SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “appears,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our future financial performance, the impact of the COVID-19 pandemic and related public health measures on our business, customers, and employees, our expectations regarding transaction and loan losses, the potential exposure as a non-bank participant in the Paycheck Protection Program ("PPP") and its effect on our liquidity and financial results and the ability of our customers to comply with requirements and otherwise perform with respect to loans obtained under such program, our anticipated growth and growth strategies and our ability to effectively manage that growth, our ability to invest in and develop our products and services to operate with changing technology, the expected benefits of our products to our customers and the impact of our products on our business, and our ~~anticipated expansion and growth in~~expectations regarding Gross Payment Volume (GPV) and revenue, including our expectations regarding the Cash App ~~ecosystem,~~and Seller ecosystems, our expectations regarding product launches, the expected impact of our recent acquisitions, ~~the anticipated impact of our sale of Caviar,~~ our plans with respect to patents and other intellectual property, our expectations regarding litigation and positions we have taken with respect to our tax classification, our expectations regarding share-based compensation, our expectations regarding the impacts of accounting guidance, our expectations regarding restricted cash, and the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements.

We have based the forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

All forward-looking statements are based on information and estimates available to the Company at the time of this Quarterly Report on Form 10-Q and are not guarantees of future performance. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

Part I—Financial Information

Item 1. Financial Statements

SQUARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)  (In thousands, except share and per share data)


	September 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	612,048		$	583,173		Cash and cash equivalents	$	1,972,762	$	1,047,118
Short-term investments	557,656			540,991
Restricted cash	27,389			33,838
Investments in short-term debt securities							Investments in short-term debt securities	714,348		492,456
Settlements receivable	564,492			364,946			Settlements receivable	879,464		588,692
Customer funds	660,599			334,017			Customer funds	1,733,107		676,292
Loans held for sale	120,776			89,974			Loans held for sale	567,499		164,834
Other current assets	215,806			164,966			Other current assets	319,890		250,409
Total current assets	2,758,766			2,111,905			Total current assets	6,187,070		3,219,801
Property and equipment, net	134,034			142,402			Property and equipment, net	167,062		149,194
Goodwill	265,974			261,705			Goodwill	295,759		266,345
Acquired intangible assets, net	72,793			77,102			Acquired intangible assets, net	99,802		69,079
Long-term investments	564,508			464,680
Restricted cash	14,433			15,836
Built-to-suit lease asset	—			149,000
Investments in long-term debt securities							Investments in long-term debt securities	446,685		537,303

Operating lease right-of-use assets	108,670			—			Operating lease right-of-use assets	449,445		113,148
Other non-current assets	81,326			58,393			Other non-current assets	166,449		196,388
Total assets	$	4,000,504		$	3,281,023		Total assets	$	7,812,272	$	4,551,258
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current liabilities:							Current liabilities:
Customers payable	$	1,268,034		$	749,215		Customers payable	$	2,568,418	$	1,273,135
Settlements payable	81,597			54,137			Settlements payable	179,131		95,834
Accrued transaction losses	37,419			33,682
Accrued expenses	124,005			82,354
Accrued expenses and other current liabilities							Accrued expenses and other current liabilities	393,576		297,841

Operating lease liabilities, current	25,779			—			Operating lease liabilities, current	43,627		27,275
Other current liabilities	108,067			99,153
PPP Liquidity Facility advances							PPP Liquidity Facility advances	447,764		—
Total current liabilities	1,644,901			1,018,541			Total current liabilities	3,632,516		1,694,085
Long-term debt, net of current portion (Note 13)	928,869			899,695
Built-to-suit lease liability	—			149,000

Long-term debt							Long-term debt	1,778,428		938,832

Operating lease liabilities, non-current	106,457			—			Operating lease liabilities, non-current	384,801		108,830
Other non-current liabilities	70,483			93,286			Other non-current liabilities	90,220		94,461
Total liabilities	2,750,710			2,160,522			Total liabilities	5,885,965		2,836,208
Commitments and contingencies (Note 19)
Commitments and contingencies (Note 17)							Commitments and contingencies (Note 17)
Stockholders’ equity:							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.	—			—
Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at September 30, 2019 and December 31, 2018; 346,552,092 and 323,546,864 issued and outstanding at September 30, 2019 and December 31, 2018, respectively.	—			—
Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at September 30, 2019 and December 31, 2018; 82,521,716 and 93,501,142 issued and outstanding at September 30, 2019 and December 31, 2018, respectively.	—			—
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at June 30, 2020 and December 31, 2019. NaN issued and outstanding at June 30, 2020 and December 31, 2019.							Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at June 30, 2020 and December 31, 2019. NaN issued and outstanding at June 30, 2020 and December 31, 2019.	—		—
Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at June 30, 2020 and December 31, 2019; 370,102,185 and 352,386,562 issued and outstanding at June 30, 2020 and December 31, 2019, respectively.							Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at June 30, 2020 and December 31, 2019; 370,102,185 and 352,386,562 issued and outstanding at June 30, 2020 and December 31, 2019, respectively.	—		—
Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at June 30, 2020 and December 31, 2019; 72,287,165 and 80,410,158 issued and outstanding at June 30, 2020 and December 31, 2019, respectively.							Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at June 30, 2020 and December 31, 2019; 72,287,165 and 80,410,158 issued and outstanding at June 30, 2020 and December 31, 2019, respectively.	—		—
Additional paid-in capital	2,153,449			2,012,328			Additional paid-in capital	2,549,638		2,223,749
Accumulated other comprehensive loss	(2,387		)	(6,053		)
Accumulated other comprehensive income							Accumulated other comprehensive income	4,366		1,629
Accumulated deficit	(901,268		)	(885,774		)	Accumulated deficit	(627,697)		(510,328)
Total stockholders’ equity	1,249,794			1,120,501			Total stockholders’ equity	1,926,307		1,715,050
Total liabilities and stockholders’ equity	$	4,000,504		$	3,281,023		Total liabilities and stockholders’ equity	$	7,812,272	$	4,551,258

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SQUARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenue:
Transaction-based revenue	$	682,572	$	775,510	$	1,440,673	$	1,432,272
Subscription and services-based revenue	346,275		251,383		642,510		470,240
Hardware revenue	19,322		22,260		39,997		40,472
Bitcoin revenue	875,456		125,085		1,181,554		190,613
Total net revenue	1,923,625		1,174,238		3,304,734		2,133,597
Cost of revenue:
Transaction-based costs	388,106		490,349		853,885		899,418
Subscription and services-based costs	50,169		60,119		90,880		120,642
Hardware costs	28,315		33,268		62,687		60,209
Bitcoin costs	858,041		122,938		1,157,467		187,634
Amortization of acquired technology	2,231		1,719		4,551		3,095
Total cost of revenue	1,326,862		708,393		2,169,470		1,270,998
Gross profit	596,763		465,845		1,135,264		862,599
Operating expenses:
Product development	206,825		174,201		401,811		328,551
Sales and marketing	238,096		156,421		432,631		290,134
General and administrative	136,386		100,508		265,881		202,106
Transaction and loan losses	37,603		34,264		146,486		62,105
Amortization of acquired customer assets	905		1,294		1,795		2,588
Total operating expenses	619,815		466,688		1,248,604		885,484
Operating loss	(23,052)		(843)		(113,340)		(22,885)

Interest expense, net	14,769		5,143		23,975		9,824
Other expense (income), net	(25,591)		1,230		(19,729)		12,529
Loss before income tax	(12,230)		(7,216)		(117,586)		(45,238)
Income tax benefit	(752)		(476)		(217)		(347)
Net loss	$	(11,478)	$	(6,740)	$	(117,369)	$	(44,891)
Net loss per share:
Basic	$	(0.03)	$	(0.02)	$	(0.27)	$	(0.11)
Diluted	$	(0.03)	$	(0.02)	$	(0.27)	$	(0.11)
Weighted-average shares used to compute net loss per share
Basic	440,117		423,305		437,529		421,297
Diluted	440,117		423,305		437,529		421,297

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Revenue:
Transaction-based revenue $ 816,622
$ 655,384
$ 2,248,894
$ 1,803,649
Subscription and services-based revenue 279,801
166,203
750,041
397,589
Hardware revenue 21,766
17,558
62,238
50,337
Bitcoin revenue 148,285
42,963
338,898
114,074
Total net revenue 1,266,474
882,108
3,400,071
2,365,649
Cost of revenue:
Transaction-based costs 519,312
414,456
1,418,730
1,137,716
Subscription and services-based costs 63,352
47,078
183,994
117,230
Hardware costs 35,672
23,229
95,881
68,467
Bitcoin costs 146,167
42,408
333,801
112,876
Amortization of acquired technology 1,934
2,277
5,029
5,714
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 $ 0.07
$ 0.05
$ (0.04 ) $ (0.03 )
Diluted $ 0.06
$ 0.04
$ (0.04 ) $ (0.03 )
Weighted-average shares used to compute net income (loss) per share
Basic 427,124
409,690
423,239
402,980
Diluted 466,099
474,915
423,239
402,980

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SQUARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Unaudited)

(In thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	$	(11,478)	$	(6,740)	$	(117,369)	$	(44,891)
Net foreign currency translation adjustments	6,367		261		(2,021)		527
Net unrealized gain on revaluation of intercompany loans	—		—		—		75
Net unrealized gain on marketable debt securities	1,431		2,237		4,758		4,525
Total comprehensive loss	$	(3,680)	$	(4,242)	$	(114,632)	$	(39,764)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
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 —
(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 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SQUARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(117,369)	$	(44,891)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	41,117		37,754
Non-cash interest and other	32,769		16,013
Loss on extinguishment of long-term debt	990		—
Share-based compensation	173,713		140,554

Loss (gain) on revaluation of equity investment	(20,999)		18,929
Non-cash lease expense	32,343		14,354


Transaction and loan losses	146,486		62,105
Change in deferred income taxes	(1,024)		(2,229)
Changes in operating assets and liabilities:
Settlements receivable	(302,103)		(1,148,376)
Customer funds	(953,387)		(125,042)
Purchase of loans held for sale	(1,466,391)		(1,035,500)
Sales and principal payments of loans held for sale	1,041,208		975,823
Customers payable	1,291,968		1,052,867
Settlements payable	83,297		236,515
Charge-offs to accrued transaction losses	(37,783)		(36,050)
Other assets and liabilities	(96,668)		3,010
Net cash provided by (used in) operating activities	(151,833)		165,836
Cash flows from investing activities:
Purchase of marketable debt securities	(724,862)		(354,908)
Proceeds from maturities of marketable debt securities	267,686		220,229
Proceeds from sale of marketable debt securities	330,626		116,522
Purchase of marketable debt securities from customer funds	(265,287)		(88,064)
Proceeds from maturities of marketable debt securities from customer funds	142,000		63,000
Proceeds from sale of marketable debt securities from customer funds	22,457		—
Purchase of property and equipment	(56,561)		(30,162)
Payments for other investments	—		(2,000)
Business combinations, net of cash acquired	(18,354)		(20,372)
Net cash used in investing activities	(302,295)		(95,755)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net	986,241		—
Purchase of convertible senior note hedges	(149,200)		—
Proceeds from issuance of warrants	99,500		—
Proceeds from PPP Liquidity Facility advances	447,764		—

Payments for tax withholding related to vesting of restricted stock units	(93,654)		(106,663)
Proceeds from the exercise of stock options and purchases under the employee stock purchase plan, net	78,085		66,921
Other financing activities	(1,924)		(2,663)
Net cash provided by (used in) financing activities	1,366,812		(42,405)
Effect of foreign exchange rate on cash and cash equivalents	(5,182)		2,340
Net increase in cash, cash equivalents, and restricted cash	907,502		30,016
Cash, cash equivalents, and restricted cash, beginning of period	1,098,706		632,847
Cash, cash equivalents, and restricted cash, end of period	$	2,006,208	$	662,863

Nine Months Ended September 30,
2019 2018
Cash flows from operating activities:
Net loss $ (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 —
1,625
Share-based compensation 217,980
157,856
Replacement stock awards issued in connection with acquisition —
899
Loss (gain) on revaluation of equity investment 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 ) —
Proceeds from maturities of marketable debt securities from customer funds 115,200
—
Purchase of property and equipment (45,826 ) (37,173 )
Payments for other investments (2,000 ) —
Purchase of intangible assets —
(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 —
855,663
Purchase of convertible senior note hedges —
(172,586 )
Proceeds from issuance of warrants —
112,125
Principal payment on conversion of senior notes —
(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
Cash, cash equivalents and restricted cash, end of period $ 653,870
$ 765,070

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SQUARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except for number of shares)


		Class A and B common stock								Additional paid-in			Accumulated other comprehensive			Accumulated			Total stockholders’
		Shares		Amount			capital			loss			deficit			equity
Balance at December 31, 2019			432,796,720		$	—		$	2,223,749		$	1,629		$	(510,328)		$	1,715,050
	Net loss	—		—			—			—			(105,891)			(105,891)
Shares issued in connection with employee stock plans			5,222,525		—			31,406			—			—			31,406


Issuance of common stock in connection with business combination			357,017		—			14,999			—			—			14,999

Change in other comprehensive loss			—		—			—			(5,061)			—			(5,061)
Share-based compensation			—		—			79,562			—			—			79,562
Tax withholding related to vesting of restricted stock units			(722,606)		—			(48,772)			—			—			(48,772)
Conversion feature of convertible senior notes, due 2025, net of allocated costs			—		—			152,258			—			—			152,258
Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2025			—		—			(149,200)			—			—			(149,200)
Sale of warrants in conjunction with issuance of convertible senior notes, due 2025			—		—			99,500			—			—			99,500
Issuance of common stock in conjunction with the conversion of senior notes, due 2022			1,109,980		—			24,094			—			—			24,094

Balance at March 31, 2020			438,763,636		—			2,427,596			(3,432)			(616,219)			1,807,945
	Net loss	—		—			—			—			(11,478)			(11,478)
Shares issued in connection with employee stock plans			4,802,969		—			46,679			—			—			46,679
Issuance of common stock in connection with business combination			250,957		—			20,320			—			—			20,320

Change in other comprehensive loss			—		—			—			7,798			—			7,798
Share-based compensation			—		—			99,925			—			—			99,925
Tax withholding related to vesting of restricted stock units			(703,895)		—			(44,882)			—			—			(44,882)
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022			(724,316)		—			—			—			—			—

Balance at June 30, 2020			442,389,351		$	—		$	2,549,638		$	4,366		$	(627,697)		$	1,926,307


		Class A and B common stock				Additional paid-in			Accumulated other comprehensive			Accumulated			Total stockholders’					Class A and B common stock								Additional paid-in			Accumulated other comprehensive			Accumulated			Total stockholders’
		Shares		Amount		capital			loss			deficit			equity					Shares		Amount			capital			loss			deficit			equity
Balance at December 31, 2018	Balance at December 31, 2018	417,048,006		$	—	$	2,012,328		$	(6,053	)	$	(885,774	)	$	1,120,501		Balance at December 31, 2018			417,048,006		$	—		$	2,012,328		$	(6,053)		$	(885,774)		$	1,120,501
	Net loss	—		—		—			—			(38,151		)	(38,151		)		Net loss	—		—			—			—			(38,151)			(38,151)
Shares issued in connection with:
	Exercise of stock options	3,588,052		—		25,328			—			—			25,328
Shares issued in connection with employee stock plans																		Shares issued in connection with employee stock plans			5,582,633		—			25,364			—			—			25,364
	Vesting of early exercised stock options and other	425		—		36			—			—			36
	Vesting of restricted stock units	1,994,156		—		—			—			—			—
Change in other comprehensive loss	Change in other comprehensive loss	—		—		—			2,629			—			2,629			Change in other comprehensive loss			—		—			—			2,629			—			2,629
Share-based compensation	Share-based compensation	—		—		62,835			—			—			62,835			Share-based compensation			—		—			62,835			—			—			62,835
Tax withholding related to vesting of restricted stock units	Tax withholding related to vesting of restricted stock units	(741,324	)	—		(50,801		)	—			—			(50,801		)	Tax withholding related to vesting of restricted stock units			(741,324)		—			(50,801)			—			—			(50,801)
Issuance of common stock in conjunction with the conversion of senior notes, due 2022	Issuance of common stock in conjunction with the conversion of senior notes, due 2022	43		—		1			—			—			1			Issuance of common stock in conjunction with the conversion of senior notes, due 2022			43		—			1			—			—			1
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022	Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022	(250,614	)	—		—			—			—			—			Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022			(250,614)		—			—			—			—			—
Recovery of common stock in connection with indemnification settlement agreement	Recovery of common stock in connection with indemnification settlement agreement	(14,798	)			(789		)	—			—			(789		)	Recovery of common stock in connection with indemnification settlement agreement			(14,798)					(789)			—			—			(789)
Balance at March 31, 2019	Balance at March 31, 2019	421,623,946		—		2,048,938			(3,424		)	(923,925		)	1,121,589			Balance at March 31, 2019			421,623,946		—			2,048,938			(3,424)			(923,925)			1,121,589
	Net loss	—		—		—			—			(6,740		)	(6,740		)		Net loss	—		—			—			—			(6,740)			(6,740)
Shares issued in connection with:
	Exercise of stock options	2,671,530		—		22,651			—			—			22,651
	Purchases under employee stock purchase plan	360,328		—		18,942			—			—			18,942
Shares issued in connection with employee stock plans																		Shares issued in connection with employee stock plans			5,371,051		—			41,593			—			—			41,593
	Vesting of restricted stock units	2,339,193		—		—			—			—			—
Change in other comprehensive loss	Change in other comprehensive loss	—		—		—			2,498			—			2,498			Change in other comprehensive loss			—		—			—			2,498			—			2,498
Share-based compensation	Share-based compensation	—		—		81,392			—			—			81,392			Share-based compensation			—		—			81,392			—			—			81,392
Tax withholding related to vesting of restricted stock units	Tax withholding related to vesting of restricted stock units	(777,006	)	—		(55,862		)	—			—			(55,862		)	Tax withholding related to vesting of restricted stock units			(777,006)		—			(55,862)			—			—			(55,862)
Issuance of common stock in conjunction with the conversion of senior notes, due 2022	Issuance of common stock in conjunction with the conversion of senior notes, due 2022	86		—		2			—			—			2			Issuance of common stock in conjunction with the conversion of senior notes, due 2022			86		—			2			—			—			2
Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022	Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022	(84	)	—		—			—			—			—			Exercise of bond hedges in conjunction with the conversion of senior notes, due 2022			(84)		—			—			—			—			—

Balance at June 30, 2019	Balance at June 30, 2019	426,217,993		—		2,116,063			(926		)	(930,665		)	1,184,472			Balance at June 30, 2019			426,217,993		$	—		$	2,116,063		$	(926)		$	(930,665)		$	1,184,472
	Net income	—		—		—			—			29,397			29,397
Shares issued in connection with:
	Exercise of stock options	1,621,707		—		14,860			—			—			14,860
	Vesting of restricted stock units	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		(801,744	)	—		(57,381		)	—			—			(57,381		)
Balance at September 30, 2019		429,073,808		—		2,153,449			(2,387		)	(901,268		)	1,249,794

Our quarterly results of operations and operating metrics fluctuate significantly and are unpredictable and subject to seasonality, which could result in the trading price of our Class A common stock being unpredictable or declining.

Our quarterly results of operations have fluctuated significantly at times and are not necessarily an indication of future performance. These fluctuations may be due to a variety of factors, some of which are outside of our control and may not fully reflect the underlying performance of our business. Our limited operating history combined with the rapidly evolving markets in which we operate also contributes to these fluctuations. Fluctuations in quarterly results may materially and adversely affect the predictability of our business and the price of our Class A common stock.

Factors that may cause fluctuations in our quarterly financial results include our ability to attract and retain new customers; seasonality in our business or our sellers' business, including seasonal fluctuations in the amount of transactions our sellers are processing; the timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure, as well as the success of those expansions and upgrades; the outcomes of legal proceedings and claims; our ability to maintain or increase revenue, gross margins, and operating margins; our ability to continue introducing new products and services and to continue convincing customers to adopt additional offerings; increases in and timing of expenses that we may incur to grow and expand our operations and to remain competitive, including acquisitions, divestitures, and other strategic transactions and related transaction and integration costs; period-to-period volatility related to fraud and risk losses; system failures resulting in the inaccessibility of our products and services; changes in the regulatory environment, including with respect to security, privacy, data protection or enforcement of laws and regulations by regulators, including fines, orders, or consent decrees; changes in global business or macroeconomic conditions; unusual weather conditions or natural disasters; general retail buying patterns; and the other risks described in this Quarterly Report on Form 10-Q. In addition, from time to time we make investments in equity that is, or may become, publicly held. We may experience volatility due to changes in the market prices of such equity investments, which may be material to our results in any given quarter and may cause our stock price to decline.

We depend on key management, as well as our experienced and capable employees, and any failure to attract, motivate, and retain our employees could harm our ability to maintain and grow our business.

Our future success is significantly dependent upon the continued service of our executives and other key employees. If we lose the services of any member of management or any key personnel, we may not be able to locate a suitable or qualified replacement, and we may incur additional expenses to recruit and train a replacement, which could severely disrupt our business and growth. Jack Dorsey, our co-founder, President, and Chief Executive Officer, also serves as Chief Executive Officer of Twitter, Inc. This may at times adversely affect his ability to devote time, attention, and effort to Square.

To maintain and grow our business, we will need to identify, attract, hire, develop, motivate, and retain highly skilled employees. ~~Identifying, recruiting, training, integrating, and retaining qualified individuals~~This requires significant time, expense, and attention. In addition, from time to time, there may be changes in our management team that may be disruptive to our business. If our management team, including any new hires that we make, fails to work together effectively and to execute our plans and strategies

on a timely basis, our business could be harmed. Competition for highly skilled personnel is intense, particularly in the San Francisco Bay Area where our headquarters are located. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments. Additionally, potential changes in U.S. immigration policy may make it difficult to renew or obtain visas for any highly skilled personnel that we have hired or are actively recruiting. ~~Negative sentiments towards the United States as a result of these potential changes may also adversely affect our international recruiting efforts.~~ Furthermore, our international expansion and our business in general may be materially adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes or projects involving personnel who are not citizens of the country where the work is to be performed. If we are not able to add and retain employees effectively, our ability to achieve our strategic objectives will be adversely affected, and our business and growth prospects will be harmed.

~~If we do not continue to improve our operational, financial, and other internal controls and systems to manage growth effectively, our business could be harmed.~~

Our current business and anticipated growth will continue to place significant demands on our management and other resources. In order to manage our growth effectively, we must continue to strengthen our existing infrastructure and operational procedures, enhance our internal controls and reporting systems, and ensure we timely and accurately address issues as they arise. In particular, our continued growth will increase the challenges involved in:

~~improving and implementing existing and developing new internal administrative infrastructure, particularly our operational, financial, communications, and other internal systems and procedures;~~

~~installing enhanced management information and control systems; and~~

~~preserving our core values, strategies, and goals and effectively communicating these to our employees worldwide.~~

If we are not successful in developing and implementing the right processes and tools to manage our enterprise, our ability to compete successfully and achieve our business objectives could be impaired.

These efforts may require substantial financial expenditures, commitments of resources, developments of our processes, and other investments and innovations. As we grow, we must balance the need for additional controls and systems with the ability to efficiently develop and launch new features for our products and services. However, it is likely that as we grow, we will not be able to launch new features, or respond to customer or market demands as quickly as a smaller, more efficient organization. If we do not successfully manage our growth, our business will suffer.

A deterioration of general macroeconomic conditions could materially and adversely affect our business and financial results.

Our performance is subject to economic conditions and their impact on levels of spending by businesses and their customers. Most of the sellers that use our services are small businesses, many of which are in the early stages of their development, and these businesses may be disproportionately adversely affected by economic downturns and may fail at a higher rate than larger or more established businesses. ~~If spending~~Small businesses have been disproportionately affected by ~~their customers declines, these~~the COVID-19 pandemic and the related measures taken by governments and private industry to protect the public health such as stay-at-home orders. Many businesses ~~would experience~~are experiencing reduced sales and ~~process~~are processing fewer payments with us, ~~or, if~~which has had a negative impact on our results of operations. If they cease to operate, they will likely stop using our products and services altogether. Small businesses frequently have limited budgets and limited access to capital, and they may choose to allocate their spending to items other than our financial or marketing services, especially in times of economic uncertainty or in recessions. In addition, if more of our sellers cease to operate, this may have an adverse impact not only on the growth of our payments services but also on our transaction and advance loss rates, and the success of our other services. For example, if sellers processing payments with us receive chargebacks after they cease to operate, we may incur additional losses. Additionally, the growth in the number of sellers qualifying for participation in the Square Capital program may slow, or business loans may be paid more slowly, or not at all. In fact, Square Capital temporarily ceased to facilitate new business loans, with the exception of PPP loans, due to the impact of COVID-19, and it is uncertain at what levels Square Capital will begin to facilitate such business loans again. In addition, as we expand our business to offer consumer financing products, those customers may also be disproportionately adversely affected by economic downturns.

Further, our suppliers, distributors, and other third party partners may suffer their own financial and economic challenges. Such suppliers and third parties may demand pricing accommodations, delay payment, or become insolvent, which could harm our ability to meet end customer demands or collect revenue or otherwise could harm our business. Furthermore, our investment portfolio, which includes U.S. government and corporate securities, is subject to general credit, liquidity, market, and interest rate risks, which may be exacerbated by certain events that affect the global financial markets. If global credit and equity markets decline for extended periods, or if there is a downgrade of the securities within our portfolio, ~~the~~our investment portfolio may be adversely affected and we could determine that our investments have experienced an other-than-temporary decline in fair value, requiring impairment charges that could adversely affect our financial results. Thus, if general macroeconomic conditions deteriorate, our business and financial results could be materially and adversely affected.

The COVID-19 pandemic has created significant uncertainty in the global economy. The COVID-19 pandemic and health measures taken by governments and private industry in response to the pandemic, including stay-at-home orders, restrictions on business operations, and travel restrictions, have had significant negative effects on the economy. Continued uncertainty about the pandemic, associated economic consequences, and potential relief measures may have a long-term adverse effect on the economy, our sellers, customers, suppliers, and our business. For example, we are currently subletting some office space to subtenants. An economic downturn or extended work from home practices may cause us to need less

office space than we are contractually committed to leasing and prevent us from finding subtenants for such unused office space, causing us to pay for unused office space.

We are also monitoring developments related to the decision by the ~~U.K. government~~United Kingdom to leave the European Union (EU) ~~following~~on January 31, 2020 and commence a ~~referendum in June 2016 in~~transition period during which ~~voters in~~ the ~~United Kingdom approved an exit from the~~U.K. and EU ~~(often referred to as "Brexit"), which~~negotiate their future relationship. Brexit could have significant implications for our ~~business. In March 2017, the United Kingdom began the official process to leave the EU by March 2019, but this deadline has since been extended. Brexit~~business and could lead to economic and legal uncertainty, including significant volatility in global stock markets and currency exchange rates, and increasingly divergent laws, regulations, and licensing requirements for ~~the Company~~us as the ~~United Kingdom~~U.K. determines which EU laws to replace or replicate. Any of these effects of Brexit, among others, could adversely affect our operations and financial results.

We may have exposure to greater-than-anticipated tax liabilities, which may materially and adversely affect our business.

We are subject to income taxes and non-income taxes in the United States and other countries in which we transact or conduct business, and such laws and rates vary by jurisdiction. We are subject to review and audit by U.S. federal, state, local, and foreign tax authorities. Such tax authorities may disagree with tax positions we take, and if any such tax authority were to successfully challenge any such position, our financial results and operations could be materially and adversely affected. For example, on June 15, 2020, the Texas Comptroller’s Office of(the “Comptroller”) finalized its audit and informed us that it will be issuing an assessment for $38 million, including interest and penalties, following its sales and use tax audit for the ~~Treasurer and Tax Collector of the City and County of San Francisco (the "Tax Collector") has issued a decision regarding the Company's classification of its business activities. Although~~period starting January 1, 2015 through April 30, 2018. The Comptroller alleges that services that we have deemed nontaxable are in fact subject to tax. We strongly disagree with the ~~Tax Collector's decision~~Comptroller’s classification of these services as taxable and ~~contest this classification,~~believe our position is supported by state case law and the ~~ultimate resolution is uncertain.~~Comptroller’s own policies. We ~~are taking steps~~plan to vigorously defend our position and pursue all available remedies, including challenging the classification of our primary business activity, challenging the applicable tax rate used, and filing a lawsuit against the Tax Collector. See “Litigation” in Note 19 of the accompanying notes to our condensed consolidated financial statements. If the Company doespossibly through litigation. Should we not prevail, ~~and is otherwise unable to mitigate the impact of this tax,~~ we could be obligated to pay the additional taxes together with ~~any~~ associated penalties and ~~interest. This may adversely affect~~interest for the audited periods. Additional taxes, interest, and penalties for subsequent and future periods could be material as well. In addition, we currently are, and expect to continue to be, subject to numerous federal, state, and foreign tax audits relating to income, transfer pricing, sales & use, VAT, and other tax liabilities. While we have established reserves based on assumptions and estimates that we believe are reasonably sufficient to cover such eventualities, any adverse outcome of such a review or audit could have an adverse impact on our ~~cash flows,~~ financial ~~condition,~~position and results of ~~operations. An unfavorable outcome in this tax dispute may also limit our ability~~operations if the reserves prove to ~~retain and grow our work force in San Francisco. In addition, our~~be insufficient.

Our tax liability could be adversely affected by changes in tax laws, rates, regulations, and ~~regulations.~~administrative practices. Our income tax obligations are based on our corporate operating structure, including the manner in which we develop, value, and use our intellectual property and the scope of our international operations. The tax authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements. For example, various levels of government and international organizations, such as the Organization for Economic Co-operation and Development (“OECD”) and the European Union (“EU”), have increasingly focused on ~~November 6, 2018, residents~~future tax reform and any result from this development may create changes to long-standing tax principles, which could adversely affect our effective tax rate. Additionally, tax authorities at the international, federal, state, and local levels are currently reviewing the appropriate tax treatment of companies engaged in internet commerce and financial technology. These developing changes could affect our financial position and results of operations. In particular, due to the global nature of the ~~City~~Internet, it is possible that tax authorities at the international, federal, state, and ~~County~~local levels may attempt to regulate our transactions or levy new or revised sales & use taxes, VAT, digital services taxes, income taxes, or other taxes relating to our activities in the internet commerce and financial technology space. New or revised taxes, in particular, sales & use taxes, VAT, and similar taxes, including digital service taxes, would likely increase the cost of ~~San Francisco approved a ballot measure~~doing business. New taxes could also create significant increases in internal costs necessary to capture data and collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations. Moreover, an increasing number of states, and certain foreign jurisdictions, have considered or adopted laws or administrative practices that ~~increases~~attempt to impose obligations for online marketplaces, payment service providers, and other intermediaries. These obligations may deem parties, such as us, to be the legal agent of merchants and therefore may require us to collect and remit taxes on the merchants behalf and take on additional reporting and record-keeping obligations. Any failure by us to prepare for and to comply with these and similar reporting and record-keeping obligations could result in substantial monetary penalties and other sanctions, adversely impact our ability to do business in certain ~~entities' gross receipts beginning January 1, 2019.~~ jurisdictions, and harm our business.

The determination of our worldwide provision for income and other ~~taxes~~tax liabilities is highly complex and requires significant judgment by management, and there are many transactions ~~and calculations~~during the ordinary course of business where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ~~amount ultimately payable~~ultimate tax outcome may differ from amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

We have in the past recorded, and may in the future record, significant valuation allowances on our deferred tax assets, which may have a material impact on our results of operations and cause fluctuations in such results.

As of June 30, 2020, we had a valuation allowance for deferred tax assets in the United States, Canada, Ireland and Singapore. Our net deferred tax assets relate predominantly to the United States federal and state tax jurisdictions. The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified.

We continue to monitor the likelihood that we will be able to recover our deferred tax assets in the future. Future adjustments in our valuation allowance may be required. The recording of any future increases in our valuation allowance could have a material impact on our reported results, and both the recording and release of the valuation allowance could cause fluctuations in our quarterly and annual results of operations.

If we do not continue to improve our operational, financial, and other internal controls and systems to manage growth effectively, our business could be harmed.

Our current business and anticipated growth, as well as our entry into new lines of business, will continue to place significant demands on our management and other resources. In order to manage our growth effectively, we must continue to strengthen our existing infrastructure and operational procedures, enhance our internal controls and reporting systems, and ensure we timely and accurately address issues as they arise. In particular, our continued growth will increase the challenges involved in:

•improving existing and developing new internal administrative infrastructure, particularly our operational, financial, communications, and other internal systems and procedures;

•installing enhanced management information and control systems; and

•preserving our core values, strategies, and goals and effectively communicating these to our employees worldwide.

Expanding our business globally could subject us to new challenges and risks.

We currently offer our services and products in multiple countries and plan to continue expanding our business further globally. Expansion, whether in our existing or new global markets, will require additional resources and controls, and offering our services in new geographic regions often requires substantial expenditures and takes considerable time. We may not be successful enough in these new geographies to recoup our investments in a timely manner or at all. Such expansion could also subject our business to substantial risks, including:

•difficulty in attracting a sufficient number of ~~sellers;~~sellers or Cash App customers;

•failure to anticipate competitive ~~conditions;~~conditions and competition with service providers or other entrenched market-players that have greater experience in the local markets than we do;

•conformity with applicable business customs, including translation into foreign languages and associated expenses;

•increased costs and difficulty in protecting intellectual property and sensitive data;

•changes to the way we do business as compared with our current operations or a lack of acceptance of our products and services;

•the ability to support and integrate with local third-party service providers;

~~competition with service providers or other entrenched market-players that have greater experience in the local markets than we do;~~

•difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customs, challenges caused by distance, language, and cultural differences, and the increased travel, infrastructure, and legal and compliance costs associated with global operations;

•difficulties in recruiting and retaining qualified employees and maintaining our company culture;

•difficulty in gaining acceptance from industry self-regulatory bodies;

•compliance with multiple, potentially conflicting and changing governmental laws and regulations, including with respect to payments, data privacy, data protection, and information security;

•compliance with U.S. and foreign anti-corruption, anti-bribery, and anti-money laundering laws;

•potential tariffs, sanctions, fines, or other trade restrictions;

•exchange rate risk;

•compliance with complex and potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax ~~laws,~~laws;

•increased exposure to public health issues such as the ~~complexity~~current COVID-19 pandemic, and ~~adverse consequences of such tax laws~~related industry and ~~potentially adverse tax consequences due~~governmental actions to ~~changes in such tax laws;~~address these issues; and

•regional economic and political instability.

As a result of these risks, our efforts to expand our global operations may not be successful, which could limit our ability to grow our business.

Any acquisitions, strategic investments, entries into new businesses, joint ventures, divestitures, and other transactions could fail to achieve strategic objectives, disrupt our ongoing operations or result in operating difficulties, liabilities and expenses, harm our business, and negatively impact our results of operations.

In pursuing our business strategy, we routinely conduct discussions and evaluate opportunities for possible acquisitions, strategic investments, entries into new businesses, joint ventures, divestitures, and other transactions. We have in the past acquired or invested in, and we continue to seek to acquire or invest, in businesses ~~apps,~~ technologies ~~services, products,~~ or other assets that we believe could complement or expand our ~~products and services, enhance our technical capabilities, or otherwise offer opportunities for our~~ business. The identification, evaluation, and negotiation of potential ~~acquisitions, investments, joint ventures, entries into new businesses, divestitures, or other~~ transactions may divert the attention of management and entail various expenses, whether or not such transactions are ultimately completed. There can be no assurance that we will be successful in identifying, negotiating, and consummating favorable transaction opportunities. For example, in 2019, we completed the sale of Caviar to DoorDash in exchange for cash and stock consideration. As DoorDash is a privately-held company, there can be no assurances that we will fully realize the value of the stock consideration. In addition to transaction and opportunity costs, these transactions involve large challenges and risks, whether or not such transactions are completed, any of which could harm our business and negatively impact our results of operations, including risks that:

•the transaction may not advance our business strategy;

~~we may spend time and resources on opportunities that we are unable to consummate on terms acceptable to us;~~

~~the transaction may not close or may be delayed;~~

•we may not be able to secure required regulatory approvals or otherwise satisfy closing conditions for a proposed transaction in a timely manner, or at all;

•the transaction may subject us to additional regulatory burdens that affect our business in potentially unanticipated and significantly negative ways;

•we may not realize a satisfactory return or increase our revenue;

•we may experience difficulty, and may not be successful in, integrating technologies, IT ~~systems, data processing methods and policies, accounting~~or business enterprise systems, culture, or management or other personnel of the acquired ~~business and we may not realize the expected synergies of the transaction in a timely manner, or at all;~~business;

•we may incur significant acquisition costs and transition costs, including in connection with the assumption of ongoing expenses of the acquired business;

~~the transaction may divert management’s attention and resources, which may cause disruptions in our ongoing operations;~~

•we may not realize the expected benefits or synergies from the transaction in the expected time period, or at all;

•we may be unable to retain key personnel;

•acquired businesses or businesses ~~in which~~that we invest in may not have adequate controls, processes, and procedures to ensure compliance with laws and regulations, including with respect to data privacy and security, and our due diligence process may not identify compliance issues or other ~~liabilities;~~liabilities. Moreover, acquired businesses’ technology stacks may add complexity, resource constraints, and technological debt that makes it difficult and time consuming to achieve such adequate controls, processes, and procedures.

we may incur substantial liabilities associated with the activities or conduct of the acquired business, including legal and regulatory claims or disputes, violations of laws and regulations, and other liabilities, whether known or unknown;

•we may fail to identify or assess the magnitude of certain liabilities, shortcomings, or other circumstances prior to acquiring or investing in a business, which could result in additional financial, legal, or regulatory exposure, which may subject us to additional controls, policies, procedures, liabilities, litigation, costs of compliance or remediation, or other adverse effects on our business, operating results, or financial condition;

•we may have difficulty entering into new market ~~segments;~~segments or geographic territories;

•we may be unable to retain the customers, vendors, and partners of acquired businesses;

•there may be lawsuits or regulatory actions resulting from the transaction;

•there may be risks associated with undetected security weaknesses, cyberattacks, or security breaches at companies that we acquire or with which we may combine or partner;

~~there may be regulatory constraints, including competition regulations that may affect the extent to which we can maximize the value of our acquisitions or investments;~~

•there may be local and foreign regulations applicable to the international activities of our business and the businesses we acquire; and

~~there may be risks associated with the complexity of entering into and effectively managing joint ventures, strategic investments, and other strategic partnerships;~~

•acquisitions could result in dilutive issuances of equity securities or the incurrence of ~~debt; and~~debt.

~~our business, the acquired business, or the integrated business may be adversely affected by other political, business, and general economic conditions.~~

We may also choose to divest certain businesses or product lines. ~~For example, in July 2019, we entered into a definitive agreement to sell our Caviar business. This transaction closed on October 31, 2019.~~ If we decide to sell assets or a business, we may have difficulty obtaining terms acceptable to us in a timely manner, or at all. Additionally, we may experience difficulty separating out portions of, or entire, businesses, incur potential loss of revenue or experience negative impact on margins, or we may not achieve the desired strategic and financial benefits. Such potential transactions may also delay achievement of our strategic objectives, cause us to incur additional expenses, potentially disrupt customer or employee relationships, and expose us to unanticipated or ongoing obligations and liabilities, including as a result of our indemnification ~~obligations, and divert management and our employees’ time and attention.~~obligations. Further, during the pendency of a divestiture, we may be subject to risks related to a decline in the business, loss of employees, customers, or suppliers and the risk that the transaction may not close, any of which would have a material adverse effect on the business to be divested and the Company. If a divestiture is not completed for any reason, we may not be able to find another buyer on the same terms, and we may have incurred significant costs without the corresponding benefit.

Joint ventures and minority investments inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational, regulatory, and/or compliance risks associated with the joint venture or minority investment. In addition, we may be dependent on joint venture partners, controlling shareholders, management, or other persons or entities who control them and who may have business interests, strategies, or goals that are inconsistent with ours. Business decisions or other actions or omissions of the joint venture partners, controlling shareholders, management, or other persons or entities who control them may adversely affect the value of our investment, result in litigation or regulatory action against us, and may otherwise damage our reputation and brand.

Our services must integrate with a variety of operating systems, and the hardware that enables merchants to accept payment cards must interoperate with third-party mobile devices utilizing those operating systems. If we are unable to ensure that our services or hardware interoperate with such operating systems and devices, our business may be materially and adversely affected.

We are dependent on the ability of our products and services to integrate with a variety of operating systems, as well as web browsers, that we do not control. Any changes in these systems that degrade the functionality of our products and services, impose additional costs or requirements on us, or give preferential treatment to competitive services, including their

own services, could materially and adversely affect usage of our products and services. In addition, we rely on app marketplaces, such as the Apple App Store and Google Play, to drive downloads of our mobile ~~apps, such as Square Point of Sale, Square Payroll, Square Invoices, Cash App, Caviar, and any future~~ apps. Apple, Google, or other operators of app marketplaces regularly make changes to their marketplaces, and those changes may make access to our products and services more difficult. In the event that it is difficult for our customers to access and use our products and services, our business may be materially and adversely affected. Furthermore, Apple, Google, or other operators of app marketplaces regularly provide software updates, and such software updates may not operate effectively with our products and services, which may reduce the demand for our products and services, result in dissatisfaction by our customers, and may materially and adversely affect our business.

In addition, our hardware interoperates with wired and wireless interfaces to mobile devices developed by third parties. For example, the current versions of our magstripe reader plug into an audio jack or a Lightning connector. The use of these connection types could change, and such changes and other potential changes in the design of future mobile devices could limit the interoperability of our hardware and software with such devices and require modifications to our hardware or software. If we are unable to ensure that our hardware and software continue to interoperate effectively with such devices, if doing so is costly, or if existing merchants decide not to utilize additional parts necessary for interoperability, our business may be materially and adversely affected.

Many of our key components are procured from a single or limited number of suppliers. Thus, we are at risk of shortage, price increases, tariffs, changes, delay, or discontinuation of key components, which could disrupt and materially and adversely affect our business.

Many of the key components used to manufacture our products, such as the custom parts of our magstripe reader ~~including its magnetic stripe-reading element, its plastic cover, and its application-specific integrated circuits,~~ come from limited or single sources of ~~supply, as do the plastic cover, connector, and security cage of our contactless and chip reader.~~supply. In addition, in some cases, we rely only on one manufacturer to fabricate, test, and assemble our products. For example, a single manufacturer assembles our magstripe reader and our contactless and chip reader, as well as manufactures those products’ plastic parts with custom tools that we own but that they maintain on their premises. The term of the agreement with that manufacturer automatically renews for consecutive one-year periods unless either party provides notice of non-renewal. In general, our contract manufacturers fabricate or procure components on our behalf, subject to certain approved procedures or supplier lists, and we do not have firm commitments from all of these manufacturers to provide all components, or to provide them in quantities and on timelines that we may require. For example, pursuant to a development and supply agreement, a component supplier provides design, development, customization, and related services for components of the magnetic stripe-reading element in some of our products. The term of the agreement extends through March 2021 and then renews for consecutive one-year periods unless either party provides notice of non-renewal. Similarly, a component provider develops certain application-specific integrated circuits for our products pursuant to our designs and specifications. The term of our agreement with this provider renews for successive two-year terms unless either party provides notice of non-renewal.

Due to our reliance on the components or products produced by suppliers such as these, we are subject to the risk of shortages and long lead times or other disruptions in the supply of certain components or products. Our ongoing efforts to identify alternative manufacturers for the assembly of our products and for many of the single-sourced components used in our products may not be successful. In the case of off-the-shelf components, we are subject to the risk that our suppliers may discontinue or modify them, or that the components may cease to be available on commercially reasonable terms, or at all. We have in the past experienced, and may in the future experience, component shortages or delays or other problems in product assembly, and the availability of these components or products may be difficult to predict. For example, our manufacturers may experience temporary or permanent disruptions in their manufacturing operations due to equipment breakdowns, labor strikes or shortages, natural disasters, the occurrence of a contagious disease or illness, such as COVID-19, component or material shortages, cost increases, acquisitions, insolvency, bankruptcy, business shutdowns, trade restrictions, changes in legal or regulatory requirements, or other similar problems. In particular, the current COVID-19 pandemic has caused disruptions in our supply chain. To the extent COVID-19 pandemic continues and results in an extended period of travel, commercial, and other similar restrictions, disruptions in our supply chain may continue and cause shortages of our hardware products, which would negatively affect our ability to serve and acquire sellers and could materially and adversely impact our financial results. Moreover, our hardware product development has been negatively affected by the COVID-19 pandemic, as our work with manufacturers in China to develop new products and prototypes has been interrupted by factory shutdowns.

Additionally, various sources of supply-chain risk, including strikes or shutdowns at delivery ports or loss of or damage to our products while they are in transit or storage, intellectual property theft, losses due to tampering, third-party vendor issues

with quality or sourcing control, failure by our suppliers to comply with applicable laws and regulation, potential tariffs or other trade restrictions, or other similar problems could limit or delay the supply of our products or harm our reputation. In the event of a shortage or supply interruption from suppliers of these components, we may not be able to develop alternate sources quickly, cost-effectively, or at all. Any interruption or delay in manufacturing, component supply,

any increases in component costs, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to provide our products to sellers on a timely basis. This could harm our relationships with our sellers, prevent us from acquiring new sellers, and materially and adversely affect our business.

In September of 2018, the United States imposed tariffs on certain imports from China, including on some of our hardware devices manufactured in China. The tariffs on these products were initially set at 10%, but were increased to 25% in May 2019. On September 1, 2019, the United States imposed new tariffs at 15% on additional imports from China, including on our remaining hardware products manufactured ~~there.~~there, but rolled back these new tariffs to 7.5% effective February 14, 2020. The tariffs negatively affect the gross margin on the impacted products, which only partially has been offset by adjustments to the prices of some of the affected products. Any future tariffs and actions related to items imported from China or elsewhere could also negatively impact our gross margin on the impacted products, and increases in our pricing as a result of tariffs ~~could~~would reduce the competitiveness of our ~~products.~~products if our competitors do not make similar pricing adjustments. The impact of any increased or new tariffs or other trade restrictions could have a material adverse effect on our business, financial condition, and results of future operations.

Our business could be harmed if we are unable to accurately forecast demand for our products and to adequately manage our product inventory.

We invest broadly in our business, and such investments are driven by our expectations of the future success of a product. For example, our products such as the Square Reader often require investments with long lead times. An inability to correctly forecast the success of a particular product could harm our business. We must forecast inventory needs and expenses and place orders sufficiently in advance with our third-party suppliers and contract manufacturers based on our estimates of future demand for particular products. Our ability to accurately forecast demand for our products could be affected by many factors, including an increase or decrease in demand for our products or for our competitors’ products, unanticipated changes in general market or economic conditions, and ~~a change in economic conditions.~~business closures and other actions taken to combat COVID-19.

If we underestimate demand for a particular product, our contract manufacturers and suppliers may not be able to deliver sufficient quantities of that product to meet our requirements, and we may experience a shortage of that product available for sale or distribution. ~~The shortage of a popular product could materially and adversely affect our brand, our seller relationships, and the acquisition of additional sellers.~~ If we overestimate demand for a particular product, we may experience excess inventory levels for that product and the excess inventory may become obsolete or out-of-date. Inventory levels in excess of demand may result in inventory write-downs or write-offs and the sale of excess inventory at further discounted prices, which could negatively impact our gross profit and our business.

Our products and services may not function as intended due to errors in our software, hardware, and systems, product defects, or due to security breaches or human error in administering these systems, which could materially and adversely affect our business.

Our software, hardware, systems, and processes may contain undetected errors or vulnerabilities that could have a material adverse effect on our business, particularly to the extent such errors or vulnerabilities are not detected and remedied quickly. We have from time to time found defects in our customer-facing software and hardware, internal systems, and technical integrations with third-party systems, and new errors or vulnerabilities may be introduced in the future. If there are such errors or defects in our software, hardware, or systems, we may face negative publicity, government investigations, and litigation. Additionally, we rely on a limited number of component and product suppliers located outside of the U.S. to manufacture our products. As a result, our direct control over production and distribution is limited and it is uncertain what effect such diminished control will have on the quality of our products. If there are defects in the manufacture of our hardware products, we may face similar negative publicity, investigations, and litigation, and we may not be fully compensated by our suppliers for any financial or other liability that we suffer as a result. As our hardware continues to increase in size and complexity, these risks may correspondingly increase as well.

In addition, we provide frequent incremental releases of product and service updates and functional enhancements, which increase the possibility of errors. The products and services we provide are designed to process complex transactions and deliver reports and other information related to those transactions, all at high volumes and processing speeds. Any errors, data leaks, defects, security breaches such as cyber-attacks or identity theft, sabotage, malfeasance, disruptions in services, or other performance problems with our products or services caused by external or internal actors could hurt our reputation and damage our customers’ businesses. Software and system errors, or human error, could delay or inhibit settlement of payments, result in oversettlement, cause reporting errors, or prevent us from collecting transaction-based fees, all of which have occurred in the

past. Similarly, security breaches such as cyber-attacks or identity theft could disrupt the proper functioning of our software products or services, cause errors, allow unauthorized access, or disclosure of, to sensitive, proprietary, or confidential information of ours or our customers, and other destructive outcomes. Moreover, security breaches or errors in our hardware design or manufacture could cause product safety issues typical of consumer electronics devices. Such issues could lead to product recalls and inventory shortages, result in costly and time-consuming efforts to redesign and redistribute our products, give rise to regulatory inquiries and investigations, and result in lawsuits and other liabilities and losses, which could have a material and adverse effect on our business.

Additionally, electronic payment products and services, including ours, have been, and could continue to be in the future, specifically targeted and penetrated or disrupted by hackers. Because the techniques used to obtain unauthorized access to data, products, and services and to disable, alter, degrade, or sabotage them change frequently and may be difficult to detect or remediate for long periods of time, we and our customers may be unable to anticipate these techniques or implement adequate preventative measures to stop them, and our data encryption and other security measures may be unable to prevent unauthorized use by hackers. If we or our sellers are unable to anticipate or prevent these attacks, our sellers' businesses may be harmed, our reputation could be damaged, and we could incur significant liability. While we maintain cybersecurity insurance, our insurance may be insufficient to cover all liabilities incurred by these attacks.

Systems failures, interruptions, delays in service, catastrophic events, and resulting interruptions in the availability of our products or services, or those of our sellers, could harm our business and our brand, and subject us to substantial liability.

Our systems and those of our third-party vendors, including data center facilities, may experience service interruptions, denial-of-service and other cyber-attacks and security incidents, human error, earthquakes, hurricanes, floods, fires, other natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks and other geopolitical unrest, computer viruses, changes in social, political or regulatory conditions or in laws and policies, or other changes or events. Our systems and facilities are also subject to break-ins, sabotage, and acts of vandalism. Some of our systems are not fully redundant, and our disaster-recovery planning is not sufficient for all eventualities. In addition, as a provider of payments solutions and other financial services, we are subject to increased scrutiny by regulators that may require specific business continuity and disaster recovery plans and more rigorous testing of such plans. This increased scrutiny may be costly and time-consuming and may divert our resources from other business priorities.

We have experienced and will likely continue to experience denial-of-service and other cyber-attacks, system failures, security incidents, and other events or conditions that interrupt the availability or reduce the speed or functionality of our products and services. These events have resulted and likely will result in loss of revenue. In addition, they could result in significant expense to repair or replace damaged equipment and remedy resultant data loss or corruption. A prolonged interruption in the availability or reduction in the speed or other functionality of our products or services could materially harm our reputation and business. Frequent or persistent interruptions in our products and services could cause customers to believe that our products and services are unreliable, leading them to switch to our competitors or to avoid our products and services, and could permanently harm our reputation and business. Moreover, to the extent that any system failure or similar event results in damages to customers or their businesses, these customers could seek compensation from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address.

A significant natural or man-made disaster could have a material and adverse impact on our business. Our headquarters and certain of our data center facilities are located in the San Francisco Bay Area, a region known for seismic activity. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our headquarters or data centers could result in lengthy interruptions in our services or could result in related liabilities. We have implemented a disaster recovery program, which enables us to move production to a back-up data center and employees to a distributed workplace plan in the event of a catastrophe. Although this program is functional, it may prove to be inadequate, increasing the risk of interruptions in our services, which could have a material and adverse impact on our business. We do not maintain insurance sufficient to compensate us for the potentially significant losses that could result from disruptions to our services.

~~Significant natural or other disasters could also have a material and adverse impact on our sellers, which, in the aggregate, could in turn adversely affect our results of operations.~~

The loss or destruction of a private key required to access our bitcoin may be irreversible. If we are unable to access our private keys or if we experience a hack or other data loss relating to the bitcoins we hold on behalf of customers, our customers may be unable to access their bitcoins and it could harm customer trust in us and our products.

Bitcoins are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the bitcoins are held. While the bitcoin and blockchain ledger require a public key relating to a digital wallet to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the bitcoins held in such wallet. To the extent our private key is lost, destroyed, or otherwise compromised and no backup of the private key is accessible, we will be unable to access the bitcoins held in the related digital wallet. Further, we cannot provide assurance that our wallet will not be hacked or compromised. The bitcoin and blockchain ledger, as well as other cryptocurrencies and blockchain technologies, have been, and may in the future be, subject to security breaches, hacking, or other malicious activities. Any loss of private keys relating to, or hack or other compromise of, digital wallets used to store our customers’ bitcoins could adversely affect our customers’ ability to access or sell their bitcoins and could harm customer trust in us and our products. Additionally, any loss of private keys relating to, or hack or other compromise of, digital wallets used by third parties to store bitcoins or other cryptocurrencies could have negative reputational effects on us and harm customer trust in us and our products.

Square Capital is subject to additional risks relating to the availability of capital, seller payments, availability and structure of its bank partnership, expansion of its products, regulatory obligations, and general macroeconomic conditions.

Square Capital, which includes our wholly owned subsidiary Square Capital, LLC, is subject to risks in addition to those described elsewhere in this Quarterly Report on Form 10-Q. Maintaining and growing Square Capital is dependent on institutional third-party investors purchasing the eligible business loans originated by our bank partner. If such third parties fail to continue to purchase such business loans or reduce the amount of future loans they purchase, then our bank partner may need to reduce originations, or we would need to fund the purchase of additional business loans from our own resources. We then may have to reduce the scale of Square Capital, which could have a direct impact on our ability to grow. Additionally, Square Capital has certain customary repurchase obligations in its loan purchase and servicing agreements with such institutional third party investors for breaches of certain eligibility representations and warranties. If third parties reduce the price they are willing to pay for these business loans or reduce the servicing fees they pay us in exchange for servicing the business loans on their behalf, then the financial performance of Square Capital would be harmed.

The business loans are generally unsecured obligations of our Square sellers who utilize Square Capital, and they are not guaranteed or insured in any way. Adverse changes in macroeconomic conditions or the credit quality of our Square sellers could cause some Square sellers who utilize Square Capital to cease operating or to experience a decline in their payment processing volume, thereby rendering them unable to make payment on the business loan and/or extend the repayment period beyond the contractual repayment terms on the business loan. To the extent a seller breaches a contractual obligation, such as the requirement to make minimum payments or other breach, the seller would be liable for an accelerated business loan repayment, where Square Capital's recourse is to the business and not to any individual or other asset. In addition, because the servicing fees we receive from third party investors depend on the collectability of the business loans, if there is an increase in Square sellers who utilize Square Capital who are unable to make repayment of business loans, we will be unable to collect our entire servicing fee for such loans. While our exposure to loans that we sell to third parties is more limited, we expect that the impact of COVID-19 on loan performance will increase risk loss for our owned loan portfolio.

In addition, adverse changes in macroeconomic conditions ~~could lead~~as a result of the COVID-19 pandemic have led to a decrease in the number of sellers eligible for Square Capital facilitated business loans and ~~strain~~strained our ability to correctly identify such sellers on behalf of our bank partner or manage the risk of non-payment or fraud as servicer of the business loans. ~~Similarly, if~~As a result, Square Capital ceased to facilitate new business loans, with the exception of PPP loans, during the second quarter. Square Capital recently resumed offering its regular business loans under stricter eligibility criteria, but it remains uncertain at what levels Square Capital will facilitate such business loans. If we fail to correctly predict the likelihood of timely repayment ~~of the business loans~~ or correctly price ~~the~~such business loans, ~~to sellers utilizing Square Capital,~~ our business may be materially and adversely affected. ~~As we expand our business to offer consumer financing products and business loans to merchants outside of Square sellers, those customers may also be adversely affected by economic downturns.~~

We have partnered, on a non-exclusive basis, with a Utah-chartered, member FDIC industrial bank to originate the loans. Such bank may offer products that compete with ours. The bank is subject to oversight both by the FDIC and the State of Utah. Due to the fact that we are a service-provider to our bank partner, we are subject to audit standards for third-party vendors in accordance with FDIC guidance and examinations by the FDIC. There has been, and may continue to be, regulatory interest in and/or litigation challenging partnered lending arrangements where a bank makes loans and then sells and assigns such loans to a non-bank entity that is engaged in assisting with the origination and servicing of the loan. If our bank partner ceases to partner with us, ceases to abide by the terms of our agreement with them, or cannot partner with us on commercially reasonable terms, and we are not able to find suitable alternatives and/or make business loans ourselves pursuant to state licensing requirements, Square Capital may need to enter into a new partnership with another qualified financial institution ~~revert to the merchant cash advance (MCA) model,~~ or pursue an alternative model for originating business loans, all of which may be time-consuming and

costly and/or lead to a loss of institutional third-party investors willing to purchase such business loans, ~~or MCAs,~~ and as a result Square Capital may be materially and adversely affected.

We intend to continue to explore other products, models, and structures for Square Capital, including forming a Utah industrial ~~loan corporation, offering consumer financing,~~bank and other forms of credit and loan products. On March 17, 2020, the Board of Directors of the FDIC approved an application for Federal deposit insurance for Square Financial Services, Inc., an industrial bank that Square Capital is in the process of establishing but is not yet operational. Some of those models or structures may require, or be deemed to require, additional data, procedures, partnerships, licenses, regulatory approvals, or capabilities that we have not yet obtained or developed. The licenses required in connection with our lending program and other activities related to the Square Capital program subject us to reporting requirements, bonding requirements, and inspection by applicable state regulatory agencies. In addition, while there can be no assurances that the industrial bank will become operational, the FDIC’s approval is contingent on Square entering into agreements that require it to provide financial support to the industrial bank and impose certain other obligations on Square once the industrial bank is operational. Jack Dorsey, who is considered Square’s controlling shareholder in this context, also agreed to cause Square to perform under these agreements. Should we fail to expand and evolve Square Capital in ~~this~~a successful manner, or should these new products, models or structures, or new regulations or interpretations of existing regulations, impose requirements on us that are impractical or that we cannot satisfy, the future growth and success of Square Capital may be materially and adversely affected.

Our business is subject to extensive regulation and oversight in a variety of areas, all of which are subject to change and uncertain interpretation.

We are subject to a wide variety of local, state, federal, and international laws, regulations, licensing schemes, and industry standards in the United States and in other countries in which we operate. These laws, regulations, and standards govern numerous areas that are important to our business, ~~including, but not limited to, consumer protection, privacy, information security, fair lending, financial services, securities, labor~~ and employment, immigration, import and export practices, product labeling, competition, data protection, and marketing and communications practices. Such laws, regulations, and standards are subject to changes and evolving interpretations and application, including by means of legislative changes and/or executive orders, and it can be difficult to predict how they may be applied to our business and the way we conduct our operations, particularly as we introduce new products and services and expand into new jurisdictions. Any perceived or actual breach of laws, regulations, and standards could result in investigations, regulatory inquiries, litigation, fines, injunctions, negative customer sentiment, impairment of our existing or planned products and services, or otherwise negatively impact our business.

In particular, as we seek to build a trusted and secure platform for commerce, and as we expand our network of customers and facilitate their transactions and interactions with one another or otherwise evolve our products and services, we will increasingly be subject to laws and regulations relating to the collection, use, retention, privacy, security, and transfer of information, including personally identifiable information of our employees and customers. As with the other laws and regulations noted above, these laws and regulations may change or be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible they will be interpreted and applied in ways that will materially and adversely affect our business. For example, the European Parliament and the Council of the European Union adopted a General Data Protection Regulation (GDPR), which became effective in May 2018, superseding previous EU data protection legislation. The GDPR imposes more stringent data privacy and data protection requirementsthan prior EU data protection law and provides for greater penalties for noncompliance of up to the greater of 4% of worldwide annual revenue or €20 million. To address data transfers from the EU to other jurisdictions, we in certain cases utilize model contracts approved by the EU Commission. These model contracts have been legally challenged, and it is possible that they will be voided or modified, which could materially impact our ability to transfer personal data from the EU to other jurisdictions. In the United Kingdom, although a Data Protection Act that substantially implements the GDPR became law in May 2018, uncertainty remains regarding how data transfers to and from the U.K. will be regulated.The U.K.’s anticipated exit from the EU has created uncertainty with regard to the regulation of data protection in the UK and data transfers between the U.K., the EU, and other jurisdictions and could require us to make additional changes to the way we conduct our business and transmit data between the U.S., the U.K., the EU, and the rest of the world.

Likewise, the California Consumer Privacy Act of 2018 (CCPA) will become effective on January 1, 2020. The CCPA imposes stringent data privacy and data protection requirements for the data of California residents, and provides for penalties for noncompliance of up to $7,500 per violation. The CCPA was amended in September 2018, and further amendments were passed in September 2019 and are awaiting signature by Governor Newsom. It remains unclear how various provisions of the CCPA will be interpreted and enforced. More generally, data privacy and security continues to be a rapidly evolving area, and further legislative activity has arisen will likely continue to arise in the U.S., the EU, and other jurisdictions. For example, a California ballot initiative that builds upon CCPA has been introduced for the November 2020 election,other states in the U.S. have proposed or enacted laws regarding privacy and data protection that contain obligations similar to the CCPA, and the federal government is contemplating federal privacy legislation.The effects of recently proposed or enacted legislation, including CCPA, potentially are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. In addition, U.S. and international laws that have been applied to protect user privacy and data security (including laws regarding unfair and deceptive practices in the U.S. and the GDPR in the EU) may be subject to evolving interpretations or applications in light of privacy developments.

We have incurred, and may continue to incur, significant expenses to comply with evolving mandatory privacy and security standards and protocols imposed by law, regulation, industry standards, shifting consumer expectations, or contractual obligations. We post on our website our privacy policies and practices concerning the collection, use, and disclosure of information. In particular, with laws and regulations such as the GDPR in the EU and the CCPA in the U.S. imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices, and we may incur significant costs and expenses in an effort to do so. Any failure, real or perceived, by us to comply with our posted privacy policies, changing consumer expectations, or with any evolving regulatory requirements, interpretations, or orders, other local, state, federal, or international privacy, data protection, information security, or consumer protection-related laws and regulations, industry standards, or contractual obligations could cause our customers to reduce their use of our products and services, disrupt our supply chain or third party vendor or developer partnerships, and materially and adversely affect our business.

Further, from time to time, we may leverage third parties to help conduct our businesses in the U.S. or abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for any corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

We may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer our existing or planned features, products, and services and/or increase our cost of doing business. In addition, if our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations, consumer sentiment, and industry standards or new interpretations or applications of existing laws, regulations, and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and financial condition.

~~Our business is subject to complex and evolving regulations and oversight related to our provision of payments services and other financial services.~~

~~The local, state, federal, and international laws, regulations, licensing schemes, and industry standards that govern our business~~ include, or may in the future include, those relating to banking, lending, deposit-taking, cross-border and domestic money transmission, foreign exchange, payments services (such as payment processing and settlement services), cryptocurrency, trading in shares and fractional shares, consumer protection, anti-money laundering, escheatment, international sanctions regimes, data privacy and security, and compliance with the Payment Card Industry Data Security Standard, a set of requirements designed to ensure that all companies that process, store, or transmit payment card information maintain a secure environment to protect cardholder data.

These laws, rules, regulations, and standards are enforced by multiple authorities and governing bodies in the United States, including federal agencies, such as the ~~Department of the Treasury, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission,~~FDIC, self-regulatory organizations, and numerous state and local agencies. Outside of the United States, we are subject to additional laws, rules, and regulations related to the provision of payments and financial services, including those enforced by the Ministry of Economy, Trade, and Industry in Japan, those enforced by the Australian Transaction Reports and Analysis Centre, and those enforced by the Financial Conduct Authority in the United Kingdom.regulators. As we expand into new jurisdictions, or expand our product offerings in existing jurisdictions, the number of foreign regulations and regulators governing our business will expand as well. If we pursue additional or alternative means of growing Square Capital, additional state and federal regulations would apply. Similarly, if we choose to offer Square Payroll in more jurisdictions, additional regulations, including tax rules, will apply. In addition, as our business and products continue to develop and expand, we may become subject to additional rules, regulations, and industry standards. We may not always be able to accurately predict the scope or applicability of certain regulations to our business, particularly as we expand into new areas of operations, which could have a significant negative effect on our existing business and our ability to pursue future plans.

~~We have introduced~~

Laws, regulations, and standards are subject to changes and evolving interpretations and application, including by means of legislative changes and/or executive orders, and it can be difficult to predict how they may be applied to our business and the way we conduct our operations, particularly as we introduce new products and services and expand into new jurisdictions.

For example, Cash App includes a feature ~~to the Cash App~~ that permits our customers to buy and sell bitcoin. Bitcoin is not considered legal tender or backed by any government, and it has experienced price volatility, technological glitches, security compromises, and various law enforcement and regulatory interventions. We do not believe that the bitcoin platform involves offering securities that are subject to the registration or other provisions of federal or state securities laws. We also do not believe our Bitcoin-related transactions subject us to regulation under the federal securities laws, including as a broker-dealer or an investment adviser, or registration under the federal commodities laws. However, theThe regulation of cryptocurrency and crypto platforms is still an

evolving area, and it is possible that ~~a court or a federal or state regulator~~we could ~~disagree with one or more of these conclusions.~~become subject to additional regulations. If we fail to comply with regulations or prohibitions applicable to us, we could face regulatory or other enforcement actions and potential fines and other consequences. Further, we might not be able to continue operating the feature, at least in current form, ~~and to the extent that the feature is viewed by the market as a valuable asset to Square,~~which could cause the price of our Class A common stock ~~could~~to decrease.

Although we have a compliance program focused on the laws, rules, and regulations applicable to our business, ~~and we are continually investing more in this program,~~ we may still be subject to fines or other penalties in one or more jurisdictions levied by ~~federal, state, or local~~ regulators, including state Attorneys General and private plaintiffs who may be acting as private attorneys general pursuant to various applicable ~~federal, state, and local~~ laws, as well as those levied by foreign regulators. In addition to fines, penalties for failing to comply with applicable rules and regulations could include significant criminal and civil lawsuits, forfeiture of significant assets, increased licensure requirements, or other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory scrutiny. In addition, any perceived or actual breach of compliance by us with respect to applicable laws, rules, and regulations could have a significant impact on our reputation as a trusted brand and could cause us to lose existing customers, prevent us from obtaining new customers, require us to expend significant funds to remedy problems caused by breaches and to avert further breaches, and expose us to legal risk and potential liability.

Further, from time to time, we may leverage third parties to help conduct our businesses in the U.S. or abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for any corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

Our business is subject to complex and evolving regulations and oversight related to privacy and data protection.

We are subject to laws and regulations relating to the collection, use, retention, privacy, security, and transfer of information, including personally identifiable information of our employees and customers. As with the other laws and regulations noted above, these laws and regulations may change or be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible they will be interpreted and applied in ways that will materially and adversely affect our business. For example, the European Union’s General Data Protection Regulation (GDPR) imposes more stringent data privacy and data protection requirements than prior EU data protection law and provides for greater penalties for noncompliance of up to the greater of 4% of worldwide annual revenue or €20 million. To address data transfers from the EU to other jurisdictions, we in certain cases utilize model contracts approved by the EU Commission. On July 16, 2020, the Court of Justice of the European Union (CJEU) issued a decision that may impose additional obligations on companies when relying on those model contracts, in addition to invalidating another method that some companies relied on for transferring personal data from the European Economic Area (EEA) to the United States, the EU-U.S. Privacy Shield. This CJEU decision may result in different EEA data protection regulators applying differing standards for the transfer of personal data from the EEA to the United States, and even require ad hoc verification of measures taken with respect to data flows. As a result of this CJEU decision, we may be required to take additional steps to legitimize impacted personal data transfers. This could result in increased costs of compliance and limitations on our customers and us. More generally, we may find it necessary or desirable to modify our data handling practices, and this CJEU decision or other legal challenges relating to cross-border data transfer may serve as a basis for our personal data handling practices, or those of our customers and vendors, to be challenged and may otherwise adversely impact our business, financial condition and operating results. In the United Kingdom, although a Data Protection Act substantially implements the GDPR, uncertainty remains regarding how data transfers to and from the U.K. will be regulated. The U.K.’s exit from the EU has created uncertainty with regard to the regulation of data protection in the U.K. and data transfers between the U.K., the EU, and other jurisdictions and could require us to make additional changes to the way we conduct our business and transmit data between the U.S., the U.K., the EU, and the rest of the world. In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services.

Likewise, the California Consumer Privacy Act of 2018 (CCPA) became effective on January 1, 2020. The CCPA imposes stringent data privacy and data protection requirements for the data of California residents, and provides for penalties for noncompliance of up to $7,500 per violation. It remains unclear how various provisions of the CCPA will be interpreted and enforced. More generally, data privacy and security continues to be a rapidly evolving area, and further legislative activity has arisen and will likely continue to arise in the U.S., the EU, and other jurisdictions. For example, a California ballot initiative that builds upon CCPA has been certified by the California Secretary of State to appear on the ballot in the November 2020 election, other states in the U.S. have proposed or enacted laws regarding privacy and data protection that contain obligations similar to the CCPA, and the federal government is contemplating federal privacy legislation. In addition, laws and regulations directed at privacy and data security, and those that have been applied in those areas, may be subject to evolving interpretations or applications. The effects of recently proposed or enacted legislation, including CCPA, potentially are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

We have incurred, and may continue to incur, significant expenses to comply with evolving privacy and security standards and protocols imposed by law, regulation, industry standards, shifting consumer expectations, or contractual obligations. In particular, with laws and regulations such as the GDPR in the EU and the CCPA in the U.S. imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices, and we may incur significant costs and expenses in an effort to do so. Any failure, real or perceived, by us to comply with our privacy, data protection, or information security policies, changing consumer expectations, or with any evolving regulatory requirements, industry standards, or contractual obligations could cause our customers to reduce their use of our products and services, disrupt our supply chain or third party vendor or developer partnerships, and materially and adversely affect our business.

As a licensed money transmitter, we are subject to important obligations and restrictions.

We have obtained licenses to operate as a money transmitter (or ~~its equivalent)~~as other financial services institutions) in the United States and in the states where this is ~~required.~~required, as well as in some non-U.S. jurisdictions, including the U.K, Ireland, and Australia. As a licensed money transmitter, we are subject to obligations and restrictions with respect to the investment of customer funds, reporting requirements, bonding requirements, and inspection by state regulatory agencies concerning those aspects of our business considered money transmission. Evaluation of our compliance efforts, as well as the questions of whether and to what extent our products and services are considered money transmission, are matters of regulatory interpretation and could change over time. In the past, we have been subject to fines and other penalties by regulatory authorities due to their interpretations and applications to our business of their respective state money transmission laws. In the future, as a result of the regulations applicable to our business, we could be subject to investigations and resulting liability, including governmental fines, restrictions on our business, or other sanctions, and we could be forced to cease conducting ~~certain aspects of our~~ business ~~with residents of~~in certain jurisdictions, be forced to otherwise change our business practices in certain jurisdictions, or be required to obtain additional licenses or regulatory approvals. There can be no assurance that we will be able to obtain any such licenses, and, even if we were able to do so, there could be substantial costs and potential product changes involved in maintaining such licenses, which could have a material and adverse effect on our business.

Our subsidiary Cash App Investing ~~LLC (“Cash App Investing”)~~ is a broker-dealer registered with the SEC and a member of FINRA, and therefore is subject to extensive regulation and scrutiny.

Our subsidiary Cash App Investing facilitates transactions in shares and fractionalized shares of publicly-traded stock by users of our Cash App through a third-party clearing and carrying broker, ~~that executes those transactions,~~ DriveWealth LLC (“DriveWealth”). Cash App Investing ~~engages in regulated activities that are different from those previously undertaken by us. It~~ is registered with the SEC as a broker-dealer under the Exchange Act and is a member of FINRA. Therefore Cash App Investing is subject to regulation, examination, and supervision by the SEC and FINRA. The regulations applicable to broker-dealers cover all aspects of the securities business, including sales practices, use and safekeeping of clients’ funds and securities, capital adequacy, record-keeping, and the conduct and qualification of officers, employees, and independent contractors. As part of the regulatory process, broker-dealers are subject to periodic examinations by their regulators, the purpose of which is to determine compliance with securities laws and regulations, and from time to time may be subject to additional routine and for-cause examinations. It is not uncommon for regulators to assert, upon completion of an examination, that the broker-dealer being examined has violated certain of these rules and regulations. Depending on the nature and extent of the violations, the broker-dealer may be required to pay a fine and/or be subject to other forms of disciplinary action. Additionally, the adverse publicity arising from the imposition of sanctions could harm our reputation and cause us to lose existing customers or fail to gain new customers.

The SEC, FINRA, and ~~FINRA~~state regulators have the authority to bring administrative or judicial proceedings against broker-dealers, whether arising out of examinations or otherwise, for violations of the securities laws. Administrative sanctions can include cease-and-desist orders, censure, ~~fine, civil monetary penalties,~~fines, and disgorgement and may even result in the suspension or expulsion of the firm from the securities industry. Similar sanctions may be imposed upon officers, directors, representatives, and employees. In addition, judicial proceedings may be initiated by the SEC or state regulators if the misconduct warrants such action and may result in injunctive relief, civil monetary penalties, disgorgement, and other sanctions.

Cash App Investing has adopted, and regularly reviews and updates, various policies, controls, and procedures designed for compliance with Cash App Investing’s obligations. However, appropriately addressing these issues is complex and difficult

and our reputation could be damaged if we fail, or appear to fail, to appropriately address them. Failure to adhere to these policies and procedures may also result in regulatory sanctions or litigation against us. Cash App Investing also relies on various third parties, including DriveWealth, to provide services, including managing and executing customer orders, and failure of these third parties to adequately perform these services may negatively impact customer experience, product performance, and our reputation and may also result in regulatory sanctions or litigation against us or Cash App Investing.

In the event of any regulatory action or scrutiny, we or Cash App Investing could also be required to make changes to our business practices or compliance programs. In addition, any perceived or actual breach of compliance by Cash App Investing with respect to applicable laws, rules, and regulations could have a significant impact on our reputation, ~~as a trusted brand and~~ could cause us to lose existing customers, prevent us from obtaining new customers, require us to expend significant funds to remedy problems caused by breaches and to avert further breaches, and expose us to legal risk, including litigation against us and potential liability.

Cash App Investing is subject to net capital and other regulatory capital requirements; failure to comply with these rules could harm our business.

Our subsidiary Cash App Investing is subject to the net capital requirements of the SEC and FINRA. These requirements typically specify the minimum level of net capital a broker-dealer must maintain and also mandate that a significant part of its assets be kept in relatively liquid form. Failure to maintain the required net capital may subject a firm to limitation of its activities, including suspension or revocation of its registration by the SEC and suspension or expulsion by FINRA, and ultimately may require its liquidation. Currently, Cash App Investing has ~~fairly~~relatively low net capital requirements, because it does not hold customer funds or securities, but instead ~~transmits~~facilitates the transmission and ~~delivers~~delivery of those funds on behalf of customers to DriveWealth or back to the applicable customer. However, a change in the net capital rules, a change in how Cash App Investing handles or holds customer assets, or the imposition of new rules affecting the scope, coverage, calculation, or amount of net capital requirements could have adverse effects. Finally, because Cash App Investing is subject to such net capital requirements, we may be required to inject additional capital into Cash App Investing from time to time and as such, we may have liability and/or our larger business may be affected by any of these outcomes.

It is possible that FINRA will require changes to our business practices based on our ownership of Cash App ~~Investing.~~Investing, which could impose additional costs or disrupt our business.

In certain cases, FINRA has required unregistered affiliates of broker-dealers to comply with additional regulatory requirements, including, among others, handling all securities or other financial transactions through the affiliated broker-dealer or conforming all marketing and advertising materials to the requirements applicable to broker-dealers. We do not currently believe that these types of requirements apply to any aspect of our business other than the securities transactions facilitated through the Cash App. It is possible that, in the future, FINRA could require us to comply with additional regulations in the conduct of other activities (i.e., beyond the securities transactions made through the Cash App). If that were to occur, it could require significant changes to our business practices. These and other changes would impose significantly greater costs on us and disrupt existing practices in ways that could negatively affect our overarching business and profitability.

We are subject to risks related to litigation, including intellectual property claims, government investigations or inquiries, and regulatory matters or disputes.

We may be, and have been, subject to claims, lawsuits (including class actions and individual lawsuits), government or regulatory investigations, subpoenas, inquiries or audits, and other proceedings involving intellectual property, consumer protection, privacy, data protection, labor and employment, immigration, import and export practices, product labeling, competition, accessibility, securities, tax, marketing and communications practices, commercial disputes, anti-money laundering, anti-corruption, counter-terrorist financing, sanctions, and other matters.

proceedings. The number and significance of our legal disputes and inquiries have increased as we have grown larger, as our business has expanded in scope and geographic reach, and as our products and services have increased in complexity, and we expect that we will continue to face additional legal disputes as we continue to grow and expand.

We also receive significant media attention, which could result in increased litigation or other legal or regulatory reviews and proceedings. ~~In addition, some~~

Some of the laws and regulations affecting the internet, mobile commerce, payment processing, business financing, and employment did not anticipate businesses like ours, and many of the laws and regulations, including those affecting us have been enacted relatively recently. As a result, there is substantial uncertainty regarding the scope and application of many of the laws and regulations to which we are subject, which increases the risk that we will be subject to claims alleging violations of those laws and regulations. Evolving case law and legislation over worker classification, including a California ~~Supreme Court decision,~~Assembly Bill 5, increases litigation in this area and may have ramifications as to how we operate certain segments of our business and our engagement with independent contractors. For example, a determination in, or settlement of, any legal proceeding involving us or others that determines that workers of the type we maintain are independent contractors instead are employees could harm our business, financial condition, and results of operations, including, but not necessarily limited to, as a result of monetary exposure arising

from or relating to penalties, defense costs, taxes, wages, and other matters, ~~and~~as well as potential costs of such workers unionizing or attempting to unionize.

The scope, outcome, and impact of claims, lawsuits, government or regulatory investigations, subpoenas, inquiries or audits, and other proceedings to which we are subject cannot be predicted with certainty. Regardless of the outcome, such investigations and legal proceedings can have a material and adverse impact on us due to their costs, diversion of our resources, and other factors. Plaintiffs may seek, and we may become subject to, preliminary or provisional rulings in the course of litigation, including preliminary injunctions requiring us to cease some or all of our operations. We may decide to settle legal disputes on terms that are unfavorable to us. We may also be accused of having, or be found to have, infringed or violated third-party intellectual property rights. Furthermore, if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable judgment that we may not choose to appeal or that may not be reversed upon appeal. We may have to seek a license to continue practices found to be in violation of a third party’s rights, or we may have to change or cease certain practices. If we are required, or choose to enter into, royalty or licensing arrangements, such arrangements may not be available on reasonable terms or at all and may significantly increase our operating costs and expenses. As a result, we may also be required to develop or procure alternative non-infringing technology or discontinue use of technology, and doing so could require significant effort and expense or may not be feasible. In addition, the terms of any settlement or judgment in connection with any legal claims, lawsuits, or proceedings may require us to cease some or all of our operations or to pay substantial amounts to the other party and could materially and adversely affect our business.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services, and brand.

Our trade secrets, trademarks, copyrights, patents, and other intellectual property rights are critical to our success. We rely on, and expect to continue to rely on, a combination of confidentiality, invention assignment, and license agreements with our employees, consultants, and third parties with whom we have relationships, as well as trademark, trade dress, domain name, copyright, trade secret, and patent rights, to protect our brand and other intellectual property rights. However, various events outside of our control may pose a threat to our intellectual property rights, as well as to our products and services. Effective protection of ~~trademarks, copyrights, domain names, patent rights, and other~~ intellectual property rights is expensive and difficult to maintain, both in terms of application and maintenance costs, as well as the costs of defending and enforcing those rights. The efforts we have taken to protect our intellectual property rights may not be sufficient or effective. Our intellectual property rights may be infringed, misappropriated, or challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. Similarly, our reliance on unpatented proprietary information and technology, such as trade secrets and confidential information, depends in part on agreements we have in place with employees and third parties that place restrictions on the use and disclosure of this intellectual property. These agreements may be insufficient or may be breached, or we may not enter into sufficient agreements with such individuals in the first instance, in either case potentially resulting in the unauthorized use or disclosure of our trade secrets and other intellectual property, including to our competitors, which could cause us to lose any competitive advantage resulting from this intellectual property. Individuals not subject to invention assignment agreements may make adverse ownership claims to our current and future intellectual property. There can be no assurance that our intellectual property rights will be sufficient to protect against others offering products or services that are substantially similar to ours and that compete with our business.

As of ~~September~~June 30, ~~2019,~~2020, we had ~~650~~ 753issued patents in force in the United States and abroad and ~~629~~523 filed patent applications pending in the United States and abroad, though there can be no assurance that any or all of these pending applications will ultimately be issued as patents. We also pursue registration of copyrights, trademarks, and domain names in the United States and in certain jurisdictions outside of the United States, but doing so may not always be successful or cost-effective. In general, we may be unable or, in some instances, choose not to obtain legal protection for our intellectual property, and our existing and future intellectual property rights may not provide us with competitive advantages or distinguish our products and services from those of our competitors. The laws of some foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States, and effective intellectual property protection and mechanisms may not be available in those jurisdictions. We may need to expend additional resources to defend our intellectual

property in these countries, and the inability to do so could impair our business or adversely affect our international expansion. Our intellectual property rights may be contested, circumvented, or found unenforceable or invalid, and we may not be able to prevent third parties from infringing, diluting, or otherwise violating them.

Additionally, our intellectual property rights and other confidential business information are subject to risks of compromise or unauthorized disclosure if our security measures ~~are unable to prevent cyber-attacks. Our security measures, including~~or those of our third-party service providers ~~may not detect or~~are unable to prevent all attempted security breaches or other attacks that may jeopardize the security of information stored in or transmitted by our systems or those of our third-party service providers. Such attacks could lead to the loss of critical data or the unauthorized disclosure or use of our proprietary information and other

confidential information. Any such attacks, or the perception that such attacks have occurred, could negatively impact our ability to protect our intellectual property rights, our reputation, or customer trust in us and our products.

cyber-attacks. Significant impairments of our intellectual property rights, and limitations on our ability to assert our intellectual property rights against others, could have a material and adverse effect on our business.

We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs, and our existing credit facility contains, and any future debt financing may contain, covenants that impact the operation of our business and pursuit of business opportunities.

We have funded our operations since inception primarily through debt and equity financings, bank credit facilities, and finance lease arrangements. While we believe that our existing cash and cash equivalents, marketable debt securities, and availability under our line of credit are sufficient to meet our working capital needs and planned capital expenditures, and service our debt, there is no guarantee that this will continue to be true in the future. In the future, we may require additional capital to respond to business opportunities, refinancing needs, business and financial challenges, regulatory surety bond requirements, acquisitions, or unforeseen circumstances and may decide to engage in equity, equity-linked, or debt financings or enter into additional credit facilities for other ~~reasons, and we~~reasons. We may not be able to secure any such additional financing or refinancing on favorable terms, in a timely manner, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

Our credit facility contains affirmative and negative covenants, including customary limitations on the incurrence of certain indebtedness and liens, restrictions on certain inter-company transactions, and limitations on dividends and stock repurchases. Any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to operate our business, obtain additional capital, and pursue business opportunities, including potential acquisitions. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants could result in a default under our existing credit facility and any future financing agreements into which we may enter. If not waived, these defaults could cause indebtedness outstanding under our credit facility, our other outstanding indebtedness, including our 2022 Notes, 2023 Notes, and ~~2023~~2025 Notes (collectively, the Notes) and any future financing agreements that we may enter into to become immediately due and payable.

If we raise additional funds through further issuances of equity or other securities convertible into equity, including convertible debt securities, our existing stockholders could suffer dilution in their percentage ownership of our company, and any such securities we issue could have rights, preferences, and privileges senior to those of holders of our Class A common stock.

Servicing our Notes may require a significant amount of cash, and we may not have sufficient cash or the ability to raise the funds necessary to settle conversions of the Notes in cash, repay the Notes at maturity, or repurchase the Notes as required following a fundamental change.

~~On March 6, 2017,~~As of June 30, 2020, we ~~issued $440.0~~had $186.3 million outstanding aggregate principal amount of 2022 Notes, and ~~on May 25, 2018, we issued~~ $862.5 million aggregate principal amount of 2023 Notes, and $1.0 billion outstanding aggregate principal amount of 2025 Notes.

Prior to December 1, 2021, in the case of the 2022 Notes, ~~and prior to~~ February 15, 2023, in the case of the 2023 Notes, and December 1, 2024, in the case of the 2025 Notes, the applicable Notes are convertible at the option of the holders only under certain conditions or upon occurrence of certain events. Because the last reported sale price of our Class A common stock exceeded 130% of the conversion price for the 2022 Notes for the relevant period in the calendar quarter ending ~~September~~June 30, ~~2019,~~2020, the 2022 Notes are convertible at the option of the holders thereof during the calendar quarter ending ~~December 31, 2019.~~September 30, 2020. Whether the Notes of ~~either~~any series will be convertible following such calendar quarter will depend on the satisfaction of this condition or another conversion condition in the future. If holders of the Notes of a series elect to convert ~~their~~such Notes, unless we elect to deliver solely shares of our Class A common stock to settle such conversion, we will be required to make cash payments in respect of the Notes being converted. Effective October 2018, we revised our prior stated policy of settling conversions of the 2022 Notes and 2023 Notes through combination settlement with a specified dollar amount of $1,000 per $1,000 principal amount of Notes. We currently expect to settle future conversions of Notes of any series solely in shares of our Class A common stock, which has the effect of including the shares of Class A common stock issuable upon conversion of

the Notes of such series in our diluted earnings per share to the extent such shares are not anti-dilutive. We will reevaluate this policy from time to time as conversion notices are received from holders of the Notes. ~~Holders~~

In addition, holders of ~~the~~each series of Notes also have the right to require us to repurchase all or a portion of their Notes of such series upon the occurrence of a fundamental change (as defined in the applicable indenture governing the Notes) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest. If the Notes of any series have not previously been converted or repurchased, we will be required to repay ~~the~~such Notes in cash at maturity.

Our ability to make required cash payments in connection with conversions of the Notes, repurchase the Notes in the event of a fundamental change, or to repay or refinance the Notes at maturity will depend on market conditions and our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. We also may not use the cash proceeds we raised through the issuance of the Notes in an optimally productive and profitable manner. Since inception, our business has generated net losses, and we may continue to incur significant losses. As a result, we may not have enough available cash or be able to obtain financing at the time we are required to repurchase or repay the Notes or pay cash with respect to Notes being converted.

In addition, our ability to repurchase or to pay cash upon conversion or at maturity of the Notes may be limited by law or regulatory authority. Our failure to repurchase Notes following a fundamental change or to pay cash upon conversion (unless we elect to deliver solely shares of our Class A common stock to settle such conversion) or at maturity of the Notes as required by the applicable indenture would constitute a default under such indenture. A default under the applicable indenture or the fundamental change itself could also lead to a default under our credit facility, our other outstanding indebtedness, or agreements governing our future indebtedness and could have a material adverse effect on our business, results of operations, and financial condition. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion or at maturity of the Notes.

We are subject to counterparty risk with respect to the convertible note hedge transactions.

In connection with the issuance of the 2022 Notes, the 2023 Notes, and the ~~2023~~2025 Notes, we entered into convertible note hedge transactions with certain financial institutions, which we refer to as the "option counterparties." The option counterparties are financial institutions or affiliates of financial institutions, and we will be subject to the risk that one or more of such option counterparties may default under the convertible note hedge transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If any option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the convertible note hedge transaction. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in our Class A common stock market price and in the volatility of the market price of our Class A common stock. In addition, upon a default by any option counterparty, we may suffer adverse tax consequences and dilution with respect to our Class A common stock. We can provide no assurance as to the financial stability or viability of any option counterparty.

Our reported financial statements and results may be materially and adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial statements and results and could materially and adversely affect the transactions completed before the announcement of a change. Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems, processes, and controls.

For example, in February 2016, the FASB issued a new accounting standard for leasing. We adopted this new guidance on January 1, 2019, and elected the optional transition method to apply the transition provisions from the effective date of adoption. We recognized $112.0 million of operating right-of-use lease assets and $135.6 million of operating lease liabilities on our consolidated balance sheet. Additionally, we derecognized $149 million related to the build-to-suit asset and liability upon adoption of this standard because we are no longer deemed to be the owner of the related asset under construction under the new standard. Changes resulting from this and other new standards may result in materially different financial statements and results and may require that we change how we process, analyze, and report financial information and that we change financial reporting controls.

If currency exchange rates fluctuate substantially in the future, our financial results, which are reported in U.S. dollars, could be adversely affected.

As we continue to expand our global operations, we become more exposed to the effects of fluctuations in currency exchange rates. Our contracts are denominated primarily in U.S. dollars, and therefore the majority of our revenue is not subject to foreign currency risk. However, fluctuations in exchange rates of the U.S. dollar against foreign currencies could adversely affect our business, results of operations, and financial condition. We incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency. Fluctuations in the exchange rates between the

U.S. dollar and other currencies could result in the dollar equivalent of such expenses being higher. This could have a negative impact on our reported results of operations. From time to time, we may enter into forward contracts, options, and/or foreign exchange swaps related to specific transaction exposures that arise in the normal course of our business, though we are not currently a party to any such hedging transactions. These and other such hedging activities may not eliminate our exposure to foreign exchange fluctuations. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

~~Federal income tax reform could have unforeseen effects on our financial condition and results of operations.~~

Legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") was enacted in December 2017 and contains many significant changes to U.S. federal tax laws. The 2017 Tax Act requires complex computations that were not previously provided for under U.S. tax law. The Company has provided for the effects of the 2017 Tax Act based on guidance in effect as of December 31, 2018. The 2017 Tax Act requires significant judgments to be made in interpretation of the law and significant estimates in the calculation of the provision for income taxes. Additional guidance may be issued by the IRS, Department of the Treasury, or other governing bodies that may significantly differ from the Company's interpretation of the law, which could have unforeseen effects on our financial condition and results of operations.

Risks Related to Ownership of Our Common Stock

The dual class structure of our common stock has the effect of concentrating voting control within our stockholders who held our stock prior to our initial public offering, including many of our employees and directors and their affiliates; this will limit or preclude your ability to influence corporate matters.

Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. Stockholders who hold shares of Class B common stock, including many of our executive officers, employees, and directors and their affiliates, held approximately ~~70.4%~~66.1% of the voting power of our combined outstanding capital stock as of ~~September~~June 30, ~~2019.~~2020. Our executive officers and directors and their affiliates held approximately ~~73.2%~~68.6% of the voting power of our combined outstanding capital stock as of ~~September~~June 30, ~~2019.~~2020. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively hold more than a majority of the combined voting power of our common stock, and therefore such holders are able to control all matters submitted to our stockholders for approval. When the shares of our Class B common stock represent less than 5% of the combined voting power of our Class A common stock and Class B common stock, the then-outstanding shares of Class B common stock will automatically convert into shares of Class A common stock.

Transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers to entities, including certain charities and foundations, to the extent the transferor retains sole dispositive power and exclusive voting control with respect to the shares of Class B common stock.exceptions. Such conversions of Class B common stock to Class A common stock upon transfer will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, our Class B stockholders retain shares of Class B common stock constituting as little as 10% of all outstanding shares of our Class A and Class B common stock combined, they will continue to control a majority of the combined voting power of our outstanding capital stock.

~~We will continue to incur significant costs and devote substantial management time as a result of operating as a public company.~~

As a public company, we incur significant legal, financial, and other expenses that private companies do not. We are subject to the reporting requirements of the Exchange Act and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the listing standards of the New York Stock Exchange (NYSE), including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls. Continuing to comply with these requirements may increase our legal and financial compliance costs and may make some activities more time consuming and costly. In addition, our management and other personnel must divert attention from operational and other business matters to devote substantial time to these requirements. If we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE, which could result in potential loss of confidence by our customers and employees, loss of institutional investor interest, fewer business development opportunities, class action or shareholder derivative lawsuits, depressed stock price, limited liquidity of our Class A common stock, and other material adverse consequences. Moreover, we could incur additional compensation costs in the event that we decide to pay cash compensation closer to that of other public technology companies, which would increase our general and administrative expenses and could materially and adversely affect our profitability.

If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our Class A common stock may be materially and adversely affected.

We are continuing to develop and refine our disclosure controls and improve our internal controls over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, to the extent we acquire other businesses, the acquired company may not have a sufficiently robust system of internal controls and we may discover deficiencies. If we identify material weaknesses in our disclosure controls or internal control over financial reporting in the future, we will be unable to assert that our internal controls are effective. If we are unable to do so, or if our auditors are unable to attest to management’s report on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our Class A common stock to decline. WeIn the past, we have identified significant deficiencies in our internal control over financial reporting ~~in the past~~ and have taken steps to remediate such deficiencies. However, ~~our~~such efforts ~~to remediate them~~ may not be effective or prevent any future deficiency in our internal controls. ~~We are required to disclose material changes made in our internal controls and procedures on a quarterly basis.~~

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results and cause a decline in the market price of our Class A common stock.

The market price of our Class A common stock has been and will likely continue to be volatile, and you could lose all or part of your investment.

The market price of our Class A common stock has been and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q, factors that could cause fluctuations in the market price of our Class A common stock include the following:

•price and volume fluctuations in the overall stock market from time to time;

•general economic, regulatory, and market conditions, in particular conditions that adversely affect our sellers’ business and the amount of transactions they are processing;

•public health crises and related measures to protect the public health, such as the COVID-19 pandemic;

•volatility in the market prices and trading volumes of companies in our industry or companies that investors consider comparable;

•changes in operating performance and stock market valuations of other companies generally or of those in our industry in particular;

•sales of shares of our common stock by us or our stockholders;

•issuance of shares of our Class A common stock, whether in connection with an acquisition or upon conversion of some or all of our outstanding Notes;

•reports by securities or industry analysts that are interpreted either negatively or positively by investors, failure of securities analysts to maintain coverage and/or to provide accurate consensus results of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;

•the financial or other projections we may provide to the public, any changes in those projections, or our failure to meet those projections;

•announcements by us or our competitors of new products or services;

•public reaction to our press releases, other public announcements, and filings with the SEC;

•rumors and market speculation involving us or other companies in our industry;

•actual or anticipated changes in our results of operations;

~~changes in the regulatory environment~~•actual or ~~the regulations applicable to~~perceived data security incidents that we or our ~~current or futures lines of business;~~service providers may suffer;

•actual or anticipated developments in our business, our competitors’ businesses, or the competitive landscape generally;

~~litigation involving us,~~•seasonality in our ~~industry, or both, or investigations by regulators into our operations or those of our competitors;~~

~~announced or completed acquisitions of businesses or technologies by us~~business or our ~~competitors;~~sellers' business, including seasonal fluctuations in the amount of transactions our sellers are processing; and

~~new laws~~•from time to time we make investments in equity that is, or ~~regulations or new interpretations of existing laws or regulations applicable~~may become, publicly held, and we may experience volatility due to ~~our business;~~

changes in ~~accounting standards, policies, guidelines, interpretations, or principles;~~the market prices of such equity investments.

~~actual or perceived data security incidents that we or our service providers may suffer;~~

~~any significant change in our management; and~~

~~general economic conditions and slow or negative growth of our markets.~~

In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

The convertible note hedge and warrant transactions may affect the value of our Class A common stock.

In connection with the issuance of the 2022 Notes, the 2023 Notes, and the ~~2023~~2025 Notes, we entered into convertible note hedge transactions with the option counterparties. We also entered into warrant transactions with the option counterparties pursuant to which we sold warrants for the purchase of our Class A common stock. The convertible note hedge transactions are expected generally to reduce the potential dilution to our Class A common stock upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be. The warrant transactions would separately have a dilutive effect to the extent that the market price per share of our Class A common stock exceeds the strike price of any warrants unless, subject to the terms of the warrant transactions, we elect to cash settle the warrants.

From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could cause or avoid an increase or a decrease in the market price of our Class A common stock.

Anti-takeover provisions contained in our amended and restated certificate of incorporation, our amended and restated bylaws, and provisions of Delaware law could impair a takeover attempt.

Our amended and restated certificate of incorporation, our amended and restated bylaws, and Delaware law contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors and therefore depress the trading price of our Class A common stock.

Among other things, our dual-class common stock structure provides our holders of Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding shares of common stock. Further, our amended and restated certificate of incorporation and amended and restated bylaws include provisions (i) creating a classified board of directors whose members serve staggered three-year terms; (ii) authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock; (iii) limiting the ability of our stockholders to call special meetings; (iv) eliminating the ability of our stockholders to act by written consent without a meeting or to remove directors without cause; and (v) requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents certain stockholders holding more than 15% of our outstanding capital stock from engaging in certain business combinations without the approval of our board of directors or the holders of at least two-thirds of our outstanding capital stock not held by such stockholder.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws, or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Class A common stock.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated bylaws provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, or other employees to us or to our stockholders; (iii) any action asserting a claim arising pursuant to the Delaware General Corporation Law; or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material and adverse impact on our business.

If securities or industry analysts publish reports that are interpreted negatively by the investment community, publish negative research reports about our business, cease coverage of our company, or fail to regularly publish reports on us, our share price and trading volume could decline.

The trading market for our Class A common stock depends, to some extent, on the research and reports that securities or industry analysts publish about us, our business, our market, or our competitors. We do not have any control over these analysts or the information contained in their reports. If one or more analysts publish research reports that are interpreted negatively by the investment community, or have a negative tone regarding our business, financial, or operating performance, industry, or end-markets, our share price could decline. In addition, if a majority of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the trading price of our common stock increases. Investors seeking cash dividends should not purchase shares of our common stock. Our ability to pay dividends is restricted by the terms of our revolving credit facility and is also subject to limitations imposed by certain financial regulations.

~~Additional stock issuances could result in significant dilution to our stockholders.~~

We may issue additional equity securities to raise capital, make acquisitions, or for a variety of other purposes. Additional issuances of our stock may be made pursuant to the exercise or conversion of new or existing convertible debt securities, warrants, stock options, or other equity incentive awards. Any such issuances will result in dilution to existing holders of our stock. We rely on equity-based compensation as an important tool in recruiting and retaining employees. The amount of dilution due to equity-based compensation of our employees and other additional issuances could be substantial.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended June 30, 2020, we issued a total of 250,957 shares of our Class A common stock in connection with the acquisition of a technology company, pursuant to exemptions from registration provided by Section 4(a)(2).

Purchases of Equity Securities by the Company and Affiliated Purchasers

Period
Total number of
Shares purchased
Average price paid
per share
Total number of shares purchased as part of publicly announced plans or programs Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
July 1 to July 31
18,806 (i)

$ 73.20
—
—
August 1 to August 31 —
—
—
—
September 1 to September 30 —
—
—
—
Total 18,806
$ 73.20
—
—


Period	Total number of Shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
April 1 to April 30	15,029⁽ⁱ⁾	$	46.81	—	—
May 1 to May 31	3,772⁽ⁱ⁾	$	63.00
June 1 to June 30	724,316⁽ⁱⁱ⁾	—		—	—
Total	743,117	$ 50.06⁽ⁱⁱⁱ⁾		—	—

⁽ⁱ⁾Represents shares that have been withheld by the Company to satisfy its tax withholding and remittance obligations in connection with the vesting of restricted stock awards.

⁽ⁱⁱ⁾The Company exercised a pro-rata portion of the 2022 convertible note hedges (described in Note 12, Indebtedness, of the Notes to the Condensed Consolidated Financial Statements) to offset the shares of the Company's common stock issued to settle the conversion of the 2022 Notes. The note hedges were net shares settled and the Company received 724,316 shares of the Company's common stock from the counterparties in June of 2020.

⁽ⁱⁱⁱ⁾Excludes the shares received through the exercise of the note hedges.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q (numbered in accordance with Item 601 of Regulation S-K).

EXHIBIT INDEX

Incorporated by Reference

Exhibit Number

Description

Form

File No.

Exhibit

Filing Date

10.1

Revolving Credit Agreement, dated as of May 1, 2020, by and among Square, Inc., as borrower, the lenders party thereto, and Goldman Sachs Bank USA, as administrative agent.

8-K

001-37622

10.1

May 6, 2020

10.2

First Amendment to Credit Agreement, dated as of May 28, 2020, by and among Square, Inc., the lenders party thereto, and Goldman Sachs Bank USA, as administrative agent.

8-K

001-37622

10.1

June 3, 2020

10.3

Paycheck Protection Program Liquidity Facility Letter of Agreement, dated as of June 2, 2020.

8-K

001-37622

10.2

June 3, 2020

31.1

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1†

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101)



		~~Incorporated by Reference~~
~~Exhibit Number~~	~~Description~~	~~Form~~	~~File No.~~	~~Exhibit~~	~~Filing Date~~
~~31.1~~	~~Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~	~~Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~32.1~~†	~~Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101~~	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements.
~~104~~	~~Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101)~~

† The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Square, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SQUARE, INC.

Date:

August 5, 2020

By:

/s/ Jack Dorsey

Jack Dorsey

President, Chief Executive Officer, and Chairman

(Principal Executive Officer)

~~Date:~~

~~November 6, 2019~~

By:

~~/s/ Jack Dorsey~~

~~Jack Dorsey~~

~~President, Chief Executive Officer, and Chairman~~

~~(Principal Executive Officer)~~

~~By:~~

/s/ Amrita Ahuja

Amrita Ahuja

Chief Financial Officer

(Principal Financial Officer)



Delaware						80-0429876
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.0000001 par value per share	SQ	New York Stock Exchange



Page No.
PART I—Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited)			45
Condensed Consolidated Statements of Operations (unaudited)			56
Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss (unaudited)			67
Condensed Consolidated Statements of Cash Flows (unaudited)			78
Condensed Consolidated Statements of Stockholders' Equity (unaudited)			89
Notes to the Condensed Consolidated Financial Statements (unaudited)			1011
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3741
Item 3. Quantitative and Qualitative Disclosures About Market Risk			5155
Item 4. Controls and Procedures			5256
PART II—Other Information
Item 1. Legal Proceedings			5357
Item 1A. Risk Factors			5358
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7984
Item 3. Defaults Upon Senior Securities			7984
Item 4. Mine Safety Disclosures			7984
Item 5. Other Information			7984
Item 6. Exhibits			7984
Signatures			8085



	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


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Deferred revenue, beginning of the period	$	47,046	$	42,160	$	44,331	$	36,451
Deferred revenue, end of the period	51,549		44,812		51,549		44,812

Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	16,288	$	14,889	$	26,483	$	21,786



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Short-term debt securities:
U.S. agency securities	$	206,566	$	1,172	$	(287)	$	207,451

Corporate bonds	80,593		199		(187)		80,605
Commercial paper	8,992		—		—		8,992
Municipal securities	8,933		57		(15)		8,975
U.S. government securities	380,662		1,743		(377)		382,028
Foreign government securities	26,279		42		(24)		26,297
Total	$	712,025	$	3,213	$	(890)	$	714,348

Long-term debt securities:
U.S. agency securities	$	131,430	$	645	$	(541)	$	131,534

Corporate bonds	143,213		1,232		(310)		144,135
Municipal securities	6,026		84		(66)		6,044
U.S. government securities	127,916		1,670		(791)		128,795
Foreign government securities	35,973		307		(103)		36,177
Total	$	444,558	$	3,938	$	(1,811)	$	446,685


	June 30, 2020
	Less than 12 months						Greater than 12 months						Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Short-term debt securities:
U.S. agency securities	$	47,472	$	(287)	$	—	$	—	$	47,472	$	(287)
Corporate bonds	42,235		(187)		—		—		42,235		(187)
Municipal securities	3,697		(15)		—		—		3,697		(15)
U.S. government securities	127,860		(377)		—		—		127,860		(377)
Foreign government securities	18,467		(24)		—		—		18,467		(24)
Total	$	239,731	$	(890)	$	—	$	—	$	239,731	$	(890)

Long-term debt securities:
U.S. agency securities	$	13,382	$	(541)	$	—	$	—	$	13,382	$	(541)

Corporate bonds	37,869		(310)		—		—		37,869		(310)
Municipal securities	1,764		(66)		—		—		1,764		(66)
U.S. government securities	—		(791)		—		—		—		(791)
Foreign government securities	13,893		(103)		—		—		13,893		(103)
Total	$	66,908	$	(1,811)	$	—	$	—	$	66,908	$	(1,811)


	Amortized Cost		Fair Value
Due in one year or less	$	712,025	$	714,348
Due in one to five years	444,558		446,685
Total	$	1,156,583	$	1,161,033


	June 30, 2020		December 31, 2019
Cash	$	117,658	$	422,459
Cash Equivalents:
Money market funds	1,229,498		233
Reverse repurchase agreement (i)	30,006		—
U.S. agency securities	10,997		8,585
U.S. government securities	5,000		6,984
Short-term debt securities:
U.S. agency securities	127,796		—
U.S. government securities	212,152		238,031
Total	$	1,733,107	$	676,292


	June 30, 2020										December 31, 2019
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Cash Equivalents:
Money market funds	$	593,461	$	—	$	—	$	213,576	$	—	$	—
U.S. agency securities	—		27,334		—		—		19,976		—



U.S. government securities	21,084		—		—		46,914		—		—
Municipal securities	—		450		—		—		—		—

Customer funds:
Money market funds	1,229,498		—		—		233		—		—
Reverse repurchase agreement	30,006		—		—		—		—		—
U.S. agency securities	—		138,793		—		—		8,585		—
U.S. government securities	217,152		—		—		245,015		—		—
Short-term debt securities:
U.S. agency securities	—		207,451		—		—		131,522		—
Corporate bonds	—		80,605		—		—		67,721		—
Commercial paper	—		8,992		—		—		—		—
Municipal securities	—		8,975		—		—		6,776		—
U.S. government securities	382,028		—		—		265,135		—		—
Foreign government securities	—		26,297		—		—		21,302		—
Long-term debt securities:
U.S. agency securities	—		131,534		—		—		64,068		—
Corporate bonds	—		144,135		—		—		143,078		—
Municipal securities	—		6,044		—		—		9,706		—
U.S. government securities	128,795		—		—		295,779		—		—
Foreign government securities	—		36,177		—		—		24,672		—


Total	$	2,602,024	$	816,787	$	—	$	1,066,652	$	497,406	$	—



	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	$	—


	June 30, 2020						December 31, 2019
	Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)
2025 Notes	$	842,790	$	1,134,270	$	—	$	—
2023 Notes	764,121		1,282,098		748,564		962,516
2022 Notes	171,517		837,591		190,268		578,817
Total	$	1,778,428	$	3,253,959	$	938,832	$	1,541,333



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)	$	46,978
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)	(37,509		)
Total identifiable net assets acquired	79,330
Goodwill	193,209
Total	$	272,539



	Balance at September 30, 2019
Assets held for sale
Intangible assets	$	7,582
Goodwill	4,186
Property and equipment, net	1,098
Operating lease right-of-use assets	791
Total assets held for sale, included within other assets	13,657

Liabilities held for sale
Operating lease liabilities, current	754
Net assets held for sale	$	12,903



Balance at December 31, 2018	$	261,705
Acquisitions	10,832
Transfer to assets held for sale (Note 8)	(4,186		)
Other adjustments	(2,377		)
Balance at September 30, 2019	$	265,974


	Balance at June 30, 2020
		Weighted Average Estimated Useful Life			Cost			Accumulated Amortization			Net
Technology assets	6 years		$	81,581		$	(36,424)		$	45,157
Customer assets	12 years		48,200			(8,729)			39,471
Trade name	6 years		18,028			(6,089)			11,939
Other	8 years		5,699			(2,464)			3,235
Total			$	153,508		$	(53,706)		$	99,802


Remainder of 2020	$	9,291
2021	18,069
2022	15,995
2023	14,743
2024	11,763
Thereafter	29,941
Total	$	99,802



2019 (remaining 3 months)	$	3,714
2020	12,800
2021	11,829
2022	10,134
2023	8,917
Thereafter	25,399
Total	$	72,793



	September 30, 2019		December 31, 2018
Accrued facilities expenses	$	21,302	$	13,040
Accrued payroll	21,313		9,612
Accrued advertising and other marketing	20,070		12,201
Processing costs payable	13,199		12,683
Accrued non income tax liabilities	8,383		9,503
Other accrued liabilities	39,738		25,315
Total	$	124,005	$	82,354



	September 30, 2019		December 31, 2018
Accounts payable	$	37,156	$	36,416
Deferred revenue, current	39,025		31,474
Square Capital payable (i)	5,851		6,092
Square Payroll payable (ii)	13,304		7,534
Other	12,731		17,637
Total	$	108,067	$	99,153



	September 30, 2019		December 31, 2018
Marketable equity investment (i)	$	28,875	$	45,342
Non-current lease prepayments	34,199		—
Other	18,252		13,051
Total	$	81,326	$	58,393


	June 30, 2020		December 31, 2019
Investment in non-marketable equity securities (i)	$	130,999	$	110,000

Non-current lease prepayments (ii)	—		45,738
Restricted cash	13,685		12,715
Other	21,765		27,935
Total	$	166,449	$	196,388


	June 30, 2020		December 31, 2019
Statutory liabilities (i)	$	65,000	$	54,762
Deferred revenue, non-current	6,956		6,227

Other	18,264		33,472
Total	$	90,220	$	94,461


	Principal outstanding		Unamortized debt discount		Unamortized debt issuance costs		Net carrying value
June 30, 2020
2025 Notes	$	1,000,000	$	(144,633)	$	(12,577)	$	842,790
2023 Notes	862,500		(95,428)		(2,951)		764,121
2022 Notes	186,251		(13,261)		(1,473)		171,517
Total	$	2,048,751	$	(253,322)	$	(17,001)	$	1,778,428

December 31, 2019
2023 Notes	$	862,500	$	(110,518)	$	(3,418)	$	748,564
2022 Notes	211,726		(19,312)		(2,146)		190,268
Total	$	1,074,226	$	(129,830)	$	(5,564)	$	938,832



	Amount allocated to conversion option		Less: allocated issuance costs			Equity component, net
September 30, 2019 and December 31, 2018
2023 Notes	$	155,250	$	(1,231	)	$	154,019
2022 Notes	41,481		(1,108		)	40,373
Total	$	196,731	$	(2,339	)	$	194,392


	Amount allocated to conversion option		Less: allocated issuance costs		Equity component, net
June 30, 2020
2025 Notes	$	154,600	$	(2,342)	$	152,258
2023 Notes	155,250		(1,231)		154,019
2022 Notes	36,490		(974)		35,516
Total	$	346,340	$	(4,547)	$	341,793

December 31, 2019
2023 Notes	$	155,250	$	(1,231)	$	154,019
2022 Notes	41,481		(1,108)		40,373
Total	$	196,731	$	(2,339)	$	194,392


	Number of Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at December 31, 2019	23,619,804	$	12.66	4.89	$	1,191,746
Granted	1,502,356	57.40
Exercised	(5,978,089)	9.31
Forfeited	(46,231)	71.99
Balance at June 30, 2020	19,097,840	$	17.07	4.87	$	1,678,054



Options exercisable as of June 30, 2020	16,532,301	$	10.84	4.21	$	1,555,696


	Number of shares	Weighted Average Grant Date Fair Value
Unvested as of December 31, 2019	13,917,461	$	49.90
Granted	8,698,265	61.51
Vested	(3,690,105)	38.01
Forfeited	(717,619)	51.04
Unvested as of June 30, 2020	18,208,002	$	57.82



	Number of shares		Weighted Average Grant Date Fair Value
Unvested as of December 31, 2018	17,934,728		$	31.34
Granted	5,735,224		73.29
Vested	(6,016,950	)	29.05
Forfeited	(1,727,904	)	35.90
Unvested as of September 30, 2019	15,925,098		$	46.82



	~~September~~June 30, ~~2019~~2020
Weighted Average Remaining Lease Term:
Operating leases	~~4.5~~9.1 years
Finance leases	~~0.9~~0.5 years
Weighted Average Discount Rate:
Operating leases	4	%
Finance leases	—	%



	Finance		Operating
Year:
2019 (remaining 3 months)	$	1,178	$	5,942
2020	2,446		40,388
2021	—		59,459
2022	—		61,005
2023	—		54,842
Thereafter	—		270,872
Total	$	3,624	$	492,508
Less: amount representing interest	—		13,245
Less: leases executed but not yet commenced	—		344,202
Less: lease incentives and transfer to held for sale	—		2,825
Total	$	3,624	$	132,236


	Three Months Ended June 30, 2020										Six Months Ended June 30, 2020
	Cash App		Seller		Total		Cash App		Seller		Total
Revenue
Transaction-based revenue	$	53,657	$	628,915	$	682,572	$	81,476	$	1,359,197	$	1,440,673
Subscription and services-based revenue	271,156		75,119		346,275		464,881		177,629		642,510
Hardware revenue	—		19,322		19,322		—		39,997		39,997
Bitcoin revenue	875,456		—		875,456		1,181,554		—		1,181,554
Segment revenue	1,200,269		723,356		1,923,625		1,727,911		1,576,823		3,304,734
Segment gross profit	$	281,063	$	315,700	$	596,763	$	463,795	$	671,469	$	1,135,264


	Three Months Ended June 30, 2019										Six Months Ended June 30, 2019
	Cash App		Seller		Total		Cash App		Seller		Total
Revenue
Transaction-based revenue	$	16,966	$	758,544	$	775,510	$	32,246	$	1,400,026	$	1,432,272
Subscription and services-based revenue	118,442		89,552		207,994		215,036		165,284		380,320
Hardware revenue	—		22,260		22,260		—		40,472		40,472
Bitcoin revenue	125,085		—		125,085		190,613		—		190,613
Segment revenue	260,493		870,356		1,130,849		437,895		1,605,782		2,043,677
Segment gross profit	$	105,341	$	347,208	$	452,549	$	190,152	$	647,711	$	837,863