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Below is an ongoing record highlighting notes from select SQ investor presentations and earnings calls (newest content shown first).

Third Quarter 2018 Earnings Call, 11/7/2018


The Divergent View Summary: SQ reported strong results for 3Q with the 6th quarter of accelerating revenue growth, allowing the company to raise its revenue and EBITDA guidance for 2018. 

  • Purpose of company is to allow people to participate in the economy by helping sellers to make more sales. A number of sellers could not get into the financial network and could not participate in the economy
  • Launch of Square terminal was a big highlight of the quarter. Our original solution was to allow users to take their iPhone, iPad, etc and plug in our reader.  We built the terminal so that you don’t need to depend on a third-party device…it has a touch screen and receipt printer
    • Restaurants use Square terminal to go directly to customers’ tables and charge them right there, which saves everyone time
  • We added Reader SDK which allows developers to connect directly to our hardware to develop new experiences
    • Shake Shack uses our Reader SDK to power their kiosks, which allows customers to order and pick up their food and speed up the line
  • Launched our CFO search and have been interviewing over the last few weeks
  • Sixth quarter of accelerating revenue growth – adjusted revenue growth was up 56% yoy excluding acquisitions
  • Adjusted EBITDA was $71mm up 107% yoy
  • First quarter of GAAP profitability with net income of $20mm
  • Eventbrite had a successful offering in Q3, which had a $38mm positive impact to net income in the quarter
  • Guidance – strong momentum coming out of 3Q, so $3.26-3.27Bn revenue, adjusted revenue to grow 60% at midpoint, which is a 5% increase vs. prior guidance. Adjusted EBITDA of $250-255mm, which is also a lift from prior guidance
  • Q&A with Sell-side Analysts
  • SQ Terminal – what may it bring in terms of volume or changing the TAM? Gross margin?
    • We think it is a huge market. A lot of sellers don’t like to use their personal device for their terminal.  We expect users to surprise us with how and where they use the terminal
    • We see 2mm standalone payment terminals in the US alone, which we can take share from, but there is also greenfield opportunity to convince merchants to accept electronic payments
    • Gross margin loss that we take is a sales and marketing tool, which gets merchants in and allows us to monetize them through payments later
    • Overall, a dollar in today has a 3-4 quarter payback period
    • No change in how we view hardware, hardware gross margin percentage continues to get better
  • Gross payment volume (GPV) growth dynamics
    • Scale is building every quarter ($23Bn GPV in Q3)
    • Growth will be driven by 1) micro (massive opportunity to bring small businesses into the system), 2) ongoing move upmarket into larger merchants and very happy with percentage of GPV coming from larger merchants at 52%, and 3) omni-channel (offline and online)
    • Also, we have an international opportunity in all three of these areas
    • Don’t focus specifically on take rate. We do custom price for large sellers, but goal is to get sellers on board and maximize dollars of margin through ancillary services such as payroll and capital
  • Cash card – any way to give color on run-rate of spend? Or update on number of users?  Investment levels in this business?
    • Not giving more update on this call
    • In Q2, customers spend $3Bn annualized. We continue to see strong momentum
    • Cash app is a top 25 downloaded app in the app store
    • Cash card has been an important driver for us. People use it fundamentally as a bank account – people can do direct deposit of their paychecks with an ABA number that we provide them.  They can have a physical card to withdraw cash.  It is also a peer to peer app
    • We are observing where customers are spending their card and aligning incentives (such as cash back) accordingly
    • Focus is on traditionally under-served and the unbanked market, so we are excited about the continued momentum
  • Weebly
    • Had a long-term partnership with them and made sense to get the companies together
    • Focus is on what is most critical to get a seller launched as quickly as possible in both offline and online world
  • Macro – with exposure to small business segment and working capital side of business, how do you think about impact of a potential recession?
    • On Square, we are helping sellers grow their business and make business more efficient
    • NFIB index – it was at 108/109 in September, so sentiment amongst small business is high
    • Payment is not a discretionary purchase item
    • We know that Square compares very well from a pricing perspective
  • Square installments – how do consumer pay for this?
    • We pay out the Seller the full amount and we take on the consumer loan
    • Long-term strategy is similar to what we do with SQ Capital today in terms of working with third party investors to get this off-balance sheet
  • 2019 expectations
    • Focus is on banking services, international, and omni-channel
    • Greater than 40% adjusted revenue growth for 2019
    • EBITDA margin expansion in 2019 should be similar to what was achieved in 2018
  • Subscription services as a % of revenue?
    • Software products like invoices or appointments are only monetized through payments. Invoices are 2.9% + 30 cents and for appointments, cost is 2.75% for cost of booking (for sole proprietor) but no cost for software
    • In other places, we charge a software fee. For example, payroll has a monthly fee and fee per employee.  Additionally, if payroll is going into the SQ Cash app, then, we can monetize it through the Cash app
    • Taking all this together, we don’t look at what subscription services can be as % of revenue, but where can we monetize within the overall ecosystem
  • Transaction based profit margin – as large merchants become larger percentage of volumes, will transaction profitability remain stable or will impact of larger merchants become too large to offset?
    • Virtual terminal and API platform have upward impact on take rate (higher than 2.75%)
    • In UK, we started pricing at 1.75% but margin is quite good since it is a heavily regulated market
    • Our focus is to grow absolute dollars of gross profit and EBITDA. We have shown with large sellers that we are willing to be flexible, and large sellers like to join the SQ platform because of the wonderful checkout experience
  • SQ Reader SDK
    • Potential exists for new verticals. Most important thing is to attract developers, so we focus on developer experience and taking opportunities to bring them altogether.  We completed our annual conference to bring developers together to get them talking
  • Cash app – adding a social feed?
    • We don’t see Cash app as a pure peer to peer application
    • We see it as a way to provide banking services, so we see people store their money, spend their money on cash card, withdrawals from ATMs, deposit of paychecks, and peer to peer