In the third quarter, we saw ongoing strength in both transaction-based and subscription and services-based revenue. Top-line growth accelerated from the second quarter of 2017: Total net revenue increased 33% year over year, up from 26%, and Adjusted Revenue increased 45% year over year, up from 41%. We grew GPV 31% year over year, with particular strength in midmarket sellers. GPV from this segment grew 64% year over year and represented 20% of total GPV, up from 14% in the third quarter of 2016. Net loss of $16 million was an improvement of $16 million year over year. And Adjusted EBITDA of $34 million was an improvement of 195% year over year, driven by strong top-line growth and ongoing operating expense leverage.

We launched Square Register, our first all-in-one hardware offering, and we brought Square Stand to Australia and our contactless and chip reader to Canada.

We designed and built Square Register in-house, combining our hardware, point-of-sale software, and payments technology into a powerful, all-in-one offering. Square Register does not require a third-party mobile phone or tablet. The dedicated hardware consists of two screens: a seller display and a customer display with a built-in card reader that accepts tap, dip, and swipe payments. The customer display increases transaction accuracy and speed, and creates an opportunity to establish a seller-buyer connection with digital receipts (which contain a feedback channel) and to seamlessly engage the customer with Square Loyalty—amplifying the strengths of Square’s customer-focused point of sale.

Best Beverage Catering is a nationwide events company that manages food and beverage experiences at festivals, clubs, and private events throughout the U.S. One such venue, Mountain Winery in Saratoga, California, likes how Square Register’s sleek design matches the winery’s aesthetic, while the customer display and quick transaction speed improve line efficiency. Best Beverage is excited to get Square Register into more of their 100+ venues and festivals next year.

Midmarket sellers are sellers that generate more than $500,000 in annualized GPV.

Square Register with customer display undocked.

Square Register with customer display docked.

“Square Register is a perfect fit for our chaotic event venues and festivals. I love the ability to connect via ethernet in unpredictable outdoor environments, the customer display allows us to communicate in loud spaces, and it’s given us peace of mind that we’ll no longer need to manage updates for a fleet of tablets.”

RYAN MENDEZ

Best Beverage

Square Register, along with Square Stand, expands our suite of countertop hardware products. We continue to see strong demand for Square Stand because sellers want an elegant countertop solution that works with the tools they already own and streamlines their operations as they grow. In October, we launched Square Stand for contactless and chip in Australia to serve a wider range of sellers, enabling them to turn an iPad into a point-of-sale system and run their business from their countertop device.

We’re also bringing our contactless and chip reader to more markets around the world. In October we launched the reader in Canada, enabling sellers to accept contactless payments, including Apple Pay, Android Pay, and, for the first time, Interac Flash. This greatly expands our opportunity in Canada, as Interac represents approximately half of all card transactions¹ and contactless is becoming the preferred way to pay.² More than 70% of Canadian Square sellers did not accept card payments before using Square,³ which underscores the fact that our managed payment solutions fulfill a significant need in this market.

Our open platform strategy is working: Sellers using business systems that are integrated with Square contributed nearly 20% of third-quarter GPV.

Build with Square is a set of tools (APIs) that enables sellers to integrate products and data from Square with other business systems. Sellers and developers have been using our E-Commerce and Point of Sale APIs to integrate Square with their app, website, or point of sale, which has led to Square-connected apps for everything from tea shops to taxis.

As we continue to expand Build with Square, sellers tell us they want to connect Square to more of their business systems. For example, larger sellers often have sophisticated ERP (enterprise resource planning) needs like accounting and purchase order and human resources management. We recently announced a partnership to allow sellers to integrate Square with SAP Business One and manage their payments, sales, and operations in one place. We will enable integrations with more third-party systems used by our sellers to manage their business. We also have APIs for sellers to manage their item catalog more effectively, such as implementing real-time price changes at scale (e.g., for holiday promotions), and to connect

Interac is Canada’s only domestic debit payment network for in-person purchasing of goods and services. Interac Flash is Interac’s contactless solution.

API stands for “application application programming interface.” Developers use APIs to more easily share information and use functionality from another application.

Sellers often have established business systems that are tailored to their individual needs. Our open platform enables sellers (or developers) to connect Square with these systems, such as:

• Accounting

• Custom point-of-sale applications

• CRM (customer relationship management)

   software

• Customer databases

• E-commerce websites

• Employee management

• ERP software

• Item, inventory, and order management

• Product catalogs

their inventory to their online sales. This generates integrated reporting across sales channels, which is especially important for businesses that sell online and in person and share inventory between channels.

Rifle Paper Co. is a stationery and lifestyle brand based in Winter Park, Florida, founded and owned by wife-and-husband team Anna and Nathan Bond. They have used Square for four years, as Rifle Paper Co. quickly expanded from a small business based out of their home to an international brand. Today, Square enables Rifle Paper Co. to easily manage its multichannel retail business through one platform as it continues to grow. Rifle Paper Co. uses Square’s integration with SAP Business One for back-office functions and wholesale ordering, and uses Square for Retail, Square Stand, and our contactless and chip reader in its retail store. It relies on Square for pop-up sample sales and leverages Square’s integration with Magento, an e-commerce platform, to run its online store.

As online and offline commerce merge, the ability to manage a seamless omnichannel experience becomes more important. This is a particular need for marketplaces like Eventbrite, a leading global platform for live experiences. In September we announced a partnership with Eventbrite to process payments for its online, mobile, and in-person transactions. Our omnichannel payment, reporting, and management capabilities will enable Eventbrite to offer its event creators a fully integrated solution for taking payments anywhere, and provide its attendees with a seamless purchasing experience. Through our experience growing Caviar, we’ve learned what a marketplace needs for payments, catalog support, and order management. And we recently introduced multiparty settlement, an important capability for marketplaces that enables them to distribute payments to multiple parties (i.e. for a single payment, the marketplace can take a percentage and also distribute the remaining amount to the individual seller). Importantly, any marketplace will be able to build its own solutions on top of these capabilities, allowing Square to reach a new seller segment.

We expect Build with Square and our open platform to play an important role as we continue to grow up-market: In the third quarter, more than 20% of our midmarket sellers used business systems that are integrated with Square.

Square for Retail is an end-to-end retail point-of-sale solution that fully integrates with our managed payments offering and hardware.

“ Square made it simple for us to connect our online and retail platforms to SAP. It’s exactly what we needed to continue growing our brand.”

Tom Gustafson

Rifle Paper Co.

Virtual Terminal, which was built with our E-Commerce API, is our fastest product to reach $1 billion in cumulative GPV.

Virtual Terminal allows sellers to key in payments from a web browser. This shift in product context away from a mobile device is subtle on the surface, but significant for sellers that run their businesses on a computer where companion tools such as email, customer lists, and scheduling operate alongside Virtual Terminal. Nearly 75% of Virtual Terminal GPV comes from sellers that use the product as their primary way to process payments with Square. Virtual Terminal also continues to attract new sellers: To date, approximately half of the product’s GPV comes from sellers that are new to the Square ecosystem.

We used our E-Commerce API to build and launch Virtual Terminal in just two months, which shows how quickly we can move when we leverage the breadth and agility of our platform. Virtual Terminal is our fastest product to reach $1 billion in cumulative GPV, with more than $350 million processed in the third quarter.

FINANCIAL DISCUSSION:

Gross Payment Volume (GPV)

In the third quarter of 2017, we processed $17.4 billion of GPV, up 31% year over year. This is comparable to 32% year-over-year growth in the second quarter of 2017. GPV from larger sellers, which we define as all sellers that generate more than $125,000 in annualized GPV, increased 44% year over year and accounted for 48% of total GPV, up from 43% in the third quarter of 2016. Midmarket sellers, which we define as larger sellers that generate more than $500,000 in annualized GPV, continue to demonstrate strong growth. GPV from midmarket sellers grew 64% year over year, an acceleration from 61% in the second quarter.

Revenue

Total net revenue was $585 million in the third quarter of 2017, up 33% year over year. This compares to 26% year-over-year growth in the second

VIRTUAL TERMINAL CUMULATIVE GPV

quarter of 2017. Excluding Starbucks revenue from prior periods, total net revenue grew 36% year over year in both the second and third quarters of 2017. Adjusted Revenue was $257 million, up 45% year over year, an acceleration from 41% year-over-year growth in the second quarter of 2017.

Transaction-based revenue was $510 million in the quarter, up 31% year over year. Transaction-based revenue as a percentage of GPV was 2.93%, flat compared to the third quarter of 2016. Transaction-based profit as a percentage of GPV was 1.05% in the third quarter of 2017, up from 1.01% in the third quarter of 2016. Strong growth in Invoices, Virtual Terminal, and E-Commerce API payments, which all have higher rates than our card-present transactions, as well as improvements in our transaction cost profile, offset the impact from custom pricing for certain larger sellers.

Subscription and services-based revenue was $65 million in the third quarter of 2017, up 84% year over year. Instant Deposit, Caviar, and Square Capital contributed the majority of subscription and services-based revenue. Specifically, Instant Deposit volume of $2 billion in the third quarter benefited from increased usage by Square sellers and Cash app individuals, both of whom value speed to access their funds. Square Capital facilitated 47,000 business loans totaling $303 million, up 45% year over year.

Hardware revenue was $10 million in the third quarter of 2017, up 23% year over year and slightly down on a sequential basis. Hardware revenue and growth rates have normalized since the first half of 2016 when the contactless and chip reader began shipping. Hardware costs were $19 million in the quarter, up 20% year over year, including a $2.3 million charge related to the bankruptcy of one of our distribution partners. Excluding this charge, hardware costs increased 5% on a year-over-year basis.

Operating Expenses/Earnings

Total operating expenses were $234 million in the third quarter of 2017, up 28% year over year. Non-GAAP operating expenses of $186 million were up 34% year over year, representing 72% of Adjusted Revenue.

•    Product development expenses were $83 million on a GAAP basis and $53 million on a non-GAAP basis, up 17% and 22%, respectively, year

  TOTAL NET REVENUE

ADJUSTED REVENUE

Adjusted Revenue is defined as total net revenue less transaction-based revenue from Starbucks and transaction-based costs.

AS A PERCENTAGE OF GPV:

over year. Similar to previous quarters, the increase was driven by personnel costs related to engineering, product, and design.

•    Sales and marketing expenses were $67 million on a GAAP basis and $61 million on a non-GAAP basis, both up 42% year over year. The increase was driven primarily by costs related to growth in the Cash app, increased marketing spend, and growth in our sales and go-to-market teams. Importantly, we continue to maintain a consistent payback period even as sales and marketing expenses have increased.

•    General and administrative expenses were $64 million on a GAAP basis and $52 million on a non-GAAP basis, up 23% and 33%, respectively, year over year. The increase was due primarily to personnel costs in legal, finance, compliance, and Square Capital business operations.

•    Transaction, loan, and advance losses were $20 million. Transaction losses as a percentage of GPV were 0.1%, in line with our historical average.

Net loss was $16 million in the third quarter of 2017, compared to a net loss of $32 million in the third quarter of 2016. Net loss per share, basic and diluted, was $0.04, compared to a net loss per share of $0.09 in the third quarter of 2016. We had 384 million weighted-average basic shares in the third quarter of 2017.

Adjusted EBITDA was $34 million in the third quarter of 2017, compared to $12 million in the third quarter of 2016, representing a 195% year-over-year increase. Third-quarter Adjusted EBITDA margin of 13% is an improvement of 7 percentage points year over year. Improvement in Adjusted EBITDA reflects strong top-line growth and ongoing operating expense leverage.

Adjusted Net Income Per Share (Adjusted EPS) was $0.07 based on 432 million weighted-average diluted shares for the third quarter of 2017. This represents an improvement of $0.06 from the third quarter of 2016.

Balance Sheet/Cash Flow

We ended the third quarter of 2017 with $1.1 billion in cash, cash equivalents, restricted cash, and investments in marketable securities, which is flat compared to the end of the second quarter of 2017. We also made an investment of $25 million in Eventbrite in the third quarter of 2017.

  NET INCOME (LOSS)

  ADJUSTED EBITDA

A reconciliation of non-GAAP metrics used in this letter to their nearest GAAP equivalents is provided at the end of this letter. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Adjusted Revenue.

Adjusted EPS is computed by dividing net loss, excluding transaction-based revenue and transaction-based costs related to Starbucks, share-based compensation expense, amortization of intangible assets, amortization of debt discount and issuance costs, loss on sale of property and equipment, and certain litigation settlement expenses, by the weighted-average number of shares of common stock during the period, including the dilutive effect of all potential shares.

Total net revenue

Adjusted Revenue

Adj. Revenue YoY growth (midpoint)

Adjusted EBITDA

Adj. EBITDA margin (midpoint)

Net income (loss) per share

Adjusted EPS (diluted)

Earnings Webcast

Square (NYSE:SQ) will host a conference call and earnings webcast at 2:00 p.m.
Pacific time/5:00 p.m. Eastern time today, November 8, 2017, to discuss these
financial results. The domestic dial-in for the call is (800) 289-0438. The
Conference ID is 6428666. To listen to a live audio webcast, please visit Square’s
Investor Relations website at square.com/investors. A replay will be available on
the same website following the call.

We will release financial results for the fourth quarter and full year of 2017 on
February 27, 2018, after the market closes, and will also host a conference call and
earnings webcast at 2:00 p.m. Pacific time/5:00 p.m. Eastern time on the same day
to discuss those financial results.

MEDIA CONTACT

press@squareup.com

INVESTOR RELATIONS CONTACT

ir@squareup.com

“In our cake boutiques, Square helps us scale quickly with a point of sale that’s intuitive and elegantly designed. As our e-commerce business grows, we use Square to manage our boutique and online sales from one platform and create a personalized experience for our customers.

“As we expand Lady M across the country, our team can access real-time product, location, and sales data to make more informed business decisions.”

Ken Romaniszyn

CEO

Lady M Confections

Revenue:

Transaction-based revenue

Starbucks transaction-based revenue

Subscription and services-based revenue

Hardware revenue

Total net revenue

Cost of revenue:

Transaction-based costs

Starbucks transaction-based costs

Subscription and services-based costs

Hardware costs

Amortization of acquired technology

Total cost of revenue

Gross profit

Operating expenses:

Product development

Sales and marketing

General and administrative

Transaction, loan and advance losses

Amortization of acquired customer assets

Total operating expenses

Operating loss

Interest and other (income) expense, net

Loss before income tax

Provision (benefit) for income taxes

Net loss

Net loss per share:

Basic

Diluted

Weighted-average shares used to compute net loss per share:

Basic

Diluted

UNAUDITED

In thousands, except share and per share data

Cash and cash equivalents

Short-term investments

Restricted cash

Settlements receivable

Customer funds

Loans held for sale

Other current assets

Accounts payable

Customers payable

Settlements payable

Accrued transaction losses

Accrued expenses

Other current liabilities

Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at September

30, 2017, and December 31, 2016. None issued and outstanding at September 30, 2017, and December 31, 2016.

Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at

September 30, 201 7, and December 31, 2016; 263,379,421 and 198,746,620 issued and outstanding at September 30, 2017, and December 31, 2016, respectively.

Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at

September 30, 2017, and December 31, 2016; 124,422,721 and 165,800,756 issued and outstanding at September 30, 2017, and December 31, 2016, respectively.

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive loss

UNAUDITED

In thousands

Depreciation and amortization

Non-cash interest and other expense

Share-based compensation

Transaction, loan and advance losses

Deferred provision for income taxes

Changes in operating assets and liabilities:

Settlements receivable

Customer funds

Purchase of loans held for sale

Sales and principal payments of loans held for sale

Other current assets

Other non-current assets

Accounts payable

Customers payable

Settlements payable

Charge-offs to accrued transaction losses

Accrued expenses

Other current liabilities

Other non-current liabilities

Net cash provided by operating activities

Purchase of marketable securities

Proceeds from maturities of marketable securities

Proceeds from sale of marketable securities

Purchase of property and equipment

Payment for investment in privately held entity

Payment for acquisition of intangible assets

Business acquisitions, net of cash acquired

Net cash used in investing activities:

UNAUDITED

In thousands

Proceeds from issuance of convertible senior notes, net

Purchase of convertible senior note hedges

Proceeds from issuance of warrants

Payment for termination of Starbucks warrant

Principal payments on capital lease obligation

Payments of offering costs related to initial public offering

Proceeds from the exercise of stock options and purchases under the employee stock purchase plan, net

Payments for tax withholding related to vesting of restricted stock units

Net cash provided by financing activities

Effect of foreign exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash, cash equivalents and restricted cash

Basic

Diluted

Adjusted Revenue Reconciliation

Adjusted Revenue

Adjusted EBITDA Reconciliation

Adjusted EBITDA

Adjusted Net Income (Loss)

Adjusted Net Income (Loss) Per Share:

Basic

Diluted

Weighted-average shares used to compute Adjusted Net Income (Loss)

Per Share:

Basic

Diluted

Adjusted Revenue

In thousands,

Non-GAAP operating expenses

Non-GAAP product development

Non-GAAP sales and marketing

Non-GAAP general and administrative

In thousands,

Total depreciation and amortization