ASM 2016

Jun 23, 2016

Good morning. Welcome to the Square 2016 Annual Meeting of stockholders. Please note that this event is being webcast. I would like to turn the conference over to Jack Dorsey, CEO, President, and Chairman of the Board. Mr. Dorsey, please go ahead. Thank you, operator. I want to welcome you to the Square 2016 and our first annual meeting of shareholders. A special thank you to our stellar shareholders who have joined the meeting as well. We're always looking for accessible ways to use technology to bring people together, and we're happy to be able to conduct this meeting online. After the formal business of the meeting has adjourned, we will provide time for your questions. I would now like to turn the call over to Dana Wagner, our General Counsel, who will lead the meeting and also act as Secretary of the meeting. Thank you, Jack. Chris Vico has been appointed to act as the Inspector of Election. She will examine and tabulate proxies and ballots at this meeting. I would now like to introduce the other members of the company's Board of Directors who are present or otherwise participating on our call today. They are David Viniar, Jim McKelvey, Roelof Botha, Ruth Simmons, and Paul Deighton. We're also joined here today by our Chief Financial Officer, Sarah Friar, and Conor Moore of KPMG, our independent registered public accounting firm. Mr. Moore will be available to respond to appropriate questions. With introductions concluded, we'll move on to our other procedural matters. First of all, the voting is currently open. Any stockholder who hasn't yet voted or who wishes to change his or her vote may do so by clicking on the voting button on our web portal and following the instructions. Any stockholder who has already sent in a proxy or voted via the telephone or internet, does not want to change his or her vote, need not take any further action. I have two affidavits of distribution from Broadridge Financial Solutions. The first indicates that commencing on April 29, 2016, the proxy statement and related proxy materials were mailed to stockholders of record, determined as of the close of business on the record date. The second indicates that commencing on May 25, 2016, the amendment to our proxy statement was mailed to stockholders of record, determined as of the close of business on the record date. Ms. Vico reports that the holders of a majority of the voting power of shares of our common stock as of the record date, are present at the meeting in person or by proxy, constituting a quorum. Therefore, today's meeting is duly convened and open for business. I will now proceed with the formal business of this meeting. There are four items of business to be considered and voted on by stockholders. I will summarize them, and each proposal is more fully described in our proxy statement. The first item of business is the election of three Class I directors, Jack Dorsey, David Viniar, and Paul Deighton, to serve until the 2019 Annual Meeting of Stockholders and until their successors are duly elected and qualified. The board of directors has recommended a vote for all of the director nominees. Previously, Earvin Magic Johnson Jr. was up for election. However, Mr. Johnson resigned from his position on May 9th and was replaced by Mr. Deighton on May 12th. Again, if you have already voted, no action is required from you unless you wish to change your vote or provide a vote on Mr. Deighton's election. Votes received prior to May 20th will not be counted for or against the election of Mr. Deighton to the board. Any shares voted for Mr. Johnson will not be counted for or against the election of Mr. Johnson or Mr. Deighton to the board. The second item of business is to approve on an advisory basis the compensation of our named executive officers. The board of directors has recommended a vote for the following advisory resolution. It reads, "Resolved, that the stockholders approve, on an advisory basis, the compensation paid to our named executive officers as disclosed in the proxy statement for the annual meeting pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and narrative discussion, and other related disclosure." The third of the four items of business is to approve, also on an advisory basis, the frequency of future stockholder advisory votes on the compensation of our named executive officers. The board of directors recommends a vote to hold future stockholder advisory votes on the compensation of our named executive officers every one year. The fourth and final item of business is the proposal to ratify the appointment of KPMG to serve as Square's independent registered public accounting firm for the year ending December 31st, 2016. The board of directors recommends a vote for the ratification of the appointment of KPMG. It is now 11:04 A.M., and the polls are still open, and we will vote on the proposals. Voting today is by proxy and electronic ballot. As previously noted, if you've already submitted a proxy or voted via the telephone or internet, and do not wish to change your vote, you need not do anything else at this time. Any stockholder who has yet voted or wishes to change his or her vote may do so now by clicking on the Vote Here button on the webcast portal and following the instructions. If you have not yet submitted a proxy or electronic ballot, you must submit your electronic ballot now for your vote to be counted by the Inspector of Election. We will now leave the polls open for a few moments to allow anyone who chooses to vote electronically to cast their ballot. If there are any questions on any of the proposals, please submit those now. Now that everyone has had the opportunity to vote, it is 11:06 A.M., and I now declare the polls to be closed. Ms. Vico, the Inspector of Elections, will now report on the preliminary voting results. Ms. Vico, please. Thank you. The preliminary report of the Inspector of Elections shows that regarding proposal number 1, election of directors, Jack Dorsey, David Viniar, and Paul Deighton each received more than 99% of the votes in favor of his election. Regarding proposal number 2, the advisory resolution on the compensation of the company's named executive officers received more than 99% of the votes in favor of its approval. Regarding proposal number 3, the frequency of the vote on executive compensation every year received more than 99% in favor. Regarding proposal number 4, the ratification of the appointment of KPMG received more than 99% in favor. Thank you, Ms. Vico. Based on the results, the vote shows that the stockholders have elected the three Class I directors to serve until the 2019 annual meeting of stockholders, approved on an advisory basis the compensation of our named executive officers, approved also on an advisory basis the one-year frequency of future stockholder advisory votes on the compensation of our named executive officers, and ratified the appointment of KPMG as Square's independent registered public accounting firm for fiscal 2016. Ladies and gentlemen, that concludes our planned agenda. There is no other formal business before us today, and I therefore now declare the meeting to be adjourned. We will now take the opportunity to answer stockholder questions entered today on the web portal. Please note that we will attempt to answer as many questions as time allows. I will turn the call over to Stacey Finerman from our investor relations team to handle this Q&A session. Thank you, Dana. Before we begin, I would like to note that our responses to your questions today may include forward-looking statements. Our actual results may differ materially from those projected in these statements. Please take a look at our filings with the Securities and Exchange Commission for a discussion of the factors that could cause our results to differ. Note that any forward-looking statements are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law. I will now read the first question. Can you please explain why the market sees customer lending as a negative activity? EasyPay seems to be using similar technology. Is there an agreement with them? Sarah. Great. Thank you so much, Stacey, thank you very much for the question. I think I will take it from the positive of why we see Square Capital, which is lending to small businesses, as a very positive thing to do. First and foremost, we believe it speaks to our core competencies as a company. We have, in effect, aggregated a large number, in the millions, of small businesses who actively run their business on Square. They trust our brand with a Net Promoter Score of over 70, they know that they can come to us as they see issues arise in their business. One of those is lack of access to capital. A second competitive advantage we felt we had was an ability to underwrite them in a good way and in a way that would minimize losses but get that capital to the place it's needed most, which is small businesses. Utilizing the data that Square has with our payments, we're able to show that we can lend to small businesses in sizes that are in the $6,000 to $7,000 and see default rates that are in the 4%-type range. We think it's an excellent outcome of getting capital to where it's most needed to help those businesses start, run, and grow. Now, the market clearly has had a negative reaction to what has been called the alternative lending space, I believe Square has gotten rolled into that to some degree. However, what I think we've been able to show as investors have come and dug deeper is just the points of differentiation that I just elaborated on why, in effect, we believe we have a product that has core competitive advantages. It's not a marketplace, why we continue to see what we view as almost a flight to quality as investors come to Square to be able to put their dollars to work behind Square Capital. Thank you. The next question, why did our stock ticker, SQ, go up and down so much? This is Sarah again. Thank you. Go ahead, Jack. Go ahead, Sarah. Thank you for the question. I think I will comment on what I talked to Square about which is ultimately, we cannot help move our stock one way or the other. What our stock does is not in our hands. That is blunt with the market. However, stocks will trade to fundamentals. We will control what we can control, which is our business. We will continue to put up strong quarters as we did in Q4 and we did in Q1. We'll continue to focus on how we build our base of small businesses and continue to grow that technology platform that's paid for via our payments business model, then continue to add new products into our ecosystem, like Square Capital or like our CRM products. As long as we continue to execute and show the high growth that we're showing today, we believe our stock will ultimately show the strength of our business. The volatility in it, we're a very young company. We're new to the public markets. We've just gone through a lock-up right as we came out of our Q1 earnings release. I think all of that has certainly added to volatility, but over time, our expectation is it'll trade back to the fundamentals of the business, which are strong. Thank you. That was our last question. The question and answer period is concluded. Thank you for joining us today. I will now turn it back over to the operator. Thank you for joining us today on today's call. You may now disconnect. Thank you.