SQUARE, INC., 10-Q filed on 5/1/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 26, 2019
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 Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Class A    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   336,267,871
Class B    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   86,698,955
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 521,676 $ 583,173
Short-term investments 566,539 540,991
Restricted cash 33,220 33,838
Settlements receivable 1,391,078 364,946
Customer funds 445,417 334,017
Loans held for sale 123,471 89,974
Other current assets 185,121 164,966
Total current assets 3,266,522 2,111,905
Property and equipment, net 133,706 142,402
Goodwill 267,012 261,705
Acquired intangible assets, net 79,697 77,102
Long-term investments 481,063 464,680
Restricted cash 14,433 15,836
Built-to-suit lease asset 0 149,000
Operating lease right-of-use assets 111,956  
Other non-current assets 48,202 58,393
Total assets 4,402,591 3,281,023
Current liabilities:    
Customers payable 1,661,894 749,215
Settlements payable 266,121 54,137
Accrued transaction losses 36,047 33,682
Accrued expenses 87,812 82,354
Operating lease liabilities, current 23,041 0
Other current liabilities 108,644 99,153
Total current liabilities 2,183,559 1,018,541
Long-term debt, net of current portion (Note 12) 909,302 899,695
Built-to-suit lease liability 0 149,000
Operating lease liabilities, non-current 112,556  
Other non-current liabilities 75,585 93,286
Total liabilities 3,281,002 2,160,522
Commitments and contingencies (Note 17)
Stockholders’ equity:    
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at March 31, 2019 and December 31, 2018. None issued and outstanding at March 31, 2019 and December 31, 2018. 0 0
Additional paid-in capital 2,048,938 2,012,328
Accumulated other comprehensive loss (3,424) (6,053)
Accumulated deficit (923,925) (885,774)
Total stockholders’ equity 1,121,589 1,120,501
Total liabilities and stockholders’ equity 4,402,591 3,281,023
Class A    
Stockholders’ equity:    
Common stock 0 0
Class B    
Stockholders’ equity:    
Common stock $ 0 $ 0
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
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) 334,650,231 323,546,864
Common stock, shares outstanding (in shares) 334,650,231 323,546,864
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) 86,973,715 93,501,142
Common stock, shares outstanding (in shares) 86,973,715 93,501,142
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenue:    
Revenue $ 959,359 $ 668,603
Cost of revenue:    
Total cost of revenue 562,605 413,433
Gross profit 396,754 255,170
Operating expenses:    
Product development 153,559 105,095
Sales and marketing 133,713 77,266
General and administrative 101,598 75,501
Transaction, loan and advance losses 27,841 18,031
Amortization of acquired customer assets 2,085 269
Total operating expenses 418,796 276,162
Operating loss (22,042) (20,992)
Interest expense, net 4,681 2,112
Other expense, net 11,299 707
Loss before income tax (38,022) (23,811)
Provision for income taxes 129 175
Net loss $ (38,151) $ (23,986)
Net loss per share:    
Basic (in USD per share) $ (0.09) $ (0.06)
Diluted (in USD per share) $ (0.09) $ (0.06)
Weighted-average shares used to compute net loss per share    
Basic (in shares) 419,289 395,948
Diluted (in shares) 419,289 395,948
Technology assets    
Cost of revenue:    
Amortization of acquired technology $ 1,376 $ 1,580
Transaction-based revenue    
Revenue:    
Revenue 656,762 523,037
Cost of revenue:    
Cost of revenue 409,069 327,911
Subscription and services-based revenue    
Revenue:    
Revenue 190,307 77,215
Revenue 218,857 97,054
Cost of revenue:    
Cost of revenue 60,523 30,368
Hardware revenue    
Revenue:    
Revenue 18,212 14,417
Cost of revenue:    
Cost of revenue 26,941 19,702
Bitcoin revenue    
Revenue:    
Revenue 65,528 34,095
Cost of revenue:    
Cost of revenue $ 64,696 $ 33,872
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net loss $ (38,151) $ (23,986)
Net foreign currency translation adjustments 266 549
Net unrealized gain on revaluation of intercompany loans 75 665
Net unrealized gain (loss) on marketable debt securities, net of tax 2,288 (1,190)
Total comprehensive loss $ (35,522) $ (23,962)
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (38,151) $ (23,986)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 18,971 10,160
Non-cash interest and other expense 8,224 4,847
Share-based compensation 61,088 46,824
Loss on revaluation of equity investment 14,087 0
Amortization of operating lease right-of-use assets and accretion of operating lease liabilities 6,690  
Recovery of common stock in connection with indemnification settlement agreement (789) 0
Transaction, loan and advance losses 27,841 18,031
Change in deferred income taxes (754) (654)
Changes in operating assets and liabilities:    
Settlements receivable (1,027,472) (81,452)
Customer funds (109,439) (49,619)
Purchase of loans held for sale (507,755) (344,976)
Sales and principal payments of loans held for sale 467,518 337,092
Other current assets (19,327) (13,444)
Other non-current assets (2,527) (1,256)
Customers payable 912,749 147,977
Settlements payable 211,984 2,114
Charge-offs to accrued transaction losses (17,443) (12,842)
Accrued expenses 15,721 2,703
Other current liabilities 16,991 5,155
Payments for operating lease liabilities (9,293)  
Other non-current liabilities 3,530 5,379
Net cash provided by operating activities 32,444 52,053
Cash flows from investing activities:    
Purchase of marketable debt securities (193,673) (50,221)
Proceeds from maturities of marketable debt securities 111,505 45,450
Proceeds from sale of marketable debt securities 44,810 0
Purchase of marketable debt securities from customer funds (34,613) 0
Proceeds from maturities of marketable debt securities from customer funds 33,000 0
Purchase of property and equipment (18,168) (8,083)
Payments for other investments (2,000) 0
Purchase of intangible assets 0 (1,584)
Business combinations, net of cash acquired (11,248) (1,055)
Net cash used in investing activities (70,387) (15,493)
Cash flows from financing activities:    
Payment of deferred purchase consideration (95) 0
Principal payments on finance lease obligation (1,284) (665)
Proceeds from the exercise of stock options, net 25,328 31,354
Payments for tax withholding related to vesting of restricted stock units (50,801) (27,651)
Net cash provided by (used in) financing activities (26,852) 3,038
Effect of foreign exchange rate on cash and cash equivalents 1,277 1,397
Net increase (decrease) in cash, cash equivalents and restricted cash (63,518) 40,995
Cash, cash equivalents and restricted cash, beginning of period 632,847 735,081
Cash, cash equivalents and restricted cash, end of period $ 569,329 $ 776,076
v3.19.1
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, 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 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)
v3.19.1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 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 help sellers start, run, and grow their businesses. 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. The Cash App is an easy way to send, spend, and store money, and Caviar is a food-ordering service. Square was founded in 2009 and is headquartered in San Francisco, with offices in the United States, Canada, Japan, Australia, Ireland, and the UK.

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 months ended March 31, 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 months ended March 31, 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 6% of settlements receivable as of March 31, 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 as of March 31, 2019. 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 three months ended March 31, 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 is currently evaluating the impact this guidance may have on the consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill assuming a hypothetical purchase price allocation (i.e., Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill. This standard should be adopted when the Company performs its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The amendments should be applied on a prospective basis. The Company intends to adopt this guidance effective with its 2019 annual goodwill impairment test 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 is currently evaluating whether to early adopt this guidance as well as the impact it may have on the consolidated financial statements and related disclosures.
v3.19.1
REVENUE
3 Months Ended
Mar. 31, 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 March 31,
 
2019
 
2018
Revenue from Contracts with Customers:
 
 
 
Transaction-based revenue
$
656,762

 
$
523,037

Subscription and services-based revenue
190,307

 
77,215

Hardware revenue
18,212

 
14,417

Bitcoin revenue
$
65,528

 
$
34,095

Revenue from other sources:
 
 
 
Subscription and services-based revenue
$
28,550

 
$
19,839



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

 
Three Months Ended March 31,
 
2019
 
2018
Deferred revenue, beginning of the period
$
36,451

 
$
5,893

Less: cumulative impact of the adoption of ASC 606

 
(4,303
)
Deferred revenue, beginning of the period, as adjusted
36,451

 
1,590

Deferred revenue, end of the period
42,160

 
3,353

Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period
$
12,306

 
$
298

v3.19.1
INVESTMENTS
3 Months Ended
Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS
INVESTMENTS

The Company's short-term and long-term investments as of March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
113,508

 
$
142

 
$
(15
)
 
$
113,635

Corporate bonds
84,832

 
289

 
(25
)
 
85,096

Municipal securities
20,237

 
54

 
(18
)
 
20,273

U.S. government securities
317,787

 
394

 
(71
)
 
318,110

Non-U.S. government securities
29,355

 
70

 

 
29,425

Total
$
565,719

 
$
949

 
$
(129
)
 
$
566,539

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
85,993

 
$
299

 
$
(28
)
 
$
86,264

Corporate bonds
186,674

 
1,233

 
(11
)
 
187,896

Municipal securities
23,267

 
128

 
(2
)
 
23,393

U.S. government securities
174,515

 
541

 
(8
)
 
175,048

Non-U.S. government securities
8,417

 
45

 

 
8,462

Total
$
478,866

 
$
2,246

 
$
(49
)
 
$
481,063


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 March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
565,719

 
$
566,539

Due in one to five years
478,866

 
481,063

Total
$
1,044,585

 
$
1,047,602

CUSTOMER FUNDS

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

 
March 31,
2019
 
December 31,
2018
Cash
$
278,967

 
$
158,697

Cash Equivalents:
 
 
 
Money market funds
862

 
18

U.S. agency securities
14,539

 
39,991

U.S. government securities
49,125

 
35,349

Short-term debt securities:
 
 
 
U.S. agency securities
22,286

 
27,291

U.S. government securities
79,638

 
72,671

Total
$
445,417

 
$
334,017



The Company's investments within customer funds as of March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
22,281

 
$
7

 
$
(2
)
 
$
22,286

U.S. government securities
79,607

 
33

 
(2
)
 
79,638

Total
$
101,888

 
$
40

 
$
(4
)
 
$
101,924




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 March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
101,888

 
$
101,924

Due in one to five years

 

Total
$
101,888

 
$
101,924

v3.19.1
CUSTOMER FUNDS
3 Months Ended
Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
CUSTOMER FUNDS
INVESTMENTS

The Company's short-term and long-term investments as of March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
113,508

 
$
142

 
$
(15
)
 
$
113,635

Corporate bonds
84,832

 
289

 
(25
)
 
85,096

Municipal securities
20,237

 
54

 
(18
)
 
20,273

U.S. government securities
317,787

 
394

 
(71
)
 
318,110

Non-U.S. government securities
29,355

 
70

 

 
29,425

Total
$
565,719

 
$
949

 
$
(129
)
 
$
566,539

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
85,993

 
$
299

 
$
(28
)
 
$
86,264

Corporate bonds
186,674

 
1,233

 
(11
)
 
187,896

Municipal securities
23,267

 
128

 
(2
)
 
23,393

U.S. government securities
174,515

 
541

 
(8
)
 
175,048

Non-U.S. government securities
8,417

 
45

 

 
8,462

Total
$
478,866

 
$
2,246

 
$
(49
)
 
$
481,063


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 March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
565,719

 
$
566,539

Due in one to five years
478,866

 
481,063

Total
$
1,044,585

 
$
1,047,602

CUSTOMER FUNDS

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

 
March 31,
2019
 
December 31,
2018
Cash
$
278,967

 
$
158,697

Cash Equivalents:
 
 
 
Money market funds
862

 
18

U.S. agency securities
14,539

 
39,991

U.S. government securities
49,125

 
35,349

Short-term debt securities:
 
 
 
U.S. agency securities
22,286

 
27,291

U.S. government securities
79,638

 
72,671

Total
$
445,417

 
$
334,017



The Company's investments within customer funds as of March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
22,281

 
$
7

 
$
(2
)
 
$
22,286

U.S. government securities
79,607

 
33

 
(2
)
 
79,638

Total
$
101,888

 
$
40

 
$
(4
)
 
$
101,924




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 March 31, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
101,888

 
$
101,924

Due in one to five years

 

Total
$
101,888

 
$
101,924

v3.19.1
FAIR VALUE OF FINANCIAL INSTRUMENTS
3 Months Ended
Mar. 31, 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):
 
March 31, 2019
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
164,457

 
$

 
$

 
$
218,109

 
$

 
$

U.S. agency securities

 
19,712

 

 

 
46,423

 

Commercial paper

 
2,997

 

 

 

 

U.S. government securities
102,199

 

 

 

 

 

Municipal securities

 

 

 
86,239

 

 

Non-U.S. government securities

 

 

 

 
23,981

 

Customer funds:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
862

 

 

 
18

 

 

U.S. agency securities

 
36,825

 

 

 
67,282

 

U.S. government securities
128,763

 

 

 
108,020

 

 

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

 
113,635

 

 

 
80,122

 

Corporate bonds

 
85,096

 

 

 
109,519

 

Municipal securities

 
20,273

 

 

 
27,832

 

U.S. government securities
318,110

 

 

 
292,267

 

 

Non-U.S. government securities

 
29,425

 

 

 
31,251

 

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

 
86,264

 

 

 
114,560

 

Corporate bonds

 
187,896

 

 

 
159,252

 

Municipal securities

 
23,393

 

 

 
28,594

 

U.S. government securities
175,048

 

 

 
154,124

 

 

Non-U.S. government securities

 
8,462

 

 

 
8,150

 

Other:
 
 
 
 
 
 
 
 
 
 
 
Equity investment
31,255

 

 

 
45,342

 

 

Total
$
920,694

 
$
613,978

 
$

 
$
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):
 
March 31, 2019
 
December 31, 2018
 
Carrying Value
 
Fair Value (Level 2)
 
Carrying Value
 
Fair Value (Level 2)
2023 Notes
$
725,900

 
$
1,042,987

 
$
718,522

 
$
901,468

2022 Notes
183,402

 
690,691

 
181,173

 
515,693

Total
$
909,302

 
$
1,733,678

 
$
899,695

 
$
1,417,161



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

 
March 31, 2019
 
December 31, 2018
 
Carrying Value
 
Fair Value (Level 3)
 
Carrying Value
 
Fair Value (Level 3)
Loans held for sale
$
123,471

 
$
128,358

 
$
89,974

 
$
93,064

Total
$
123,471

 
$
128,358

 
$
89,974

 
$
93,064



For the three months ended March 31, 2019, the Company recorded a charge for the excess of amortized cost over fair value of the loans of $6.7 million. For the three months ended March 31, 2018, the Company recorded a charge for the excess of amortized cost over fair value of the loans of $2.5 million.
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 months ended March 31, 2019 and 2018, the Company did not have any transfers in or out of Level 1, Level 2, or Level 3 assets or liabilities.
v3.19.1
PROPERTY AND EQUIPMENT, NET
3 Months Ended
Mar. 31, 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):    

March 31,
2019

December 31,
2018
Leasehold improvements
$
105,244

 
$
107,611

Computer equipment
82,056


80,093

Capitalized software
64,233

 
58,908

Office furniture and equipment
20,713


20,699

 
272,246

 
267,311

Less: Accumulated depreciation and amortization
(138,540
)

(124,909
)
Property and equipment, net
$
133,706

 
$
142,402


Depreciation and amortization expense on property and equipment was $15.5 million for the three months ended March 31, 2019. Depreciation and amortization expense on property and equipment was $8.3 million for the three months ended March 31, 2018.
v3.19.1
ACQUISITIONS
3 Months Ended
Mar. 31, 2019
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 expanded the Company’s customer base globally and added 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)
$
46,814

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)
(37,592
)
Total identifiable net assets acquired
79,083

Goodwill
193,456

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. Subsequently, the Company 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 $3.9 million and $4.8 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 evaluation of contingencies and potential tax exposures related to the acquisition. Accordingly, the preliminary values reflected in the table above are subject to change.
As of March 31, 2019, $19.1 million of cash and 357,780 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.
v3.19.1
GOODWILL
3 Months Ended
Mar. 31, 2019
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, 2018
$
261,705

Acquisitions
7,437

Other adjustments
(2,130
)
Balance at March 31, 2019
$
267,012



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.
v3.19.1
ACQUIRED INTANGIBLE ASSETS
3 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
ACQUIRED INTANGIBLE ASSETS
ACQUIRED INTANGIBLE ASSETS    

During the three months ended March 31, 2019, the Company did not make any material acquisitions.
    
The following table presents the detail of acquired intangible assets as of the periods presented (in thousands):
 
Balance at March 31, 2019
Cost
 
Accumulated Amortization
 
Net
Technology assets
49,007

 
(29,796
)
 
19,211

Customer assets
57,109

 
(9,361
)
 
47,748

Trade name
11,300

 
(2,354
)
 
8,946

Other
5,299

 
(1,507
)
 
3,792

Total
$
122,715