Good day, ladies and gentlemen, and welcome to the Square Second Quarter 2017 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the call over to your host, Jason Lee, Head of Investor Relations. Please go ahead.

Hi, everyone. Thanks for joining our second quarter 2017 earnings 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 close. 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'll be making 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 our 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'd like to turn it over to Jack.

Thank you, Jason, and thank you all for joining us. We're really proud of our work this quarter. We grew Square Capital loan volumes 68% year-over-year, launched the physical version of the cash card and continued to attract larger sellers to the Square ecosystem. One of the drivers of our results is our work on automation, which I mentioned is an area of increased focus for us this year. Automation has always been a core differentiator for us. We've used machine learning and data science to manage risk since the beginning of Square. We're constantly looking for ways to make our services more automated and more self-serve and machine learning is perfect for that. This focus has allowed us to achieve several objectives. First, automation allows us to give more people access to the financial system. More than 90% of sellers are automatically approved and self-onboard to process payments, and we're able to onboard individuals to Square Cash with just a zip code and an e-mail address or phone number. We've extended this approach to risk management in Square Capital to provide financing to the underserved. Our interests are aligned with our sellers', we want to provide a loan amount that is appropriate and we'll help them grow, not burden them with a loan that is too large. You can see this in our average loan size of $6,000. We're not competing with financial institutions. We're creating a new market where previously the only other option for a seller was asking for a loan from friends or family. We're able to serve this need because of our real-time, data-driven understanding of our sellers. Second, automation helps us scale as we grow. For example, we currently automate risk assessment for more than 99.95% of transactions. We're also able to make improvements…

Thank you, Jack. We delivered another strong quarter. Top line results reflect our continued ability to attract larger sellers, while maintaining ongoing growth in our core micro and small business base. In addition, we saw increased product usage from the entire Square ecosystem. As a result, adjusted revenue growth accelerated from 39% in Q1 to 41% in Q2. GPV was $16.4 billion, up 32% year-over-year. Larger sellers, those that generate more than $125,000 in annualized GPV, grew 45% year-over-year and now make up 46% of total GPV, up from 42% a year ago. Mid-market sellers who generate more than $0.5 million in annualized GPV, grew 61% year-over-year. We maintained both transaction-based revenue and profit as a percent of GPV on a year-over-year basis, even while growing GPV from larger sellers, underscoring the value that our customers see in our core managed payments and point-of-sale offerings. Just like smaller sellers, we continue to see the majority of larger sellers self-onboard to Square at our standard pricing rates. Additionally, we saw higher growth in products such as invoices and virtual terminal that have a higher revenue rate than card present transactions. Subscription and services-based revenue nearly doubled on a year-over-year basis as Instant Deposits, Caviar and Square Capital all benefited from stronger adoption, both within our installed-based and for bringing new customers to the Square ecosystem. GAAP net loss was $16 million in the first quarter. This equates to a net loss per share of $0.04, compared to a net loss per share of $0.08 in the second quarter of 2016. Adjusted EBITDA was $36 million this quarter compared to $13 million a year ago. On an operating margin basis, this equates to an 8-point improvement year-over-year. This is the result of strong top-line growth, lower risk loss rates and ongoing operating expense leverage. I'll now turn to full-year guidance. And please see our shareholder letter for details on our third quarter guide. Once again, we are increasing our full-year guidance to reflect our current business momentum. We expect full-year 2017 total net revenue to now be within a range of $2.14 billion to $2.16 billion and adjusted revenue to be in the range of $925 million to $935 million. Adjusted EBITDA is expected to be in the range of $120 million to $128 million. At the midpoint, this represents a 13% adjusted EBITDA margin, a 7 point improvement year-over-year. We continue to balance our goal of mid single-digit margin improvements with ongoing opportunities to drive significant growth. We expect net loss per share to be within a range of $0.29 (sic) [$0.21] to $0.19, and we expect adjusted EPS to be in a range of positive $0.21 to $0.23. So, with that, let me turn it back to the operator to start the Q&A portion of the call.

Thank you. And we'll take our first question today from Tien-Tsin Huang at JPMorgan.

Hi. Thank you. Good afternoon. Just, I wanted to dig in on the take rate maybe, just that was stable, actually stable to up, despite the mix shift to the – to bigger sellers. Just curious is this because the larger sellers are maybe using more of your point-of-sale tools and things like Square Marketing; Jack you called out? Just trying to gauge where the larger sellers might see the value beyond vanilla payments and maybe how much more there is to go in terms of them taking that value?

Sure. Thanks, Tien-Tsin. Yeah, we're really happy to see that take rate just remain so stable and also the transaction margin and that's even while GPV is still growing at over 30%. Your point of larger sellers is well taken. I think the reason for that, first and foremost, it's large sellers actually largely self-onboard. So, just like small and micro sellers, they come to the website, they've heard of Square, and they are able to get on-boarded and use our managed payments in minutes. So, no different and they take the standard rates that you see there. I think that really underscores that they see the full value of our managed payments so they understand, yes, it's about making sure money moves, but it's also about next day settlement. It's about Instant Deposit, it's about not having to deal with chargebacks, or getting help with chargebacks. There's no hidden fees in the backend and we hear over and over from all of our sellers that just that transparency is a huge driver for them. I think as well within the take rate there is also of course the higher growth of products like Virtual Terminal, Invoices, and our newer Square APIs as part of our Build with Square platform, all of which have a slightly higher revenue rate than our core 2.75%. So, there is a nice balance going on there and we're very pleased with the outcome.

Good stuff. Thank you.

Next we'll hear from Dan Swenson-Klatt with Butter Bakery Cafe.

Hello. This is Dan. I've watched card use become the norm over these past 12 years, moving from 20% of my transactions to now over 75% and likely to keep climbing. With that change in culture comes an increasing cost to my business in fees for processing, so I end up needing to cut costs in other places to make up for these increases. What is Square's vision around promoting card use with customers while working with us as sellers to reduce the pressure of increasing fees? How do we keep the balance?

Well, thank you, Dan, for the question and also for using Square. We were one of the first to really simplify credit card pricing for everyone, and the reason we wanted to do that is because merchants were facing a pretty much byzantine maze of rate tables, depending on the card that the buyer actually used. We simplified it down to one rate to start, which is 2.75% but we also took out the fixed fee that you would normally be charged and associated with that charge, because we didn't want sellers to have to think about accepting cards. And the reason we didn't want them to think about that is because their buyers and their customers wanted to use them. And we were seeing so many merchants being left out from participating in the economy just because they couldn't make a sale, because they couldn't accept a credit card. So it was really the reason we started the company in the first place was to really simplify the cost and also the mental burden of accepting credit card transactions. We also wanted to make sure that we continue to have a fair and simple price and we believe we have achieved that. We are always looking for more opportunity to do that and to balance that. But we also want to make sure that people understand, there is a real cost to accepting cash and accepting checks. And that has to be factored in to how you run your business and everything you do. So net-net, we believe that being able to accept every form of payment and able to sell it and make every sale, and we're going to do our work constantly to make sure that we have a fair, open, transparent price and you really see value in it. And there will always be opportunity as we grow and as we build to continue to question that and continue to push it.

Thank you. Thank you. Indeed, I do see the value and I really appreciate that.

Thanks, Dan.

Thanks, Dan.

We'll now hear from Darrin Peller with Barclays.

Thanks, guys. Nice job. Just another strong quarter, but Square Capital clearly continues to outperform, I think as you mentioned earlier. When you think about the growth of this business, can you just touch on any longer-term thoughts around the size, I guess that you want this to be as a percentage of total? And then, I also noticed during the quarter, you started the – or you mentioned the Square Installments, just loans to the sellers' customers. So if you just could touch on whether the risk profile of these are any different than – whether pricing or risk is different than what you've done before with the merchant base. And then a long-term strategy, consumer facing loans, that'd be great. Thanks, guys.

Sure. Great. Thanks, Darrin. I'll start, and then Jack is going to jump in on the installment side as well. So in terms of how big can this business be, I mean, we are super pleased with the results of Square Capital in the quarter, $318 million of loans facilitated. It's our largest quarter ever; it grew 68% year-over-year. And I think importantly, and Jack kind of made this comment in his opening remarks, it's also about the loan size, so it's not just $318 million, it's the fact that it went to almost 50,000 sellers, 49,000 loans to be precise.

Right.

And so we love being able to serve the underserved. In terms of how big can it get, well it's really a function of it continues to grow both from the growth of our base, so as we add more sellers, right, the fact that GPV is growing over 30% right now, we're bringing more people on to the platform that can now take advantage of our product like Square Capital, so there is net new. There has also been a phenomenal renewal rate of this product and I think that underscores that A, it's adding tremendous value, it's well done, easy for sellers, like click of the button, the money is in their bank account the next day. So the MPS on this product remains incredibly high, and I think the renewal rate really speaks to it. And then I think beyond there, it's how can – what are the other avenues that we can pursue in terms of places where there is clearly a need in the market for more working capital, whether you're a buyer or a seller? And that might be a good segue to Jack as we talk about installments.

Yeah, and Darrin, just to amplify something Sarah alluded to, we do believe the market is massive, because we do believe we have tapped into something that is new. We are – we're serving merchants who typically would go to their friends and family to get this size of loan.

Right.

And that's really who we're competing with. And we think that's a massive opportunity and no one else is really going after it, especially with all the data that we have, so we can make really calculated judgments and decisions around it. So we're really happy with the performance of Square Capital and its outlook. In terms of the Installments, we have approached this from a seller perspective. And we're constantly looking for opportunities to give the seller a new way to serve their customer in a better way. And we had this idea around offering installments to sellers, so that they can enable their customers to pay in chunks and installments. And we had a bunch of conversations and there was interest and we rolled out a small test and it really resonated with folks. So we decided to continue to push it and continue to experiment and we're in a learning phase right now and it is just the start of us being able to do this for consumers, but it does – it is grounded in the seller mindset and just making sure that we give our sellers a super power that they can offer their customers. We've found that if we build for the customer of our customer, our customer benefits as well. So we think this is a really unique opportunity for us and we're excited to see where it goes. But we're still in a learning phase and we're trying to push it up as broadly as we can, so we can learn even faster.

Okay. That's exciting stuff. Thanks, guys.

Thanks, Darrin.

Next we'll hear from Jim Schneider with Goldman Sachs. James Schneider - Goldman Sachs & Co. LLC: Good afternoon. Thank you for taking my question. I was wondering if you could maybe talk a little bit on Square for Retail and how that roll out has progressed so far and give us any metrics on what percentage of some of your larger merchants might have that solution at this point and then how big a contributor that was to the subscription services revenue to the quarter?

Thanks, Jim. So as you know, we just launched Square for Retail, so it's still pretty early for us. And we're still learning what patterns makes sense. This was a big move for us, because we're moving away from being a purely horizontal Point of Sale to really focusing on a particular vertical. And this vertical is massive. There's 450,000 small to medium sized retailers just in the U.S., and they generate over $700 billion in annual gross receipts. So, we're really excited about this category. And what really drives adoption here is first and foremost really focusing on retail needs, the largest of which is inventory. So, the team is working really hard to make sure that we're addressing all the gaps in the product that we know we have, to continue to unlock more of the market. But the thing that sets us apart from everyone else in this space, that we're excited to see unfold is, it's not just a Point of Sale for retail, but it's a door to the larger ecosystem. So, everything that we have done with Square Capital, with Instant Deposit, with CRM, which is something I'm really excited about to push and to unfold, is what any merchant can now have access to. And our goal is to help our sellers continue to make more sales, not just make the sale and we see retail Point of Sale as a gateway for that. So, we have seen adoption at every level of merchant from the very small one store to a larger base. But it's still too early for us to be definitive about particular results.

Yeah, and Jim, I'd only add at the end there, in terms of a contributor to subscription services, it will actually show on both lines. So remember, as a retailer comes on the system, they're going to also have transaction-based revenue as part of that. So, certainly one contributor to the 61% year-over-year growth we saw in those mid-market sellers, as well as the monthly subscription fee that they would pay for retail Point of Sale. And it's an important, nuanced point, because we want to make sure we stay relatively indifferent. Ultimately, we care about growing adjusted revenue. And then how that revenue comes, again is really up to what's best for the seller, how they prefer to pay, and really making sure that that part of the product also feels innovative and transparent, not just that we don't think of price as just ultimately dollars and cents, it's actually a core part of how the product itself is manifested. James Schneider - Goldman Sachs & Co. LLC: Thanks. And maybe if I could just ask a quick follow-up on the Square Capital, teeing off of the earlier question. Could you maybe talk about the loan loss rates in the quarter, where they're slipped back in that 4%.

Sure. James Schneider - Goldman Sachs & Co. LLC: And then more importantly, as you grow that business to the sellers' customers and consumers in the end, how do you think about kind of managing that rate and is it something where you feel like you're going to grow that within the envelope of that 4% loss rate or would you feel comfortable with that moving a little bit higher as you expand the program to grow?

Sure. In terms of loan loss rates for the quarter, they stayed very consistently at approximately 4%, so no changes there. I think how we do that, clearly it starts with a lot of the automation that Jack talked about in his opening remarks. So, Square was born using at the time what we called software algorithms and now we talk about machine learning and even deep learning. We have clearly moved on that continuum and those models help us to really manage the risk prudently and the models get better and better as the cohorts mature and we get more and more data on that. So no change to the core business loan loss rates. As we think about a new business like Installments, it's just business as usual, right, it's exactly the same approach of making sure that we're utilizing the data that we have. That's why Jack talked about Installments really coming at it from a lens of the seller. So, by knowing the seller, what is the incremental information we now have on the buyer? Right, if we know a seller has never had a chargeback, that's a pretty good signal as we think about would we want to do an installment plan for that customer's customer. We're not ready to give any sort of sense of default rates because frankly we're still in an early stage, as Jack talked about. But that's how we need to iterate and to learn. And I think we have access to just such a unique dataset to do this with. James Schneider - Goldman Sachs & Co. LLC: Thank you.

Thank you.

We'll now hear from Ramsey El-Assal with Jefferies.

Hi. Thanks for taking my question. I was wondering if you could fill us in on your take on the competitive environment right now. As you're moving up-market, are you bumping into a new set of competitors or is there any development there you can share with us?

Yeah. So, as any company, we – the thing I look to compete with is ourselves and making sure that we continue to get better than we were six months ago and a year ago and really push across that dimension. That we have clarity of purpose, we have a clear roadmap and that we're moving faster and we're going deeper in terms of how we address our tools that we're giving to our customers. I think it's always been a little bit challenging for us to point to one particular competitor because our industry really considers itself in parts rather than what I think we've done really well, which is more of a cohesive whole. We talk a lot about ecosystem and what we mean by that is a suite of tools that work together. So, we intend for every one of our services to be acquisition and to be on-boarding into the larger ecosystem. And that larger ecosystem helps with retention, it helps a seller make more sales, and it makes us a lot more valuable to every one of our customers. So, there is nothing noteworthy that we are significantly concerned with. We continue to focus on our strengths and our strengths are again speed, the simplicity of our offering, the elegance of our offering, and the cohesion, and really by that we mean the ecosystem. So, that's what we're focused on and we don't see that out in the market.

All right. That's helpful. Thanks.

Thank you.

Thank you.

Josh Beck with KeyBanc Capital Markets has our next question.

Thank you. So, I had a two-part question for Jack. I was just wondering on the physical cash card, who do you foresee as the major users of this? Is this maybe the employees of your sellers via Payroll, is that the prime audience? And then for Sarah, when we think about the guidance and kind of what's implied for second half margins, I think it's around 12.5% for the second half EBITDA margins versus the first half, where it was a little over 14%. So, it's clearly implying some investment, so could you just maybe walk us through what are some of the major moving parts there that we should be thinking about in the second half, from a maybe an investment perspective?

Thank you, Josh. So, with the cash card, I would focus us a lot more on a situational aspect rather than the segmentation of market. We want to build a utility that scales to every segment and to every demographic. What we are seeing in the behavior, though, is we are reaching an underserved audience. We are reaching a audience that may not have a bank account or may not have a full suite of services from a bank. And this has been consistent with what we've done for the past eight years. We aren't competing with the banks or the financial networks, but we are making what they have a lot more accessible to more people. So with Square Cash, we started with the most critical thing, which was being able to send money from one person to the other, and really focused on getting it as simple and as fast as possible and I think we have achieved that. We've questioned a bunch of the fundamentals that came before us, including what it takes to sign up and how easy and fast it can be to sign up. And through that, we saw a bunch of opportunities for adjacencies. We realized Square Cash wasn't just peer-to-peer, but it was a great way to spend and a great way to pay. And we introduced a stored value account, which enabled our customers to actually store money at Square. We introduced a virtual card, which allowed them to pay online, we added that to Apple Pay, which allowed them to pay offline at NFC capable terminals, such as our own. And then recently with the cash card, we have enabled them to pay anywhere Visa is accepted in the United States. So we see Square Cash as a simple, easy way to go from the App Store, download an app, get an app that you can actually request money from your parents or from your friends and then get a Virtual Card or a physical card and actually be able to spend online, offline for whatever you do on a daily occurrence. So, we're building it with a very utilitarian mindset, so it scales to multiple types of audiences and market segments, but we are seeing a significant uptick in folks that we believe have been underserved by the banks because of just not wanting to go to a branch, not wanting to go through the hassle, or being denied for particular reasons. And again, this is consistent with what made us so successful with sellers in the early days.

Great. And then, Josh, let me take the question on guidance overall. So, I'd start by saying overall when we plan for the year, we plan in annual increments. Planning quarterly is just kind of nonsensical to be in 90-day cycles, when you're growing a business and really develop – and investing in new product development. So, I think as we said in the beginning of the year, our aim has been for mid-single digit margin expansion annually. Right now, at the midpoint of our new 2017 guide, that would be about a 7-point improvement, so we actually feel like we're over-delivering on what we originally said. In terms of investment priorities, I think we're coming out of this quarter really feeling like we're on our front foot. When you see adjusted revenue growth actually accelerate quarter-to-quarter, you start to feel great about the momentum in the business. So as always, we will lean into product development. We've invested in areas like machine learning. Those initiatives go across the whole company, they help us develop new products, they help us make our current products smarter, and they frankly help with our own operations, so that we can drive much greater efficiency over time. From a sales and marketing perspective, Q2 was a very good quarter in terms of investment and then return on that investment. So, I think you know that we always lead with a three to four quarter payback period. That includes all of our products, not just the payments part. And we talked about that at Analyst Day. And so we're very diligent on making sure, we don't ever blow past that payback, but while we're seeing that payback, we will continue to lean in. So we saw it somewhat in Q2, but I think as we go into the back half of the year, we continue to see that great move up-market. We are getting better at brand awareness with larger sellers, but still have a lot of work to do, to be known for not just managed payments, but also a fully featured point-of-sale, full grown operating system to really help you run your business. We clearly are quite young in a number of our international markets, so there's a lot of work to do there. UK just recently launched; it's particularly top of mind for me. And then third, e-commerce, so the Build with Square platform now has quite good momentum under it. We spent a lot of the last year bringing partners to that platform. And I think we just have more and more of that to do. So that's why the guide is the way it is. You know, I'd go back to that point, that we aim for mid-single digits and right now, we are definitely over-delivering on that.

That all makes sense. Thank you both.

Thank you.

We'll now hear from Bryan Keane with Deutsche Bank.

Hi, guys. Just want to ask about the international markets. Sarah, you touched about just getting into the UK market. But curious on the strategy in international and when we might see the UK market have an impact on results. I assume that's maybe a 2018 phenomenon? And then, just secondly, what's the strategy to keep the growth going in the large and mid-market sellers? And I guess I'm wondering, do we need to increase the sales force in those particular markets to get the growth to stay at these sustainable levels? Thanks.

Thanks, Bryan. I'll take your first question around international strategy. So, we've approached every new market very thoughtfully, because there is a, you know significant work and friction to open a new market in offline payments. And you know, a lot of what we were blocked behind was actually a reader that worked around the world and worked on a global platform. So, with the contactless and chip card reader, we can now be in every single market. But we still have to work with local banks, local regulatory, and being able to bring people on identity verification and work with the local environment that is going to be different market-to-market. Australia was a huge step for us; we learned a lot around a chip card and also our NFC transactions and UK was the next obvious one. It's still early in the UK, but we're seeing a lot of the same patterns that we saw in the United States, which makes us very happy. We are not the first mover in the market and we don't believe that is critical, we just need to make sure that we are the best, and best for us again goes back to our cohesive ecosystem and our speed and simplicity and elegance. And we do see that that is winning and continuing to win. We're also really happy that we have replicated what we thought – what we think has been a huge driver in the United States for us, which is retail. So, we are now available in Argos, which has 800 locations in the UK, as well as Apple and Amazon. And you know, the word-of-mouth and the organic spread of Square, and being able to go to one of these common retailers and pick up a reader and just run your business is really important. So, it is still early. We have a super energized team to continue to build in the market, and we're excited to continue to serve more and more sellers, but we're focusing on our strengths and the number one of which is our cohesion, which we just don't see any competition in that sense.

And then, in terms of keeping the growth going in large mid-market sellers. I mean, first of all, we're only scratching the surface here, right. I think we talked a lot about just the opportunity in the U.S. at Analyst Day to be about $26 billion, I think was the number we gave in adjusted revenue, and we're getting close to our first billion. So, there is plenty of opportunity. In terms of how we do it, it's always product first, because we view that as the most scalable way to get to market. That said, there are innovations that we can do around go-to-market too that really help with larger sellers. Part of that is, larger sellers often do want to talk to a person, as they are signing up and coming on to a new platform, and so we've certainly built out our sales force to be – to enable that, and they've done a terrific job. It is a place where we use technology to keep ourselves maximally efficient. So, we don't want a ton of feet on the street. Instead it's very, very targeted; it's a place we use ML in fact to effectively stack rank the inbounds that are coming in through the website, where people want to call back to make sure that we are always orienting our sales force towards the biggest opportunity with the highest likelihood of conversion. So, we will continue to build that, but again, always back to the point I made earlier, with that three to four quarter type payback, we don't see that come down even when we're utilizing a sales force to really go after a larger merchant.

Okay. Really helpful. Thanks for the color.

You're welcome.

We will now take a question from a Square Seller, Alex Hsu (35:25).

Hi. My name is Alex, Square Seller and Owner at TCOM (35:33). I'd like to reach more customers with even stronger loyalty programs. Would Square consider expanding partnerships with other merchants to allow sellers to use as a reward, similar to a credit card rewards programs, where you can redeem point for hotels, flights, et cetera?

Thank you, Alex and thank you for using Square. So we are really excited about our CRM offerings, because we have a purchase from a network mindset. It's not just individual sellers, who have to fend for themselves, but a network of sellers, who can actually work together to continue to drive more sales. And we're just getting started on our understanding of what we can do with that, and a lot of that understanding is coming from interviews with sellers all over the world around what they need and what they'd like to see. We're going to make sure that we're doing this in a really responsible way and in a very transparent way as well, so we are spending that the time to do it right. But we're really excited to evolve Square in CRM and we think we can do something interesting, because of the network of sellers that we have, rather than just focusing on point-to-point solutions, which have been the traditional answer. So much more to come and I'm excited to talk with you about it.

Thank you very much.

Thank you.

Thank you.

Next we'll hear from Dan Perlin with RBC Capital Markets.

Thanks. So just two quick ones. One, I guess, Jack, could I just follow-up on that CRM? I mean, when you guys are thinking about the network side of it, how are you envisioning monetizing that, or is that going to just be driven going to just be driven by uplift in GPV? And then the second, real question is, the transaction margin you held it flat at 104 basis points year-on-year. It's down sequentially, though, a little bit. And that is despite the fact that you called out Invoices, Virtual Terminal and the API payments all being big contributors and higher margin and I'm just wondering, is there something to call out there for the sequential decline or is that just kind of a small seasonal nuance? Thank you.

Yeah. So, Dan, on the first question on CRM. We are focused on making this really simple for sellers. And we don't have an answer just yet. But we want to guide by what has made us successful in the past, which is fair, simple, transparent pricing. And we're testing a bunch right now. So, still don't have an answer on exactly what it's going to be, but we're learning as quickly as possible.

Great. Thanks, Dan. And then really quickly on your transaction margin. Yeah. Honestly, no, nothing's out of the ordinary for us. I think it's better to look at transaction margin on a year-over-year basis, because then that accounts for any seasonality that you might see. So, for example, for whatever reason, Q2 is often a quarter where we see more debit in the mix. We've often tried to figure out why, but I think you see it across the whole industry. We thought it might be something to do with tax refunds or something. People have money in their account, so they use debit and not credit. I'm totally hypothesizing right now. But I would not look at it therefore sequentially. I would look at the fact that from Q2 2016 to Q2 2017 it was exactly flat.

Okay. Thank you.

We'll now hear from Dan Dolev with Nomura Instinet.

Hey. Thanks for taking my question. Two questions, first on the sales and marketing expense. I noticed that this was kind of the one expense that went up as a percent of – in terms of basis points on the year-over-year, which kind of defies the trend. I wanted to know how you think about this for the remainder of the year? And the second question, more broadly speaking about the general retail and restaurant weakness that we're seeing elsewhere, is there anything that you're seeing – I know you're in a lot of those markets in terms of same-store sales, et cetera? Thank you.

Great. Yeah. On sales and marketing expenses, we did lean in definitely in Q2, and I think that was a function of the fact that we had released a lot of product, if you look at the six months before. We do a lot of iteration in a market when we release something new and then once we feel like we've hit the point where it's scalable, we will then put some real oomph behind it. Again, always watching that that return is kind of in that three-quarter to four-quarter type period. So no changes on the return and hence we felt really confident in going to market and pushing more in sales and marketing. There's a number of channels that we saw really high efficacy out of. I think areas like social, for example, were very strong in Q2 and we expect that certainly to continue into Q3. I think international, I've probably already mentioned this, but it's worth reiterating and now we are live in the UK and even in Australia, where the product is not very fulsome, it definitely is a place we want to keep going back and pressing. In the UK, we came to market with a very fulsome product suite, so it was payment, but we had Virtual Terminal, we launched our APIs. Each time we do that, it gives us chance to go back in and build the brand awareness. So as we look to the back end of the year, we absolutely want to keep investing here, but all within the envelope of our guidance. In terms of overall macro shifts, we're not seeing anything right now. You can kind of see it in our numbers, right, the fact that our overall GPV growth rate, even at $16.4 billion is still over 30%. Clearly, when our whole value proposition is come to Square, never miss a sale. So, our hope is that when sellers join the platform, they'll continue to grow and even perhaps accelerate their growth. And I think that's why products like Square Capital, Instant Deposit and CRM, they're all important because they make sure that a seller has more and more ways to invest in their business and continue to grow. So, nothing that we're seeing from a macro standpoint. And I think from a micro Square perspective, we're very pleased with the growth rates across the board.

Thanks. Thank you very much.

James Faucette with Morgan Stanley has our next question. James E. Faucette - Morgan Stanley & Co. LLC: Great. Thank you. I just have a high level question for Jack and then one question for Sarah. First, Jack, from your perspective, should Square be participating in kind of the M&A-based consolidation activities that we're seeing in the industry right now, particularly among merchant acquirers or should Square ultimately be part of a larger organization, or do you think it's better for Square to continue to grow more organically to achieve your aims and goals that you've set out? And then, Sarah, we noticed that your transaction losses seem to have been up sequentially and maybe above your long-term targets. Can you talk a little bit about what's going on there and whether that was a strategic decision or – and should we expect a reversion to more historical means? Thanks.

Thank you, James. So, I believe there is a lot of value in our network and that network being independent of any particular platform or any particular technology. So, we are a network that can bring multiple financial institutions together, multiple platforms together and make it feel for the seller that there is really no distinction; they don't have to think about any of that complexity and we can do all that work for them. So that was one of the founding principles of the company and it still remains true today. So we're building against that theory and that principle. We're always looking for teams and for products that can help accelerate and deepen our offering to our customers, both sellers and individuals, and we have a very healthy approach to looking at the market and asking questions and big questions about what we could do and what could make Square go faster and really continue to get deeper into our sellers' day-to-day and also more and more into individuals with both things like Square Cash and Caviar. So as you would expect any company, we are always looking for, across the horizon for those opportunities to make us stronger and to move us faster.

Great. And then, James, on these transaction and advance losses, $18 million in the quarter grew about 5% year-over-year, so to put it in context, our GPV grew over 30%, so I think that's thanks to just the continued operational efficiency we see there. If you break it down into its component parts, pure payments of transaction-based loss continued its very normal trend; it's kind of in the 10 basis points or less. The reason why it perked up in this quarter sequentially is we chose, looking at our balance sheet, to take a write-down through the P&L of about $2.7 million. You'll see that recorded in loan losses in the quarter when our Q hits; it should – actually, maybe it's out, as we speak. Nothing that we're concerned about. As I said, our loan loss rates and capital have remained in this approximately 4% range. It's just every quarter from an accounting perspective, we're always making sure we keep the balance sheet pristine. And so we wanted to be prudent. We'll continue to watch those loans and payback can come in, so in which case, we'll always be looking at the write-down that we took. But nothing changing from an underlying trend perspective; this is just purely a one quarter $2.7 million charge. Okay. Thank you.

Our last question will come from Brett Huff with Stephens.

Good afternoon. My question is two-fold. One, can you talk a little bit about the trends that you're seeing and what I think of it as the cross-sales into the payments sort of base, whether the products you're selling are still higher margin, any additional color on the attach rates or things like that? And then the second question is just about the new functionality that you guys have been working on, so e-com, large sellers, retail, what's the real – what's the real focus now? Thanks.

Great. Why don't I take the cross-sell question? I just always want to be mindful that when you look at the three revenue lines that come into adjusted revenue, transaction-based revenue actually comes in at 100% margin, because we've already taken the interchange of the COGS that's actually associated with payments. The hardware, as you know, and you can see the gross margin on it, we typically use it more as a – effectively almost as a sales and marketing expense, as we think about the TCO to the seller and then also the cost to Square. And then of course, as we build new products like Square Capital, Caviar and so on, they have a mixture of margin profiles, but generally still very software technology-like type margin profiles. In terms of then your question of cross-sell into the base, it continues to do quite well. I mean, a couple of stats in the quarter, as I said, we had 49,000 capital loans. So 200,000 annualized, so that gives a good sense of – we have millions in our base, but we're getting up to 200,000 in terms of sellers utilizing capital. We talked last quarter about 225,000 sellers using invoices now. And that has continued to grow, particularly as the mobile applet part of invoices has really gotten its feet under it. Almost half our invoices now come through mobile. I think in areas like the CRM, you start to see those customer profiles building, and so that will give you a sense of how many sellers are utilizing a product like that. So the trends continue to be very strong. I think as we get better at both – remember we have a very unique advantage here in that we can sell to our sellers through their dashboard. We also know that they tend to open e-mails they get from Square because those e-mails are telling them about their business every day. Those are channels that no one else has access to. And so we love that ability to get to millions with every new product that we bring to market. So showing nice trends here and as Jack said, once someone is taking multiple products, that clearly helps with retention as well. So it kind of compounds the overall growth of the model.

And our focus in terms of the new functionality is really on the platform and the omnichannel opportunity. So one of the things that we've heard from our sellers consistently is wanting one dashboard that they can reference and check all the time to see everything that they're selling offline across multiple locations and everything that they're selling online as well. And we are not just focused on one particular vertical. We're focused on making sure that every seller, no matter the category, no matter the vertical can benefit from this. Now we do need to do things for specific verticals that speak to real needs. Retail is a good example of this and we have built a specialized Point of Sale for retail. Restaurants are another good example of this and Caviar is our answer. It gives the restaurant a new superpower where they don't have to hire a delivery staff and they can get new sales that go outside their walls and also just added the option for pickup as well. But ultimately our focus is around what we're hearing from sellers, which is omnichannel. I want to – I'm an online seller and I want to sell offline or I'm an offline seller and I want to sell online, but most importantly, I want one dashboard to deal with and again, we've taken a network open platform approach here. So that we partnered with online website builders as well for Square to be an option and because our brand awareness is so high, we are picked because people, consumers and sellers certainly recognize our name and see it as a trusted brand that they want to work with and choose. So, the focus still remains on omnichannel and we continue to look for opportunities to specialize around verticals, but we're focused unlike others on making sure that every single seller can benefit from our platform and that really increases the size of our market potential.

Great. Thank you.

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

Thank you, everyone, for joining our call. I would like to remind everyone that we will be hosting our third quarter 2017 earnings call on November 8. Thanks again for participating today.

Ladies and gentlemen, thank you for participating in today's program. This does conclude the program. You may all disconnect.