Block, Inc. (then Square, Inc.) — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are primarily with 2018. This is Square’s historical filing, not a filing under the Block, Inc. name.
Business context
Square operated a Seller ecosystem of payments, software, hardware, and financial services, alongside Cash App, a consumer money-management platform. In 2020, management expected to move from one reportable segment to two, reflecting Seller and Cash App businesses. In 2019, Square processed $106.2 billion of GPV, up 25%; Cash App had approximately 24 million monthly active customers in December.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Total net revenue | $4.714 billion (+43%) | $3.298 billion |
| Gross profit | $1.890 billion | $1.304 billion |
| Gross margin | 40.1% | 39.5% |
| Operating income (loss) | $26.6 million | $(36.6) million |
| Net income (loss) | $375.4 million | $(38.5) million |
| Adjusted EBITDA (non-GAAP) | $416.9 million | $256.5 million |
| Operating cash flow | $465.7 million | $295.1 million |
- Revenue growth included transaction-based revenue of $3.081 billion (+25%), subscription and services revenue of $1.031 billion (+74%), hardware revenue of $84.5 million (+23%), and bitcoin revenue of $516.5 million (+210%). Bitcoin costs were $508.2 million, so bitcoin revenue contributed little relative to its reported gross sales.
- Net income included a $373.4 million gain on the Caviar sale. The sale therefore materially affects reported profitability; operating income before that gain was $26.6 million. Share-based compensation was $297.9 million.
- Cash and cash equivalents were $1.047 billion; investments in marketable debt securities were $1.030 billion. Cash, restricted cash, and those investments totaled $2.128 billion. Working capital was $1.526 billion.
- Convertible notes had $1.074 billion aggregate principal outstanding ($938.8 million carrying value). The $375 million revolving facility was undrawn and available at year-end. Management said available liquidity was expected to cover working capital and planned capital expenditures for at least 12 months.
- Operating cash flow rose year over year; investing activities provided $95.2 million, including Caviar-sale cash proceeds, while financing activities used $98.9 million, primarily reflecting employee tax withholding on vested stock awards.
Material changes versus 2018
- GPV grew 25%, supporting transaction revenue growth; larger sellers represented 54% of annual GPV, up from 50% in 2018. They represented 55% of Q4 GPV, versus 51% in Q4 2018.
- Cash App, Square Capital, seller Instant Transfers, and a full year of Weebly revenue drove subscription and services growth. Square Terminal shipments contributed to hardware growth.
- Square sold Caviar to DoorDash on October 31 for $410 million gross consideration: $310 million cash and $100 million in DoorDash preferred stock. The filing cautions that the private-company stock consideration may not be fully realized.
- Cash and cash equivalents increased from $583.2 million to $1.047 billion; long-term debt carrying value increased from $899.7 million to $938.8 million. ASC 842 lease adoption added operating lease right-of-use assets and liabilities to the balance sheet.
Outlook, risks, and unusual items
- The filing provides no quantified revenue or earnings guidance. Management cited continued investment in products, people, marketing, and expansion; future results depend on customer growth, product adoption, and expense management.
- Management identified seasonality in transaction revenue, typically strongest in Q4 and weakest in Q1. Bitcoin revenue varies with customer demand and market prices; Square said it does not hold bitcoin for speculation.
- A San Francisco tax classification dispute could result in estimated taxes, interest, and penalties of approximately $0–$63 million for 2016–2019, beyond amounts already paid; no reserve was recorded for this exposure. Future-period exposure could also be material.
- Other key risks include competition and pricing pressure, fraud and loan losses, cybersecurity and service interruptions, dependence on payment networks and processors, regulation of payments, lending, securities, privacy, and cryptocurrency, and supply-chain and tariff exposure. The filing specifically flagged possible coronavirus-related hardware supply disruptions.
- The 2022 and 2023 convertible notes may create cash repayment requirements or dilution. The company expected to settle future conversions entirely in shares, subject to reassessment. No dividends were expected in the foreseeable future.
- The financial statement and internal-control audits received unqualified opinions; management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- How much of reported earnings and cash generation reflects the one-time Caviar gain versus ongoing operations, and how the DoorDash preferred shares are valued or realized.
- Whether growth in transaction and subscription revenue translates into sustainable gross profit, particularly given bitcoin’s high reported revenue and near-matching costs.
- Cash App engagement and monetization trends, GPV growth, larger-seller concentration, and the costs of customer acquisition and share-based compensation.
- Square Capital loan performance, loss rates, risk-model performance, and continued access to institutional loan buyers and the bank partner.
- Resolution and potential future cost of the San Francisco tax dispute, alongside other tax contingencies and regulatory matters.
- Debt conversion, repayment, and dilution exposure; liquidity available after customer-related obligations, restricted cash, and lease commitments.