REYNOLDS TOWING SERVICE
Urbana, IL
Q4 2016 Shareholder Letter
SQUARE.COM/INVESTORS

Highlights

• In 2016, we achieved growth at scale with full-year GPV of $50 billion, up 39% year over year, while hitting a significant profitability milestone.

• We released Square for Retail, our first industry-specific point-of-sale solution.

• Our platform enables fast development: In just two months, we built Virtual Terminal for browser-based payments, and it generated GPV of more than $40 million in January 2017.

• We’re creating meaningful vectors of growth, with products launched since 2014 representing 14% of total net revenue and 25% of Adjusted Revenue in the fourth quarter of 2016.

Fourth Quarter 2016 Key Results

GROSS PAYMENT VOLUME (GPV)	TOTAL NET REVENUE	NET INCOME (LOSS)
GPV MIX BY SELLER SIZE	ADJUSTED REVENUE	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.

In the fourth quarter of 2015, net loss is $48 million, while net loss attributable to common stockholders is $80 million. Net loss of $48 million excludes the impact of the deemed stock dividend of $32.2 million.

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To Our Shareholders:

FEBRUARY 22, 2017

We’re very proud of our first year as a public company. We delivered value for our customers in a way that meaningfully grew the business at scale, increasing both revenue and margins. Gross Payment Volume (GPV) for the fourth quarter was $13.7 billion, up 34% year over year. Total net revenue was $452 million, up 21% year over year, and Adjusted Revenue was $192 million, up 43% year over year. Net loss was $15 million, an improvement of $33 million on a year-over-year basis. We achieved fourth-quarter Adjusted EBITDA of $30 million, an improvement of $36 million on a year-over-year basis. Fourth-quarter Adjusted EBITDA margin of 16% is an improvement of 20 points year over year. Sustained GPV growth is a result of our ability to efficiently add new sellers to Square and provide them with the tools they need to grow. We saw strong growth across our products, with revenue growth driven by both transaction-based and subscription and services-based monetization efforts. We maintained a payback period of 4 to 5 quarters for our seller acquisition costs and a positive dollar-based retention rate, which together underscore our ability to grow this revenue profitably. Additionally, we increased operating efficiency and continued to make improvements in transaction losses. We are carrying this momentum into 2017 by thoughtfully balancing margin expansion and our investments in growth. We released Square for Retail, our first industry-specific point-of-sale solution. Sellers often require sophisticated tools that meet the specialized needs of their respective industries. Earlier this month, we launched Square for Retail: an end-to-end retail point-of-sale solution that fully integrates with our managed payments offering and hardware. It is optimized for retailers, with a search-based user interface and fast bar code scanning, while advanced inventory management supports tens of thousands of items and manages cost of goods sold, purchase orders, and other capabilities that a retail business needs. Sellers can better understand their buyers’ habits with advanced clienteling capabilities that build customer profiles and

Payback period measures the effectiveness of sales and marketing spend. Payback period equals the number of quarters for a cohort’s cumulative transaction-based profit to surpass our sales and marketing expense in the quarter in which we acquired the cohort. We do not include profit outside of transaction-based profit in this calculation. This excludes costs associated with our Square Cash peer to peer transfer service. GPV BY ANNUAL COHORT Attractive cohort economics with positive dollar-based retention. ON THE COVER: Square has helped Reynolds Towing Service reduce its back-office staff by enabling drivers to take secure payments in the field, and our payment dispute management saves the business valuable time.

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provide purchasing history directly from the point of sale.   Just as with Square Point of Sale (previously named Square Register), sellers can download the Square Retail app and get started in minutes. We charge a monthly subscription per device, and it has all of the advantages that sellers have come to expect from Square: speed, ease of use, dependability, and cohesion with the entire Square ecosystem. Pure Liquid Wine & Spirits, a retailer located in the World Trade Center in New York City, uses Square for Retail along with Square Stand and our contactless and chip reader. The setup process was “plug and play.” The store has found Square to be “easy to use, powerful, and intuitive,” and the cost of goods sold reporting has been particularly helpful for its workflow. With the advanced capabilities of Square for Retail, we can now better serve a sizeable market consisting of over 450,000 small to medium-sized retailers in the U.S. that represent over $700 billion in annual gross receipts.¹   In addition to building industry-specific tools, we are also expanding with new third-party integrations in our App Marketplace that help us target larger sellers with specialized needs. We continue to add partners to our platform, recently integrating with e-commerce platforms Magento and Wix; restaurant inventory management platform SimpleOrder; and retail point of sale SuitePOS. Our App Marketplace enables sellers to integrate Square with other business solutions, which expands functionality for our existing sellers and brings new sellers to Square. For example, Sean’s Bar & Kitchen signed up with Square as a result of our partnership with restaurant point of sale TouchBistro. Sean’s, a full-service bar and restaurant in midtown Manhattan, was using payment hardware that could only accept magnetic-stripe cards. Following the EMV liability shift, the business became more vulnerable to chargebacks and therefore needed new hardware to accept chip cards. With our contactless and chip reader, Sean’s can now securely accept payments from 12 points of sale across its two-floor, 150-seat restaurant. The business was able to keep TouchBistro as the point of sale while integrating easily with Square.   Our platform enables fast development: In just two months, we built Virtual Terminal for browser-based payments, and it generated GPV of more than $40 million in January 2017. Square Point of Sale: designed to get every type of business up and running quickly; integrated with the full Square ecosystem.     Square Retail: optimized for retailers with a search-based user interface for larger inventories; integrated with the full Square ecosystem.     Square Register was recently renamed Square Point of Sale to better describe what the product does and improve customer discoverability.     (1) “Small to medium-sized” refers to retailers with annualized gross receipts of $250,000–$50 million. Based on 2012 U.S. Census data.

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In October 2016, we launched Virtual Terminal, which allows sellers to key in payments from a web browser and is ideal for sellers that typically use a computer instead of a mobile device. The product has attracted new sellers and captured additional GPV from existing sellers. Shane How, founder and CEO of Innovo Media Group, a business-to-business marketing firm in Orange County, California, joined Square specifically for Virtual Terminal. He runs his business on a computer and previously used another merchant acquirer but became frustrated with hidden fees and varying rates for different credit cards. Shane switched to Square for Virtual Terminal and the benefits of our full ecosystem, including next-day deposits, transparent pricing, QuickBooks integration, reporting and analytics, and Square Invoices.   We used the technology behind our recently launched e-commerce API to build and launch Virtual Terminal in the U.S. in just two months. We then quickly followed and launched this product in Australia in February 2017. This development speed demonstrates how quickly we can move by leveraging the breadth and agility of our platform. Virtual Terminal generated more than $40 million in GPV in January 2017. We are pleased to see such a remarkable start for a brand-new product.   Virtual Terminal is just one example of our ability to offer sellers full service payments and accept any way their buyers want to pay. With our managed payments offering, sellers pay a transparent transaction fee and receive comprehensive technology and features, including reporting and analytics, next-day settlements, digital receipts, payment dispute management and chargeback protection, and Payments Card Industry (PCI) compliance. Products and services that cover the entire payment life cycle differentiate us from our competition and speak to the powerful benefits of our integrated hardware, software, and payment processing.   We’re creating meaningful vectors of growth, with products launched since 2014 now representing 14% of total net revenue and 25% of Adjusted Revenue in the fourth quarter of 2016.   Products launched since 2014, such as Square Capital, Caviar, Invoices, Instant Deposit, APIs, and other services collectively represented over 25% of Adjusted Revenue in the fourth quarter of 2016. PRODUCTS LAUNCHED SINCE 2014 As a percentage of Adjusted Revenue     “Products launched since 2014” excludes hardware revenue.

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For Square Capital, we facilitated over 40,000 business loans totaling $248 million in the fourth quarter of 2016, an increase of 68% year over year, while maintaining loan default rates at approximately 4%. Additionally, we processed $624 million in Invoices GPV during the fourth quarter of 2016, growing 68% year over year and representing nearly $2.5 billion on an annualized basis.   We’re able to upsell and cross-sell to our base of millions of sellers with minimal incremental cost, largely due to our respected brand and ability to tailor offerings directly to sellers, especially in the context of their usage (e.g., providing an Instant Deposit prompt when sellers receive a payment via Square Invoices, or during a long weekend when settlement would otherwise be delayed by a holiday).   Financial Discussion   Gross Payment Volume (GPV)   In the fourth quarter of 2016, we processed $13.7 billion in GPV, an increase of 34% from the fourth quarter of 2015. For the full year of 2016, GPV totaled $50 billion, a 39% increase from the full year of 2015. In the fourth quarter, we continued to see strength from larger sellers, whose GPV grew 47% on a year-over-year basis and accounted for 42% of total GPV, up from 39% in the fourth quarter of 2015.   Revenue   Total net revenue was $452 million in the fourth quarter of 2016, up 21% compared to the fourth quarter of 2015, and $1.7 billion for the full year of 2016, up 35% compared to the full year of 2015. Of note, total net revenue growth was impacted by Starbucks’ transition off of our infrastructure, which was completed in the fourth quarter of 2016. We do not expect to generate Starbucks transaction-based revenue going forward.   Adjusted Revenue was $192 million in the fourth quarter of 2016, an increase of 43% year over year. For the full year of 2016, Adjusted Revenue was $687 million, an increase of 52% from the full year of 2015.                     Larger sellers are those that generate more than $125,000 in annualized GPV.   GROSS PAYMENT VOLUME     Adjusted Revenue is defined as total net revenue less transaction-based revenue from Starbucks and transaction-based costs.

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To better describe how we monetize our product offerings, we’ve renamed transaction revenue and software and data product revenue to transaction-based revenue and subscription and services-based revenue, respectively. The respective revenues included in these line items remain the same as for prior periods.   Transaction-based revenue was $402 million in the fourth quarter of 2016, up 35% from the fourth quarter of 2015. Transaction-based revenue as a percentage of GPV was 2.94% in the fourth quarter of 2016, consistent with the prior year period. Transaction-based profit as a percentage of GPV was 1.04% in the fourth quarter of 2016, flat compared to the prior year period. For the full year of 2016, transaction-based revenue was $1.5 billion, up 39% compared to the full year of 2015.   Subscription and services-based revenue was $41 million in the fourth quarter of 2016, up 81% from the fourth quarter of 2015, driven primarily by growth in Square Capital, Caviar, and Instant Deposit revenue. For the full year of 2016, subscription and services-based revenue was $129 million, an increase of 123% compared to the full year 2015.   Hardware revenue in the fourth quarter of 2016 was $9 million, up 39% from the fourth quarter of 2015. For the full year of 2016, hardware revenue was $44 million, up 171% compared to the full year of 2015. Hardware revenue benefited primarily from sales of our contactless and chip reader, which began shipping in December 2015, as well as increased demand for Square Stand.   Operating Expenses/Earnings   Operating expenses were $181 million in the fourth quarter of 2016, up 15% year over year and down 1% on a sequential basis. Non-GAAP operating expenses were up 17% year over year, accounting for 72% of Adjusted Revenue in the fourth quarter of 2016, compared to 88% in the fourth quarter of 2015.   •    Product development expenses were $65 million on a GAAP basis and $40 million on a non-GAAP basis in the fourth quarter of 2016, up 10% and 12%, respectively, from the fourth quarter of 2015. This primarily TOTAL NET REVENUE     ADJUSTED REVENUE       AS A PERCENTAGE OF GPV:

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reflects increases in engineering personnel costs, offset by the timing of certain hardware development expenses. •    Sales and marketing expenses were $49 million on a GAAP basis and $45 million on a non-GAAP basis in the fourth quarter of 2016, up 29% and 27%, respectively, from the fourth quarter of 2015. The increase was driven by costs related to Square Cash, the timing of certain paid marketing campaigns, and growth in sales and account management personnel costs. •    General and administrative expenses were $53 million on a GAAP basis and $41 million on a non-GAAP basis in the fourth quarter of 2016. These costs represent a 16% and 19% increase, respectively, from the fourth quarter of 2015. The year-over-year increase was due primarily to increased personnel costs for functions including legal, finance, risk, and support, partly offset by lower professional services fees. •    Transaction, loan, and advance losses were $13 million in the fourth quarter of 2016. Transaction losses as a percentage of GPV for the fourth quarter of 2016 are trending below our 0.1% historical average, which underscores ongoing improvements in our risk management. Net loss was $15 million in the fourth quarter of 2016. Net loss per share attributable to common shareholders, basic and diluted, was $0.04 for the fourth quarter of 2016, compared to a loss per share of $0.34 in the fourth quarter of 2015. We had 356 million weighted-average shares as of the fourth quarter of 2016. For the full year, net loss per share attributable to common shareholders was $0.50 based on 342 million weighted-average shares. Adjusted EBITDA was $30 million in the fourth quarter of 2016, compared to a loss of $6 million in the fourth quarter of 2015, an improvement of $36 million on a year-over-year basis. Fourth-quarter Adjusted EBITDA margin of 16% is an improvement of 20 points year over year. For the full year of 2016, Adjusted EBITDA was $45 million, compared to a loss of $41 million for the full year of 2015, a margin improvement of 16 points year over year. This Adjusted EBITDA improvement reflects strong topline growth, increased operating efficiency, and improvements in transaction losses. Adjusted Net Income (Loss) Per Share (Adjusted EPS) was $0.05 based on 383 million weighted-average diluted shares for the fourth quarter of 2016.	TRANSACTION LOSS AS A PERCENTAGE OF GPV
	NET INCOME (LOSS)
	ADJUSTED EBITDA Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Adjusted Revenue.

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For the full year of 2016, Adjusted EPS was $0.04, a $0.43 increase from the prior year. Weighted-average diluted shares was 370 million for the full year of 2016.   Balance Sheet/Cash Flow   We ended the fourth quarter of 2016 with $539 million in cash, cash equivalents, and investments in marketable securities, up from $461 million at the end of the fourth quarter of 2015. The increase in our cash balances was driven by positive Adjusted EBITDA and proceeds from employee stock option exercises. Separately, we have reclassified amounts related to money customers keep in Square Cash as “customer funds.” Adjusted EPS is computed by dividing net loss, excluding transaction-based revenue and costs related to Starbucks, share-based compensation expense, amortization of intangible assets, loss on sale of property and equipment, and litigation settlement expenses, by the weighted-average number of shares of common stock during the period, including all potentially dilutive shares.   A reconciliation of non-GAAP metrics used in this letter to their nearest GAAP equivalents is provided at the end of this letter.

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Guidance

	Q1	2017
Total net revenue	$440M to $452M	$2.09B to $2.15B
Adjusted Revenue	$190M to $193M	$880M to $900M
Adjusted Revenue YoY growth (midpoint)	31%	30%
Adjusted EBITDA	$14M to $18M	$100M to $110M
Adjusted EBITDA margin (midpoint)	8%	12%
Net income (loss) per share	$(0.09) to $(0.07)	$(0.24) to $(0.20)
Adjusted EPS (diluted)	$0.00 to $0.02	$0.15 to $0.19
Our 2017 guidance reflects plans to continue investing in scaling our business, balanced by our ongoing commitment to margin expansion. As a reminder, our business is subject to certain seasonal trends. Historically, the first quarter is our slowest in terms of sequential growth of transaction-based revenue. Additionally, we do not expect to see Starbucks transaction-based revenue going forward, which will have a negative impact on year-over-year growth in total net revenue in 2017. Lastly, hardware revenue in the first quarter of 2016 was elevated due to the fulfillment of the majority of pre-orders for our contactless and chip reader during the period. As a result, year-over-year hardware revenue growth for the first quarter and full year of 2017 will be more moderate relative to prior periods.

We have not reconciled Adjusted EBITDA and Adjusted EPS guidance to their GAAP equivalents as a result of the uncertainty regarding, and the potential variability of, reconciling items such as share-based compensation expense and weighted-average fully diluted shares outstanding. Accordingly, a reconciliation of these non-GAAP guidance metrics to their corresponding GAAP equivalents is not available without unreasonable effort. However, we have provided a reconciliation of GAAP to non-GAAP metrics in tables at the end of this letter. It is important to note that the actual amount of such reconciling items would have a significant impact if they were included in our Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted EPS.

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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, February 22, 2017, to discuss these financial results. The domestic dial-in for the call is (877) 313-8511. The Conference ID is 53562760. 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 first quarter of 2017 on May 3, 2017, 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

Jack Dorsey	Sarah Friar
CEO	CFO

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         “I started with Square accepting mobile payments on my phone. We’ve since grown and opened a store, and now use Square to run Tori Blush online and offline. Everything is connected—it’s the most convenient and straightforward system to use.   “Square has been with us every step of the way, and I can see myself adding even more services.”     Suzanna Chun  Founder of Tori Blush toriblush.com 

SAFE HARBOR STATEMENT

This letter contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, statements regarding the future performance of Square, Inc. and its consolidated subsidiaries (the Company); the Company’s expected financial results for future periods; future growth in the Company’s businesses; cessation of transaction-based revenue from Starbucks; the Company’s expectations regarding scale, profitability, and the demand for its products, product features, and services; and management’s statements related to business strategy, plans, and objectives for future operations. In some cases, forward-looking statements can be identified by terms 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. Such statements are subject to a number of risks, uncertainties, and assumptions, and investors are cautioned not to place undue reliance on these statements. Actual results could differ materially from those expressed or implied, and reported results should not be considered as an indication of future performance.

Risks that contribute to the uncertain nature of the forward-looking statements include, among others, the Company’s ability to deal with the substantial and increasingly intense competition in its industry; changes to the rules and practices of payment card networks and acquiring processors; the effect of evolving regulations and oversight related to the Company’s provision of payments services and other financial services; the effect of management changes and business initiatives; and changes in political, business, and economic conditions; as well as other risks listed or described from time to time in the Company’s filings with the Securities and Exchange Commission (the SEC), including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, each of which is on file with the SEC and available on the investor relations page of the Company’s website. Except as required by law, the Company assumes no obligation to update any of the statements in this letter.

KEY OPERATING METRICS AND NON-GAAP FINANCIAL MEASURES

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States (GAAP), we consider certain operating and financial measures that are not prepared in accordance with GAAP, including Gross Payment Volume, Adjusted Revenue, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income (Loss), and Adjusted EPS. We believe these metrics and measures are useful to facilitate period-to-period comparisons of our business and to facilitate comparisons of our performance to that of other payments solution providers. Each of these metrics and measures excludes the effect of our processing agreement with Starbucks. As of December 31, 2016, Starbucks has completed its previously announced transition to another payments solution provider. As a result, we believe it is useful to exclude Starbucks activity to clearly show the impact Starbucks has had on our financial results historically, and to provide insight into the impact of the termination of the Starbucks agreement on our revenues going forward. Our agreements with other sellers generally provide both those sellers and us the unilateral right to terminate such agreements at any time, without fine or penalty. Furthermore, we generally do not enter into long-term contractual agreements with sellers.

We define Gross Payment Volume (GPV) as the total dollar amount of all card payments processed by sellers using Square, net of refunds. GPV excludes card payments processed for Starbucks. Additionally, GPV excludes non-revenue-generating activity related to our Square Cash peer-to-peer payments service.

Adjusted Revenue is a non-GAAP financial measure that we define as our total net revenue less transaction-based costs, adjusted to eliminate the effect of activity under our processing agreement with Starbucks. As described above, Starbucks has completed its previously announced transition to another payments solutions provider, and we believe that providing Adjusted Revenue metrics that exclude the impact of our agreement with Starbucks is useful to investors. We believe it is useful to exclude transaction-based costs from Adjusted Revenue as this is a primary metric used by management to measure our business performance, and it affords greater comparability to other payments solution providers. Adjusted Revenue has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with GAAP.

Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted EPS are non-GAAP financial measures that represent our net loss and net loss per share, adjusted to eliminate the effect of Starbucks transaction-based revenue, Starbucks transaction-based costs, share-based compensation expense, amortization of intangibles, the litigation settlement with Robert E. Morley, and the gain or loss on the sale of property and equipment. In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure also excludes depreciation, interest income and expense, other income and expense, and provision or benefit from income taxes. Basic Adjusted Net Income (Loss) Per Share is computed by dividing the Adjusted Net Income (Loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted Adjusted Net Income (Loss) Per Share is computed by dividing Adjusted Net Income (Loss) by the weighted-average number of shares of common stock outstanding, including all potentially dilutive shares. Diluted Adjusted Net Income (Loss) Per Share is the same as Basic Adjusted Net Income (Loss) Per Share because the effects of potentially dilutive items were anti-dilutive given the Adjusted Net Loss position.

We have included Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted EPS because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted EPS provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, they provide a useful measure for period-to-period comparisons of our business, as they remove the effect of certain non-cash items and certain variable charges. Adjusted

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EBITDA, Adjusted Net Income (Loss), and Adjusted EPS have limitations as financial measures, should be considered as supplemental in nature, and are not meant as substitutes for the related financial information prepared in accordance with GAAP.

These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.

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Consolidated Statements of Operations	UNAUDITED
	In thousands, except per share data

	THREE MONTHS ENDED				YEAR ENDED
	Dec 31, 2016		Dec 31, 2015		Dec 31, 2016		Dec 31, 2015
Revenue:
Transaction-based revenue	$	402,496	$	298,516	$	1,456,160	$	1,050,445
Starbucks transaction-based revenue		34		47,084		78,903		142,283
Subscription and services-based revenue		40,518		22,385		129,351		58,013
Hardware revenue		8,869		6,375		44,307		16,377
Total net revenue		451,917		374,360		1,708,721		1,267,118
Cost of revenue:
Transaction-based costs		260,006		192,730		943,200		672,667
Starbucks transaction-based costs		(49)		46,896		69,761		165,438
Subscription and services-based costs		11,431		8,650		43,132		22,470
Hardware costs		12,118		14,238		68,562		30,874
Amortization of acquired technology		1,886		2,753		8,028		5,639
Total cost of revenue		285,392		265,267		1,132,683		897,088
Gross profit		166,525		109,093		576,038		370,030
Operating expenses:
Product development		64,889		59,186		268,537		199,638
Sales and marketing		49,406		38,448		173,876		145,618
General and administrative		53,027		45,723		251,993		143,466
Transaction, loan, and advance losses		13,034		13,169		51,235		54,009
Amortization of acquired customer assets		147		384		850		1,757
Total operating expenses		180,503		156,910		746,491		544,488
Operating loss		(13,978)		(47,817)		(170,453)		(174,458)
Interest and other (income) and expense, net		153		(772)		(780)		1,613
Loss before income tax		(14,131)		(47,045)		(169,673)		(176,071)
Provision for income taxes		1,036		1,244		1,917		3,746
Net loss		(15,167)		(48,289)		(171,590)		(179,817)
Deemed dividend on Series E preferred stock		—		(32,200)		—		(32,200)
Net loss attributable to common stockholders	$	(15,167)	$	(80,489)	$	(171,590)	$	(212,017)
Net loss per share attributable to common stockholders:
Basic	$	(0.04)	$	(0.34)	$	(0.50)	$	(1.24)
Diluted	$	(0.04)	$	(0.34)	$	(0.50)	$	(1.24)
Weighted-average shares used to compute net loss per share attributable to common stockholders:
Basic		356,343		234,548		341,555		170,498
Diluted		356,343		234,548		341,555		170,498

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Consolidated Balance Sheets UNAUDITED In thousands, except share and per share data

Assets	Dec 31, 2016		Dec 31, 2015
Current assets:
Cash and cash equivalents	$	452,030	$	461,329
Short-term investments		59,901		—
Restricted cash		22,131		13,537
Settlements receivable		321,102		142,727
Customer funds held		43,574		9,446
Loans held for sale		42,144		604
Merchant cash advance receivable, net		4,212		36,473
Other current assets		56,331		41,447
Total current assets		1,001,425		705,563
Property and equipment, net		88,328		87,222
Goodwill		57,173		56,699
Acquired intangible assets, net		19,292		26,776
Long-term investments		27,366		—
Restricted cash		14,584		14,686
Other assets		3,194		3,826
Total assets	$	1,211,362		894,772
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,602	$	18,869
Customers payable		388,058		215,365
Customer funds obligation		43,574		9,446
Accrued transaction losses		20,064		17,176
Accrued expenses		39,543		44,401
Other current liabilities		73,623		28,945
Total current liabilities		577,464		334,202
Debt		—		—
Other liabilities		57,745		52,522
Total liabilities		635,209		386,724
Stockholders’ equity:
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at December 31, 2016, and December 31, 2015. None issued and outstanding at December 31, 2016, and December 31, 2015.		—		—
Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at December 31, 2016, and December 31, 2015; 198,746,620 and 31,717,133 issued and outstanding at December 31, 2016, and December 31, 2015, respectively.		—		—
Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at December 31, 2016, and December 31, 2015; 165,800,756 and 303,232,312 issued and outstanding at December 31, 2016, and December 31, 2015, respectively.		—		—
Additional paid-in capital		1,357,381		1,116,882
Accumulated other comprehensive loss		(1,989)		(1,185)
Accumulated deficit		(779,239)		(607,649)
Total stockholders’ equity		576,153		508,048
Total liabilities and stockholders’ equity	$	1,211,362	$	894,772

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Consolidated Statements of Cash Flows UNAUDITED In thousands

Cash Flows from Operating Activities	2016		2015
Net loss	$	(171,590)	$	(179,817)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		37,745		27,626
Share-based compensation		138,786		82,292
Excess tax benefit from share-based payment activity		—		(1,101)
Provision for transaction losses		50,819		43,379
Provision for uncollectible receivables related to merchant cash advances		1,159		6,240
Deferred provision for income taxes		58		26
(Gain) loss on disposal of property and equipment		(49)		270
Changes in operating assets and liabilities:
Settlements receivable		(178,405)		(27,420)
Customer funds held		(34,128)		(6,462)
Purchase of loans held for sale		(668,976)		(816)
Proceeds from sales and principal payments of loans held for sale		627,627		21
Merchant cash advance receivable		31,102		(13,411)
Other current assets		(14,986)		(12,430)
Other assets		631		1,220
Accounts payable		(2,147)		7,831
Customers payable		172,446		69,547
Customer funds obligation		34,128		6,462
Charge-offs and recoveries to accrued transaction losses		(47,931)		(34,655)
Accrued expenses		(409)		21,450
Other current liabilities		44,102		19,760
Other liabilities		3,149		11,111
Net cash provided by operating activities		23,131		21,123
Cash Flows from Investing Activities
Purchase of marketable securities		(164,766)		—
Maturities of marketable securities		43,200		—
Sales of marketable securities		34,222		—
Purchase of property and equipment		(25,433)		(37,432)
Proceeds from sale of property and equipment		296		—
Payment for acquisition of intangible assets		(400)		(1,286)
Increases in restricted cash		(8,492)		(1,878)
Business acquisitions (net of cash acquired)		(1,360)		(4,500)
Net cash used in investing activities:		(122,733)		(45,096)

17

Consolidated Statements of Cash Flows (continued) UNAUDITED In thousands

Cash Flows from Financing Activities	2016		2015
Proceeds from issuance of preferred stock, net		—		29,952
Proceeds from issuance of common stock upon initial public offering, net of offering		—		251,257
costs
Payments of offering costs related to initial public offering		(5,530)		—
Proceeds from debt		—		—
Principal payments on debt		—		(30,000)
Payments of debt issuance costs		—		(1,387)
Principal payments on capital lease obligation		(168)		—
Proceeds from issuances of common stock from the exercise of options and employee stock purchase plan		96,439		13,840
Excess tax benefit from share-based payment award		—		1,101
Net cash provided by financing activities		90,741		264,763
Effect of foreign exchange rate on cash and cash equivalents		(438)		(1,776)
Net increase (decrease) in cash and cash equivalents		(9,299)		239,014
Cash and cash equivalents, beginning of the year		461,329		222,315
Cash and cash equivalents, end of the year	$	452,030	$	461,329

18

Key Operating Metrics and Non-GAAP Financial Measures	UNAUDITED
	In thousands, except GPV and per share data

	THREE MONTHS ENDED				YEAR ENDED
	Dec 31, 2016		Dec 31, 2015		Dec 31, 2016		Dec 31, 2015
Gross Payment Volume (GPV) (in millions)	$	13,694	$	10,193	$	49,683	$	35,643
Adjusted Revenue	$	191,877	$	134,546	$	686,618	$	452,168
Adjusted EBITDA	$	29,793	$	(6,069)	$	44,887	$	(41,115)
Adjusted Net Income (Loss)	$	20,766	$	(12,476)	$	15,018	$	(66,597)
Adjusted Net Income (Loss) Per Share Basic	$	0.06	$	(0.05)	$	0.04	$	(0.39)
Adjusted Net Income (Loss) Per Share Diluted	$	0.05	$	(0.05)	$	0.04	$	(0.39)
Adjusted Revenue Reconciliation								UNAUDITED
								In thousands
	THREE MONTHS ENDED				YEAR ENDED
	Dec 31, 2016		Dec 31, 2015		Dec 31, 2016		Dec 31, 2015
Total net revenue	$	451,917	$	374,360	$	1,708,721	$	1,267,118
Less: Starbucks transaction-based revenue		34		47,084		78,903		142,283
Less: Transaction-based costs		260,006		192,730		943,200		672,667
Adjusted Revenue	$	191,877	$	134,546	$	686,618	$	452,168
Adjusted EBITDA Reconciliation								UNAUDITED
								In thousands
	THREE MONTHS ENDED				YEAR ENDED
	Dec 31, 2016		Dec 31, 2015		Dec 31, 2016		Dec 31, 2015
Net loss	$	(15,167)	$	(48,289)	$	(171,590)	$	(179,817)
Starbucks transaction-based revenue		(34)		(47,084)		(78,903)		(142,283)
Starbucks transaction-based costs		(49)		46,896		69,761		165,438
Share-based compensation expense		33,887		32,806		138,786		82,292
Depreciation and amortization		9,928		9,100		37,745		27,626
Litigation settlement (benefit) expense		—		—		48,000		—
Interest and other (income) expense, net		153		(772)		(780)		1,613
Provision for income taxes		1,036		1,244		1,917		3,746
Loss (gain) on sale of property and equipment		39		30		(49)		270
Adjusted EBITDA	$	29,793	$	(6,069)	$	44,887	$	(41,115)

19

Adjusted Net Income (Loss) Reconciliation	UNAUDITED
	In thousands, except per share data

	THREE MONTHS ENDED										YEAR ENDED
	Dec 31, 2016		Sep 30, 2016		Jun 30, 2016		Mar 31, 2016		Dec 31, 2015		Dec 31, 2016		Dec 31, 2015
Net loss		(15,167)		(32,323)		(27,345)		(96,755)		(48,289)		(171,590)		(179,817)
Starbucks transaction-based revenue		(34)		(7,164)		(32,867)		(38,838)		(47,084)		(78,903)		(142,283)
Starbucks transaction-based costs		(49)		4,528		28,672		36,610		46,896		69,761		165,438
Share-based compensation expense		33,887		36,779		36,922		31,198		32,806		138,786		82,292
Amortization of intangible assets		2,090		2,076		2,134		2,713		3,165		9,013		7,503
Litigation settlement (benefit) expense	$	—	$	—	$	(2,000)	$	50,000	$	—	$	48,000	$	—
Loss (gain) on sale of property and equipment	$	39	$	(219)	$	169	$	(38)	$	30	$	(49)	$	270
Adjusted Net Income (Loss)	$	20,766	$	3,677	$	5,685	$	(15,110)	$	(12,476)	$	15,018	$	(66,597)
Adjusted Net Income (Loss) Per Share:
Basic	$	0.06	$	0.01	$	0.02	$	(0.05)	$	(0.05)	$	0.04	$	(0.39)
Diluted	$	0.05	$	0.01	$	0.02	$	(0.05)	$	(0.05)	$	0.04	$	(0.39)
Weighted-average shares used to compute Adjusted Net Income (Loss)
Per Share:
Basic		356,343		343,893		334,488		331,324		234,548		341,555		170,498
Diluted		382,531		370,746		365,731		331,324		234,548		370,258		170,498

Adjusted Revenue Guidance Reconciliation	UNAUDITED
	In thousands

	THREE MONTHS ENDED		YEAR ENDED
	Mar 31, 2017		Dec 31, 2017
Total net revenue	$	440,000 - 452,000	$	2,090,000 - 2,150,000
Less: Transaction-based costs		250,000 - 259,000		1,210,000 - 1,250,000
Adjusted Revenue	$	190,000 - 193,000	$	880,000 - 900,000

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Non-GAAP Operating Expenses								UNAUDITED
								In thousands
	THREE MONTHS ENDED				YEAR ENDED
	Dec 31, 2016		Dec 31, 2015		Dec 31, 2016		Dec 31, 2015
Operating expenses	$	(180,503)	$	(156,910)	$	(746,491)	$	(544,488)
Share-based compensation		33,887		32,806		138,786		82,292
Depreciation and amortization		7,544		5,165		27,536		20,804
Litigation settlement expense		—		—		48,000		—
Loss (gain) on sale of fixed assets		39		30		(49)		270
Non-GAAP operating expenses	$	(139,033)	$	(118,909)	$	(532,218)	$	(441,122)
Product development	$	(64,889)	$	(59,186)	$	(268,537)	$	(199,638)
Share-based compensation		21,340		21,451		91,404		54,738
Depreciation and amortization		3,639		2,240		13,190		11,347
Loss (gain) on sale of fixed assets		—		—		—		—
Non-GAAP product development	$	(39,910)	$	(35,495)	$	(163,943)	$	(133,553)
Sales and marketing	$	(49,406)	$	(38,448)	$	(173,876)	$	(145,618)
Share-based compensation		4,159		2,836		14,122		7,360
Depreciation and amortization		17		3		30		10
Loss (gain) on sale of fixed assets		41		53		73		53
Non-GAAP sales and marketing	$	(45,189)	$	(35,556)	$	(159,651)	$	(138,195)
General and administrative	$	(53,027)	$	(45,723)	$	(251,993)	$	(143,466)
Share-based compensation		8,388		8,519		33,260		20,194
Depreciation and amortization		3,888		2,922		14,316		9,447
Litigation settlement expense		—		—		48,000		—
Loss (gain) on sale of fixed assets		(2)		(23)		(122)		217
Non-GAAP general and administrative	$	(40,753)	$	(34,305)	$	(156,539)	$	(113,608)
Depreciation and Amortization by Function								UNAUDITED
								In thousands
	THREE MONTHS ENDED				YEAR ENDED
	Dec 31, 2016		Dec 31, 2015		Dec 31, 2016		Dec 31, 2015
Cost of revenue	$	2,384	$	3,935	$	10,209	$	6,822
Product development		3,639		2,240		13,190		11,347
Sales and marketing		17		3		30		10
General and administrative		3,888		2,922		14,316		9,447
Total depreciation and amortization	$	9,928	$	9,100	$	37,745	$	27,626

21