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2 GROSS PAYMENT VOLUME ADJUSTED REVENUE TOTAL NET REVENUE SOFTWARE AND DATA PRODUCTS REVENUE ADJUSTED EBITDA $10.2 Billion $135 Million $374 Million $22 Million ($6) Million +47% YoY To Our Shareholders: We are excited to repor our quarerly and annual financial results for the first time as a public company. We are off to a great star with fourh quarer results that demonstrate both high growth and strong operating perormance. Our results show we are executing on what we set out to do: grow our core payments business and extend into other services that deepen our relationships with our sellers. In the fourh quarer of 2015, Gross Payment Volume (GPV) increased 47% year over year to $10.2 billion. Adjusted Revenue was $135 million, up 64% year over year, while total net revenue was $374 million, up 49% year over year. We are not only seeing strong growth in our core payments business but also across our Software and Data Products. In the fourh quarer, revenue from these products was $22 million, up 52% sequentially from $15 million in the third quarer of 2015. Our continued and sustained growth reflects the strength of our large base of over two million active sellers and our ability to broaden our revenue streams. We have momentum in our business and will continue investing to pave the way for long-term scale and profitability. From payment processing to point of sale, hardware to software, business financing to payroll (and more), we have built a cohesive commerce ecosystem that helps sellers star, run, and grow their businesses. This makes us unique and stands in marked contrast to the rest of the industry, which forces sellers to laboriously piece together hardware, software, and payments services from many different vendors. See page 5 for more details See page 5 for more details See page 5 for more details See pages 5–6 for more details See page 7 for more details +64% YoY +49% YoY A reconciliation of Adjusted Revenue and other non- GAAP metrics used in this letter to their nearest GAAP equivalents is provided at the end of this letter. +272% YoY (5%) of Adjusted Revenue Q4 2015 Highlights
3 The financial services industry as a whole is now undergoing a significant transformation. Commerce is becoming increasingly digital and mobile, new technologies such as EMV (chip cards) and NFC (contactless payments) are taking hold, and consumer habits are changing fast. For example, in December 2015, 53% of cards swiped on Square were EMV chip cards, up from 12% in January 2015. We have always been a leader in this space and believe we are in an ideal position to capitalize on this industry wide shift. As of the end of the fourh quarer, we had already received over 350,000 pre-orders for our new contactless and chip reader. With this reader, Square sellers can accept payments in nearly every way their customers want to pay. It makes it easy to accept EMV chip cards and also new, faster forms of payment such as Apple Pay and Android Pay. It’s a simple, beautiful experience that allows you to pay for a haircut with a tap of your phone. The reader is for sale online and in Apple Stores around the country for $49, and we are planning to sell the product on Amazon and in Staples, Best Buy, and Target stores in the spring. At the same time, we continue to develop products and services that allow us to expand our reach and deepen our relationships with our sellers. For example: Square Capital is our financial services product that delivers capital to sellers in a fast, fair, and intelligent manner. Its growth is exceptional: We extended over $400 million through more than 70,000 advances in 2015, with nearly $150 million advanced in the fourh quarer. Our sellers find Square Capital invaluable, and over 90% of those who have been offered a HOW OUR SELLERS USE SQUARE CAPITAL Based on survey responses in 2015. Contactless and chip reader. JAN DEC 2015 12% 53% PURCHASING INVENTORY BUYING EQUIPMENT PAYING SHORT- TERM EXPENSES MARKETING REMODELING /EXPANSION REFINANCING DEBT HIRING EMPLOYEES OTHER 50% 42% 41% 26% 19% 9% 6% 4% PERCENTAGE OF PAYMENT CARDS THAT ARE EMV ENABLED
4 second advance have accepted it. With Instant Deposit, we can send funds from a sale immediately to a seller’s bank account—24 hours a day, seven days a week. We charge one percent of the dollar amount deposited, and since launch in August 2015 through the end of the fourh quarer, we have helped over 58,000 sellers complete nearly 600,000 deposits instantly. With Square Invoices, sellers can create custom digital invoices and collect payments online. Since its launch a year and a half ago, approximately 100,000 active sellers used Square Invoices to process their payments as of the end of the fourh quarer. Caviar, our restaurant delivery service for popular local restaurants, launched in six new cities in 2015 and is now in 17 markets across the country. Caviar enables restaurants to serve more customers, grow their sales, and expand their reach. The number of orders through Caviar in the fourh quarer grew by 4.5 times year over year. Above all, our priority is our sellers. We stand for economic empowerment, and everything we do should serve the purpose of giving our sellers accessible, affordable tools to grow their businesses and paricipate in the economy. As a public company, our purpose has not changed. Our sellers are our parners, and their success is our success. That’s one of the great things about Square: We can build a strong, growing, and profitable business by putting our sellers first. And we will! DIRECTED SHARE PROGRAM FOR OUR SELLERS At the time we went public, we offered our sellers the ability to buy equity in Square at the IPO price. Over 14,000 sellers did, and we are thrilled that they are now also owners of the company. The proceeds from this Directed Share Program benefited the Star Small Foundation, a foundation Jack created to invest in arists, musicians, and local businesses, with a focus on underserved communities. We look forward to welcoming these seller-shareholders to our earnings call and hearing from them during Q&A.
5 FINANCIAL DISCUSSION Gross Payment Volume (GPV) In the fourh quarer of 2015, we processed GPV of $10.2 billion, which represents an increase of 47% from the fourh quarer of 2014. For the full year of 2015, GPV totaled $35.6 billion, a 50% increase from the full year of 2014. GPV growth was driven by both ongoing growth in our existing seller base and new sellers added in 2015. GPV from larger sellers, which we define as those that generate greater than $125,000 in annualized GPV, grew over 70% in the fourh quarer and now represents 39% of GPV, up from 33% a year ago. Revenue Adjusted Revenue was $135 million in the fourh quarer of 2015, which represents an increase of 64%, an acceleration from the 57% growth rate in the third quarer of 2015. For the full year of 2015, Adjusted Revenue was $452 million, an increase of 64%. Total net revenue, which includes revenue from Starbucks, was $374 million in the fourh quarer, up 49%, and $1,267 million for the full year of 2015, also up 49%. Transaction revenue was $299 million in the fourh quarer of 2015, up 45%. Transaction revenue as a percentage of GPV was 2.93% compared to 2.97% in the prior year period. The decline is attributable to increases in free processing credits for seller-to-seller referrals and selectively offering custom pricing to larger sellers. Our Software and Data Product revenue was $22 million in the fourh quarer of 2015, growing 52% sequentially from GROSS PAYMENT VOLUME Unless otherwise noted, all comparisons referenced here are on a year-over-year basis and exclude contribution from Starbucks. ADJUSTED REVENUE A reconciliation of Adjusted Revenue and other non- GAAP metrics used in this letter to their nearest GAAP equivalents is provided at the end of this letter. $7.0B $7.1B $8.8B $9.5B 47% YoY Growth 48% YoY Growth 52% YoY Growth 55% YoY Growth 55% YoY Growth $10.2B Q1 Q2 Q3 Q4 2014 2015 Q4 $82M $89M $111M $118M 64% YoY Growth 57% YoY Growth 65% YoY Growth 70% YoY Growth 73% YoY Growth $135M Q1 Q2 Q3 Q4 2014 2015 Q4 2.93% 1.05% 2.98% 1.08% 2.95% 2013 2014 2015 1.06% TRANSACTION REVENUE AS A PERCENTAGE OF GPV TRANSACTION PROFIT AS A PERCENTAGE OF GPV