Block Inc (SQ) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Square fourth-quarter 2016 earnings conference call. I would like to turn the call over to our host, Jason Lee, Head of Investor Relations. Please go ahead.

Hi, everyone. Thanks for joining our fourth-quarter 2016 earning call. We have Jack and Sarah with us today. First, we want to remind everyone of the format of our earnings call. We have published a shareholder letter on our investor relations website which was available shortly after the market closed. We will begin this call with some short prepared remarks, before opening the call directly to your questions. During Q&A, we will take questions asked from our sellers, in addition to questions from conference call participants.

We would also like to remind everyone that we will make forward-looking statements on this call. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law.

Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our investor relations website. These non-GAAP measures are not intended to be a substitute for GAAP results.

Finally, this call in its entirety is being audio webcast on our investor relations website. An audio replay of this call will be available on our website shortly. With that, I would like to turn it over to Jack.

Thanks, Jason, and thank you all for joining us. Before this call, we issued our quarterly shareholder letter, with details on our fourth-quarter performance and financial results, which I encourage you all to read. We're really proud of our first year as a public Company. We delivered value to our customers in a way that meaningfully grew Square's business and scale, increasing revenue and improving margins. We achieved this by staying true to our values and committed to our purpose of economic empowerment.

I want to take a moment to talk about our priorities in 2017 and how we tie them to our values. We started Square eight years ago. Making it easy to accept credit cards was our first step in providing opportunities for people to engage in commerce where they are traditionally excluded. By removing credit checks, long-term contracts and other blockers to card acceptance, and by giving away a free card reader, we started building a service that would empower millions of people to participate in the economy.

Today sellers come to Square for much more than [to demand] payments and hardware. They come for financing, payroll, customer management and even delivery. We have chosen to build these tools as part as of one cohesive ecosystem, as opposed to a series of singular, disconnected services.

Whether sellers are in food, retail or services, or have one location or 50, they can pick from a menu of services and get up and running fast with Square. Everything works together seamlessly to help our sellers make smart decisions for their businesses. There is a lot more we can do to make payments and financial services more successful, and to help our sellers succeed.

We have three areas of focus this year -- integration, automation and platform. First, integration. We will make our services work together more cohesively. For example, in February, we launched Square for Retail, our first industry-specific point of sale. In addition to integrating with our payments and our hardware, Square for Retail integrates with our customer directory to give sellers advanced clienteling capabilities that build customer profiles and provide purchasing history directly from the point of sale. We believe integration is why so many sellers choose Square, and we will double-down here.

Second, automation. We will make our services more self-serve. Automation saves time, which is important for our internal teams and for our sellers. For example, we have invested a lot in machine learning across the Company, especially in risk, where we automate risk assessment for 99.95% of Square transactions. We will look for more ways to apply machine learning to help automate both our internal tools and customer-facing experiences.

And finally, platform. We need to build more APIs and [SCKs] that our internal teams can use and that external developers and partners can build onto. For example, we used the technology behind our e-commerce API to build and launch Virtual Terminal in just two months. Virtual Terminal allows sellers to key in payments from a web browser, ideal for sellers who typically use a computer instead of a mobile device.

The product has attracted new sellers and captured additional volume from existing sellers. And it already generated more than $40 million in GPV in January. Fast product development benefits all aspects of our business, and a stronger platform will make us even faster. By focusing and investing more in integration, automation and platform, we can push Square, our sellers and the economy forward. Now I'll turn it over to Sarah for some more detailed remarks on our financials.

Great, thank you, Jack. We're proud of our fourth-quarter results, achieving significant growth at scale in 2016 while improving our margins. We continue to efficiently add new sellers and help them grow their business after they join our platform.

Before I dive deeper into our results, let me take a moment to explain a nomenclature change in our key revenue line. We changed transaction revenue to transaction-based revenue, and software and data product revenue to subscription and services-based revenue. This is only a change in naming convention. There is no change to historical revenues, and no change to the products and services included in each line.

Gross payment volume for the fourth quarter was $13.7 billion, up 34% year over year. Total net revenue was $452 million in the quarter, and adjusted revenue was $192 million, representing a 43% increase from the prior year. For the full year, adjusted revenue of $687 million grew 52% year over year. Transaction-based revenue and transaction-based profits as a percentage of GPV were consistent with the prior-year period, even as our GPV mix from larger merchants continues to grow. We maintained a payback period of four to five quarters for our seller acquisition costs, and a positive dollar-based retention rate.

GAAP net loss was $14 million in the fourth quarter. This equates to a net loss per share of $0.04, compared to a net loss per share of $0.34 in the fourth quarter of 2015. Adjusted EBITDA was $30 million this quarter, which represents 20 points of margin improvement year over year. This improvement reflects strong top-line growth, and benefits from improved operational efficiency and ongoing improvements in our risk management.

With that let me turn to guidance. And please see our shareholder letter for details on our first-quarter guide, and I'll discuss the full year now. Our 2017 guidance reflects plans to continue to invest in scaling our business for future growth, balanced by our ongoing commitment to margin expansion.

For 2017, we expect total net revenues to be within a range of $2.09 billion to $2.15 billion, and adjusted revenue to be in the range of $880 million to $900 million. Adjusted EBITDA is expected to be in the range of $100 million to $110 million, a year-over-year margin improvement of 5 points at the midpoint. We expect net income per share to be within a range of negative $0.24 to negative $0.20, and adjusted EPS to be in the range from positive $0.15 to positive $0.19. So with that, let me turn it back to the operator to start the Q&A portion of the call.

(Operator Instructions)

Jason Kupferberg, Jefferies.

Good afternoon, this is Ryan Cary on for Jason. I was hoping to dig a little bit deeper into the relative profitability of the business segments. If you look at the $100 million to $110 million in EBITDA expected in 2017, is there any color you can provide what percent of that you expect will be driven from the subscription services side of the business versus more the traditional transaction side?

Sure, thanks for the question. So I think, overall, as we look into our guide for 2017, we're coming off of a very strong 2016, good momentum in Q4 in terms of top-line growth, and ongoing improvement on the margin side. When I think about the overall guide on the margin side for 2017, we do plan to continue to invest in our business. We see a lot of white space in front of us, particularly in areas like the move from online to offline on international, and of course, the continued move up-market.

In terms of margins themselves, I would look at -- G&A is the line item that we expect to see greatest leverage from. Clearly we're benefiting from a lot of the investment we did pre-IPO. From a product perspective, we are a product-first Company, so expect us to continue to invest in great engineers, data scientists, designers. We want to stay very front-footed on that. That said, as we scale, there should be ongoing improvements there, too.

And then finally, sales and marketing for us is very much the variable expense. And as long as we continue to see a strong ROI, or that four- to five-quarter payback period, we will want to continue to press on investing there, particularly around some of the newer products.

So we think about the business more holistically, not necessarily profitability from either payments or the transaction-based revenue or a subscriptions services-based. Rather, holistically, how do we bring more sellers to our platform, and how do we continue to grow the base of business of sellers who are already on the platform? Hopefully, that gives you some context.

Perfect. Thanks for taking my question.

[Aman Bahala], [Beat] Consulting.

Hi, good afternoon. This question is to Jack. Jack, I often take payments from our customers over the phone. How do I know that, that person and their credit cards are real? If the credit card is stolen, am I liable for that? And how does Square handle this?

Well, first, thank you, Aman, for being a Square customer, and thanks for the question. Fraudulent charges are a key concern for all of our sellers, and we wanted to make sure that we were building a product and a service that are, first and foremost, respectful of your time, so that you don't have to worry about it. So our approach has been to really focus on payment to speed management and Chargeback Protection. It is one of the services we want to make sure we provide our services as part of our offering.

So it is not just about payments, but the full suite of everything that you need to protect yourself and your business. Our ability to do this is based on the fact we serve as the merchant of record for you, and all of our sellers. And this means that when one of your customers [beats] a charge with a credit card company, we handle the process. So after the credit card company contacts us, we reach out to you to obtain more information about the payment, and then we respond back to the card company. So we want to make this as seamless as possible for you, so you don't have to think about any of this, and you can just focus on making the sale.

Excellent. Thank you so much for answering the question.

Thanks, and thanks for using Square.

Tien-tsin Huang, JPMorgan.

Hey, hello, thanks. Good results here. Let me ask about the positive retention rate. Is that level sustainable with trends you are seeing there? Obviously you're scaling up pretty quickly here. So curious what's baked into your guidance on that? Thanks.

Thanks, Tien-tsin. So we do continue to see really positive cohort economics overall. I already talked about the four- to five-quarter payback period. And recall, that is just for payments alone. So just the transaction-based profit that we make on payments is what covers the costs to bring all of that cohort onto Square. And that's a fairly fulsome cost we apply there.

In terms of from there, what we are continuing to see is that, as sellers join Square, they continue to grow. So that is a huge part of what's driving the positive dollar-based retention rate. We have not to date talked about that, including many of our new products -- if they take a capital loan, if they take payroll, if they decide to use some of our customer loyalty tools. We have typically not baked that into how to we talk about a positive dollar-based retention rate. But clearly all of those products would only add to that positive dollar-based retention.

We're quite excited by what the new products are showing in terms of providing value to that seller base. And we continue to expect more adoption there, and I think that will continue to drive ongoing growth of the base, so ongoing positive dollar-based retention.

All right, thank you.

Thank you.

James Schneider, Goldman Sachs.

Good evening, thanks for taking my question. I was wondering if you could talk philosophically about the margin [pro country from year]? You talked about the 500 basis points of expansion implied in the guidance. Can you talk about, to the extent that you start to overrun those goals over the course of the year, would you automatically roll it back into the business, or would let some more fall to the bottom line?

Great, thanks, Jim. So we do still see tremendous growth opportunities in front of us. And it is a balance always of making sure that you do keep investing, not just for 2017 growth, but it's really about how do we think about a decade of growth.

On a lot of the businesses that you start today, you really won't start to see the impact of for maybe multiple years. It is interesting that businesses that we have launched in 2014 are now comprising 1/4 of adjusted revenue. That actually surprises me very positively, that they can have such a big impact in just three years.

But with that said, we do want to make sure we keep doubling down into the places where we see a lot of white space. I think as we look through 2017, we want to keep coming back and doubling down into areas that are doing well. So I think as we see margin progression, our inclination would be still to invest behind growth.

We are very pleased with the 5 points that we've guided to for the year. I think it is very consistent with managing the business strongly from a top-line growth perspective, but also mindfully allowing margins to improve. And I think we stand behind that guidance. So thank you.

Great. And then as a quick follow-up, I would like to us ask about Square for Retail. Maybe give us any quantitative metrics on how that has gone so far in terms of uptake from existing sellers and off the new ones? And then talk about a little about what your ambitions or plans would be two years out, what we could consider to be a success for that?

Sure. It is still very early days. This product really just launched a few weeks ago. It really speaks to what we heard from our sellers, that they do need something quite specific in the retail vertical. And that is true for verticals like food, it's true for verticals like services. On the retail side, we really dug into a product, where we wanted to give it a much more retail-friendly UI. So they're dealing with tens of thousands, maybe hundreds of thousand of SKUs. It has a fast search-based interface.

In addition, we wanted to have deep inventory management behind it. And I think the third thing we heard from retailers was definitely a need for more CRM built into the point of sale itself, or clienteling -- the ability to track the customer when they're right in front of you making a purchase. So we're excited certainly for what the product things brings together, and prior to a full launch, we clearly had a lot of input from the sellers who were on it.

I think in terms of looking out at the impact of numbers, I'd really more think about the market. There are about 450,000 retailers in the United States in the small- to mid-sized business category. They represent about $700 billion of GPV. And so I view that as just a big market expansion that we did here now in Q1. If you think about 2017 guidance, clearly we put some stake in the ground of what that can look like through 2017. We're not yet ready, I think, to look out multiple years and give you specific guidance on it.

Thank you.

Thank you.

Kelly Barker, Prep Cosmetics.

Hi, there. Will there ever be a Square business credit card? It would be such a great option for small businesses to use for everyday purchases. And it would be even better if the credit card came with some sort of loyalty program, perhaps tied to lowering the Square transaction fee, or even a simple cash-back program, or even as redeemable gift cards.

Hey, Kelly, this is Jack. Thanks for the question. Thanks for using Square. It is a great question. So we've been approaching this more in what financial services can we offer for businesses that fit into the business immediately.

So one of the beautiful things about our model is, if we focus our efforts on building tools and services to help sellers grow, our business grows as well. So we have this very nice purchase loop. And that's why we got started in payments in the first place, but that is also what led us to things like Square Capital. Where a number of businesses were not able to get a loan amount that you would typically see on a business credit card, for example, from a bank. So it has replaced some of that usage.

So we focused the majority of our energy on making sure that we're building a service that really helps the seller grow. And looking less around the specific answer, but more around the use case. Sellers need faster access to their funds. They want to take loans. They want to be able to have access to the money immediately. And we focused on Square Capital, and also into deposit.

That said, we're always looking for opportunities for us to provide more financial services to sellers, and also to individuals. Square Cash is an area where you see some of this on the individual side, where people have downloaded Square Cash, and they're storing money in our stored value account. And using a virtual card, which then they also turn into a -- they put on Apple Pay, to actually use as a spending device. So they're using that to spend online and also offline.

And we also have a number of businesses on Square Cash as well. We're definitely not closed to it, but we want to make sure we're focused on the most important use cases. And the most important use cases for sellers right now are to make sure that we're giving them fast and easy access to their money, and also giving them fast and easy access to loans, so that they can grow their business.

Okay, great. Thank you.

Thanks, Kelly.

Darrin Peller, Barclays.

Thanks, guys, nice job. You know, first, starting off on the -- large merchant growth rate keeps showing strong. A little color, if you can, on what is the most recent drivers of that and the sustainability of that into 2017? And then as a follow-on, related, the take rate being sustainably as high as it is, despite the merchant being larger. Can you just give us color on that sustainability throughout the year? And again, some of the incremental drivers that can keep that up?

Well, I'll take the first part of the question, Darrin. This is Jack. So I think when we talk to larger sellers, the same attributes that smaller sellers come to Square for are attractive, and that is the speed of our offering, simplicity, the elegance. But more and more, and I think the platform aspect of what we're doing is important here as well.

So Build with Square is something that larger sellers can take to and integrate with their system. It opens more of the doors for how they want to run their business. Whereas before, they did not have access to the data they needed to actually integrate it into their work flow.

And then the other opportunity that we see is, you know, we do have a significant percentage focused on retail and larger sellers being retailers as well. It is one of the reasons we launched Square for Retail, is, we believe we have an opportunity to build another utility that can scale to any size of merchant. And this is something that we're really focused on, and making sure that we're building a tool that is independent of size, and I can take as one store but I also can run as a 100 stores.

So we've learned a bunch from how people have taken to the platform, and large sellers, in particular. But ultimately, we want to bake that into every aspect of the tool, so they don't have to really think about their size and whether it is compatible with their business. And that is actually working out really well.

Okay. And just on the take rate?

Darrin, why don't I take the take rate question. I think, overall, the take rate sustainability just underscores the value that sellers place on the overall commerce platform that they come to Square for. As we've talked about, if you look at managed payments, it is going beyond -- it is helping them take every tender type that crosses their countertop, be able to account for that and look at reporting and analytics for it. And that includes cash or checks, as well as electronic payments.

And it allows them to manage risk. And the question earlier from our seller -- this is a real pain point, and it's something that we've put a lot of effort behind, to keep our sellers safe and secure. It is next-day settlements, or maybe instant settlements, if you want that.

So I think just like the smaller sellers, larger sellers want all of that too. And when they look at the total cost of ownership of Square, and they look at the take rate on payments, plus the hardware costs, plus the software fee that they may pay, it still stacks up as a really compelling offering. So I think that is showing through on our numbers, and we're very proud of that.

So you would expect that to remain stable through 2017 as well, more or less?

Yes, I think I would just look at what the overall trend line has been, and just stay on the trend line. We don't expect it to particularly shift one way or the other. As we move to larger sellers, we will do a custom price. But we're not afraid to do that. Sometimes that makes a lot of sense, because then they are going to maybe pay for retail point of sale, for example.

On the other side, there are things like invoices, where we did $624 million in GPV in invoices in Q4. And that is a product that actually is priced a little bit higher than our 2.75%. So it is actually a little inflationary to the take rate. So I think there is puts and takes on both sides, but I think the trend line is the right way to look at that for 2017.

All right, that's great. Thanks, guys.

Thank you.

Bryan Keane, Deutsche Bank.

Hey, guys. I wanted to ask about the fourth-quarter EBITDA. It came in at $30 million. That was quite a bit higher than the $16 million to $18 million guidance. So for us that was the biggest surprise in the quarter. What drove some of that out-performance versus your guys' expectations?

Great, thanks Bryan. I think, just starting from the top, clearly, we got $7 million beats on the top end of our guided range. So we just see continued strength on -- transaction-based revenue grew 35% year over year, and on subscription and services, that grew 81% year over year. Clearly within that, areas like capital, as an example, did very well, even sequentially. We saw very strong seasonality in capital, when we had expected it perhaps to drop off more towards the end of the year. So I think, first and foremost, that top-line beat.

And then I think on the OpEx side, you know, we are continuing to drive for greater efficiency. And we've talked about the use of machine learning not just within the products that we show out to our sellers, but also within our own business. There are lots of areas beyond risk where we can take ML and continue to create a better and better experience.

I think support is a great example, where we can absolutely insert a support answer right there in the moment for the seller. Because we have context to what they're doing on their dashboards, and with the use of ML, we can probably intuit what their problem might be. That's a great way to get more and more efficient internally.

I would call out risk, too, though, because this was definitely a highlight in Q4. It was around 9 basis points of GPV, so actually a point below what has been our historical trend. For the year, risk loss was $3 million below what it was in FY15. And that is just by adding $15 billion of GPV. So the investments that we have put in, in automation to risk are clearly paying off. And I think in Q4, we saw a particular out-performance there as well.

Okay, super. And then just a quick follow-up. For guidance for the adjusted EPS, what is a fully diluted share count we should be using and thinking about? Thanks so much, and congrats on the quarter.

So let me come back to on the adjusted. We've not given out guidance on the fully diluted share count. But I'll follow up with the team, and we'll probably send our normal follow-up, post-quarter, of here's how to think about what's in the fully diluted share count, and then how it may trend as you look out into Q1.

Okay, thanks.

Dan Perlin, RBC.

Thanks. So the question I have is on the three areas of focus, Jack, that you laid out, the integration, automation and platform. I think the one question that comes to mind is just how should we be thinking layering those into the model throughout the year from a cadence perspective?

And then the second part of that is, which of those three -- and I know they all create scale. But which are the ones that you think you're furthest behind on, and so to the extent that you drive higher integration that drives more attachment and incremental scale? I'm just trying to think of the relative importance of those three. Thank you.

Yes, I think the one that provides us the most leverage, and probably where we have the biggest opportunity, actually, are two of them. One is the integration. So just further integrating our services and taking advantage of the ecosystem that we've built is a really big opportunity. I think we have a much greater opportunity to cross-sell a lot of our products into our base. One of the things that we hear a lot is, sellers just aren't aware of the services that we're providing. So we see a ton of momentum there we can fix.

And then the other one is, we have really been fantastic at applying machine learning to risk, and it definitely shows. But we need to now apply it to every aspect of how we run internally, but also our customer experiences. And that's from the Register to Square Cash to Square Capital. So we're getting a lot smarter and better about applying that discipline to more places in the Company.

And the more we automate internally, the more efficient we run. But the more we automate for our sellers, the more they can grow without having to think about much of the mechanical stuff that we would put them through otherwise. So those, to me, really stand out.

Platform, we're really excited about, because it's one that allows others to build on top of us, and then we get more integrated into more services. And we also get a learning opportunity on what people need and where to go next. But I think the two I'm most focused on are just how we integrate better in terms of all of the services that we have, and then how we create more automation within it.

In terms of layering them onto the model, these are three themes that just kind of make everything better. But they are in priority order, so we are focused first and foremost on making sure we better integrate our services and take advantage of the cross-sell opportunities, the automation. And then getting those two right provides a much stronger and more cohesive platform for both internal teams and external teams. And ultimately, it just allows us to move faster.

I think Virtual Terminal is a good example of this, where we went from zero and building a product in two months, to some pretty impressive growth in that product. So there is a number of things like that we can do with a stronger internal platform, that we can also make external as well.

Excellent, thank you.

Thank you.

James Faucette, Morgan Stanley.

Thanks a lot. I wanted to ask a follow-up question on transaction losses, et cetera. You indicated that you obviously made great strides there. How are you thinking about those going forward? And can they remain low, as low as they have been, or what are your assumptions for planning in 2017? Thanks.

Thanks, James. So I think overall, as we look into 2017, we expect a relatively steady state from what we're seeing in 2016, as we planned, although we always want to do better. But as we go into new countries, as we launch new products, those bring with them new challenges. And so I want to make sure we're staying mindful of those. So I would think about it as more steady FY16 going into FY17.

I would note that within transaction and advance losses, there is also the capital portion. I didn't talk about it earlier, but it was also a highlight. We continue to maintain 4% loan default rates. Again, that speaks to quality of the data that we have. It is very unique to Square, that we get an eye into someone's business via their point of sale, very high-quality data that we can then feed into our models, that have continued to sustain this sort of default rate.

And we will, of course, always want to press and get better there, but making sure that we also are mindful of growth. So then I would kind of view it as steady as she goes, as we go into 2017.

Andrew Jeffrey, SunTrust.

Hi, thanks for taking the question. With regard to the GPV growth this quarter -- which decelerated a little bit, although it still remains impressive, obviously -- just wondering if some of that is law of large numbers? And how much of the modestly slower growth from larger merchants feeds into that take rate? In other words, are we looking at a period of approaching steady-state, sustainable revenue growth as margin expands? Or how do you frame up the relationship between those two items?

Okay. So I think I gathered the crux of the question. I think from a GPV perspective, continuing to grow at 34% year over year, when you're doing $14 billion in a quarter. We're really proud of the scale that we're at, and that we're still sustaining this sort of growth.

And I think when I look at where GPV growth continues to come from, as we look out through 2017, you know, I talked a little bit about that white space. We still have an ability to move, I think, more up-market, but continue to take more share, even in micro. There's still a lot of sellers out there who are cash-only. And every day, we're bringing them onto the platform and showing them the benefits of being able to take electronic payments, because it helps their business grow. So I think the base still has a lot of opportunity in it.

Clearly as we turn on new international markets, like Australia -- it has been a highlight in the last year and done quite well. That also provides a good growth vector on the GPV front. And then the shift from offline to online, as Jack talked about, with platform, is another new arena for us to play in, in terms of GPV growth. So I would say, we continue to expect to see a healthy clip, and we're investing that way.

In terms of steady-state revenue growth as margin expands, I think we would say, we've given you the guide on what we expect revenue growth to be. At the midpoint for the year, it is still a 30% clip. And against that, a 5% or a 5-point margin expansion. So I wouldn't say we're in steady-state land yet. We're clearly still in high-growth land. And we feel confident in the guidance that we've given you.

Okay, that's helpful. With regard to sales and marketing, is it still your view that about half of your new business comes by word of mouth? Has that changed at all?

So overall, we have built a product that is really loved by our merchants. Our net promoter score has stayed in the 70 range, which is really kind of unheard of, in a way, for an enterprise-type product. But it feels much like a consumer product; and even there, it would be right up in the top percentile. I think because of that sort of net promoter score, the flywheel of growth, where sellers tell sellers about Square and that is how they come onto the platform, that remains a really strong flywheel for us.

Coming back to how you can all measure it and look at it externally, we're maintaining that four- to five-quarter payback period. Because we both benefit from the word-of-mouth piece of marketing, and then that allows us to continue to press into other scalable channels, be it search, be it events. It could be retail, it might be direct mail, or even out there in the spectrum DirecTV. So when they're all blended together, that is really the ROI we look at, by cohort.

Okay, thank you.

Thank you.

Neil Doshi, Mizuho.

Hi, Neil. You might be on mute. Okay, operator, I think we either move on, or can you just check his line?

Paul Condra, Credit Suisse.

Hey, thanks, and afternoon all, and nice job here. I just wondered, can you give us any color on revenue growth across your segments? Any kind of qualitative things just to kind of help us model out what to look for, what transactions might look like, what subscription services might look like in hardware?

Sure. So in terms of total guidance, so at the midpoint, 30% year-over-year growth on adjusted revenue for 2017. Again, I would come back and point to the fact that we think about our business holistically. And so how products get monetized we're somewhat indifferent to.

There are new products like invoices that today get monetized through a transaction fee. So you will see them in transaction-based revenue. And there are products like retail point of sale, where we charge a subscription fee. So rather than going line by line, we holistically think about what is the market opportunity ahead of us, and how do we continue to both grow the base of Square sellers with more cross-sell and up-sell, as Jack talked about. And then also add net new.

You know, I think we've given you some help in products like Capital, for example. We called out that we facilitated loans of $248 million in Q4, grew 68% year over year. We've given you that each quarter, so I think you're able to draw from that some sense of what Capital looks like as we go through 2017.

Within the subscription and services fee line, Caviar would be next in terms of scale, and then after that, Instant Deposit. But I want to come back to just overall, when we think about revenue growth and when we build our model internally, we think about it holistically across all the categories, not building each category up line by line.

Okay, thanks for that. My follow-up would just be, I heard some discussion that maybe you're considering ISO distribution, or some kind of third-party distribution. I'm wondering if that is a discussion you're having? Or if maybe you could frame up the debate and how you are thinking about that?

It has always been a question that we've had, where we're looking for all available channels to us to make sure that we're reaching sellers where they are. As Sarah talked about earlier, the fact that our hardware shapes as a Company's name, makes us very discoverable, and always has been.

So every time there is a Square register or a Square in a device, it is a marketing impression. And we have this very rich network of sellers who are talking about us, because we're handling more and more of their business. So that continues to be a strong driver for us, and creates a lot of word-of-mouth attention.

So we haven't found it necessary to go beyond those particular channels that work really well for us. So word of mouth, the online, the retail stores, those continue to serve us extremely well, and we haven't really found a major reason to go to new channels like ISOs. But we're always open to it. The guiding principle here is here is just meeting sellers where they are, and we're finding that a lot of sellers are introducing us to other sellers. And that's been really impactful.

Great, thanks, all. Have a good afternoon.

Thanks, Paul.

Bob Napoli, William Blair.

Thank you, and nice job on the quarter. I would know you're thinking, Sarah, of things holistically. But I still would like to get a little better feel for some of the different line items. In Instant Deposit, you talked about a pretty big number, $625 million of volume. But you're saying most of that revenue shows up in transactions.

As you look at the quarter, Square Capital -- and I know in the past, you've talked about you had the ability to increase pricing. Some of the other lenders in the area, like OnDeck, have had a lot of pressure on their gains. The $40 million that you have -- and I'm trying to build a lot into this. Square Capital -- are the gains still in the high single-digits?

Is Caviar growing very fast, and a key long-term product? What percentage of the revenue is Caviar? That would be really helpful, if you could give a little more color on the breakout of that item, that piece of the income statement.

Great. Okay, thanks, Bob.

Thank you. Sorry.

So first, just on the $648 million, that is for Invoices as a product.

Right.

And so not Instant Deposit. So Invoices, and Invoices would show transaction-based revenue. No, not at all. I just wanted to confirm. Within the subscription service fees line, let me start with Capital, because I think you had a lot of questions in there.

Capital is a product -- I think what 2016 really unveiled was just how differentiated our Capital product is in the market. So we have a base of millions of sellers, we have a very trusted brand. And we're able to look at data that is very unique to their business, in order to be able to manage the risk of a decision around being willing to facilitate a loan.

So I think, first and foremost, we're doing something very unique. We're also meeting them where they are. So they often get the flag on that Capital loan being available in their dashboard or via an e-mail -- all avenues that they're conversing with us, often on a daily basis.

I think, therefore, from an investor standpoint -- because I think that is where you're talking about, the high single-digits -- we therefore have seen a lot of interest from an investor standpoint. Because they understand the uniqueness of the product that Square is bringing.

And so we have a very healthy group of investors in place today that can absolutely meet the capacity for growth for Capital for 2017. And we have a list of investors who would like to get in on the program, too. So we feel very good about the supply and demand, what is going on from supply and demand perspective in Capital, overall.

On Caviar, we have not been specific on revenue and so forth. Super-pleased with how that product is growing. I think we last talked about it being almost 11 X since we bought it. We haven't updated that number, but safe to say that it has continued to multiply from when we first purchased Caviar as a company.

I think on the integration point, one of our big focuses as a Company, that is a great example where integration really comes into its own. Because a Square seller might, on board, be a Caviar, because they want to use delivery to grow their business. But quickly we can show them some of the benefits of our Point of Sale, and of our broader platform. And so we definitely do see products like Caviar becoming a good on-ramps. So I think that is an area where we can continue to push for even more integration over time.

I think the final question on Instant Deposit -- still a very young product overall. We see a way to monetize it both for our sellers, but also within Square Cash. I think on the sellers side, the key for 2017 is just more awareness. To Jack's point, many of our products are still quite young, and people don't know about them yet.

But we absolutely know that sellers want faster access to funds, and that when they get faster access to funds, they're able to use that for growth. So we view Instant Deposit as just another vector for that. Hopefully, that helps you think, at least from a qualitative perspective, where we are excited from a product standpoint, and how we would expect those to grow.

Okay. And the fastest growth piece of that is Square Capital in 2017?

No, it won't be the fastest. Because frankly, when we have very new products like Square for Retail that are starting from a base of zero or law of smaller numbers that happens there. I think the point of Capital is both large and material within that line item, but it still has very healthy growth, even at that scale.

Thank you. I really appreciate it.

Tom McCrohan, CLSA.

Hi, thanks for squeezing me in. I just want to have a question on the API strategy. You're really opening up your platform through APIs. And if you can give a sense of the overall GPV contribution from your various API offerings, as well as the relative margins for an API-based GPV transaction versus your other business? Thanks.

Yes, I'll start with that. Platform has definitely been a focus for us, and it's going to be a focus for us this entire year. And we had a good strong start with Build with Square. And we have seen some really good momentum and a host of amazing developers.

I think the most important thing here is, it's giving us and our sellers more optionality to provide custom solutions, so that they can better integrate us into their work flows. And that's really important for larger sellers, but we're seeing more and more how important that is for smaller sellers as well.

One of the things we're focused on a lot in the Build with Square platform is really making sure that we provide an amazing developer experience as well, so that we're saving developer's time. So that with their clients, whether they be small sellers or larger sellers, online or offline, they can move much faster, and integrate Square faster, so they can be up and running much faster.

So it's still early, but we're learning a lot, and we have a really strong team behind it. And we're also walking the walk, to make sure that we use it internally as well. And as I mentioned earlier, Virtual Terminal is a product that we were able to build in just two months, given how mature our platform has become. And those same tools are available to external developers as well. So early, but exciting, and kick it over to Sarah for GPV.

Yes, right now in terms of the contribution to GPV from the API strategy, not ready to yet call it out. It is still small and in the early phases. And similarly, from a margin perspective, it should not impact the margin. So as I talked about previously, as you think about 2017, look at the historical run rate of what's gone on for transaction-based profit margin, and continue to assume that same trajectory into 2017.

Thank you.

Great. Thank you.

I'd like to turn the call back to Jason for closing remarks.

Thank you, everyone, for joining our call. I would also like to remind everyone that we will be hosting our first-quarter 2017 earnings call on May 3. Thanks again for participating today.

This does conclude the program. You may all disconnect.