Jason Lee - Head, IR Jack Dorsey - Chairman, President & CEO Sarah Friar - CFO

Tien-tsin Huang - JPMorgan Chase & Co. Jason Kupferberg - Bank of America Merrill Lynch James Schneider - Goldman Sachs Group Daniel Perlin - RBC Capital Markets Darrin Peller - Wolfe Research Josh Beck - KeyBanc Capital Markets Lisa Ellis - MoffettNathanson Bryan Keane - Deutsche Bank Paul Condra - Crédit Suisse Rayna Kumar - Evercore ISI

Good day, ladies and gentlemen, and welcome to the Square Second Quarter 2018 Conference Call. 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 2018 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 closed. We will begin this call with some short prepared remarks before opening the call directly to your questions. During Q&A, we will take questions from our sellers in addition to questions from conference call participants. We would also like to remind everyone that we will 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.

Thanks, Jason, and thanks, everyone, for joining us. We're really proud of our work this quarter. Weighted more offerings for our restaurants, and customers are spending more with Cash Card. Additionally, the breadth and depth of our ecosystem is enabling product integrations that are unique to Square. We're excited about the launch of Square for Restaurants, our newest industry-specific point-of-sale and our first for larger full-service restaurants. With this product, restaurants can more easily manage operations so that service can spend more time delighting diners. This ease-of-use also extends the setup. While other points-of-sale requires a salesperson onboard, more than 60% of Square for Restaurants sellers have self-onboarded. We're also making it easier for restaurants to manage online and in-person orders by working to integrate Caviar with Square for Restaurants. This integration will be unique to Square because we're the only company that provides both the point-of-sale and through delivery and pickup. Caviar is growing rapidly. The revenue in the second quarter of 2018 more than doubled year-over-year. The Caviar restaurants offer diners more ways to order, on their computer or phone, for pickup or delivery and for individuals or groups, including corporate catering. And diners come to Caviar for food that they can't get anywhere else. More than 25% of food order volume is from restaurants that are exclusive to Caviar. This full offering of delivery, pickup and corporate catering has helped us win in San Francisco, where Caviar is a top food ordering platform. Finally, we continue to expand Cash App to provide more financial services that customers rely on daily. We recently launched Cash Boost, a Cash Card rewards program that gives customers instant discounts when they go to merchants like Shake Shack. Overall, Cash Card drives engagement. Customers spent $250 million in June. This spend has nearly tripled since December and represents $3 billion on an annualized basis. Additionally, we've integrated Cash App with Caviar, which allows couriers to automatically get paid after they complete a delivery. We think paying couriers instantly for their work is the right thing to do, and our ecosystem makes that possible. All these new services are the results of our focus on the long term. We're listening to our customers, building, listening some more and always improving. We'll continue to take the long view and push ourselves to deliver remarkable products to our customers. Now I'll turn it over to Sarah for some more detailed remarks on our financials.

Thank you, Jack. This is a strong quarter for the company. Total net revenue was $815 million, up 48% year-over-year compared to 45% in Q1. Adjusted revenue was $385 million, up 60% year-over-year compared to 51% in Q1. This represents our fifth quarter of accelerating revenue growth, even when excluding the impact from acquisitions in the quarter. Transaction-based profit for the products we monetize through payments was $230 million, up 34% year-over-year. Half of our GPV came from larger sellers, which are those that generate over $125,000 in annualized GPV. This is up from 46% in the second quarter of 2017 and highlights how our cohesive ecosystem is resonating with sellers of all sizes. We saw strong momentum in subscription and services adjusted revenue growth, which accelerated to 131% year-over-year, driven primarily by Instant Deposit, Caviar, Cash Card and Square Capital and also included the impact of the acquisitions of Zesty and Weebly. Excluding acquisitions, growth also accelerated. Speed continues to differentiate Square to our sellers across all our products. For example, Instant Deposit volume was $4 billion in the second quarter. Hardware revenue was $18 million in the quarter, up 78% year-over-year, driven by continued growth in Square Register as well as Square Stand and Square Reader for contactless and chip. GAAP net loss in the second quarter was $6 million compared to a net loss of $16 million in the second quarter of 2017. Net loss per share basic and diluted was $0.01 for the second quarter of 2018 compared to a net loss per share of $0.04 in the second quarter of '17. Adjusted EBITDA was $68 million, representing a margin of 18%, up three points from Q2 of 2017, underscoring that we are driving operating leverage even as we continue to reinvest in the business. Looking ahead, given the ongoing momentum, we are increasing our top line guidance for the full year. For 2018, we now expect total net revenue to be within a range of $3.19 billion to $3.22 billion and adjusted revenue to be in the range of $1.52 billion to $1.54 billion. At the midpoint, this represents 55% year-over-year growth, up from 49% in our prior guidance. We are maintaining our full year adjusted EBITDA guidance of $240 million to $250 million as we continue to reinvest to drive future growth. Our 2018 priorities of omnichannel, financial services and international will guide our reinvestment spend for the remainder of the year. We believe these areas will provide meaningful value to our sellers and consumers, not to mention substantially increase our total addressable market. Our growth acceleration in recent periods is a result of investments we've made over the past few years. Our success with Cash App is a great example, where we're building an ecosystem of financial services for individuals in the same way that we did for businesses. With that, I'll turn it back to the operator to start the Q&A portion of the call.

[Operator Instructions]. Your first question comes from Tien-tsin Huang with JPMorgan. Tien-tsin Huang: I'll start by asking on the outlook. Because second quarter, pretty impressed with the 18% EBITDA margin. You accelerated revenue again. You raised revenue, like you said, Sarah, but kept EBITDA unchanged. So sounds like you're reinvesting more aggressively. Can you just give us a little bit more detail on where you're putting those incremental dollars to work? Could we see more in places like Boost, for example, or maybe Square Register?

Thanks, Tien-tsin. So I think you're nailing it in terms of what we're trying to balance right now. So as ever, we want to lean into growth. We see a lot of untapped opportunities ahead of us, but we want to make sure we're doing that with financial discipline. So as you saw in Q2, we hit 60% top line growth, which I'm kind of personally wowed by, but we did that while still showing three points of EBITDA margin improvement. And so if you look at what the back half second half guide implies, it's also three points of margin improvement, and we think that's the right balance of really doubling down on our investment but making sure that we're doing it while staying mindful of operating leverage in the business. Where we'll invest, so the three areas. Omnichannel, clearly, we made a bigger move with the acquisition of Weebly last quarter, and so there's work to do there as we continue to integrate. On the financial services side, really happy with how Cash App generally is progressing, consistently a top 30 app in the App Store. I think it was as high as 15 or 14 earlier when I looked. You asked about Boost specifically. That is one area of investment because it's all about how do we drive daily utility on Cash App. And then finally, in international, it's a combination of both building out remarkable products. I'm sure you'll ask us more on this in the call. But once we have a remarkable product, we want to keep driving awareness. So a good example is the lean-in we've done on go-to market in the U.K., and we'll continue to do more of that as we get into the back half of the year.

Your next question comes from Jason Kupferberg with Bank of America Merrill Lynch.

Great. I just wanted to ask a follow-up to Tien-tsin's question. Just as we think ahead about margins. I mean, this trade-off totally makes sense. And obviously, you guys are doing a fantastic job on the top line. But just so people's expectations are properly calibrated, I think on a full year basis, we're now looking at about 200 bps of margin expansion year-over-year in '18. When you think longer term, I know you had put some future data targets out there in the past. Do we still get to those targets? Does it just take longer? And even as we start to have early thoughts around '19, is 200 to 300 basis points a year kind of the right cadence just because you have so much TAM to go after that you're not going to let too much flow through to the bottom line?

So thanks, Jason. And we're not ready to give full-on guidance for FY '19 or beyond. But if I kind of start with the premise, I think, beneath your question, nothing has changed in terms of our long-term margin potential. So we've talked about having a long-term of margin goal 35% to 40%. If you look at the two major ways we monetize, whether it's through our payments business model or through subscription services, in both cases, as we showed at Investor Day, we can get over 50% incremental margins on those businesses. And so right now, with the ability to both continue to invest in product, so I think Cash App is a great example, as I said in my prepared remarks, of investing today for businesses that can be really material to the top and bottom line over the next 2 to 3 years, we want to keep doing that investment. So that is hiring great engineers, great data scientists, great designers and product managers. But even beyond that, if you think about sales and marketing, what we're seeing in there is we still see a 3 to 4 quarter payback period, and we have a positive dollar base retention. So within $1 and today to bring on a new customer to the Square ecosystem pays for itself within a year and then actually grows. Last time what we gave you is about 113% year-over-year, and again, that's been fairly consistent. So everything we look at says keep investing. The more we grow the ecosystem, the more we brings Square sellers onto the platform and now consumers onto the platform, the more opportunity we have down the line to continue to cross-sell and upsell into that base. So we think that is the right stance to take. So again, it's a balance, and that's why I'm really happy to see 60% type growth this quarter but still doing it with three points of margin expansion and the guidance still allowing for three points of margin expansion in the back half of the year.

So just a quick follow-up on Instant Deposit volume because that was a real big number at $4 billion. Can you give us a sense where the mix sits between the merchant side and the consumer side there? And what kind of EBITDA flow through do you generally get off that volume?

Sure. So Instant Deposit speaks to, first of all, that our sellers appreciate speed in all we do, whether it's soft hardware to accept the payment type or fast access to their phones. And we revolutionize that from day one at Square by giving them next-day settlement, and then we sped it up by giving them Instant Deposit. That $4 billion that we noted in Q2, the best comp for that is we gave about a $2 billion number in Q3 of last year. So a little under a year of actually double the Instant Deposit volume. It is a mix of both sellers and Cash App being monetized with both value of the speed point. We don't -- we're not at a point where we want to break that apart, but it is an important monetization for both. And then in terms of EBITDA flow through, as you can imagine, and a lot of these products like in Instant Deposit, where we've already acquired the customer, there's not a lot of incremental costs when we add on a new product like this, and that is the beauty of the ecosystem. It's once we have a customer in place, we know that the more they use a second product or a third product from Square, the more sticky they are, and it is less expensive for us typically to be able to both upsell that product but then be able to support that product over the long run. And I think we gave a nice data point last quarter that of our largest sellers, more than 50% of them take a second product from Square.

We will now take a call from a Square seller.

My name is Sarah Swingber [ph]. My company is Dream in Color Jewelry [ph]. We have one of our bigger sales opportunities coming up actually -- or during next weekend with Shake Woods Festival, and we've been notified that the WiFi at the festival is pretty unpredictable, but we use Square quite a bit with our tiny little company. So I'm just kind of curious as to how secure the Square off-line payment system is.

Thanks, Sarah. Thank you for being a Square seller as well. We put a lot of thought and investment into security around the board but especially to make sure that all of our sellers can continue to make sales even in rough network or unpredictable network environments. So we do focus a lot of our attention. So you can trust that's going to work, and everything will remain secure as you use it, even in unpredictable network environments.

Your next question comes from Jim Schneider with Goldman Sachs.

I was wondering if you can maybe comment a little bit on your vertical-specific software solutions. You have obviously launched restaurants, but before that, you had retail. Can you maybe talk about how the retail ramp has gone? Maybe how penetrated you are with those vertical-specific solutions? What your ambitions for where those eventually go are? And then I guess, more to the point, what the end goals in terms of how many restaurants, I mean, total restaurant population do you expect, for example, would be penetrated with that solution?

Thanks, Jim. So we -- the way -- when we first started the company, we approached this from more of a horizontal approach, so building the system network for every type of business. We made the decision to focus on three specific verticals, retail, restaurants and services, and build against them. We launched retail not so long ago, restaurants more recently and have -- had services for quite some time. We are also approaching verticals in more of a horizontal way as well, so that we are recognizing what are the fundamentals for each one of the verticals, making them super easy, simple, really focusing on the operations of the seller and looking for opportunities to integrate the rest of our ecosystem more broadly. Restaurants is a great example where we can -- we believe we can help a lot of restaurants, especially help them make more sales, who might be constrained by the number of tables they have in their physical space or how quickly they can turn them over, with an integration of Caviar. So suddenly, that point-of-sale will be able to -- that will enable food delivery and also pickup. So we think there's a lot of potential around that. The other interesting point, data point, that I had mentioned in my opening remarks is that over 60% of Square for Restaurants sellers have self-onboarded, and this is rather unusual in the industry. Typically, restaurants go to the point-of-sale provider, and they need help to set everything up. That includes their table map, all the menus, basically all the operations that they need to focus on to run their restaurant. They actually need a third-party to help them out. So the ability for a restaurant to take that on and self-onboard and do all their menus, do all their table layout with our software is pretty awesome because it creates efficiencies. And the other great thing is that our restaurant seller average annualized GPV is over 650,000. So these are not small. So no matter if you're a smaller wholesale restaurant or a quick-serve restaurant or a larger one, you have something that's easy to use, and you can continue to push into focusing on your customers and your diners. So that's the intention. We are constantly learning from what our sellers are doing in each of the three verticals and looking for ways to make their lives easier, and that really reflects how we think about our road map. And the faster we can move, the faster adoption we see.

Yes, that's helpful. And then maybe as a follow-up, can you maybe comment on Square Capital? Still very, very good number there, but growth has slowed to kind of the low 20s at this point. So can you maybe talk about some of the initiatives you're undertaking to expand the number of addressable sellers who want to take that product? And I guess, where do you think that penetration rate could go over time? Or do you think you've kind of taken that about as far as you want so that's going to be more of an in-line growth from here?

Sure. So Jim, on capital overall, I mean, a good quarter, $390 million of originations, 60,000 loans. What I'm really impressed by is that this quarter, they crossed the $3 billion threshold of loans facilitated to date. That's 500,000 loans and advances made. So we're really tapping into an unmet need that we see out there broadly in Squarespace but beyond Squarespace. So think about $80 billion of unmet small business demand for loans, so I think it's an amazing product. And it will continue to grow as our base grows. But in terms of new initiatives, there's a couple of strong irons in the fire right now. Partnerships is an area that we have been working on for multiple years. We have learned as we have gone in terms of finding partners that have sellers that look similar to Square sellers where we can utilize the knowledge we have garnered over the last several years with both onboarding them, making sure it's presented in the way that they want to see it but then also being able to manage the risk. And I think the most recent partner we announced just as recently as last week is eBay, which is a great example of finding a partner where their sellers look like Square sellers. So that's one area where we continue to expand the front door. And in fact, we bring net new sellers and through capital. And then over time, just as we do with other products where we see net new, we can obviously begin to cross-sell and upsell as appropriate. The second area on capital that we continue to iterate on is installments. So recall, that is effectively where we place ourselves at that interesting nexus between the buyer and the seller. We have oriented to be a seller product, so we know that small businesses traditionally don't have access to installment program. So it's a tool that larger businesses use to help them grow, and we want to make sure it's now an offer to smaller businesses. What we're able to use there is the knowledge of both the business itself but also the consumer. And so we're starting to learn about consumer information that we might see more broadly on Square's network, and from that, just continue to test and iterate. And I think what we see, so far, gets us excited because the sellers who are utilizing Square Installments are absolutely seeing their business grow. So most important thing, when they grow, because then we'll grow.

And your next question comes from Dan Perlin with RBC Capital Markets.

I had a question on Square for Restaurants and in particular the full service restaurants. So my question is kind of a little more of the competitive dynamic and where the winds are coming from. So we've been hearing that Micros in the hands of Oracle is really not being supported like through the dealership network that it has historically had. And so my question is, are you winning a lot of this business actual share gains? Were you ripping or replacing existing shipments? Or are you riding a wave of incremental new restaurants that are opening up in specific geographies where you obviously have strong hand?

I believe it's a little bit of both, and that's been consistent with our general growth across our entire seller base. We do have a unique advantage, though, given the deep relationships we have with our sellers and how seller-focused we are, especially on the restaurant side. Even if folks have not tried the Square for Restaurants brand, they are aware of the Caviar brand and how much focus -- how much partnership focus there is there. So there is a lot of attention and awareness already going in. And for a restaurant to come in through the restaurant's point-of-sale and get access to the full ecosystem inclusive of Square Capital and Payroll and our customer directory and invoices and everything that would make their business operations a little bit easier and more efficient, there's a lot of pull. So we definitely see switches. We definitely see switchers, but we're also seeing net new and a lot of new restaurants coming up as well.

That's great. Can I just ask a quick follow-up on Cash Boost? It wasn't clear to me. Are you guys actually funding the rewards? Or is that a merchant-funded reward program and you're acting as kind of the conduit in order to facilitate it to the consumer?

Yes. Thanks. One of the things that's been really effective for us with Cash and a lot of our products is this mindset of experimentation. So Cash Boost started out as really just a question. We saw an opportunity where the audience that we were serving, the customers that we were serving didn't typically have access to a rewards program on any of their cards if they had a card in the first place. So for us, first and foremost, to be able to issue them a card, that's Visa brand that works anywhere Visa is accepted, that works at any ATM that they can fund directly through a direct deposit with their paycheck, and put a rewards program there was interesting. The second thing that we took into consideration is where they're spending their money. We want to make sure that we were delivering a solution that was consistent with our usage and what they wanted to do. And then finally, we want to make sure that we have a lot of optionality moving forward. So to get to your question, we want to make sure that we are experimenting with a variety of models, and then we'll ultimately determine which one is best. But first and foremost, we want to make sure that we're giving people a support for where they're spending Cash Card and, obviously, using it in a daily way because it is their financial instrument to pay for things, and then make the appropriate moves to make sure that we can scale it and actually turn into a big part of our business. So we're super excited about it. It's early, but we're seeing a lot of resonance that gets us pretty excited about its future.

Your next question comes from Darrin Peller with Wolfe Research.

Nice job on the growth. Just -- I just have a question on the Cash App again. I mean, first of all, I'm not sure if you've updated the 7 million or 8 million users that you had disclosed by the end of the year number. And then just when considering the monetization of that -- I mean, Jack, there's clearly Instant Deposit debit card. How far along are these? And maybe just have you thought of what other opportunities there are to monetize this longer term?

Yes. We're not going to be updating the monthly number. We wanted to focus everyone on the card itself. We've been really impressed with the growth, and it is showing more evidence that people are using this as a primary, if not only, spending device. So we try to be really thoughtful in terms of how people might use this on a daily basis, and adding the ability to store money with us, adding the ability to give a virtual ABA number that anyone can direct deposit to paycheck into, that the card be an ATM card as well so you could actually go to an ATM and take money out of it. Those are all reasons that reinforce one another that we are seeing evidence that this is a primary account for them, and that gets us excited because these are folks who are not on the financial system before and certainly not transacting in any meaningful way. So we do think the card is pretty far along, but we see a lot of opportunity for innovation there, and we're pretty excited about what's to come on it. And then in terms of monetization, yes. I mean, there's certainly multiple pass to monetize cash. I think we've shown a number of them, and they're all extremely healthy and, more importantly, reinforce the usage. And our incentives are aligned with who we're serving and our customers. So it's not a tax on their usage, which is great. So in terms of how we look at new features, we're really looking at the broader ecosystem of how people use financial devices and look for opportunities to take some friction out or to expand who we might be able to serve. And particularly interesting is the underserved and the unbanked. We're definitely reaching that audience, and that's consistent with the broader Square reach as well. Starting nine years ago, we reached an underserved and underbanked seller and happy to do it again with consumers this time.

Your next question comes from Josh Beck with KeyBanc.

I wanted to ask about omnichannel. You called that out as number one investment priority for this year. And I know you've only had Weebly for a couple of months in your hands. But as we think about the integration moving forward, is that something that's going to be embedded into the Square for the sale app? Is it a distinct kind of bolt-on offering like you've done with Square for Restaurants? Just how should we be thinking about the rollout of that product?

Just to back up, I mean, a lot of people, when they hear the word omnichannel, they immediately rush to e-commerce and online. And the way we've been thinking about it is there's all these new channels of potential sales emerging, and what it really represents tangibly is meeting your customers where they are. We've always had a principle of making sure that our sellers can always make the sale no matter if the payment is coming across a physical counter or digitally. So we think much more broadly about omnichannel and all the channels one could sell through. Caviar is a good example of this. We would think about invoices and virtual terminal are other great examples of this partnership with Eventbrite, another such example. In terms of the online space in particular and Weebly, it's been 60 days. We've reconfirmed and reaffirmed the reasons why we felt the companies would be so great together. The team has been amazing. The customer base is really excellent, presents a bunch of opportunity, especially as we think about going outside our five markets. We're thinking through the branding and how to best place it. The thing that I think we have done really well is maintain a sense of cohesion in that, that their simplicity, you don't feel the seams across the various services and the products. So we want the same intention as we think about Weebly and e-commerce, so that our sellers should not have to think about selling online. They should just have to think about what they're selling and, ultimately, who they're selling to, and we can handle -- making sure that they can sell across multiple channels in a very simple and easy way. So we still have a lot to learn in terms of how the integration will complete from a customer-facing standpoint, but we're pretty excited to start rolling some of those things in.

And just as a follow-up. So obviously, Weebly does have a very international footprint. There's -- so you have new assets. There certainly have been some competitive developments internationally. So when you just kind of take a step back and think about the international opportunity as well as the outperformance you've had in the business, does it make you want to accelerate your path to move further into those existing international markets or push into others? Are you thinking about that any differently?

Sure. From an international standpoint, I mean, the current market is we're in, remember, quite massive. $6 trillion in gross receipts across the four markets, excluding the United States. And so I think this year, it was a really good focus for us to go back into the market beyond the U.S., so Canada, Japan, Australia, U.K., and really think about what next to make the product remarkable. We've talked a little bit about the U.K. to date, but what we're seeing there is there is work to do just to -- not just to upsell or not just to bring folks who are already on the system up and onto a more modern platform, but more importantly, to go back out into the 50% of micro and small merchants who don't accept cards today. And that's where market development work needs to get done, and it's kind of surprising to us in a way that it's hasn't been done to date, but helping explain to them that they are missing sales when they don't accept cards. I think 1 in 6 folks in the U.K. don't carry cash and that when people do use cards, they typically spend more, and so there's a really good story there. We've seen it. We've done town takeovers, in fact, in the U.K., most recently a town called Darwen in Lancashire, where 95% of merchants were cash-only. And we're expecting to get the same result we got in Holywell, where we get them to about 95% accepting cards. So a ton of work to do there. What Weebly is giving us, to kind of segue from what Jack was talking about, is 40% of their revenue is outside of the United States. And of that 40%, more like half is in the market -- the other markets we're in. So it is allowing us a way to test other markets for Square's products, broadly speaking, with a resonance. And so it's always a balance of continuing to really put a lot of investment behind a market that's still young where we have a lot of room to grow versus going a little thinner and going broader. And I think as we go into 2019 planning, we always go back to make the right trade-off there. And remember, it's not just about our seller platform anymore. Cash launched in the U.K. last quarter, and so now we're starting to see what it's like to go more international with the consumer product and does the pace of movement internationally change when we look at something that is a purely software-driven online product without having a hardware component associated with it.

Your next question comes from Lisa Ellis with MoffettNathanson.

I just had a follow-up to Jason's question related to Instant Deposit. I guess, two parts. First, can you just give a little bit of color around the usage pattern for Instant Deposit, meaning like what type of adoption level are you seeing across the base, the frequency of the transactions, average transaction sizes? Any kind of color there. And then I guess the second question is just how you're seeing that business impacted by things like the rollout of same-time -- same-day settlement for ACH in the U.S. and the rollout of competitive offerings by some of your P2P competitors like PayPal and Venmo?

Sure. Thanks, Lisa, and welcome to the call. From an Instant Deposit standpoint, it comes back to this concept of speed. Speed really matters to our customers, whether it's the fact that our contactless and chip reader is getting down into seconds to take the transaction, whether it was next-day settlement and then Instant Deposit. We know it really matters to small businesses to have fast access to working capital. When they have fast access, they can keep reinvesting in their business and make their business grow. And so in terms of usage patterns, on the seller side, it's a lot of what we thought as we launched. But particularly sellers that had big-weekend businesses like hair salons or bars and restaurants, they often wouldn't get paid out in a traditional world until maybe the Tuesday, and they were having to float paying their staff, paying their suppliers without seeing their payments come through the door. And so we're able to smooth a lot of that out, and that continues in terms of usage. And then similarly on the consumer side, we've seen tremendous uptick from a cash-out perspective of people who want to get fast access to funds. Now clearly, we're balancing that by creating a balance and starting to give you real utility on keeping your money in the Cash App and then from that being to use all the pieces that Jack spoke to, the card virtually, the card offline, et cetera, et cetera. In terms of competitive offerings, they're really just speed generally. A point, I think, we've talked about before. I mean, moving money quickly in and of itself isn't the difficult thing. It's hard to do, but we've done it. But risk is really where the rubber hits the road, and you really have to be doing real-time automated risk management if you're going to get into the business of instantly depositing out to sellers and to individuals. And we were born in that era, so our risk from the get-go was built with at the time we set off for algorithms, today what people would call machine learning, getting into deep learning. I think we've given a stat before that 99.95% of all of our transactions are automated. They never fall to a human being to look at, and we continue to grind away in how do we take that number higher. And so we think that's really the differentiation between us and a lot of our competitive bench, is this -- the ability to do risk in that hyper automated fashion.

Terrific. And then just my follow-up on the core business, which has now been growing fairly consistently TPV growth in the 30% range with pretty stable transaction-based profit percentages. Can you give a sense, though, as you look out, how you're seeing the trajectory of that business? Meaning, do you see a path toward accelerating the volumes there or potentially expanding the profit percentages as you're adding more software content into the offerings like with the vertical-specific solutions?

So yes, I wouldn't label it core and, I guess, noncore. The way we think about the breakdown on our P&L is what is the monetization method that we're utilizing, so it's not a product-based P&L. So we have optionality, and we use that optionality to be as aggressive as possible when we go to market. So for example, if you take a software product like invoices, massive utility to sellers. That's a good example where, unlike our competition, we don't charge a software fee. Instead, we monetize it all through payment. So it would fall under that transaction-based profit line. Equally, there are places where we can get a lot more aggressive from a payments standpoint because we are going to charge a monthly fee. And a good example would be, say, something like Square for Retail, where we charge 2.5 and $0.10, but we charge a $60 per device fee and then $20 thereafter. So it's really about how do we balance the best outcome of price as a feature of the product. So we don't build a remarkable product then price it, rather price is part of how we build it to begin with. In terms of what accelerates the overall business, it's effectively what we've talked about before, the ability to continue to move upmarket into larger sellers, so 50% of our GPV now coming from larger sellers. It's the ability to flip and take their full book of business. So if they started online but now want to move off-line, if they started off-line but want to be able to use [indiscernible] payments, we want to take their full book of business. And then the third factor is international.

Your next question comes from Bryan Keane with Deutsche Bank.

I wanted to ask about Caviar. I'm impressed by the growth of that business. So just trying to figure out what's driving that top line. Are you guys taking share from other providers? Or is it just organically growing as people outsource more their delivery and options for that business? And then secondly, just on the EBITDA margins of Caviar, what do they look like today? And what do they look like when they get to scale?

Yes. So we think what's driving the growth is -- and what -- and equally, what sets Caviar apart from everyone else is, number one, the deep relationship with our restaurants. So we do spend a lot of time obsessing over their operations and continuing to look for ways to make them a lot more efficient, and there's not a lot of our peers who really focus on those elements. It's more of a buyer-focused, a diner-focused approach. And the reason this is meaningful is because, ultimately, if you do want to drive more sales to a Caviar -- to a restaurant, you need to make sure that it fits in with your standard operations as well, people actually coming into your door. And we found a really good mix and a balance. So we certainly see a drive from the sellers themselves and the restaurants themselves to encourage our customers to look at the Caviar platform and download the app, which is awesome. We have a very friendly, very easy, super accessible brand. We've put a lot of focus on the customer experience as well right down to the courier. And so starting with the -- easing the operations of a restaurant all the way to when the food is handed off to a customer, we've really focused on making sure that, that feels effortless, it feels easy, and it feels really simple. I think the other thing that we benefit from is the fact that we are part of Square and we have a much broader ecosystem that we can show these restaurants to. Whether they're just doing pickup or they're doing delivery, we can show them everything else that we have to offer, inclusive of things like Square Payroll and Square Capital, our Square for Restaurants point-of-sale, our customer directory. So we do have a much broader offering that people don't have to put together all the pieces around, and we are seeing really strong momentum. And it's really important that we keep this momentum up. Pragmatic approaches won't help, so we have to be really nimble as we think about how to extend our road map and really serve both sellers and their customers in the right way. And I'll let Sarah take the question on EBITDA margins.

Sure. Thanks, Jack. So just from an EBITDA margin perspective, Bryan, holistically, we really think about the business more holistically. We want to make sure we're in a good business, and we believe Caviar is a very good business, both from a top line growth perspective, but also from a unit economic perspective. And it continues to get better as we get scale. And frankly, as we get better and better on efficiency, the team is a good place, as an example, where we do use machine learning. So think about how do we up the number of deliveries a courier can make in a given period of time is one of the main drivers of the gross margin in the business. So net-net, when I think of it holistically, we're trying to balance off, as Jack has pointed out, a businesslike Caviar and how it can insert into the point-of-sale, and with that, drive more point-of-sale and make us really unique and differentiated from anyone else in the market, and then against that, continue to balance the overall uplift and overall EBITDA margins at a company level back to that point I made about Q2 being three point of improvement year-over-year and the back half of the year being a three-point improvement year-over-year.

Your next question comes from Paul Condra with Crédit Suisse.

I also had a question on Caviar just as it's done very well. And when you think about replicating that ecosystem in other cities, I wonder if you can talk about what strategy looks like. Is that something that might be, will you look to do M&A? Or could you expand it more organically in other cities?

Yes. I mean, with Caviar, we have been pretty aggressive with M&A in terms of expansion. So we've shown a number of acquisitions that help us either open or strengthen our current markets, so that is certainly a potential. We -- one of the reasons we launched pickup is because we could see many more markets faster, and that gives us an opportunity to learn about those restaurants much faster and then work out all the logistics that we would need for a delivery held as well. So we made a conscious choice some time ago to not make Caviar about delivery but really make it about food, and we want to be in the first consideration whenever you're hungry and you don't want to make something at home. And that meant that we had to really look deeply at various ways that food can come to you. So delivery is where we started, and pickup is the next iteration. Of course, there are opportunities within dine-in as well, and that's where moves like Square for Restaurants really fits in and continues to strengthen the ecosystem. But we do believe that our approach is, number one, optimized for learning so that we can learn where to make the next move in terms of what we need to do in delivery operations. And number two, really paying attention to the market and telling behaviors and making sure that we fit the solution in the right way. But ultimately, we want Caviar to be everywhere and as an ultimate food destination and again in that first considerations that whenever someone is hungry.

Great. And I guess, just a follow-up to switch gears to the bank application. If you could update us on the status with the FDIC and then whether this OCC national charter might make sense for Square. I know it was just announced so you haven't maybe had a lot of time to look through it. But is that kind of a possible route for you?

Yes. So we have an ongoing dialogue with the FDIC in Utah. We decided to withdraw and refile, which allows us to amend and strengthen some areas of our application with the FDIC. In terms of the OCC fintech charter, we're pretty encouraged about the continued conversations between regulators and companies like ours, and we continue to believe that we're really well positioned to broaden access to the financial system, which is our core purpose.

Your last question will come from Rayna Kumar with Evercore ISI.

What has been your progress with Square Register and retail POS? How far upmarket have you been able to go with these products? And just how has your initial traction been with Square for Restaurants?

Sure. So in terms of Square Register progress that we -- I think Jack already spoke to it in terms of what it brings to sellers. We recognize with Square Register that larger sellers, and actually sellers of all sizes are what we're seeing right now, want to continue to have a better and better experience sitting right there on their countertop. And what they loved is the customer display. We hear that over and over again. And I think it's a good example of when we build a product, we wanted to highlight our seller. It's not about Square. It's actually about their business. They had also love the connection they get with digital receipts, the engagement with loyalty. I was actually looking at our digital receipts number. We have sent per 497 million digital receipts just in the trailing 12 months, which really speaks to how much we draw together the seller with their buyer. In terms of the fit, Square Register does bring on slightly larger sellers, so we see an average GPV of about $300,000. As of Q1, haven't really updated it, but hasn't changed massively. About 1/3 of those orders are coming from new to Square sellers, and we'd expect that to continue to grow over time because the base will ultimately fully upgrade. And then from there, it's really about a new doorway into Square. And as expected, it really does work well in food, services and retail, our major verticals. So Square Register is doing quite nicely and continuing to just underscore Square's strengths from a hardware perspective. In terms of how far we can go, today, I don't really see a limit in terms of how far we go in general across our seller base. Clearly, when you get into really large merchants, they often have a need for more of an API integration. They may not want [indiscernible] Square because they may already have a lot of systems in place, and that's exactly where the Build with Square or the API platform comes into its own. And I think that's allowing us to really penetrate larger and larger sellers. And then I think you asked about restaurant's progress as well. Still very young in market. We gave you a little bit of color in the shareholder letter. So I think the good of it is, it's a huge market, so 300,000 restaurants in the U.S. alone, $300 billion in gross receipts. When you get outside the U.S., it's about double that. So clearly, tons of opportunity. I think the good is we are seeing it as a push into larger sellers as we expected, so the average GPV of a restaurant customer is $650,000. And I think Jack already alluded to, we've seen nice kind of integration of other products there, too, that if someone comes on, on Square for Restaurants, they'd be a very natural fit for things like payroll, a very natural fit for things like loyalty. And so those are kind of the ways we can lean in to make sure we're selling the whole ecosystem of Square.

I would now like to turn the call over to the company for closing remarks.

Thank you, everyone, for joining our call. I'd like to remind everyone that we will be hosting our third quarter 2018 earnings call on November 7. 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.