SQUARE, INC. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)

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You should read the following discussion and analysis in conjunction with the
information set forth within the condensed consolidated financial statements and
the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as
well as our Annual report on Form 10-K. The statements in this discussion
regarding our expectations of our future performance, liquidity and capital
resources, our plans, estimates, beliefs and expectations that involve risks and
uncertainties, and other non-historical statements in this discussion are
forward-looking statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to, the risks and
uncertainties described under "Risk Factors" and elsewhere in this Quarterly
Report on Form 10-Q. Our actual results may differ materially from those
contained in or implied by any forward-looking statements.

Overview

We started Square in February 2009 to enable businesses (sellers) to accept card
payments, an important capability that was previously inaccessible to many
businesses. However, sellers need many innovative solutions to thrive, and we
have expanded to provide them additional products and services and to give them
access to a cohesive ecosystem of tools to help them manage and grow their
businesses. Similarly, with Cash App, we have built a parallel ecosystem of
financial services to help individuals manage their money.

Our Seller ecosystem is a cohesive commerce ecosystem that helps sellers start,
run and grow their businesses, and consists of over 30 distinct software,
hardware, and financial services products. We monetize the majority of these
products through a combination of transaction, subscription, and service fees.
Our suite of cloud-based software solutions are integrated to create a seamless
experience and enable a holistic view of sales, customers, employees, and
locations. With our offering, a seller can accept payments in person via swipe,
dip, or tap of a card, or online via Square Invoices, Square Virtual Terminal,
or the seller's website. We also provide hardware to facilitate commerce for
sellers, which includes magstripe readers, contactless and chip readers, Square
Stand, Square Register, Square Terminal, and third-party peripherals. Our Seller
ecosystem includes Square Banking for our U.S. sellers, offering a suite of
products including Square Savings, Square Checking, and Square Loans (formerly
known as Square Capital). In the second quarter of 2021, we began offering
Square Loans in Australia. Square Savings allows sellers to automatically set
aside funds from daily sales into savings accounts that earn interest. Square
Checking provides sellers with an FDIC insured account allowing them access to
funds for business expenses using their Square Debit Card or for paying
employees via Square Payroll. Square Loans offers sellers access to business
loans based on the seller's payment processing history. We recognize revenue
upon the sale of the loans to third-party investors or over time as the sellers
pay down the outstanding amounts for the loans that we hold as available for
sale or for investment. We have grown rapidly to serve millions of sellers that
represent a diverse set of industries (including services, food-related
business, and retail businesses) and sizes, ranging from a single vendor at a
farmers' market to multi-location businesses. Square sellers also span
geographies, including the United States, Canada, Japan, Australia, the United
Kingdom, Ireland, and France.

Our Cash App ecosystem provides financial tools for individuals to store, send,
receive, spend and invest money. With Cash App, customers can fund their account
with a bank account or debit card, send and receive peer-to-peer payments, and
receive direct deposit payments. Customers can make purchases with their Cash
Card, a Visa prepaid card that is linked to the balance stored in Cash App.
Additionally, customers can use Cash App Pay, a checkout option which allows
customers to pay using their Cash App account. With Cash Boost, customers
receive instant discounts when they make Cash Card purchases at designated
merchants. Customers can also use their stored funds to buy and sell bitcoin and
equity investments within Cash App. The Cash App ecosystem also includes a tax
filing product for individuals, providing a seamless, mobile-first solution for
individuals to file their taxes for free.

We also recently launched TBD, a bitcoin-focused company formed to create an open development platform with the goal of facilitating the creation of non-custodial, unlicensed and decentralized financial services.

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On August 1, 2021, we entered into a definitive agreement to acquire Afterpay by
way of a court-approved Scheme of Arrangement for 0.375 share of our Class A
common stock for each outstanding Afterpay ordinary share. The estimated
aggregate purchase consideration based on our closing stock price of $239.84 as
of September 30, 2021 and the outstanding shares of Afterpay as of the same
date, excluding the value of replacement equity awards, is $26.6 billion,
comprising approximately 111 million shares of our Class A common stock. The
final determination of the purchase consideration will depend on our stock price
and the outstanding shares of Afterpay at the closing date of the transaction.
The transaction is expected to close in the first quarter of 2022. Afterpay, a
pioneering global 'buy now, pay later' (BNPL) platform, is expected to
accelerate our strategic priorities for our Seller and Cash App ecosystems.
Refer to Note 8, Acquisitions, of Notes to the Condensed Consolidated Financial
Statements for further details.
On July 20, 2021, we launched Square Banking to our U.S. sellers, expanding
access to financial services, which includes Square Savings, Square Checking,
and Square Loans (formerly known as Square Capital). Square Loans and Square
Savings are offered through our wholly-owned subsidiary, Square Financial
Services, Inc. ("Square Financial Services"), and Square Checking through a
partner bank.
On April 30, 2021, we completed the acquisition of a majority ownership interest
in TIDAL as detailed in Note 8, Acquisitions, of Notes to the Condensed
Consolidated Financial Statements. TIDAL is a global music and entertainment
platform that brings fans and artists together through unique music, content,
and experiences. The acquisition extends our purpose of economic empowerment to
musicians.
On May 20, 2021, we issued an aggregate principal amount of $2.0 billion of
senior unsecured notes comprised of $1.0 billion of senior unsecured notes that
mature on June 1, 2026 ("2026 Senior Notes") with a 2.75% interest rate, and
$1.0 billion of senior unsecured notes that mature on June 1, 2031 ("2031 Senior
Notes") with a 3.50% interest rate. The 2026 Senior Notes and 2031 Senior Notes
will mature on each of its respective dates, unless earlier redeemed or
repurchased. Interest on the 2026 Senior Notes and 2031 Senior Notes will be
payable semi-annually on June 1 and December 1 of each year beginning on
December 1, 2021. We intend to use the net proceeds from our 2026 Senior Notes
and 2031 Senior Notes offerings for general corporate purposes, which may
include potential acquisitions and strategic transactions, capital expenditures,
investments and working capital.
On March 1, 2021, the industrial loan company charter for Square Financial
Services was approved by the Federal Deposit Insurance Corporation ("FDIC").
Square Financial Services offers banking services including certain loan and
deposit products.

We participated in two rounds of the Paycheck Protection Program ("PPP") under
the provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act"). These PPP loans are guaranteed by the U.S. government and are eligible
for forgiveness if the borrowers meet certain criteria. As of September 30,
2021, we had facilitated the issuance of $1.4 billion of loans in the aggregate
under the program, of which we had sold $399.0 million to an investor. As of
September 30, 2021, approximately $434.2 million in the aggregate of PPP loans
had been forgiven by the SBA, of which, $387.9 million was forgiven in the third
quarter of 2021. We approved and funded the last remaining PPP applications on
May 21, 2021 upon exhaustion of the funds in the program.

To fund some of our PPP loans, we entered into Paycheck Protection Program
Liquidity Facility agreements with the Federal Reserve Bank of San Francisco for
an aggregate principal amount of up to $1.0 billion. Borrowings under the
facility accrue interest at a rate of 0.35% and advances are collateralized by
the same value of the loans originated under the PPP. The maturity date of any
PPPLF advance is the maturity date of the PPP loan pledged to secure the
advance, and will be accelerated upon the occurrence of certain events of
default. The advances under the facility are repayable if the associated PPP
loans are forgiven, repaid by the customer, or settled by the government
guarantee. As of September 30, 2021, $725.7 million of PPPLF advances were
outstanding.

Update on the impact of COVID-19 on current trends and outlook

Continuing into the third quarter of 2021, we experienced improvements in our
business, despite the rise of COVID-19 delta variant infection rates across the
country. These improvements were mainly as a result of varying states of
continued economic recovery and re-openings in the majority of U.S. markets that
our customers operate in. We experienced growth in our Seller GPV performance,
as in-person activity at sellers continued to increase on a year-over-year
basis. Overall, we continued to experience improvements in our business in our
international markets, although regional lockdowns in select markets
periodically affected in-person activity. Our Cash App business performed well
due to increased consumer spending, as we continued to benefit from the strength
of a broader macroeconomic recovery, regional re-openings, and government
stimulus and relief programs enacted in response to COVID-19.
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Although our business results and outlook remain positive, the emergence of new
and more transmissible variants of COVID-19 could lead to a possible resurgence
of the virus, particularly in populations with low vaccination rates, requiring
the reimplementation of restrictions. The extent to which the pandemic will
further impact our financial results in the future is unknown.
Results of Operations
Revenue (in thousands, except for percentages)
                                                          Three Months Ended                                                                    Nine Months Ended
                                                             September 30,                                                                        September 30,
                                  2021                 2020              $ Change             % Change                2021                  2020               $ Change              % Change
Transaction-based revenue    $ 1,297,040          $   925,294          $ 371,746                     40  %       $  3,484,245          $ 2,365,967          $ 1,118,278                     47  %
Subscription and
services-based revenue           694,770              447,522            247,248                     55  %       $  1,937,629          $ 1,090,032          $   847,597                     78  %
Hardware revenue                  37,255               27,294              9,961                     36  %            109,769               67,291          $    42,478                     63  %
Bitcoin revenue                1,815,662            1,633,764            181,898                     11  %       $  8,051,026          $ 2,815,318          $ 5,235,708                    186  %
Total net revenue            $ 3,844,727          $ 3,033,874          $ 810,853                     27  %       $ 13,582,669          $ 6,338,608          $ 7,244,061                    114  %


Total net revenue for the three and nine months ended September 30, 2021
increased by $810.9 million, or 27%, and $7.2 billion, or 114%, compared to the
three and nine months ended September 30, 2020, respectively. Bitcoin revenue
increased by $181.9 million and $5.2 billion for the three and nine months ended
September 30, 2021 compared to the three and nine months ended September 30,
2020, respectively, and represented 22% and 72% of the increase in total net
revenue for the three and nine months ended September 30, 2021, compared to the
three and nine months ended September 30, 2020, respectively. Excluding bitcoin
revenue, total net revenue increased by $629.0 million, or 45%, and $2.0
billion, or 57%, in the three and nine months ended September 30, 2021 compared
to the three and nine months ended September 30, 2020, respectively.
Transaction-based revenue for the three and nine months ended September 30, 2021
increased by $371.7 million or 40%, and $1.1 billion or 47%, compared to the
three and nine months ended September 30, 2020, respectively. These increases in
revenue were in-line with the increase in GPV of 43% and 51% for the three and
nine months ended September 30, 2021 compared to the three and nine months ended
September 30, 2020, respectively. The increase in transaction-based revenue was
driven by the:
•continued improvements in both card-present volumes as a result of regional
re-openings and resumed in-person activity at sellers, as well as growth in
higher-priced card-not-present transactions;
•increase in consumer spending driven in part by a broader macro economic
recovery, regional re-openings and growth in our Seller GPV in international
markets despite periodic lockdowns in certain markets, as well as U.S.
government disbursements related to stimulus programs enacted through the third
quarter of 2021; and
•growth in Cash App Business GPV which includes Cash for Business and
peer-to-peer payments sent from a credit card. Cash for Business includes
peer-to-peer transactions received by business accounts using Cash App.
These factors had varying impacts on GPV growth and may continue to impact our
revenues in the future.

Subscription and services-based revenue for the three and nine months ended
September 30, 2021 increased by $247.2 million, or 55%, and $847.6 million, or
78%, compared to the three and nine months ended September 30, 2020,
respectively. These increases were primarily driven by Cash App and Seller. The
increase in Cash App subscription and services-based revenue is primarily due to
increased Cash Card usage and Cash App Instant Deposit volumes. Seller
subscription and services-based revenue increased primarily due to the increased
origination volumes of Square Loans, other software subscriptions, and Instant
Transfer for sellers. Subscription and services-based revenue also includes
revenue generated from music streaming services following the acquisition of
TIDAL in the second quarter of 2021.

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Hardware revenue for the three and nine months ended September 30, 2021
increased by $10.0 million, or 36%, and $42.5 million, or 63%, compared to the
three and nine months ended September 30, 2020, respectively. These increases
were primarily a result of an overall increase in sales of hardware across many
of our product offerings primarily due to Square Register, Square Terminal, and
third party peripherals.
Bitcoin revenue for the three and nine months ended September 30, 2021 increased
by $181.9 million, or 11%, and $5.2 billion, or 186%, compared to the three and
nine months ended September 30, 2020, respectively. The increase was due to the
market price of bitcoin and growth in the number of active bitcoin customers.
The amount of bitcoin revenue recognized will fluctuate depending on customer
demand as well as changes in the market price of bitcoin. This smaller increase
in the three months ended September 30, 2021 was impacted by the stability in
the price of bitcoin, which reduced buying and selling activity compared to
prior quarters. While bitcoin revenue contributed 47% and 59% of the total net
revenue in the three and nine months ended September 30, 2021, respectively, and
22% and 72% of the increase in total net revenues in the three and nine months
ended September 30, 2021, respectively, gross profit generated from bitcoin
transactions was only 4% and 5% of the total gross profit in the three and nine
months ended September 30, 2021, compared to 4% and 3% of total gross profit in
the three and nine months ended September 30, 2020, respectively.
Cost of Revenue (in thousands, except for percentages)
                                                          Three Months Ended                                                                    Nine Months Ended
                                                             September 30,                                                                        September 30,
                                  2021                 2020              $ Change             % Change                2021                  2020               $ Change              % Change
Transaction-based costs      $   754,276          $   524,056          $ 230,220                     44  %       $  1,965,894          $ 1,379,658          $   586,236                     42  %
Subscription and
services-based costs             132,046               68,528             63,518                     93  %            346,144              161,801              184,343                    114  %
Hardware costs                    51,150               45,220              5,930                     13  %            153,035              108,348               44,687                     41  %
Bitcoin costs                  1,774,040            1,601,615            172,425                     11  %          7,879,816            2,759,082            5,120,734                    186  %

Total cost of revenue        $ 2,711,512          $ 2,239,419          $ 472,093                     21  %       $ 10,344,889          $ 4,408,889          $ 5,936,000                    135  %



Total cost of revenue for the three and nine months ended September 30, 2021
increased by $472.1 million, or 21%, and $5.9 billion, or 135%, compared to the
three and nine months ended September 30, 2020, respectively. Bitcoin costs of
revenue increased by $172.4 million and $5.1 billion in the three and nine
months ended September 30, 2021, compared to the three and nine months ended
September 30, 2020, respectively, and represented 37% and 86% of the increase in
the total cost of revenue in the three and nine months ended September 30, 2021
compared to the three and nine months ended September 30, 2020, respectively.
Excluding bitcoin costs of revenue, total cost of revenue increased by
approximately $299.7 million, or 47%, and $815.3 million, or 49%, in the three
and nine months ended September 30, 2021, compared to the three and nine months
ended September 30, 2020, respectively.

Transaction-based costs increased by $230.2 million, or 44%, and $586.2 million,
or 42%, compared to the three and nine months ended September 30, 2020,
respectively, while GPV grew by 43% and 51% in the same periods.
Transaction-based costs during the three months ended September 30, 2021 were
affected by a decrease in the percentage of debit card transactions which have a
lower cost per transaction, and a decrease in average transaction sizes
resulting in higher cost per transaction. However, for the nine months ended
September 30, 2021, the overall percentage of debit card transactions was higher
compared to the nine months ended September 30, 2020, resulting in a smaller
percentage increase in transaction costs compared to the percentage increase in
GPV, a trend which we do not expect to continue in future periods as transaction
costs customarily increase in proportion to GPV.

Subscription and services-based costs for the three and nine months ended
September 30, 2021 increased by $63.5 million, or 93%, and $184.3 million, or
114%, compared to the three and nine months ended September 30, 2020,
respectively. The increase in the three and nine months ended September 30, 2021
was driven primarily by growth in Cash Card, Instant Deposit activity and costs
related to music streaming services following the acquisition of TIDAL in the
second quarter of 2021.

Hardware costs for the three and nine months ended September 30, 2021 increased
by $5.9 million, or 13%, and $44.7 million, or 41%, compared to the three and
nine months ended September 30, 2020, respectively. The increase was primarily
due to the increased sales of hardware, as further discussed in hardware revenue
above.

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Bitcoin costs for the three and nine months ended September 30, 2021 increased
by $172.4 million, or 11%, and $5.1 billion, or 186%, compared to the three and
nine months ended September 30, 2020, respectively. Bitcoin cost of revenue
comprises of the total amounts we pay to purchase bitcoin, which will fluctuate
in line with bitcoin revenue.


Operating expenses (in thousands, except for percentages)

                                                         Three Months Ended                                                                   Nine Months Ended
                                                            September 30,                                                                       September 30,
                                  2021                2020             $ Change             % Change                2021                 2020               $ Change              % Change
Product development          $   366,587          $ 227,550          $ 139,037                     61  %       $ 1,003,238          $   631,156          $   372,082                     59  %
% of total net revenue                10  %               8  %                                                           7  %                10  %
Sales and marketing          $   407,850          $ 348,463          $  59,387                     17  %       $ 1,132,411          $   781,094          $   351,317                     45  %
% of total net revenue                11  %              11  %                                                           8  %                12  %

general and administrative $ 267,476 $ 153,902 $ 113,574

                     74  %       $   684,405          $   419,783          $   264,622                     63  %
% of total net revenue                 7  %               5  %                                                           5  %                 7  %

Losses on transactions and loans $ 62,306 $ 15,198 $ 47,108

                    310  %       $   130,874          $   161,684          $   (30,810)                   (19) %
% of total net revenue                 2  %               1  %                                                           1  %                 3  %

Bitcoin value losses $ 6,000 $ – $ 6,000

                      -  %       $    71,126          $         -          $    71,126                      -  %
% of total net revenue                 -  %               -  %                                                           1  %                 -  %
Total operating expenses     $ 1,110,219          $ 745,113          $ 365,106                     49  %       $ 3,022,054          $ 1,993,717          $ 1,028,337                     52  %



Product development expenses for the three and nine months ended September 30,
2021 increased by $139.0 million and $372.1 million, or 61%, and 59%,
respectively, compared to the three and nine months ended September 30, 2020,
due primarily to the following:

•an increase of $105.9 million and $268.9 million in personnel costs for the
three and nine months ended September 30, 2021, respectively, related to an
increase in headcount among our engineering, data science, and design teams, as
we continue to improve and diversify our products. The increase in personnel
related costs includes an increase in share-based compensation expense of $42.5
million and $108.6 million for the three and nine months ended September 30,
2021, respectively; and

•an increase of $20.8 million and $83.0 million in software and data center
costs, consulting, and certain Cash App crypto networks operating costs for the
three and nine months ended September 30, 2021, respectively, as a result of
increased capacity needs and expansion of our cloud-based services. Beginning in
the third quarter of 2021, certain operating costs related to Cash App crypto
network products that are offered for free were reclassified to sales and
marketing, while the portion of operating costs attributable to
revenue-generating products have been reclassified to cost of revenues.

Sales and marketing expenses for the three and nine months ended September 30,
2021 increased by $59.4 million or 17%, and $351.3 million or 45%, compared to
the three and nine months ended September 30, 2020, respectively, primarily due
to the following:

•an increase in Cash App marketing costs for the three and nine months ended
September 30, 2021 of $13.4 million and $189.4 million, respectively. For the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020, Cash App customer acquisition costs increased by $43.5
million, partially offset by a $33.4 million reduction related to lower
processing costs and transaction losses. For the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020, Cash App customer
acquisition costs increased by $106.8 million while the processing costs and
related transaction losses increased by $69.3 million primarily as a result of
increased volume of activity with our Cash App peer-to-peer service and
increased card issuance costs. Cash App customer acquisition costs include
advertising costs and costs associated with various incentives to customers. We
consider the free services such as stock investing, and certain Cash Card and
peer-to-
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Peer Services to Cash App Customers are marketing initiatives aimed at attracting new customers and encouraging the use of Cash App;

•an increase of $21.2 million and $57.6 million in sales and marketing personnel
costs for the three and nine months ended September 30, 2021, respectively to
enable growth initiatives. The increase in personnel related costs includes an
increase in share-based compensation expense of $4.0 million and $13.3 million
for the three and nine months ended September 30, 2021, respectively;
•an increase of $5.5 million and $55.7 million in advertising costs for our
Seller services for the three and nine months ended September 30, 2021,
respectively, primarily from increased online and television marketing
campaigns; and

•an increase in sales and marketing expenses due to the recent acquisition of
TIDAL completed in the second quarter of 2021.
General and administrative expenses for the three and nine months ended
September 30, 2021 increased by $113.6 million or 74% and $264.6 million or 63%,
compared to the three and nine months ended September 30, 2020, respectively,
primarily due to the following:

•an increase of $54.5 million and $145.4 million in general and administrative
personnel costs for the three and nine months ended September 30, 2021,
respectively, mainly as a result of additions to our customer support, finance,
and legal personnel as we continued to add resources and skills to support our
long-term growth as our business continues to scale. The increase in personnel
related costs includes an increase in share-based compensation expense of $8.1
million and $24.1 million for the three and nine months ended September 30,
2021, respectively; and

• the remainder of the increase is mainly explained by an increase in software and subscription costs, legal fees and other professional fees of third parties, including fees for costs related to the acquisition, and other costs administrative.

Transaction and loan losses for the three and nine months ended September 30,
2021 increased by $47.1 million or 310%, and decreased by $30.8 million or 19%,
compared to the three and nine months ended September 30, 2020, respectively,
primarily due to the following:

•transaction losses for the three months ended September 30, 2021 increased by
$44.3 million compared to the three months ended September 30, 2020, while
transaction losses decreased by $9.4 million for the nine months ended September
30, 2021 compared to the nine months ended September 30, 2020. The increase in
the three months ended September 30, 2021 was due to increased transaction
volumes associated with Cash Card in the three months ended September 30, 2021.
Additionally, for the three months ended September 30, 2020, we released certain
previously established Seller risk loss provisions related to the first half of
2020 due to better than expected realized transaction losses, which offset
transaction losses for that quarter. The decrease in the nine months ended
September 30, 2021 was due to lower Seller risk loss provisions recorded as
businesses recovered as a result of regional re-openings and broader macro
economic recovery, reducing the risk of chargebacks related to uncollectibility.
Overall, we recorded higher risk loss provisions for our Seller business in the
prior year due to the expected impact of COVID-19.

•loan losses for the three months ended September 30, 2021 increased by $2.8
million compared to the three months ended September 30, 2020. Loan losses for
the nine months ended September 30, 2021 decreased by $21.4 million compared to
the nine months ended September 30, 2020. The slight increase in loan losses in
the three months ended September 30, 2021 as compared to September 30, 2020 was
due to increased loan volumes, whereas the primary driver for the decrease in
loan losses in the nine months ended September 30, 2021 was due to the higher
incremental provisions that were recorded during the first quarter of 2020
associated with the COVID-19 pandemic. Additionally, loan losses in the three
and nine months ended September 30, 2021 also includes loan losses attributable
to early stage products for Cash App.
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Bitcoin impairment losses were $6.0 million and $71.1 million in the three and
nine months ended September 30, 2021, respectively, due to the market price of
bitcoin decreasing below the carrying value of our bitcoin investment observed
during the period. As of September 30, 2021, the fair value of our investment in
bitcoin was $351.7 million based on observable market prices, which is
$202.8 million in excess of the carrying value of our investment of
$148.9 million. Any unrealized gains on our bitcoin investment will only be
recognized upon the sale of such bitcoin investment.

Interest Expense, Net, and Other Expense (Income), Net (in thousands, except for
percentages)
                                             Three Months Ended                                                            Nine Months Ended
                                                September 30,                                                                September 30,
                       2021              2020            $ Change            % Change               2021               2020             $ Change            % Change
Interest expense,
net                 $ 13,409          $ 14,980          $ (1,571)                  (10) %       $  20,126          $  38,955          $ (18,829)                  (48) %
Other expense
(income), net       $ 12,011          $   (784)         $ 12,795                       NM       $ (36,249)         $ (20,513)         $ (15,736)                   77  %



Interest expense, net, for the three and nine months ended September 30, 2021
decreased by $1.6 million and $18.8 million, compared to the three and nine
months ended September 30, 2020, respectively. The decrease was primarily due to
lower non-cash interest expense related to our convertible notes as a result of
the adoption of ASU No. 2020-06 on January 1, 2021. Under ASU No. 2020-06,
convertible notes will no longer be separated into a debt and equity component,
thereby eliminating the discount associated with the equity component and the
interest expense associated with such discount. This was offset in part by
increases in cash interest expense related to the issuance of the 2031 Senior
Notes and 2026 Senior Notes issued in May 2021. Refer to Note 13, Indebtedness,
of Notes to the Condensed Consolidated Financial Statements for further details.

Other income, net for the three and nine months ended September 30, 2021
decreased by $12.8 million and increased by $15.7 million compared to the three
and nine months ended September 30, 2020, respectively. The decrease in the
three months ended September 30, 2021 was due to the losses from the revaluation
of investments in non-marketable equity securities, foreign exchange losses, and
amortization of investments in marketable debt securities. The increase in the
nine months ended September 30, 2021 was primarily due to the mark to market net
gain of our equity investment in DoorDash of $44.4 million arising from the
revaluation of this investment, offset in part by the losses from the
revaluation of investments in non-marketable equity securities, foreign exchange
losses, and amortization of investments in marketable debt securities. In June
2021, we completed the sale of our remaining investment in DoorDash and as a
result of the sale, this investment will have no impact to our results in future
periods.

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Segment results

Seller results

The following tables provide a summary of the revenue and gross profit for our
Seller segment for the three and nine months ended September 30, 2021 and 2020
(in thousands):

                                                      Three Months Ended                                                                 Nine Months Ended
                                                        September 30,                                                                      September 30,
                               2021                2020             $ Change            % Change                2021                 2020              $ Change             % Change
Net revenue               $ 1,393,444          $ 965,279          $ 428,165                    44  %       $ 3,722,586          $ 2,542,102           1,180,484                    46  %
Cost of revenue               787,219            555,948            231,271                    42  %         2,063,208            1,461,302             601,906                    41  %
Gross profit              $   606,225          $ 409,331          $ 196,894                    48  %       $ 1,659,378          $ 1,080,800          $  578,578                    54  %



Revenue

Revenue for the Seller segment for the three and nine months ended September 30,
2021 increased by $428.2 million, or 44%, and $1.2 billion or 46% compared to
the three and nine months ended September 30, 2020, respectively. The increase
was primarily due to growth in GPV attributable to continued improvements
experienced in both card-present volumes as a result of regional re-openings and
resumed in-person business at sellers, as well as growth in higher-priced
card-not-present transactions. The increase in Seller subscription and
services-based revenue in the three and nine months ended September 30, 2021
compared to the three and nine months ended September 30, 2020 was primarily due
to the increased origination volumes of Square Loans, other software
subscriptions, Instant Transfer for sellers, and Square Debit Card, in addition
to lower Seller subscription and services-based revenue in the three and nine
months ended September 30, 2020 impacted by the suspension of facilitating loans
in the second quarter of 2020, and the refund of software subscription fees to
our customers in March and April of 2020.

Cost of income

Cost of revenue for the Seller segment for the three and nine months ended
September 30, 2021 increased by $231.3 million or 42%, and $601.9 million or 41%
compared to the three and nine months ended September 30, 2020, which was in
line with the increase in Seller revenue of $428.2 million or 44%, and $1.2
billion or 46% for the three and nine months ended September 30, 2021, compared
to the three and nine months ended September 30, 2020. Transaction-based costs
during the three months ended September 30, 2021 were affected by a decrease in
the percentage of debit card transactions which have a lower cost per
transaction, and a decrease in average transaction sizes resulting in higher
cost per transaction. However, for the nine months ended September 30, 2021 the
overall percentage of debit card transactions was higher compared to the nine
months ended September 30, 2020, resulting in a smaller percentage increase in
transaction costs compared to the percentage increase in GPV, a trend which we
do not expect to continue in future periods as transactions costs customarily
increase in proportion to GPV.

App Cash

The following tables provide a summary of the revenue and gross profit for our
Cash App segment for the three and nine months ended September 30, 2021 and 2020
(in thousands):

                                                       Three Months Ended                                                                  Nine Months Ended
                                                         September 30,                                                                       September 30,
                               2021                 2020              $ Change            % Change                2021                 2020              $ Change             % Change
Net revenue               $ 2,393,633          $ 2,068,595          $ 325,038                    16  %       $ 9,763,440          $ 3,796,506           5,966,934                   157  %
Cost of revenue             1,881,916            1,683,471            198,445                    12  %         8,210,185            2,947,587           5,262,598                   179  %
Gross profit              $   511,717          $   385,124          $ 126,593                    33  %       $ 1,553,255          $   848,919          $  704,336                    83  %



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Returned

Revenue for the Cash App segment for the three and nine months ended September
30, 2021 increased by $325.0 million, or 16%, and $6.0 billion or 157%, compared
to the three and nine months ended September 30, 2020. The primary drivers were
growth in bitcoin revenue, and, to a lesser extent, Cash App Instant Deposit,
Cash Card, and Cash for Business. Bitcoin revenue increased due to the market
price of bitcoin and growth in the number of active bitcoin customers. This
smaller increase in the three months ended September 30, 2021 was impacted by
the stability in the price of bitcoin, which affected trading activity compared
to prior quarters. While bitcoin contributed 47% and 59% of the total net
revenue and 22% and 72% of the increase in net revenues in the three and nine
months ended September 30, 2021, respectively, gross profit generated from
bitcoin was only 4% and 5% of the total gross profit. Excluding bitcoin revenue,
Cash App revenue increased by $143.1 million or 33%, and $731.2 million or 75%
in the three and nine months ended September 30, 2021, compared to the three and
nine months ended September 30, 2020 due to growth in numbers of active Cash App
customers, increase in number of business accounts, broader macroeconomic
recovery, and from government stimulus and relief programs enacted through the
third quarter of 2021 in response to COVID-19. These programs provided
government aid and unemployment benefits which resulted in an increase in
consumer spending and inflows into our Cash App ecosystem. Cash App revenue
growth may not be sustained at the same levels in future quarters and may be
impacted by the enactment of further stimulus relief and benefit programs, as
well as the demand and market prices for bitcoin, amongst other factors.

Cost of income

Cost of revenue for the Cash App segment for the three and nine months ended
September 30, 2021 increased by $198.4 million, or 12%, and $5.3 billion or 179%
compared to the three and nine months ended September 30, 2020. The primary
driver for the increase was growth in bitcoin revenue and the associated costs
of such revenue, as discussed further above. Excluding bitcoin cost of revenue,
Cash App cost of revenue increased by approximately $26.0 million, or 32%, and
$141.9 million or 75% in the three and nine months ended September 30, 2021,
compared to the three and nine months ended September 30, 2020, due to growth in
Cash Card, Cash App Instant Deposit, and Cash for Business.

Key Operating Metrics and Non-GAAP Financial Measures
We collect and analyze operating and financial data to evaluate the health of
our business, allocate our resources, and assess our performance. In addition to
total net revenue, net income (loss), and other results under generally accepted
accounting principles (GAAP), the following table sets forth key operating
metrics and non-GAAP financial measures we use to evaluate our business. We
believe these metrics and measures are useful to facilitate period-to-period
comparisons of our business and to facilitate comparisons of our performance to
that of other payment solution providers.
                                                  Three Months Ended            Nine Months Ended
                                                    September 30,                 September 30,
                                                 2021           2020           2021           2020

Gross payment volume (GPV) (in millions) $ 45,426 $ 31,729 $ 121,392 $ 80,272

 Adjusted EBITDA (in thousands)               $ 233,406      $ 181,320      

$ 829,475 $ 288,582

Adjusted net income per share:

 Basic                                        $    0.41      $    0.39      $    1.64      $    0.57
 Diluted                                      $    0.37      $    0.34      $    1.44      $    0.51


Gross Payment Volume (GPV) We define GPV as the total dollar amount of all card payments processed by sellers using Square, net of refunds and ACH transfers. Additionally, GPV includes Cash App activity related to Cash for Business and peer-to-peer payments sent from a credit card. Cash for Business includes peer-to-peer transactions received by commercial accounts using Cash App.

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Adjusted EBITDA and Adjusted Net Income (Loss) Per Share (Adjusted EPS)
Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures that represent
our net income (loss) and net income (loss) per share, adjusted to eliminate the
effect of items as described below. We have included these non-GAAP financial
measures in this Quarterly Report on Form 10-Q because they are key measures
used by our management to evaluate our operating performance, generate future
operating plans, and make strategic decisions, including those relating to
operating expenses and the allocation of internal resources. Accordingly, we
believe these measures provide useful information to investors and others in
understanding and evaluating our operating results in the same manner as our
management and board of directors. In addition, they provide useful measures for
period-to-period comparisons of our business, as they remove the effect of
certain non-cash items and certain variable charges.

•We believe it is useful to exclude certain non-cash charges, such as
amortization of intangible assets, and share-based compensation expenses, from
our non-GAAP financial measures because the amount of such expenses in any
specific period may not directly correlate to the underlying performance of our
business operations.

•In connection with the issuance of our convertible senior notes (as described
in Note 13, Indebtedness, of the Notes to the Condensed Consolidated Financial
Statements), prior to the adoption of ASU No. 2020-06 on January 1, 2021, we
were required to recognize non-cash interest expense related to amortization of
debt discount and issuance costs. Subsequent to the adoption, we only recognize
non-cash interest expense related to amortization of debt issuance costs on
convertible notes and unsecured senior notes. We believe that excluding these
expenses from our non-GAAP measures is useful to investors because such
incremental non-cash interest expense does not represent a current or future
cash outflow for the Company and is therefore not indicative of our continuing
operations or meaningful when comparing current results to past results.
Additionally, for purposes of calculating diluted Adjusted EPS, we add back cash
interest expense on convertible senior notes, as if-converted at the beginning
of the period, if the impact is dilutive.

•We exclude gain or loss on the disposal of property and equipment, gain or loss
on revaluation of equity investments, bitcoin impairment losses, and prior to
the adoption of ASU No. 2020-06 on January 1, 2021, gain or loss on debt
extinguishment related to the conversion of convertible notes, as applicable,
from non-GAAP financial measures because we do not believe that these items are
reflective of our ongoing business operations.

•We also exclude certain costs associated with acquisitions that are not normal
operating expenses, including amounts paid to redeem acquirees' unvested
share-based compensation awards, and legal, accounting and due diligence costs,
and we add back the impact of the acquired deferred revenue and deferred cost
adjustment, which was written down to fair value in purchase accounting.

In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure
also excludes depreciation, other cash interest income and expense, other income
and expense and provision or benefit from income taxes, as these items are not
components of our core business operations.

Non-GAAP financial measures have limitations, should be considered complementary in nature and are not intended to be a substitute for related financial information prepared in accordance with GAAP. These limitations include the following:

• stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;

• Amortized intangible assets may need to be replaced in the future, and non-GAAP financial measures do not reflect the need for cash capital expenditures for such replacements or for new capital expenditures or other liabilities. capital; and

• Non-GAAP measures do not reflect changes or cash flow requirements for our working capital requirements.

In addition to the limitations above, Adjusted EBITDA as a non-GAAP financial
measure does not reflect the effect of depreciation expense and related cash
capital requirements, income taxes that may represent a reduction in cash
available to us, and the effect of foreign currency exchange gains or losses
which is included in other income and expense, net.

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Other companies, including companies in our industry, may calculate the non-GAAP
financial measures differently or not at all, which reduces their usefulness as
comparative measures.

Because of these limitations, you should consider non-GAAP financial measures alongside other measures of financial performance, including net income (loss) and our other financial results reported in accordance with GAAP.

The following table presents a reconciliation of net income (loss) and adjusted EBITDA for each of the periods indicated (in thousands):

                                                            Three Months Ended                     Nine Months Ended
                                                               September 30,                         September 30,
                                                          2021               2020               2021               2020
Net income (loss) attributable to common stockholders $      84          $  36,515          $ 243,113          $ (80,854)
Net income (loss) attributable to noncontrolling
interests                                                (2,960)                 -             (3,303)                 -
Net income (loss)                                        (2,876)            36,515            239,810            (80,854)
Share-based compensation expense                        165,011            110,389            429,999            283,872
Depreciation and amortization                            38,110             20,624             95,705             61,741
Interest expense, net                                    13,409             14,980             20,126             38,955
Other expense (income), net                              12,011               (784)           (36,249)           (20,513)
Bitcoin impairment losses                                 6,000                  -             71,126                  -
Loss on disposal of property and equipment                  877                396              1,866              2,095

Acquisition related and other costs                         308                359             14,626              3,939
Acquired deferred revenue adjustment                        159                281                606              1,240
Acquired deferred costs adjustment                          (55)               (71)              (179)              (307)
Provision (benefit) for income taxes                        452             (1,369)            (7,961)            (1,586)
Adjusted EBITDA                                       $ 233,406          $ 181,320          $ 829,475          $ 288,582



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The following table presents a reconciliation of net income (loss) to adjusted net income (loss) and adjusted EPS for each of the periods shown (in thousands, except per share data):

                                                             Three Months Ended                     Nine Months Ended
                                                                September 30,                         September 30,
                                                           2021               2020               2021               2020

Net income (loss) attributable to common shareholders 84 $ $

  36,515          $ 243,113          $ (80,854)
Net income (loss) attributable to noncontrolling
interests                                                 (2,960)                 -             (3,303)                 -
Net income (loss)                                         (2,876)            36,515            239,810            (80,854)
Share-based compensation expense                         165,011            110,389            429,999            283,872
Amortization of intangible assets                         11,140              5,236             27,258             13,522
Amortization of debt issuance costs                        2,868             17,516              7,005             47,624
Loss (gain) on revaluation of equity investment            6,836                  -            (41,008)           (20,998)
Bitcoin impairment losses                                  6,000                  -             71,126                  -
Loss on extinguishment of long-term debt                       -              1,403                  -              2,393
Loss on disposal of property and equipment                   877                396              1,866              2,095

Acquisition related and other costs                          308                359             14,626              3,939
Acquired deferred revenue adjustment                         159                281                606              1,240
Acquired deferred costs adjustment                           (55)               (71)              (179)              (307)
Adjusted Net Income - basic                            $ 190,268          $ 172,024          $ 751,109          $ 252,526
Cash interest expense on convertible senior notes      $   1,494          $   1,544          $   4,833          $   4,482
Adjusted Net Income - diluted                          $ 191,762          $ 

173,568 $ 755,942 $ 257,008

Weighted-average shares used to compute Adjusted Net
Income Per Share:
Basic                                                    460,654            444,458            457,039            439,855
Diluted                                                  525,003            514,806            524,048            501,757

Adjusted Net Income Per Share:
Basic                                                  $    0.41          $    0.39          $    1.64          $    0.57
Diluted                                                $    0.37          $    0.34          $    1.44          $    0.51


To calculate diluted adjusted EPS, we adjust the weighted average number of common shares outstanding for the dilutive effect of all potential common shares.

In periods when we recorded an Adjusted Net Loss, the diluted Adjusted EPS is
the same as basic Adjusted EPS because the effects of potentially dilutive items
were anti-dilutive given the Adjusted Net Loss position.


Liquidity and capital resources

We continued to experience improvements in our business as the majority of U.S.
markets transitioned to varying states of economic recovery and reopenings.
Although our outlook and business results continue to be positive, the extent to
which the COVID-19 pandemic will further impact our results of operations,
financial condition and cash flows in the future is unknown. We continue to
evaluate our investment plans and discretionary expenditures and will make
adjustments accordingly.

As of September 30, 2021, we had approximately $7.4 billion in available funds,
including an undrawn amount of $500.0 million available under our revolving
credit facility, as described in Note 13, Indebtedness, of Notes to the
Condensed Consolidated Financial Statements. We intend to continue focusing on
our long-term business initiatives and believe that our available funds are
sufficient to meet our liquidity needs for the foreseeable future. We are
carefully monitoring and managing our cash position in light of ongoing
conditions and levels of operations. As of September 30, 2021, we were in
compliance with all financial covenants associated with the 2020 Credit Facility
and Senior Notes.
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Sources of liquidity

The following table summarizes our cash, cash equivalents, restricted cash and investments in marketable debt securities (in thousands):

                                                                September 30,         December 31,
                                                                    2021                  2020
Cash and cash equivalents                                      $  4,514,609          $  3,158,058
Short-term restricted cash                                           14,420                30,279
Long-term restricted cash                                            73,420                13,526
Cash, cash equivalents, and restricted cash                    $  4,602,449          $  3,201,863
Investments in short-term debt securities                           868,809               695,112
Investments in long-term debt securities                          1,451,107               463,950
Cash, cash equivalents, restricted cash, and investments in
marketable debt securities                                     $  6,922,365          $  4,360,925



Our principal sources of liquidity are our cash and cash equivalents and
investments in marketable debt securities. As of September 30, 2021, we had $6.9
billion of cash and cash equivalents, restricted cash, and investments in
marketable debt securities, which were held primarily in cash deposits, money
market funds, reverse repurchase agreements, U.S. government and agency
securities, commercial paper, and corporate bonds. We consider all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents. Our investments in marketable debt securities are
classified as available for sale. From time to time, we have raised capital by
issuing equity, equity-linked, or debt securities such as our convertible senior
notes.

As of September 30, 2021, we held over $4.8 billion in aggregate principal
amount of long-term debt, comprised of $4.7 million in aggregate principal
amount of outstanding convertible senior notes that mature on March 1, 2022
("2022 Convertible Notes"), $642.5 million in aggregate principal amount of
convertible senior notes that mature on May 15, 2023 ("2023 Convertible Notes"),
$1.0 billion in aggregate amount of convertible senior notes that mature on
March 1, 2025 ("2025 Convertible Notes"), and $575.0 million and $575.0 million
in aggregate amount of convertible senior notes that mature on May 1, 2026, and
November 1, 2027, respectively ("2026 Convertible Notes" and "2027 Convertible
Notes," respectively). Additionally, on May 20, 2021, we issued $1.0 billion and
$1.0 billion in aggregate principal amount of outstanding senior unsecured notes
that mature on June 1, 2026 and June 1, 2031, respectively ("2026 Senior Notes"
and "2031 Senior Notes"). The 2022 Convertible Notes bear interest at a rate
of 0.375% payable semi-annually on March 1 and September 1 of each year, while
the 2023 Convertible Notes bear interest at a rate of 0.50% payable
semi-annually on May 15 and November 15 of each year, and the 2025 Convertible
Notes bear interest at a rate of 0.125% payable semi-annually on March 1 and
September 1 of each year. The 2026 Convertible Notes bear no interest, whereas,
the 2027 Convertible Notes bear interest at a rate of 0.25% payable
semi-annually on May 1 and November 1 of each year. These convertible senior
notes can be converted or repurchased prior to maturity if certain conditions
are met. The 2026 Senior Notes bear interest a rate of 2.75% payable
semi-annually on June 1 and December 1, while the 2031 Senior Notes bear
interest at a rate of 3.50% payable semi-annually on June 1 and December 1 of
each year. These Senior Notes can be redeemed or repurchased prior to maturity
if certain conditions are met.

We purchased $50.0 million and $170.0 million in bitcoin in October 2020 and
February 2021, respectively, as we believe cryptocurrency is an instrument of
economic empowerment that aligns with our corporate purpose. We expect to hold
these investments for the long term but will continue to reassess our investment
in bitcoin relative to our balance sheet. As bitcoin is considered an indefinite
lived intangible asset, under the accounting policy for such assets we will be
required to recognize any decreases in market prices below carrying value as an
impairment charge, with any mark up in value prohibited if the market price of
bitcoin subsequently increases. We recorded impairment charges of $6.0 million
and $71.1 million in the three and nine months ended September 30, 2021 due to
the observed market price of bitcoin decreasing below the carrying value during
the period. As of September 30, 2021, the fair value of our investment in
bitcoin was $351.7 million based on observable market prices which is
$202.8 million in excess of the Company's carrying value of $148.9 million.
Impairment losses cannot be recovered for any subsequent increase in fair value
until the sale of the asset.

In September 2020, we announced our intent to invest $100 million in supporting
underserved communities, particularly, racial and ethnic minority groups who
have been disproportionately affected by COVID-19. This initiative further
deepens our commitment toward economic empowerment to help broaden such
communities' access to financial
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services. As of September 30, 2021, we have invested $18.0 million in aggregate
towards this initiative, of which $0.1 million and $17.5 million were invested
in the three and nine months ended September 30, 2021, respectively.

In June 2020, we entered into the Paycheck Protection Program Liquidity Facility
agreement with the Federal Reserve Bank of San Francisco ("First PPPLF
Agreement") to secure additional credit collateralized by PPP loans. The
advances under this facility are repayable if the associated PPP loans are
forgiven, repaid by a customer or settled by the government guarantee. On
January 29, 2021, we entered into a second PPPLF agreement with the Federal
Reserve Bank of San Francisco ("Second PPPLF Agreement") to secure additional
credit, collateralized by loans from the second round of the PPP program, in an
aggregate principal amount of up to $1.0 billion under both PPPLF Agreements. As
of September 30, 2021, $725.7 million of PPPLF advances were outstanding and
are, generally, collateralized by the same value of PPP loans. Any differences
between the amounts are generally due to the timing of PPP loan repayment or
forgiveness, and repayment of PPPLF advances.

In May 2020, we entered into a new revolving credit agreement with certain
lenders, as subsequently amended, which provides a $500 million senior unsecured
revolving credit facility (the "2020 Credit Facility") maturing in May 2023.
Loans under the 2020 Credit Facility bear interest at our option of (i) a base
rate based on the highest of the prime rate, the federal funds rate plus 0.50%,
and the adjusted LIBOR rate plus 1.00%, in each case, plus a margin ranging from
0.25% to 0.75% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.25%
to 1.75%. The margin is determined based on our total net leverage ratio, as
defined in the agreement. We are obligated to pay other customary fees for a
credit facility of this size and type including an unused commitment fee of
0.15%. To date, no funds have been drawn and no letters of credit have been
issued under the 2020 Credit Facility.

See note 13, Indebtedness, to the condensed consolidated financial statements for more details on these transactions.

We believe that our existing cash and cash equivalents, investment in marketable
debt securities, and availability under our line of credit will be sufficient to
meet our working capital needs, including any expenditures related to strategic
transactions and investment commitments that we may from time to time enter
into, and planned capital expenditures for at least the next 12 months. From
time to time, we may seek to raise additional capital through equity,
equity-linked, and debt financing arrangements. We cannot provide assurance that
any additional financing will be available to us on acceptable terms or at all.

Short-term restricted cash of $14.4 million as of September 30, 2021 reflects
pledged cash deposited into savings accounts at the financial institutions that
process our sellers' payments transactions and as collateral pursuant to
agreements with third party originating banks for certain loan products. We use
the restricted cash to secure letters of credit with these financial
institutions to provide collateral for liabilities arising from cash flow timing
differences in the processing of these payments. We have recorded this amount as
a current asset on our condensed consolidated balance sheets given 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. Additionally,
this balance includes certain amounts held as collateral pursuant to multi-year
lease agreements, discussed in the paragraph below, which we expect to become
unrestricted within the next year.
Long-term restricted cash of $73.4 million as of September 30, 2021 is primarily
related to a reserve deposit to satisfy the capital and liquidity requirements
associated with the banking operations of SFS mandated by the FDIC, as well as
cash deposited into money market funds that is used as collateral pursuant to
multi-year lease agreements. We have recorded these amounts as non-current
assets on the condensed consolidated balance sheets as we are required to
establish and maintain the reserve deposit at all times to support the ongoing
liquidity obligations of SFS, and due to certain lease terms extending beyond
one year.


We experience significant daily fluctuations in our cash and cash equivalents due to fluctuations in settlements receivable and accounts payable, and therefore working capital. These fluctuations are mainly due to:

•Timing of period end. For periods that end on a weekend or a bank holiday, our
cash and cash equivalents, settlements receivable, and customers payable
balances typically will be higher than for periods ending on a weekday, as we
settle to our sellers for payment processing activity on business days; and

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•Fluctuations in daily GPV. When daily GPV increases, our cash and cash
equivalents, settlements receivable, and customers payable amounts increase.
Typically our settlements receivable and customers payable balances at period
end represent one to four days of receivables and disbursements to be made in
the subsequent period. Customers payable, excluding amounts attributable to Cash
App stored funds, and settlements receivable balances typically move in tandem,
as pay-out and pay-in largely occur on the same business day. However, customers
payable balances will be greater in amount than settlements receivable balances
due to the fact that a subset of funds are held due to unlinked bank accounts,
risk holds, and chargebacks. Also customer funds obligations, which are included
in customers payable, may cause customers payable to trend differently than
settlements receivable. Holidays and day-of-week may also cause significant
volatility in daily GPV amounts.

Cash Flow Activities
The following table summarizes our cash flow activities (in thousands):
                                                                        Nine Months Ended
                                                                          September 30,
                                                                    2021                 2020
Net cash provided by operating activities                      $   672,776          $   260,877
Net cash used in investing activities                           (1,256,619)            (531,713)
Net cash provided by financing activities                        1,998,740  

1 331 424

Effect of exchange rate on cash and cash equivalents (14,311)

                 772

Net increase in cash, cash equivalents and restricted cash $ 1,400,586

$ 1,061,360

Cash flow from operating activities

Cash provided by operating activities consisted of our net income (loss)
adjusted for certain non-cash items, including gain or loss on revaluation of
equity investments, depreciation and amortization, non-cash interest and other
expense, share-based compensation expense, transaction and loan losses, bitcoin
impairment losses, deferred income taxes, non-cash lease expense, as well as the
effect of changes in operating assets and liabilities, including working
capital.

For the nine months ended September 30, 2021, cash provided by operating
activities was $672.8 million. Net income was $239.8 million, adjusted for the
add back of non-cash expenses of $763.8 million, consisting primarily of
share-based compensation, transaction and loan losses, bitcoin impairment
losses, depreciation and amortization, and non-cash lease expenses, which
contributed positively to operating activities. This was offset by net PPP loans
facilitated of $184.6 million, as well as a net outflow from changes in other
assets and liabilities of $146.3 million due to timing of period end.

For the nine months ended September 30, 2020, cash provided by operating
activities was $260.9 million. Net loss was $80.9 million, PPP loans
facilitated, less loans sold, of $462.1 million, adjusted for the add back of
non-cash expenses of $588.7 million, consisting primarily of share-based
compensation, transaction and loan losses, depreciation and amortization, and
non-cash interest and other expenses. Whereas the increase in transaction and
loan losses was largely caused by estimated losses attributable to the COVID-19
pandemic, the increase in other non-cash expenses was primarily due to the
growth and expansion of our business activities. Additionally, the cash
generated from operating activities increased due to a net inflow from changes
in other assets and liabilities of $215.1 million due to timing of period end.

Cash flow from investing activities

Cash flows used in investing activities primarily relate to capital expenditures
to support our growth, investments in marketable debt securities, bitcoin, and
business acquisitions.
For the nine months ended September 30, 2021, cash used in investing activities
was $1.3 billion, primarily due to the net investments of marketable securities
including investments from customer funds of $1.2 billion, purchases of bitcoin
and other investments of $217.6 million, business acquisitions, net of cash
acquired of $164.0 million, as well as the purchase of property and equipment of
$98.0 million, partially offset by the proceeds from sale of equity investments
of $420.6 million.
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For the nine months ended September 30, 2020, cash used in investing activities
was $531.7 million, primarily due to the net proceeds from investments of
marketable securities including investments from customer funds of $416.1
million. Additional uses of cash were as a result of the purchase of property
and equipment of $86.4 million and business acquisitions, net of cash acquired
of $29.2 million.
Cash Flows from Financing Activities
For the nine months ended September 30, 2021, cash provided by financing
activities was $2.0 billion primarily as a result of $2.0 billion in net
proceeds from the 2031 Senior Notes and 2026 Notes offerings, the proceeds, net
of repayments of the PPPLF advances of $261.6 million, proceeds from issuances
of common stock from the exercise of options and purchases under our employee
share purchase plan of $84.9 million, offset by payments for employee tax
withholding related to vesting of restricted stock units of $312.4 million.
For the nine months ended September 30, 2020, cash provided by financing
activities was $1.3 billion primarily as a result of $936.5 million in net
proceeds from the 2025 Convertible Notes offering, proceeds from the PPPLF
advances of $473.5 million, proceeds from issuances of common stock from the
exercise of options and purchases under our employee share purchase plan of
$106.6 million, offset by payments for employee tax withholding related to
vesting of restricted stock units of $182.6 million.
Contractual Obligations and Commitments
On May 20, 2021, the Company issued an aggregate principal amount of $2.0
billion senior unsecured notes comprised of $1.0 billion of senior unsecured
notes due 2026 ("2026 Senior Notes") and $1.0 billion senior unsecured notes due
2031 ("2031 Senior Notes"). The 2026 Senior Notes mature on June 1, 2026, unless
earlier redeemed or repurchased, and bear interest at a rate of 2.75% payable
semi-annually on June 1 and December 1. The 2031 Senior Notes mature on June 1,
2031, unless earlier redeemed or repurchased, and bear interest at a rate of
3.50% payable semi-annually on June 1 and December 1 of each year. See Note 13,
Indebtedness, of the Notes to the Condensed Consolidated Financial Statements
for more details on this transaction.

On January 29, 2021, we entered into a second Paycheck Protection Program
Liquidity Facility agreement with the Federal Reserve Bank of San Francisco
("Second PPPLF Agreement" and together with the First PPPLF Agreement, "PPPLF
Agreements") to secure additional credit in an aggregate principal amount of up
to $1.0 billion under both PPPLF Agreements. Borrowings under the facility
accrue interest at a rate of 0.35% and must be collateralized with loans
originated under the PPP. The maturity date of any PPPLF advances will be the
maturity date of the PPP loan pledged to secure the advance, and will be
accelerated upon the occurrence of certain events of default. Although loans
originated under the PPP have a stated maturity of between two and five years
from origination, some of the loans may be forgiven 24 weeks after disbursement
if they meet certain specified criteria. The PPPLF advances are also repayable
if the underlying PPP loan is repaid by the customer. As of September 30, 2020,
$725.7 million of PPPLF advances were outstanding and are, generally,
collateralized by the same value of PPP loans. Any differences between the
amounts are generally due to the timing of PPP loan repayment or forgiveness,
and repayment of PPPLF advances. See Note 13, Indebtedness, of the Notes to the
Condensed Consolidated Financial Statements for more details on this
transaction.
With the exception of the Senior Notes and PPPLF advances, there were no
material changes in our commitments under contractual obligations, except for
scheduled payments from the ongoing business, as disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2020.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements during the periods presented.

                                       63
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Critical accounting conventions and estimates

Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with GAAP. GAAP requires us to make certain estimates and judgments that affect
the amounts reported in our financial statements. We base our estimates on
historical experience, anticipated future trends, and other assumptions we
believe to be reasonable under the circumstances. Because these accounting
policies require significant judgment, our actual results may differ materially
from our estimates.

As disclosed in our Annual Report on Form 10-K for the year ended December 31,
2020, we believe accounting policies and the assumptions and estimates
associated with transaction and loan losses could potentially have a material
effect on our condensed consolidated financial statements and is therefore a
critical accounting policy and estimate.

Additionally, as a result of the acquisition of TIDAL and the contemplated
acquisition of Afterpay, we consider accounting for business combinations under
ASC 805, Business Combinations, to also be a critical accounting policy and
estimate as it requires management to make significant estimates and
assumptions, including the valuation of intangible assets acquired,
determination of fair values of liabilities assumed including pre-acquisition
contingencies and valuation of contingent consideration, where applicable.
Although we believe that the assumptions and estimates we have made have been
reasonable and appropriate, they are based in part on historical experience and
information obtained from the management of the acquired companies and are
inherently uncertain. Unanticipated events and circumstances may occur that may
affect the accuracy or validity of such assumptions, estimates or actual
results.


Recent accounting positions

See “Recent accounting pronouncements” described in Note 1, Description of the business and summary of significant accounting policies, of the notes to the condensed consolidated financial statements.

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