SQUARE, INC., 10-Q filed on 8/4/2016
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2016
Jul. 26, 2016
Class A
Jul. 26, 2016
Class B
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
Square, Inc. 
 
 
Entity Central Index Key
0001512673 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Jun. 30, 2016 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
Q2 
 
 
Amendment Flag
false 
 
 
Class of Stock [Line Items]
 
 
 
Entity Common Stock, Shares Outstanding
 
123,747,963 
218,016,908 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2016
Dec. 31, 2015
Current assets:
 
 
Cash and cash equivalents
$ 342,436 
$ 470,775 
Short-term investments
60,991 
Restricted cash
13,545 
13,537 
Settlements receivable
204,541 
142,727 
Loans held for sale
29,774 
604 
Merchant cash advance receivable, net
21,268 
36,473 
Other current assets
48,473 
41,447 
Total current assets
721,028 
705,563 
Property and equipment, net
86,325 
87,222 
Goodwill
56,699 
56,699 
Acquired intangible assets, net
22,329 
26,776 
Long-term investments
19,602 
Restricted cash
23,131 
14,686 
Other assets
4,178 
3,826 
Total assets
933,292 
894,772 
Current liabilities:
 
 
Accounts payable
16,211 
18,869 
Customers payable
310,242 
224,811 
Accrued transaction losses
16,093 
17,176 
Accrued expenses
26,133 
44,401 
Other current liabilities
42,790 
28,945 
Total current liabilities
411,469 
334,202 
Other liabilities
50,364 
52,522 
Total liabilities
461,833 
386,724 
Commitments and contingencies
   
   
Stockholders’ equity:
 
 
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at June 30, 2016, and December 31, 2015. None issued and outstanding at June 30, 2016, and December 31, 2015.
Common stock, $0.0000001 par value: 1,000,000,000 Class A shares authorized at both June 30, 2016, and December 31, 2015; 118,365,688 and 31,717,133 issued and outstanding at June 30, 2016, and December 31, 2015, respectively. 500,000,000 Class B shares authorized at both June 30, 2016, and December 31, 2015; 222,597,682 and 303,232,312 issued and outstanding at June 30, 2016, and December 31, 2015, respectively.
Additional paid-in capital
1,203,136 
1,116,882 
Accumulated deficit
(731,749)
(607,649)
Accumulated other comprehensive income (loss)
72 
(1,185)
Total stockholders’ equity
471,459 
508,048 
Total liabilities and stockholders’ equity
$ 933,292 
$ 894,772 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)
Jun. 30, 2016
Dec. 31, 2015
Class of Stock [Line Items]
 
 
Preferred stock, par value (in USD per share)
$ 0.0000001 
$ 0.0000001 
Preferred stock, shares authorized (in shares)
100,000,000 
100,000,000 
Preferred stock, shares issued (in shares)
Preferred stock, shares outstanding (in shares)
Class A
 
 
Class of Stock [Line Items]
 
 
Common stock, par value (in USD per share)
$ 0.0000001 
$ 0.0000001 
Common stock, shares authorized (in shares)
1,000,000,000 
1,000,000,000 
Common stock, shares issued (in shares)
118,365,688 
31,717,133 
Common stock, shares outstanding (in shares)
118,365,688 
31,717,133 
Class B
 
 
Class of Stock [Line Items]
 
 
Common stock, par value (in USD per share)
$ 0.0000001 
$ 0.0000001 
Common stock, shares authorized (in shares)
500,000,000 
500,000,000 
Common stock, shares issued (in shares)
222,597,682 
303,232,312 
Common stock, shares outstanding (in shares)
222,597,682 
303,232,312 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Revenue:
 
 
 
 
Hardware revenue
$ 11,085 
$ 3,591 
$ 27,267 
$ 5,795 
Total net revenue
438,533 
310,013 
817,802 
560,570 
Cost of revenue:
 
 
 
 
Hardware costs
14,015 
6,713 
40,755 
10,910 
Amortization of acquired technology
1,886 
1,142 
4,256 
1,744 
Total cost of revenue
289,574 
219,671 
558,603 
395,943 
Gross profit
148,959 
90,342 
259,199 
164,627 
Operating expenses:
 
 
 
 
Product development
68,638 
45,887 
133,230 
85,432 
Sales and marketing
39,220 
31,730 
77,716 
67,911 
General and administrative
50,784 
31,804 
146,891 
59,923 
Transaction, loan and advance losses
17,455 
8,513 
25,316 
24,835 
Amortization of acquired customer assets
222 
482 
539 
950 
Total operating expenses
176,319 
118,416 
383,692 
239,051 
Operating loss
(27,360)
(28,074)
(124,493)
(74,424)
Interest (income) and expense, net
(129)
444 
(60)
858 
Other (income) and expense, net
(198)
(50)
(984)
746 
Loss before income tax
(27,033)
(28,468)
(123,449)
(76,028)
Provision for income taxes
312 
1,152 
651 
1,570 
Net loss
(27,345)
(29,620)
(124,100)
(77,598)
Net loss per share:
 
 
 
 
Basic (in USD per share)
$ (0.08)
$ (0.20)
$ (0.37)
$ (0.53)
Diluted (in USD per share)
$ (0.08)
$ (0.20)
$ (0.37)
$ (0.53)
Weighted-average shares used to compute net loss per share
 
 
 
 
Basic (in shares)
334,488 
149,253 
332,906 
147,288 
Diluted (in shares)
334,488 
149,253 
332,906 
147,288 
Transaction |
Customers Other than Starbucks
 
 
 
 
Revenue:
 
 
 
 
Revenue
364,864 
259,864 
665,317 
470,974 
Cost of revenue:
 
 
 
 
Transaction, software, and data product costs
234,857 
165,823 
429,133 
297,930 
Transaction |
Starbucks
 
 
 
 
Revenue:
 
 
 
 
Revenue
32,867 
33,630 
71,705 
62,867 
Cost of revenue:
 
 
 
 
Transaction, software, and data product costs
28,672 
40,921 
65,282 
77,132 
Software and data product
 
 
 
 
Revenue:
 
 
 
 
Revenue
29,717 
12,928 
53,513 
20,934 
Cost of revenue:
 
 
 
 
Transaction, software, and data product costs
$ 10,144 
$ 5,072 
$ 19,177 
$ 8,227 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net loss
$ (27,345)
$ (29,620)
$ (124,100)
$ (77,598)
Net foreign currency translation adjustments
85 
(30)
595 
(257)
Net unrealized gain (loss) on revaluation of intercompany loans
329 
(95)
582 
(95)
Net unrealized gain (loss) on marketable securities
80 
Total comprehensive loss
$ (26,927)
$ (29,745)
$ (122,843)
$ (77,950)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Cash flows from operating activities:
 
 
Net loss
$ (124,100)
$ (77,598)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation and amortization
18,136 
11,956 
Share-based compensation
68,120 
28,693 
Provision for transaction losses
23,392 
21,566 
Provision for (reduction in) uncollectible merchant cash advances
(93)
3,148 
Deferred provision for income taxes
63 
(207)
Loss on disposal of property and equipment
131 
240 
Changes in operating assets and liabilities:
 
 
Settlements receivable
(62,169)
(56,326)
Purchase of loans held for sale
(212,727)
Proceeds from sales and principal payments of loans held for sale
183,748 
Merchant cash advance receivable
15,298 
(6,145)
Other current assets
(7,313)
(4,735)
Other assets
(377)
1,177 
Accounts payable
2,538 
3,408 
Customers payable
84,826 
67,286 
Charge-offs and recoveries to accrued transaction losses
(24,475)
(14,174)
Accrued expenses
(13,784)
3,834 
Other current liabilities
13,446 
(10)
Other noncurrent liabilities
(431)
7,388 
Net cash used in operating activities
(35,771)
(10,499)
Cash flows from investing activities:
 
 
Purchase of marketable securities
(102,245)
Proceeds from maturities of marketable securities
16,768 
Proceeds from sale of marketable securities
4,964 
Purchase of property and equipment
(15,840)
(20,760)
Payment for acquisition of intangible assets
(400)
(110)
Change in restricted cash
(8,453)
Business acquisitions (net of cash acquired)
(3,750)
Net cash used in investing activities
(105,206)
(24,620)
Cash flows from financing activities:
 
 
Payments of offering costs related to initial public offering
(5,530)
Proceeds from issuances of common stock from the exercise of options and employee stock purchase plan
15,496 
8,633 
Net cash provided by financing activities
9,966 
8,633 
Effect of foreign exchange rate changes on cash and cash equivalents
2,672 
(874)
Net decrease in cash and cash equivalents
(128,339)
(27,360)
Cash and cash equivalents, beginning of period
470,775 
225,300 
Cash and cash equivalents, end of period
$ 342,436 
$ 197,940 
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
    
Square, Inc. (together with its subsidiaries, Square or the Company) creates tools that help sellers of all sizes start, run, and grow their businesses – from payment processing to point of sale, hardware to software, business loans to payroll and more. Businesses and individuals can also use Square Cash, an easy way to send and receive money, as well as Caviar, a food delivery service for popular restaurants. Square was founded in 2009 and is headquartered in San Francisco, with offices in the United States, Canada, Japan, and Australia.

Initial Public Offering

In November 2015, the Company completed its Initial Public Offering (IPO) in which it issued and sold 29,700,000 shares of Class A common stock at a public offering price of $9.00 per share and a selling stockholder sold 1,350,000 shares of Class A common stock. The Company did not receive any proceeds from the sale of shares by the selling stockholder. The total net proceeds received by the Company from the IPO were $245.7 million after deducting underwriting discounts and commissions of $14.7 million and other offering expenses of approximately $6.9 million.

Out of Period Adjustments 

During the three months ended June 30, 2016, the Company recorded an out of period adjustment for the amount of $6.0 million to transaction, loan and advance losses as a result of a correction to the calculation of its reserve for transaction losses. The adjustment was recorded to correct an understatement of transaction losses in prior periods. Of the total amount of this adjustment, $0.5 million is related to the three months ended March 31, 2016, and $2.6 million, $1.6 million and $1.0 million is related to the years ended December 31, 2015, 2014, and 2013, respectively. The remaining $0.3 million is related to historical periods. The Company does not believe that such amounts are material with respect to the estimated operating loss or estimated net loss for the current fiscal year or any previously reported consolidated financial statements.

Basis of Presentation
    
The accompanying interim condensed consolidated financial statements of the Company are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and the applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2015 condensed consolidated balance sheet was derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company's financial position, results of operations, comprehensive loss, and cash flows for the interim periods. All intercompany transactions and balances have been eliminated in consolidation. The interim results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and notes thereto included in Items 7, 7A, and 8, respectively, in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be materially affected. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

Significant estimates, judgments, and assumptions in these consolidated financial statements include, but are not limited to, those related to revenue recognition, accrued transaction losses, provision for uncollectible receivables related to merchant cash advances (MCAs), valuation of loans held for sale, business combinations, goodwill and intangible assets, income taxes, and share-based compensation.

Concentration of Credit Risk
For the three and six months ended June 30, 2016, the Company had no customer that accounted for greater than 10% of total net revenue. For the three and six months ended June 30, 2015, the Company had no customer other than Starbucks that accounted for greater than 10% of total net revenue. The Company had three third-party processors that represented approximately 50%, 34%, and 12% of settlements receivable as of June 30, 2016. The same three parties represented approximately 56%, 23%, and 16% of settlements receivable as of December 31, 2015.
The Company places its cash and cash equivalents and investments in marketable securities with large, creditworthy financial institutions. Balances in these accounts may exceed federally insured limits at times.

Significant Accounting Policies
Except as described below, there have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2016, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Loans Held for Sale

The Company provides loans to sellers prequalified through an analysis of the aggregated data of the seller’s business which includes, but is not limited to, the seller’s historical processing volumes, transaction count, chargebacks, growth, and length of time as a Square customer. The loans are originated by a bank, from whom the Company purchases the loans obtaining all rights, title, and interest.

The loans are classified as held for sale upon purchase, as it is the Company’s intent to sell all of its rights, title, and interest in these loans to third-party investors for an up-front origination fee when the loans are sold. The Company also earns a servicing fee by continuing to service the loans by remitting monies to the third-party investors. Revenue from origination fees are recognized upon transfer of title to investors and servicing revenue is recognized as servicing is delivered.

A loan that is initially designated as held for sale may be reclassified to held for investment if and when the Company's intent for that loan changes. There have been no reclassifications made to date. Loans are recorded at the lower of cost or fair value. To determine the fair value of loans, the Company utilizes industry standard modeling, such as discounted cash flow models, to arrive at an estimate of fair value.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and issued subsequent amendments to the initial guidance within ASU 2015-04, ASU 2016-08, ASU 2016-10, and ASU 2016-12. The new guidance will replace all current U.S. GAAP guidance on this topic and eliminate all industry specific guidance. The core principal of this new guidance is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The guidance can be applied either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption. The Company has not yet selected a transition method and is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. This guidance specifies how prepaid stored-value product liabilities should be derecognized, thereby eliminating the current and potential future diversity in practice. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this new guidance may have on the consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting,
which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this new guidance may have on the consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this new guidance may have on the consolidated financial statements.
RESTRICTED CASH
RESTRICTED CASH
RESTRICTED CASH
    
As of both June 30, 2016 and December 31, 2015, restricted cash of $13.5 million is related to pledged cash deposited into savings accounts at the financial institutions that process the Company's sellers' payment transactions. The Company uses the restricted cash to secure letters of credit with the financial institutions to provide collateral for cash flow timing differences in the processing of these payments. The Company has recorded this amount as a current asset on the condensed consolidated balance sheets due to the short-term nature of these cash flow timing differences and that there is no minimum time frame during which the cash must remain restricted.
    
As of June 30, 2016 and December 31, 2015, the remaining restricted cash of $23.1 million and $14.7 million, respectively, is primarily related to cash deposited into money market funds that is used as collateral pursuant to multi-year lease agreements entered into in 2012 and 2014 (see note 17) and as collateral pursuant to an agreement with the originating bank for the Company's loan product. The Company has recorded this amount as a non-current asset on the condensed consolidated balance sheets as the terms extend beyond one year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures its cash equivalents and short-term and long-term investments at fair value. The Company classifies its cash equivalents and short-term and long-term investments within Level 1 or Level 2 of the fair value hierarchy because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis are classified as follows (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash and Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
156,001

 
$

 
$

 
$
337,234

 
$

 
$

Commercial paper

 
10,745

 

 

 

 

Municipal securities

 
250

 

 

 

 

Short-term securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities

 
11,617

 

 

 

 

Corporate bonds

 
8,805

 

 

 

 

Commercial paper

 
22,465

 

 

 

 

Municipal securities

 
3,005

 

 
 
 
 
 
 
U.S. government securities
15,099

 

 

 

 

 

Long-term securities:
 
 
 
 
 
 

 

 

U.S. agency securities

 
7,024

 

 

 

 

Corporate bonds

 
7,056

 

 

 

 

Municipal securities

 
1,502

 

 

 

 

U.S. government securities
4,020

 

 

 

 

 

Total
$
175,120

 
$
72,469

 
$

 
$
337,234

 
$

 
$




Loans are recorded at the lower of cost or fair value. To determine the fair value of loans, the Company utilizes industry-standard valuation modeling, such as discounted cash flow models, to arrive at an estimate of fair value.

A summary of loans disclosed at fair value on a recurring basis is as follows (in thousands):

 
June 30, 2016
 
Carrying Value
 
Fair Value (Level 3)
Loans held for sale
29,774

 
32,167

Total
29,774

 
32,167



As of December 31, 2015, the difference between the fair value of loans and the carrying value is insignificant.
The carrying amounts of certain financial instruments, including cash equivalents, settlements receivable, merchant cash advance receivable, accounts payable, customers payable, and settlements payable, approximate their fair values due to their short-term nature.
If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. During the three and six months ended June 30, 2016 and 2015, the Company did not have any transfers in or out of Level 1, Level 2, or Level 3 assets or liabilities.
INVESTMENTS
INVESTMENTS
INVESTMENTS

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale.

The Company's short-term and long-term investments as of June 30, 2016 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
11,605

 
$
12

 
$

 
$
11,617

Corporate bonds
8,801

 
4

 

 
8,805

Commercial paper
22,465

 

 

 
22,465

Municipal securities
3,006

 

 
(1
)
 
3,005

U.S. government securities
15,080

 
19

 

 
15,099

Total
$
60,957

 
$
35

 
$
(1
)
 
$
60,991

 
 
 
 
 
 
 
 
Long-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
7,005

 
$
19

 
$

 
$
7,024

Corporate bonds
7,047

 
9

 

 
7,056

Municipal securities
1,501

 
1

 

 
1,502

U.S. government securities
4,003

 
17

 

 
4,020

Total
$
19,556

 
$
46

 
$

 
$
19,602



For the three and six months ended June 30, 2016, gains or losses realized on the sale of investments were insignificant. Investments are reviewed periodically to identify possible other-than-temporary impairments. As the Company has the ability and intent to hold these investments with unrealized losses until a recovery of fair value, or for a reasonable period of time sufficient for the recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired as of June 30, 2016.

The contractual maturities of the Company's short-term and long-term investments as of June 30, 2016 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
60,957

 
$
60,991

Due in one to five years
19,556

 
19,602

Total
$
80,513

 
$
80,593

ALLOWANCE FOR MERCHANT CASH ADVANCE LOSSES
ALLOWANCE FOR MERCHANT CASH ADVANCE LOSSES
ALLOWANCE FOR MERCHANT CASH ADVANCE LOSSES
The following table summarizes the activities of the Company’s allowance for uncollectible merchant cash advance receivables (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Allowance for uncollectible MCA receivables, beginning of the period
$
7,458

 
$
4,935

 
$
7,443

 
$
2,431

Provision for (reduction in) uncollectible MCA receivables
(166
)
 
644

 
(93
)
 
3,148

MCA receivables charged off
(2,201
)
 
(302
)
 
(2,259
)
 
(302
)
Allowance for uncollectible MCA receivables, end of the period
$
5,091

 
$
5,277

 
$
5,091

 
$
5,277


    
As of June 30, 2016, the Company has fully transitioned from offering MCAs to loans. The table above includes a reduction in uncollectible receivables for the three and six months ended June 30, 2016, primarily as a result of updates to the Company's provision estimates for historical balances. Additionally, the Company charged off certain MCA receivables based on payment inactivity.
PROPERTY AND EQUIPMENT, NET
Property, Plant and Equipment Disclosure [Text Block]
PROPERTY AND EQUIPMENT, NET
The following is a summary of property, equipment, and internally-developed software at cost, less accumulated depreciation and amortization (in thousands):    

June 30,
2016

December 31,
2015
Computer equipment
$
47,685


$
43,531

Office furniture and equipment
9,604


9,339

Leasehold improvements
67,823


65,298

Capitalized software
19,974


14,533

Construction in process
256

 
490

Total
145,342


133,191

Less: Accumulated depreciation and amortization
(59,017
)

(45,969
)
Property and equipment, net
$
86,325


$
87,222


Depreciation and amortization expense on property and equipment was $6.9 million and $13.3 million for the three and six months ended June 30, 2016, respectively. Depreciation and amortization expense on property and equipment was $4.8 million and $9.2 million for the three and six months ended June 30, 2015, respectively.
GOODWILL
GOODWILL
GOODWILL

Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets acquired. As of both June 30, 2016 and December 31, 2015, goodwill was $56.7 million.

The Company performs a goodwill impairment test annually on December 31 and more frequently if events and circumstances indicate that the asset might be impaired. For the periods presented, the Company had recorded no impairment charges.
ACQUIRED INTANGIBLE ASSETS
ACQUIRED INTANGIBLE ASSETS
ACQUIRED INTANGIBLE ASSETS
The following table presents the detail of acquired intangible assets as of the periods presented (in thousands):
 
Balance as of June 30, 2016
Cost
 
Accumulated Amortization
 
Net
Patent
$
1,285

 
$
(400
)
 
$
885

Technology Assets
29,045

 
(10,900
)
 
18,145

Customer Assets
6,645

 
(3,346
)
 
3,299

Total
$
36,975

 
$
(14,646
)
 
$
22,329


 
Balance as of December 31, 2015
Cost
 
Accumulated Amortization
 
Net
Patent
$
1,285

 
$
(348
)

$
937

Technology Assets
28,645

 
(6,644
)
 
22,001

Customer Assets
6,645

 
(2,807
)
 
3,838

Total
$
36,575

 
$
(9,799
)
 
$
26,776



The weighted average amortization periods for acquired patents, acquired technology, and customer intangible assets are approximately 13 years, three years, and six years, respectively.
    
Amortization expense associated with other intangible assets was $2.1 million and $4.8 million for the three and six months ended June 30, 2016, respectively. Amortization expense associated with other intangible assets was $1.7 million and $2.7 million for the three and six months ended June 30, 2015, respectively.

The total estimated annual future amortization expense of these intangible assets as of June 30, 2016 is as follows (in thousands):
2016 (remaining 6 months)
$
4,125

2017
7,187

2018
5,687

2019
2,983

2020
1,087

Thereafter
1,260

Total
$
22,329

OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (CURRENT)
OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (CURRENT)
OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (CURRENT)
Other Current Assets
The following table presents the detail of other current assets (in thousands):
    
 
June 30,
2016
 
December 31,
2015
Accounts receivable
$
4,563

 
$
4,808

Prepaid expenses
8,730

 
7,101

Deferred reader costs
3,310

 
4,018

Inventory
17,199

 
11,864

Tenant improvement reimbursement receivable
1,350

 
1,788

Deferred hardware costs
3,363

 
1,709

Processing costs receivable
4,670

 
7,847

Other
5,288

 
2,312

Total
$
48,473

 
$
41,447



Accrued Expenses
The following table presents the detail of accrued expenses (in thousands):    
 
June 30,
2016
 
December 31,
2015
Accrued hardware costs
$
1,660

 
$
11,622

Processing costs payable
2,865

 
11,417

Accrued professional fees
5,434

 
7,642

Accrued payroll
3,347

 
2,660

Other accrued liabilities
12,827

 
11,060

Total
$
26,133

 
$
44,401



Other Current Liabilities
The following table presents the detail of other current liabilities (in thousands):    
    
 
June 30,
2016
 
December 31,
2015
Settlements payable
23,684

 
$
13,105

Employee early exercised stock options
1,140

 
2,141

Accrued redemptions
1,036

 
1,066

Current portion of deferred rent
2,657

 
2,393

Deferred revenue
5,119

 
6,623

Other
9,154

 
3,617

Total
$
42,790

 
$
28,945

OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (NON-CURRENT)

Other Non-Current Assets

The following table presents the detail of other non-current assets (in thousands):

 
June 30,
2016
 
December 31,
2015
Deposits
$
2,587

 
$
1,993

Deferred tax assets
130

 
188

Other
1,461

 
1,645

Total
$
4,178

 
$
3,826



Other Non-Current Liabilities
The following table presents the detail of other non-current liabilities (in thousands):
 
June 30,
2016
 
December 31,
2015
Deferred rent
$
24,427

 
$
25,543

Employee early exercised stock options
365

 
1,128

Deferred tax liabilities
285

 
299

Statutory liabilities
25,255

 
25,492

Other
32

 
60

Total
$
50,364

 
$
52,522

OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (NON-CURRENT)
OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (NON-CURRENT)
OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (CURRENT)
Other Current Assets
The following table presents the detail of other current assets (in thousands):
    
 
June 30,
2016
 
December 31,
2015
Accounts receivable
$
4,563

 
$
4,808

Prepaid expenses
8,730

 
7,101

Deferred reader costs
3,310

 
4,018

Inventory
17,199

 
11,864

Tenant improvement reimbursement receivable
1,350

 
1,788

Deferred hardware costs
3,363

 
1,709

Processing costs receivable
4,670

 
7,847

Other
5,288

 
2,312

Total
$
48,473

 
$
41,447



Accrued Expenses
The following table presents the detail of accrued expenses (in thousands):    
 
June 30,
2016
 
December 31,
2015
Accrued hardware costs
$
1,660

 
$
11,622

Processing costs payable
2,865

 
11,417

Accrued professional fees
5,434

 
7,642

Accrued payroll
3,347

 
2,660

Other accrued liabilities
12,827

 
11,060

Total
$
26,133

 
$
44,401



Other Current Liabilities
The following table presents the detail of other current liabilities (in thousands):    
    
 
June 30,
2016
 
December 31,
2015
Settlements payable
23,684

 
$
13,105

Employee early exercised stock options
1,140

 
2,141

Accrued redemptions
1,036

 
1,066

Current portion of deferred rent
2,657

 
2,393

Deferred revenue
5,119

 
6,623

Other
9,154

 
3,617

Total
$
42,790

 
$
28,945

OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (NON-CURRENT)

Other Non-Current Assets

The following table presents the detail of other non-current assets (in thousands):

 
June 30,
2016
 
December 31,
2015
Deposits
$
2,587

 
$
1,993

Deferred tax assets
130

 
188

Other
1,461

 
1,645

Total
$
4,178

 
$
3,826



Other Non-Current Liabilities
The following table presents the detail of other non-current liabilities (in thousands):
 
June 30,
2016
 
December 31,
2015
Deferred rent
$
24,427

 
$
25,543

Employee early exercised stock options
365

 
1,128

Deferred tax liabilities
285

 
299

Statutory liabilities
25,255

 
25,492

Other
32

 
60

Total
$
50,364

 
$
52,522

DEBT
DEBT
DEBT
In November 2015, the Company entered into a revolving credit agreement with certain lenders, which extinguished the prior revolving credit agreement and provided for a $375.0 million revolving secured credit facility maturing in November 2020. This revolving credit agreement is secured by certain tangible and intangible assets.
Loans under the credit facility bear interest at the Company’s option of (i) a base rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and an adjusted LIBOR rate for a one-month interest period, in each case plus a margin ranging from 0.00% to 1.00%, or (ii) an adjusted LIBOR rate plus a margin ranging from 1.00% to 2.00%. This margin is determined based on the Company’s total leverage ratio for the preceding four fiscal quarters. The Company is obligated to pay other customary fees for a credit facility of this size and type including an annual administrative agent fee of $0.1 million and an unused commitment fee of 0.15%. To date no funds have been drawn under the credit facility, with $375.0 million remaining available. The Company paid $0.1 million and $0.3 million in unused commitment fees during the three and six months ended June 30, 2016, respectively.
ACCRUED TRANSACTION LOSSES
ACCRUED TRANSACTION LOSSES
ACCRUED TRANSACTION LOSSES
The Company is exposed to transaction losses due to chargebacks as a result of fraud or uncollectibility. Recoveries are reflected as a reduction in the reserve for transaction losses when the recovery occurs.
The following table summarizes the activities of the Company’s reserve for transaction losses (in thousands):
    
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Accrued transaction losses, beginning of the period
$
15,419

 
$
16,811

 
$
17,176

 
$
8,452

Provision for transaction losses
16,210

 
7,809

 
23,392

 
21,566

Charge-offs and recoveries to accrued transaction losses
(15,536
)
 
(8,776
)
 
(24,475
)
 
(14,174
)
Accrued transaction losses, end of the period
$
16,093

 
$
15,844

 
$
16,093

 
$
15,844

INCOME TAXES
INCOME TAXES
INCOME TAXES
The Company recorded an income tax expense of $0.3 million and $0.7 million for the three and six months ended June 30, 2016, respectively, compared to income tax expense of $1.2 million and $1.6 million for the three and six months ended June 30, 2015, respectively. The income tax expense recorded for the three and six months ended June 30, 2016 was primarily due to state and foreign income tax expense.
The Company’s effective tax rate was approximately (1.2)% and (0.5)% for the three and six months ended June 30, 2016, respectively, compared to an effective tax rate of (4.0)% and (2.1)% for the three and six months ended June 30, 2015, respectively. The difference between the effective tax rate and the federal statutory tax rate for the three and six months ended June 30, 2016 primarily relates to the valuation allowance on the Company’s deferred tax assets.
The Company’s effective tax rate may be subject to fluctuation during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as the mix of forecasted pre-tax earnings in the various jurisdictions in which the Company operates, valuation allowances against deferred tax assets, the recognition and de-recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.

As of June 30, 2016, the Company retains a full valuation allowance on its deferred tax assets in the U.S. and certain foreign jurisdictions. The realization of the Company’s deferred tax assets depends primarily on its ability to generate taxable income in future periods. The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income.
The tax provision for the three and six months ended June 30, 2016 was calculated on a jurisdiction basis. The Company estimated the foreign income tax provision using the effective income tax rate expected to be applicable for the full year.
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
STOCKHOLDERS’ EQUITY
Common Stock

The Company has authorized the issuance of Class A common stock and Class B common stock. Class A common stock and Class B common stock are referred to as "common stock" throughout these Notes to the Condensed Consolidated Financial Statements, unless otherwise noted. As of June 30, 2016, the Company was authorized to issue 1,000,000,000 shares of Class A common stock and 500,000,000 shares of Class B common stock, each with a par value of $0.0000001 per share. As of June 30, 2016, there were 118,365,688 shares of Class A common stock and 222,597,682 shares of Class B common stock outstanding.

Stock Plans
The Company maintains two share-based employee compensation plans: the 2009 Stock Plan (2009 Plan) and the 2015 Equity Incentive Plan (2015 Plan). The 2015 Plan serves as the successor to the 2009 Plan. The 2015 Plan became effective as of November 17, 2015. Outstanding awards under the 2009 Plan continue to be subject to the terms and conditions of the 2009 Plan. 

Under the 2015 Plan, shares of common stock are reserved for the issuance of incentive and nonstatutory stock options, restricted stock awards, restricted stock units (RSUs), performance shares, and stock bonuses to qualified employees, directors, and consultants. The shares may be granted at a price per share not less than the fair market value at the date of grant. Initially, 30,000,000 shares were reserved under the 2015 Plan, and any shares subject to options or other similar awards granted under the 2009 Plan that expire, are forfeited, are repurchased by the Company, or otherwise terminate unexercised will become available under the 2015 Plan. The number of shares available for issuance under the 2015 Plan will be increased on the first day of each fiscal year, in an amount equal to the least of (i) 40,000,000 shares, (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the Company’s board of directors. As of June 30, 2016, the total number of shares subject to stock options and RSUs outstanding under the 2015 Plan was 18,678,552, and 33,719,245 shares were available for future issuance. As of June 30, 2016, the total number of shares subject to stock options and RSUs outstanding under the 2009 Plan was 95,302,472. As of November 17, 2015, no additional securities will be issued under 2009 Plan.    
A summary of stock option activity for the six months ended June 30, 2016 is as follows (in thousands, except share and per share data):
 
Number of Stock Options Outstanding
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
Balance as of December 31, 2015
107,515,554

 
$
6.99

 
7.87
 
$
656,194

Granted
1,707,320

 
13.54

 
 
 
 
Exercised
(4,225,876
)
 
1.91

 
 
 
 
Forfeited
(5,993,756
)
 
$
11.26

 
 
 
 
Balance as of June 30, 2016
99,003,242

 
7.06

 
7.57
 
307,645

Options vested and expected to vest as of
 
 
 
 
 
 
 
June 30, 2016
92,406,077

 
6.79

 
6.88
 
303,773

Options exercisable as of
 
 
 
 
 
 
 
June 30, 2016
94,552,296

 
6.89

 
7.47
 
307,645



Restricted Stock Activity

The Company issued RSUs to certain employees in fiscal year 2015. These RSUs typically vest over a term of four years.
Activity related to RSUs during the six months ended June 30, 2016 is set forth below:
 
Number of
RSUs
 
Weighted
Average Grant
Date Fair Value
Unvested as of December 31, 2015
3,632,765

 
$
13.14

Granted
12,649,921

 
12.43

Vested
(754,643
)
 
12.38

Forfeited
(550,261
)
 
13.53

Unvested as of June 30, 2016
14,977,782

 
$
12.56



Share-Based Compensation
The fair value of stock options and employee stock purchase plan shares granted to employees is estimated on the date of grant using the Black-Scholes-Merton option valuation model.
Effective August 31, 2015, the Company modified all of its nonstatutory stock option grants to extend the exercise term for terminated employees who have completed two years of service. In the event of a termination, the modified expiration date will be the earlier of (i) three years from termination or (ii) one year following an initial public offering, if in each case, the date of termination occurs between August 31, 2015 and the nine-month anniversary of the initial public offering. In all cases, the grants remain subject to earlier expiration in accordance with their original terms. During the three and six months ended June 30, 2016, share-based compensation expense included $0.7 million and $1.4 million, respectively, related to the vested portion of the impacted options, as a result of the modification. The Company will incur an additional $6.3 million of share-based compensation expense over the remaining vesting periods of the impacted options.
The fair value of stock options granted was estimated using the following weighted-average assumptions:
    
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Dividend yield
%
 
%
 
%
 
%
Risk-free interest rate
1.55
%
 
1.80
%
 
1.55
%
 
1.74
%
Expected volatility
42.71
%
 
46.27
%
 
42.71
%
 
48.63
%
Expected term (years)
6.08

 
6.08

 
6.08

 
6.10



The following table summarizes the effects of share-based compensation on the Company's condensed consolidated statements of operations (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Product development
$
24,168

 
$
10,391

 
$
46,115

 
$
19,349

Sales and marketing
3,363

 
1,345

 
6,266

 
2,774

General and administrative
9,391

 
3,496

 
15,739

 
6,570

Total
$
36,922

 
$
15,232

 
$
68,120

 
$
28,693


    
On November 17, 2015, the Company’s 2015 Employee Stock Purchase Plan (ESPP) became effective. During the three and six months ended June 30, 2016, the Company recorded $1.5 million and $3.0 million, respectively, of share-based compensation expense related to the ESPP, which is included in the table above. There was no similar activity during the three and six months ended June 30, 2015.
As of June 30, 2016, there was $303.3 million of total unrecognized compensation cost related to outstanding stock options that is expected to be recognized over a weighted-average period of 3.07 years.
LOSS PER SHARE
LOSS PER SHARE
LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is the same as basic loss per share for all years presented because the effects of potentially dilutive items were anti-dilutive given the Company’s net loss.
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2016
 
2015
 
2016
 
2015
Net loss
$
(27,345
)
 
$
(29,620
)
 
$
(124,100
)
 
$
(77,598
)
Basic shares:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
337,635
 
154,464
 
336,406
 
152,827
Weighted-average unvested shares
(3,147
)
 
(5,211
)
 
(3,500
)
 
(5,539
)
Weighted-average shares used to compute basic net loss per share
334,488
 
149,253
 
332,906
 
147,288
Diluted shares:
 
 
 
 
 
 
 
Weighted-average shares used to compute diluted loss per share
334,488
 
149,253
 
332,906
 
147,288
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.08
)
 
$
(0.20
)
 
$
(0.37
)
 
$
(0.53
)
Diluted
$
(0.08
)
 
$
(0.20
)
 
$
(0.37
)
 
$
(0.53
)


The following potential common shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (in thousands):

 
Three and Six Months Ended June 30,
 
2016
 
2015
Stock options and restricted stock units
113,981

 
103,628

Common stock warrants
9,458

 
15,762

Preferred stock warrants

 
87

Convertible preferred stock

 
135,253

Unvested shares
2,878

 
5,211

Employee stock purchase plan
127

 

Total anti-dilutive securities
126,444

 
259,941

OTHER INCOME AND EXPENSE, NET
OTHER INCOME AND EXPENSE, NET
OTHER INCOME AND EXPENSE, NET
Other income and expense, net, is comprised of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net (gain) loss on foreign exchange
$
(108
)
 
$
(57
)
 
$
(1,005
)
 
$
714

Other
(90
)
 
7

 
21

 
32

Total other (income) and expense, net
$
(198
)
 
$
(50
)
 
$
(984
)
 
$
746

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases
The Company has entered into various non-cancelable operating leases for certain offices with contractual lease periods expiring between 2016 and 2025. The Company recognized total rental expenses under operating leases of $2.7 million and $5.5 million for the three and six months ended June 30, 2016, respectively, compared to $3.3 million and $6.8 million for the three and six months ended June 30, 2015, respectively.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of June 30, 2016 are as follows (in thousands):
 
Capital
 
Operating
Year:
 
 
 
2016 (remaining 6 months)
$
33

 
$
7,842

2017
50

 
15,858

2018
7

 
15,622

2019

 
15,511

2020

 
15,590

Thereafter

 
51,629

Total
$
90

 
$
122,052

Less amount representing interest
(4
)
 
 
Present value of capital lease obligations
86

 
 
Less current portion of capital lease obligation
(62
)
 
 
Non-current portion of capital lease obligation
$
24

 
 


Litigation
The Company is currently a party to, and may in the future be involved in, various litigation matters (including intellectual property litigation), legal claims, and government investigations.

Notably, the Company was involved in legal proceedings with Robert E. Morley and REM Holdings 3, LLC (REM), which included disputes over certain patents and over Mr. Morley’s early involvement in the business enterprise that became Square. On December 1, 2010, the Company, along with its co-founder Jim McKelvey, filed a complaint (2010 Complaint) in the United States District Court for the Eastern District of Missouri to, among other things, add Mr. McKelvey as a named inventor of certain patents of which Mr. Morley was named the sole inventor. REM counterclaimed, alleging infringement by the Company of the patents. On January 30, 2014, Mr. Morley and REM filed a complaint against the Company, Jack Dorsey, and Mr. McKelvey, in the same Court, alleging that the formation of Square and the development of the Company's card reader and decoding technologies constituted, among other things, breach of an alleged joint venture, fraud, negligent misrepresentation, civil conspiracy, unjust enrichment, and misappropriation of trade secrets, as well as other related claims (2014 Complaint), and sought a judgment and order that the Company, Mr. Dorsey, and Mr. McKelvey held ownership of Square in constructive trust for Mr. Morley, as well as a variety of additional damages, injunctive relief, royalties, and correction of inventorship of certain of the Company’s patents. The Court consolidated the 2014 Complaint with the 2010 Complaint (collectively, the Complaints) on July 16, 2014.

On June 8, 2016, a final, definitive settlement agreement (Settlement Agreement) resolving the Complaints was entered into by Mr. Morley, REM, Mr. Dorsey, Mr. McKelvey, and the Company. The Settlement Agreement required an aggregate total payment of $50 million to plaintiffs, including meaningful contributions by Mr. Dorsey and Mr. McKelvey. The Company made a payment of $48 million to plaintiffs and met its obligations under the Settlement Agreement. On June 17, 2016, the Court entered an Order dismissing the Complaints in their entirety, with prejudice.

Additionally, the Company is involved in a class action lawsuit concerning independent contractors in connection with the Company’s Caviar business. On March 19, 2015, Jeffry Levin, on behalf of a putative nationwide class, filed a lawsuit in the Northern District of California against the Company’s wholly owned subsidiary, Caviar, Inc., which, as amended, alleges that Caviar misclassified Mr. Levin and other similarly situated couriers as independent contractors and, in doing so, violated various provisions of the California Labor Code and California Business and Professions Code by requiring them to pay various business expenses that should have been borne by Caviar. The Court compelled arbitration of Mr. Levin’s individual claims on November 16, 2015 and dismissed the lawsuit in its entirety with prejudice on May 2, 2016. On June 1, 2016, Mr. Levin filed a Notice of Appeal of the Court’s order compelling arbitration. Mr. Levin also sought an award of penalties pursuant to the Labor Code Private Attorneys General Act of 2004 (PAGA). The parties stipulated that Mr. Levin would no longer pursue this PAGA claim, and this claim is instead being pursued by a different courier.

In addition, from time to time, the Company is involved in various other litigation matters and disputes arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of the Company's current legal proceedings will have a material adverse effect on the Company's business.
SEGMENT AND GEOGRAPHICAL INFORMATION
SEGMENT AND GEOGRAPHIC INFORMATION
SEGMENT AND GEOGRAPHICAL INFORMATION
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (CODM) for purposes of allocating resources and evaluating financial performance. The Company’s CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. As such, the Company’s operations constitute a single operating segment and one reportable segment.
Revenue
Revenue by geography is based on the billing addresses of the merchants. The following table sets forth revenue by geographic area (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
 
 
 
 
 
 
 
United States
$
421,808

 
$
299,326

 
$
789,387

 
$
542,282

International
16,725

 
10,687

 
28,415

 
18,288

Total net revenue
$
438,533

 
$
310,013

 
$
817,802

 
$
560,570



No individual country from the international markets contributed in excess of 10% of total revenue for three and six months ended June 30, 2016 and 2015.

Long-Lived Assets
The following table sets forth long-lived assets by geographic area (in thousands):
 
June 30,
2016
 
December 31,
2015
Long-lived assets
 
 
 
United States
$
162,469

 
$
168,583

International
2,884

 
2,114

Total long-lived assets
$
165,353

 
$
170,697

SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION

The supplemental disclosures of cash flow information consist of the following (in thousands):

 
Six Months Ended June 30,
 
2016
 
2015
Supplemental Cash Flow Data:
 
 
 
Cash paid for interest
$
284

 
$
744

Cash paid for income taxes
168

 
791

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Change in purchases of property and equipment in accounts payable and accrued expenses
4,192

 
5,394

Fair value of shares issued related to acquisitions

 
22,887

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
The accompanying interim condensed consolidated financial statements of the Company are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and the applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2015 condensed consolidated balance sheet was derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company's financial position, results of operations, comprehensive loss, and cash flows for the interim periods. All intercompany transactions and balances have been eliminated in consolidation. The interim results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and notes thereto included in Items 7, 7A, and 8, respectively, in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be materially affected. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

Significant estimates, judgments, and assumptions in these consolidated financial statements include, but are not limited to, those related to revenue recognition, accrued transaction losses, provision for uncollectible receivables related to merchant cash advances (MCAs), valuation of loans held for sale, business combinations, goodwill and intangible assets, income taxes, and share-based compensation.

The Company places its cash and cash equivalents and investments in marketable securities with large, creditworthy financial institutions. Balances in these accounts may exceed federally insured limits at times.
The loans are classified as held for sale upon purchase, as it is the Company’s intent to sell all of its rights, title, and interest in these loans to third-party investors for an up-front origination fee when the loans are sold. The Company also earns a servicing fee by continuing to service the loans by remitting monies to the third-party investors. Revenue from origination fees are recognized upon transfer of title to investors and servicing revenue is recognized as servicing is delivered.

A loan that is initially designated as held for sale may be reclassified to held for investment if and when the Company's intent for that loan changes. There have been no reclassifications made to date. Loans are recorded at the lower of cost or fair value. To determine the fair value of loans, the Company utilizes industry standard modeling, such as discounted cash flow models, to arrive at an estimate of fair value.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and issued subsequent amendments to the initial guidance within ASU 2015-04, ASU 2016-08, ASU 2016-10, and ASU 2016-12. The new guidance will replace all current U.S. GAAP guidance on this topic and eliminate all industry specific guidance. The core principal of this new guidance is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration for which the Company expects to be entitled in exchange for those goods or services. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The guidance can be applied either retrospectively to each period presented or as a cumulative effect adjustment as of the date of adoption. The Company has not yet selected a transition method and is evaluating the impact of adopting this new accounting standard update on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. This guidance specifies how prepaid stored-value product liabilities should be derecognized, thereby eliminating the current and potential future diversity in practice. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this new guidance may have on the consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting,
which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this new guidance may have on the consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this new guidance may have on the consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis are classified as follows (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash and Cash Equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
156,001

 
$

 
$

 
$
337,234

 
$

 
$

Commercial paper

 
10,745

 

 

 

 

Municipal securities

 
250

 

 

 

 

Short-term securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. agency securities

 
11,617

 

 

 

 

Corporate bonds

 
8,805

 

 

 

 

Commercial paper

 
22,465

 

 

 

 

Municipal securities

 
3,005

 

 
 
 
 
 
 
U.S. government securities
15,099

 

 

 

 

 

Long-term securities:
 
 
 
 
 
 

 

 

U.S. agency securities

 
7,024

 

 

 

 

Corporate bonds

 
7,056

 

 

 

 

Municipal securities

 
1,502

 

 

 

 

U.S. government securities
4,020

 

 

 

 

 

Total
$
175,120

 
$
72,469

 
$

 
$
337,234

 
$

 
$

A summary of loans disclosed at fair value on a recurring basis is as follows (in thousands):

 
June 30, 2016
 
Carrying Value
 
Fair Value (Level 3)
Loans held for sale
29,774

 
32,167

Total
29,774

 
32,167

INVESTMENTS (Tables)
The Company's short-term and long-term investments as of June 30, 2016 are as follows (in thousands):

 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Short-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
11,605

 
$
12

 
$

 
$
11,617

Corporate bonds
8,801

 
4

 

 
8,805

Commercial paper
22,465

 

 

 
22,465

Municipal securities
3,006

 

 
(1
)
 
3,005

U.S. government securities
15,080

 
19

 

 
15,099

Total
$
60,957

 
$
35

 
$
(1
)
 
$
60,991

 
 
 
 
 
 
 
 
Long-term securities:
 
 
 
 
 
 
 
U.S. agency securities
$
7,005

 
$
19

 
$

 
$
7,024

Corporate bonds
7,047

 
9

 

 
7,056

Municipal securities
1,501

 
1

 

 
1,502

U.S. government securities
4,003

 
17

 

 
4,020

Total
$
19,556

 
$
46

 
$

 
$
19,602

The contractual maturities of the Company's short-term and long-term investments as of June 30, 2016 are as follows (in thousands):

 
Amortized Cost
 
Fair Value
Due in one year or less
$
60,957

 
$
60,991

Due in one to five years
19,556

 
19,602

Total
$
80,513

 
$
80,593

ALLOWANCE FOR MERCHANT CASH ADVANCE LOSSES (Tables)
Schedule of Allowance for Uncollectible Merchant Cash Advance Receivables
The following table summarizes the activities of the Company’s allowance for uncollectible merchant cash advance receivables (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Allowance for uncollectible MCA receivables, beginning of the period
$
7,458

 
$
4,935

 
$
7,443

 
$
2,431

Provision for (reduction in) uncollectible MCA receivables
(166
)
 
644

 
(93
)
 
3,148

MCA receivables charged off
(2,201
)
 
(302
)
 
(2,259
)
 
(302
)
Allowance for uncollectible MCA receivables, end of the period
$
5,091

 
$
5,277

 
$
5,091

 
$
5,277

PROPERTY AND EQUIPMENT, NET (Tables)
Schedule of Property, Equipment, and Internally Developed Software
The following is a summary of property, equipment, and internally-developed software at cost, less accumulated depreciation and amortization (in thousands):    

June 30,
2016

December 31,
2015
Computer equipment
$
47,685


$
43,531

Office furniture and equipment
9,604


9,339

Leasehold improvements
67,823


65,298

Capitalized software
19,974


14,533

Construction in process
256

 
490

Total
145,342


133,191

Less: Accumulated depreciation and amortization
(59,017
)

(45,969
)
Property and equipment, net
$
86,325


$
87,222

ACQUIRED INTANGIBLE ASSETS (Tables)
The following table presents the detail of acquired intangible assets as of the periods presented (in thousands):
 
Balance as of June 30, 2016
Cost
 
Accumulated Amortization
 
Net
Patent
$
1,285

 
$
(400
)
 
$
885

Technology Assets
29,045

 
(10,900
)
 
18,145

Customer Assets
6,645

 
(3,346
)
 
3,299

Total
$
36,975

 
$
(14,646
)
 
$
22,329


 
Balance as of December 31, 2015
Cost
 
Accumulated Amortization
 
Net
Patent
$
1,285

 
$
(348
)

$
937

Technology Assets