01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
Square, Inc. reported total net revenue of $2,214.3 milliona for 2017, up from $1,708.7 million in 2016 and $1,267.1 million in 2015.
Gross Payment Volume (GPV) reached $65.3 billionb in 2017, compared with $49.7 billion in 2016 and $35.6 billion in 2015. Adjusted Revenue, a non-GAAP measure that excludes Starbucks activity and transaction-based costs, grew to $983.963 million, and Adjusted EBITDA improved to $139.0 million from $44.9 million in 2016. Despite this, the company still reported a net loss of $62.8 million for 2017 (versus $171.6 million in 2016), and an accumulated deficit of $842.7 million as of December 31, 2017.
The filing highlights growth in subscription and services-based revenue, which rose to $252.7 millionc from $129.4 million, driven by Instant Deposit, Caviar, and Square Capital. The Starbucks processing relationship ended in the fourth quarter of 2016, so no Starbucks transaction-based revenue was recorded in 2017. Cash provided by operating activities was $127.7 million for 2017.
The company issued $440.0 milliond of 0.375% convertible senior notes due 2022 in March 2017, and it held $1.1 billion of cash, cash equivalents, restricted cash, and marketable securities at year-end. Investors should note the dual-class structure, under which Class B holders controlled approximately 80.4% of voting power as of December 31, 2017.
The company also disclosed ongoing regulatory exposure, including money transmission licensing, a San Francisco Tax Collector notice it is contesting, and risks tied to its bank partner for Square Capital. Management also noted that its revenue growth rate has slowed as revenue has increased.
02—Key points
Key Highlights
- Total net revenue rose to $2,214.3 million in 2017, up from $1,708.7 million in 2016.
- GPV reached $65.3 billion in 2017, up from $49.7 billion in 2016 and $35.6 billion in 2015.
- Adjusted EBITDA was $139.0 million in 2017, compared with $44.9 million in 2016.
- Net loss narrowed to $62.8 million in 2017 from $171.6 million in 2016; accumulated deficit was $842.7 million at year-end 2017.
- Subscription and services-based revenue grew to $252.7 million (11% of total net revenue) from $129.4 million in 2016, led by Instant Deposit, Caviar, and Square Capital.
- Starbucks transaction-based revenue was zero in 2017 after the Starbucks payments relationship transitioned out in Q4 2016.
- The company issued $440.0 million of 0.375% convertible senior notes due 2022 in March 2017, and Class B common stock held approximately 80.4% of combined voting power at December 31, 2017.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, Block lost $0.03.
- Revenue$2.21B100.0%
- Cost of revenue−$1.37B62.1%
- Gross profit$839.3M37.9%
- Operating costs−$893.5M40.4%
- Operating income−$54.2M2.4%
- Interest, other & tax−$8.6M0.4%
- Net income−$62.8M2.8%
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $2.21B$1.71B | +29.6% |
| Cost of Revenue | $1.37B$1.13B | +21.4% |
| Gross Profit | $839.31M$576.04M | +45.7% |
| R&D Expenses | $321.89M$268.54M | +19.9% |
| Operating Expenses | $893.51M$746.49M | +19.7% |
| Operating Income | -$54.21M-$170.45M | +68.2% |
| Net Income | -$62.81M-$171.59M | +63.4% |
| EPS (Basic) | $-0.17$-0.50 | +66.0% |
| EPS (Diluted) | $-0.17$-0.50 | +66.0% |
| Shares Outstanding (Basic) | 379.34M341.56M | +11.1% |
| Shares Outstanding (Diluted) | 379.34M341.56M | +11.1% |
05—Questions
Frequently Asked Questions
How much did revenue grow in 2017 and what drove it?
Total net revenue increased by $505.5 million, or 30%, to $2,214.3 million. Transaction-based revenue rose $464.0 million, or 32%, on GPV growth of $15.7 billion to $65.3 billion, and subscription and services-based revenue rose $123.3 million, or 95%.
Is the company profitable?
Not on a GAAP basis. The company reported a net loss of $62.8 million for 2017, which was narrower than the $171.6 million net loss in 2016, and it had an accumulated deficit of $842.7 million at December 31, 2017. The filing also presents non-GAAP Adjusted Net Income of $115.0 million for 2017, which excludes share-based compensation and other items.
What is the impact of the Starbucks transition?
Starbucks completed its transition to another payments provider in the fourth quarter of 2016. The company recorded no Starbucks transaction-based revenue in 2017, down from $78.9 million in 2016, and does not expect Starbucks revenue to recur.
What are the main risks around the convertible notes and capital structure?
The company issued $440.0 million of 0.375% convertible senior notes due March 1, 2022, with a conversion price of approximately $22.95 per share. Holders could convert during the first quarter of 2018 because the stock price condition was met, and the company may need to pay cash for conversions. Class B shares hold about 80.4% of voting power, which limits the influence of other shareholders.
What regulatory matters does the filing highlight?
The filing notes that certain Cash App activities require money transmitter licenses and that the company has been subject to state fines in the past. It also discloses that the San Francisco Tax Collector issued a notice on the company's business classification, which the company is contesting, and that Square Capital relies on a Utah-chartered industrial bank partner.
06—Continue