Square, Inc. Debt jumped on 149% and EBITDA surged on 244%
02/27/2019 • About Square, Inc. (
$SQ) • By InTwits
Square, Inc. reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- Square, Inc. is a fast growth stock: 2018 revenue growth was 49.0%, 5 year revenue CAGR was 43.0% at 2018 ROIC -2.3%
- EBITDA Margin is expanding: 0.7% in 2018 vs. -0.8% in 2017 vs. -15.5% in 2014
- Square, Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for 2014-2018 is 6.7%. Average EBITDA Margin for the same period was -4.3%
- Square, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.2%. At the same time it's a lot of higher than industry average of 3.1%.
- CAPEX is quite volatile: $61m in 2018, $26m in 2017, $25m in 2016, $37m in 2015, $29m in 2014
- The company has unprofitable business model: ROIC is -2.3%
- It operates with high leverage: Net Debt/EBITDA is 13.3x while industry average is 2.6x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Square, Inc.'s Revenue jumped on 49.0%. Revenue growth showed acceleration in 18Q4 - it increased 51.4% YoY. During the last 5 years Revenue growth bottomed in 2017 at 29.6%. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased slightly on 1.9 pp from 32.3% to 34.2% in 2018. EBITDA Margin grew at 4.3 pp per annum in 2014-2018.
Gross Margin increased slightly on 1.6 pp from 37.9% to 39.5% in 2018. Gross Margin stuck to a growing trend at 3.5 pp per annum in the last 5 years. SG&A as a % of Revenue showed almost no change in 2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018. During the last 5 years SBC as a % of Revenue topped in 2016 at 8.1% and was declining since that time.
Net Income margin increased slightly on 1.7 pp from -2.8% to -1.2% in 2018. Net Income margin followed a growing trend at 4.5 pp per annum in 2014-2018.
Investments (CAPEX, working capital and M&A)
In 2018 the company had CAPEX/Revenue of 1.9%. Square, Inc.'s CAPEX/Revenue decreased slightly on 1.1 pp from 3.0% in 2015 to 1.9% in 2018. It's average level of CAPEX/Revenue for the last three years was 1.5%. To secure its fast growth the company made large investments to CAPEX (251% of EBITDA). During 2014-2018 CAPEX as a % of Revenue bottomed in 2017 at 1.2%.
Square, Inc. has spent
$112m on M&A in 2018 which accounts for 3.4% of revenue.
Return on investment
The company operates at negative ROIC (-2.3%) and ROE (-4.0%). ROIC increased on 4.0 pp from -6.3% to -2.3% in 2018. ROE increased on 5.2 pp from -9.2% to -4.0% in 2018. ROIC stuck to a growing trend at 16.1 pp per annum in 2014-2018.
Leverage (Debt)
Debt level is 13.3x Net Debt / EBITDA and 37.3x Debt / EBITDA. Net Debt / EBITDA surged13.3x from to 13.3x in 2018. Debt jumped on 149% while cash dropped on 16.3%.
Square, Inc. has no short term refinancing risk: cash is higher than short term debt (11,596.2%).
Management team
The company's CEO Jack Dorsey is a founder and has spent 10 years with the company. CEO total compensation was
$3 in 2018 which included
$3 salary. Amrita Ahuja is a Square, Inc.'s CFO. Amrita Ahuja has spent 0 years at the company.
Insider ownership is 0.82%. Insider ownership didn't change in 2018.
The company has 3,349 employees. The number of employees surged on 43.2%. Average revenue per employee in 2018 was
$984,824 and it increased on 4.0%.
Financial and operational results
FY ended 12/31/2018
Square, Inc. ($SQ) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 850 | 1,267 | 1,709 | 2,214 | 3,298 | 49.0% |
| Gross Profit | 226 | 370 | 576 | 839 | 1,304 | 55.3% |
| SG&A | 207 | 289 | 426 | 491 | 735 | 49.7% |
| EBITDA | -132 | -147 | -133 | -17 | 24 | |
| EBIT | -150 | -174 | -170 | -54 | -37 | |
| Tax | 1 | 4 | 2 | 0 | 2 | 1,461.1% |
| Net Income | -154 | -180 | -172 | -63 | -38 | |
| Stock Based Compensation | 36 | 82 | 139 | 156 | 217 | 39.2% |
Balance Sheet
|
|---|
| Cash | 225 | 471 | 452 | 696 | 583 | -16.3% |
| Accounts Payable | 5 | 19 | 13 | 17 | | |
| Short Term Debt | 0 | 0 | 1 | 3 | 5 | 89.8% |
| Long Term Debt | 30 | 0 | 1 | 362 | 902 | 148.9% |
Cash flow
|
|---|
| Capex | 29 | 37 | 25 | 26 | 61 | 134.5% |
| Acquisitions | -12 | 5 | 1 | 2 | 112 | 5,769.4% |
Ratios
|
|---|
| Revenue growth | 53.9% | 49.0% | 34.9% | 29.6% | 49.0% | |
| EBITDA growth | 36.4% | 11.3% | -9.6% | -87.2% | -243.8% | |
|
|---|
| Gross Margin | 26.6% | 29.2% | 33.7% | 37.9% | 39.5% | 1.6% |
| EBITDA Margin | -15.5% | -11.6% | -7.8% | -0.8% | 0.7% | 1.5% |
| EBIT Margin | -17.7% | -13.8% | -10.0% | -2.4% | -1.1% | 1.3% |
| SG&A, % of revenue | 24.3% | 22.8% | 24.9% | 22.2% | 22.3% | 0.1% |
| SBC, % of revenue | 4.2% | 6.5% | 8.1% | 7.0% | 6.6% | -0.5% |
| Net Income Margin | -18.1% | -14.2% | -10.0% | -2.8% | -1.2% | 1.7% |
| CAPEX, % of revenue | 3.4% | 3.0% | 1.5% | 1.2% | 1.9% | 0.7% |
|
|---|
| ROIC | -64.6% | -43.0% | -31.4% | -6.3% | -2.3% | 4.0% |
| ROE | | | -31.7% | -9.2% | -4.0% | 5.2% |
| Net Debt/EBITDA | | | | | 13.3x |
People
|
|---|
| Insider ownership | 0.8% | 0.8% | 0.8% | 0.8% | 0.8% | 0.0% |
| Employees | | 1,449 | 1,853 | 2,338 | 3,349 | 43.2% |
| Revenue/Employee, th. $ | | 874 | 922 | 947 | 985 | 4.0% |
Square, Inc. ($SQ) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 669 | 815 | 882 | 933 | | 44.9% | 47.8% | 50.7% | 51.4% |
| EBITDA | -11 | 10 | 6 | 20 | | | | | |
| Net Income | -24 | -6 | 20 | -28 | | | | | |
Balance Sheet
|
|---|
| Cash | 739 | 1,388 | 722 | 583 | | 4.8% | 93.6% | 9.6% | -16.3% |
| Short Term Debt | 3 | 5 | 131 | 5 | | 74.1% | 243.5% | 8,640.4% | 89.8% |
| Long Term Debt | 366 | 1,076 | 902 | 902 | | 5.1% | 205.6% | 153.2% | 148.9% |
Ratios
|
|---|
| Gross Margin | 38.2% | 38.8% | 40.0% | 40.8% | | 0.6% | 1.1% | 2.6% | 1.8% |
| EBITDA Margin | -1.6% | 1.2% | 0.7% | 2.1% | | -0.6% | 1.7% | 1.7% | 2.6% |
| Net Income Margin | -3.6% | -0.7% | 2.2% | -3.0% | | -0.3% | 2.2% | 5.0% | -0.5% |
Peers in Data Processing & Outsourced S
Below you can find Square, Inc. benchmarking vs. other companies in Data Processing & Outsourced S industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Verra Mobility Corp ($VRRM) | | | | | 167.8% |
| StoneCo Ltd ($STNE) | | | | 74.3% | 106.0% |
| PagSeguro Digital Ltd. ($PAGS) | | 107.1% | 68.7% | 121.7% | 71.8% |
| Payment Data Systems, Inc. ($PYDS) | | 7.4% | -16.0% | 20.7% | 71.7% |
| StarTek, Inc. ($SRT) | | 12.8% | 8.9% | -4.8% | 66.4% |
| |
|---|
| Median (55 companies) | | 7.0% | 7.6% | 10.1% | 7.4% |
|---|
| Square, Inc. ($SQ) | | 49.0% | 34.9% | 29.6% | 49.0% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Verra Mobility Corp ($VRRM) | | | | 97.4% | 97.5% |
| Everi Holdings Inc. ($EVRI) | 25.8% | 38.3% | 36.1% | 34.5% | 79.9% |
| StoneCo Ltd ($STNE) | | | 69.7% | 70.8% | 79.5% |
| Paychex, Inc. ($PAYX) | 70.9% | 70.5% | 71.0% | 70.8% | 69.9% |
| Global Payments Inc. ($GPN) | 62.7% | 63.2% | 60.4% | 51.5% | 67.5% |
| |
|---|
| Median (44 companies) | 39.3% | 39.6% | 39.5% | 39.5% | 41.0% |
|---|
| Square, Inc. ($SQ) | 26.6% | 29.2% | 33.7% | 37.9% | 39.5% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Visa Inc. ($V) | 64.0% | 68.9% | 55.6% | 69.2% | 65.8% |
| FleetCor Technologies, Inc. ($FLT) | 56.1% | 50.4% | 52.0% | 50.8% | 55.9% |
| StoneCo Ltd ($STNE) | | | 31.4% | 26.0% | 53.0% |
| Mastercard Incorporated ($MA) | 57.5% | 56.3% | 56.9% | 56.5% | 51.8% |
| Everi Holdings Inc. ($EVRI) | 9.6% | 14.7% | 3.0% | 20.4% | 45.2% |
| |
|---|
| Median (56 companies) | 20.6% | 21.2% | 21.3% | 21.1% | 19.4% |
|---|
| Square, Inc. ($SQ) | -15.5% | -11.6% | -7.8% | -0.8% | 0.7% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Crypto Co/The ($CRCW) | 0.0% | 0.0% | | 1,216.6% | 853.5% |
| Steel Connect, Inc. ($STCN) | 0.6% | 1.5% | 1.7% | 1.1% | 75.6% |
| Everi Holdings Inc. ($EVRI) | 3.0% | 9.3% | 9.4% | 9.9% | 21.9% |
| StoneCo Ltd ($STNE) | | | 7.2% | 18.4% | 8.9% |
| Cardtronics plc ($CATM) | 10.2% | 11.9% | 9.9% | 9.6% | 8.0% |
| |
|---|
| Median (56 companies) | 3.1% | 3.0% | 3.2% | 2.9% | 3.2% |
|---|
| Square, Inc. ($SQ) | 3.4% | 3.0% | 1.5% | 1.2% | 1.9% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| GreenSky, Inc. ($GSKY) | | | | 156.4% | 93.7% |
| Mastercard Incorporated ($MA) | 63.5% | 57.5% | 57.5% | 60.6% | 64.7% |
| Paychex, Inc. ($PAYX) | 54.5% | 58.7% | 61.9% | 63.9% | 64.5% |
| NIC Inc. ($EGOV) | 64.6% | 61.2% | 63.1% | 52.1% | 39.3% |
| Automatic Data Processing, Inc. ($ADP) | 23.9% | 28.9% | 37.9% | 36.6% | 37.5% |
| |
|---|
| Median (62 companies) | 14.1% | 13.1% | 11.7% | 10.7% | 12.1% |
|---|
| Square, Inc. ($SQ) | -64.6% | -43.0% | -31.4% | -6.3% | -2.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| StarTek, Inc. ($SRT) | -0.1x | | 2.2x | 2.3x | 18.4x |
| Steel Connect, Inc. ($STCN) | -12.5x | | | | 12.6x |
| Exela Technologies Inc ($XELAU) | | | 8.1x | | 9.7x |
| Alliance Data Systems Corporation ($ADS) | 9.3x | 9.1x | 10.7x | 10.1x | 9.0x |
| Moneygram International, Inc. ($MGI) | 5.5x | 9.5x | 4.5x | 8.0x | 8.0x |
| |
|---|
| Median (54 companies) | 0.5x | 0.6x | 1.4x | 2.3x | 2.0x |
|---|
| Square, Inc. ($SQ) | | | | | 13.3x |
