SQUARE, INC., 10-Q filed on 8/1/2019
Quarterly Report
v3.19.2
Cover Page - shares
6 Months Ended
Jun. 30, 2019
Jul. 26, 2019
Cover page.    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2019  
Document Transition Report false  
Entity File Number 001-37622  
Entity Registrant Name Square, Inc.  
Entity Central Index Key 0001512673  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 80-0429876  
Entity Address, Address Line One 1455 Market Street  
Entity Address, Address Line Two Suite 600  
Entity Address, City or Town San Francisco  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94103  
City Area Code 415  
Local Phone Number 375-3176  
Title of 12(b) Security Class A common stock, $0.0000001 par value per share  
Trading Symbol SQ  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Class A    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   342,633,007
Class B    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   84,497,676
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 617,282 $ 583,173
Short-term investments 572,206 540,991
Restricted cash 31,148 33,838
Settlements receivable 1,506,194 364,946
Customer funds 484,945 334,017
Loans held for sale 136,511 89,974
Other current assets 180,360 164,966
Total current assets 3,528,646 2,111,905
Property and equipment, net 130,747 142,402
Goodwill 270,161 261,705
Acquired intangible assets, net 84,216 77,102
Long-term investments 460,827 464,680
Restricted cash 14,433 15,836
Built-to-suit lease asset 0 149,000
Operating lease right-of-use assets 107,809  
Other non-current assets 57,167 58,393
Total assets 4,654,006 3,281,023
Current liabilities:    
Customers payable 1,802,128 749,215
Settlements payable 290,652 54,137
Accrued transaction losses 39,630 33,682
Accrued expenses 106,351 82,354
Operating lease liabilities, current 24,955 0
Other current liabilities 111,878 99,153
Total current liabilities 2,375,594 1,018,541
Long-term debt, net of current portion (Note 12) 919,026 899,695
Built-to-suit lease liability 0 149,000
Operating lease liabilities, non-current 107,265  
Other non-current liabilities 67,649 93,286
Total liabilities 3,469,534 2,160,522
Commitments and contingencies (Note 17)
Stockholders’ equity:    
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at June 30, 2019 and December 31, 2018. None issued and outstanding at June 30, 2019 and December 31, 2018. 0 0
Additional paid-in capital 2,116,063 2,012,328
Accumulated other comprehensive loss (926) (6,053)
Accumulated deficit (930,665) (885,774)
Total stockholders’ equity 1,184,472 1,120,501
Total liabilities and stockholders’ equity 4,654,006 3,281,023
Class A    
Stockholders’ equity:    
Common stock 0 0
Class B    
Stockholders’ equity:    
Common stock $ 0 $ 0
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
Class of Stock [Line Items]    
Preferred stock, par value (in USD per share) $ 0.00000 $ 0.00000
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    
Class of Stock [Line Items]    
Common stock, par value (in USD per share) $ 0.00000 $ 0.00000
Common stock, shares authorized (in shares) 1,000,000,000 1,000,000,000
Common stock, shares issued (in shares) 341,709,651 323,546,864
Common stock, shares outstanding (in shares) 341,709,651 323,546,864
Class B    
Class of Stock [Line Items]    
Common stock, par value (in USD per share) $ 0.00000 $ 0.00000
Common stock, shares authorized (in shares) 500,000,000 500,000,000
Common stock, shares issued (in shares) 84,508,342 93,501,142
Common stock, shares outstanding (in shares) 84,508,342 93,501,142
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenue:        
Revenue $ 1,174,238 $ 814,938 $ 2,133,597 $ 1,483,541
Cost of revenue:        
Total cost of revenue 708,393 499,122 1,270,998 912,555
Gross profit 465,845 315,816 862,599 570,986
Operating expenses:        
Product development 174,201 114,800 328,551 219,895
Sales and marketing 156,421 98,243 290,134 175,509
General and administrative 100,508 82,772 202,106 158,273
Transaction, loan and advance losses 34,264 21,976 62,105 40,007
Amortization of acquired customer assets 1,294 672 2,588 941
Total operating expenses 466,688 318,463 885,484 594,625
Operating loss (843) (2,647) (22,885) (23,639)
Interest expense, net 5,143 3,470 9,824 5,582
Other expense (income), net 1,230 (815) 12,529 (108)
Loss before income tax (7,216) (5,302) (45,238) (29,113)
Provision (benefit) for income taxes (476) 604 (347) 779
Net loss $ (6,740) $ (5,906) $ (44,891) $ (29,892)
Net loss per share:        
Basic (in USD per share) $ (0.02) $ (0.01) $ (0.11) $ (0.07)
Diluted (in USD per share) $ (0.02) $ (0.01) $ (0.11) $ (0.07)
Weighted-average shares used to compute net loss per share        
Basic (in shares) 423,305 403,301 421,297 399,624
Diluted (in shares) 423,305 403,301 421,297 399,624
Technology assets        
Cost of revenue:        
Amortization of acquired technology $ 1,719 $ 1,857 $ 3,095 $ 3,437
Transaction-based revenue        
Revenue:        
Revenue 775,510 625,228 1,432,272 1,148,265
Cost of revenue:        
Cost of revenue 490,349 395,349 899,418 723,260
Subscription and services-based revenue        
Revenue:        
Revenue 216,491 111,670 405,693 188,885
Revenue 251,383 134,332 470,240 231,386
Cost of revenue:        
Cost of revenue 60,119 39,784 120,642 70,152
Hardware revenue        
Revenue:        
Revenue 22,260 18,362 40,472 32,779
Cost of revenue:        
Cost of revenue 33,268 25,536 60,209 45,238
Bitcoin revenue        
Revenue:        
Revenue 125,085 37,016 190,613 71,111
Cost of revenue:        
Cost of revenue $ 122,938 $ 36,596 $ 187,634 $ 70,468
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net loss $ (6,740) $ (5,906) $ (44,891) $ (29,892)
Net foreign currency translation adjustments 261 (2,944) 527 (2,395)
Net unrealized gain (loss) on revaluation of intercompany loans 0 (458) 75 207
Net unrealized gain (loss) on marketable debt securities, net of tax 2,237 240 4,525 (950)
Total comprehensive loss $ (4,242) $ (9,068) $ (39,764) $ (33,030)
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net loss $ (44,891) $ (29,892)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 37,754 22,488
Non-cash interest and other expense 16,802 11,855
Share-based compensation 140,554 98,943
Replacement stock awards issued in connection with acquisition 0 757
Loss on revaluation of equity investment 18,929 0
Amortization of operating lease right-of-use assets and accretion of operating lease liabilities 14,354  
Recovery of common stock in connection with indemnification settlement agreement (789) (2,745)
Transaction, loan and advance losses 62,105 40,007
Change in deferred income taxes (2,229) (688)
Changes in operating assets and liabilities:    
Settlements receivable (1,148,376) (191,987)
Customer funds (125,042) (105,813)
Purchase of loans held for sale (1,035,500) (734,251)
Sales and principal payments of loans held for sale 975,823 716,950
Customers payable 1,052,867 267,746
Settlements payable 236,515 25,828
Charge-offs to accrued transaction losses (36,050) (26,030)
Other assets and liabilities 3,010 (22,136)
Net cash provided by operating activities 165,836 71,032
Cash flows from investing activities:    
Purchase of marketable debt securities (354,908) (165,024)
Proceeds from maturities of marketable debt securities 220,229 79,273
Proceeds from sale of marketable debt securities 116,522 56,259
Purchase of marketable debt securities from customer funds (88,064) 0
Proceeds from maturities of marketable debt securities from customer funds 63,000 0
Purchase of property and equipment (30,162) (23,143)
Payments for other investments (2,000) 0
Purchase of intangible assets 0 (1,584)
Business combinations, net of cash acquired (20,372) (111,828)
Net cash used in investing activities (95,755) (166,047)
Cash flows from financing activities:    
Proceeds from issuance of convertible senior notes, net 0 855,663
Purchase of convertible senior note hedges 0 (172,586)
Proceeds from issuance of warrants 0 112,125
Payment of deferred purchase consideration (95) (640)
Principal payments on finance lease obligation (2,568) (1,375)
Proceeds from the exercise of stock options, net 66,921 67,199
Payments for tax withholding related to vesting of restricted stock units (106,663) (68,575)
Net cash provided by (used in) financing activities (42,405) 791,811
Effect of foreign exchange rate on cash and cash equivalents 2,340 (3,505)
Net increase in cash, cash equivalents and restricted cash 30,016 693,291
Cash, cash equivalents and restricted cash, beginning of period 632,847 735,081
Cash, cash equivalents and restricted cash, end of period $ 662,863 $ 1,428,372
v3.19.2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($)
$ in Thousands
Total
Class A and B common stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Beginning balance (in shares) at Dec. 31, 2017   395,194,075      
Beginning balance at Dec. 31, 2017 $ 786,333 $ 0 $ 1,630,386 $ (1,318) $ (842,735)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (23,986)       (23,986)
Shares issued in connection with:          
Exercise of stock options (in shares)   4,213,775      
Exercise of stock options 31,354   31,354    
Vesting of early exercised stock options and other 136   136    
Vesting of restricted stock units (in shares)   1,625,534      
Change in other comprehensive loss 24     24  
Share-based compensation 48,356   48,356    
Tax withholding related to vesting of restricted stock units (in shares)   (649,305)      
Tax withholding related to vesting of restricted stock units (27,651)   (27,651)    
Ending balance (in shares) at Mar. 31, 2018   400,384,079      
Ending balance at Mar. 31, 2018 809,980 $ 0 1,682,581 (1,294) (871,307)
Beginning balance (in shares) at Dec. 31, 2017   395,194,075      
Beginning balance at Dec. 31, 2017 786,333 $ 0 1,630,386 (1,318) (842,735)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (29,892)        
Ending balance (in shares) at Jun. 30, 2018   407,881,823      
Ending balance at Jun. 30, 2018 1,081,629 $ 0 1,963,298 (4,456) (877,213)
Beginning balance (in shares) at Mar. 31, 2018   400,384,079      
Beginning balance at Mar. 31, 2018 809,980 $ 0 1,682,581 (1,294) (871,307)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (5,906)       (5,906)
Shares issued in connection with:          
Exercise of stock options (in shares)   3,246,683      
Exercise of stock options 23,267   23,267    
Vesting of early exercised stock options and other 19   19    
Purchases under employee stock purchase plan (in shares)   450,236      
Purchases under employee stock purchase plan 12,578   12,578    
Vesting of restricted stock units (in shares)   2,385,704      
Issuance of common stock in connection with business combination (in shares)   2,658,139      
Issuance of common stock in connection with business combination 140,154   140,154    
Change in other comprehensive loss (3,162)     (3,162)  
Share-based compensation 54,810   54,810    
Tax withholding related to vesting of restricted stock units (in shares)   (773,120)      
Tax withholding related to vesting of restricted stock units (40,924)   (40,924)    
Conversion feature of convertible senior notes, due 2023, net of allocated costs 154,019   154,019    
Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2023 (172,586)   (172,586)    
Sale of warrants in conjunction with issuance of convertible senior notes, due 2023 112,125   112,125    
Recovery of common stock in connection with indemnification settlement agreement (in shares)   (469,898)      
Recovery of common stock in connection with indemnification settlement agreement (2,745)   (2,745)    
Ending balance (in shares) at Jun. 30, 2018   407,881,823      
Ending balance at Jun. 30, 2018 1,081,629 $ 0 1,963,298 (4,456) (877,213)
Beginning balance (in shares) at Dec. 31, 2018   417,048,006      
Beginning balance at Dec. 31, 2018 1,120,501 $ 0 2,012,328 (6,053) (885,774)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (38,151)       (38,151)
Shares issued in connection with:          
Exercise of stock options (in shares)   3,588,052      
Exercise of stock options $ 25,328   25,328    
Vesting of early exercised stock options and other (in shares) 425        
Vesting of early exercised stock options and other $ 36   36    
Vesting of restricted stock units (in shares)   1,994,156      
Change in other comprehensive loss 2,629     2,629  
Share-based compensation 62,835   62,835    
Tax withholding related to vesting of restricted stock units (in shares)   (741,324)      
Tax withholding related to vesting of restricted stock units (50,801)   (50,801)    
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (in shares)   43      
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 1   1    
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022 (in shares)   (250,614)      
Recovery of common stock in connection with indemnification settlement agreement (in shares)   (14,798)      
Recovery of common stock in connection with indemnification settlement agreement (789)   (789)    
Ending balance (in shares) at Mar. 31, 2019   421,623,946      
Ending balance at Mar. 31, 2019 1,121,589 $ 0 2,048,938 (3,424) (923,925)
Beginning balance (in shares) at Dec. 31, 2018   417,048,006      
Beginning balance at Dec. 31, 2018 1,120,501 $ 0 2,012,328 (6,053) (885,774)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss $ (44,891)        
Shares issued in connection with:          
Exercise of stock options (in shares) 6,259,582        
Ending balance (in shares) at Jun. 30, 2019   426,217,993      
Ending balance at Jun. 30, 2019 $ 1,184,472 $ 0 2,116,063 (926) (930,665)
Beginning balance (in shares) at Mar. 31, 2019   421,623,946      
Beginning balance at Mar. 31, 2019 1,121,589 $ 0 2,048,938 (3,424) (923,925)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net loss (6,740)       (6,740)
Shares issued in connection with:          
Exercise of stock options (in shares)   2,671,530      
Exercise of stock options 22,651   22,651    
Purchases under employee stock purchase plan (in shares)   360,328      
Purchases under employee stock purchase plan 18,942   18,942    
Vesting of restricted stock units (in shares)   2,339,193      
Change in other comprehensive loss 2,498     2,498  
Share-based compensation 81,392   81,392    
Tax withholding related to vesting of restricted stock units (in shares)   (777,006)      
Tax withholding related to vesting of restricted stock units (55,862)   (55,862)    
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (in shares)   86      
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 2   2    
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022 (in shares)   (84)      
Ending balance (in shares) at Jun. 30, 2019   426,217,993      
Ending balance at Jun. 30, 2019 $ 1,184,472 $ 0 $ 2,116,063 $ (926) $ (930,665)
v3.19.2
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2019
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 empower businesses, sellers and individuals to participate in the economy. Square enables sellers to accept card payments and also provides reporting and analytics, and next-day settlement. 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. Cash App is an easy way to send, spend, and store money, and Caviar is a food-ordering service. In July 2019, the Company entered into a definitive agreement to sell the Caviar business. Square was founded in 2009 and is headquartered in San Francisco, with offices in the United States, Canada, Japan, Australia, Ireland, and the UK.

Basis of Presentation
    
The accompanying interim condensed consolidated financial statements of the Company are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and the applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2018 condensed consolidated balance sheet was derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company's consolidated financial position, results of operations, comprehensive income (loss), and cash flows for the interim periods. All intercompany transactions and balances have been eliminated in consolidation. The interim results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and notes thereto included in Items 7, 7A, and 8, respectively, in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

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, operating and financing lease right-of-use assets and related liabilities, and share-based compensation.

Concentration of Credit Risk
    
For the three and six months ended June 30, 2019 and 2018, the Company had no customer that accounted for greater than 10% of total net revenue.

The Company had three third-party payment processors that represented approximately 55%, 35%, and 7% of settlements receivable as of June 30, 2019. The same three parties represented approximately 45%, 33%, and 9% of settlements receivable as of December 31, 2018. 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.

New Accounting Policies
The Company adopted Accounting Standards Codification (ASC) 842, Leases on January 1, 2019, and elected the optional transition method to apply the transition provisions from the effective date of adoption, which requires the Company to report the cumulative effect of the adoption of the standard on the date of adoption with no changes to the prior period balances. Pursuant to the practical expedients, the Company has elected not to reassess: (i) whether expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or, (iii) initial direct costs for any existing leases. Additionally, the Company has lease agreements with lease and non-lease components, which are accounted for separately. The Company recognized $112.0 million of operating right-of-use lease assets and $135.6 million of operating lease liabilities on its consolidated balance sheet upon adoption of this standard. Additionally, the Company derecognized $149 million related to the build-to-suit asset and liability upon adoption of this standard because the Company is no longer deemed to be the owner of the related asset under construction under the new standard. Refer to Note 17 for further detail.

Except for the adoption of ASC 842, there have been no material changes to the Company’s accounting policies during the six months ended June 30, 2019, as compared to the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses, 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’s preliminary conclusion is that the new guidance will not have a material impact on its consolidated financial statements and related disclosures. The Company will continue to monitor this initial evaluation through the adoption date and therefore this preliminary conclusion may change.

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 which it performs as of December 31. 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 does not expect the adoption of this guidance to have a material impact on the consolidated financial statements and related disclosures.
v3.19.2
REVENUE
6 Months Ended
Jun. 30, 2019
Revenue from Contract with Customer [Abstract]  
REVENUE REVENUE

The following table presents the Company's revenue disaggregated by revenue source (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue from Contracts with Customers:
 
 
 
 
 
 
 
Transaction-based revenue
$
775,510

 
$
625,228

 
$
1,432,272

 
$
1,148,265

Subscription and services-based revenue
216,491

 
111,670

 
405,693

 
188,885

Hardware revenue
22,260

 
18,362

 
40,472

 
32,779

Bitcoin revenue
$
125,085

 
$
37,016

 
$
190,613

 
$
71,111

Revenue from other sources:
 
 
 
 
 
 
 
Subscription and services-based revenue
$
34,892

 
$
22,662

 
$
64,547

 
$
42,501



The deferred revenue balances were as follows (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Deferred revenue, beginning of the period
$
42,160

 
$
3,353

 
$
36,451

 
$
5,893

Less: cumulative impact of the adoption of ASC 606

 

 

 
(4,303
)
Deferred revenue, beginning of the period, as adjusted
42,160

 
3,353

 
36,451

 
1,590

Deferred revenue, end of the period
44,812

 
27,155

 
44,812

 
27,155

Deferred revenue arising from business combination

 
22,800

 

 
22,800

Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period
$
14,889

 
$
1,975

 
$
21,786

 
$
1,095


v3.19.2
INVESTMENTS
6 Months Ended
Jun. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS INVESTMENTS

The Company's short-term and long-term investments as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
125,614

 
$
230

 
$
(5
)
 
$
125,839

Corporate bonds
95,901

 
220

 
(72
)
 
96,049

Commercial paper
3,973

 

 

 
3,973

Municipal securities
15,947

 
78

 
(4
)
 
16,021

U.S. government securities
314,603

 
617

 
(47
)
 
315,173

Non-U.S. government securities
15,175

 
21

 
(45
)
 
15,151

Total
$
571,213

 
$
1,166

 
$
(173
)
 
$
572,206

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
81,861

 
$
400

 
$
(84
)
 
$
82,177

Corporate bonds
196,687

 
805

 
(97
)
 
197,395

Municipal securities
14,591

 
137

 
(16
)
 
14,712

U.S. government securities
156,706

 
861

 
(149
)
 
157,418

Non-U.S. government securities
9,081

 
54

 
(10
)
 
9,125

Total
$
458,926

 
$
2,257

 
$
(356
)
 
$
460,827


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 debt 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 debt 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



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 amortized cost of investments classified as cash equivalents approximated the fair value due to the short term nature of the investments.

The contractual maturities of the Company's short-term and long-term investments as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
571,213

 
$
572,206

Due in one to five years
458,926

 
460,827

Total
$
1,030,139

 
$
1,033,033


CUSTOMER FUNDS

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

 
June 30,
2019
 
December 31,
2018
Cash
$
307,848

 
$
158,697

Cash Equivalents:
 
 
 
Money market funds
163

 
18

U.S. agency securities
23,112

 
39,991

U.S. government securities
27,974

 
35,349

Short-term debt securities:
 
 
 
U.S. agency securities
10,867

 
27,291

U.S. government securities
114,981

 
72,671

Total
$
484,945

 
$
334,017



The Company's investments within customer funds as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
10,868

 
$
1

 
$
(2
)
 
$
10,867

U.S. government securities
114,910

 
81

 
(10
)
 
114,981

Total
$
125,778

 
$
82

 
$
(12
)
 
$
125,848




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



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 amortized cost of investments classified as cash equivalents approximated the fair value due to the short term nature of the investments.

The contractual maturities of the Company's investments within customer funds as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
125,778

 
$
125,848

Total
$
125,778

 
$
125,848


v3.19.2
CUSTOMER FUNDS
6 Months Ended
Jun. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
CUSTOMER FUNDS INVESTMENTS

The Company's short-term and long-term investments as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
125,614

 
$
230

 
$
(5
)
 
$
125,839

Corporate bonds
95,901

 
220

 
(72
)
 
96,049

Commercial paper
3,973

 

 

 
3,973

Municipal securities
15,947

 
78

 
(4
)
 
16,021

U.S. government securities
314,603

 
617

 
(47
)
 
315,173

Non-U.S. government securities
15,175

 
21

 
(45
)
 
15,151

Total
$
571,213

 
$
1,166

 
$
(173
)
 
$
572,206

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
81,861

 
$
400

 
$
(84
)
 
$
82,177

Corporate bonds
196,687

 
805

 
(97
)
 
197,395

Municipal securities
14,591

 
137

 
(16
)
 
14,712

U.S. government securities
156,706

 
861

 
(149
)
 
157,418

Non-U.S. government securities
9,081

 
54

 
(10
)
 
9,125

Total
$
458,926

 
$
2,257

 
$
(356
)
 
$
460,827


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 debt 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 debt 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



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 amortized cost of investments classified as cash equivalents approximated the fair value due to the short term nature of the investments.

The contractual maturities of the Company's short-term and long-term investments as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
571,213

 
$
572,206

Due in one to five years
458,926

 
460,827

Total
$
1,030,139

 
$
1,033,033


CUSTOMER FUNDS

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

 
June 30,
2019
 
December 31,
2018
Cash
$
307,848

 
$
158,697

Cash Equivalents:
 
 
 
Money market funds
163

 
18

U.S. agency securities
23,112

 
39,991

U.S. government securities
27,974

 
35,349

Short-term debt securities:
 
 
 
U.S. agency securities
10,867

 
27,291

U.S. government securities
114,981

 
72,671

Total
$
484,945

 
$
334,017



The Company's investments within customer funds as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
10,868

 
$
1

 
$
(2
)
 
$
10,867

U.S. government securities
114,910

 
81

 
(10
)
 
114,981

Total
$
125,778

 
$
82

 
$
(12
)
 
$
125,848




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



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 amortized cost of investments classified as cash equivalents approximated the fair value due to the short term nature of the investments.

The contractual maturities of the Company's investments within customer funds as of June 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
125,778

 
$
125,848

Total
$
125,778

 
$
125,848


v3.19.2
FAIR VALUE OF FINANCIAL INSTRUMENTS
6 Months Ended
Jun. 30, 2019
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 marketable 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):
 
June 30, 2019
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
272,313

 
$

 
$

 
$
218,109

 
$

 
$

U.S. agency securities

 
102,904

 

 

 
46,423

 

Commercial paper

 

 

 

 

 

Time deposits
10,081

 

 

 

 

 

U.S. government securities
39,663

 

 

 

 

 

Municipal securities

 

 

 
86,239

 

 

Non-U.S. government securities

 

 

 

 
23,981

 

Customer funds:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
163

 

 

 
18

 

 

U.S. agency securities

 
33,978

 

 

 
67,282

 

U.S. government securities
142,956

 

 

 
108,020

 

 

Short-term debt securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities

 
125,839

 

 

 
80,122

 

Corporate bonds

 
96,049

 

 

 
109,519

 

Commercial paper

 
3,973

 

 

 

 

Municipal securities

 
16,021

 

 

 
27,832

 

U.S. government securities
315,173

 

 

 
292,267

 

 

Non-U.S. government securities

 
15,151

 

 

 
31,251

 

Long-term debt securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities

 
82,177

 

 

 
114,560

 

Corporate bonds

 
197,395

 

 

 
159,252

 

Municipal securities

 
14,712

 

 

 
28,594

 

U.S. government securities
157,418

 

 

 
154,124

 

 

Non-U.S. government securities

 
9,125

 

 

 
8,150

 

Other:
 
 
 
 
 
 
 
 
 
 
 
Marketable equity investment
26,413

 

 

 
45,342

 

 

Total
$
964,180

 
$
697,324

 
$

 
$
904,119

 
$
696,966

 
$



The carrying amounts of certain financial instruments, including settlements receivable, accounts payable, customers payable, accrued expenses and settlements payable, approximate their fair values due to their short-term nature.

The Company estimates the fair value of its convertible senior notes based on their last actively traded prices (Level 1) or market observable inputs (Level 2). The estimated fair value and carrying value of the convertible senior notes were as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Carrying Value
 
Fair Value (Level 2)
 
Carrying Value
 
Fair Value (Level 2)
2023 Notes
$
733,366

 
$
1,032,318

 
$
718,522

 
$
901,468

2022 Notes
185,660

 
672,074

 
181,173

 
515,693

Total
$
919,026

 
$
1,704,392

 
$
899,695

 
$
1,417,161



The estimated fair value and carrying value of loans held for sale is as follows (in thousands):

 
June 30, 2019
 
December 31, 2018
 
Carrying Value
 
Fair Value (Level 3)
 
Carrying Value
 
Fair Value (Level 3)
Loans held for sale
$
136,511

 
$
143,023

 
$
89,974

 
$
93,064

Total
$
136,511

 
$
143,023

 
$
89,974

 
$
93,064



For the three and six months ended June 30, 2019, the Company recorded a charge for the excess of amortized cost over fair value of the loans of $6.4 million and $13.1 million, respectively. For the three and six months ended June 30, 2018, the Company recorded a charge for the excess of amortized cost over fair value of the loans of $3.2 million and $5.7 million, respectively.
If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. During the three and six months ended June 30, 2019 and 2018, the Company did not have any transfers in or out of Level 1, Level 2, or Level 3 assets or liabilities.
v3.19.2
PROPERTY AND EQUIPMENT, NET
6 Months Ended
Jun. 30, 2019
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT, NET PROPERTY AND EQUIPMENT, NET
The following is a summary of property and equipment, less accumulated depreciation and amortization (in thousands):    

June 30,
2019

December 31,
2018
Leasehold improvements
$
105,411