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Square, Inc.  (NYSE:SQ)
Q3 2018 Earnings Conference Call
Nov. 07, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Square Third Quarter 2018 Earnings Conference Call. I would now like to turn the call over to your host Jason Lee, Head of Investor Relations. Please go ahead.

Jason Lee -- Head of Investor Relations

Hi everyone. Thanks for joining our third 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 intend to be a substitute for our GAAP results. Finally, this call is entirety is being audio webcast in 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.

Jack Dorsey -- Chairman, President and Chief Executive Officer

Good afternoon, everyone. We're going to try something a little bit different here instead of reading you prepared remarks to start the call and the conversation Sarah and I are going to go through a list of the highlights that we've seen throughout the quarter that we wanted to bring to your attention.

So I wanted to start with why we're here as a company, our purpose is to empower people into the economy. Enable them to participate in a way that they haven't been able to in the past, the way we do this is by focusing most of our efforts on helping sellers make a sale and ideally helping them make more sales. One of the things that we have done extremely well is increasing access to sellers in the first place. A number of sellers and individuals could not even participate, could not get on the financial networks and therefore could not participate in the economy. This leads into one of the biggest highlights for the quarter for us, which was the launch of Square terminal.

We have seen these black rectangular boxes on countertops everywhere around the world. This is the common device that people used to accept a credit card and make a sale in the first place. We answered it originally by enabling people to take their mobile, personal device like an iPhone or an Android device or an iPad and plug-in one of our readers or parent wirelessly. We decided that we could do better and serve entirely new market by building an all in one device that doesn't require a third-party tool and enables people to sell in the way that they are used to. We built this with a touchscreen, we built this with the receipt printer and we built this with usability and speed in mind(ph).

We launched it first in St. Louis, in San Francisco and New York City and we have pretty high expectations around it. One of the things that we're most excited about is to see how people use us. We do believe we build something with a lot of general utility and that will enable people to use in ways that we weren't necessarily expecting, we'd have already seen some of these use cases manifest in the form of restaurants using Square terminal to go directly to their customers right at the table and charge them right there. So bringing what an experience that you typically have within Europe into the United States as well this affords our sellers allow more convenience and it saves their customers a whole lot more time, which enables our sellers ultimately to focus on making more sales.

Another highlight has been our work (ph) on the platform. We have built our company around a series of small internal APIs and SDKs that allows our teams to move very quickly to deliver new products that will benefit all of our customers. An example of how this has manifested in the past is through the virtual terminal, Square Virtual Terminal, which uses internal APIs and our internal platform to move really fast to come up with the product and then execute it immediately. So we can get it out to people as quickly as possible.

We added a dimension to our external developer platform this quarter that we call reader SDK which allows developers to connect directly to our hardware and build entirely new experiences like point of sale experiences that are not currently on our roadmap and things that we probably won't go in the direction of one manifestation of this that we saw was Shake Shack who uses our reader SDK to power their kiosk which enables their customers to pre-order right at the location and then pickup their hamburger's and their fries and go about their way. This ideally speeds people through the line and ultimately allows Shake Shack to sell more burgers and enable them to see more customers. So the platform continues to be a push for us and continues to be something that we focus on. Allows us also to fully realize, what we need to do in omnichannel commerce which is enabling people to sell in every single channel and meet their customers where they are. Finally, as you all know, we have kicked off a CFO search. The CFO search is being led by David Viniar who's our Lead Independent Director and Roelof Botha who is our Director on our Board both former CFO's, who have a lot of experience and a great network of folks that can find a great CFO for us, for the future, that search has been progressing.

We have been interviewing over the past few weeks. We're seeing a ton of really amazing candidates. Really happy with the quality and also the amount of talent that we're seeing and also the alignment to our purpose, people want to come here. They want to help. So let's make sales, they want to help extend access into the financial system and empower people into the economy and that is what we're looking for the most. We have a really high bar. We will not be sharing a timeline, but we are working with urgency and this is my number one focus of the company is to make sure we fill this role.

We do have a benefit and advantage in that our company structure, allows a lot of freedom and optionality and also autonomy through our various business units, so we do have a GM structure with leads for cash for Caviar for seller for the platform for capital and they operate and make all the decisions around their business enabling me and our CFO to make investment decisions around the portfolio. The other advantage that we have across these businesses as they work together as an ecosystem. So they're encourage and incentivized to make sure that they're providing tools in infrastructure, but also experiences other business units can utilize.

So that gives us a pretty good advantage in terms of running the business and managing the business going forward. I do want to take a moment on behalf of myself everyone at the Company and everyone on this call to say a huge. Thank you to Sarah. She has been an amazing partner to me and an amazing partner to our sellers and the folks that we serve and we wish her all the best in our new adventure enter new role.

And with that I'm going turn it over to Sarah to share some of her highlights.

Sarah Friar -- Chief Financial Officer

Great, thank you, Jack. So three things really stood out to me as highlights for this quarter. The first was the revenue growth we showed at scale. And I know you hear that from me every quarter, but every quarter I find it quite remarkable. Just how fast this company is growing. The second was EBITDA growth. So not only are we growing faster than the topline, but even as we grow. I think we're showing really strong financial discipline.

And then finally, we did looked guidance given the momentum we're seeing coming out of Q3 as we head into Q4 for me to take a second on each of those. First on the revenue growth. This is the sixth quarter of accelerating revenue growth. To put it in perspective, our total net revenue grew 48% year-over-year, 46% organically, but our adjusted revenue, which is really what we focus on, grew 68% year-over-year, taking out the acquisitions of Zesty and Weebly, which we did in Q2 that growth rate 56% year-over-year and that is still accelerating off of Q2, so I think that's remarkable just really speaks to the strength of the ecosystem and the interplay that we see across all of our products for each of them makes the other stronger.

From a profitability standpoint. As I noted, adjusted EBITDA was up was $71 million, that's up 107% year-over-year. So that pace revenue growth coming back to that point about showing financial discipline as we grow. From a GAAP perspective, it is worth noting that this is technically, our first quarter of GAAP profitability where we had net income of $20 million, but we want to be fully transparent about the impact from event bright. So, if you recall a year ago, we made an investment in our partner Eventbrite's and we will work with them to bring Eventbrite's GPV onto our platform as part of our marketplaces effort. Eventbrite had a very successful public offering in Q3, and we have to mark that investment to markets so it actually had about a $38 million positive impact in Q3. Without it, our net loss was actually $17 million.

And then finally just on the guidance front, we are seeing strong momentum coming out of Q3 and so to that end, we have raised the guidance of total net revenue to $3.26 billion to $3.27 billion. Adjusted revenue is now guided to the growth 60% at the midpoint. That's a five-point increase over the prior guidance. And again just speaks to the momentum that I see in squares business right now.

And then finally, adjusted EBITDA, we're guiding to $250 million to $255 million, which is also a lift from the prior guidance. So let me just close by saying, it's been an incredible journey with this small private company that I joined when we had about 200 people into the juggernaut that I think, I belong to today. An amazing strong public company that is having impact, impact on our sellers, impact on their buyers, impact on consumers broadly. Now it makes me really proud and I could only -- we can only do that because of the team that we have in place as well that are going to keep carrying out further and further from here. So I will be a supportive for life.

Thanks everyone on the call to for your support. I know sell-side analysts don't often get a shout out. But you make us better by questioning us as you're about to do and we are appreciative of that.

So with that let's turn it over to the operator for questions.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Tien-tsin Huang with JP Morgan. Your line is open.

Tien-tsin Huang -- JPMorgan Chase & Co. -- Analyst

Good afternoon. Let me (inaudible) working with you. I want to say thanks for. Thanks for everything from should standpoint to get too emotional. The Square Terminal definitely would ask you guys about Square Terminal just, is there a way, Jack was there to rank this in terms of importance as a product for way I presume it was a really big R&D investment. So, any comment on what it might do? Would it might bring in terms of volume or how it changes the TAM? And then also the gross margin model is that it should we assume is going to be similar to your current hardware gross margin. Thanks.

Jason Lee -- Head of Investor Relations

Yeah, thanks for the question. So, if you look at the market and we believe that this is huge. You see these black rectangular boxes are -- they are dinosaurs like Stegosaurus or everywhere in the world not just within the United States, but everywhere around the world and people have become accustomed to this form factor.

One of the things that we hear from our sellers directly is they don't want to use their personal device to accept credit cards and this gives them an option to make sure that they don't have to compromise on that they can pickup a Square Terminal and use it for whatever they need and one of the most exciting things to us about the launch of terminal is, we fully expect them to surprise us with how they use it and where they use it. We saw that with the original square-card reader and I imagine we'll see the same by an order of magnitude more we're with square terminal.

So this is a launch that we've been really excited about for quite some time. We're really excited to get in people's hands and see what they do with it. I think from a company perspective and looking at our execution. This represents an immense amount of complexity that we were able to make very, very simple.

This is end-to-end this is hardware and software and operating system it ties completely back to our cohesive ecosystem of solar tools. So it is an acquisition channel for us into that broader ecosystem which ultimately will help better retain customers as they continue to hire us for more and more things like payroll, Square Capital, customer relationship management and whatnot. So this yet again removes another excuse from the table to join the square ecosystem and we're really, really proud of it and really proud of what it represents. And then I'll let Sarah answer the effect on the gross margin.

Sarah Friar -- Chief Financial Officer

Sure. Thanks Jason. So just from a TAM perspective. We did put in the shareholder letter that we see about $2 million stand-alone payment terminals in the US alone. I think one place that folks often underestimate square though is by just looking at the current market and imagining the share, we could take from that rather than thinking about greenfield opportunity.

And I think that's really been the true unlock when we go into a market is doing the work to let's sellers know, why they should be up and on the on why they should be taking electronic payments and I think this is yet another device together. From a gross margin perspective, as you know with hardware. We have always leaned in and how we price our hardware. We do view that gross margin loss that we take as effectively at sales and marketing tool to get folks on because then ultimately we can monetize them through the payments that path over those devices.

And by the other products that Jack talked about, but then get attach. Overall if you look at the business. We're still very much seeing $1 and today has a three to four quarter payback period and we're still seeing positive dollar based retention i.e every cohort that joins effectively every year continues to grow and that's still true of our youngest cohorts, so no change in how we will view hardware. Although of course, the hardware gross profit margin has actually been getting consistently better as time has gone on, particularly as products like Square Register and this new Square Terminal we priced them a little closer to cost.

Tien-tsin Huang -- JPMorgan Chase & Co. -- Analyst

Great. Thanks.

Sarah Friar -- Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Dan Perlin with RBC Capital Markets. Your line is open.

Dan Perlin -- RBC Capital Markets -- Analyst

Thanks. And let me add my appreciation. I hope you continue to read pondering at some point Sarah, we will happily send it to you. I had a quick question and this is a little new one, the GPV growth did break the 30 barrier this quarter, we saw a little bit of drop in the take rate and then we've seen this discontinuation of this inflection up in net revenue growth in totality because of subscription services. I'm just trying to reconcile if there's anything about the type of sellers, the mix or even some of the new solutions and the correlation that you get with GPV as you think about driving this model forward? Thank you.

Sarah Friar -- Chief Financial Officer

Sure. Thanks, Dan. So from a GPV growth perspective I mean, I just view it still as more or less (inaudible), like if you look back through the last five quarters its have gone 31 billion, 30 billion, 30 billion, 29 billion which I just kind of view as more of the same and that's how you build a really big businesses as when you can continue to grow at the same sort of pace even though your scale is building every single quarter. Right, when you're doing $23 billion of GPV for the year, you're starting to get into the greater than 80 billion for the year, right. These are big numbers, so no change there. What will continue to drive it is still micro, we still believe that there is massive opportunity of bringing small businesses up and onto the system, and everything we launch is about how do we bring more to the system as Jack talked about in his opening remarks.

Of course, there is the ongoing then move upmarket into larger merchants that you're alluding to, it really made me happy to see the percentage of GPV coming from larger merchant now at 52% overall because it shows that they pull some solution is resonating regardless of what size you are. And then of course, omni-channel it's one of our three big pillars for the year its a great way to make sure that we are there no matter how the buyer is coming to the seller. So whether they're offline or online in the marketplace, you name it. We want to make sure we holistically get that whole book of business and so that continues to drive growth, and then layer finally international on top of all of those things, those three things are true in every country that we look at.

In terms of take rate, as you know, I don't focus on the take rate. In the end, what we're optimizing for is how much dollar based margin can we take home from a given seller or across the cohort of sellers. And so our goal is to get them up and on the platform that does sometimes mean we'll custom price for example for the larger sellers although, keep in mind, over 80% still self on board, which I find remarkable. But then as -- can we now up-sell and cross-sell them to things like payroll, or capital or invoices or Square Market you name it. That's really what we're going for ultimately is how do we maximize the dollars of margin.

Dan Perlin -- RBC Capital Markets -- Analyst

Thank you.

Sarah Friar -- Chief Financial Officer

Thank you.

Operator

We will now take a call from (inaudible). Your line is open.

Unidentified Participant -- -- Analyst

Hi, all. Hi everyone. I'm actually out of square it sort of been like now first year and I love square -- I love the value of square of event, but as a seller now and as a business will go from 20,000 a year, use to ease in attribute cost to over $1 million a year now, as our business will grow and I wonder like love the value of the Square. We have a lot of company, I love this compressor (ph) reach in out to us and asking us how they can get our business and how that what -- how they can hold -- I'll just try to get the business of the (inaudible) for you other than square. They are trying to get the business of Square. So how I can, answer them, I'll answer the small business who asks me the same question saying you are our Square as a group of small business and not sort of business who do an over a million dollars a year.

Jack Dorsey -- Chairman, President and Chief Executive Officer

(inaudible) it's really good to hear your voice. I mean you're not just business on Square, your movement very inspiring and congrats again on --

Unidentified Participant -- -- Analyst

Thank you.

Jack Dorsey -- Chairman, President and Chief Executive Officer

Congrats again on --

Unidentified Participant -- -- Analyst

Thank you.

Jack Dorsey -- Chairman, President and Chief Executive Officer

Congrats again on winning nicest place in America, you're the nicest person I know. So thank you for your business we get this question a lot, should we focus entirely on building for a small business or building for larger business. Ultimately, we want to build a utility that scales with the business and we want to make sure that when you use Square register for instance or terminal that it is independent of the size of your business and in some cases even the category of your business and we need to make sure that we are scaling everything that we deliver to you from the product to pricing, to support in a way that scales with your business and scaling with your business means that we continue to handle some of the trickier operations for you. So we're giving you effectively time back so you can focus more on the amazing business that you're building and focus a lot more attention on your customers. So we love any feedback in terms of where we, -- where we are seeing as friction to your growth, but ultimately it's the wrong answer for us, if we're getting in the way of any one of our sellers grown. We've seen a lot of sellers go from 10 locations in the United States for instance to over 40 in multiple countries around the world and we want the same for all of our sellers who have that similar ambition, but if folks want to stay small, we still have that too. So we build with an intention of scalability and that people can use the exact same tool and it grows with their business and ideal helps them grow as well. Thank you again.

Unidentified Participant -- -- Analyst

Thank you very much (inaudible)

Operator

Thank you. Your next question comes from Darrin Peller with Wolfe Research. Your line is open.

Darrin Peller -- Wolfe Research -- Analyst

Thanks guys. Sarah, just want to say congrats to you again. But on the question side, we saw this the cash card again moved up on the list of drivers really beyond the very strong subscription and software side of the business. Is there any way you can give us more color on the run rate of spend, you're seeing there or maybe update any details around the number of users, since you did at the end of last year? Clearly, it seems like that is probably one of the key areas you're still investing and can you just maybe touch on the investment levels in that business. Thanks guys.

Sarah Friar -- Chief Financial Officer

Sure. When I start to thought some of the more metric pieces and then Jack grab the -- how we're thinking about where the business goes from here. So we're not giving you more updates on this call. As we talked about in Q2 on cash card, customers expense $250 million in Q2, so $3 billion annualized. That was almost three acts from what we gave you back in December and what I can say is we've definitely continue to see really strong momentum. As you can note Cash App continues to be a top 25 downloaded free app in the App store, really speaking, I think ultimately to the utility that is bringing. So why don't I pass the potent to Jack there.

Jack Dorsey -- Chairman, President and Chief Executive Officer

So, the Cash Card has been a pretty important driver for us. We do see people use the Cash App fundamentally as you would expect them to use a bank account. So they store money with us, they can direct deposit or paycheck using the ABA number that we give them. We can issue them plastic card that's accepted anywhere Visa, it's accepted, they can use that same card to go to an ATM to withdraw paper cash and of course, it is a peer-to- peer up as well so they can send and receive money from friends and family.

We continue to see a lot of value and adding more features on top of not just the Cash App but the Cash Card itself. So, boost, are a great example of this. This is one of the first times that I'm aware of that a rewards program with instant pay back exist on a card where we're actually paying attention to, where our customers go in the first place. So if you use your card at lift for instance you get an instant 10% back, if you use it to buy coffee you get an instant dollar back. If you use it for food delivery service you also potentially get an instant 10% back. So we've been observing what our customers are, -- where customers are spending the card and then making sure that we are aligning the incentives with how we think about features and products going forward. But all this comes back to us being able to serve and traditionally under served and even unbanked audience because of our focus on access and because of our simplicity and just the point of view that we take within the app itself.

So we're really excited about the continued momentum we continue to see the results of this and things like the App Store downloads for instance where we consistently see the Cash App break into the top 20 of the top 250 free apps on the iOS app store front. And so it's a good lagging indicator of the attention it's getting and also the usage. But we are really pleased with the progress and also pretty excited about what we can build on top of it.

Darrin Peller -- Wolfe Research -- Analyst

Yes. Thanks guys.

Sarah Friar -- Chief Financial Officer

Thanks Darrin.

Jack Dorsey -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Lisa Ellis with MoffettNathanson. Your line is open.

Lisa Ellis -- MoffettNathanson -- Analyst

Hi, good afternoon guys. And I'll pile on Sarah, we're -- congratulations and we're all going to miss you. I wanted to ask about, we believe, spend a couple of quarters now and I think, Sarah, you call out that omnichannel is one of your big pillars for the year, spend a couple of quarters since (inaudible) can you comment on some of the synergies that you're seeing? And then also just maybe an update on the broader strategy to participate more broadly in the high growth e-com areas?

Jack Dorsey -- Chairman, President and Chief Executive Officer

Yeah, thank you for the question. I'll start Lisa, with the strategy. So we have a number of sellers who start offline with offline businesses in the physical world and want to sell online. And we also have a number of sellers who are selling online today, but want to open things like pop up shops and physical locations to get more visibility in the communities that they are trying to serve and trying to get into, we want to make that transition seamless. And that's the whole thesis behind getting Weebly and Square together in the first place, is we don't want people to have to think about what I'm selling online or offline that we just want them to think about selling, and that means meeting your customer where they are, whether they be halfway around the world through an e-commerce channel or through -- coming through your door in the first place. So we're going to make sure that we're building as much flexibility for us, so it is possible.

Weebly, was always interesting to us because we've had a long-term partnership with them, so we knew a lot about the company, what they care about? What their purpose was? And we saw a lot of alignment and just made perfect sense to get the two companies together. We've been working together through a partnership as one of our options through our partnership network and as we have gotten together, we've started asking the questions of what's most important to integrate and taking this from a customer use case direction.

So like what is most critical to get a seller going and started immediately, so they can sell immediately on both in offline world and online world. So you'll continue to see updates to Weebly and Square to that effect, but all this is going toward that goal of being able to serve sellers across multiple channels, not making them think about which channel they're selling into, so it can focus entirely on making the sale and ideally making more sales.

Lisa Ellis -- MoffettNathanson -- Analyst

Thank you. And then just maybe quickly as my follow-up, I'l just ask a question about macro. I'd realized no sign of a recession yet, but given your exposure to the small business segment, and then also the working capital side of your business, how do you think about the impact of an eventual macroeconomic slowdown on acquire(ph)?

Sarah Friar -- Chief Financial Officer

So, clearly were in Q3 seeing tremendous momentum in our business. So when adjusted revenues growing 68% year-over-year, 56% organically, clearly that's very symptomatic of a strong macro, but also the value proposition that Jack just talked about, that if you're on Square we're helping you grow your business, never miss that sale and we're finding other tools that make it more and more seamless, whether its access to expectations from small businesses are high and you can see that in the guidance that we gave you too for the full year, so 60% at the midpoint. As we look forward and think about the impact in any recession, I think it's important to note, first the payments are not discretionary. So unlike say a tool that you might use just to grow your business, payments is not something you're going to suddenly decide to not except when times are tougher.

We also think our value proposition is one that includes a lower total cost of ownership. And so part of that is because of the cohesion of what we felt so that you're getting that hardware that is best in class, but it's completely linked into the software you're getting all of the pieces of managed payments that are built around that. And so we know that when people do a side-by-side that Square always compares quite well from a pricing perspective. And then beyond that, it's about how do we build diversity into the seller types and into the different products that we have, we think that diversity of the ecosystem will help balance in any sort of downturn. And then finally from a risk perspective, we were born in a world where we had to move money after get -- from the get go. So we've always used machine learning. I think the start we gave you most recently is 99.95% of all payments that pass through Square are automatically passed or failed, they don't touch a human being and that's because of the investment that we've done and machine learning and deep learning to do that. And so our belief is that will also make sure that, when we do things like for capital or the new consumer instalments, that we're being very mindful of the risk that we're taking, and using the best possible technology to do it well.

Lisa Ellis -- MoffettNathanson -- Analyst

Excellent. Thank you.

Sarah Friar -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Bryan Keane -- Deutsche Bank -- Analyst

Hi guys, just wanted to ask on Square Installments, how does Square get paid there? And then secondly as a quick follow-up as we start to think about next year, is the formula is still going to be to invest for top line or do we go back to growing EBITDA margin expansion mid-single-digits? Thanks

Sarah Friar -- Chief Financial Officer

Sure. So from an installments perspective, it's very analogous to what we do with Square Capital with the seller. So in the case of an installment, right there at the point of sale or maybe online, the consumers says, I would like to pay for this purchase over an extended period of time and if they click yes to that, there's a really neat customer experience that happens. But in fact we pay out the sellers, so the sellers not good to go move on with their business and we take on the facilitation of that consumer loan. And then in effective they pay us back, we're making money at the payment to return to us. So, and I think our long-term strategy there would be very similar to what we do with capital today in terms of making use of third-party investors and to make sure we true sell out of our balance sheet.

In terms of looking out to next year, we're still in the midst of annual planning, it's fun to see just new roadmap starting to emerge, and just, how many different opportunities the company has in front of us. We will lean into the three pillars that we talked to you about in 2018, omnichannel, banking services and international, those were meant to be areas that had longevity to them, but you wouldn't just do them all in a year. And I think we have real momentum in all three as we head into 2019. So from that perspective, maybe a quicker earlier read our expectation on top line growth for 2019 is greater than 40% adjusted revenue growth, go back to what I said in my opening remarks, I find it really incredible that at the scale Square that we can still put up numbers like that and then from an EBITDA perspective, you should expect margin expansion similar to what we've achieved right now in 2018. Overall, my net takeaway is we still see a huge amount of opportunity in front of us, we want to keep investing against that, but we want to do it with financial discipline.

Bryan Keane -- Deutsche Bank -- Analyst

Okay, that's helpful. And Sarah, you will be missed. Good luck.

Sarah Friar -- Chief Financial Officer

Thanks, Bryan.

Operator

Your next question comes from Jim Schneider with Goldman Sachs. Your line is open.

James Schneider -- Goldman Sachs -- Analyst

Good afternoon, and thanks for taking my question. Sarah, good luck, and you will be missed. I guess, my question would be to put the previous question a little bit differently more for Jack. Sarah as you've been CFO you've sort of established an unwritten contract with investors to sort of deliver a higher revenue growth with maybe a little bit less EBITDA margin expansion and sometimes an investment phases of the business. And conversely, what if the business were to slow a bit deliver more EBITDA margin expansion. So I guess, Jack, are you -- at what level are you committed to that philosophy on a go-forward basis regardless of who's CFO's , Square.

Jack Dorsey -- Chairman, President and Chief Executive Officer

We're committed to formulas that work, we're not expecting significant changes in plans with the addition of a new CFO. We have a business that is highly efficient and we are capable of continuing to make investments around inventing new technologies to serve our customers. But all of it has to follow from being able to innovate and to serve our customers and new markets in new ways. So we're letting that lead us ultimately and making sure that we're delivering, something that is remarkable that stands out from everyone else and continuing to build into and invest in our differentiators that set us apart. Number one is that cohesiveness of our ecosystem. Number two, is the speed at which you can start with Square and Number tree is our ability to be more self-serve than our competitors and Number four is the elegance of our designs and also our hardware. And by increasing each of those four dimensions, we continue to win the market. So, that is what we'll be continuing, and that's what we're focused on. Discipline has always been really important to this company. It has been so since day one, and we benefit from the amount of discipline we have and also the amount of understanding and control the business we have as well.

James Schneider -- Goldman Sachs -- Analyst

Thank you. That's helpful. And then maybe as a follow-up. If you look at the software solution that you've launched whether that's Square for retail or the restaurants or others or payroll for example. Can you maybe give us a sense of how those have been tracking in the market, how they've been adopted, which ones you're most excited about, but also ultimately in the next two to three years how big piece of the revenue of Square do you expect them to be on a subscription revenue basis?

Jack Dorsey -- Chairman, President and Chief Executive Officer

Well, we'll start with a first product question. So we did see a pretty big opportunity not only to think about our offerings in a more vertical way like four restaurants and retail and services, but also to add more services like payroll that help increase the operational efficiency of one of our sellers, and really meeting one of their core and critical needs. So we've built these with an ecosystem mindset. We've built these with a mindset of each one should be an acquisition channel for us. Each one should introduce other products within the ecosystem. So that people are aware of the fact that they may come in as a restaurant, but I can also add delivery as a superpower to my restaurant through Caviar and I can also pay all my employees now in all 50 states with Square payroll, and I can communicate with my customers through the receipts, through our CRM product. So we want to make sure that we are being hired for multiple jobs, multiple parts of the business. So our emphasis is on the ecosystem and how they all work together rather than each individual part and as we look out years ahead we want to strengthen that ecosystem. We want to enrich it. We want to fill it with services that are most critical to help us grow their business. And then we've added this new dimension of consumer with Square cash and even that is pushing back into the ecosystem. We talked about not too long ago, how we pay our Caviar careers through Square cash. You have an option of getting your payroll through Square cash, which allows you to get instant access to your funds or use the cash card. So you can imagine a lot of integrations are extremely beneficial to a seller, and also to an individual. So the strength of ecosystem is really something we want to continue to build and we're really excited about.

Sarah Friar -- Chief Financial Officer

And then Jim maybe just on the percentage of total revenue. I mean, I would pull you back from thinking about it as segmented out that way. So frankly, what you see in our P&L is the business model with which we've chosen to monetize a particular product and we typically try to match it, to the place where we think most value is being created on the other side for the customer. So for example, software products like invoices and appointment for sole proprietors, those only get monetized through a payments business model. So for example, invoices is 2.9% and $0.30. If you look at appointments, we changed it back into two, so if you're a sole proprietor it costs 2.75% for the cost of making the booking or effectively the consumer paying you for the appointment. But there is no cost to the software.

There's other places where we lean the other way and we recognize that and perhaps we want to make sure there is a software fee payroll is one of those examples, and even there you will see us kind of shift around between maybe a monthly fee and then a fee per actual employee because as we more and more can push employees toward cash app as a vehicle for them to get quick access to their payroll, then we can actually monetize that through the card that they take, that they then go spend anywhere in the United States. So Walmart or if they go online with Amazon or Lift (ph) or whomever, and so I think that is, it goes back to the strength of the ecosystem that Jack just spoke to from a product perspective, but it also creates this very strong business model to because we have multiple levers and decisions around where to monetize. So we don't just sit and think OK what can subscription services be as a percent of revenue as kind of a forward look, that makes sense.

James Schneider -- Goldman Sachs -- Analyst

Yes, it does. Thank you.

Sarah Friar -- Chief Financial Officer

Thank you.

Operator

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

Ryan Cary -- Bank of America Merrill Lynch -- Analyst

Hi guys, thanks for taking my question. This is Ryan Cary on for Jason. I wanted to ask a little bit about transaction based profit margins. I would assume, there'd be some pressure as large merchants continue to become a bigger percent of GPV, it is (inaudible) on Board. But today you've clearly done a nice job offsetting this with the higher revenue products. Looking forward, could we expect transaction profitability will remain generally stable or at some point to the impact from larger merchants become too large to offset?

Sarah Friar -- Chief Financial Officer

Great, thanks Ryan. So I think you're kind of nailing the put and take in a way that in many cases, particularly at the take rate level, there are some products where clearly we're able to price higher than 2.75%. So things like virtual terminal, things like our API platform and those have clearly had an upward inflationary impact on both take rate and then even in many cases on transaction profit. If you look at, there are other sides to that, the UK is often the one I use where we start at pricing at 1.75%. So that effectively would have deflationary impact on take rate, but the margin there actually is quite good because it's a very heavily regulated markets.

So there's kind of puts and takes on all sides. Ultimately, as we add larger merchants and particularly as we do marketplace we absolutely want to make sure we remain competitive because what we are going to solve for, is absolute dollars, and how do we make sure we keep growing absolute dollars of gross profit and ultimately absolute dollars of EBITDA. And so we have shown with larger sellers that we've being willing to be flexible where it made sense, but I think also as we just bring them more value in the product, they are willing to hit the bed in terms of our pricing.

Joe and the Juice was a good example of a seller in our shareholder letter, we're clearly -- they're quite large hundreds of locations. I think across the United States and yet, they're willing to be on this core platform because we give them that wonderful check out experience with Square hardware. So as long as we keep adding value into the ecosystem. We feel very good about the value we're bringing and hence the profit dollars that we can make.

Ryan Cary -- Bank of America Merrill Lynch -- Analyst

Great. Thanks for taking my question.

Sarah Friar -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Josh Beck with KeyBanc. Your line is open.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Yes, thank you, and Sarah congrats on a great run at Square and best of luck in your next role.

Sarah Friar -- Chief Financial Officer

Thank you.

Josh Beck -- KeyBanc Capital Markets -- Analyst

I wanted to ask on the Square Reader, SDK and I'm just wondering as you get into new verticals like healthcare. If we could see maybe a increase in the number of ISV partners that you're working with above and beyond. Maybe what you're achieving when you're just offering built with Square? And then secondarily, any update you can share on Eventbrite timing and how to think about the volumes there?

Jack Dorsey -- Chairman, President and Chief Executive Officer

Yes, on the Square Reader, SDK certainly the potential exists for, four new verticals, and we've seen some people dabbling within this. The most important thing for us within all of our SDK is not just the reader SDK is to make sure that we're attracting developers, and to do that we're -- we focus on the developer experiments -- experience that we provide, again simple and straightforward. But also taking opportunities to bring them all together, so we recently completed our annual partnership conference, which brought a bunch of our developers together to share what we're focused on, what's new and to get them talking and get them focused on providing more and more remarkable solutions for their customers.

So, we do see this as a way to expand into entirely new verticals that we don't currently have on our roadmap and watching experiment and learn ultimately. In terms of Eventbrite timing, we've nothing to disclose today, but we'll keep you updated as we have more meaningful information.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Okay. Thanks.

Sarah Friar -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Jeff Cantwell with Guggenheim Securities. Your line is open.

Jeff Cantwell -- Guggenheim Securities -- Analyst

Hi, good afternoon.

Jack Dorsey -- Chairman, President and Chief Executive Officer

Good afternoon.

Jeff Cantwell -- Guggenheim Securities -- Analyst

Hi, congratulations on the job you've done Sarah and best of luck to you.

Sarah Friar -- Chief Financial Officer

Thanks, Jeff.

Jeff Cantwell -- Guggenheim Securities -- Analyst

If I could just ask you a follow-up on your earlier commentary about subs and services revenue. It seems like you guys are pretty -- a ton of focus on value-added services. So I understand what you're saying about the various components and how they shop into (inaudible) and the income statement. But if we looked at the contribution of subs and service revenue, I believe its 40% this quarter versus 25% a year ago. I just want to ask if you could maybe elaborate a little bit about how you see that contribution to total adjusted revenue changing over time. We have to get to the point where we see, call it 50% or so of Square's revenue coming from subs and services just as an example?

Sarah Friar -- Chief Financial Officer

Sure. Thanks, Jeff. So I mean, it has been an amazing area for us. So, when a business is growing at 165% year-over-year or 117%, excluding acquisitions, I mean, clearly it has a lot of momentum to it. If you look at what's within the subscription service that really drove that growth is some deposits, caviar, capital and cash card, all four areas that we called out. Within instant deposit, it's worth noting that, that is symptomatic of both a way that we can continue to monetize the seller base by giving them more speed as Jack talked about one of the elements of a remarkable solution is fast and by giving them instant access to they're taking for the day. We can really change the whole equation of working capital for them. But also on the cash side, instant has become a really high utility for our consumers that are sending P2P and so that growth in instant deposit is also symptomatic of just how well cash app has continued to deal.

Beyond that Caviar, we talked about it in Q2, still growing at a 100% year-over-year in Q2 and that momentum continues. Capital, you can see a very nice quarter, up 34% year-over-year and I talked a little bit earlier about why Capital is so important to the overall business. And then finally, Cash Card is net new. If you recall, we didn't have a year ago or we just beginning. It's now become the fourth largest contributor. And again, I think that comes back to the utility, the cash generally is bringing. So I don't want to put a stake in the ground of when 50% is possible, but I can tell you that certainly the products that are monetized through subscription and services, all of them feel very healthy right now with a lot of momentum as we go into Q4.

Jeff Cantwell -- Guggenheim Securities -- Analyst

Thanks very much. I appreciate that.

Sarah Friar -- Chief Financial Officer

Thank you.

Jeff Cantwell -- Guggenheim Securities -- Analyst

And then question for Jack, I wonder if you could explain somebody tells about your thinking with how you've built the cash app. Clearly, you have all the credibility in the world in the realm of social media. So my question is, what do you see as the pros and the cons of having a social feed in cash app and have you ever consider doing that? Thanks.

Jack Dorsey -- Chairman, President and Chief Executive Officer

Yes. It is a good question. So we definitely have considered and learn from what our peers in the industry are doing around making peer-to-peer transactions more social. I think we do have opportunity to certainly open communication channels within the cash up, probably not in the same way that our peers have done. But there is a big differentiator from how we think about the cash up versus others. We don't see it as pure peer-to- peer stop. We see it as a way to provide banking services for folks and that is our audience that we're serving, and that's where we're seeing the most residents within the market. So we see people store their money. We see people spend their money on the cash card and withdraw from ATMs and deposit their paychecks through the direct deposit function. We see people buying (inaudible) bitcoin and of course we see people with peer-to-peer transactions. But our focus is really on the spending aspect of cash and recognizing every channel that people want to spend money within and then making that a lot easier and then giving them more availability and access to features that they typically have in the past like, Boost is a good example of this, where a lot of the folks that we serve just have never had access to rewards program period. Much first one rewards for the places they already go to and does so instantly. So our focus is really observing what our customers are doing and then taking as much frictional as possible while adding some magic at the same time.

Jeff Cantwell -- Guggenheim Securities -- Analyst

Thanks very much.

Jack Dorsey -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Andrew Jeffrey with SunTrust. Your line is open.

Oscar Turner -- SunTrust Robinson -- Analyst

Good afternoon. This is Oscar Turner on for Andrew. My question is on Square for restaurants. Just wondering if you can give any color on the uptake you're seeing with that new product and whether that's expected to materially contribute to revenue next year? And then also related, what do you see as the biggest barriers to penetrating the large full service restaurant TAM?

Jack Dorsey -- Chairman, President and Chief Executive Officer

Yeah. So great questions. We do have a significant focus on restaurant right now and I'm really happy with what we have to offer at restaurants. So, in the past, the only way that we could serve restaurants was through Caviar by adding delivery and that's super power to their offering. And what's meaningful about this is that they're no longer constrained by the number of tables they have and how quickly they can turn them over delivery allows them to make more and sell more, were trust only drives more sales. We recently added pickup, which allows a restaurant to offer pickups, so someone can come in and get the food and take it elsewhere.

And we recently introduced Square for Restaurants, which allows them to do things like table management, but also allows them to hook up with the kitchen display system so that they can operationalize and make more efficient kitchen, so ultimately they can serve more food and serve more customers. So we're putting a lot of our focus on the integration of these things. So that if you come in through Square for Restaurants, you will be able to eventually used Caviar for delivery and vice versa. We think that's really powerful. But even more powerful is introducing them to the rest of our ecosystem like payroll, like our customer relationship management, like Square Capital for instance. And the biggest barrier in the past have been the fact that we don't have a point of sale for restaurants. We don't have anything that can help them manage their tables. Now that we do and we are full stack, meaning that we can handle their payments as well, they see an opportunity to remove a bunch of clutter from their countertops, and a bunch of time from their operations, their day-to-day operations. It's a lot of work to run a restaurant and is extremely complex and our goal is to help keep restaurants in business and help them grow. And a big part of that is just streamlining their operations, so that they're not spending time fixing equipment and learning how to operate these technologies, but actually really focused on making food and serving their customers. So we think we have observed that barrier and also -- sorry to overcome it and that will help us certainly get into restaurants of all size from very small to multi-chain and very large businesses as well. But we're going to learn and talk to our sellers about what's working, what's not working, then make sure we're addressing those needs.

Sarah Friar -- Chief Financial Officer

And then from a -- I'm sorry --

Oscar Turner -- SunTrust Robinson -- Analyst

No. Go ahead.

Sarah Friar -- Chief Financial Officer

I was just going to say from a TAM perspective or impact to revenue, I mean clearly, we went into the restaurant vertical because it is a massive

TAM. There over 300,000 full service restaurants. Here in the US alone, that's $200 billion by annual gross receipts. So when we talk about how will we continue to sustain that sort of GPV growth, that is a big part of that is how do we keep unlocking more and more new places where Square has not really been in place before. So as we talked about last quarter, we see larger restaurants come on the platform, the average GPV in the restaurant sellers about $650,000. But the funding is also to see that their self on board on. So unlike when they work with an old competitor where it's like dying, I don't want to keep using it, instead they sell from board onto something like Square for Restaurants and how that ease the experience that Jack talked about. So we do think it has a big potential TAM and we do think it will continue to contribute meaningfully to revenue as we go into 2019.

Oscar Turner -- SunTrust Robinson -- Analyst

Okay, thanks for that color.

Operator

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

Jason Lee -- Head of Investor Relations

Thank you everyone for joining our call. I would like to remind everyone that we will be hosting our fourth quarter 2018 earnings call on February 27th. Thanks again for participating today.

Operator

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

Duration: 55 minutes

Call participants:

Jason Lee -- Head of Investor Relations

Jack Dorsey -- Chairman, President and Chief Executive Officer

Sarah Friar -- Chief Financial Officer

Tien-tsin Huang -- JPMorgan Chase & Co. -- Analyst

Dan Perlin -- RBC Capital Markets -- Analyst

Unidentified Participant -- -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

Bryan Keane -- Deutsche Bank -- Analyst

James Schneider -- Goldman Sachs -- Analyst

Ryan Cary -- Bank of America Merrill Lynch -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Jeff Cantwell -- Guggenheim Securities -- Analyst

Oscar Turner -- SunTrust Robinson -- Analyst

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