Block, Inc. (XYZ) Earnings Call Transcript & Summary

Good morning, and welcome to Square, Inc.'s 2020 Annual Meeting of Stockholders. Please note that this event is being webcast. I would now like to introduce Jack Dorsey, the company's President, Chief Executive Officer and Chairman of the Board. Mr. Dorsey, please go ahead.

Welcome, everyone, and thank you all for joining our 2020 Annual Meeting of Stockholders. First of all, I hope you are all healthy, safe and taking care of yourselves. There is a lot going on in the world today that requires our attention, so we appreciate you making the time for us. We are pleased to hold our Annual Stockholders' Meeting virtually as we aim to enable broad access and participation, especially in light of continued social distancing recommendations. I would now like to turn the meeting over to Sivan Whiteley, our General Counsel and Corporate Secretary, who will lead the formal business of the meeting and also act as our secretary.

Thank you, Jack. At this time, I'd like to introduce the other members of our Board of Directors who are participating in the meeting today. They are: David Viniar, Roelof Botha, Amy Brooks, James McKelvey, Paul Deighton, Anna Patterson, Randy Garutti, Mary Meeker, and Lawrence Summers. We also have with us Amrita Ahuja, our Chief Financial Officer; and Dave Cabral of Ernst & Young, our independent registered public accounting firm. Mr. Cabral will be available to respond to appropriate questions during the Q&A session at the end of this meeting. We have appointed Kris Veaco to act as the inspector of election today. She has executed an oath of office to carry out her duties with strict impartiality and to the best of her ability, and she will examine and tabulate the proxies and ballots at this meeting. With introductions concluded, we will move on to other procedural matters. As an overview of today's meeting, we will begin with the formal business portion, during which we will address the matters described in our 2020 proxy statement and vote on the proxy proposals. We will then announce preliminary voting results and adjourn the formal portion of this meeting. Afterward, we will provide time for a live Q&A session. Stockholders may submit questions through the web portal during the formal business portion of the meeting with a limit of 1 question per stockholder. We have allotted a certain amount of time after the formal business portion of the meeting to respond to the submitted questions. We will only be able to answer questions submitted prior to the start of the question-and-answer portion of this meeting, and only questions that are relevant to our business operations will be answered. Note that this meeting is being recorded, and a webcast replay will be available on the same meeting website following today's meeting. Our Board of Directors has fixed April 20, 2020, as the record date for determining the stockholders entitled to vote at this meeting. I have an affidavit of distribution from Broadridge Financial Solutions confirming that proxy materials related to this meeting were mailed to stockholders of record, determined as of the close of business on the record date, starting on April 24, 2020. A complete list of the stockholders entitled to vote at this meeting will be available online for the duration of the meeting and can be found in the footer section of the virtual meeting web page. Ms. Veaco reports that the holders of a majority of the combined voting power of our Class A and Class B common stock outstanding as of the record date are present at this meeting either virtually or by proxy, which constitutes a quorum. Therefore, today's meeting is duly convened and open for business. We'll now proceed with the formal business of the meeting. The polls are open. If any stockholders have not yet voted or wish to change their vote, please click on the Voting button in the web portal and follow the instructions. If you've already sent in a proxy or voted via the telephone or Internet and do not wish to change your vote, no further action is needed. There are 4 proposals to be considered and voted upon by our stockholders. Each of these proposals is more fully described in our proxy statement filed with the Securities and Exchange Commission on April 24, 2020. The first proposal is to elect 3 Class II directors: Roelof Botha, Amy Brooks and James McKelvey to serve until our 2023 Annual Meeting of Stockholders and until their successors are duly elected and qualified. No other director nominees have been properly submitted pursuant to our bylaws or the rules of the Securities and Exchange Commission. So no other nominations are being considered. Each of the 3 director nominees is currently serving on our Board, and our Board of Directors recommends a vote for all of these director nominees. The second proposal is to approve, on an advisory basis, the compensation of our named executive officers. We currently hold this Say-on-Pay vote every year. Our Board of Directors recommends a vote for the advisory approval of the compensation of our named executive officers and the adoption of the following resolution. It reads as follows: resolved, that the stockholders approve, on an advisory basis, the compensation paid to our named executive officers as disclosed in the proxy statement for the annual meeting pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and narrative discussion and other related disclosure. The third proposal is to ratify the appointment of Ernst & Young as our independent registered public accounting firm for fiscal year ending December 31, 2020. Our Board of Directors recommends a vote for the ratification of the appointment of Ernst & Young. The fourth and final proposal is a shareholder proposal regarding employee representation on the company's Board of Directors. The proponent of this proposal, t NorthStar Asset Management, Inc. Funded Pension Plan is presenting the proposal via a prerecorded message, which we will now play.

My name is Mari Schwartzer of NorthStar Asset Management, a socially responsible investment firm based in Boston, representing 37,097 shares of Square common stock. Today, I am presenting proposal #4 regarding employee representation on the Board of Directors. Never before in our lifetime, have our company or our employees faced such uncertainties or such a grim prospect for the future as posed by the current global pandemic. As our company works to navigate these unpredictable times, employees and their relationship to our company can be the guiding force that allows us not only to emerge safely, but also stronger and more competitive. This shareholder proposal encourages the company to explore the ways in which non-management employees could attain membership on the Board of Directors because we believe that all employees are critical to our company's continued success and deserve a voice. We also believe that employees with a seat of the table are more likely to remain engaged and committed to the company. This time of crisis does not diminish the potential value of adding employees to the Board. In fact, crises in transformative eras emphasize the potential value of fresh voices on the Board of Directors. Direct communication between employees and the Board could offer significant efficiencies as our company and the economy seek innovative solutions to these unprecedented challenges. The existence of employees on U.S. corporate boards is unheard of. Several other publicly traded U.S. companies have had or currently have workers on the Board of Directors. We believe that employees on the Board of Directors could help our company continue to thrive in several ways, such as more efficient communication of problems faced by employees and the creative solutions that those workers come up with. Faster alerts to potential pending crises that could diminish our brand name; increased employee engagement and better retention; expression of employee assessments of managers, executives and workforce morale directly to the Board and much more. Our employees are the driving force of our company, but if their trust in management falters due to a disenfranchisement or missteps, our company could suffer. To prevent this, we suggest allowing an encouraging representation on the Board by nonmanagement, nonexecutive employees. We believe that employee representation on the Board is a key way to ensure that employees, our most crucial resource, remain fully engaged in the long-term growth of our company and help ensure operational excellence. We urge shareholders to vote for Proposal #4.

Our Board of Directors recommends a vote against the stockholder proposal. The polls are still open. Voting today is by proxy and online ballot. As previously mentioned, if you already submitted a proxy or voted via the telephone or Internet and do not wish to change your vote, no further action is needed at this time. If you have not yet voted or wish to change your vote, you may do so now by clicking on the Voting button in the web portal and following the instructions. If you have not yet submitted a proxy or electronic ballot, you must submit your electronic ballot now for your vote to be counted by the inspector of election. We will leave the polls open for another minute to allow anyone who chooses to vote electronically to cast their ballots. [Voting]

The polls are now closed. No additional ballots, proxies or votes and no changes or revocations will be accepted. Based on our preliminary voting results, the stockholders have elected the 3 Class II directors to serve until the 2023 Annual Meeting of Stockholders and until their successors are duly elected and qualified; approved on an advisory basis the compensation of our named executive officers; ratified the appointment of Ernst & Young as our independent registered public accounting firm for our fiscal year ending December 31, 2020; and rejected the proposal regarding employee representation on the company's Board of Directors. The final voting results will be set forth in the report of the inspector of election and will be included in the minutes of this meeting. We will also report the final voting results on a Form 8-K which we will file with the Securities and Exchange Commission within 4 business days of today's date. This concludes our planned agenda today. There is no other formal business before us. I now declare the formal business portion of the meeting adjourned, and the ability to submit further questions through the web portal is now closed. We will now answer stockholder questions received today through the web portal. Please note that only questions that are relevant to our business operations will be answered, and there's a limit of 1 question for stockholder. We will attempt to answer as many questions as time allows. I'll now turn it over to Tori Bertschy from our Investor Relations team to oversee this Q&A.

Thank you, Sivan. Before we begin, I would like to note that our responses to your questions today may include forward-looking statements. 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 Securities and Exchange Commission for a discussion of the factors that could cause our results to differ. Also, note that any forward-looking statements are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements, except as required by law. Also, our responses may include discussion of certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in our shareholder letters for prior quarters and other filings with the Securities and Exchange Commission, all of which are available on our Investor Relations website. These non-GAAP measures are not intended to be a substitute to our GAAP results. We will now pause for a moment to assemble the queue of questions. We will now take our only question, which is for our CEO, Jack Dorsey. Yesterday, a report describing Square Capital's processing of Payroll Protection Plan, PPP, applications was released and detailed that more than $820 million of PPP facilitated as of June 10, 2020. In light of the ongoing COVID-19 pandemic as well as the ongoing discussions related to social justice and equity, can the Board comment on Square Capital's ongoing efforts to facilitate loans via PPP and other mechanisms to small businesses run by individuals belonging to historically socioeconomically disadvantaged groups, black, brown and others.

Thank you for the question. We're really proud of our speed and also our ability to partner with our sellers to make sure that they are getting access to the PPP program. We're one of the first to market to make sure that in the second round, people had immediate and instant access. But not only that, something that was understandable, accessible and they can readily utilize immediately to keep their business going. We do as Square and as Square Capital have a significant percentage of those who we serve represent underserved communities. Just some statistics on this: 58% of our loans went to women-owned businesses; 35% of our loans through Square Capital went to minority-owned businesses; and 85% of Square sellers live outside the most populous U.S. cities. We're always looking for opportunities to partner with other organizations. Recently, we partnered with Diddy's Our Fair Share organization to make sure that black-owned businesses were getting access to PPP funds as well. Really appreciate what Magic Johnson is doing in order to get black-owned businesses access to these funds as well. So we're looking for -- we continue to look for opportunities and continue to serve our purpose of economic empowerment and that includes every seller, but especially those who are most underserved and most marginalized.

We will now conclude the question-and-answer period. Thank you for joining us today.

That concludes today's conference. Thank you for joining, and have a pleasant day.