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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _ FORM 10-Q _ (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _ to _ Commission File Number: 001-37622 _ Square, Inc. (Exact name of registrant as specified in its charter) _ Delaware 80-0429876 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 1455 Market Street , Suite 600 San Francisco , CA 94103 (Address of principal executive offices, including zip code) ( 415 ) 375-3176 (Registrants telephone number, including area code) Title of each class Trading Symbol(s) Name of each exchange on which registered Class A common stock, $0.0000001 par value per share SQ New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No As of July 26, 2019 , the number of shares of the registrants Class A common stock outstanding was 342,633,007 and the number of shares of the registrants Class B common stock outstanding was 84,497,676 .TABLE OF CONTENTSPage No. PART IFinancial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited) 4 Condensed Consolidated Statements of Operations (unaudited) 5 Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) 6 Condensed Consolidated Statements of Cash Flows (unaudited) 7 Condensed Consolidated Statements of Stockholders Equity (unaudited) 8 Notes to the Condensed Consolidated Financial Statements (unaudited) 10 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 35 Item 3. Quantitative and Qualitative Disclosures About Market Risk 48 Item 4. Controls and Procedures 49 PART IIOther Information Item 1. Legal Proceedings 50 Item 1A. Risk Factors 50 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 75 Item 3. Defaults Upon Senior Securities 75 Item 4. Mine Safety Disclosures 75 Item 5. Other Information 75 Item 6. Exhibits 75 Signatures 76SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “appears,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our future financial performance, our anticipated growth and growth strategies and our ability to effectively manage that growth, our ability to invest in and develop our products and services to operate with changing technology, the expected benefits of our products to our customers and the impact of our products on our business; our anticipated expansion and growth in Gross Payment Volume (GPV) and revenue, including our expectations regarding larger sellers, our plans for international expansion, our expectations regarding the Cash App ecosystem, the expected impact of our recent acquisitions, the anticipated impact of our sale of Caviar, our plans with respect to patents and other intellectual property, our expectations regarding litigation and positions we have taken with respect to our tax classification, our expectations regarding share-based compensation, our expectations regarding the impacts of accounting guidance, our expectations regarding restricted cash, and the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements. We have based the forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. All forward-looking statements are based on information and estimates available to the Company at the time of this Quarterly Report on Form 10-Q and are not guarantees of future performance. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.Part IFinancial Information Item 1. Financial Statements SQUARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share and per share data)June 30, 2019 December 31, 2018 Assets Current assets: Cash and cash equivalents $ 617,282 $ 583,173 Short-term investments 572,206 540,991 Restricted cash 31,148 33,838 Settlements receivable 1,506,194 364,946 Customer funds 484,945 334,017 Loans held for sale 136,511 89,974 Other current assets 180,360 164,966 Total current assets 3,528,646 2,111,905 Property and equipment, net 130,747 142,402 Goodwill 270,161 261,705 Acquired intangible assets, net 84,216 77,102 Long-term investments 460,827 464,680 Restricted cash 14,433 15,836 Built-to-suit lease asset 149,000 Operating lease right-of-use assets 107,809 Other non-current assets 57,167 58,393 Total assets $ 4,654,006 $ 3,281,023 Liabilities and Stockholders Equity Current liabilities: Customers payable $ 1,802,128 $ 749,215 Settlements payable 290,652 54,137 Accrued transaction losses 39,630 33,682 Accrued expenses 106,351 82,354 Operating lease liabilities, current 24,955 Other current liabilities 111,878 99,153 Total current liabilities 2,375,594 1,018,541 Long-term debt, net of current portion (Note 12) 919,026 899,695 Built-to-suit lease liability 149,000 Operating lease liabilities, non-current 107,265 Other non-current liabilities 67,649 93,286 Total liabilities 3,469,534 2,160,522 Commitments and contingencies (Note 17) Stockholders equity: Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at June 30, 2019 and December 31, 2018. None issued and outstanding at June 30, 2019 and December 31, 2018. Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at June 30, 2019 and December 31, 2018; 341,709,651 and 323,546,864 issued and outstanding at June 30, 2019 and December 31, 2018, respectively. Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at June 30, 2019 and December 31, 2018; 84,508,342 and 93,501,142 issued and outstanding at June 30, 2019 and December 31, 2018, respectively. Additional paid-in capital 2,116,063 2,012,328 Accumulated other comprehensive loss (926) (6,053) Accumulated deficit (930,665) (885,774) Total stockholders equity 1,184,472 1,120,501 Total liabilities and stockholders equity $ 4,654,006 $ 3,281,023 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4SQUARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)Three Months Ended June 30, Six Months Ended June 30,2019 2018 2019 2018 Revenue: Transaction-based revenue $ 775,510 $ 625,228 $ 1,432,272 $ 1,148,265 Subscription and services-based revenue 251,383 134,332 470,240 231,386 Hardware revenue 22,260 18,362 40,472 32,779 Bitcoin revenue 125,085 37,016 190,613 71,111 Total net revenue 1,174,238 814,938 2,133,597 1,483,541 Cost of revenue: Transaction-based costs 490,349 395,349 899,418 723,260 Subscription and services-based costs 60,119 39,784 120,642 70,152 Hardware costs 33,268 25,536 60,209 45,238 Bitcoin costs 122,938 36,596 187,634 70,468 Amortization of acquired technology 1,719 1,857 3,095 3,437 Total cost of revenue 708,393 499,122 1,270,998 912,555 Gross profit 465,845 315,816 862,599 570,986 Operating expenses: Product development 174,201 114,800 328,551 219,895 Sales and marketing 156,421 98,243 290,134 175,509 General and administrative 100,508 82,772 202,106 158,273 Transaction, loan and advance losses 34,264 21,976 62,105 40,007 Amortization of acquired customer assets 1,294 672 2,588 941 Total operating expenses 466,688 318,463 885,484 594,625 Operating loss (843) (2,647) (22,885) (23,639) Interest expense, net 5,143 3,470 9,824 5,582 Other expense (income), net 1,230 (815) 12,529 (108) Loss before income tax (7,216) (5,302) (45,238) (29,113) Provision (benefit) for income taxes (476) 604 (347) 779 Net loss $ (6,740) $ (5,906) $ (44,891) $ (29,892) Net loss per share: Basic $ (0.02) $ (0.01) $ (0.11) $ (0.07) Diluted $ (0.02) $ (0.01) $ (0.11) $ (0.07) Weighted-average shares used to compute net loss per share Basic 423,305 403,301 421,297 399,624 Diluted 423,305 403,301 421,297 399,624 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5SQUARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (In thousands)Three Months Ended June 30, Six Months Ended June 30,2019 2018 2019 2018 Net loss $ (6,740) $ (5,906) $ (44,891) $ (29,892) Net foreign currency translation adjustments 261 (2,944) 527 (2,395) Net unrealized gain (loss) on revaluation of intercompany loans (458) $ 75 $ 207 Net unrealized gain (loss) on marketable debt securities, net of tax 2,237 240 4,525 (950) Total comprehensive loss $ (4,242) $ (9,068) $ (39,764) $ (33,030) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6SQUARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)Six Months Ended June 30,2019 2018 Cash flows from operating activities: Net loss $ (44,891) $ (29,892) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 37,754 22,488 Non-cash interest and other expense 16,802 11,855 Share-based compensation 140,554 98,943 Replacement stock awards issued in connection with acquisition 757 Loss on revaluation of equity investment 18,929 Amortization of operating lease right-of-use assets and accretion of operating lease liabilities 14,354 Recovery of common stock in connection with indemnification settlement agreement (789) (2,745) Transaction, loan and advance losses 62,105 40,007 Change in deferred income taxes (2,229) (688) Changes in operating assets and liabilities: Settlements receivable (1,148,376) (191,987) Customer funds (125,042) (105,813) Purchase of loans held for sale (1,035,500) (734,251) Sales and principal payments of loans held for sale 975,823 716,950 Customers payable 1,052,867 267,746 Settlements payable 236,515 25,828 Charge-offs to accrued transaction losses (36,050) (26,030) Other assets and liabilities 3,010 (22,136) Net cash provided by operating activities 165,836 71,032 Cash flows from investing activities: Purchase of marketable debt securities (354,908) (165,024) Proceeds from maturities of marketable debt securities 220,229 79,273 Proceeds from sale of marketable debt securities 116,522 56,259 Purchase of marketable debt securities from customer funds (88,064) Proceeds from maturities of marketable debt securities from customer funds 63,000 Purchase of property and equipment (30,162) (23,143) Payments for other investments (2,000) Purchase of intangible assets (1,584) Business combinations, net of cash acquired (20,372) (111,828) Net cash used in investing activities (95,755) (166,047) Cash flows from financing activities: Proceeds from issuance of convertible senior notes, net 855,663 Purchase of convertible senior note hedges (172,586) Proceeds from issuance of warrants 112,125 Payment of deferred purchase consideration (95) (640) Principal payments on finance lease obligation (2,568) (1,375) Proceeds from the exercise of stock options, net 66,921 67,199 Payments for tax withholding related to vesting of restricted stock units (106,663) (68,575) Net cash provided by (used in) fi
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