income reported for the three and six months ended June 30, 2020 was
mainly due to a $21.0 million gain from adjustments to our non-marketable equity
investments for observable price changes in the period. The other expense
reported in the three and six months ended June 30, 2019 was due to the impact
of mark to market of our equity investment in Eventbrite, which was sold in
December 2019. These activities are offset by the foreign exchange gains and
losses.

                                       45
--------------------------------------------------------------------------------

Segment Results

Seller Results


The following tables provide a summary of the revenue and gross profit for our
Seller segment for the three and six months ended June 30, 2020 and 2019 (in
thousands):


                                                    Three Months Ended                                                                                                     Six Months Ended
                                                         June 30,                                                                                                              June 30,
                             2020               2019             $ Change            % Change                2020                 2019             $ Change           % Change
Net revenue              $ 723,356$ 870,356           (147,000)                  (17) %       $ 1,576,823$ 1,605,782           (28,959)                 (2) %
Cost of revenue            407,656            523,148           (115,492)                  (22) %           905,354              958,071           (52,717)                 (6) %
Gross profit             $ 315,700$ 347,208$ (31,508)                   (9) %       $   671,469$   647,711$ 23,758                   4  %




Revenue

Revenue for the Seller segment for the three and six months ended June 30, 2020
decreased by $147.0 million or 17% and $29.0 million or 2%, respectively,
compared to the three and six months ended June 30, 2019. The decrease was due
to lower GPV processed following the COVID-19 outbreak and the subsequent
shelter in place orders that resulted in material deceleration of Seller
revenues in the latter half of March 2020 through mid-April 2020. Subsequently,
we experienced improvements in GPV processed as states started relaxing the
shelter in place orders and businesses started to adapt with introduction of
delivery, curbside and to-go orders. The decrease in GPV was also partially
offset by a higher percentage of card-not-present transactions in the second
quarter of 2020, which have a higher price, as well as the impact of our
November 2019 card-present price change. Additionally, Square Capital suspended
facilitating loans to sellers in the second quarter of 2020, other than loans
under PPP, further negatively impacting the growth of Seller revenues.

Cost of revenue


Cost of revenue for the Seller segment for the three and six months ended June
30, 2020 decreased by $115.5 million or 22% and $52.7 million or 6%,
respectively, compared to the three and six months ended June 30, 2019 in line
with the decrease in Seller GPV processed which decreased by 20% and 5%,
respectively. The decrease in Seller costs was greater than the decrease in GPV
driven primarily by a higher percentage of debit card transactions and increase
in average value per transaction which have lower costs.

Cash App


The following tables provide a summary of the revenue and gross profit for our
Cash App segment for the three and six months ended June 30, 2020 and 2019 (in
thousands):


                                                      Three Months Ended                                                                                                      Six Months Ended
                                                           June 30,                                                                                                               June 30,
                               2020                2019             $ Change            % Change                2020                2019             $ Change            % Change
Net revenue               $ 1,200,269$ 260,493            939,776                   361  %       $ 1,727,911$ 437,895           1,290,016                 295  %
Cost of revenue               919,206            155,152            764,054                   492  %         1,264,116            247,743           1,016,373                 410  %
Gross profit              $   281,063$ 105,341$ 175,722                   167  %       $   463,795$ 190,152$  273,643                 144  %




                                       46
--------------------------------------------------------------------------------

Revenue


Revenue for the Cash App segment for the three and six months ended June 30,
2020 increased by $0.9 billion or 361% and $1.3 billion or 295%, respectively,
compared to the three and six months ended June 30, 2019. The primary drivers
were growth in Bitcoin revenue, as well as Cash App Instant Deposit and Cash
Card. Bitcoin revenue increased primarily driven by an increase in the number of
active bitcoin customers, as well as growth in customer demand.

Cost of revenue


Cost of revenue for the Cash App segment for the three and six months ended June
30, 2020 increased by $0.8 billion or 492% and $1.0 billion or 410%,
respectively, compared to the three and six months ended June 30, 2019. The
primary drivers for the increase were growth in Bitcoin revenue, as well as Cash
App Instant Deposit and Cash Card.

Key Operating Metrics and Non-GAAP Financial Measures
We collect and analyze operating and financial data to evaluate the health of
our business, allocate our resources, and assess our performance. In addition to
total net revenue, net income (loss), and other results under generally accepted
accounting principles (GAAP), the following table sets forth key operating
metrics and non-GAAP financial measures we use to evaluate our business. We
believe these metrics and measures are useful to facilitate period-to-period
comparisons of our business and to facilitate comparisons of our performance to
that of other payments solution providers.

                                                           Three Months Ended                                    Six Months Ended
                                                                June 30,                                             June 30,
                                                        2020               2019               2020                  2019

Gross Payment Volume (GPV) (in millions)             $ 22,801          $  

26,785 $ 48,544$ 49,371 Adjusted EBITDA (in thousands)

                       $ 97,931$ 105,304$ 107,262$       167,001
Adjusted Net Income Per Share:
Basic                                                $   0.20$    0.23$    0.18          $          0.36
Diluted                                              $   0.18$    0.21$    0.17          $          0.32



Gross Payment Volume (GPV)
We define GPV as the total dollar amount of all card payments processed by
sellers using Square, net of refunds. Additionally, GPV includes Cash App
activity related to peer-to-peer payments sent from a credit card and business
accounts.

Adjusted EBITDA and Adjusted Net Income Per Share (Adjusted EPS)
Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures that represent
our net income (loss) and net income (loss) per share, adjusted to eliminate the
effect of certain items as described below. We have included these non-GAAP
financial measures in this Quarterly Report on Form 10-Q because they are key
measures used by our management to evaluate our operating performance, generate
future operating plans, and make strategic decisions, including those relating
to operating expenses and the allocation of internal resources. Accordingly, we
believe these measures provide useful information to investors and others in
understanding and evaluating our operating results in the same manner as our
management and board of directors. In addition, they provide useful measures for
period-to-period comparisons of our business, as they remove the effect of
certain non-cash items and certain variable charges.

•We believe it is useful to exclude certain non-cash charges, such as
amortization of intangible assets, and share-based compensation expenses, from
our non-GAAP financial measures because the amount of such expenses in any
specific period may not directly correlate to the underlying performance of our
business operations.

•In connection with the issuance of our convertible senior notes (as described
in Note 12, Indebtedness, of the notes of the Condensed Consolidated Financial
Statements), we are required to recognize non-cash interest expense related to
amortization of debt discount and issuance costs. We believe that excluding
these expenses from our non-GAAP measures is useful to investors because such
incremental non-cash interest expense does not represent a current or future
cash outflow for the Company and is therefore not indicative of our continuing
operations or
                                       47
--------------------------------------------------------------------------------

meaningful when comparing current results to past results. Additionally, for
purposes of calculating diluted Adjusted EPS, we add back cash interest expense
on convertible senior notes, as if converted at the beginning of the period, if
the impact is dilutive, since we intend to settle future conversions of our
convertible senior notes entirely in shares.

•We exclude the gain or loss on the disposal of property and equipment, gain or
loss on revaluation of equity investment, gain or loss on debt extinguishment
related to the conversion of senior notes and impairment of intangible assets,
as applicable, from non-GAAP financial measures because we do not believe that
these items are reflective of our ongoing business operations.

•We also exclude certain costs associated with acquisitions that are not normal
recurring operating expenses, including amounts paid to redeem acquirees'
unvested share-based compensation awards, and legal, accounting and due
diligence costs, and we add back the impact of the acquired deferred revenue and
deferred cost adjustment, which was written down to fair value in purchase
accounting. Such amounts were not included in prior periods as they were
immaterial or zero.

In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure
also excludes depreciation, other cash interest income and expense, other income
and expense and provision or benefit from income taxes, as these items are not
components of our core business operations.

Non-GAAP financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:

•share-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;

•the intangible assets being amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and

•non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs.


In addition to the limitations above, Adjusted EBITDA as a non-GAAP financial
measure does not reflect the effect of depreciation expense and related cash
capital requirements, income taxes that may represent a reduction in cash
available to us, and the effect of foreign currency exchange gains or losses
which is included in other income and expense.

Other companies, including companies in our industry, may calculate the non-GAAP
financial measures differently or not at all, which reduces their usefulness as
comparative measures.

Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including net loss and our other financial results presented in accordance with GAAP.

                                       48
--------------------------------------------------------------------------------

The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated (in thousands):

                                                           Three Months Ended                                      Six Months Ended
                                                                June 30,                                               June 30,
                                                         2020               2019               2020                   2019
Net loss                                             $ (11,478)         $ 

(6,740) $ (117,369)$ (44,891) Share-based compensation expense

                        96,180             79,466             173,483                  140,554
Depreciation and amortization                           21,056             18,783              41,117                   37,754
Interest expense, net                                   14,769              5,143              23,975                    9,824
Other expense (income), net                            (25,591)             1,230             (19,729)                  12,529
Loss on disposal of property and equipment               1,481                281               1,699                      300

Acquisition related and other costs                      2,056              6,133               3,580                    6,915
Acquired deferred revenue adjustment                       302              1,849                 959                    5,305
Acquired deferred costs adjustment                         (92)              (365)               (236)                    (942)
Income tax benefit                                        (752)              (476)               (217)                    (347)
Adjusted EBITDA                                      $  97,931$ 105,304$  107,262$       167,001

The following table presents a reconciliation of net loss to Adjusted EPS for each of the periods indicated (in thousands, except per share data):

                                                             Three Months Ended                                      Six Months Ended
                                                                  June 30,                                               June 30,
                                                           2020               2019               2020                   2019
Net loss                                               $ (11,478)         $

(6,740) $ (117,369)$ (44,891) Share-based compensation expense

                          96,180             79,466             173,483                  140,554
Amortization of intangible assets                          4,134              3,958               8,286                    7,445
Amortization of debt discount and issuance costs          17,580              9,725              30,108                   19,333

Loss (gain) on revaluation of equity investment (20,998)

   4,842             (20,998)                  18,929
Loss on extinguishment of long-term debt                       -                  -                 990                        -
Loss on disposal of property and equipment                 1,481                281               1,699                      300

Acquisition related and other costs                        2,056              6,133               3,580                    6,915
Acquired deferred revenue adjustment                         302              1,849                 959                    5,305
Acquired deferred costs adjustment                           (92)              (365)               (236)                    (942)
Adjusted Net Income - basic                            $  89,165          $ 

99,149 $ 80,502$ 152,948 Cash interest expense on convertible senior notes $ 1,565 $

1,277 $ 2,938 $ 1,277 Adjusted Net Income - diluted

                          $  90,730          $ 

100,426 $ 83,440$ 154,225


Weighted-average shares used to compute Adjusted Net
Income Per Share:
Basic                                                    440,117            423,305             437,529                  421,297
Diluted                                                  500,201            486,532             495,181                  486,794

Adjusted Net Income Per Share:
Basic                                                  $    0.20$    0.23$     0.18          $          0.36
Diluted                                                $    0.18$    0.21$     0.17          $          0.32


To calculate the diluted Adjusted EPS, we adjust the weighted-average number of shares of common stock outstanding for the dilutive effect of all potential shares of common stock.

                                       49
--------------------------------------------------------------------------------


In periods when we recorded an Adjusted Net Loss, the diluted Adjusted EPS is
the same as basic Adjusted EPS because the effects of potentially dilutive items
were anti-dilutive given the Adjusted Net Loss position.


Liquidity and Capital Resources


The uncertainty caused by the COVID-19 outbreak continues both in the United
States and globally, with the duration and severity of the pandemic and the
overall impact on consumer demand and overall economy still unknown. We are
unable to forecast the full impact on our business; however, this represents a
known area of uncertainty and we now expect that impacts from the COVID-19
pandemic and the related economic disruption will have a material and adverse
impact on our business, results of operations, financial condition and cash
flows. To address the potential impact to our business, over the near-term, we
are continuing to evaluate the pace of our investment plans, including, but not
limited to, our hiring, real estate and facilities, and marketing campaigns.
Additionally, we have suspended and/or limited expenses on company events,
travel, and certain other discretionary expenses.

As of June 30, 2020, we had approximately $3.7 billion in available funds,
including amounts available under our revolving credit facility, as described in
Note 12, Indebtedness, of Notes to the Condensed Consolidated Financial
Statements. We intend to continue focusing on our long-term business initiatives
and believe that our available funds are sufficient to meet our liquidity needs
for the foreseeable future. We are carefully monitoring and managing our cash
position in light of ongoing conditions and levels of operations.

Liquidity Sources

The following table summarizes our cash, cash equivalents, restricted cash, and investments in marketable debt securities (in thousands):


                                                                   June 30, 2020          December 31, 2019
Cash and cash equivalents                                        $    1,972,762$       1,047,118
Short-term restricted cash                                               19,761                     38,873
Long-term restricted cash                                                13,685                     12,715
Cash, cash equivalents, and restricted cash                      $    2,006,208$       1,098,706
Investments in short-term debt securities                               714,348                    492,456
Investments in long-term debt securities                                446,685                    537,303

Cash, cash equivalents, restricted cash, and investments in marketable debt securities

                                       $    

3,167,241 $ 2,128,465

Our principal sources of liquidity are our cash and cash equivalents and investments in marketable debt securities. As of June 30, 2020, we had $3.2 billion of cash and cash equivalents, restricted cash, and investments in marketable debt securities, which were held primarily in cash deposits, money market funds, U.S. government and agency securities, commercial paper, and corporate bonds. We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Our investments in marketable debt securities are classified as available for sale.


As of June 30, 2020, we held over $2.0 billion in aggregate principal amount of
convertible senior notes, comprised of $186.3 million in aggregate principal
amount of outstanding convertible senior notes that mature on March 1, 2022
(2022 Notes), $862.5 million in aggregate principal amount of convertible senior
notes that mature on May 15, 2023 (2023 Notes), and $1.0 billion in aggregate
amount of convertible senior notes that mature on March 1, 2025 (2025 Notes).
The 2022 Notes bear interest at a rate of 0.375% payable semi-annually on March
1 and September 1 of each year, while the 2023 Notes bear interest at a rate
of 0.50% payable semi-annually on May 15 and November 15 of each year, and the
2025 Notes bear interest at a rate of 0.125% payable semi-annually on March 1
and September 1 of each year. These notes can be converted or repurchased prior
to maturity if certain conditions are met. We currently expect to settle future
conversions of the notes entirely in shares of the our Class A common stock and
will reevaluate this policy from time to time as conversion notices are received
from holders of the notes.
                                       50
--------------------------------------------------------------------------------


In May 2020, we entered into a new revolving credit agreement with certain
lenders, which provides a $500.0 million senior unsecured revolving credit
facility (the "2020 Credit Facility") maturing in May 2023. Loans under the 2020
Credit Facility bear interest at our option of (i) a base rate based on the
highest of the prime rate, the federal funds rate plus 0.50%, and the adjusted
LIBOR rate plus 1.00%, in each case case, plus a margin ranging from 0.25% to
0.75% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.25% to 1.75%.
The margin is determined based on our total net leverage ratio, as defined in
the agreement. We are obligated to pay other customary fees for a credit
facility of this size and type including an unused commitment fee of 0.15%. To
date, no funds have been drawn and no letters of credit have been issued under
the 2020 Credit Facility.

As earlier mentioned, in June 2020, we entered into the PPPLF agreement with the
Federal Reserve Bank of San Francisco to secure additional credit collateralized
by PPP loans. As of June 30, 2020, $447.8 million of PPPLF advances were
outstanding and collateralized by the same value of PPP loans. The advances
under this facility are repayable if the associated PPP loans are forgiven,
repaid by a customer or settled by the government guarantee.

See Note 12, Indebtedness, of the Notes to the Condensed Consolidated Financial Statements for more details on these transactions.


We believe that our existing cash and cash equivalents, investment in marketable
debt securities, and availability under our line of credit will be sufficient to
meet our working capital needs, including any expenditures related to strategic
transactions and investment commitments that we may from time to time enter
into, and planned capital expenditures for at least the next 12 months. From
time to time, we may seek to raise additional capital through equity,
equity-linked, and debt financing arrangements. We cannot provide assurance that
any additional financing will be available to us on acceptable terms or at all.

Short-term restricted cash of $19.8 million as of June 30, 2020 reflects pledged
cash deposited into savings accounts at the financial institutions that process
our sellers' payments transactions and as collateral pursuant to an agreement
with the originating bank for the Company's loan product. We use the restricted
cash to secure letters of credit with these financial institutions to provide
collateral for liabilities arising from cash flow timing differences in the
processing of these payments. We have recorded this amount as a current asset on
our consolidated balance sheets given the short-term nature of these cash flow
timing differences and that there is no minimum time frame during which the cash
must remain restricted. Additionally, this balance includes certain amounts held
as collateral pursuant to multi-year lease agreements, discussed in the
paragraph below, which we expect to become unrestricted within the next year.
Long-term restricted cash of $13.7 million as of June 30, 2020 is primarily
related to cash deposited into money market funds that is used as collateral
pursuant to multi-year lease agreements. The Company has recorded this amount as
a non-current asset on the consolidated balance sheets as the lease terms extend
beyond one year.

We experience significant day-to-day fluctuations in our cash and cash equivalents due to fluctuations in settlements receivable and customers payable, and hence working capital. These fluctuations are primarily due to:


•Timing of period end. For periods that end on a weekend or a bank holiday, our
cash and cash equivalents, settlements receivable, and customers payable
balances typically will be higher than for periods ending on a weekday, as we
settle to our sellers for payment processing activity on business days; and

•Fluctuations in daily GPV. When daily GPV increases, our cash and cash
equivalents, settlements receivable, and customers payable amounts increase.
Typically our settlements receivable and customers payable balances at period
end represent one to four days of receivables and disbursements to be made in
the subsequent period. Customers payable, excluding amounts attributable to Cash
App stored funds, and settlements receivable balances typically move in tandem,
as pay-out and pay-in largely occur on the same business day. However, customers
payable balances will be greater in amount than settlements receivable balances
due to the fact that a subset of funds are held due to unlinked bank accounts,
risk holds, and chargebacks. Also customer funds obligations, which are included
in customers payable, may cause customers payable to trend differently than
settlements receivable. Holidays and day-of-week may also cause significant
volatility in daily GPV amounts.

                                       51
--------------------------------------------------------------------------------

Cash Flow Activities
The following table summarizes our cash flow activities (in thousands):
                                                                         Six Months Ended
                                                                             June 30,
                                                                     2020                2019
Net cash provided by (used in) operating activities              $ (151,833)$  165,836
Net cash used in investing activities                              (302,295)            (95,755)
Net cash provided by (used in) financing activities               1,366,812             (42,405)

Effect of foreign exchange rate on cash and cash equivalents (5,182)

              2,340

Net increase in cash, cash equivalents, and restricted cash $ 907,502

$ 30,016

Cash Flows from Operating Activities


Cash provided by operating activities consisted of our net loss adjusted for
certain non-cash items, including gain or loss on revaluation of equity
investment, depreciation and amortization, non-cash interest and other expense,
share-based compensation expense, transaction and loan losses, deferred income
taxes, non-cash lease expense, as well as the effect of changes in operating
assets and liabilities, including working capital.

For the six months ended June 30, 2020, cash used in operating activities was
$151.8 million, primarily due to a net loss of $117.4 million, PPP loans
facilitated, less loans sold, of $465.5 million, adjusted for the add back of
non-cash expenses of $405.4 million, consisting primarily of share-based
compensation, transaction and loan losses, depreciation and amortization, and
non-cash interest and other expenses. Whereas the increase in transaction and
loan losses was largely caused by estimated losses attributable to the COVID-19
pandemic, the increase in other non-cash expenses was primarily due to the
growth and expansion of our business activities.

For the six months ended June 30, 2019, cash provided by operating activities
was $165.8 million, primarily due to a net loss of $44.9 million, adjusted for
the add back of non-cash expenses of $287.5 million, consisting primarily of
share-based compensation, transaction and loan losses, depreciation and
amortization, and non-cash interest and other expenses largely driven by growth
and expansion of our business activities. The cash generated from operating
activities was negatively affected by a net outflow from changes in other assets
and liabilities of $76.8 million.

Cash Flows from Investing Activities


Cash flows used in investing activities primarily relate to capital expenditures
to support our growth, investments in marketable debt securities, and business
acquisitions.
For the six months ended June 30, 2020, cash used in investing activities was
$302.3 million, primarily due to the net investments of marketable securities
including investments from customer funds of $227.4 million. Additional uses of
cash were as a result of the purchase of property and equipment of $56.6 million
and business acquisitions of $18.4 million.
For the six months ended June 30, 2019, cash used in investing activities was
$95.8 million, primarily due to the net investments of marketable securities
including investments from customer funds of $43.2 million, the purchase of
property and equipment of $30.2 million, and business acquisitions $20.4
million.
Cash Flows from Financing Activities
For the six months ended June 30, 2020, cash provided by financing activities
was $1,366.8 million primarily as a result of $936.5 million in net proceeds
from the 2025 Notes offering, proceeds from the PPPLF advances of $447.8
million, proceeds from issuances of common stock from the exercise of options
and purchases under our employee share purchase plan of $78.1 million, offset by
payments for employee tax withholding related to vesting of restricted stock
units of $93.7 million.
                                       52
--------------------------------------------------------------------------------

For the six months ended June 30, 2019, cash used in financing activities was
$42.4 million primarily as a result of proceeds from issuances of common stock
from the exercise of options and purchases under our employee share purchase
plan of $66.9 million, offset by payments for employee tax withholding related
to vesting of restricted stock units of $106.7 million.
Contractual Obligations and Commitments
On March 5, 2020, we issued $1.0 billion in aggregate principal amount of 2025
Notes that mature on March 1, 2025, unless earlier converted or repurchased, and
bear interest at a rate of 0.125% or $0.6 million payable semi-annually on March
1 and September 1 of each year. See Note 12, Indebtedness, of the Notes to the
Condensed Consolidated Financial Statements for more details on this
transaction.
On June 2, 2020, we entered into the Paycheck Protection Program Liquidity
Facility ("PPPLF") agreement with the Federal Reserve Bank of San Francisco to
secure additional credit in an aggregate principal amount of up to $500.0
million. Borrowings under the facility accrue interest at a rate of 0.35% and
must be collateralized with loans originated under the PPP. The maturity date of
any PPPLF advances will be the maturity date of the PPP loan pledged to secure
the advance, and will be accelerated upon the occurrence of certain events of
default. Although loans originated under the PPP have a stated maturity of
between two and five years from origination, some of the loans may be forgiven
24 weeks after disbursement if they meet certain specified criteria. The PPPLF
advances are also repayable if the underlying PPP loan is repaid by the
customer.
With the exception of the issuance of 2025 Notes and the PPPLF advances, there
were no material changes in our commitments under contractual obligations,
except for scheduled payments from the ongoing business, as disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2019.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements during the periods presented.


                                       53
--------------------------------------------------------------------------------

Critical Accounting Policies and Estimates


Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with GAAP. GAAP requires us to make certain estimates and judgments that affect
the amounts reported in our financial statements. We base our estimates on
historical experience, anticipated future trends, and other assumptions we
believe to be reasonable under the circumstances. Because these accounting
policies require significant judgment, our actual results may differ materially
from our estimates.

We believe accounting policies and the assumptions and estimates associated with
transaction and loan losses, especially due to uncertainties associated with the
COVID-19 outbreak, and revenue recognition have the greatest potential effect on
our consolidated financial statements. Therefore, we consider these to be our
critical accounting policies and estimates.

Our critical accounting policies are disclosed in our Annual Report on Form 10-K
for the year ended December 31, 2019. Our critical accounting policies have not
materially changed during the six months ended June 30, 2020.

Recent Accounting Pronouncements

See "Recent Accounting Pronouncements" described in Note 1 of the Notes to the Condensed Consolidated Financial Statements.

© Edgar Online, source Glimpses

All news about SQUARE, INC.
09:02aSQUARE : to Announce Fourth Quarter and Full Year 2020 Results
BU
08:32aSQUARE : Bernstein Reinstates Square at Outperform With $266 Price Target
MT
01/15SQUARE : KeyBanc Adjusts Square's Price Target to $275 From $250, Reiterates Ove..
MT
01/15Investors push for social media controls ahead of U.S. inauguration
RE
01/14Communications Services Down On Rotation From Growth Into Value Sectors -- Co..
DJ
01/14SQUARE : Evercore ISI Raises Square's Price Target to $304 From $300, Maintains ..
MT
01/14Goldman teams up with fintech startup Marqeta to build checking accounts
RE
01/13SIGNAL, TELEGRAM, WHATSAPP AND IMESS : Choosing a Private Encrypted Chat App
DJ
01/13ANALYSIS : Trump suspension to test Twitter CEO's truce with investors
RE
01/12SQUARE : SQ) sees Significant Insider Selling Continuing
MT
More news