Jason Lee - Investor Relations Jack Dorsey - CEO Sarah Friar - CFO.

Tien Tsin Huang - JPMorgan Jason Kupferberg - Jefferies Dan Perlin - RBC Capital Markets Jim Schneider - Goldman Sachs Darrin Peller - Barclays Bryan Keane - Deutsche Bank Brett Huff - Stephens Inc.

Andrew Jeffrey - SunTrust Robinson Humphrey James Faucette - Morgan Stanley Neil Doshi - Mizuho Securities USA Josh Beck - Pacific Crest Securities Tom McCrohan - CLSA Paul Kondra - Credit Suisse.

Good day ladies and gentlemen, and welcome to the Square Third Quarter 2016 Earnings Conference call. I would now like to turn the call over to Jason Lee, Head of Investor Relations. Please go ahead..

Hi, everyone. Thanks for joining our third quarter 2016 earnings call. We have Jack and Sarah with us today. First, we wanted to remind everyone on the format for 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 asked 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, and 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.

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.

Reconciliation 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 and 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 would like to turn it over to Jack..

Thanks, Jason, and thank you all for joining us. I’m excited to be here today to talk about our third quarter results. Before this call, we issued our quarterly shareholder letter with more detail, which I encourage you all to read. I’ll take a brief moment now to highlight a few items that I think are important.

First, I want to note that this is our third consecutive quarter where we exceeded all of our guided metrics and so we are raising 2016 guidance. Gross payment volume for the third quarter was 13.2 billion, up 39% year-over-year and we continue to see revenue growth at scale and ongoing improvements in operating efficiency.

Second, we launched several features this quarter to make our services faster and easier to use.

This quarter we launched scheduled deposit for easy recurring settlements, we expedited the check-out process with registered card on file, we improved EMV transaction speed in our contactless and chip reader to four seconds, and our new goal now is three seconds.

We recognize that time is incredibly valuable to our sellers and their customers, so we are always prioritizing speed and ease of use in all of our services. Third, we continue to see growth from larger sellers with GPV from the seller group growing 55% year-over-year.

As we mentioned last quarter, we’re seeing these positive results for several reasons. Many sellers have grown since joining Square. Additionally larger sellers appreciate the cohesiveness of our ecosystem and the simplicity we bring to payments technology. Features like the elegance and mobility of our hardware to the flexibility of our platform.

This brings us to the fourth highlight of the quarter, Build with Square, our developer platform that allows sellers to customize their business solutions.

Build with Square is allowing us to reach even more sellers and expand our addressable market, opening our ecosystem to more partners like TouchBistro and Vend is good for both our sellers and our business.

These partnerships allow us to reach more sellers with individualized or industry specific needs who want flexibility in their business solutions, and enabling integrations with third party apps keep sellers on our system even as they grow. So we’re really proud of our consistently strong performance this past year.

And now I’ll turn it over to Sarah for some more detailed remarks on our financials..

Thank you, Jack. We’re pleased with our third quarter results. In light of this momentum, we’re once again raising our guidance for the full year, demonstrating that we can continue to show improvement and profitability while delivering strong topline growth at meaningful scale.

Total net revenue was 439 million in the quarter; adjusted revenue was 178 million, growing 51% year-over-year. Transaction profits from our payment business was a 134 million, an increase of 36% from the prior year, as we continue to successfully monetize our technology through our payments business model.

Sellers also pay for some of our products and services directly, rather than as a percent of GPV, which are captured in software and data in our financials. Revenue from this segment was 35 million in the third quarter, up 140% year-over-year, actually accelerating from 130% year-over-year growth in the second quarter.

Although Capital and Caviar continue to be the majority of the revenue of this segment, we are seeing increasingly meaningful contributions from other services such as instant deposits. Since launch just a year ago, more than 200,000 sellers have completed approximately 4 million instant deposits, an indication of the value of speed of funds.

GAAP net loss was 32 million in the quarter. On a GAAP basis, this equates to a net loss per share of $0.09 compared to a net loss of $0.35 per share in Q3 of 2015. Building on the profitability milestone from last quarter, we achieved positive adjusted EBITDA of $12 million in this quarter.

This represents 20 points of margin improvement year-over-year. Positive EBITDA also contributed to ongoing balance sheet improvements. We ended the third quarter with 530 million in cash, cash equivalents and investments in marketable securities up from 423 million at the end of the second quarter.

So shifting to guidance, we now expect total GAAP net revenue to be within a range of 1.695 billion to 1.7 billion, and adjusted revenue to be in the range of 677 million to 680 million. Adjusted EBITDA is expected to be in the range of 31 million to 33 million, a year-over-year margin improvement of 14 points at the mid-point.

So with that, let me 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.

It looks like good EBITDA figures here. Just on the OpEx front, it's pretty stable here sequentially. It looks like you're assuming roughly the same in the fourth quarter.

Is this a good trend line to continue on the expense side?.

I think you are right that we have talked consistently that [inaudible] scale will continue to show efficiency. I think first and foremost it’s driven by the fact that under the hood we continue to see a four to five quarter payback period on every cohort that we’ve talked to you about and with that even positive retention rate.

So once that annuity breaks even, it’s been actually growing every single year. So it’s a big part of what’s just driving the underlying profitability of our business. In terms of the OpEx lines, you’re right that as you look at each of them, they are all showing some scalability.

We do want to keep investing from a product [data science, ML] [ph] design perspective. So product development will continue to be a focus for us in Q4 and as we look out into 2017. Sales and marketing, we talked about that four to five quarter payback. So we are very remindful of every dollar we spend in sales and marketing.

I think the area I want to see continued efficiency on is G&A. So looking at just G&A and how it moved quarter-to-quarter, we saw a point in terms of as a percentage of adjusted revenue it came down to 29%. But more importantly if you look at the growth rate year-over-year dropped back to 38% from 60% in Q2.

So we’re actually seeing very good efficiency there. So yes, I would continue with the trend line, but look for efficiency in G&A and look for us to continue to invest from a product development standpoint. .

Your next question comes from Chelsea [inaudible] with the Country Hair Salon..

My question is if in the future there will be a Square stand that includes the mag stripe reader and the chip card reader all in one device?.

Hey Chelsea, this is Jack, and also thanks for being a Square seller. We’re always making sure that we continue to put our sellers ahead of any technology curve.

And one of the things that’s been really important in the near term has been to make sure we are moving more and more of our sellers and the industry to authenticated payments, and at the same time giving them flexibility.

So authenticated payments means EMV or NFC, and the reason authenticated payments is so important is because it’s much more secure, its more secure for the buyer, your customer, and also much more secure for sellers as well. The more transactions we have over EMV, over NFC, the more opportunity we have to reduce fraud and risk in the system as well.

So what we’ve been really focused on this past year is making sure that both of those features are as fast as possible, so that we offer suitable replacement to people using mag [stripe] [ph] cards.

Today we do have a stand that does work both with mag stripe and also with pairs remotely through Bluetooth for EMV and NFC transactions and we think this is the most flexible solution right now that we can offer our sellers, but we are always looking for opportunities to remove more friction.

At the same time, we want to take a very strong point of view that as an industry, we need to move more and more people away from mag stripe and more into these authenticated electronic payments..

Your next question comes from the line of Jason Kupferberg with Jefferies. .

I just had a question about the Q4 revenue guidance. It looks like at the midpoint you'd be doing about 3%-ish quarter-over-quarter growth. Last year in Q4 I think you had 14% quarter-over-quarter, and the year before if my numbers are right I think it was more like 9ish.

So, I'm just trying to gauge if there are certain factors we should be considering that would explain that dynamic, it would just seem like a slower than usual growth rate quarter-over-quarter. But then again, you guys have been doing a great job of beating your guidance metrics. So, just any thoughts there would be great..

Sure. So I think overall we feel really good about the momentum in our business right now. We’re not trying to indicate anything. I think the growth rate that you saw on adjusted revenue, 178 million growing 51% year-over-year in Q3, is a really strong point of view.

It’s the best point of view we can give you because it’s actually how our business performs or how good our business has been trending. In terms of guidance we always to be mindful of first of all the seasonality that we see in the fourth quarter. So we want to just be careful there, that we are guiding appropriately.

I think where we really did try to lift was from a Q4 EBITDA perspective. So clearly you saw us lift that overall guidance right up there into the 31 million to 33 million range, so we can continue to show the profitability lift in the business.

So net, nothing that we are trying to intimate other than being mindful of the seasonality in Q4 but feel great about the underlying dynamics and health of our business. .

Your next question comes from Dan Perlin with RBC Capital Markets..

I had a question on software and data revenue, it increased 19% sequentially and you obviously outlined three key areas, with Capital, Caviar and Instant Deposit. I know Capital and Caviar represent the bulk, but it feels like instant deposit is actually maybe growing faster than the other two.

And when we look at the gross profit growth, it was only up 16% versus that 19%, and if we look at the second quarter's gross profit growth sequentially was up 32%. So, is there something happening in that mix? I would've thought instant deposit was not only the highest margin but potentially the highest growing. .

Thank you for the question Daniel. First and foremost, I think you’re right on picking up that while capital and Caviar continue to do really quite well in that group.

Sure you’ll have a question on capital in a while, but we have a $1 billion milestone in terms of loans and cards and cash events has advanced over just a two year timeframe and so I think that really speaks to the scale those growths are already at and finding our product that clearly has tremendous product market fit.

I think on the Caviar side great growth there. But I think you’re right to pick up on something like instant deposit because it’s a very young product, so hence of course [inaudible] larger numbers or smaller numbers in that case.

If those have a faster year-over-year growth to it at the moment, I think it underscores that we remain a real innovator in the payments space. This is a space that is not done in anyway shape or form. Lots more to come, and I think when we can put speed forward, we see that immediately our customers want that, and are willing to pay for it.

So instant deposit is a real growth driver in that software and data line and becoming material to it. I think from a profit perspective, you’re right that instant deposit is definitely a high margin product. But there’s no strange dynamic going on there.

I would expect it to kind of trend, if you averaged across those multiple quarters I think that’s the trend line we’d expect to stay on. .

Your next question comes from Jim Schneider with Goldman Sachs. .

Congratulations on the strong performance. I was wondering if you could maybe help us understand how you are thinking about allocating OpEx and new investments versus driving more bottom-line and margin expansion going forward.

Clearly, there are things like international and software you want to continue to grow, and maybe there are things that you might be doing a little bit less well.

How do you think about potentially balancing those two, and as we go forward what's the right cadence of margin expansion that we should expect from the company over the next year or so?.

Sure. Great question. I think first and foremost you can see the guidance in Q4 continue to reflect really strong progression and operating margins, a 14 point improvement year-over-year. This quarter was a 20 point improvement year-over-year.

That said, when I talked about the why, so the positive four to five quarter payback, the positive retention rate that we see. So our base itself is growing fast, paying back as we expect and then growing profits from there. And we have this ability to cross-selling new products and show improvements in operating leverage.

With all of that said, we want to maintain our ability to invest to grow, right. If we’re going to continue to show adjusted revenue growth this quarter at 51% for example, we clearly still see a ton of opportunity in front of us as we go into 2017.

So you mentioned one of the levers, international, I think just even products here in the United States build with Square our API platform, or being able to just go back and target our core micro business. There’s still 20 million [inaudible] businesses in the United States who don’t accept cards.

So I think there’s still a lot of opportunity ahead of us. So as you look into the next year, I don’t want people to get stuck on the level of improvement we’ve shown in Q3 again and in the guidance for Q4. I would expect something more like mid-single digit margin improvement in 2017 and use that as your cadence for the next several years.

We think that’s probably the right balance of being able to invest to grow, against showing you that we’re going to grow prudently and show leverage where we can..

Your next question comes from Darrin Peller with Barclays. .

I just want to hone in for a minute on free cash flow. It was pretty strong for the quarter. I think we saw over $70 million or so in early run rate of that. I’m just trying to think about your strategy around that. Anything that should change that or derail that, I understand from a CapEx standpoint versus dotcom.

But any other inputs I should keep in mind. .

So our strategy in cash is always to keep making it. So we’ll keep doing that. I think again there’s no change in the trend line, but we are not a CapEx intensive business by any stretch. However our investments tend to be much more oriented around people.

One of the things I should talk about and make sure we really underscore when we think about where we can show efficiency in our business is being able to put technology back into areas even such as support or risk operations, where we don’t want to grow a really large people organization that actually behooves us to lean in on things like machine learning, even AI over time to do that better and to continue to make our business very efficient.

So, no, there should be no change in the input to free cash flow. Our cash from operations should continue to mirror our EBITDA in most quarters, and nothing that should step function in any way shape or form around CapEx or investments and equipment. .

Your next question comes from Bryan Keane with Deutsche Bank..

Just wanted to ask about the guidance in general. 3Q was better than guidance on topline and EBITDA and then you guys have taken up the full year outlook for both topline EBITDA. So just trying to figure out exactly what’s driving the surprise to you guys versus guidance. .

Sure. I think on the topline we continue to be surprised positively across all line items. So I think on the payment side or on the business that we monetize through payments, but clearly there’s a lot of technology in there, but we also may charge or take rate of GPV to pay for it. But we continue to see really strong in the areas like larger sellers.

So the fact that that’s still growing at 55% year-over-year is now 43% of GPV. It’s hard to predict that because it’s still a younger part of our business for us and it can be a little bit more, I don’t want to call it lumpy, because we are still new.

No customer is really big enough to call it complete lumpiness, but it continues to outperform and that tends to have a very immediate impact on our bottom line, right because that’s all upside from a transaction margin perspective.

And then as we talked about the other services that we sell more directly, we continue to agree about the momentum see in capital and Caviar and then newer products like instant deposit.

So I think that’s what’s causing the top line beat, and we don’t want to get ahead of ourselves, which is why you see us always try to be very prudent with how we think about guidance. On the EBITDA line, Q3 we talked to you about important taxes.

When you are at that breakeven point and starting to grow from breakeven, clearly employer taxes was large enough that it could swing the needle on us. I think as we look forward we don’t see it as such a material factor going forward.

So I think this time around as we think about full year EBITDA guidance, again it’s a little bit easier for us to forecast on an ongoing basis. .

Your next question comes from Brett Huff with Stephens..

Can you guys talk a little bit about your longer term guidance or your longer term profit aspiration and how long and - you talked a little bit about what you expect over the next few quarters or next few years.

Is there an end state profitability in the business that you all still think about in a more concrete way?.

I think how we think about the business from a profitability standpoint is, we actually spend a lot more time thinking about the topline and how do we built a really big impactful business that can be global.

And I think as I’ve articulated and I am sure as we go in to the call and Jack jumps in on the product side, there is a lot of opportunity available to us both in terms of under addressed or unaddressed market. So there is like the micro market where really Square has come too really for that market to really become our market.

As our product like Builders Square, the API strategy rollout, our ability to go to bigger merchants, the ability to take all of that and go international as we launch new products like invoices and deposits etcetera, they show a lot of avenues for growth.

So I think we target much more a top line growth number and then with that as I talked about a prudent amount of margin expansion to make sure that we can still compete to invest in the business from a product development standpoint and a sales and marketing standpoint.

I think where we do tend to have strong profit aspirations is that how do we get more efficiency in the areas of the business that support that growth, and that comes back to being able to utilize technology more and more there. So that in areas like support, we can built in to our dashboard, in to something that’s much more of an in-financer.

So a seller doesn’t even have to pick up the phone and call Square, instead we comprehensively see from what they are doing on the dashboard, what question they likely have and therefore be able to surface an answer to them that almost feels like we’re reading their mind.

You want that amazing experience for a seller, but we’re actually deflecting their call, but to them it feels like a feature that we have added. So I think that’s more when we think about end-of-day profitability where we look for more and more leverage in the model.

But I think for right now as you look forward in to 2017 thinking about that kind of mid-single digit improvement in margins that feels like a god healthy clip for a business that’s growing at our rate. .

Your next question comes from Andrew Jeffrey with SunTrust..

Certainly impressive to see the old stability in the business, particularly given the growth in larger sellers.

Sarah, can you comment a little bit just on how much of that is driven by explicit price stability versus services, attach rate versus the positive dollar retention that you referred to? Maybe a little more granularity on that would be great..

Sure. I think first and foremost if you look at the trend lines in larger sellers, the sellers that do more than a $125,000 GPB, what you’ve seen there is that as a percentage of GBP its now climbed up to 43% and against that the payments they’ve met or the way we monetize through payments have stayed very consistently at about 2.98% take rate.

Why are we able to do? I think is kind of underpinning your question. I think first and foremost that merchants come to Square because they are getting access to our end-to-end ecosystem.

They are coming for the technology, they don’t have to go piece it altogether and take from a merchant acquirer and take from a point-of-sale system and take from a vendor selling them an excessive device.

Instead they can download an app from app store and when they are harboring our software, they have a completely seamless system to run their business on top of.

One of the examples in our shareholder letter with JAKE luxury clothing and lifestyle retailer here in San Francisco, and are they able to utilize all of the payment settlements that we bring to the table, but also run their business using capital, appointment, loyalty, invoices, employ management payroll.

So I think the drive and why we can go to larger sellers and continue to see this growth without it impacting our margin is that we just bring better technology to bear and the total cost of ownership for the merchant is still well below what they would pay if they were having to piece it altogether. .

Your next question comes from James Faucette with Morgan Stanley. .

I wanted to ask a follow-up question on Square Capital. Clearly you've shown a lot of growth since launching that product. Just wondering how we should think about the growth going forward, and then perhaps any color or details you can share on attracting new investors to help support the capital requirements for that product. .

From a capital perspective, super happy with the performance in Q3, so 70% year-over-year growth. I think I mentioned already, we hit that billion dollar milestone in just two years and I think we had 35,000 sellers get loan just in Q3 alone. So the scale of the business is at in a very short period of time, and it’s really exciting to see that.

In terms of future growth, couple of ways that we think about it. First and foremost there’s just the renewal rate. So even sellers that have gone through a capital loan are coming back for their second or their third. Now we underwrite them every single time we want to grow that business prudently, but that is a real engine of growth.

Some ways that I think we pursue first of all when we first launched the product. The second big area of growth is clearly all of that GPV that we add every quarter. So grew GPV almost 40% year-over-year, so that is a whole new opportunity for Square Capital to go after. I think the third area is then starting to think about nuances of the product.

Today we have our Flex [one] product, but as we think about larger sellers for example, they may want something is a bigger loan than perhaps the average that we are used to putting out. The may want to start repaying a couple of months in, because they may want to go build their new store before they starting repaying on it.

So I think there is nuances on the product side, where we can further penetrate our base of sellers by having new and different products. And then finally there’s partnership, so we announced our partnership with Upserve this quarter, another good example I think of opening of Square generally to help all of our sellers grow and then help our growth.

And that’s a good example of us getting access to a group of sellers in this case mostly restaurant who are quite large and where we still get the two things that make us competitive, real time access to their point-of-sale, which is what we get with Square Capital as well, that allows us to make better risk decision and then with that being able to utilize our competitive advantage on machine learning and with the algorithm that we have for it to underwrite in a way that allows us to keep default rates in this 4% or less type of category.

So a lot of future growth, and in terms of new investors we have a lot of capacity right now with current investors to frankly the return of product is very good. So they like it and they want to keep putting more money behind it.

But we do have a very strong pipeline of perspective investors too we’ve seen and continue to see a lot of imbalance given the product. .

We will now take our next question from one of our sellers, Chris at Naperviller running a company. .

What is you strategy for better integrating retail specific point-of-sale needs?.

So Chris one of the things that we’ve pushing really hard is our platform Build of Square and we’re going to make sure that we’re providing a platform for any seller, any developer to actually build functionality that we don’t have.

So we’re never blocking a seller from the features they need or from any growth that they would see from particular features that are lacking in our current product.

That’s been working quite well and where we are not able to find developers to build for it, we’re able to partner TouchBistro and Vend are a really good examples of two partners that have built on our platform to offer solutions both in the restaurant space and also retail.

We’ve also focused on one particular vertical around restaurant with Caviar, noting that the biggest constraint for any restaurant is the number of tables it has and how quickly you can turn those over. So more sales for a restaurant means ultimately unbounding that constraint and we thought delivery was a great way to do that.

So, Caviar has been phenomenal for us and serving restaurant sellers, driving more sales to them, removing the constraints of a number of tables they have in their physical space and allowing them to deliver whatever they make all over time.

It also benefits from the fact and we’ll continuously benefit as we go throughout the year of any of those Caviar restaurants could eventually take advantage Square services as well. And this is how we think about our ecosystem, it’s not just one product, but they all work better together.

We are always doing the work and studying whether we should be more vertical and provide more vertical solutions. But right now Build with Square allows our sellers a lot of flexibility and gives developers an entire new canvas to build on top of. .

Your next question comes from Neil Doshi with Mizuho Securities USA..

Jack, I was wondering in terms of contextual commerce, we're starting to see more of a push from payment providers around social commerce and trying to use data on how people are buying, and where they are buying to help drive sales.

So on that basis what is Square doing to help smaller merchants on the contextual commerce side both off-line and online. .

Our philosophy has always been to give our sellers back to them, so they can really their customers and how their business is working. So, we started really simply - when we started the company seven years ago, we saw all these parts that they work together.

So we saw credit card terminal, a point-of-sale and a dash board, and accounting system in the backend and merchants that have to hook all these things together. So the initial opportunity was just to make them one, and to make them very simple and very straight forward.

And then the second was to really invest a whole lot more in the Dashboard in the analytics in the metrics of what’s actually happening.

So we created a product called the Dashboard that allows our sellers to see immediately what’s happening with the business, what’s happening with their customers, how many repeat, how many turn over what timeframe, the impact of the weather for instance.

All these things that you would as a larger company assume, but smaller sellers never really had access to.

So we have some really interesting perimeters in our ecosystem, payments is obviously one, point-of-sale, the fact that we have the entire inventory and the entire menu of sale for our sellers allows us to combine that with payments and provide new insights.

But also we have customers who are entering in their email address or their phone number for a receipt using the same credit card all over the network and that’s really important because we can provide an insight right back to that seller about how often they see a customer and maybe they should offer them a discount because it’s the 10th time and that’s all built on just by the customer swiping their credit card.

So this is the benefit of the ecosystem in making it more cohesive and that’s just for offline. As we continue to expand online with products line invoicing and everything that we are doing around Build for Square, the data and understanding gets stronger.

But the philosophy has always been to utilize the data sort of we can provide deeper insights directly back to the seller about how their business is doing and how their customers are returning and what they like and if they were able to add another item in the menu, you might make more sales.

And that’s consistent with our really simple model of, if we help seller grow then our business grows and if our business grows we can have more sellers. So it all comes back to that and that’s what we’re focusing the tools on. .

Your next question comes from Josh Beck with Pacific Crest Securities.

I wanted to ask about international. I know you’d launched a contactless chip reader in Australia this quarter.

Which international markets are you the most excited about, what's your level of confidence that you can replicate the success that you've had here in the US market, and what’s the timeframe where we should think about harvesting maybe some of those international opportunities?.

We’ve been really focused on the US to start the company, because there’s just such a massive market, but also so many underserved business, and when you look at the horizon just in the United States it’s just 20 [million] small businesses in the US that don’t accept credit cards or electronic payments today.

So still a massive opportunity right here in this country. We expanded out to Canada, Japan, and Australia. Australia we started with EMV and we are super excited last month to announce our contactless and chip card reader was available as well.

And the reason why it is because Australia like many other markets outside the United States, 70% of the transactions are [NFC] to tap. So this is something that the customers wanted and saves a lot of time over EMV.

That’s something we were excited to finally launch and we’ve carried it with what we thought as a much simpler solution around mobile, so that our sellers can actually take a pen on the go or on a counter top right there very quickly all through software.

But the important thing about the chip and contactless reader is a global standard and a global product for us. So that gives us freedom to move anywhere that we want and in any market we want to. And this is important for us because it’s the first time we’ve actually had global hardware that we could see using in any market.

We are constantly evaluating what markets to move in to next. I just want to mention that we practice this, but we continue to see massive opportunity in the markets that we are in so that remains our focus.

But there are markets that have similar attributes to the markets that we are in a high degree of mobile phone penetration and tablets; also a high degree of electronic payments, card payments tabs being used and also a huge percentage of entrepreneurs and small businesses.

So those are the markets that we’re looking at and evaluating, but nothing to announce today. We’re really focused on making sure that one in the markets that we are in that we’ll continue to get a lot of strength and serving more of the small businesses and larger sellers that we’re seeing.

But also in the US, we believe that’s our role and responsibility in this industry to move people to authenticated payments and that means EMV and NFC.

And while we have done a lot of amazing work to get EMV transaction time down from an industry average of 11 second to under five seconds, four seconds, we think we can go much further, but NFC is even faster.

So paying with your phone through [alpha] pay or android pay is something that we want to enable all of our sellers to do and therefore enable all partners to do. Not only is a [password] that continues to help reduce the risk and the cost in the system as well. So that’s been our approach. .

Your next question comes from Tom McCrohan with CLSA..

In August you announced three partnerships, all of which you briefly touched on during the call, including the point-of-sale, integration with TouchBistro and Vend to integrate with Square's payment processing, other valuated services, and separately the partnership with Upserve to provide their 7,000 restaurant customers with access to Square Capital.

So, can you just give us a little view on where this partnership, the strategy is going, and in regards to TouchBistro and Vend, how successful it's been? I know it's still early innings with having those customers that are using TouchBistro process their payments through Square. .

The strategy is pretty simple; we want to create a platform that third party developers and also our sellers could build verticalized solutions for themselves utilizing our ecosystem, utilizing everything from our payment stack all the way to our hardware and/or first kind to actually open the API to card [inaudible] as well.

And the reason we want this is because by doing this we really increase the size of our market because we can reach more sellers not only the smaller folks but also the larger sellers who have really customized solutions and have very specific ask will certainly take us some time to get around you, if at all if we chose to go on to that particular vertical.

So we think our strength is really around payments and moving money and making sure that we provide a really phenomenal customer experience and we do so with ease, with cohesent to our other products and with simplicity. So enabling this platform allows our sellers to have more options and more traces.

As you said TouchBistro and Vend are really exciting partnerships to us because it does enable more sellers and restaurants and retail take advantage of Square payments and our hardware and then more broadly our ecosystem like capital and all the other products that were really critical to our business.

But it is super early, so nothing to report right now but we definitely show a lot of potential and a lot of opportunity to continue in a straight line. .

Our final question comes from the line of Paul Kondra with Credit Suisse..

I jumped on a little late so apologies if this has been asked, but I was wondering about the transaction profit take rate stepping down to 1.01.

What's the driver there and what should that be going forward?.

I think overall when we look at both the take rates and the transaction profit rate, we just see a remarkable steadiness there. So you can see transaction revenue 2.93% of GPV compared to 2.95% last year, and that’s even as we’ve seen the percentage coming from large merchants really significantly increase.

And I think people have constantly asked me, how can you do that, and it keeps coming back to the fact that a vast majority of sellers who come to Square, they self onboard, they hit our website, they are taking the rate, the simple rate that you are used to when you see Square and they are doing that because they’re getting access to just amount of technology that makes it really easy for them to start run and grow their business.

From a transaction profit standpoint, nothing particularly out of the course of the business in the quarter. There can be some lumpiness kind of end of quarter in terms of fees that we pay and so forth. But generally our expectation is that you’ll just see relative consistency on both those lines.

Clearly as we get in to larger and larger merchants, there probably some natural downtick but not at any dramatic pace. I think that’s a question we’ve constantly been asked.

It would be just a very small shift quarter-to-quarter or year-to-year, because we are able to offer so much technology for the simple price for most sellers on board want, so nothing in this quarter that I would particularly sight. .

Ladies and gentlemen, we have reached the end of our question and answer session. I’d like to turn the call over to the company for closing remarks. .

Thank you every one for joining our call. I would like to remind everyone that we will be hosting for the quarter and full year 2016 earnings call on February 22. Thanks again for participating today..

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