Square, Inc. (NYSE:SQ) Q3 2019 Earnings Conference Call - Final Transcript
Nov 06, 2019 • 05:00 pm ET
our business ex-Caviar in 2019, and providing our initial outlook for revenue and profitability in 2020. As a reminder, as Jason noted, starting next quarter we will no longer be reporting or guiding to adjusted revenue. We provide certain adjusted revenue measures this quarter only as a transitional bridge. You can find additional information on this change in our shareholder letter and on our Investor Relations website.
There are two factors impacting our updated full year 2019 guidance of $2.24 billion to $2.25 billion in adjusted revenue. First, underlying trends in our seller and Cash App ecosystems increased the top end of our guidance by $15 million. Second, the timing of the Caviar sale and it's underperformance reduced our guidance by $45 million. These offsetting factors result in a net decrease of $30 million to the top end of our full year 2019 guidance, though again, what we are managing going forward is a core business with strong momentum heading into the fourth quarter. We are maintaining our guidance 60% adjusted EBITDA growth in 2019. We plan to reinvest Q3 outperformance given the returns we see and the opportunity to drive future growth.
Turning to 2020. Based on our preliminary outlook, we expect to achieve year-over-year gross profit and adjusted revenue growth in the low 30% range, on a pro forma basis, excluding Caviar. In 2020, we expect adjusted EBITDA margins to be roughly flat compared to the 18% adjusted EBITDA margins implied by our updated 2019 guidance. We expect to reinvest the entirety of the 2 points of EBITDA margin unlocked by the sale of Caviar. A key investment area in 2020 includes sales and marketing spend into the seller ecosystem. We expect to invest over $75 million in incremental seller sales and marketing over 2019 levels, targeting payback periods to remain within four quarters. Additionally, 2020 guidance includes a larger than normal office expansion related to our Oakland office, as well as additional regional expansion, which will add an incremental one time step-up of $50 million of operating expenses.
Finally, we plan to host an Investor Day in mid-March. Since our last Investor Day in 2017, we have more than doubled our revenues and gross profit scale, tripled our EBITDA and scaled two unique ecosystems for sellers and individuals. In our 2020 Investor Day, we will provide a deeper update into our long-term vision, our market opportunity, strategy and business model for the seller and Cash ecosystems, and our long-term financial model. We'll provide more information on Investor Day in the coming months.
I'll now turn it back to the operator to start the Q&A portion of the call.