Square, Inc. (now Block, Inc.) — Form 10-Q Summary
Reporting period: Three months ended March 31, 2018. The filing was submitted under the name Square, Inc.; the financial statements are unaudited and prepared under U.S. GAAP. Unless otherwise stated, amounts below are in millions of dollars.
Business context and results
Square operated a commerce ecosystem spanning managed payments and point-of-sale tools, Cash App, Square Capital lending, Caviar, and seller hardware. Net revenue grew 45% year over year, supported by GPV growth, subscription and services growth, and the launch of bitcoin sales through Cash App.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net revenue | $668.6 | $461.6 |
| Gross profit | $255.2 | $173.4 |
| Gross margin | 38.2% | 37.6% |
| Operating loss | $(21.0) | $(14.1) |
| Net loss | $(24.0) | $(15.1) |
| Basic and diluted loss per share | $(0.06) | $(0.04) |
| Operating cash flow | $52.1 | $44.0 |
| Adjusted EBITDA (non-GAAP) | $35.9 | $27.0 |
| Adjusted revenue (non-GAAP) | $306.8 | $203.8 |
Revenue, margins, and operating trends
- Transaction-based revenue was $523.0 million, up 30%; GPV was $17.827 billion, up 31%.
- Subscription and services revenue rose 98% to $97.1 million, primarily from Instant Deposit, Caviar, and Square Capital. Hardware revenue increased 60% to $14.4 million, partly reflecting Square Register sales.
- Bitcoin revenue was $34.1 million, with $33.9 million of related costs; the filing says revenue reflects the total bitcoin sale amount, so it is not comparable to the economic margin on other revenue streams.
- Management reported transaction-based margin as a percentage of GPV of 1.09%, versus 1.07% a year earlier, citing higher-margin payment products and an improved transaction cost profile.
- Operating expenses increased 47% to $276.2 million. Product development and sales and marketing spending rose substantially as the company expanded personnel, product development, and marketing. Transaction, loan, and advance losses increased 52% to $18.0 million, including a $2.5 million loan valuation charge.
Cash, debt, and liquidity
- At March 31, cash and cash equivalents were $738.6 million; marketable investments were $376.7 million; restricted cash was $37.5 million. Cash, cash equivalents, and investments totaled $1.115 billion excluding restricted cash, or $1.153 billion including it.
- Operating cash flow was $52.1 million; investing cash flow was $(15.5) million and financing cash flow was $3.0 million. Operating cash flow included substantial working-capital movements, including increases in customer payables and settlements receivable.
- Convertible notes had a $440 million principal amount and a $363.0 million net carrying value, mature in March 2022, and bear 0.375% coupon interest. The notes were eligible for holder conversion in the quarter beginning April 1, 2018, subject to indenture conditions. No holders had converted or indicated intent to convert as of May 1, 2018.
- The $375 million revolving credit facility was undrawn, fully available, and in covenant compliance at quarter-end. Management said available cash, investments, and the credit line should meet working-capital and planned capital expenditure needs for at least 12 months.
Changes, outlook, risks, and unusual items
- Square adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption reduced opening retained earnings by $4.6 million and increased Q1 revenue by $1.3 million; prior-year results were not restated.
- No formal numerical earnings or revenue guidance is provided in the supplied filing text. Management described continued growth initiatives and said liquidity was sufficient for at least the next 12 months.
- In April 2018, Square agreed to acquire Weebly for approximately $265 million, split between cash and Class A stock, subject to adjustments and closing conditions. The transaction was expected to close in Q2 2018.
- Square paid the San Francisco tax authority’s assessment for 2014–2015 gross receipts and payroll expense taxes in Q1, while disputing the authority’s business classification. Additional taxes, penalties, and interest for later years could be material; the company could not estimate a loss range.
- Key disclosed risks include payment fraud and chargebacks, credit and loan losses, reliance on processors and other third parties, cybersecurity and data privacy, extensive financial-services regulation (including evolving cryptocurrency rules), competition, and the ability to sustain growth while pursuing profitability. The company reported a net loss and an accumulated deficit of $871.3 million.
- The filing describes a dual-class share structure: Class B shares carry ten votes per share, concentrating voting control. Management reported disclosure controls were effective at a reasonable-assurance level; ASC 606 prompted related process and control changes.
Important facts for investors to verify
- Whether GPV and transaction-based margin growth persist, and how growth in larger sellers affects margins and concentration of risk.
- Whether operating expense growth, share-based compensation, and loan or transaction losses can be managed while the company remains GAAP-loss-making.
- The underlying economics of bitcoin activity, including trading volumes, customer demand, price volatility, and associated costs.
- The outcome and potential financial exposure of the San Francisco tax dispute, plus any material developments in other litigation or regulatory matters.
- Weebly’s closing, final consideration, integration costs, and contribution to revenue and cash needs.
- Convertible-note conversion or settlement implications, including potential cash requirements and dilution, and the continuing availability of the revolving facility.
- Reconcile non-GAAP adjusted revenue and adjusted EBITDA with GAAP results; these measures exclude costs and are not substitutes for GAAP performance.