SQUARE, INC., 10-Q filed on 11/7/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Nov. 02, 2018
Document and Entity Information [Abstract]    
Entity Registrant Name Square, Inc.  
Entity Central Index Key 0001512673  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Class A    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding   308,397,662
Class B    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding   105,099,942
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 721,738 $ 696,474
Short-term investments 448,986 169,576
Restricted cash 33,230 28,805
Settlements receivable 1,194,701 620,523
Customer funds 269,094 103,042
Loans held for sale 73,219 73,420
Other current assets 136,400 86,454
Total current assets 2,877,368 1,778,294
Property and equipment, net 130,145 91,496
Goodwill 259,964 58,327
Acquired intangible assets, net 81,130 14,334
Long-term investments 537,663 203,667
Restricted cash 10,102 9,802
Other non-current assets 76,996 31,350
Total assets 3,973,368 2,187,270
Current liabilities:    
Accounts payable 12,448 16,763
Customers payable 1,315,108 733,736
Settlements payable 203,274 114,788
Accrued transaction losses 35,332 26,893
Accrued expenses 101,066 52,280
Current portion of long-term debt 125,971 0
Other current liabilities 70,338 28,367
Total current liabilities 1,863,537 972,827
Long-term debt, net of current portion (Note 13) 897,976 358,572
Other non-current liabilities 89,711 69,538
Total liabilities 2,851,224 1,400,937
Commitments and contingencies (Note 18)
Stockholders’ equity:    
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at September 30, 2018 and December 31, 2017. None issued and outstanding at September 30, 2018 and December 31, 2017. 0 0
Additional paid-in capital 1,986,059 1,630,386
Accumulated other comprehensive loss (6,345) (1,318)
Accumulated deficit (857,570) (842,735)
Total stockholders’ equity 1,122,144 786,333
Total liabilities and stockholders’ equity 3,973,368 2,187,270
Class A    
Stockholders’ equity:    
Common stock 0 0
Class B    
Stockholders’ equity:    
Common stock $ 0 $ 0
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2018
Dec. 31, 2017
Class of Stock [Line Items]    
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    
Class of Stock [Line Items]    
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) 306,228,873 280,400,813
Common stock, shares outstanding (in shares) 306,228,873 280,400,813
Class B    
Class of Stock [Line Items]    
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) 106,143,959 114,793,262
Common stock, shares outstanding (in shares) 106,143,959 114,793,262
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Revenue:        
Revenue $ 882,108 $ 585,159 $ 2,365,649 $ 1,598,218
Revenue 857,700   2,298,700  
Cost of revenue:        
Total cost of revenue 529,448 366,543 1,442,003 998,742
Gross profit 352,660 218,616 923,646 599,476
Operating expenses:        
Product development 135,773 82,547 355,668 229,255
Sales and marketing 116,337 66,533 291,846 176,349
General and administrative 85,527 64,312 243,800 184,235
Transaction, loan and advance losses 23,596 19,893 63,603 50,185
Amortization of acquired customer assets 4,384 1,804 9,075 5,868
Total operating expenses 362,527 233,507 957,152 640,673
Operating loss (9,867) (14,891) (33,506) (41,197)
Interest expense, net 7,224 3,080 12,806 7,570
Other income, net (37,800) (1,226) (37,908) (1,951)
Income (loss) before income tax 20,709 (16,745) (8,404) (46,816)
Provision (benefit) for income taxes 1,066 (647) 1,845 334
Net income (loss) $ 19,643 $ (16,098) $ (10,249) $ (47,150)
Net income (loss) per share:        
Basic (in USD per share) $ 0.05 $ (0.04) $ (0.03) $ (0.13)
Diluted (in USD per share) $ 0.04 $ (0.04) $ (0.03) $ (0.13)
Weighted-average shares used to compute net income (loss) per share        
Basic (in shares) 409,690 383,951 402,980 375,743
Diluted (in shares) 474,915 383,951 402,980 375,743
Technology assets        
Cost of revenue:        
Amortization of acquired technology $ 2,277 $ 1,556 $ 5,714 $ 5,058
Customer assets        
Operating expenses:        
Amortization of acquired customer assets 1,294 222 2,235 649
Transaction-based revenue        
Revenue:        
Revenue 655,384 510,019 1,803,649 1,395,562
Cost of revenue:        
Cost of revenue 414,456 328,043 1,137,716 896,913
Subscription and services-based revenue        
Revenue:        
Revenue 166,203 65,051 397,589 173,262
Revenue 141,752 65,051 330,637 173,262
Cost of revenue:        
Cost of revenue 47,078 18,169 117,230 51,161
Hardware revenue        
Revenue:        
Revenue 17,558 10,089 50,337 29,394
Cost of revenue:        
Cost of revenue 23,229 18,775 68,467 45,610
Bitcoin revenue        
Revenue:        
Revenue 42,963 0 114,074 0
Cost of revenue:        
Cost of revenue $ 42,408 $ 0 $ 112,876 $ 0
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 19,643 $ (16,098) $ (10,249) $ (47,150)
Net foreign currency translation adjustments (946) 367 (3,341) 1,554
Net unrealized gain (loss) on revaluation of intercompany loans (296) (41) (89) 362
Net unrealized gain (loss) on marketable debt securities (647) (200) (1,597) (320)
Total comprehensive income (loss) $ 17,754 $ (15,972) $ (15,276) $ (45,554)
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities:    
Net loss $ (10,249) $ (47,150)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 38,323 27,647
Non-cash interest and other expense 23,554 9,969
Loss on extinguishment of long-term debt 1,625 0
Share-based compensation 157,856 111,311
Replacement stock awards issued in connection with acquisition 899 0
Gain on revaluation of equity investment (36,908) 0
Recovery of common stock in connection with indemnification settlement agreement (2,745) 0
Transaction, loan and advance losses 63,603 50,185
Change in deferred income taxes (563) 133
Changes in operating assets and liabilities:    
Settlements receivable (579,769) (271,235)
Customer funds (156,162) (41,899)
Purchase of loans held for sale (1,139,142) (874,498)
Sales and principal payments of loans held for sale 1,130,378 852,187
Other current assets (50,060) (6,262)
Other non-current assets (8,875) (1,699)
Accounts payable (6,470) 1,223
Customers payable 581,530 295,406
Settlements payable 88,486 30,263
Charge-offs to accrued transaction losses (40,354) (33,081)
Accrued expenses 31,015 20,328
Other current liabilities 27,230 (1,125)
Other non-current liabilities 5,458 8,614
Net cash provided by operating activities 118,660 130,317
Cash flows from investing activities:    
Purchase of marketable debt securities (859,060) (485,484)
Proceeds from maturities of marketable debt securities 128,603 106,079
Proceeds from sale of marketable debt securities 106,358 65,121
Purchase of property and equipment (37,173) (19,625)
Purchase of equity investment 0 (25,000)
Purchase of intangible assets (1,584) 0
Business combinations, net of cash acquired (112,399) (1,600)
Net cash used in investing activities (775,255) (360,509)
Cash flows from financing activities:    
Proceeds from issuance of convertible senior notes, net 855,663 428,250
Purchase of convertible senior note hedges (172,586) (92,136)
Proceeds from issuance of warrants 112,125 57,244
Principal payment on conversion of senior notes (70,047) 0
Payment of deferred purchase consideration (640) 0
Payment for termination of Starbucks warrant 0 (54,808)
Principal payments on capital lease obligation (2,658) (1,020)
Proceeds from the exercise of stock options and purchases under the employee stock purchase plan, net 94,780 111,889
Payments for tax withholding related to vesting of restricted stock units (125,899) (18,298)
Net cash provided by financing activities 690,738 431,121
Effect of foreign exchange rate on cash and cash equivalents (4,154) 3,836
Net increase in cash, cash equivalents and restricted cash 29,989 204,765
Cash, cash equivalents and restricted cash, beginning of period 735,081 488,745
Cash, cash equivalents and restricted cash, end of period $ 765,070 $ 693,510
v3.10.0.1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 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 receive money, and Caviar is a food-ordering platform. 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 third quarter of 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 both the three and nine months ended September 30, 2018, the Company recorded a gain of $36.9 million to other income on the consolidated statements of operations arising from revaluation of this investment (Note 12). 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.

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, 2017 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 nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, 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, 2017.

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, and share-based compensation.

Concentration of Credit Risk
    
For the three and nine months ended September 30, 2018 and 2017, 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 50%, 37%, and 9% of settlements receivable as of September 30, 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.

Accounting Policies
Except for the adoption of ASC 606, Revenue from Contracts with Customers (ASC 606), described in Note 2, and the accounting policy on cryptocurrency transactions and customer funds, both described below, there have been no material changes to the Company’s accounting policies during the nine months ended September 30, 2018, as compared to the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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 September 30, 2018 and December 31, 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 cost exceeds the fair value. Losses on bitcoin for the three and nine months ended September 30, 2018, were insignificant.

Customer funds

Customer funds represent Cash App customers' stored balances that customers can later use to send money or make payments, or customers with cash in transit. As of December 31, 2017, the Company held these stored balances as short term bank deposits. During the third quarter of 2018, the Company started investing a portion of these stored balances in short-term marketable debt securities (Note 5).

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

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. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The new standard should be applied on a modified retrospective basis. The Company does not plan to early adopt this guidance. 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. While the Company continues to evaluate the impact of adopting this guidance on its consolidated financial statements, it does expect to record material right to use assets and related lease liabilities on its consolidated balance sheets upon adoption, which will increase total assets and liabilities.
    
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 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 does not expect the adoption of this guidance to have a material impact on the consolidated financial statements and related disclosures.

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. This standard is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. 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 is currently evaluating the impact this guidance may have 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. 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; therefore no tax expense resulted from the change in the federal income tax rate. This guidance allows companies to reclassify such tax effects from accumulated other comprehensive income to retained earnings. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. 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 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 the impact this guidance may have on the consolidated financial statements and related disclosures.
v3.10.0.1
REVENUE
9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
REVENUE
REVENUE

Adoption of ASC 606, Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASC 606 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.

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 three and nine months ended September 30, 2018 was an increase of $1.6 million and $5.3 million, respectively, as a result of applying ASC 606.

For the three months ended September 30, 2018, the revenue recognized from contracts with customers was $857.7 million and revenue from other sources was $24.5 million. For the nine months ended September 30, 2018, the revenue recognized from contracts with customers was $2,298.7 million and revenue from other sources was $67.0 million. Impairment losses arising from contracts with customers were $0.9 million and $2.7 million for the three and nine months ended September 30, 2018, respectively.

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

 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
As reported
 
Balances without adoption
of ASC 606
 
Effect of change
 
As reported
 
Balances without adoption
of ASC 606
 
Effect of change
Impact on the Condensed Consolidated Statement of Operations:
 
 
 
 
 
 
 
 
 
 
 
Subscription and services-based revenue
$
166,203

 
$
166,037

 
$
166

 
$
397,589

 
$
397,272

 
$
317

Hardware revenue
17,558

 
16,145

 
1,413

 
50,337

 
45,378

 
4,959

Subscription and services-based costs
47,078

 
47,078

 

 
117,230

 
117,230

 

Hardware costs
$
23,229

 
$
21,969

 
$
1,260

 
$
68,467

 
$
63,665

 
$
4,802


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

 
September 30, 2018
 
As reported
 
Balances without adoption
of ASC 606
 
Effect of change
Impact on the Condensed Consolidated Balance Sheets:
 
 
 
 
 
Other current assets
$
136,400

 
$
148,491

 
$
(12,091
)
Other current liabilities
70,338

 
78,260

 
(7,922
)
Other non-current assets
76,996

 
78,584

 
(1,588
)
Other non-current liabilities
$
89,711

 
$
91,311

 
$
(1,600
)


Revenue Recognition

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. 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 8).

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue from Contracts with Customers:
 
 
 
 
 
 
 
Transaction-based revenue
$
655,384

 
$
510,019

 
$
1,803,649

 
$
1,395,562

Subscription and services-based revenue
141,752

 
65,051

 
330,637

 
173,262

Hardware revenue
17,558

 
10,089

 
50,337

 
29,394

Bitcoin revenue
$
42,963

 
$

 
$
114,074

 
$


         
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, 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, 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.

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.

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 also 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. We generally determine 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.

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.

The deferred revenue balances were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Deferred revenue, beginning of the period
$
27,155

 
$
4,523

 
$
5,893

 
$
5,407

Less: accumulative adjustment for adoption of ASC 606

 

 
(4,303
)
 

Deferred revenue, beginning of the period, as adjusted
27,155

 
4,523

 
1,590

 
5,407

Deferred revenue, end of the period
33,614

 
3,424

 
33,614

 
3,424

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
$
10,165

 
$
2,060

 
$
1,539

 
$
5,312



Practical Expedients

The Company does not recognize a financing component for hardware installment sales that have a term of one year or less.
v3.10.0.1
RESTRICTED CASH
9 Months Ended
Sep. 30, 2018
Cash and Cash Equivalents [Abstract]  
RESTRICTED CASH
RESTRICTED CASH
    
As of September 30, 2018 and December 31, 2017, restricted cash of $33.2 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, which we expect to become unrestricted within the next year.
    
As of September 30, 2018 and December 31, 2017, the remaining restricted cash of $10.1 million and $9.8 million, respectively, is primarily related to cash deposited into money market funds that is used as collateral pursuant to multi-year lease agreements (Note 18). 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.
v3.10.0.1
INVESTMENTS
9 Months Ended
Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS
INVESTMENTS

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.

The Company's short-term and long-term investments as of September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
48,206

 
$
11

 
$
(27
)
 
$
48,190

Corporate bonds
83,647

 
135

 
(64
)
 
83,718

Municipal securities
28,904

 
37

 
(49
)
 
28,892

U.S. government securities
270,094

 
70

 
(372
)
 
269,792

Non-U.S. government securities
18,433

 

 
(39
)
 
18,394

Total
$
449,284

 
$
253

 
$
(551
)
 
$
448,986

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
132,013

 
$
1

 
$
(244
)
 
$
131,770

Corporate bonds
160,777

 
178

 
(75
)
 
160,880

Municipal securities
20,203

 
82

 
(45
)
 
20,240

U.S. government securities
221,751

 
202

 
(419
)
 
221,534

Non-U.S. government securities
3,251

 

 
(12
)
 
3,239

Total
$
537,995

 
$
463

 
$
(795
)
 
$
537,663


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 debt 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 debt 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



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 September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
449,284

 
$
448,986

Due in one to five years
537,995

 
537,663

Total
$
987,279

 
$
986,649

CUSTOMER FUNDS

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

 
September 30,
2018
 
December 31,
2017
Cash
$
219,087

 
$
103,042

Cash Equivalents:
 
 
 
Money market funds
1,884

 

U.S. agency securities
8,335

 

U.S. government securities
29,898

 

Short-term debt securities:
 
 
 
U.S. government securities
$
9,890

 
$

Total
$
269,094

 
$
103,042



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.

The Company's investments within customer funds as of September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. government securities
9,891

 

 
(1
)
 
9,890

Total
$
9,891

 
$

 
$
(1
)
 
$
9,890


    
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 September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
9,891

 
$
9,890

Due in one to five years

 

Total
$
9,891

 
$
9,890

v3.10.0.1
CUSTOMER FUNDS
9 Months Ended
Sep. 30, 2018
Investments, Debt and Equity Securities [Abstract]  
CUSTOMER FUNDS
INVESTMENTS

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.

The Company's short-term and long-term investments as of September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
48,206

 
$
11

 
$
(27
)
 
$
48,190

Corporate bonds
83,647

 
135

 
(64
)
 
83,718

Municipal securities
28,904

 
37

 
(49
)
 
28,892

U.S. government securities
270,094

 
70

 
(372
)
 
269,792

Non-U.S. government securities
18,433

 

 
(39
)
 
18,394

Total
$
449,284

 
$
253

 
$
(551
)
 
$
448,986

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
132,013

 
$
1

 
$
(244
)
 
$
131,770

Corporate bonds
160,777

 
178

 
(75
)
 
160,880

Municipal securities
20,203

 
82

 
(45
)
 
20,240

U.S. government securities
221,751

 
202

 
(419
)
 
221,534

Non-U.S. government securities
3,251

 

 
(12
)
 
3,239

Total
$
537,995

 
$
463

 
$
(795
)
 
$
537,663


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 debt 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 debt 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



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 September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
449,284

 
$
448,986

Due in one to five years
537,995

 
537,663

Total
$
987,279

 
$
986,649

CUSTOMER FUNDS

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

 
September 30,
2018
 
December 31,
2017
Cash
$
219,087

 
$
103,042

Cash Equivalents:
 
 
 
Money market funds
1,884

 

U.S. agency securities
8,335

 

U.S. government securities
29,898

 

Short-term debt securities:
 
 
 
U.S. government securities
$
9,890

 
$

Total
$
269,094

 
$
103,042



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.

The Company's investments within customer funds as of September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. government securities
9,891

 

 
(1
)
 
9,890

Total
$
9,891

 
$

 
$
(1
)
 
$
9,890


    
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 September 30, 2018 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
9,891

 
$
9,890

Due in one to five years

 

Total
$
9,891

 
$
9,890

v3.10.0.1
FAIR VALUE OF FINANCIAL INSTRUMENTS
9 Months Ended
Sep. 30, 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):
 
September 30, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
311,158

 
$

 
$

 
$
387,698

 
$

 
$

U.S. agency securities

 
123,202

 

 

 

 

Commercial paper

 

 

 

 
24,695

 

U.S. government securities
20,065

 

 

 

 

 

Customer funds:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
1,884

 

 

 

 

 

U.S. agency securities

 
8,335

 

 

 

 

U.S. government securities
39,788

 

 

 

 

 

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

 
48,190

 

 

 
15,083

 

Corporate bonds

 
83,718

 

 

 
57,798

 

Commercial paper

 

 

 

 
17,428

 

Municipal securities

 
28,892

 

 

 
23,700

 

U.S. government securities
269,792

 

 

 
55,567

 

 

Non-U.S. government securities

 
18,394

 

 

 

 

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

 
131,770

 

 

 
20,169

 

Corporate bonds

 
160,880

 

 

 
91,413

 

Municipal securities

 
20,240

 

 

 
26,224

 

U.S. government securities
221,534

 

 

 
65,861

 

 

Non-U.S. government securities

 
3,239

 

 

 

 

Other:
 
 
 
 
 
 
 
 
 
 
 
Equity investment
61,908

 

 

 

 

 

Total
$
926,129

 
$
626,860

 
$

 
$
509,126

 
$
276,510

 
$



The carrying amounts of certain financial instruments, including settlements receivable, accounts payable, customers payable, 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):
 
September 30, 2018
 
December 31, 2017
 
Carrying Value
 
Fair Value (Level 2)
 
Carrying Value
 
Fair Value (Level 2)
2023 Notes
$
711,229

 
$
1,234,496

 
$

 
$

2022 Notes
312,718

 
1,599,954

 
358,572

 
719,356

Total
$
1,023,947

 
$
2,834,450

 
$
358,572

 
$
719,356



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

 
September 30, 2018
 
December 31, 2017
 
Carrying Value
 
Fair Value (Level 3)
 
Carrying Value
 
Fair Value (Level 3)
Loans held for sale
$
73,219

 
$
76,302

 
$
73,420

 
$
76,070

Total
$
73,219

 
$
76,302

 
$
73,420

 
$
76,070



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. For the three and nine months ended September 30, 2018, the Company recorded a charge for the excess of amortized cost over fair value of the loans of $3.3 million and $9.0 million, respectively. For the three and nine months ended September 30, 2017, the Company recorded a charge for the excess of amortized cost over fair value of the loans of $3.4 million and $6.1 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 nine months ended September 30, 2018 and 2017, the Company did not have any transfers in or out of Level 1, Level 2, or Level 3 assets or liabilities.
v3.10.0.1
PROPERTY AND EQUIPMENT, NET
9 Months Ended
Sep. 30, 2018
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):    

September 30,
2018

December 31,
2017
Leasehold improvements
$
99,722

 
$
77,073

Computer equipment
90,218


66,186

Capitalized software
51,177

 
35,063

Office furniture and equipment
18,773


14,490

 
259,890

 
192,812

Less: Accumulated depreciation and amortization
(129,745
)

(101,316
)
Property and equipment, net
$
130,145

 
$
91,496


Depreciation and amortization expense on property and equipment was $11.7 million and $29.2 million for the three and nine months ended September 30, 2018, respectively. Depreciation and amortization expense on property and equipment was $7.3 million and $21.8 million for the three and nine months ended September 30, 2017, respectively.
v3.10.0.1
ACQUISITIONS
9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
ACQUISITIONS
ACQUISITIONS
Weebly, Inc.
On May 31, 2018, the Company acquired 100% of the outstanding shares of Weebly, a technology company that offers customers website hosting and domain name registration solutions. The acquisition of Weebly enables the Company to combine Weebly’s web presence tools with the Company's in-person and online offerings to create a cohesive solution for sellers to start or grow an omnichannel business. The acquisition will also expand the Company’s customer base globally and add a new recurring revenue stream.

The purchase consideration was comprised of $132.4 million in cash and 2,418,271 shares of the Company’s Class A common stock with an aggregate fair value of $140.1 million based on the closing price of the Company’s Class A common stock on the acquisition date. As part of the acquisition, the Company paid an aggregate of $17.7 million in cash and shares to settle outstanding vested and unvested employee options, of which $2.6 million was accounted for as post-combination compensation expense and is excluded from the purchase consideration. Third-party acquisition-related costs were insignificant. The results of Weebly's operations have been included in the consolidated financial statements since the closing date.
The acquisition was accounted for as a business combination. This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment.
The table below summarizes the consideration paid for Weebly and the preliminary assessment of the fair value of the assets acquired and liabilities assumed at the closing date (in thousands, except share data).
Consideration:
 
Cash
$
132,432

Stock (2,418,271 shares of Class A common stock)
140,107

 
$
272,539

Recognized amounts of identifiable assets acquired and liabilities assumed:
 
Current assets (inclusive of cash acquired of $25,758)
$
44,685

Intangible customer assets
42,700

Intangible technology assets
14,900

Intangible trade name
11,300

Intangible other assets
961

Total liabilities assumed (including deferred revenue of $22,800)
(35,849
)
Total identifiable net assets acquired
78,697

Goodwill
193,842

Total
$
272,539


The Company prepared an initial determination of the fair value of the assets acquired and liabilities assumed as of the acquisition date using preliminary information. During the third quarter of 2018, the Company has recognized measurement period adjustments to the purchase consideration and the fair value of certain liabilities assumed as a result of further refinements in the Company’s estimates. These adjustments were prospectively applied. The effect of these adjustments on the preliminary purchase price allocation was an increase in goodwill and tax liabilities assumed of $4.3 million and $3.0 million, respectively. There was no impact to the consolidated statements of operations as result of these adjustments. The Company continues the process of completing the valuation of the acquired intangible assets and deferred revenue and evaluating contingencies and tax effects related to the acquisition. Accordingly, the preliminary values reflected in the table above are subject to change.
As of September 30, 2018, $19.9 million of cash and 372,578 shares of the total consideration were withheld as security for indemnification obligations related to general representations and warranties, in addition to certain potential tax exposures.
Goodwill from the Weebly acquisition is primarily attributable to the value of expected synergies created by incorporating Weebly solutions into the Company's technology platform and the value of the assembled workforce. None of the goodwill generated from the Weebly acquisition or the acquired intangible assets are expected to be deductible for tax purposes. Additionally the acquisition would have resulted in recognition of deferred tax assets arising mainly from the net of deferred tax assets from acquired net operating losses (NOLs) and research and development credits, and deferred tax liabilities associated with intangible assets and deferred revenue. However, the realization of such deferred tax assets depends primarily on the Company's post-acquisition ability to generate taxable income in future periods. Accordingly, a valuation allowance was recorded against the net acquired deferred tax asset in accounting for the acquisition.

The acquisition of Weebly did not have a material impact on the Company's reported revenue or net loss amounts for any period presented. Accordingly, pro forma financial information has not been presented.
Other acquisitions

The Company also spent an aggregate of $9.9 million, net of cash acquired, in connection with other immaterial acquisitions during the nine months ended September 30, 2018, which resulted in the recognition of additional intangible assets and goodwill. Pro forma financial information has not been presented for any of our acquisitions as the impact to our consolidated financial statements was not material.
v3.10.0.1
GOODWILL
9 Months Ended
Sep. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL
GOODWILL

Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets acquired.

The change in carrying value of goodwill in the period was as follows (in thousands):
Balance at December 31, 2017
$
58,327

Acquisitions completed during the nine months ended September 30, 2018
201,637

Balance at September 30, 2018
$
259,964



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. For the periods presented, the Company had recorded no impairment charges.
v3.10.0.1
ACQUIRED INTANGIBLE ASSETS
9 Months Ended
Sep. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
ACQUIRED INTANGIBLE ASSETS
ACQUIRED INTANGIBLE ASSETS    

The Company entered into two transactions accounted for as business combinations during the quarter ended June 30, 2018, that involved the acquisition of intangible assets. Refer to Note 8 for further details.

The following table presents the detail of acquired intangible assets as of the periods presented (in thousands):
 
Balance at September 30, 2018
Cost
 
Accumulated Amortization
 
Net
Patents
$
1,285

 
$
(638
)
 
$
647

Technology assets
45,978