SQUARE, INC., 10-K filed on 2/27/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2018
Feb. 22, 2019
Jun. 30, 2018
Class of Stock [Line Items]      
Entity Registrant Name Square, Inc.    
Entity Central Index Key 0001512673    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Entity Well-known Seasoned Issuer Yes    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Public Float     $ 18.6
Class A      
Class of Stock [Line Items]      
Entity Common Stock, Shares Outstanding   327,326,001  
Class B      
Class of Stock [Line Items]      
Entity Common Stock, Shares Outstanding   92,368,406  
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 583,173 $ 696,474
Short-term investments 540,991 169,576
Restricted cash 33,838 28,805
Settlements receivable 364,946 620,523
Customer funds 334,017 103,042
Loans held for sale 89,974 73,420
Other current assets 164,966 86,454
Total current assets 2,111,905 1,778,294
Property and equipment, net 142,402 91,496
Goodwill 261,705 58,327
Acquired intangible assets, net 77,102 14,334
Long-term investments 464,680 203,667
Restricted cash 15,836 9,802
Build-to-suit lease asset 149,000 0
Other non-current assets 58,393 31,350
Total assets 3,281,023 2,187,270
Current liabilities:    
Customers payable 749,215 733,736
Settlements payable 54,137 114,788
Accrued transaction losses 33,682 26,893
Accrued expenses 82,354 52,280
Other current liabilities 99,153 45,130
Total current liabilities 1,018,541 972,827
Long-term debt (Note 12) 899,695 358,572
Build-to-suit lease liability 149,000 0
Other non-current liabilities 93,286 69,538
Total liabilities 2,160,522 1,400,937
Commitments and contingencies (Note 17)  
Stockholders’ equity:    
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at December 31, 2018 and December 31, 2017. None issued and outstanding at December 31, 2018 and December 31, 2017. 0 0
Additional paid-in capital 2,012,328 1,630,386
Accumulated other comprehensive loss (6,053) (1,318)
Accumulated deficit (885,774) (842,735)
Total stockholders’ equity 1,120,501 786,333
Total liabilities and stockholders’ equity 3,281,023 2,187,270
Class A    
Stockholders’ equity:    
Common stock 0 0
Class B    
Stockholders’ equity:    
Common stock $ 0 $ 0
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Preferred stock, par value (in USD per share) $ 0.0000001 $ 0.0000001
Preferred stock, shares authorized (in shares) 100,000,000 100,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Class A    
Common stock, par value (in USD per share) $ 0.0000001 $ 0.0000001
Common stock, shares authorized (in shares) 1,000,000,000 1,000,000,000
Common stock, shares issued (in shares) 323,546,864 280,400,813
Common stock, shares outstanding (in shares) 323,546,864 280,400,813
Class B    
Common stock, par value (in USD per share) $ 0.0000001 $ 0.0000001
Common stock, shares authorized (in shares) 500,000,000 500,000,000
Common stock, shares issued (in shares) 93,501,142 114,793,262
Common stock, shares outstanding (in shares) 93,501,142 114,793,262
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenue:      
Revenue $ 3,205,500    
Revenues 3,298,177 $ 2,214,253 $ 1,708,721
Cost of Revenue [Abstract]      
Cost of revenue 94,114 62,393 68,562
Total cost of revenue 1,994,477 1,374,947 1,132,683
Gross profit 1,303,700 839,306 576,038
Operating expenses:      
Product development 497,479 321,888 268,537
Sales and marketing 411,151 253,170 173,876
General and administrative 339,245 250,553 251,993
Transaction, loan and advance losses 88,077 67,018 51,235
Total operating expenses 1,340,314 893,512 746,491
Operating loss (36,614) (54,206) (170,453)
Interest expense, net 17,982 10,053 (533)
Other income, net (18,469) (1,595) (247)
Loss before income tax (36,127) (62,664) (169,673)
Provision for income taxes 2,326 149 1,917
Net loss $ (38,453) $ (62,813) $ (171,590)
Net loss per share:      
Basic (in USD per share) $ (0.09) $ (0.17) $ (0.50)
Diluted (in USD per share) $ (0.09) $ (0.17) $ (0.50)
Weighted-average shares used to compute net loss per share:      
Basic (in shares) 405,731 379,344 341,555
Diluted (in shares) 405,731 379,344 341,555
Transaction-based      
Revenue:      
Revenue $ 2,471,451 $ 1,920,174 $ 1,456,160
Subscription and services-based revenue      
Revenue:      
Revenue 499,010 185,485 79,507
Revenues 591,706 252,664 129,351
Cost of Revenue [Abstract]      
Cost of revenue 169,884 75,720 43,132
Hardware revenue      
Revenue:      
Revenue 68,503 41,415 44,307
Cost of Revenue [Abstract]      
Cost of revenue 94,114    
Bitcoin revenue      
Revenue:      
Revenue 166,517 0 0
Cost of Revenue [Abstract]      
Cost of revenue 164,827 0 0
Customers Other than Starbucks | Transaction-based      
Revenue:      
Revenue 2,471,451 1,920,174 1,456,160
Cost of Revenue [Abstract]      
Cost of revenue 1,558,562 1,230,290 943,200
Starbucks | Transaction-based      
Revenue:      
Revenue 0 0 78,903
Cost of Revenue [Abstract]      
Cost of revenue 0 0 69,761
Acquired technology      
Cost of Revenue [Abstract]      
Amortization of acquired technology 7,090 6,544 8,028
Acquired customers      
Operating expenses:      
Amortization of acquired customer assets $ 4,362 $ 883 $ 850
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net loss $ (38,453) $ (62,813) $ (171,590)
Net foreign currency translation adjustments (4,496) 1,900 (716)
Net unrealized gain (loss) on revaluation of intercompany loans 303 385 (11)
Net unrealized loss on marketable debt securities (542) (1,614) (77)
Total comprehensive loss $ (43,188) $ (62,142) $ (172,394)
v3.10.0.1
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Convertible preferred stock
Class A and B common stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Beginning balance at Dec. 31, 2015 $ 508,048 $ 0 $ 0 $ 1,116,882 $ (1,185) $ (607,649)
Beginning balance (in shares) at Dec. 31, 2015   0 334,949,445      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net loss (171,590)         (171,590)
Shares issued in connection with:            
Exercise of stock options and warrants (in shares)     24,413,821      
Exercise of stock options and warrants 82,438     82,438    
Purchases under employee stock purchase plan (in shares)     1,852,900      
Purchases under employee stock purchase plan 14,201     14,201    
Vesting of restricted stock units (in shares)     3,392,726      
Vesting of restricted stock units 0          
Vesting of early exercised stock options and other 2,313     2,313    
Cancellation of shares related to business combinations (in shares)     (228)      
Cancellation of shares related to business combinations 0          
Repurchase of common stock (in shares)     (61,288)      
Repurchase of common stock 0          
Change in other comprehensive loss (804)       (804)  
Share-based compensation 141,547     141,547    
Ending balance at Dec. 31, 2016 576,153 $ 0 $ 0 1,357,381 (1,989) (779,239)
Ending balance (in shares) at Dec. 31, 2016   0 364,547,376      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net loss (62,813)         (62,813)
Shares issued in connection with:            
Exercise of stock options (in shares)     24,510,745      
Exercise of stock options 144,774     144,774    
Purchases under employee stock purchase plan (in shares)     1,670,045      
Purchases under employee stock purchase plan 17,859     17,859    
Vesting of restricted stock units (in shares)     5,964,153      
Vesting of restricted stock units 0          
Vesting of early exercised stock options and other 661     661    
Repurchase of common stock (in shares)     (24,209)      
Repurchase of common stock 0          
Change in other comprehensive loss 671       671  
Share-based compensation 159,509     159,509    
Tax withholding related to vesting of restricted stock units (in shares)     (1,474,035)      
Tax withholding related to vesting of restricted stock units (44,682)     (44,682)    
Conversion feature of convertible senior notes, due 2022, net of allocated debt issuance costs 83,901     83,901    
Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2022 (92,136)     (92,136)    
Sale of warrants in conjunction with issuance of convertible senior notes, due 2022 57,244     57,244    
Payment for termination of Starbucks warrant (54,808)     (54,808)    
Ending balance at Dec. 31, 2017 786,333 $ 0 $ 0 1,630,386 (1,318) (842,735)
Ending balance (in shares) at Dec. 31, 2017   0 395,194,075      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net loss $ (38,453)         (38,453)
Shares issued in connection with:            
Exercise of stock options (in shares) 13,402,680   13,402,680      
Exercise of stock options $ 106,962     106,962    
Purchases under employee stock purchase plan (in shares)     826,356      
Purchases under employee stock purchase plan 26,888     26,888    
Vesting of restricted stock units (in shares)     8,046,640      
Vesting of early exercised stock options and other 177     177    
Issuance of common stock in connection with business combination (shares)     2,649,590      
Issuance of common stock in connection with business combination 140,107     140,107    
Replacement stock awards issued in connection with acquisition (in shares)     24,613      
Replacement stock awards issued in connection with acquisition 899     899    
Change in other comprehensive loss (4,735)       (4,735)  
Share-based compensation 226,182     226,182    
Tax withholding related to vesting of restricted stock units (in shares)     (3,013,394)      
Tax withholding related to vesting of restricted stock units (189,124)     (189,124)    
Conversion feature of convertible senior notes, due 2022, net of allocated debt issuance costs 154,019     154,019    
Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2022 (172,586)     (172,586)    
Sale of warrants in conjunction with issuance of convertible senior notes, due 2022 112,125     112,125    
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (in shares)     7,288,907      
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (20,962)     (20,962)    
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022 (in shares)     (6,901,567)      
Recovery of common stock in connection with indemnification settlement agreement (in shares)     (469,894)      
Recovery of common stock in connection with indemnification settlement agreement (2,745)     (2,745)    
Ending balance at Dec. 31, 2018 $ 1,120,501 $ 0 $ 0 $ 2,012,328 $ (6,053) $ (885,774)
Ending balance (in shares) at Dec. 31, 2018   0 417,048,006      
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net loss $ (38,453) $ (62,813) $ (171,590)
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization 60,961 37,279 37,745
Non-cash interest and other expense 31,257 14,421 (49)
Loss on extinguishment of long-term debt 5,047 0 0
Share-based compensation 216,881 155,836 138,786
Replacement stock awards issued in connection with acquisition 899 0 0
Gain on revaluation of equity investment (20,342) 0 0
Recovery of common stock in connection with indemnification settlement agreement (2,745) 0 0
Transaction, loan and advance losses 88,077 67,018 51,235
Change in deferred income taxes (646) (1,385) 58
Changes in operating assets and liabilities:      
Settlements receivable 245,795 (305,831) (177,662)
Customer funds (131,004) (59,468) (34,128)
Purchase of loans held for sale (1,609,611) (1,184,630) (668,976)
Sales and principal payments of loans held for sale 1,579,834 1,145,314 627,627
Other current assets (77,405) (26,119) 16,116
Other non-current assets (6,641) (3,274) 631
Customers payable 15,597 301,778 206,574
Settlements payable (60,651) 63,637 38,046
Charge-offs to accrued transaction losses (58,192) (46,148) (47,931)
Accrued expenses 7,190 12,207 (409)
Other current liabilities 35,294 8,198 3,909
Other non-current liabilities 13,938 11,691 3,149
Net cash provided by operating activities 295,080 127,711 23,131
Cash flows from investing activities:      
Purchase of marketable debt securities (1,000,346) (544,910) (164,766)
Proceeds from maturities of marketable debt securities 197,454 168,224 43,200
Proceeds from sale of marketable debt securities 171,992 89,087 34,222
Purchase of marketable debt securities from customer funds (148,096) 0 0
Proceeds from sale of marketable debt securities from customer funds 48,334 0 0
Purchase of property and equipment (61,203) (26,097) (25,433)
Proceeds from sale of property and equipment 0 0 296
Purchase of equity investment 0 (25,000) 0
Purchase of intangible assets (1,584) 0 (400)
Business combinations, net of cash acquired (112,399) (1,915) (1,360)
Net cash used in investing activities: (905,848) (340,611) (114,241)
Cash flows from financing activities:      
Proceeds from issuance of convertible senior notes, net 855,663 428,250 0
Purchase of convertible senior note hedges (172,586) (92,136) 0
Proceeds from issuance of warrants 112,125 57,244 0
Principal payment on conversion of senior notes (219,384) 0 0
Payment of deferred purchase consideration (848) 0 0
Payment for termination of Starbucks warrant 0 (54,808) 0
Payments of offering costs related to initial public offering 0 0 (5,530)
Principal payments on capital lease obligation (3,941) (1,439) (168)
Proceeds from the exercise of stock options and purchases under the employee stock purchase plan, net 133,850 162,504 96,439
Payments for tax withholding related to vesting of restricted stock units (189,124) (44,682) 0
Net cash provided by financing activities 515,755 454,933 90,741
Effect of foreign exchange rate on cash and cash equivalents (7,221) 4,303 (438)
Net increase (decrease) in cash, cash equivalents and restricted cash (102,234) 246,336 (807)
Cash, cash equivalents and restricted cash, beginning of the year 735,081 488,745 489,552
Cash, cash equivalents and restricted cash, end of the year $ 632,847 $ 735,081 $ 488,745
v3.10.0.1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Square, Inc. (together with its subsidiaries, Square or the Company) creates tools that help sellers start, run, and grow their businesses. Square enables sellers to accept card payments and also provides reporting and analytics, next-day settlement, and chargeback protection. Square’s point-of-sale software and other business services help sellers manage inventory, locations, and employees; access financing; engage buyers; build a website or online store; and grow sales. The Cash App is an easy way to send, spend, and store money, and Caviar is a food-ordering service. Square was founded in 2009 and is headquartered in San Francisco, with offices in the United States, Canada, Japan, Australia, Ireland, and the UK.

Reclassifications and Other Adjustments

During the year ended December 31, 2018, the Company has reclassified prior period balances within interest and other (income) expense, net, to disaggregate the amounts and separately present interest (income) expense, net and other (income) expense, net on its consolidated statements of operations to conform to the current period presentation. This classification change was made to provide clarity of the balances as the activity continues to grow, particularly as a result of the impact of revaluation of an equity investment in the current period. During the year ended December 31, 2018, the Company recorded a gain of $20.3 million to other income on the consolidated statements of operations arising from revaluation of this investment (Note 11). There was no impact to the net income (loss) on its consolidated statements of operations to any of the periods presented as result of this change.

Litigation Settlement

On June 8, 2016, a final, definitive settlement agreement (Settlement Agreement) was entered into by Robert E. Morley, REM Holdings 3, LLC, Jack Dorsey, Jim McKelvey, and the Company. The Settlement Agreement required an aggregate total payment of $50.0 million to plaintiffs, including meaningful contributions by Mr. Dorsey and Mr. McKelvey. The Company made a payment of $48.0 million to plaintiffs and met its obligations under the Settlement Agreement. This amount was classified within general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2016. On June 17, 2016, the Court entered an Order dismissing the complaints in their entirety, with prejudice.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be materially affected. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

Estimates, judgments, and assumptions in these consolidated financial statements include, but are not limited to, those related to revenue recognition, accrued transaction losses, valuation of the debt component of convertible senior notes, valuation of loans held for sale, goodwill, acquired intangible assets and deferred revenue, income and other taxes, build-to-suit lease asset and liability, and share-based compensation.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic revenue recognition methodology under ASC 605, Revenue Recognition. Refer to Note 2 for the impact of this adoption.

Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

Transaction-based revenue

The Company charges its sellers a transaction fee for managed payments solutions that is generally calculated as a percentage of the total transaction amount processed. The Company selectively offers custom pricing for certain sellers. The Company collects the transaction amount from the seller's customer's bank, net of acquiring interchange and assessment fees, processing fees, and bank settlement fees paid to third-party payment processors and financial institutions. The Company retains its fees and remits the net amount to the sellers.

The Company acts as the merchant of record for its sellers and works directly with payment card networks and banks so that its sellers do not need to manage the complex systems, rules, and requirements of the payments industry. The Company satisfies its performance obligations and therefore recognizes the transaction fees as revenue upon authorization of a transaction by the seller's customer's bank.

Revenue is recognized net of refunds, which arise from reversals of transactions initiated by sellers.

The transaction fees collected from sellers are recognized as revenue on a gross basis as the Company is the principal in the delivery of the managed payments solutions to the sellers. The Company has concluded it is the principal because as the merchant of record, it controls the services before delivery to the seller, it is primarily responsible for the delivery of the services to its sellers, and it has discretion in setting prices charged to sellers. The Company also has the unilateral ability to accept or reject a transaction based on criteria established by the Company. As the merchant of record, Square is liable for the costs of processing the transactions for its sellers, and records such costs within cost of revenue.

Subscription and services-based revenue

Subscription and services-based revenue is primarily comprised of revenue the Company generates from Instant Deposit and Cash Card, Caviar, Square Capital, website hosting and domain name registration services, and various other software as a service (SaaS) products.

Instant Deposit is a functionality within the Cash App and the Company's managed payments solution that enables customers, including individuals and sellers, to instantly deposit funds into their bank accounts. The Company charges a per transaction fee which is recognized as revenue when customers instantly deposit funds to their bank account. The Company also offers Cash App customers the ability to use funds stored in the Cash App via a Visa debit card (Cash Card), for which the Company charges a per transaction fee that is recorded as revenue.

Caviar is a food ordering platform that facilitates food delivery services. The Company's performance obligations are the delivery of food orders from restaurants to customers and the provision of catered meals to corporate customers. For delivery of food orders, the Company charges fees to restaurants, as sellers, and also charges delivery and service fees to individuals. For provision of catered meals the Company charges corporate customers a fee. All fees are billed upon delivery of food orders or catered meals, when the Company considers that it has satisfied its performance obligations. Revenue is recognized upon delivery of the food orders or catered meals, net of refunds. Refunds are estimated based on historical experience.

Square Capital facilitates a loan that is offered through a partnership with an industrial bank that is either repaid through withholding a percentage of the collections of the seller's receivables processed by the Company or a specified monthly amount. The Company generally facilitates loans to its sellers pre-qualified through an analysis of the aggregated data of the seller’s business which includes, but is not limited to, the seller’s historical processing volumes, transaction count, chargebacks, growth, and length of time as a Square customer. The Company also facilitates loans to the customers of certain sellers as well as to the sellers of its partners who do not process payments through the Company. The loans are generally originated by a bank partner, from whom the Company purchases the loans obtaining all rights, title, and interest. The loans have no stated coupon rate but the seller is charged a one-time origination fee by the bank partner based upon their risk rating, which is derived primarily from processing activity. It is the Company’s intent to sell all of its rights, title, and interest of these loans to third-party investors for an upfront fee when the loans are sold. The Company records the net amounts paid to the bank as the cost of the loans purchased and subsequently records a gain on sale of the loans to the third-party investors as revenue upon transfer of title. The Company is retained by the third-party investors to service the loans and earns a servicing fee for facilitating the repayment of these receivables through its managed payments solutions. The Company records servicing revenue as servicing is delivered. For the loans which are not immediately sold to third-party investors, the Company recognizes a portion of the expected seller repayments over the cost of the loans as revenue in proportion to the loan principal reduction.

Following the acquisition of Weebly, the Company offers customers website hosting services for a fee that is generally billed at inception. The Company also acts as a reseller of domain names registration services for a registrar for a fee, which is also generally billed at inception. The Company considers that it satisfies its performance obligations over time and as such recognizes revenue ratably over the term of the relevant arrangements, which vary from one month to twenty four months for website hosting, and one year to ten years for domain name registration.

SaaS represents software products and solutions that provide customers with access to various technologies for a fee which is recognized as revenue ratably as the service is provided. The Company's contracts with customers are generally for a term of one month and renew automatically each month. The Company invoices its customers monthly. The Company considers that it satisfies its performance obligations over time each month as it provides the SaaS services to customers and hence recognizes revenue ratably over the month.

Hardware revenue

The Company generates revenue through the sale of hardware through e-commerce and through its retail distribution channels. The Company satisfies its performance obligation upon delivery of hardware to its customers who include end user customers, distributors, and retailers. The Company may at times offer concessions to customers and also allow for customer returns, which are accounted for as variable consideration. The Company estimates these amounts based on historical experience and reduces revenue recognized. The Company invoices end user customers upon delivery of the products to customers, and payments from such customers are due upon invoicing. Distributors and retailers have payment terms that range from 30 to 90 days after delivery.

The Company offers hardware installment sales to customers with terms ranging from three to twenty four months. The Company allocates a portion of the consideration received from these arrangements to a financing component when it determines that a significant financing component exists. The financing component is subsequently recognized as financing revenue separate from hardware revenue, within subscription and services-based revenue, over the terms of the arrangement with the customer. Pursuant to practical expedients afforded under ASC 606, the Company does not recognize a financing component for hardware installment sales that have a term of one year or less.

Bitcoin revenue

During the fourth quarter of 2017, the Company started offering its Cash App customers the ability to purchase bitcoin, a cryptocurrency denominated asset, from the Company. The Company satisfies its performance obligation and records revenue when bitcoin is transferred to the customer's account.

Arrangements with Multiple Performance Obligations

The Company's contracts with customers generally do not include multiple performance obligations with differing patterns of revenue recognition, except for domain name registration offered with website hosting services sold after May 31, 2018 following the acquisition of Weebly (Note 7). The Company offers its customers the option to buy website hosting bundled with domain name registration, and infrequently the Company has offered its hardware customers free managed payments solutions with the purchase of its hardware as part of a marketing promotion. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company determines standalone selling prices based on the prices charged to customers since the Company's products and services are normally sold on a stand alone basis.



Cost of Revenue

Transaction-based costs

Transaction-based costs consist primarily of interchange and assessment fees, processing fees and bank settlement fees paid to third-party payment processors and financial institutions.

Subscription and services-based costs

Subscription and services-based costs consist primarily of Caviar-related costs, which include processing fees, payments to third-party couriers for deliveries and the cost of equipment provided to sellers. Caviar-related costs for catered meals also includes food costs and personnel costs. These costs also include costs associated with Cash Card and Instant Deposit.

Hardware costs

Hardware costs consist of all product costs associated with contactless and chip readers, chip card readers, Square Stand, Square Register, Square Terminal and third-party peripherals. Product costs consist of third-party manufacturing costs.

Bitcoin costs

Bitcoin cost of revenue comprises of the amounts the Company pays to purchase bitcoin, which will fluctuate in line with the price of bitcoin in the market.


Advertising Costs

Advertising costs are expensed as incurred and included in sales and marketing expense on the consolidated statements of operations. Total advertising costs for the years ended December 31, 2018, 2017, and 2016 were $101.9 million, $81.9 million, and $58.3 million, respectively.

Share-based Compensation

Share-based compensation expense relates to stock options, restricted stock awards (RSAs), restricted stock units (RSUs), and purchases under the Company’s 2015 Employee Stock Purchase Plan (ESPP) which is measured based on the grant-date fair value. The fair value of RSAs and RSUs is determined by the closing price of the Company’s common stock on each grant date.The fair value of stock options and ESPP shares granted to employees is estimated on the date of grant using the Black-Scholes-Merton option valuation model. This share-based compensation expense valuation model requires the Company to make assumptions and judgments regarding the variables used in the calculation. These variables include the expected term (weighted average period of time that the options granted are expected to be outstanding), the expected volatility of the Company’s stock, expected risk-free interest rate and expected dividends. The Company uses the simplified calculation of expected term, as the Company does not have sufficient historical data to use any other method to estimate expected term. Expected volatility is based on a weighted average of the historical volatilities of the Company's common stock along with several entities with characteristics similar to those of the Company. The Company will continue to weight its own volatility more heavily as more of its own historical stock price information becomes available. Once its own historical data is equal to that of the expected term of option grants a peer group is no longer considered necessary. The expected risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. Share-based compensation expense is recorded on a straight-line basis over the requisite service period. For the year ended December 31, 2016 and prior, the Company recorded share-based compensation expense net of estimated forfeitures. On January 1, 2017, as a result of the Company's adoption of ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company elected to account for forfeitures as they occur.

Income and Other Taxes

The Company reports income taxes under the asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the enacted tax rates expected to be in effect when the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.

The Company uses financial projections to support its net deferred tax assets, which contain significant assumptions and estimates of future operations. If such assumptions were to differ significantly from actual future results of operations, it may have a material impact on the Company’s ability to realize its deferred tax assets. At the end of each period, the Company assesses the ability to realize the deferred tax assets. If it is more likely than not that the Company would not realize the deferred tax assets, then the Company would establish a valuation allowance for all or a portion of the deferred tax assets.

The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to uncertain tax positions in the provision for income tax expense on the consolidated statements of operations.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments, including money market funds, with an original maturity of three months or less when purchased to be cash equivalents.

As of December 31, 2018 and 2017, restricted cash of $33.8 million and $28.8 million, respectively, is related to pledged cash deposited into savings accounts at the financial institutions that process the Company's sellers' payment transactions and as collateral pursuant to an agreement with the originating bank for the Company's loan product. The Company uses the restricted cash to secure letters of credit with the financial institution to provide collateral for cash flow timing differences in the processing of these payments. The Company has recorded this amount as a current asset on the consolidated balance sheets due to the short-term nature of these cash flow timing differences and that there is no minimum time frame during which the cash must remain restricted. Additionally, this balance includes certain amounts held as collateral pursuant to multi-year lease agreements, discussed in the paragraph below that we expect to become unrestricted within the next year.

As of December 31, 2018 and 2017, the remaining restricted cash of $15.8 million and $9.8 million, respectively, is primarily related to cash held as collateral pursuant to multi-year lease agreements (Note 17). The Company has recorded this amount as a non-current asset on the consolidated balance sheets as the terms of the related leases extend beyond one year.

Concentration of Credit Risk

For the years ended December 31, 2018, 2017 and 2016, the Company had no customer who accounted for greater than 10% of total net revenue.

The Company had three third-party payment processors that represented approximately 45%, 33%, and 9% of settlements receivable as of December 31, 2018. The same three parties represented approximately 46%, 42%, and 8% of settlements receivable as of December 31, 2017. All other third-party processors were insignificant.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable debt securities, settlements receivables, customer funds, and loans held for sale. The associated risk of concentration for cash and cash equivalents and restricted cash is mitigated by banking with creditworthy institutions. At certain times, amounts on deposit exceed federal deposit insurance limits. The associated risk of concentration for marketable debt securities is mitigated by holding a diversified portfolio of highly rated investments. Settlements receivable are amounts due from well-established payment processing companies and normally take one or two business days to settle which mitigates the associated risk of concentration. The associated risk of concentration for loans held for sale is partially mitigated by credit evaluations that are performed prior to facilitating the offering of loans and ongoing performance monitoring of the Company’s loan customers.

Investments

The Company's short-term and long-term investments include marketable debt securities such as government and agency securities, corporate bonds, commercial paper and municipal securities. The Company determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable debt securities as available-for-sale. Investments are reviewed periodically to identify possible other-than-temporary impairments. If any impairment is considered other-than-temporary, the Company writes down the investment to its fair value and record the corresponding charge through other income (expense), net on its consolidated statements of operations.

Customer funds

Customer funds held in deposit represent Cash App customers' stored balances that customers would later use to send money or make payments, or customers cash in transit. As of December 31, 2017, the Company held these stored balances as short term bank deposits. During the year ended December 31, 2018, the Company started investing a portion of these stored balances in short-term marketable debt securities (Note 4). The Company determines the appropriate classification of the investments in marketable debt securities within customer funds at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable debt securities within customer funds as available-for-sale.

Fair Value of Financial Instruments

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value accounting establishes a three-level hierarchy priority for disclosure of assets and liabilities recorded at fair value. The ordering of priority reflects the degree to which objective prices in external active markets are available to measure fair value. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 Inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Loans Held for Sale

The Company classifies customer loans as held for sale upon purchase from an industrial bank partner, as there is an available market for such loans and it is the Company’s intent to sell all of its rights, title, and interest in these loans to third-party investors. Loans held for sale are recorded at the lower of amortized cost or fair value determined on an individual loan basis. To determine the fair value the Company utilizes industry-standard valuation modeling, such as discounted cash flow models, taking into account the estimated timing and amounts of periodic repayments. The Company recognizes a charge within transaction, loan and advance losses on the consolidated statement of operations whenever the amortized cost of a loan exceeds its fair value, with such charges being reversed for subsequent increases in fair value, but only to the extent that such reversals do not result in the amortized cost of a loan exceeding its fair value. A loan that is initially designated as held for sale may be reclassified to held for investment if and when the Company's intent for that loan changes. There have been no reclassifications made to date.

Settlements Receivable
    
Settlements receivable represents amounts due from third-party payment processors for customer transactions. Settlements receivable are typically received within one or two business days of the transaction date. No valuation allowances have been established, as funds are due from large, well-established financial institutions with no historical collections issue.

Inventory

Inventory is comprised of contactless and chip readers, chip card readers, Square Stand, Square Register, Square Terminal and third-party peripherals, as well as component parts that are used to manufacture these products. Inventory is stated at the lower of cost (generally on a first-in, first-out basis) or net realizable value. Inventory that is obsolete or in excess of forecasted usage is written down to its net realizable value based on the estimated selling prices in the ordinary course of business. The Company's inventory is held at the Company's warehouses as well as at third party contract manufacturer premises.

Deferred Revenue

Deferred revenue is primarily comprised of payments for website hosting and domain name registration received from customers at inception of the arrangements prior to the services being rendered. Deferred revenue also includes unearned revenue related to managed payments services offered in conjunction with hardware sales for which the cash payments from customers are received and due upon the sale of the hardware.


Cryptocurrency transactions

During the fourth quarter of 2017, the Company started offering its Cash App customers the ability to purchase bitcoin, a cryptocurrency denominated asset, from the Company. The Company purchases bitcoin from private broker dealers or from Cash App customers. Upon purchase, the Company records the cost of bitcoin within other current assets in its consolidated balance sheets. Upon sale, the Company records the total sale amount received from customers as bitcoin revenue and the associated cost as cost of revenue. The carrying value of bitcoin held by the Company was $0.2 million and $0.3 million as of December 31, 2018 and 2017, respectively. The Company assesses the carrying value of bitcoin held by the Company at each reporting date and records an impairment charge if the carrying value exceeds the fair value. Losses on bitcoin for the years ended December 31, 2018 and 2017, were insignificant.

Property and Equipment

Property and equipment are recorded at historical cost less accumulated depreciation, which is computed on a straight-line basis over the asset’s estimated useful life.
The estimated useful lives of property and equipment are described below:
Property and Equipment
 
Useful Life
Capitalized software
 
18 months
Computer and data center equipment
 
Two to three years
Furniture and fixtures
 
Seven years
Leasehold improvements
 
Lesser of ten years or remaining lease term


When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in operating expenses.

Capitalized Software

The Company capitalizes certain cost incurred in developing internal-use software when capitalization requirements have been met. Costs prior to meeting the capitalization requirements are expensed as incurred. Capitalized costs are included in property and equipment, net, and amortized on a straight-lined basis over the estimated useful life of the software and included in product development costs on the consolidated statements of operations. The Company capitalized $24.0 million, $9.8 million and $7.9 million of internally developed software during the years ended December 31, 2018, 2017 and 2016, respectively, and recognized $10.6 million, $6.6 million and $7.1 million of amortization expense during the years ended December 31, 2018, 2017 and 2016, respectively.

Leases

The Company leases office space and equipment under non-cancellable capital and operating leases with various expiration dates. The Company records the total rent expense on a straight-line basis over the lease term.

When lease agreements provide allowances for leasehold improvements, the Company capitalizes the leasehold improvement assets and recognizes the related depreciation expense on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset, and reduces rent expense on a straight-line basis over the term of the lease by the amount of the allowances provided. The Company classifies the cash payments for the leasehold improvements within investing activities while reimbursements from the landlords are classified within operating activities.

The Company records a liability for the estimated fair value for any asset retirement obligation (ARO) associated with its leases, with an offsetting asset. In the determination of the fair value of AROs, the Company uses various assumptions and judgments, including such factors as the existence of a legal obligation, estimated amounts and timing of settlements, and discount and inflation rates. The liability is subsequently accreted while the asset is depreciated. As of December 31, 2018, the Company had a liability for ARO, gross of accretion, of $3.6 million and an associated asset, net of depreciation, of $2.1 million.

Under ASC 840, Leases, the Company is deemed to be the owner, for accounting purposes, during the construction phase of a certain long-lived asset under a build-to-suit lease arrangement because of its involvement with the construction and its exposure to any potential cost overruns under the arrangement. In these cases, the Company recognizes a build-to-suit lease asset and a corresponding build-to-suit lease liability on the consolidated balance sheets. Refer to Note 17 for further details.


Business Combinations

The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of total consideration over the fair values of the assets acquired and the liabilities assumed is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded on the consolidated statements of operations.

Long-Lived Assets, including Goodwill and Acquired Intangibles

The Company evaluates the recoverability of property and equipment and finite lived intangible assets for impairment whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated. If the carrying amount of the long–lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third–part independent appraisals, as considered necessary. For the periods presented, the Company had recorded no impairment charges.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. The Company performs a goodwill impairment test annually on December 31 and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the reporting unit’s fair value. The Company has concluded that its business operations as a whole comprise one reporting unit. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount and determine whether further action is needed. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. For the periods presented, the Company had recorded no impairment charges.

Acquired intangibles consist of acquired technology and customer relationships associated with various acquisitions. Acquired technology is amortized over its estimated useful life on a straight-line basis within cost of revenue. Customer relationships acquired are amortized on a straight-line basis over their estimated useful lives within operating expenses. The Company evaluates the remaining estimated useful life of its intangible assets being amortized on an ongoing basis to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Customers Payable

Customers payable represents the transaction amounts, less revenue earned by the Company, owed to sellers or Cash App customers. The payable amount comprises amounts owed to customers due to timing differences as the Company typically settles within one business day, amounts held by the Company in accordance with its risk management policies, and amounts held for customers who have not yet linked a bank account. This balance also includes the Company's liability for customer funds held on deposit in the Cash App.

Accrued Transaction Losses

The Company establishes a reserve for estimated transaction losses due to chargebacks, which represent a potential loss due to disputes between a seller and their customer or due to a fraudulent transaction. This also includes estimated transactions losses on Cash App activity related to peer-to-peer payments sent from a credit card, Cash for Business and Cash Card. The reserve is estimated based on available data as of the reporting date, including expectations of future chargebacks, and historical trends related to loss rates. Additions to the reserve are reflected in current operating results, while realized losses are offset against the reserve. These amounts are classified within transaction and advance losses on the consolidated statements of operations.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company intends to adopt this guidance effective January 1, 2020. The Company is currently evaluating the impact this guidance may have on the consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill assuming a hypothetical purchase price allocation (i.e., Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill. This standard should be adopted when the Company performs its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The amendments should be applied on a prospective basis. The Company intends to adopt this guidance effective with its 2019 annual goodwill impairment test. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements and related disclosures.

In July 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement, which will remove, modify and add disclosure requirements for fair value measurements to improve the overall usefulness of such disclosures. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any removed or modified disclosure requirements. Transition is on a prospective basis for the new and modified disclosures, and on a retrospective basis for disclosures that have been eliminated. The Company currently does not intend to early adopt any portion of this disclosure guidance. The Company is currently evaluating the impact this guidance may have on the consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which is intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance for internal-use software. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment for all implementation costs incurred after the date of adoption. The Company is currently evaluating whether to early adopt this guidance as well as the impact it may have on the consolidated financial statements and related disclosures.

Recently adopted accounting pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases, which will require, among other items, lessees to recognize a right of use asset and a related lease liability for most leases on the balance sheet. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. The Company adopted this new guidance on January 1, 2019, using the modified retrospective approach. Based on the Company's current portfolio of leases, approximately $96.6 million of lease assets and approximately $123.4 million of lease liabilities is expected to be recognized on its consolidated balance sheet. The Company’s operating leases primarily comprise of office facilities, with the most significant leases relating to corporate headquarters in San Francisco and an office in New York. Additionally, the Company will derecognize $149 million related to the build-to-suit asset and liability upon adoption of this standard. The Company is in the process of finalizing changes to its systems and processes in conjunction with its review of lease agreements and will disclose the actual impact of adopting ASU 2016–02 in its interim report on Form 10–Q for the quarter ended March 31, 2019.

In March 2017, the FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The amendments in this guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted this new guidance on January 1, 2019, and it did not have a material impact on the consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance allows companies to reclassify such tax effects from accumulated other comprehensive income to retained earnings. When the Tax Cuts and Jobs Act of 2017 was enacted in December 2017, there was a valuation allowance on the deferred tax assets included within the Company's accumulated other comprehensive income. No tax expense resulted from the change in the federal income tax rate.
v3.10.0.1
REVENUE
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
REVENUE
REVENUE

Adoption of ASC 606, Revenue from Contracts with Customers

The Company recorded a net reduction to retained earnings of $4.6 million as of January 1, 2018, due to the cumulative impact of adopting ASC 606, primarily related to the effect on revenue and associated cost of revenue from hardware sold through the retail distribution channels and hardware installment sales. The impact to revenue for the year ended December 31, 2018 was an increase of $6.4 million as a result of applying ASC 606.

For the year ended December 31, 2018, the revenue recognized from contracts with customers was $3,205.5 million and revenue from other sources was $92.7 million. Impairment losses arising from contracts with customers were $3.7 million for the year ended December 31, 2018.

Practical Expedients

The Company does not recognize a financing component for hardware installment sales that have a term of one year or less.


The impact of adoption of ASC 606 on the Company's consolidated statement of operations was as follows (in thousands):

 
Year Ended December 31, 2018
 
As reported
 
Balances without adoption
of Topic 606
 
Effect of change
Impact on the Consolidated Statement of Operations:
 
 
 
 
 
Subscription and services-based revenue
$
591,706

 
$
591,220

 
$
486

Hardware revenue
68,503

 
62,572

 
5,931

Subscription and services-based costs
169,884

 
169,884

 

Hardware costs
$
94,114

 
$
88,625

 
$
5,489


The impact of adoption of ASC 606 on the Company's consolidated balance sheets was as follows (in thousands):

 
December 31, 2018
 
As reported
 
Balances without adoption
of Topic 606
 
Effect of change
Impact on the Consolidated Balance Sheets:
 
 
 
 
 
Other current assets
$
164,966

 
$
178,101

 
$
(13,135
)
Other current liabilities
99,153

 
108,334

 
(9,181
)
Other non-current assets
58,393

 
59,768

 
(1,375
)
Other non-current liabilities
$
93,286

 
$
94,717

 
$
(1,431
)


The following table presents the Company's revenue from contracts with customers (i.e. excluding revenue from other sources) disaggregated by revenue source (in thousands):

 
Year Ended December 31,
 
2018
 
2017
 
2016
Revenue from Contracts with Customers:
 
 
 
 
 
Transaction-based revenue
$
2,471,451

 
$
1,920,174

 
$
1,456,160

Starbucks transaction-based revenue

 

 
78,903

Subscription and services-based revenue
499,010

 
185,485

 
79,507

Hardware revenue
68,503

 
41,415

 
44,307

Bitcoin revenue
$
166,517

 
$

 
$



The deferred revenue balances were as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
Deferred revenue, beginning of the period
$
5,893

 
$
5,407

Less: accumulative adjustment for adoption of ASC 606
(4,303
)
 

Deferred revenue, beginning of the period, as adjusted
1,590

 
5,407

Deferred revenue, end of the period
36,451

 
5,893

Deferred revenue arising from business combination
22,800

 

Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period
$
1,590

 
$
5,257

v3.10.0.1
INVESTMENTS
12 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS
INVESTMENTS

The Company's short-term and long-term investments as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
80,160

 
$
32

 
$
(70
)
 
$
80,122

Corporate bonds
109,807

 
80

 
(368
)
 
109,519

Municipal securities
27,839

 
52

 
(59
)
 
27,832

U.S. government securities
292,615

 
161

 
(509
)
 
292,267

Non-U.S. government securities
31,263

 
4

 
(16
)
 
31,251

Total
$
541,684

 
$
329

 
$
(1,022
)
 
$
540,991

 
 
 
 
 
 
 
 
Long-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
114,444

 
$
194

 
$
(78
)
 
$
114,560

Corporate bonds
159,783

 
419

 
(950
)
 
159,252

Municipal securities
28,453

 
167

 
(26
)
 
28,594

U.S. government securities
153,743

 
553

 
(172
)
 
154,124

Non-U.S. government securities
8,122

 
28

 

 
8,150

Total
$
464,545

 
$
1,361

 
$
(1,226
)
 
$
464,680


    
The Company's short-term and long-term investments as of December 31, 2017 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
15,122

 
$

 
$
(39
)
 
$
15,083

Corporate bonds
57,855

 
22

 
(79
)
 
57,798

Commercial paper
17,428

 

 

 
17,428

Municipal securities
23,743

 
8

 
(51
)
 
23,700

U.S. government securities
55,729

 
1

 
(163
)
 
55,567

Total
$
169,877

 
$
31

 
$
(332
)
 
$
169,576

 
 
 
 
 
 
 
 
Long-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
20,288

 
$
2

 
$
(121
)
 
$
20,169

Corporate bonds
91,959

 
25

 
(571
)
 
91,413

Municipal securities
26,371

 
13

 
(160
)
 
26,224

U.S. government securities
66,362

 
19

 
(520
)
 
65,861

Total
$
204,980

 
$
59

 
$
(1,372
)
 
$
203,667



Investments classified as cash equivalents are excluded from the table since the amortized cost approximated the fair value due to the short term nature of these investments.


For the years ended December 31, 2018, 2017 and 2016, gains or losses realized on the sale of investments were not material. Investments are reviewed periodically to identify possible other-than-temporary impairments. As the Company has the ability and intent to hold these investments with unrealized losses for a reasonable period of time sufficient for the recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired for any of the periods presented.

The contractual maturities of the Company's short-term and long-term investments as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
541,684

 
$
540,991

Due in one to five years
464,545

 
464,680

Total
$
1,006,229

 
$
1,005,671

CUSTOMER FUNDS

The following table presents the assets underlying customer funds (in thousands):

 
December 31,
2018
 
December 31,
2017
Cash
$
158,697

 
$
103,042

Cash Equivalents:
 
 
 
Money market funds
18

 

U.S. agency securities
39,991

 

U.S. government securities
35,349

 

Short-term debt securities:
 
 
 
U.S. agency securities
27,291

 

U.S. government securities
72,671

 

Total
$
334,017

 
$
103,042



    

The Company's investments within customer funds as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
27,293

 
$
2

 
$
(4
)
 
$
27,291

U.S. government securities
72,662

 
12

 
(3
)
 
72,671

Total
$
99,955

 
$
14

 
$
(7
)
 
$
99,962


    
Investments within customer funds classified as cash equivalents are excluded from the table since the amortized cost approximated the fair value due to the short term nature of these investments.

For the periods presented, gains or losses realized on the sale of investments were not material. Investments are reviewed periodically to identify possible other-than-temporary impairments. As the Company has the ability and intent to hold these investments with unrealized losses for a reasonable period of time sufficient for the recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired for any of the periods presented.



The contractual maturities of the Company's investments within customer funds as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
99,955

 
$
99,962

Due in one to five years

 

Total
$
99,955

 
$
99,962

v3.10.0.1
CUSTOMER FUNDS
12 Months Ended
Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
CUSTOMER FUNDS
INVESTMENTS

The Company's short-term and long-term investments as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
80,160

 
$
32

 
$
(70
)
 
$
80,122

Corporate bonds
109,807

 
80

 
(368
)
 
109,519

Municipal securities
27,839

 
52

 
(59
)
 
27,832

U.S. government securities
292,615

 
161

 
(509
)
 
292,267

Non-U.S. government securities
31,263

 
4

 
(16
)
 
31,251

Total
$
541,684

 
$
329

 
$
(1,022
)
 
$
540,991

 
 
 
 
 
 
 
 
Long-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
114,444

 
$
194

 
$
(78
)
 
$
114,560

Corporate bonds
159,783

 
419

 
(950
)
 
159,252

Municipal securities
28,453

 
167

 
(26
)
 
28,594

U.S. government securities
153,743

 
553

 
(172
)
 
154,124

Non-U.S. government securities
8,122

 
28

 

 
8,150

Total
$
464,545

 
$
1,361

 
$
(1,226
)
 
$
464,680


    
The Company's short-term and long-term investments as of December 31, 2017 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
15,122

 
$

 
$
(39
)
 
$
15,083

Corporate bonds
57,855

 
22

 
(79
)
 
57,798

Commercial paper
17,428

 

 

 
17,428

Municipal securities
23,743

 
8

 
(51
)
 
23,700

U.S. government securities
55,729

 
1

 
(163
)
 
55,567

Total
$
169,877

 
$
31

 
$
(332
)
 
$
169,576

 
 
 
 
 
 
 
 
Long-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
20,288

 
$
2

 
$
(121
)
 
$
20,169

Corporate bonds
91,959

 
25

 
(571
)
 
91,413

Municipal securities
26,371

 
13

 
(160
)
 
26,224

U.S. government securities
66,362

 
19

 
(520
)
 
65,861

Total
$
204,980

 
$
59

 
$
(1,372
)
 
$
203,667



Investments classified as cash equivalents are excluded from the table since the amortized cost approximated the fair value due to the short term nature of these investments.


For the years ended December 31, 2018, 2017 and 2016, gains or losses realized on the sale of investments were not material. Investments are reviewed periodically to identify possible other-than-temporary impairments. As the Company has the ability and intent to hold these investments with unrealized losses for a reasonable period of time sufficient for the recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired for any of the periods presented.

The contractual maturities of the Company's short-term and long-term investments as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
541,684

 
$
540,991

Due in one to five years
464,545

 
464,680

Total
$
1,006,229

 
$
1,005,671

CUSTOMER FUNDS

The following table presents the assets underlying customer funds (in thousands):

 
December 31,
2018
 
December 31,
2017
Cash
$
158,697

 
$
103,042

Cash Equivalents:
 
 
 
Money market funds
18

 

U.S. agency securities
39,991

 

U.S. government securities
35,349

 

Short-term debt securities:
 
 
 
U.S. agency securities
27,291

 

U.S. government securities
72,671

 

Total
$
334,017

 
$
103,042



    

The Company's investments within customer funds as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
27,293

 
$
2

 
$
(4
)
 
$
27,291

U.S. government securities
72,662

 
12

 
(3
)
 
72,671

Total
$
99,955

 
$
14

 
$
(7
)
 
$
99,962


    
Investments within customer funds classified as cash equivalents are excluded from the table since the amortized cost approximated the fair value due to the short term nature of these investments.

For the periods presented, gains or losses realized on the sale of investments were not material. Investments are reviewed periodically to identify possible other-than-temporary impairments. As the Company has the ability and intent to hold these investments with unrealized losses for a reasonable period of time sufficient for the recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired for any of the periods presented.



The contractual maturities of the Company's investments within customer funds as of December 31, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
99,955

 
$
99,962

Due in one to five years

 

Total
$
99,955

 
$
99,962

v3.10.0.1
FAIR VALUE OF FINANCIAL INSTRUMENTS
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its cash equivalents, customer funds, short-term and long-term marketable debt securities, and equity investments at fair value. The Company classifies these investments within Level 1 or Level 2 of the fair value hierarchy because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis are classified as follows (in thousands):
 
December 31, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
218,109

 
$

 
$

 
$
387,698

 
$

 
$

U.S. agency securities

 
46,423

 

 

 

 

Commercial paper

 

 

 

 
24,695

 

U.S. government securities
86,239

 

 

 

 

 

Non-U.S. government securities

 
23,981

 

 

 

 

Customer Funds:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
18

 

 

 

 

 

U.S. agency securities

 
67,282

 

 

 

 

U.S. government securities
108,020

 

 

 

 

 

Short-term securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities

 
80,122

 

 

 
15,083

 

Corporate bonds

 
109,519

 

 

 
57,798

 

Commercial paper

 

 

 

 
17,428

 

Municipal securities

 
27,832