SQUARE, INC., 10-Q filed on 11/6/2019
Quarterly Report
v3.19.3
Cover Page - shares
9 Months Ended
Sep. 30, 2019
Nov. 01, 2019
Cover page.    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2019  
Document Transition Report false  
Entity File Number 001-37622  
Entity Registrant Name Square, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 80-0429876  
Entity Address, Address Line One 1455 Market Street  
Entity Address, Address Line Two Suite 600  
Entity Address, City or Town San Francisco  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94103  
City Area Code 415  
Local Phone Number 375-3176  
Title of 12(b) Security Class A common stock, $0.0000001 par value per share  
Trading Symbol SQ  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Class of Stock [Line Items]    
Entity Central Index Key 0001512673  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Class A    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   347,159,861
Class B    
Class of Stock [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   82,521,616
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 612,048 $ 583,173
Short-term investments 557,656 540,991
Restricted cash 27,389 33,838
Settlements receivable 564,492 364,946
Customer funds 660,599 334,017
Loans held for sale 120,776 89,974
Other current assets 215,806 164,966
Total current assets 2,758,766 2,111,905
Property and equipment, net 134,034 142,402
Goodwill 265,974 261,705
Acquired intangible assets, net 72,793 77,102
Long-term investments 564,508 464,680
Restricted cash 14,433 15,836
Built-to-suit lease asset 0 149,000
Operating lease right-of-use assets 108,670  
Other non-current assets 81,326 58,393
Total assets 4,000,504 3,281,023
Current liabilities:    
Customers payable 1,268,034 749,215
Settlements payable 81,597 54,137
Accrued transaction losses 37,419 33,682
Accrued expenses 124,005 82,354
Operating lease liabilities, current 25,779 0
Other current liabilities 108,067 99,153
Total current liabilities 1,644,901 1,018,541
Long-term debt, net of current portion (Note 13) 928,869 899,695
Built-to-suit lease liability 0 149,000
Operating lease liabilities, non-current 106,457  
Other non-current liabilities 70,483 93,286
Total liabilities 2,750,710 2,160,522
Commitments and contingencies (Note 19)
Stockholders’ equity:    
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at September 30, 2019 and December 31, 2018. None issued and outstanding at September 30, 2019 and December 31, 2018. 0 0
Additional paid-in capital 2,153,449 2,012,328
Accumulated other comprehensive loss (2,387) (6,053)
Accumulated deficit (901,268) (885,774)
Total stockholders’ equity 1,249,794 1,120,501
Total liabilities and stockholders’ equity 4,000,504 3,281,023
Class A    
Stockholders’ equity:    
Common stock 0 0
Class B    
Stockholders’ equity:    
Common stock $ 0 $ 0
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 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) 346,552,092 323,546,864
Common stock, shares outstanding (in shares) 346,552,092 323,546,864
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) 82,521,716 93,501,142
Common stock, shares outstanding (in shares) 82,521,716 93,501,142
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenue:        
Revenue $ 1,266,474 $ 882,108 $ 3,400,071 $ 2,365,649
Cost of revenue:        
Total cost of revenue 766,437 529,448 2,037,435 1,442,003
Gross profit 500,037 352,660 1,362,636 923,646
Operating expenses:        
Product development 168,771 135,773 497,322 355,668
Sales and marketing 149,467 116,337 439,601 291,846
General and administrative 115,980 85,527 318,086 243,800
Transaction, loan and advance losses 32,722 23,596 94,827 63,603
Amortization of acquired customer assets 1,003 1,294 3,591 2,235
Total operating expenses 467,943 362,527 1,353,427 957,152
Operating income (loss) 32,094 (9,867) 9,209 (33,506)
Interest expense, net 5,632 7,224 15,456 12,806
Other expense (income), net (5,541) (37,800) 6,988 (37,908)
Income (loss) before income tax 32,003 20,709 (13,235) (8,404)
Provision for income taxes 2,606 1,066 2,259 1,845
Net income (loss) $ 29,397 $ 19,643 $ (15,494) $ (10,249)
Net income (loss) per share:        
Basic (in USD per share) $ 0.07 $ 0.05 $ (0.04) $ (0.03)
Diluted (in USD per share) $ 0.06 $ 0.04 $ (0.04) $ (0.03)
Weighted-average shares used to compute net income (loss) per share        
Basic (in shares) 427,124 409,690 423,239 402,980
Diluted (in shares) 466,099 474,915 423,239 402,980
Technology assets        
Cost of revenue:        
Amortization of acquired technology $ 1,934 $ 2,277 $ 5,029 $ 5,714
Transaction-based revenue        
Revenue:        
Revenue 816,622 655,384 2,248,894 1,803,649
Cost of revenue:        
Cost of revenue 519,312 414,456 1,418,730 1,137,716
Subscription and services-based revenue        
Revenue:        
Revenue 239,895 141,752 645,588 330,637
Revenue 279,801 166,203 750,041 397,589
Cost of revenue:        
Cost of revenue 63,352 47,078 183,994 117,230
Hardware revenue        
Revenue:        
Revenue 21,766 17,558 62,238 50,337
Cost of revenue:        
Cost of revenue 35,672 23,229 95,881 68,467
Bitcoin revenue        
Revenue:        
Revenue 148,285 42,963 338,898 114,074
Cost of revenue:        
Cost of revenue $ 146,167 $ 42,408 $ 333,801 $ 112,876
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ 29,397 $ 19,643 $ (15,494) $ (10,249)
Net foreign currency translation adjustments (2,812) (946) (2,285) (3,341)
Net unrealized gain (loss) on revaluation of intercompany loans 0 (296) 75 (89)
Net unrealized gain (loss) on marketable debt securities, net of tax 1,351 (647) 5,876 (1,597)
Total comprehensive income (loss) $ 27,936 $ 17,754 $ (11,828) $ (15,276)
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2019
Mar. 31, 2019
Sep. 30, 2018
Mar. 31, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Cash flows from operating activities:              
Net loss $ 29,397 $ (38,151) $ 19,643 $ (23,986) $ (15,494) $ (10,249)  
Adjustments to reconcile net loss to net cash provided by operating activities:              
Depreciation and amortization         56,879 38,323  
Non-cash interest and other expense         25,486 23,554  
Loss on extinguishment of long-term debt         0 1,625  
Share-based compensation         217,980 157,856  
Replacement stock awards issued in connection with acquisition         0 899  
Loss (gain) on revaluation of equity investment (2,500)       16,467 (36,908)  
Amortization of operating lease right-of-use assets and accretion of operating lease liabilities         21,950    
Recovery of common stock in connection with indemnification settlement agreement         (789) (2,745)  
Transaction, loan and advance losses         94,827 63,603  
Change in deferred income taxes         (1,054) (563)  
Changes in operating assets and liabilities:              
Settlements receivable         (215,594) (579,769)  
Customer funds         (202,718) (156,162)  
Purchase of loans held for sale         (1,596,394) (1,139,142)  
Sales and principal payments of loans held for sale         1,547,158 1,130,378  
Customers payable         519,123 581,530  
Settlements payable         27,460 88,486  
Charge-offs to accrued transaction losses         (56,486) (40,354)  
Other assets and liabilities         (34,218) (1,702)  
Net cash provided by operating activities         404,583 118,660  
Cash flows from investing activities:              
Purchase of marketable debt securities         (758,969) (859,060)  
Proceeds from maturities of marketable debt securities         325,682 128,603  
Proceeds from sale of marketable debt securities         327,247 106,358  
Purchase of marketable debt securities from customer funds         (237,640) 0  
Proceeds from maturities of marketable debt securities from customer funds         115,200 0  
Purchase of property and equipment         (45,826) (37,173)  
Payments for other investments         (2,000) 0  
Purchase of intangible assets         0 (1,584)  
Business combinations, net of cash acquired         (20,372) (112,399)  
Net cash used in investing activities         (296,678) (775,255)  
Cash flows from financing activities:              
Proceeds from issuance of convertible senior notes, net         0 855,663  
Purchase of convertible senior note hedges         0 (172,586)  
Proceeds from issuance of warrants         0 112,125  
Principal payment on conversion of senior notes         0 (70,047)  
Payments for tax withholding related to vesting of restricted stock units         (164,044) (125,899)  
Proceeds from the exercise of stock options, net         81,781 94,780  
Other financing activities         (3,946) (3,298)  
Net cash provided by (used in) financing activities         (86,209) 690,738  
Effect of foreign exchange rate on cash and cash equivalents         (673) (4,154)  
Net increase in cash, cash equivalents and restricted cash         21,023 29,989  
Cash, cash equivalents and restricted cash, beginning of period   $ 632,847   $ 735,081 632,847 735,081 $ 735,081
Cash, cash equivalents and restricted cash, end of period $ 653,870   $ 765,070   $ 653,870 $ 765,070 $ 632,847
v3.19.3
CONDENSED 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 income (loss) (23,986)       (23,986)
Shares issued in connection with:          
Exercise of stock options (in shares)   4,213,775      
Exercise of stock options 31,354   31,354    
Vesting of early exercised stock options and other 136   136    
Vesting of restricted stock units (in shares)   1,625,534      
Change in other comprehensive loss 24     24  
Share-based compensation 48,356   48,356    
Tax withholding related to vesting of restricted stock units (in shares)   (649,305)      
Tax withholding related to vesting of restricted stock units (27,651)   (27,651)    
Ending balance (in shares) at Mar. 31, 2018   400,384,079      
Ending balance at Mar. 31, 2018 809,980 $ 0 1,682,581 (1,294) (871,307)
Beginning balance (in shares) at Dec. 31, 2017   395,194,075      
Beginning balance at Dec. 31, 2017 786,333 $ 0 1,630,386 (1,318) (842,735)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) (10,249)        
Ending balance (in shares) at Sep. 30, 2018   412,372,832      
Ending balance at Sep. 30, 2018 1,122,144 $ 0 1,986,059 (6,345) (857,570)
Beginning balance (in shares) at Mar. 31, 2018   400,384,079      
Beginning balance at Mar. 31, 2018 809,980 $ 0 1,682,581 (1,294) (871,307)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) (5,906)       (5,906)
Shares issued in connection with:          
Exercise of stock options (in shares)   3,246,683      
Exercise of stock options 23,267   23,267    
Vesting of early exercised stock options and other 19   19    
Purchases under employee stock purchase plan (in shares)   450,236      
Purchases under employee stock purchase plan 12,578   12,578    
Vesting of restricted stock units (in shares)   2,385,704      
Issuance of common stock in connection with business combination (in shares)   2,658,139      
Issuance of common stock in connection with business combination 140,154   140,154    
Change in other comprehensive loss (3,162)     (3,162)  
Share-based compensation 54,810   54,810    
Tax withholding related to vesting of restricted stock units (in shares)   (773,120)      
Tax withholding related to vesting of restricted stock units (40,924)   (40,924)    
Conversion feature of convertible senior notes, due 2023, net of allocated costs 154,019   154,019    
Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2023 (172,586)   (172,586)    
Sale of warrants in conjunction with issuance of convertible senior notes, due 2023 112,125   112,125    
Recovery of common stock in connection with indemnification settlement agreement (in shares)   (469,898)      
Recovery of common stock in connection with indemnification settlement agreement (2,745)   (2,745)    
Ending balance (in shares) at Jun. 30, 2018   407,881,823      
Ending balance at Jun. 30, 2018 1,081,629 $ 0 1,963,298 (4,456) (877,213)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 19,643       19,643
Shares issued in connection with:          
Exercise of stock options (in shares)   3,200,992      
Exercise of stock options 27,580   27,580    
Vesting of early exercised stock options and other (in shares)   347      
Vesting of early exercised stock options and other 12   12    
Vesting of restricted stock units (in shares)   2,088,191      
Issuance of common stock in connection with business combination (in shares)   1,542      
Issuance of common stock in connection with business combination 853   853    
Change in other comprehensive loss (1,889)     (1,889)  
Share-based compensation 60,945   60,945    
Tax withholding related to vesting of restricted stock units (in shares)   (800,065)      
Tax withholding related to vesting of restricted stock units (57,324)   (57,324)    
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (in shares)   2,161,631      
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (9,305)   (9,305)    
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022 (in shares)   (2,161,629)      
Ending balance (in shares) at Sep. 30, 2018   412,372,832      
Ending balance at Sep. 30, 2018 1,122,144 $ 0 1,986,059 (6,345) (857,570)
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 income (loss) (38,151)       (38,151)
Shares issued in connection with:          
Exercise of stock options (in shares)   3,588,052      
Exercise of stock options 25,328   25,328    
Vesting of early exercised stock options and other (in shares)   425      
Vesting of early exercised stock options and other 36   36    
Vesting of restricted stock units (in shares)   1,994,156      
Change in other comprehensive loss 2,629     2,629  
Share-based compensation 62,835   62,835    
Tax withholding related to vesting of restricted stock units (in shares)   (741,324)      
Tax withholding related to vesting of restricted stock units (50,801)   (50,801)    
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (in shares)   43      
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 1   1    
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022 (in shares)   (250,614)      
Recovery of common stock in connection with indemnification settlement agreement (in shares)   (14,798)      
Recovery of common stock in connection with indemnification settlement agreement (789)   (789)    
Ending balance (in shares) at Mar. 31, 2019   421,623,946      
Ending balance at Mar. 31, 2019 1,121,589 $ 0 2,048,938 (3,424) (923,925)
Beginning balance (in shares) at Dec. 31, 2018   417,048,006      
Beginning balance at Dec. 31, 2018 1,120,501 $ 0 2,012,328 (6,053) (885,774)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) $ (15,494)        
Shares issued in connection with:          
Exercise of stock options (in shares) 7,881,289        
Ending balance (in shares) at Sep. 30, 2019   429,073,808      
Ending balance at Sep. 30, 2019 $ 1,249,794 $ 0 2,153,449 (2,387) (901,268)
Beginning balance (in shares) at Mar. 31, 2019   421,623,946      
Beginning balance at Mar. 31, 2019 1,121,589 $ 0 2,048,938 (3,424) (923,925)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) (6,740)       (6,740)
Shares issued in connection with:          
Exercise of stock options (in shares)   2,671,530      
Exercise of stock options 22,651   22,651    
Purchases under employee stock purchase plan (in shares)   360,328      
Purchases under employee stock purchase plan 18,942   18,942    
Vesting of restricted stock units (in shares)   2,339,193      
Change in other comprehensive loss 2,498     2,498  
Share-based compensation 81,392   81,392    
Tax withholding related to vesting of restricted stock units (in shares)   (777,006)      
Tax withholding related to vesting of restricted stock units (55,862)   (55,862)    
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 (in shares)   86      
Issuance of common stock in conjunction with the conversion of senior notes, due 2022 2   2    
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022 (in shares)   (84)      
Ending balance (in shares) at Jun. 30, 2019   426,217,993      
Ending balance at Jun. 30, 2019 1,184,472 $ 0 2,116,063 (926) (930,665)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Net income (loss) 29,397       29,397
Shares issued in connection with:          
Exercise of stock options (in shares)   1,621,707      
Exercise of stock options 14,860   14,860    
Vesting of restricted stock units (in shares)   2,035,852      
Change in other comprehensive loss (1,461)     (1,461)  
Share-based compensation 79,907   79,907    
Tax withholding related to vesting of restricted stock units (in shares)   (801,744)      
Tax withholding related to vesting of restricted stock units (57,381)   (57,381)    
Ending balance (in shares) at Sep. 30, 2019   429,073,808      
Ending balance at Sep. 30, 2019 $ 1,249,794 $ 0 $ 2,153,449 $ (2,387) $ (901,268)
v3.19.3
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
    
Square, Inc. (together with its subsidiaries, Square or the Company) creates tools that empower businesses, sellers and individuals to participate in the economy. Square enables sellers to accept card payments and also provides reporting and analytics, and next-day settlement. Square’s point-of-sale software and other business services help sellers manage inventory, locations, and employees; access financing; engage buyers; build a website or online store; and grow sales. Cash App is an easy way to send, spend, and store money. In July 2019, the Company entered into a definitive agreement to sell the Caviar business, a food ordering service, which closed on October 31, 2019. Square was founded in 2009 and is headquartered in San Francisco, with offices in the United States, Canada, Japan, Australia, Ireland, and the UK.

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

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

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and related notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

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

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

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

The Company had three third-party payment processors that represented approximately 46%, 34%, and 9% of settlements receivable as of September 30, 2019. The same three parties represented approximately 45%, 33%, and 9% of settlements receivable as of December 31, 2018. All other third-party processors were insignificant.

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

Assets Held for Sale

The Company classifies an asset group (‘asset’) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in general and administrative expenses in the period in which the held for sale criteria are met. Conversely, gains are generally not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation or amortization expense on the asset. The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.

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. The Company recognized $112.0 million of operating right-of-use lease assets and $135.6 million of operating lease liabilities on its consolidated balance sheet upon adoption of this standard. Additionally, the Company derecognized $149 million related to the build-to-suit asset and liability upon adoption of this standard because the Company is no longer deemed to be the owner of the related asset under construction under the new standard. Refer to Note 19 for further detail.

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

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13,Financial Instruments - Credit Losses, which requires the measurement and recognition of expected credit losses for financial assets held. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available for sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company intends to adopt this guidance effective January 1, 2020. The Company’s preliminary conclusion is that the new guidance will not have a material impact on the balances reported on its consolidated financial statements. The Company has also determined that allowances for credit losses associated with its available for sale debt securities would be immaterial. Upon adoption of this guidance, the Company will expand its disclosures to discuss how it develops its expected credit loss estimates, the methodology applied to estimate the allowance for credit losses, and the factors that influence the Company's estimates. For available for sale debt securities with unrealized losses where the Company
concludes that an allowance for credit losses is not necessary, the Company will expand its disclosures of the associated fair value of such securities as well as the basis for conclusions that an allowance for credit losses was not necessary.


In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The new guidance eliminates the requirement to calculate the implied fair value of goodwill assuming a hypothetical purchase price allocation (i.e., Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill. This standard should be adopted when the Company performs its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The amendments should be applied on a prospective basis. The Company intends to adopt this guidance effective with its 2019 annual goodwill impairment test which it performs as of December 31. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements and related disclosures.

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

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which is intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance for internal-use software. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment for all implementation costs incurred after the date of adoption. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements and related disclosures.
v3.19.3
REVENUE
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
REVENUE REVENUE

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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue from Contracts with Customers:
 
 
 
 
 
 
 
Transaction-based revenue
$
816,622

 
$
655,384

 
$
2,248,894

 
$
1,803,649

Subscription and services-based revenue
239,895

 
141,752

 
645,588

 
330,637

Hardware revenue
21,766

 
17,558

 
62,238

 
50,337

Bitcoin revenue
148,285

 
42,963

 
338,898

 
114,074

Revenue from other sources:
 
 
 
 
 
 
 
Subscription and services-based revenue
$
39,906

 
$
24,451

 
$
104,453

 
$
66,952



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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Deferred revenue, beginning of the period
$
44,812

 
$
27,155

 
$
36,451

 
$
5,893

Less: cumulative impact of the adoption of ASC 606

 

 

 
(4,303
)
Deferred revenue, beginning of the period, as adjusted
44,812

 
27,155

 
36,451

 
1,590

Deferred revenue, end of the period
45,263

 
33,614

 
45,263

 
33,614

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
$
12,656

 
$
10,165

 
$
28,280

 
$
1,539


v3.19.3
INVESTMENTS
9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS INVESTMENTS

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

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
132,217

 
$
257

 
$
(126
)
 
$
132,348

Corporate bonds
55,399

 
194

 
(92
)
 
55,501

Commercial paper
2,245

 

 

 
2,245

Municipal securities
2,713

 
5

 
(49
)
 
2,669

U.S. government securities
351,592

 
317

 
(192
)
 
351,717

Foreign securities
13,214

 

 
(38
)
 
13,176

Total
$
557,380

 
$
773

 
$
(497
)
 
$
557,656

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
87,848

 
$
219

 
$
(164
)
 
$
87,903

Corporate bonds
185,675

 
286

 
(398
)
 
185,563

Municipal securities
12,668

 
12

 
(98
)
 
12,582

U.S. government securities
250,434

 
267

 
(436
)
 
250,265

Foreign securities
28,264

 
6

 
(75
)
 
28,195

Total
$
564,889

 
$
790

 
$
(1,171
)
 
$
564,508


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

Foreign 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

Foreign 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 September 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
557,380

 
$
557,656

Due in one to five years
564,889

 
564,508

Total
$
1,122,269

 
$
1,122,164


CUSTOMER FUNDS

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

 
September 30,
2019
 
December 31,
2018
Cash
$
407,719

 
$
158,697

Cash Equivalents:
 
 
 
Money market funds
388

 
18

U.S. agency securities
21,667

 
39,991

U.S. government securities
6,999

 
35,349

Short-term debt securities:
 
 
 
U.S. agency securities
1,654

 
27,291

U.S. government securities
222,172

 
72,671

Total
$
660,599

 
$
334,017



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

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
1,657

 
$

 
$
(3
)
 
$
1,654

U.S. government securities
222,193

 
39

 
(60
)
 
222,172

Total
$
223,850

 
$
39

 
$
(63
)
 
$
223,826




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 September 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
223,850

 
$
223,826

Total
$
223,850

 
$
223,826


v3.19.3
CUSTOMER FUNDS
9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
CUSTOMER FUNDS INVESTMENTS

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

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
132,217

 
$
257

 
$
(126
)
 
$
132,348

Corporate bonds
55,399

 
194

 
(92
)
 
55,501

Commercial paper
2,245

 

 

 
2,245

Municipal securities
2,713

 
5

 
(49
)
 
2,669

U.S. government securities
351,592

 
317

 
(192
)
 
351,717

Foreign securities
13,214

 

 
(38
)
 
13,176

Total
$
557,380

 
$
773

 
$
(497
)
 
$
557,656

 
 
 
 
 
 
 
 
Long-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
87,848

 
$
219

 
$
(164
)
 
$
87,903

Corporate bonds
185,675

 
286

 
(398
)
 
185,563

Municipal securities
12,668

 
12

 
(98
)
 
12,582

U.S. government securities
250,434

 
267

 
(436
)
 
250,265

Foreign securities
28,264

 
6

 
(75
)
 
28,195

Total
$
564,889

 
$
790

 
$
(1,171
)
 
$
564,508


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

Foreign 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

Foreign 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 September 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
557,380

 
$
557,656

Due in one to five years
564,889

 
564,508

Total
$
1,122,269

 
$
1,122,164


CUSTOMER FUNDS

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

 
September 30,
2019
 
December 31,
2018
Cash
$
407,719

 
$
158,697

Cash Equivalents:
 
 
 
Money market funds
388

 
18

U.S. agency securities
21,667

 
39,991

U.S. government securities
6,999

 
35,349

Short-term debt securities:
 
 
 
U.S. agency securities
1,654

 
27,291

U.S. government securities
222,172

 
72,671

Total
$
660,599

 
$
334,017



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

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term debt securities:
 
 
 
 
 
 
 
U.S. agency securities
$
1,657

 
$

 
$
(3
)
 
$
1,654

U.S. government securities
222,193

 
39

 
(60
)
 
222,172

Total
$
223,850

 
$
39

 
$
(63
)
 
$
223,826




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 September 30, 2019 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
223,850

 
$
223,826

Total
$
223,850

 
$
223,826


v3.19.3
FAIR VALUE OF FINANCIAL INSTRUMENTS
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures its cash equivalents, customer funds, short-term and long-term marketable debt securities, and marketable equity investments at fair value. The Company classifies these investments within Level 1 or Level 2 of the fair value hierarchy because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis are classified as follows (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
304,690

 
$

 
$

 
$
218,109

 
$

 
$

U.S. agency securities

 
40,410

 

 

 
46,423

 

Time deposits
10,146

 

 

 

 

 

U.S. government securities
23,963

 

 

 

 

 

Municipal securities

 

 

 
86,239

 

 

Foreign securities

 

 

 

 
23,981

 

Customer funds:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
388

 

 

 
18

 

 

U.S. agency securities

 
23,321

 

 

 
67,282

 

U.S. government securities
229,171

 

 

 
108,020

 

 

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

 
132,348

 

 

 
80,122

 

Corporate bonds

 
55,501

 

 

 
109,519

 

Commercial paper

 
2,245

 

 

 

 

Municipal securities

 
2,669

 

 

 
27,832

 

U.S. government securities
351,717

 

 

 
292,267

 

 

Foreign securities

 
13,176

 

 

 
31,251

 

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

 
87,903

 

 

 
114,560

 

Corporate bonds

 
185,563

 

 

 
159,252

 

Municipal securities

 
12,582

 

 

 
28,594

 

U.S. government securities
250,265

 

 

 
154,124

 

 

Foreign securities

 
28,195

 

 

 
8,150

 

Other:
 
 
 
 
 
 
 
 
 
 
 
Marketable equity investment
28,875

 

 

 
45,342

 

 

Total
$
1,199,215

 
$
583,913

 
$

 
$
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):
 
September 30, 2019
 
December 31, 2018
 
Carrying Value
 
Fair Value (Level 2)
 
Carrying Value
 
Fair Value (Level 2)
2023 Notes
$
740,921

 
$
961,092

 
$
718,522

 
$
901,468

2022 Notes
187,948

 
575,661