Square, Inc. (now Block, Inc.) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020, with fourth-quarter results also reported. The registrant was named Square, Inc. when it filed this 10-K on February 23, 2021. This is an annual filing, not a standalone quarterly report.
Business context and results
The company operated two reportable ecosystems: Seller, providing commerce, payment, software, hardware and financial services to businesses; and Cash App, offering consumer payments, stored balances, cards, investing and bitcoin services. It reported more than 36 million monthly transacting Cash App customers in December 2020 and $103.7 billion of Seller GPV for the year.
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total net revenue | $9.498 billion | $4.714 billion | +101% |
| Revenue excluding bitcoin revenue | $4.926 billion | $4.197 billion | +17% |
| Gross profit | $2.733 billion | $1.890 billion | +45% |
| Operating income (loss) | ($18.8 million) | $26.6 million | Declined |
| Net income | $213.1 million | $375.4 million | −43% |
| Diluted GAAP EPS | $0.44 | $0.81 | Declined |
| Adjusted EBITDA (non-GAAP) | $474.1 million | $416.9 million | +14% |
| GPV | $112.3 billion | $106.2 billion | +6% |
Bitcoin sales generated $4.572 billion of revenue—48% of consolidated revenue and 85% of the year-over-year revenue increase—but only 3.5% of total gross profit. Bitcoin revenue is reported gross, with its purchase cost recorded separately; it is therefore not comparable to higher-margin revenue streams. Gross margin across reported revenue was approximately 28.8%, versus 40.1% in 2019, largely reflecting this bitcoin mix.
- Segments: Seller revenue was $3.529 billion (+2%) and gross profit $1.508 billion (+8%). Cash App revenue was $5.968 billion (+440%) and gross profit $1.226 billion (+168%); bitcoin drove much of Cash App’s revenue growth.
- Fourth quarter: Revenue was $3.159 billion, versus $1.313 billion in Q4 2019; gross profit was $803.7 million, versus $527.0 million. Net income was $294.0 million, versus $390.9 million, with the prior-year quarter benefiting from the Caviar sale gain. Q4 2020 included a $271.2 million net other-income benefit, primarily from revaluing the DoorDash investment.
Cash, debt and liquidity
- Cash and cash equivalents were $3.158 billion at year-end; cash, restricted cash and marketable debt securities totaled $4.361 billion. Management cited approximately $4.9 billion of available funds including undrawn revolving credit availability.
- Operating cash flow was $381.6 million, down from $465.7 million. Investing activities used $606.6 million; financing activities provided $2.315 billion, primarily from convertible-note issuances and PPP liquidity advances.
- Long-term debt carrying value was $2.587 billion; aggregate convertible-note principal outstanding was approximately $3.021 billion. The $500 million revolving credit facility was undrawn at year-end.
- PPP liquidity facility advances were $464.1 million at year-end, collateralized by PPP loans. The balance sheet also included $3.009 billion of customers payable and $2.038 billion of customer funds; these are associated with customer balances and payment settlement, not unrestricted corporate liquidity.
Material changes, outlook and risks
- COVID-19 sharply reduced Seller activity in late March through mid-April. Activity improved later in the year, supported by reopening, online and contactless commerce, new sellers and government assistance, but trends remained variable by region and business type.
- Cash App growth benefited from bitcoin demand and prices, stimulus and unemployment deposits, and higher customer engagement. Management cautioned these drivers may not persist; bitcoin revenue depends on customer demand and market price.
- Square temporarily halted most new Square Capital loans in 2020 and resumed lending under stricter criteria at lower volumes. It facilitated approximately $857 million of PPP loans during the year and began taking applications for the second PPP round in February 2021.
- The company made no quantified forward financial guidance in the provided filing text. Management said pandemic effects remained difficult to forecast and that it would adjust investment and discretionary spending as needed; it believed available funds would meet working-capital and planned capital needs for at least 12 months.
- Material risks include continued pandemic impacts on sellers and consumer spending; fraud, chargebacks and credit losses; bitcoin price volatility and impairment accounting; cybersecurity and service disruptions; dependence on payment networks, processors and partners; and extensive financial-services, payments, privacy and securities regulation.
- Square Financial Services, a proposed industrial bank, remained subject to regulatory approval and would bring direct oversight and a parent-company financial-support obligation. The company also disclosed a Texas sales-and-use-tax assessment of $38 million, including interest and penalties, which it disputed and planned to contest.
- In February 2021, after year-end, Square purchased an additional $170 million of bitcoin. Bitcoin is accounted for as an indefinite-lived intangible: declines below carrying value can require impairment, while subsequent price recoveries are not recorded until sale.
- Net income included a $276.3 million DoorDash investment revaluation gain. Adjusted EBITDA and adjusted EPS are non-GAAP measures and exclude certain recurring or volatile items; share-based compensation alone was $397.5 million for 2020.
Key investor verification points
- Separate bitcoin transaction volume and gross-reported revenue from underlying Cash App engagement, gross profit and margins.
- Assess whether Seller GPV recovery, card-not-present mix and Cash App growth persisted after government support and pandemic-related behavior changes.
- Review operating cash generation against working-capital movements, PPP loan balances and customer-fund obligations.
- Check convertible-note conversion, settlement and potential dilution terms, plus obligations tied to the PPP facility and proposed bank subsidiary.
- Track outcomes of the Texas tax assessment and other legal, regulatory, transaction-loss and loan-loss exposures.
- Consider the DoorDash revaluation gain, bitcoin impairment treatment, and substantial share-based compensation when evaluating recurring earnings.
The auditor issued an unqualified opinion on the financial statements and internal controls; management also reported effective disclosure controls and internal control over financial reporting at December 31, 2020.