Financials SARAH FRIAR

Transcription

1 Financials SARAH FRIAR

2 TREMENDOUS SCALE Powerful business model SIGNIFICANT GROWTH ATTRACTIVE COHORT ECONOMICS STRONG MARGIN TRAJECTORY 144

3 GROSS PAYMENT VOLUME (GPV) ADJUSTED REVENUE $14B $204M $10B Significant $118M growth at scale 43% GROWTH At IPO Q % GROWTH At IPO Q A reconciliation of non-gaap metrics used in this document to their nearest GAAP equivalents is provided in the appendix to this document. At IPO represents Q3. 145

4 NEW SELLERS Key drivers of growth STRONG REVENUE RETENTION NEW PRODUCTS 146

5 Initial sales and marketing investment of $36M Q1 Cohort ($36M) SALES AND MARKETING EXPENSE Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q

6 Profit exceeds initial sales and marketing in 4 5 quarters Q1 Cohort $ 40M IN CUMULATIVE TRANSACTION-BASED PROFIT AFTER FIVE QUARTERS $40M CUMULATIVE COHORT TRANSACTION-BASED PROFIT SALES AND MARKETING EXPENSE ($36M) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Cumulative cohort transaction-based profit is based on the Q1 cohort of sellers. 148

7 and continues to grow thereafter Q1 Cohort $ 62M IN CUMULATIVE TRANSACTION-BASED PROFIT AFTER EIGHT QUARTERS $62M CUMULATIVE COHORT TRANSACTION-BASED PROFIT SALES AND MARKETING EXPENSE ($36M) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Cumulative cohort transaction-based profit is based on the Q1 cohort of sellers. 149

8 1.7X 1.1X ROI AFTER FIVE QUARTERS ROI AFTER EIGHT QUARTERS $62M Our cohort economics highlight $40M go-to-market efficiency Q1 Cohort ($36M) Q1 Q2 Q ROI is calculated by dividing cumulative cohort transaction-based profit of the Q1 cohort of sellers by sales and marketing expenses. 150

9 Consistent cohort growth leads to strong revenue visibility GPV by Annual Cohort 107% TRANSACTION-BASED PROFIT RETENTION COHORT COHORT 2014 COHORT 2013 COHORT PRE-2012 COHORT Transaction-based profit retention calculated as year-over-year retention of transaction-based revenue less transaction-based costs for our cohorts on average for the last four quarters ended March 31,

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11 Cross-selling enhances cohort economics Illustrative Seller Example Adjusted Revenue opportunity for an individual seller Retail seller, $1M in annual sales, $500K in GPV, three locations LOW CUSTOMER ACQUISITION COSTS $2,500 $900 $900 3x INCREASE IN ADJUSTED REVENUE $9,300 $2,000 $3,000 Transaction Processing Invoices Capital Appointments Customer Engagement Total 153

12 Cross-selling enhances cohort economics Q1 Cohort $79M $ 62M $ 79M IN CUMULATIVE ADJUSTED REVENUE AFTER EIGHT QUARTERS ($36M) CUMULATIVE SUBSCRIPTION AND SERVICES-BASED REVENUE CUMULATIVE COHORT TRANSACTION-BASED PROFIT SALES AND MARKETING EXPENSE TO ACQUIRE Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Cumulative cohort transaction-based profit and subscription and services-based revenue (excluding hardware and Gift Cards revenue) is based on the Q1 cohort of sellers. 154

13 PAYBACK REVENUE RETENTION 113% 4 5 QUARTERS Cross-selling enhances cohort economics 3 4 QUARTERS 107% Transaction- Based Profit Adjusted Revenue Transaction- Based Profit Adjusted Revenue Payback for transaction-based profit and Adjusted Revenue represents the average number of quarters it takes for a quarterly cohort of sellers cumulative transaction-based revenue net of transaction-based costs and Adjusted Revenue (excluding hardware and Gift Cards revenue) respectively to surpass our sales and marketing spending in the quarter in which we acquired that cohort. Revenue retention for transaction-based profit and Adjusted Revenue represents average retention of transaction-based revenue net of transaction-based costs and Adjusted Revenue (excluding hardware and Gift Cards revenue) respectively in the last four quarters ended March 31,

14 REVENUE RETENTION METRICS 13% Industry-leading revenue retention 5% 2% Private SaaS Median* Public SaaS Average** Sources: Pacific Crest Public SaaS Company Disclosure Metrics for Retention and Renewal Rates, Pacific Crest Private SaaS Company Survey, company s most recent SEC filings. * Pacific Credit Private SaaS Company Survey results. **Includes Amber Road, Benefitfocus, Brightcove, Castlight, ChannelAdvisor, Cvent, Demandware, Five9, GoDaddy, HubSpot, Instructure, Marin Software, Marketo, MINDBODY, New Relic, Paylocity, Responsys, Shopify, Twilio, Xactly, Zendesk. ***Average retention for Square Adjusted Revenue (excluding hardware and Gift Cards revenue) for the last four quarters ended March 31, Square*** 156

15 Investing in growth while benefiting from operating leverage ADJUSTED EBITDA MARGIN ADJUSTED REVENUE (13%) (17%) (24%) (23%) 1% (13%) (5%) (6%) 7% 7% 16% 13% (53%) Q Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Adjusted EBITDA margins calculated on Adjusted Revenue basis. See Appendix for non-gaap reconciliation. 157

16 NON-GAAP OPERATING EXPENSES 132% 117% 98% Investing in growth 78% while benefiting from operating leverage PRODUCT DEVELOPMENT SALES AND MARKETING GENERAL AND ADMINISTRATIVE OTHER EXPENSES Operating Expenses excludes share-based compensation expense and the litigation settlement with Robert E. Morley in. Other expenses include transaction and advance losses and impairment of intangible assets. 158

17 Growing GPV while driving down transaction losses over time GROSS PAYMENT VOLUME TRANSACTION LOSS TRANSACTION LOSS AS A $50B $45M PERCENTAGE OF GPV 0.17% 7% 0.09% $11M $7B 8x GROWTH 4x GROWTH

18 Our business benefits from high incremental margin FIXED COSTS VARIABLE COSTS PRODUCT ENGINEERING CUSTOMER ACQUISITION SALES AND MARKETING GROWTH INVESTMENTS HARDWARE DEVELOPMENT COST OF GOODS SOLD INFRASTRUCTURE INVESTMENTS DATA SCIENCE RISK OPERATIONS CORPORATE OPERATIONS ONGOING VARIABLE RISK LOSS DATA CENTER AND LICENSE FEES SUPPORT AND COMPLIANCE 160

19 Our business benefits from high incremental margin Variable cost as a percentage of Adjusted Revenue TRANSACTION-BASED SUBSCRIPTION AND SERVICES-BASED CUSTOMER ACQUISTION CUSTOMER ACQUISTION ONGOING VARIABLE ONGOING VARIABLE Variable costs include expenses related to sales and marketing, cost of goods sold, risk loss, data center and license fees, support, and compliance. 161

20 An overview of our investments today PRODUCT DEVELOPMENT SALES AND MARKETING GENERAL AND ADMINISTRATIVE Engineering, data science and design, hardware development Paid marketing, direct sales, account management, mag stripe reader, Square Cash peer-to-peer costs Finance, legal, communications, customer support, product operations, risk operations, HR 162

21 We are investing in sustainable growth BUILDING A WORLD- CLASS TEAM Continue to invest in talent acquisition to build and scale new products GO TO MARKET Maintaining go-to-market efficiency and expanding into new channels and markets GENERAL AND ADMINISTRATIVE EFFICIENCY while leveraging machine learning to drive greater operational efficiency as we scale 163

22 Our investment road map 3 SQUARE CASH 2 BUILD WITH SQUARE 1 SQUARE CAPITAL CAVIAR CUSTOMER ENGAGEMENT SQUARE PAYROLL PAYMENTS POINT OF SALE HORIZON 1 Proven investments with strong predictability INTERNATIONAL HORIZON 2 Newer offerings that are beginning to scale HORIZON 3 Bold bets: Long-term growth drivers 164

23 2017 Guidance (Midpoint) Long Term ADJUSTED REVENUE GROWTH 64% 52% 31% 20% 25% Long-term targets ADJUSTED EBITDA MARGIN (9%) 7% 13% 35% 40% See appendix for GAAP reconciliation to Adjusted Revenue and Adjusted EBITDA. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Adjusted Revenue. 165

24 Our business model provides a compelling investment opportunity TREMENDOUS SCALE Millions of active sellers, $53 billion trailing four quarter GPV SIGNIFICANT GROWTH 39% Adjusted Revenue year-over-year growth ATTRACTIVE COHORT ECONOMICS 113% Adjusted Revenue retention rate and 3-to-4 quarter payback STRONG MARGIN TRAJECTORY $27 million in Adjusted EBITDA, representing 13% margin Data points shown above are as of March 31, Active sellers defined as sellers with five or more payments in the last 12 months. See appendix for GAAP reconciliation to Adjusted Revenue and Adjusted EBITDA. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Adjusted Revenue. Payback calculated as the number of quarters it takes for a cohort of sellers cumulative Adjusted Revenue (excluding hardware and Gift Cards revenue) to surpass our sales and marketing spending in the quarter in which we acquired that cohort. Revenue retention rate is calculated as year-over-year retention of Adjusted Revenue (excluding hardware and Gift Cards revenue) for our cohorts on average for the last four quarters. 166

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28 Appendix GAAP RECONCILIATION

29 Adjusted Revenue Reconciliation to GAAP Total Net Revenue Adjusted Revenue is a non-gaap financial measure that reflects our total net revenue less transaction-based costs, and excludes Starbucks transaction-based revenue. We believe it is useful to exclude transaction costs from Adjusted Revenue as this is a primary metric used by management to measure our business performance and it affords greater comparability to other payment processing companies. Adjusted Revenue has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with GAAP. The following table presents a reconciliation of total net revenue to Adjusted Revenue for each of the periods indicated: Three Months Ended Mar. 31, 2014 Jun. 30, 2014 Sep. 30, 2014 Dec. 31, 2014 Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, 2017 (in thousands) (unaudited) TOTAL NET REVENUE 165, , , , , , , , , , , , ,554 LESS: STARBUCKS TRANSACTION-BASED REVENUE (26,466) (30,147) (29,895) (36,516) (29,237) (33,630) (32,332) (47,084) (38,838) (32,867) (7,164) (34) 0 LESS: TRANSACTION-BASED COSTS (86,275) (109,801) (122,425) (132,357) (132,107) (165,823) (182,007) (192,730) (194,276) (234,857) (254,061) (260,006) (257,778) ADJUSTED REVENUE 52,341 66,848 75,100 82,021 89, , , , , , , , ,

30 Adjusted EBITDA Reconciliation to GAAP Net Loss Adjusted EBITDA is a non-gaap financial measure that represents our net loss, adjusted to eliminate the effect of Starbucks transaction-based revenue and Starbucks transaction-based costs, before interest income and expense, provision or benefit for income taxes, depreciation, amortization, share-based compensation expense, other income and expense, the gain or loss on the sale of property and equipment, and impairment of intangible assets. We have included Adjusted EBITDA in this document because it is a key measure used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of certain non-cash items and certain variable charges. Adjusted EBITDA has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with GAAP. The following presents a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated. Three Months Ended Mar. 31, 2014 Jun. 30, 2014 Sep. 30, 2014 Dec. 31, 2014 Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, 2017 (in thousands) (unaudited) NET LOSS (43,991) (35,364) (37,666) (37,072) (47,978) (29,620) (53,930) (48,289) (96,755) (27,345) (32,323) (15,167) (15,090) STARBUCKS TRANSACTION-BASED REVENUE (26,466) (30,147) (29,895) (36,516) (29,237) (33,630) (32,332) (47,084) (38,838) (32,867) (7,164) (34) STARBUCKS TRANSACTION-BASED COSTS 33,016 37,496 37,377 43,066 36,211 40,921 41,410 46,896 36,610 28,672 4,528 (49) SHARE-BASED COMPENSATION EXPENSE 6,219 8,102 10,332 11,447 13,461 15,232 20,793 32,806 31,198 36,922 36,779 33,887 31,670 DEPRECIATION AND AMORTIZATION 3,794 3,919 5,130 5,743 5,546 6,410 6,570 9,100 9,118 9,018 9,681 9,928 9,437 LITIGATION SETTLEMENT EXPENSE 50,000 (2,000) INTEREST (INCOME) AND EXPENSE 456 (494) 1, , (772) (717) (327) PROVISION (BENEFIT) FOR INCOME TAXES (810) , , , , LOSS ON SALE OF PROPERTY AND EQUIPMENT (38) 169 (219) 39 ADJUSTED EBITDA (27,782) (16,220) (13,047) (10,692) (20,129) 859 (15,776) (6,069) (9,083) 12,554 11,623 29,793 27,

31 Adjusted Net Income (Loss) Reconciliation Adjusted Net Income (Loss), and Adjusted EPS are non-gaap financial measures that represent our net loss and net loss per share, adjusted to eliminate the effect of Starbucks, share-based compensation expenses, amortization of intangible assets, amortization of debt discount and issuance costs in connection with our offering of convertible senior notes in the first quarter of 2017, the litigation settlement with Robert E. Morley, the gain or loss on the sale of property and equipment, and impairment of intangible assets. Adjusted EPS (basic) is computed by dividing the Adjusted Net Income (Loss) by the weighted-average number of shares of common stock outstanding during the period. Adjusted EPS (diluted) is computed by dividing Adjusted Net Income (Loss) by the weighted-average number of shares of common stock outstanding, including all potentially dilutive shares. Adjusted EPS (diluted) is the same as Adjusted EPS (basic) because the effects of potentially dilutive items were anti-dilutive given the Adjusted Net Loss position. Adjusted EPS has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with GAAP. The following presents a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated. Three Months Ended Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, 2017 (in thousands) (unaudited) NET LOSS ($47,978) ($29,620) ($53,930) ($48,289) ($96,755) ($27,345) ($32,323) ($15,167) ($15,090) STARBUCKS TRANSACTION-BASED REVENUE (29,237) (33,630) (32,332) (47,084) (38,838) (32,867) (7,164) (34) 0 STARBUCKS TRANSACTION-BASED COSTS 36,211 40,921 41,410 46,896 36,610 28,672 4,528 (49) 0 SHARE-BASED COMPENSATION EXPENSE 13,461 15,232 20,793 32,806 31,198 36,922 36,779 33,887 31,670 AMORTIZATION OF INTANGIBLE ASSETS 1,095 1,651 1,592 3,165 2,713 2,134 2,076 2,090 2,038 LITIGATION SETTLEMENT EXPENSE 50,000 (2,000) AMORTIZATION OF DEBT DISCOUNT AND ISSUANCE COSTS 1,390 (GAIN) LOSS ON SALE OF PROPERTY AND EQUIPMENT (38) 169 (219) 39 ADJUSTED NET INCOME (LOSS) ($26,208) ($5,446) ($22,467) ($12,476) ($15,110) $5,685 $3,677 $20,766 $20,008 ADJUSTED EPS (DILUTED) ($0.18) ($0.04) ($0.15) ($0.05) ($0.05) $0.02 $0.01 $0.06 $0.05 ADJUSTED EPS (BASIC) ($0.18) ($0.04) ($0.15) ($0.05) ($0.05) $0.02 $0.01 $0.05 $0.05 DILUTED WEIGHTED-AVERAGE SHARES 145, , , , , , , , ,737 BASIC WEIGHTED-AVERAGE SHARES 145, , , , , , , , ,

32 Reconciliation to GAAP Operating Expenses Year Ended December 31, (in thousands) (unaudited) OPERATING EXPENSES ($233,727) ($376,565) ($544,488) ($746,491) SHARE-BASED COMPENSATION 14,658 36,100 82, ,786 DEPRECIATION AND AMORTIZATION 8,272 17,584 20,804 27,536 LITIGATION SETTLEMENT EXPENSE 0 48,000 LOSS (GAIN) ON SALE OF FIXED ASSETS 2, (49) NON-GAAP OPERATING EXPENSES ($208,092) ($322,748) ($441,122) ($532,218) PRODUCT DEVELOPMENT ($82,864) ($144,637) ($199,638) ($268,537) SHARE-BASED COMPENSATION 8,820 24,758 54,738 91,404 DEPRECIATION AND AMORTIZATION 4,124 10,775 11,347 13,190 LOSS (GAIN) ON SALE OF FIXED ASSETS NON-GAAP PRODUCT DEVELOPMENT ($69,920) ($109,104) ($133,553) ($163,943) SALES AND MARKETING ($64,162) ($112,577) ($145,618) ($173,876) SHARE-BASED COMPENSATION 1,235 3,738 7,360 14,122 DEPRECIATION AND AMORTIZATION LOSS (GAIN) ON SALE OF FIXED ASSETS NON-GAAP SALES AND MARKETING ($62,909) ($108,731) ($138,195) ($159,651) GENERAL AND ADMINISTRATIVE ($68,942) ($94,220) ($143,466) ($251,993) SHARE-BASED COMPENSATION 4,603 7,604 20,194 33,260 DEPRECIATION AND AMORTIZATION 4,130 6,701 9,447 14,316 LITIGATION SETTLEMENT EXPENSE 0 48,000 LOSS (GAIN) ON SALE OF FIXED ASSETS 2, (122) NON-GAAP GENERAL AND ADMINISTRATIVE ($57,504) ($79,782) ($113,608) ($156,539) 174

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