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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 315 added, 301 removed, 240 unchanged (72% of the section changed)

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on a historical basis and outlines the factors that have affected recent earnings, as well as those factors that may affect future earnings.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.

This section of this Annual Report on Form 10-K generally discusses fiscal 2021 compared to fiscal 2020.

The comparison of the fiscal 2020 results with the fiscal 2019 results that are not included in this Annual Report on Form 10-K can be found in the "Management's Discussion and Analysis Results of Operations" section in the Company's fiscal 2020 Annual Report on Part II, Item 7 of Form 10-K, filed on February 23, 2021.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K ("Form 10-K").

This section of this Form 10-K generally discusses fiscal 2022 compared to fiscal 2021.

The comparison of the fiscal 2021 results with the fiscal 2020 results that are not included in this Form 10-K can be found in the "Management's Discussion and Analysis Results of Operations" section in the Company's fiscal 2021 Annual Report within Part II, Item 7 of Form 10-K, filed on February 24, 2022.

The statements in this discussion regarding our expectations of our future performance, liquidity, and capital resources;

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and other non-historical statements in this discussion are forward-looking statements.

These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under Item 1A.

Risk Factors and elsewhere in this Form 10-K.

Our actual results may differ materially from those contained in or implied by any forward-looking statements.

On December 1, 2021, we changed our name from Square to Block.

Block is the name for the company as a corporate entity.

On December 1, 2021, we changed our name as a corporate entity from Square, Inc.

to Block, Inc.

(together with its subsidiaries, "Block").

We started Block with the Square ecosystem in February 2009 to enable businesses ("sellers") to accept card payments, an important capability that was previously inaccessible to many businesses.

However, sellers need many solutions to thrive, and we have expanded to provide them additional products and services and to give them access to a cohesive ecosystem of tools to help them manage and grow their businesses.

Similarly, with Cash App, we have built an ecosystem of financial services to help individuals manage their money.

However, sellers need a variety of solutions to thrive, and we have expanded to provide them additional products and services and to give them access to a cohesive ecosystem of tools to help them manage and grow their businesses.

Similarly, with Cash App, we have built an ecosystem of financial products and services to help individuals manage their money.

We also added TIDAL and TBD as businesses to contribute to our purpose of economic empowerment.

TBD, a bitcoin-focused business was established to build an open developer platform with the goal of making it easy to create non-custodial, permissionless, and decentralized financial services.

Our Square ecosystem is a cohesive commerce ecosystem that helps sellers start, run and grow their businesses, and consists of over 30 distinct software, hardware, and financial services products.

We monetize the majority of these products through a combination of transaction, subscription, and service fees.

Our suite of cloud-based software solutions are integrated to create a seamless experience and enable a holistic view of sales, customers, employees, and locations.

With our offerings, a seller can accept payments in person via swipe, dip, or tap of a card, or online via Square Invoices, Square Virtual Terminal, or the seller’s website.

We also provide hardware to facilitate commerce for sellers, which includes magstripe readers, contactless and chip readers, Square Stand, Square Register, Square Terminal, and third-party peripherals.

Our Square ecosystem includes Square Banking launched in July 2021 for our U.S.

sellers, which consists of a suite of products including Square Savings, Square Checking, and Square Loans (formerly known as Square Capital).

Square Checking is offered through a partner bank, and Square Savings and Square Loans are offered through our wholly-owned subsidiary Square Financial Services, Inc.

("Square Financial Services").

The industrial loan company charter for Square Financial Services was approved by the Federal Deposit Insurance Corporation ("FDIC") on March 1, 2021.

Square Financial Services offers banking services including certain loan and deposit products.

In the second quarter of 2021, we began offering Square Loans in Australia.

Square Savings allows sellers to automatically set aside funds from daily sales into savings accounts that earn interest.

Square Checking provides sellers with an FDIC insured account allowing them instant access to their sales and the ability to use those funds for business expenses using their Square Debit Card, withdraw from an ATM, transfer via ACH, or paying employees via Square Payroll.

Square Loans offers sellers access to business loans based on the seller's payment processing history.

We recognize revenue upon the sale of the loans to third-party investors or over time as the sellers pay down the outstanding amounts for the loans that we hold as available for sale or for investment .

We have grown rapidly to serve millions of sellers that represent a diverse set of industries (including services, food-related business, and retail businesses) and sizes, ranging from a single vendor at a farmers’ market to multi-location businesses.

Square sellers also span geographies, including the United States, Canada, Japan, Australia, the United Kingdom, Ireland, France and Spain.

Our Cash App ecosystem provides financial tools for individuals to store, send, receive, spend and invest money.

With Cash App, customers can fund their account with a bank account or debit card, send and receive peer-to-peer payments, add physical cash at participating retailers, deposit mobile checks, and receive direct deposit payments.

Customers can make

purchases with their Cash Card, a Visa prepaid card that is linked to the balance stored in Cash App.

Additionally, customers can use Cash App Pay, a checkout option which allows customers to pay using their Cash App account.

With Cash Boost, customers receive instant discounts when they make Cash Card purchases at designated merchants.

Customers can also use their stored funds to buy and sell bitcoin and equity investments within Cash App.

The Cash App ecosystem also includes a tax filing product for individuals, providing a seamless, mobile-first solution for individuals to file their taxes for free.

On January 31, 2022 (February 1, 2022 Australian Eastern Daylight Time), we completed the acquisition of Afterpay Limited (“Afterpay”), a global BNPL platform.

The purchase consideration was comprised of 113,387,895 shares of the Company’s Class A common stock with an aggregate fair value of $13.9 billion based on the closing price of the Company’s Class A common stock on the acquisition date.

In addition, under the terms of acquisition agreement, the Company issued replacement equity awards for outstanding equity awards to Afterpay employees.

Refer to Note 8, Acquisitions, of Notes to the Condensed Consolidated Financial Statements for further details.

On April 30, 2021, we completed the acquisition of a majority ownership interest in TIDAL as detailed in Note 8, Acquisitions, of Notes to the Consolidated Financial Statements.

TIDAL is a global music and entertainment platform that brings fans and artists together through unique music, content, and experiences.

The acquisition extends our purpose of economic empowerment to musicians.

On May 20, 2021, we issued an aggregate principal amount of $2.0 billion of senior unsecured notes comprised of $1.0 billion of senior unsecured notes that mature on June 1, 2026 ("2026 Senior Notes") with a 2.75% interest rate, and $1.0 billion of senior unsecured notes that mature on June 1, 2031 ("2031 Senior Notes") with a 3.50% interest rate.

The 2026 Senior Notes and 2031 Senior Notes will mature on each of its respective dates, unless earlier redeemed or repurchased.

Interest on the 2026 Senior Notes and 2031 Senior Notes will be payable semi-annually on June 1 and December 1 of each year beginning on December 1, 2021.

We intend to use the net proceeds from our 2026 Senior Notes and 2031 Senior Notes offerings for general corporate purposes, which may include potential acquisitions and strategic transactions, capital expenditures, investments and working capital.

We participated in two rounds of the Paycheck Protection Program (“PPP”) under the provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

These PPP loans are guaranteed by the U.S.

government and are eligible for forgiveness if the borrowers meet certain criteria.

As of December 31, 2021, we had facilitated the issuance of $1.5 billion of loans in the aggregate under the program, of which we had sold $399.1 million to an investor.

As of December 31, 2021, approximately $725.9 million in the aggregate of PPP loans had been forgiven by the SBA, of which, $679.6 million was forgiven in the year ended December 31, 2021.

We approved and funded the last remaining PPP applications on May 21, 2021 upon exhaustion of the funds in the program.

To fund some of our PPP loans, we entered into Paycheck Protection Program Liquidity Facility agreements with the Federal Reserve Bank of San Francisco for an aggregate principal amount of up to $1.0 billion.

Borrowings under the facility accrue interest at a rate of 0.35% and advances are collateralized by the same value of the loans originated under the PPP.

The maturity date of any PPPLF advance is the maturity date of the PPP loan pledged to secure the advance, and will be accelerated upon the occurrence of certain events of default.

The advances under the facility are repayable if the associated PPP loans are forgiven, repaid by the customer, or settled by the government guarantee.

As of December 31, 2021, $497.5 million of PPPLF advances were outstanding.

Update on the Impact of COVID-19 on Current Trends and Outlook

In 2021, we experienced improvements in our business, despite elevated infection rates across the country due to various COVID-19 variants.

These improvements were mainly as a result of varying states of continued economic recovery and re-openings in the majority of U.S.

We experienced growth in our Square GPV performance, as in-person activity at sellers continued to increase on a year-over-year basis.

Overall, we continued to experience improvements in our business in our international markets, although regional lockdowns in select markets periodically affected in-person activity.

Our Cash App business performed well due to increased consumer spending, as we continued to benefit from the strength of a broader macroeconomic recovery, regional re-openings, and government stimulus and relief programs enacted in response to COVID-19.

Although our business results remain positive, the continued effects of the COVID-19 pandemic on our financial results and the broader economic recovery are unknown.

The emergence of new and more transmissible variants of COVID-19 has at times led to a resurgence of the virus, particularly in populations with low vaccination rates.

impacts of inflation on our business and the broader economy, which may be exacerbated by the economic recovery from the COVID-19 pandemic, may also impact our financial condition and results of operations.

TIDAL is a global platform for musicians and their fans that uses unique content, experiences, and features to bring fans closer to artists and to provide artists with tools to succeed as entrepreneurs.

TBD is an open developer platform focused on making the decentralized financial world accessible for everyone.

In January 2022, we completed the acquisition of Afterpay Limited ("Afterpay"), a buy now, pay later ("BNPL") platform that facilitates commerce between retail merchants and consumers by allowing its retail merchant clients to offer their customers the ability to buy goods and services on a BNPL basis.

Square is a cohesive commerce ecosystem that helps sellers start, run, and grow their businesses, and consists of more than 30 distinct software, hardware, and financial services products that provide cohesive Commerce, Customer Relationship Management, Staff Management, and Banking capabilities.

Our products are designed to be self-serve and intuitive to make initial setup and new employee training fast and easy, although we also offer full-service setup and support.

Our products are integrated to create a seamless experience and enable a holistic view of sales, customers, employees, and finances.

Our open developer platform enables integrations with third-party applications as well.

We monetize these products through a combination of transaction, subscription, and service fees.

We have grown rapidly to serve millions of sellers that represent a diverse set of industries including services, food-related businesses, and retail businesses;

and sizes, ranging from sole proprietors, such as a single vendor at a farmers’ market, to multi-location enterprise businesses.

Square sellers also span geographies, including the United States, Canada, Japan, Australia, New Zealand, the United Kingdom, Ireland, France, and Spain.

Cash App provides an ecosystem of financial products and services to help consumers manage their money.

Cash App’s goal is to redefine the world’s relationship with money by making it more relatable, instantly available, and universally accessible.

While Cash App started with the single ability to send and receive money, it now provides an ecosystem of financial services focused on helping consumers make their money go further — whether that's by storing, sending, receiving, spending, or investing their money with Cash App.

We monetize these products through a combination of transaction and service fees.

Cash App has a diverse mix of transacting actives across a range of demographics and regions in the United States, as well as a small presence in Europe.

With the acquisition of Afterpay, we added a BNPL platform to our offerings.

Our BNPL platform is being integrated into the Cash App and Square ecosystems, strengthening the connection between these ecosystems, expanding access to more sellers and customers, increasing Square’s omnichannel platform, and helping drive more commerce between our sellers and customers.

Customers will be able to manage their installments and repayments directly within Cash App, potentially driving increased engagement, while the commerce discovery functionality from the Afterpay app will be integrated with Cash App to help drive lead generation for merchants and customer engagement.

As discussed further in Note 21, Segment and Geographical Information within Notes to the Consolidated Financial Statements, the financial results from our BNPL platform have been allocated equally to the Cash App and Square segments.

Afterpay results are included in our financial statements from January 31, 2022, the date of acquisition.

Components of Results of Operations

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Subscription and Services-based Revenue

Revenue from Cash App, Square Loans (formerly known as Square Capital), and Instant Transfers for sellers currently comprise the majority of our subscription and services-based revenue.

Cash App subscription and services-based revenue is primarily comprised of transaction fees from both Cash App Instant Deposit and Cash Card.

Our other subscription and services-based products include website hosting and domain name registration services, Gift Cards, Square Appointments, Customer Engagement, Employee Management, Payroll, Square Checking, and other product offerings.

Instant Deposit is a functionality within the Cash App and our managed payment solutions that enables customers to instantly deposit funds into their bank accounts, while Cash Card offers Cash App customers the ability use their stored funds via a Visa prepaid card that is linked to the balance the customer stores in Cash App.

We charge a per transaction fee which we recognize as revenue when customers instantly deposit funds to their bank account, use their Cash Card to make a purchase, or withdraw funds.

Subscription and services-based revenue is primarily comprised of revenue we generate from Cash App, Square Loans (formerly known as Square Capital), our BNPL platform, TIDAL, and various other software as a service (“SaaS”) products that we offer through Square.

Cash App subscription and services-based revenue is primarily comprised of transaction fees from Cash App Instant Deposit, Cash App Card, and other Cash App financial services offerings.

Our other SaaS products include subscription fees on our vertical software solutions (including Square for Restaurants, Square Appointments, and Square for Retail), Customer Engagement products (including Square Loyalty, Square Marketing, Square Gift Cards), staff management products (including Square Team Management and Square Payroll), and other products.

Instant Deposit is a functionality within the Cash App and our managed payment solutions that enables customers, including individuals and sellers, to instantly deposit funds into their bank accounts.

Cash App Card offers Cash App customers the ability to use their stored funds via a Visa prepaid card that is linked to the balance the customer stores in Cash App.

We charge the customer a per transaction fee when they instantly deposit funds to their bank account or withdraw funds from an ATM.

We also earn interchange fees when a Cash App Card is used to make a purchase.

These transaction and interchange fees are treated as revenue when charged.

Square Loans originates loans to sellers that are generally repaid through withholding a percentage of the collections of the seller's receivables processed by us or a specified monthly amount.

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Certain loans, for which we have the intention and ability to hold through maturity, are not immediately sold to third-party investors, in which case, interest and fees earned are recognized as revenue using the effective interest method.

TIDAL primarily generates revenue from subscriptions to its customers, and such subscriptions allow access to the song library, video library, and improved sound quality.

Customers can subscribe to services directly from the TIDAL website or through the Apple store, for which the Company charges a monthly fee which is recognized ratably as revenue as the service is provided.

Cash App Borrow, the Company’s first credit product for consumers, allows customers to access short-term loans for a small fee.

The loans are repaid at the end of the loan term and customers may elect to prepay all or a part of the outstanding balance.

If the outstanding balance is not paid when due, late fees in the form of interest may be charged.

The short-term loans are facilitated through a partnership with an industrial bank.

The loans are originated by the bank partner, from whom the Company purchases the loans obtaining all rights, title, and interest.

Net amounts paid to the bank are recorded as the cost of the loans purchased, and amounts collected in excess of the carrying value are recognized as revenue over the life of the loans.

Revenue from our BNPL platform includes fees generated from consumer receivables, late fees, and certain affiliate and advertising fees.

Through the use of our BNPL platform, consumers can pay for their purchases over time by splitting their purchase price generally into three or four installments, typically due in two-week increments, without paying fees (if payments are made on time).

For the majority of our BNPL products, we do not charge consumers interest or fees, other than late fees, which may be charged in certain regions as an incentive to encourage consumers to pay their outstanding balances as and when they fall due.

As of October 2022, we also offer the ability for consumers to pay for larger transaction sizes over a six- or twelve-month period using a monthly payment option, which includes no late fees and no compounding interest with a cap on total interest owed.

TIDAL primarily generates revenue from subscriptions to customers, and such subscriptions allow access to the song library, video library, and improved sound quality.

Customers can subscribe to services directly from the TIDAL website or through the Apple store.

With both offerings, we charge customers a monthly fee for those subscription services.

Hardware Revenue

Hardware revenue includes revenue from sales of contactless and chip readers, Square Stand, Square Register, Square Terminal, and third-party peripherals.

Third-party peripherals include cash drawers, receipt printers, and barcode scanners, all of which can be integrated with Square Stand, Square Register, or Square Terminal to provide a comprehensive point-of-sale solution.

Hardware revenue includes revenue from sales of magstripe readers, contactless and chip readers, Square Stand, Square Register, Square Terminal, and third-party peripherals.

Third-party peripherals include cash drawers, receipt printers, scales, and barcode scanners, all of which can be integrated with Square Stand, Square Register, or Square Terminal to provide a comprehensive point-of-sale solution.

Bitcoin Revenue

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The sale amounts received from our customers are recorded as revenue on a gross basis and the associated bitcoin cost as cost of revenues, as we are the principal in the bitcoin sale transaction.

We have determined we are the principal because we control the bitcoin before delivery to the customer, we are primarily responsible for the delivery of the bitcoin to the customer, we are exposed to risks arising from fluctuations of the market price of bitcoin before delivery to the customer, and we have discretion in setting prices charged to the customer.

Bitcoin revenue may fluctuate as a result of changes in customer demand or the market price of bitcoin.

Cost of Revenue and Gross Margin

Cost of Revenue

Transaction-based Costs

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Subscription and Services-based Costs

Subscription and services-based costs consist primarily of costs related to Cash App including Instant Deposit and Cash Card as well as Instant Transfer for sellers.

Subscription and services-based costs consist primarily of processing and partnership fees related to Cash App including Instant Deposit and Cash App Card, and our BNPL platform, as well as costs associated with TIDAL.

Hardware Costs

Hardware costs consist primarily of product costs associated with contactless and chip readers, Square Terminal, Square Stand, Square Register, and third-party peripherals.

Product costs include manufacturing-related overhead and personnel costs, packaging, and fulfillment costs.

Hardware costs consist primarily of product costs associated with magstripe readers, contactless and chip readers, Square Stand, Square Register, Square Terminal, and third-party peripherals.

Product costs include manufacturing-related overhead and personnel-related costs, certain royalties, packaging, and fulfillment costs.

Hardware is sold primarily as a means to grow our transaction-based revenue and, as a result, generating positive gross margins from hardware sales is not the primary goal of the hardware business.

Bitcoin Costs

Bitcoin cost of revenue is comprised of the amounts we pay to purchase bitcoin, which will fluctuate in line with the price of bitcoin in the market.

We purchase bitcoin to facilitate customers’ access to bitcoin.

Bitcoin costs consist of the amounts we pay to purchase bitcoin that is sold to customers.

These costs fluctuate in line with bitcoin revenue.

Amortization of Acquired Technology Assets

Amortization of acquired technology assets is primarily comprised of amortization related to the acquired technology assets from the acquisition of Afterpay.

Operating Expenses

Operating expenses consist of product development, sales and marketing, general and administrative expenses, transaction and loan losses, and bitcoin impairment losses.

Operating expenses consist of product development;

sales and marketing;

general and administrative expenses;

transaction, loan, and consumer receivable losses;

bitcoin impairment losses;

and amortization of customer and other acquired intangible assets.

For product development and general and administrative expenses, the largest single component is personnel-related expenses, including salaries, commissions and bonuses, employee benefit costs, and share-based compensation.

In the case of sales and marketing expenses, a significant portion is related to the Cash App peer-to-peer transactions and Cash Card issuance costs, in addition to paid advertising and personnel-related expenses.

In the case of sales and marketing expenses, a significant portion is related to the Cash App peer-to-peer transactions and Cash App Card issuance costs, in addition to paid advertising and personnel-related expenses.

Operating expenses also include allocated overhead costs for facilities, human resources, and IT.

Product development.

Product Development Expenses

Product development expenses currently represent the largest component of our operating expenses and consist primarily of expenses related to our engineering, data science, and design personnel;

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Additionally, product development expenses include the depreciation of product-related infrastructure and tools, including data center equipment, internally developed software, and computer equipment.

We continue to focus our product development efforts on adding new features and apps, and on enhancing the functionality and ease of use of our offerings.

We continue to focus our product development efforts on adding new features and expanding our apps, and on enhancing the functionality and ease of use of our offerings.

Our ability to realize returns on these investments is substantially dependent upon our ability to successfully address current and emerging requirements of sellers, buyers, and customers through the development and introduction of these new products and services.

Sales and marketing.

Sales and Marketing Expenses

Sales and marketing expenses are aggregated into two main components.

The first component consists of traditional advertising costs incurred such as direct sales expense, account management, local and product marketing, retail and e-commerce, partnerships, and communications personnel.

The second component of sales and marketing expense consists of costs incurred for services, incentives and other costs that are not directly related to revenue generating transactions that we consider to be marketing costs to encourage the usage of Cash App.

The second component of sales and marketing expenses consists of costs incurred for services, incentives, and other costs that are not directly related to revenue generating transactions that we consider to be marketing costs to encourage the usage of Cash App.

These expenses include, but are not limited to, Cash App peer-to-peer processing costs and transaction losses, card issuance costs, customer referral bonuses, and promotional giveaways that are expensed as incurred.

General and administrative.

General and Administrative Expenses

General and administrative expenses consist primarily of expenses related to our customer support, finance, legal, risk operations, human resources, and administrative personnel.

General and administrative expenses also include costs related to fees paid for professional services, including legal, tax, and accounting services.

Transaction and loan losses.

We are exposed to transaction losses due to chargebacks as a result of fraud or uncollectibility.

We incur loan losses whenever the amortized cost of loans that have been retained exceeds their fair value.

Transaction losses include chargebacks for unauthorized credit card use and the inability to collect on disputes between buyers and sellers over the delivery of goods or services, as well as losses on Cash App activity related to peer-to-peer payments sent from a credit card, Cash for Business, and Cash Card.

Transaction, Loan, and Consumer Receivable Losses

We base our reserve estimates on prior chargeback history and current period data points indicative of transaction loss.

We reflect additions to the reserve in current operating

results, while realized losses are offset against the reserve.

We reflect additions to the reserve in current operating results, while realized losses are offset against the reserve.

The establishment of appropriate reserves for transaction losses is an inherently uncertain process, and ultimate losses may vary from the current estimates.

We regularly update our reserve estimates as new facts become known and events occur that may affect the settlement or recovery of losses.

Loan losses are recorded at the lower of amortized cost or fair value determined on an individual loan basis.

To determine the fair value the Company utilizes industry-standard valuation modeling, such as discounted cash flow models, taking into account the estimated timing and amounts of periodic repayments.

The Company recognizes a charge whenever the amortized cost of a loan exceeds its fair value, with such charges being reversed for subsequent increases in fair value, but only to the extent that such reversals do not result in the amortized cost of a loan exceeding its fair value.

Loan losses relate to Square Loans and Cash App Borrow and are recorded whenever the amortized cost of a loan exceeds its fair value.

Such charges are reversed for subsequent increases in fair value, but only to the extent that such reversals do not result in the amortized cost of a loan exceeding its fair value.

Losses on consumer receivables relate to management's estimate of expected credit losses in the outstanding portfolio of consumer receivables.

We reflect additions to the reserve in current operating results, while realized losses are offset against the reserve.

Bitcoin Impairment Losses

Bitcoin held as an investment is accounted for as an indefinite lived intangible asset, and thus, is subject to impairment losses if the fair value of bitcoin decreases below the carrying value during the assessed period.

Impairment losses cannot be recovered for any subsequent increase in fair value until the sale of the asset.

Interest and Other Income and Expense, net

Interest and other income and expense, net consists primarily of gains or losses arising from marking to market of equity investments, interest expense related to our long-term debt, interest income on our investment in marketable debt securities, and foreign currency-related gains and losses.

Our investment in bitcoin is accounted for as an indefinite-lived intangible asset, and thus, is subject to impairment losses if the fair value of bitcoin decreases below the carrying value during the assessed period.

Impairment losses cannot be reversed for any subsequent increase in fair value until the sale of the asset.

Amortization of Customer and Other Acquired Intangible Assets

Amortization of customer and other acquired intangible assets is primarily as a result of the intangible assets from the Afterpay acquisition.

Interest Expense, net, and Other Income, net

Interest and other income and expense, net consists primarily of gains or losses arising from remeasurements of our investments in equity securities, interest expense related to our long-term debt, interest income on our investments in marketable debt securities, and foreign currency-related gains and losses.

Provision (Benefit) for Income Taxes

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Total net revenue $ 17,531,587 $ 17,661,203 $ (129,616) (1) %

Total net revenue for the year ended December 31, 2021, increased by $8.2 billion, or 86%, compared to the year ended December 31, 2020.

Bitcoin revenue increased by $5.4 billion, and represented 67% of the increase in total net revenue.

Total net revenue for the year ended December 31, 2022, decreased by $129.6 million, or 1%, compared to the year ended December 31, 2021.

Bitcoin revenue decreased by $2.9 billion and represented the primary driver of the decrease in the total net revenue.

Excluding bitcoin revenue, total net revenue increased by $2.8 billion, or 36%, in the year ended December 31, 2022, compared to the year ended December 31, 2021.

Transaction-based revenue for the year ended December 31, 2021 increased by $1.5 billion or 45%, compared to the year ended December 31, 2020.

This increase in revenue was in line with the increase in GPV of 49% for the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase was primarily attributable to and affected by the following events and factors:

• continued improvements in both card-present volumes as a result of regional re-openings and resumed in-person activity at sellers, as well as growth in card-not-present volume, which are higher-priced transactions;

• increase in consumer spending driven in part by a broader macro economic recovery, regional re-openings and growth in our Square GPV in international markets de spite periodic lockdowns in certain markets, as well as U.S.

government disbursements related to stimulus programs in place in 2021;

• growth in Cash App Business GPV which includes Cash for Business and peer-to-peer payments sent from a credit card.

Cash for Business includes peer-to-peer transactions received by business accounts using Cash App.

These factors had varying impacts on GPV growth and may continue to impact our revenues in the future.

Revenue from our BNPL platform was $811.4 million from the date of acquisition through December 31, 2022, representing 5% of our total net revenue for the year ended December 31, 2022.

Transaction-based revenue for the year ended December 31, 2022 increased by $908.4 million, or 19%, compared to the year ended December 31, 2021.

This increase in revenue was largely in line with the increase in Gross Payment Volume ("GPV") of 21% for the year ended December 31, 2022, compared to the year ended December 31, 2021.

GPV increased due to overall Square GPV growth as well as growth in Cash App Business GPV, which is comprised of Cash App activity related to peer-to-peer transactions received by business accounts.

Square GPV growth was driven by improvements in both card-present and card-not-present volumes as a result of growth from in-person and online channels, as well as growth in our international markets, and Cash App Business GPV growth was driven by increases in peer-to-peer transactions received by business accounts as well as peer-to-peer payments sent from a credit card.

See below in Key Operating Metrics and Non-GAAP Financial Measures for further discussion of GPV.

Subscription and services-based revenue for the year ended December 31, 2022 increased by $1.8 billion, or 68%, compared to the year ended December 31, 2021.

The increase was primarily driven by both Cash App and Square subscription and services products.

The increase in Cash App subscription and services-based revenue is primarily due to increase d Cash Card usage and Cash App Instant Deposit vo lumes.

Square subscription a nd services-based revenue increased pr imarily due to the increased origination volumes of Square Loans, other software subscriptions, and Instant Transfer for sellers.

Subscription and services-based revenue also includes revenue generated from music streaming services following the acquisition of TIDAL in the second quarter of 2021.

The increase was driven by:

• revenue generated from our BNPL platform of $811.4 million;

• an increase in Cash App subscription and services-based revenue primarily due to growth in Cash App Card usage, Cash App Instant Deposit volumes, as well as fees we charge customers who opt to use the faster bitcoin withdrawal options to move their bitcoin out of Cash App;

• seller banking products growth, including the increased origination volumes of Square Loans, as well as software subscriptions.

Hardware revenue for the year ended December 31, 2022 increased by $18.7 million, or 13%, compared to the year ended December 31, 2021.

The increase was primarily a result of an overall increase in sales of hardware across many of our product offerings, due in particular to Square Register, Square Terminal, and third party peripherals.

Bitcoin revenue for the year ended December 31, 2021 increased by $5.4 billion or 119% compared to the year ended December 31, 2020.

The increase was due to the market price of bitcoin and growth in the number of active bitcoin customers.

The amount of bitcoin revenue recognized will fluctuate depending on customer demand as well as changes in the market price of bitcoin.

During the year ended December 31, 2021, we saw a significant growth in bitcoin revenue as compared to the year ended December 31, 2020.

While bitcoin contributed 57% and 48% of the total revenue in 2021 and 2020, respectively, and 67% and 85% of t he increase in revenues in 2021 and 2020, respectively, gross profit generated from bitcoin was only 4.9% and 3.5% of the total gross profit in 2021 and 2020, respectively.

The increase was primarily a result of an overall increase in sales of hardware across many of our product offerings including Square Terminal, Square Register, and Square Reader for contactless and chip.

Bitcoin revenue for the year ended December 31, 2022 decreased by $2.9 billion, or 29%, compared to the year ended December 31, 2021.

As bitcoin revenue is the total sale amount of bitcoin sold to customers, the amount of bitcoin revenue recognized will fluctuate depending on customer demand, as well as changes in the market price of bitcoin.

This decrease in the year ended December 31, 2022 was driven by the decline in the market price of bitcoin compared to the year ended December 31, 2021.

While bitcoin contributed 41% and 57% of the total revenue in 2022 and 2021, respectively, gross profit generated from bitcoin was only 3% and 5% of the total gross profit in 2022 and 2021, respectively.

Cost of Revenue (in thousands, except for percentages)

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Bitcoin costs 6,956,733 9,794,992 (2,838,259) (29) %

Amortization of acquired technology assets 70,194 22,645 47,549 210 %

Total cost of revenue $ 11,539,695 $ 13,241,380 $ (1,701,685) (13) %

Total cost of revenue for the year ended December 31, 2021, increased by $6.5 billion, or 96%, compared to the year ended December 31, 2020.

Bitcoin costs of revenue increased by $5.3 billion, and represented 82% of the increase in the total cost of revenue.

Excluding bitcoin costs of revenue, total cost of revenue increased by approximately $1.2 billion, or 51%, in the year ended year ended December 31, 2021, compared to the year ended December 31, 2020.

Transaction-based costs increased by $812.8 million or 42% for the year ended December 31, 2021, compared to the year ended December 31, 2020.

The increase in transaction-based costs was primarily attributable to an increase in GPV of 49% for the year ended December 31, 2021 compared to the year ended December 31, 2020 .

The increase in GPV was partially offset by growth in card-present volumes, debit card transactions and an increase in average transaction size, lowering the average cost per transaction.

Card-present and debit card transactions are, generally, associated with lower costs per transaction.

Total cost of revenue for the year ended December 31, 2022 decreased by $1.7 billion, or 13%, compared to the year ended December 31, 2021.

Bitcoin costs of revenue, which decreased by $2.8 billion, was the primary driver of the decrease in total cost of revenue.

The decrease in total cost of revenue was offset by increased transaction-based costs related to an increase in GPV and increased costs as a result of our BNPL platform, which we acquired in the first quarter of 2022.

Excluding bitcoin costs of revenue, total cost of revenue increased by approximately $1.1 billion, or 32%, in the year ended December 31, 2022, compared to the year ended December 31, 2021.

Transaction-based costs for the year ended December 31, 2022 increased by $644.5 million, or 24%, compared to the year ended December 31, 2021, exceeding GPV growth of 21%, due to an increase in credit card transactions that have a higher cost per transaction as compared to debit card transactions.

Subscription and services-based costs for the year ended December 31, 2022 increased by $378.7 million, or 78%, compared to the year ended December 31, 2021.

The increase was driven primarily by growth in Cash Card, Instant Deposit activity and costs related to music streaming services following the acquisition of TIDAL in the second quarter of 2021.

The increase was driven by:

• Costs of revenues associated with our BNPL platform of $223.2 million from the date of acquisition through December 31, 2022;

• growth in Cash App Card usage, paper money deposit activity, and related processing costs and fees.

Hardware costs for the year ended December 31, 2022 increased by $65.8 million, or 30%, compared to the year ended December 31, 2021.

The increase was primarily due to the same drivers for the increase in hardware revenue discussed above as well as increased costs in the second half of 2021 due to global chip shortages and increased shipping costs.

Bitcoin costs for the year ended December 31, 2021 increased by $5.3 billion or 119%, compared to the year ended December 31, 2020.

Bitcoin costs of revenue comprises of the total amounts we pay to purchase bitcoin, which will fluctuate in line with bitcoin revenue.

Product Development (in thousands, except for percentages)

The increase was due to the increased sales of hardware, as well as increased costs due to supply chain disruptions.

Bitcoin costs for the year ended December 31, 2022 decreased by $2.8 billion, or 29%, compared to the year ended December 31, 2021 due to the decline in bitcoin revenue.

Bitcoin costs are comprised of the total amount we pay to purchase bitcoin, which fluctuates in line with bitcoin revenue.

Amortization of acquired technology assets for the year ended December 31, 2022 increased by $47.5 million, or 210% compared to the year ended December 31, 2021.

The increase was primarily driven by amortization related to the acquired technology assets from the acquisition of Afterpay of $43.5 million.

Operating Expenses (in thousands, except for percentages)

Year Ended December 31,

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Product development $2,135,612 $1,383,841 $ 751,771 54 %

Percentage of total net revenue 8 % 9 %

Product development expenses for the year ended December 31, 2021, increased by $513.4 million, or 58%, compared to the year ended December 31, 2020, due primarily to the following:

• an increase of $376.0 million in personnel costs for the year ended December 31, 2021, related to an increase in headcount among our engineering, data science, and design teams, as we continue to improve and diversify our products.

The increase in personnel-related costs includes an increase in share-based compensation expense of $157.0 million for the year ended December 31, 2021;

• an increase of $127.5 million in software and data center operating costs, consulting, depreciation and operating expense allocations, and certain Cash App crypto networks operating costs for the year ended December 31, 2021 as a result of increased capacity needs and expansion of our cloud-based services.

Sales and Marketing (in thousands, except for percentages)

Year Ended December 31,

2021 2020 $ Change % Change

% of total net revenue 12 % 8 %

% of total gross profit 36 % 31 %

Sales and marketing $2,057,951 $1,617,189 $ 440,762 27 %

Percentage of total net revenue 9 % 12 %

Sales and marketing expenses for the year ended December 31, 2021, increased by $507.5 million, or 46%, compared to the year ended December 31, 2020, primarily due to the following:

• an increase in Cash App marketing costs of $272.3 million for the year ended December 31, 2021.

Cash App customer acquisition costs increased by $167.1 million, in addition to processing costs and related transaction losses increased by $93.7 million as a result of increased volumes of activity with our Cash App peer-to-peer service and increased card issuance costs.

Cash App customer acquisition costs include advertising costs and costs associated with various incentives to customers.

We consider the free services such as stock investing, Cash App Tax, and certain Cash Card and peer-to-peer services offered Cash App customers to be marketing initiatives aimed at attracting new customers and encouraging the usage of Cash App;

• an increase of $81.3 million in sales and marketing personnel costs to enable growth initiatives.

The increase in personnel related costs includes an increase in share-based compensation expense of $20.4 million;

• an increase of $72.5 million in advertising costs for our Square ecosystem services for the year ended December 31, 2021, primarily from increased online and television marketing campaigns;

• an increase in sales and marketing expenses due to the recent acquisition of TIDAL completed in the second quarter of 2021.

General and Administrative (in thousands, except for percentages)

Year Ended December 31,

2021 2020 $ Change % Change

% of total net revenue 12 % 9 %

% of total gross profit 34 % 37 %

General and administrative $1,686,849 $982,817 $ 704,032 72 %

Percentage of total net revenue 6 % 6 %

% of total net revenue 10 % 6 %

% of total gross profit 28 % 22 %

Transaction, loan, and consumer receivable losses $550,683 $187,991 $ 362,692 193 %

% of total net revenue 3 % 1 %

% of total gross profit 9 % 4 %

Bitcoin impairment losses $46,571 $71,126 $ (24,555) (35) %

% of total net revenue — % — %

% of total gross profit 1 % 2 %

Amortization of customer and other acquired intangible assets $138,758 $15,747 $ 123,011 781 %

% of total net revenue 1 % — %

% of total gross profit 2 % — %

Total operating expenses $6,616,424 $4,258,711 $ 2,357,713 55 %

Product development expenses for the year ended December 31, 2022, increased by $751.8 million, or 54%, compared to the year ended December 31, 2021, due primarily to the following:

• an increase of $560.3 million in personnel-related costs primarily due to an increase in headcount among our engineering, data science, and design teams, as we continue to improve and diversify our products.

The increase was additionally driven by employees added from the acquisition of Afterpay in the first quarter of 2022.

The increase in product development personnel-related costs includes an increase in share-based compensation expense of $255.1 million for the year ended December 31, 2022;

• an increase of $179.4 million in software and data center costs, consulting, and certain Cash App crypto networks operating costs for the year ended December 31, 2022 as a result of increased capacity needs and expansion of our cloud-based services.

Sales and marketing expenses for the year ended December 31, 2022, increased by $440.8 million, or 27%, compared to the year ended December 31, 2021, primarily due to the following:

• an increase of $168.4 million in sales and marketing personnel-related costs to enable growth initiatives, including an increase in share-based compensation expense of $48.2 million;

• an increase of $101.0 million in Cash App peer-to-peer processing costs, related peer-to-peer transaction losses, and card issuance costs as a result of increased volumes of activity with our Cash App peer-to-peer service and card issuance;

• an increase in sales and marketing expenses due to the acquisition of Afterpay in the first quarter of 2022.

General and administrative expenses for the year ended December 31, 2022, increased by $704.0 million, or 72%, compared to the year ended December 31, 2021, primarily due to the following:

• an increase of $211.4 million in general and administrative personnel costs for the year ended December 31, 2021, mainly as a result of additions to our customer support, legal, finance and human resource personnel as we continued to add resources and skills to support our long-term growth as our business continues to scale.

• an increase of $482.6 million in general and administrative personnel-related costs, mainly as a result of additions to our customer support, human resources, finance, and legal personnel as we continue to add resources and skills to support our long-term growth.

The increase was also a result of employees added from the acquisition of Afterpay in the first quarter of 2022.

The increase in personnel-related costs includes an increase in share-based compensation expense of $157.9 million for the year ended December 31, 2022;

• the remaining increase was primarily due to an increase in third-party legal and other professional fees, including acquisition-related expenses, software and subscription costs, and other administrative expenses.

Transaction and Loan Losses (in thousands, except for percentages)

Year Ended December 31,

2021 2020 $ Change % Change

Transaction and loan losses $ 187,991 $ 177,670 $ 10,321 6 %

Transaction and loan losses for the year ended December 31, 2021, increased by $10.3 million, or 6%, compared to the year ended December 31, 2020, primarily due to the following:

• transaction losses increased by $30.2 m illion for the year ended December 31, 2021 due to growth in our Cash App business.

The increase in the year ended December 31, 2021 was due to increased transaction volumes associated with Cash Card in the year ended December 31, 2021.

This increase was offset by lower Square risk loss provisions recorded as businesses recovered as a result of regional re-openings and broader macro economic recovery, reducing the risk of chargebacks related to uncollectibility.

Overall, we recorded higher risk loss provisions for our Square business in the prior year due to the expected impact of COVID-19;

• a decrease of $19.9 million in loan losses for the year ended December 31, 2021 primarily due to higher incremental provisions for loan losses associated with the COVID-19 pandemic recorded during the year ended December 31, 2020.

Bitcoin Impairment Losses (in thousands, except for percentages)

Year Ended December 31,

2021 2020 $ Change % Change

Bitcoin impairment losses $ 71,126 $ — $ 71,126 NM

Bitcoin impairment losses of $71.1 million were recorded in the year ended December 31, 2021 due to the market price of bitcoin decreasing below the carrying value of our bitcoin investment during the period.

As of December 31, 2021, the fair value of our investment in bitcoin was $371.0 million based on observable market prices, which is $222.1 million in excess of the carrying value of our investment of $149.0 million.

Any unrealized gains on our bitcoin investment will only be recognized upon the sale of such bitcoin investment.

• acquisition related integration and other expenses related to Afterpay of $67.3 million for the year ended December 31, 2022, as well as a $66.3 million one-time charge related to the acceleration of various share-based arrangements associated with the Afterpay acquisition during the three months ended March 31, 2022, which was in addition to ongoing share-based compensation expense for Afterpay employees;

• an increase in software, subscription costs and other professional fees, and other administrative expenses.

Transaction, loan, and consumer receivable losses for the year ended December 31, 2022, increased by $362.7 million, or 193%, compared to the year ended December 31, 2021, primarily due to the following:

• an increase in the allowance for credit losses related to consumer receivables of $197.6 million from the date of the acquisition of Afterpay through December 31, 2022;

• an increase in transaction losses compared to the year ended December 31, 2021 of $87.0 million, primarily due to growth in Square GPV;

• an increase in loan losses compared to the year ended December 31, 2021 of $78.1 million, primarily due to increased loan volumes.

We recorded impairment charges on our investment in bitcoin of $46.6 million in the year ended December 31, 2022 due to the observed market price of bitcoin decreasing below the carrying value of our investment during the period.

As of December 31, 2022, the cumulative impairment charges to date were $117.7 million and the fair value of our investment in bitcoin was $132.7 million based on observable market prices, which was $30.4 million in excess of the carrying value of $102.3 million after cumulative impairment charges.

Under the current accounting guidance, any unrealized gains on our investment in bitcoin will only be recognized in the financial statements when realized upon the sale of such bitcoin investment.

Amortization of customer and other acquired intangible assets increased $123.0 million for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to increased amortization expense of $121.8 million as a result of the intangible assets from the Afterpay acquisition.

Refer to Note 11, Acquired Intangible Assets within Notes to the Consolidated Financial Statements for more details.

Interest Expense, net, and Other Expense (Income), net (in thousands, except for percentages)

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Interest expense, net $ 36,228 $ 33,124 $ 3,104 9 %

Other expense (income), net (29,474) (291,725) 262,251 NM

Interest expense, net, for the year ended December 31, 2021 decreased by $23.8 million compared to the year ended December 31, 2020.

The decrease was primarily due to lower non-cash interest expense related to our convertible notes as a result of the adoption of ASU No.

2020-06 on January 1, 2021.

Under ASU No.

2020-06, convertible notes will no longer be separated into a debt and equity component, thereby eliminating the discount associated with the equity component and the interest expense associated with such discount.

This was offset in part by increases in cash interest expense related to the issuance of the 2031 Senior Notes and 2026 Senior Notes issued in May 2021.

Refer to Note 13, Indebtedness , of Notes to the Consolidated Financial Statements for further details.

Other expense (income), net is primarily driven by the amounts of gains or losses arising from the revaluation of our equity investments, amortization of investments in marketable debt securities, and foreign exchange losses.

In December 2020, upon DoorDash's initial public offering, the preferred shares held by the Company converted into common shares of DoorDash.

As of December 31, 2020, the Company revalued this investment and recorded a gain of $276.3 million in the year ended December 31, 2020.

Additionally, in the fourth quarter of 2020, we recorded a gain on investment in a privately held entity of $19.0 million based on observable prices for similar equity instruments issued by the same entity.

During the year ended December 31, 2021, we recorded a net gain related to the investment in DoorDash of $44.4 million, partially offset by $14.9 million of investment amortization.

In June 2021, we completed the sale of our remaining investment in DoorDash, which will have no further impact on our results in future periods.

Other income, net (95,443) (29,474) (65,969) NM (i)

(i) Not meaningful ("NM")

Interest expense, net, for the year ended December 31, 2022 increased by $3.1 million, or 9%, compared to the year ended December 31, 2021.

This increase was primarily due to interest expense related to our 2026 Senior Notes and 2031 Senior Notes, which were issued in May 2021.

Refer to Note 15, Indebtedness within Notes to the Consolidated Financial Statements for further details.

Other income, net for the year ended December 31, 2022 was primarily comprised of unrealized gains of $96.1 million arising from the revaluation of certain equity investments.

Other income, net for the year ended December 31, 2021 was primarily comprised of a $44.4 million mark to market net gain of our equity investment in DoorDash, arising from the revaluation of this investment.

We completed the sale of our investment in DoorDash in June 2021, and as a result this investment did not impact our results in subsequent periods.

Segment Results

The Company has two reportable segments, Square and Cash App.

The results of Afterpay have been equally allocated to the Square and Cash App segments as management has determined that our BNPL platform will contribute equally to both the Square and Cash App platforms.

Refer to Note 21, Segment and Geographical Information within Notes to the Consolidated Financial Statements for more details.

Square Results

The following tables provide a summary of the revenue and gross profit for our Square segment for the year ended December 31, 2021 and 2020 (in thousands):

The following tables provide a summary of the revenue and gross profit for our Square segment for the year ended December 31, 2022 and 2021 (in thousands, except for percentages):

Year Ended December 31,

2022 2021 $ Change % Change

Net revenue $ 5,193,348 $ 3,529,192 $ 1,664,156 47 %

Cost of revenue 2,876,677 2,021,361 855,316 42 %

Gross profit $ 2,316,671 $ 1,507,831 $ 808,840 54 %

Revenue for the Square segment for the year ended December 31, 2021 increased by $1.7 billion compared to the year ended December 31, 2020.

The increase was primarily due to the growth in GPV attributable to increased consumer spending driven in part by a broader macro economic recovery, shelter-in-place orders being lifted, regional re-openings and resumed in-person activity at sellers.

Additionally, government disbursements related to stimulus programs enacted through 2021 led to an increase in both card-present volumes and higher-priced card-not-present transactions.

Cost of revenue

Segment net revenue $ 6,699,830 $ 5,193,348 $ 1,506,482 29 %

Segment cost of revenue 3,698,852 2,876,677 822,175 29 %

Segment gross profit $ 3,000,978 $ 2,316,671 $ 684,307 30 %

Segment Net Revenue

Net revenue for the Square segment for the year ended December 31, 2022 increased by $1.5 billion compared to the year ended December 31, 2021.

The increase was primarily due to:

• growth in Square GPV and continued improvements in both card-present volumes and growth in higher-priced card-not-present transactions;

• an increase in subscription and services-based revenue, which was primarily due to the growth in seller banking products, including the increased origination volumes of Square Loans, as well as software subscriptions;

• revenue generated from our BNPL platform following the acquisition of Afterpay.

Segment Cost of Revenue

Cost of revenue for the Square segment for the year ended December 31, 2022 increased by $822.2 million compared to the year ended December 31, 2021.

The increase was primarily due to growth in GPV and an increase in both card-present volumes and higher-priced card-not-present transactions, offset by a higher overall percentage of debit card transactions, which have a lower cost per transaction.

The increase was primarily due to an increase in Square GPV, as well as an increase in credit card transactions that have a higher cost per transaction than debit card transactions.

Cash App Results

The following tables provide a summary of the revenue and gross profit for our Cash App segment for the year ended December 31, 2021 and 2020 (in thousands):

The following tables provide a summary of the revenue and gross profit for our Cash App segment for the year ended December 31, 2022 and 2021 (in thousands, except for percentages):

Year Ended December 31,

2022 2021 $ Change % Change

Net revenue $ 12,315,499 $ 5,968,386 $ 6,347,113 106 %

Cost of revenue 10,244,652 4,742,808 5,501,844 116 %

Gross profit $ 2,070,847 $ 1,225,578 $ 845,269 69 %

Revenue for the Cash App segment for the year ended December 31, 2021 increased by $6.3 billion compared to the year ended December 31, 2020.

The primary drivers were growth in bitcoin revenue, and to a lesser extent, Cash App Instant Deposit, Cash Card, and Cash for Business.

Bitcoin revenue increased due to the market price of bitcoin and growth in the number of active bitcoin customers.

Excluding bitcoin revenue, Cash App revenue increased $906.0 million or 65% compared to the year ended December 31, 2020 due to the growth in numbers of active Cash App customers, increase in the number of business accounts, broader macroeconomic recovery, and from government stimulus and relief programs in place in 2021.

These relief programs provided government aid and unemployment benefits which resulted in an increase in consumer spending and inflows into our Cash App ecosystem.

Cash App revenue growth may not be sustained at the same levels in future periods and may be impacted by the enactment of further stimulus relief and benefit programs, as well as the demand and market prices for bitcoin, amongst other factors.

Cost of revenue

Cost of revenue for the Cash App segment for the year ended December 31, 2021 increased by $5.5 billion compared to the year ended December 31, 2020.

The primary drivers for the increase were growth in bitcoin revenue and the associated costs of such bitcoin revenue, as discussed above.

Excluding bitcoin cost of revenue, Cash App cost of revenue increased $181.4 million or 68% due to the growth in Cash Card, Cash App Instant Deposit, and Cash for Business.

Comparison of Years Ended December 31, 2020 and 2019

For a discussion of the 2020 Results of Operations, including a discussion of the financial results for the fiscal year ended December 31, 2020 compared to the fiscal year ended December 31, 2019, refer to Part I, Item 7 of our Form 10-K filed with the SEC on February 23, 2021.

Segment net revenue $ 10,626,111 $ 12,315,499 $ (1,689,388) (14) %

Segment cost of revenue 7,675,144 10,244,652 (2,569,508) (25) %

Segment gross profit $ 2,950,967 $ 2,070,847 $ 880,120 43 %

Segment Net Revenue

Net revenue for the Cash App segment for the year ended December 31, 2022 decreased by $1.7 billion compared to the year ended December 31, 2021.

The primary driver was a decrease in bitcoin revenue, partially offset by growth in Cash App Instant Deposit, Cash App Card, and peer-to-peer transactions received by Cash App Business accounts.

The decrease in bitcoin revenue was driven by a decline in the market price of bitcoin as compared to prior year.

While bitcoin revenue contributed 67% and 81% of Cash App net revenue in 2022 and 2021, respectively, gross profit generated from bitcoin was only 5% and 11% of Cash App gross profit in 2022 and 2021, respectively.

Excluding bitcoin revenue, Cash App net revenue increased $1.2 billion, or 53%, compared to the year ended December 31, 2021, primarily due to growth in the number of active Cash App accounts, an increase in transaction fees related to Cash App Card and Instant Deposit, and revenue generated from our BNPL platform following the acquisition of Afterpay.

Segment Cost of Revenue

Cost of revenue for the Cash App segment for the year ended December 31, 2022 decreased by $2.6 billion compared to the year ended December 31, 2021.

The primary driver for the decrease was a decline in bitcoin revenue as well as the associated costs of such bitcoin revenue, as discussed above.

Excluding bitcoin cost of revenue, Cash App cost of revenue increased $268.8 million, or 60%, due to the growth in Cash App Card, Cash App Instant Deposit, and Cash for Business.

Key Operating Metrics and Non-GAAP Financial Measures

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2022 2021 2020 2019 2018

( in thousands, except for GPV and per share data)

Gross Payment Volume (GPV) (in millions) $ 203,536 $ 167,720 $ 112,295 $ 106,239 $ 84,654

Adjusted EBITDA $ 1,013,657 $ 474,071 $ 416,853 $ 256,523 $ 139,009

Adjusted EBITDA (in thousands) $ 990,964 $ 1,013,657 $ 474,071 $ 416,853 $ 256,523

Adjusted Net Income Per Share:

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Gross Payment Volume ("GPV")

We define GPV as the total dollar amount of all card payments processed by sellers using Square, net of refunds, and ACH transfers.

Additionally, GPV includes Cash App Business GPV, which is comprised of Cash App activity related to peer-to-peer transactions received by business accounts, and peer-to-peer payments sent from a credit card.

GPV includes Square GPV and Cash App Business GPV.

Square GPV is defined as the total dollar amount of all card payments processed by sellers using Square, net of refunds, and ACH transfers.

Cash App Business GPV is comprised of Cash App activity related to peer-to-peer transactions received by business accounts, Cash App Pay transactions, and peer-to-peer payments sent from a credit card.

GPV does not include transactions from our BNPL platform because GPV is related only to transaction-based revenue and not to subscription and services-based revenue.

Adjusted EBITDA and Adjusted Net Income (Loss) Per Share ("Adjusted EPS")

Adjusted EBITDA and Adjusted EPS are non-GAAP financial measures that represent our net income (loss) and net income (loss) per share, adjusted to eliminate the effect of items as described below.

We have included these non-GAAP financial measures in this Annual Report on Form 10-K because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources.

We have included these non-GAAP financial measures in this Form 10-K because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources.

Accordingly, we believe these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain non-cash items and certain variable charges.

In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain non-cash items and certain variable charges that do not vary with our operations.

• We believe it is useful to exclude certain non-cash charges, such as amortization of intangible assets, and share-based compensation expenses, from our non-GAAP financial measures because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

• In connection with the issuance of our convertible senior notes (as described in Note 13, Indebtedness, of the notes of the Consolidated Financial Statements), prior to the adoption of ASU No.

2020-06 on January 1, 2021, we were required to recognize non-cash interest expense related to amortization of debt discount and issuance costs.

• In connection with the issuance of our convertible senior notes (as described in Note 15, Indebtedness within Notes to the Consolidated Financial Statements), prior to the adoption of ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06") on January 1, 2021, we were required to recognize non-cash interest expense related to amortization of debt discount and issuance costs.

Subsequent to adoption, we only recognize non-cash interest expense related to amortization of debt issuance costs on convertible notes and unsecured notes.

We believe that excluding these expenses from our non-GAAP measures is useful to investors because such incremental non-cash interest expense does not represent a current or future cash outflow for the Company and is therefore not indicative of our continuing operations or meaningful when comparing current results to past results.

Additionally, for purposes of calculating diluted Adjusted EPS we add back cash interest expense on convertible senior notes, as if converted at the beginning of the period, if the impact is dilutive.

• We exclude gain or loss on the disposal of property and equipment, gain or loss on revaluation of equity investments, bitcoin impairment losses, and prior to the adoption of ASU No.

2020-06 on January 1, 2021, gain or loss on debt extinguishment related to the conversion of convertible notes, as applicable, from non-GAAP financial measures because we do not believe that these items are reflective of our ongoing business operations.

• We also exclude certain transaction and integration costs associated with business combinations, and various other costs that are not normal operating expenses.

Transaction costs include amounts paid to redeem acquirees’ unvested

share-based compensation awards, and legal, accounting, valuation and due diligence costs.

We believe that excluding this expense from our non-GAAP measures is useful to investors because such incremental non-cash interest expense does not represent a current or future cash outflow for the Company and is therefore not indicative of our continuing operations or meaningful when comparing current results to past results.

Additionally, for purposes of calculating diluted Adjusted EPS we add back cash interest expense on convertible notes, as if converted at the beginning of the period, if the impact is dilutive.

• We exclude the following from non-GAAP financial measures because we do not believe that these items are reflective of our ongoing business operations:

gain or loss on the disposal of property and equipment;

gain or loss on revaluation of equity investments;

bitcoin impairment losses on our investment in bitcoin, as applicable;

and prior to the adoption of ASU 2020-06 on January 1, 2021, gain or loss on debt extinguishment related to the conversion of convertible notes, as applicable.

• To aid in comparability of our results across periods and with peer companies that may not have similar expenses, we also exclude certain acquisition related and integration costs associated with business combinations, and various other costs that are not normal operating expenses.

Acquisition related costs include amounts paid to redeem acquirees’ unvested share-based compensation awards, and legal, accounting, valuation, and due diligence costs.

Integration costs include advisory and other professional services or consulting fees necessary to integrate acquired businesses.

Other costs that are not reflective of our core business operating expenses m ay include contingent losses, litigation and regulatory charges.

Other costs that are not reflective of our core business operating expenses may include contingent losses, certain litigation and regulatory charges.

We also add back the impact of the acquired deferred revenue and deferred cost adjustment, which was written down to fair value in purchase accounting.

In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure also excludes depreciation, other cash interest income and expense, other income and expense and provision or benefit from income taxes, as these items are not components of our core business operations.

In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure also excludes depreciation and amortization, other cash interest income and expense, and other income and expense.

Beginning in the first quarter of 2022, we have included the tax impact of the non-GAAP adjustments in determining Adjusted EPS.

We determine the adjusted provision (benefit) for income taxes by calculating the estimated annual effective tax rate based on adjusted pre-tax income and applying it to Adjusted Net Income before income taxes.

The prior period Adjusted EPS presentation has also been revised to conform with our new calculation and presentation.

Non-GAAP financial measures have limitations, should be considered as supplemental in nature, and are not meant as a substitute for the related financial information prepared in accordance with GAAP.

3 unchanged sentences

• non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs.

In addition to the limitations above, Adjusted EBITDA as a non-GAAP financial measure does not reflect the effect of depreciation expense and related cash capital requirements, income taxes that may represent a reduction in cash available to us, and the effect of foreign currency exchange gains or losses, which is included in other income and expense.

In addition to the limitations above, Adjusted EBITDA as a non-GAAP financial measure does not reflect the effect of depreciation and amortization expense and related cash capital requirements, income taxes that may represent a reduction in cash available to us, and the effect of foreign currency exchange gains or losses, which is included in other income and expense.

Other companies, including companies in our industry, may calculate the non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.

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Acquired deferred cost adjustment (152) (230) (375) (1,369) (2,042)

Tax effect of non-GAAP net income adjustments (264,523) (222,104) (102,383) (85,372) (34,371)

Adjusted Net Income - basic $ 608,102 $ 669,362 $ 317,968 $ 297,792 $ 189,996

Cash interest expense on convertible senior notes 6,099 6,078 5,108 1,292 —

Cash interest expense on convertible notes 5,014 6,099 6,078 5,108 1,292

Adjusted Net Income - diluted $ 613,116 $ 675,461 $ 324,046 $ 302,900 $ 191,288

Adjusted Net Income Per Share:

Weighted-average shares used to compute Adjusted Net Income Per Share:

Basic 578,949 458,432 443,126 424,999 405,731

Diluted 615,034 525,725 507,229 486,381 478,895

Weighted-average shares used to compute Adjusted Net Income Per Share:

Adjusted Net Income Per Share:

Basic $ 1.05 $ 1.46 $ 0.72 $ 0.70 $ 0.47

Diluted $ 1.00 $ 1.28 $ 0.64 $ 0.62 $ 0.40

To calculate the diluted Adjusted EPS we adjust the weighted-average number of shares of common stock outstanding for the dilutive effect of all potential shares of common stock.

In periods when we recorded an Adjusted Net Loss, the diluted Adjusted EPS is the same as basic Adjusted EPS because the effects of potentially dilutive items were anti-dilutive given the Adjusted Net Loss position.

Diluted Adjusted Net Income Per Share is computed by dividing Adjusted Net Income by the weighted-average number of shares of common stock outstanding adjusted for the dilutive effect of all potential shares of common stock.

In periods when we reported an Adjusted Net Loss, diluted Adjusted Net Income Per Share is the same as basic Adjusted Net Income Per Share because the effects of potentially dilutive items were anti-dilutive.

The following table presents a reconciliation of the tax effect of non-GAAP net income adjustments to our provision (benefit) for income taxes (in thousands, except effective tax rate):

Year Ended December 31,

2022 2021 2020 2019 2018

Provision (benefit) for income taxes, as reported $ (12,312) $ (1,364) $ 2,862 $ 2,767 $ 2,326

Tax effect of non-GAAP net income adjustments 264,523 222,104 102,383 85,372 34,371

Adjusted provision for income taxes, non-GAAP $ 252,211 $ 220,740 $ 105,245 $ 88,139 $ 36,697

Non-GAAP effective tax rate 29% 25% 25% 23% 16%

We determined the adjusted provision for income taxes by calculating the estimated annual effective tax rate based on adjusted pre-tax income and applying it to Adjusted Net Income before income taxes.

Liquidity and Capital Resources

We continued to experience improvements in our business as the majority of U.S.

markets transitioned to varying states of economic recovery and reopenings.

Although our outlook and business results continue to be positive, the extent to which the COVID-19 pandemic will further impact our results of operations, financial condition and cash flows in the future is unknown.

We continue to evaluate our investment plans and discretionary expenditures and will make adjustments accordingly.

As of December 31, 2021, we had approximately $7.4 billion in available funds, including an undrawn amount of $500.0 million available under our revolving credit facility, as described in Note 13, Indebtedness , of Notes to the Consolidated Financial Statements.

On February 23, 2022, we entered into an amendment to our revolving credit facility to increase the commitments under the facility to $600 million, as described in Part II, Item 9B, Other Information.

As of December 31, 2022, we had approximately $7.5 billion in available funds, including an undrawn amount of $600.0 million available under our revolving credit facility.

Additionally, we had $389.4 million available under our warehouse funding facilities.

We intend to continue focusing on our long-term business initiatives and believe that our available funds are sufficient to meet our liquidity needs for the foreseeable future.

We are carefully monitoring and managing our cash position in light of ongoing conditions and levels of operations.

As of December 31, 2021, we were in compliance with all financial covenants associated with the 2020 Credit Facility and Senior Notes.

As of December 31, 2022, we were in compliance with all covenants associated with our revolving credit facility and senior notes.

None of our warehouse funding facilities contain financial covenants.

The following table summarizes our cash, cash equivalents, restricted cash, customer funds, and investments in marketable debt securities (in thousands):

Liquidity and Capital Sources

Year Ended December 31,

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Excluding customer funds, our total liquidity as of December 31, 2022 was $6.9 billion .

From time to time, we have raised capital by issuing equity, equity-linked, or debt securities such as our convertible notes and senior notes.

We purchased $50.0 million and $170.0 million in bitcoin in October 2020 and February 2021, respectively, as we believe cryptocurrency is an instrument of economic empowerment that aligns with our corporate purpose.

As of December 31, 2022, we have purchased a cumulative $220.0 million in bitcoin for investment purposes.

We believe cryptocurrency is an instrument of economic empowerment that aligns with our corporate purpose.

We expect to hold these investments for the long term but will continue to reassess our investment in bitcoin relative to our balance sheet.

As bitcoin is considered an indefinite lived intangible asset, under the accounting policy for such assets we will be required to recognize any decreases in market prices below carrying value as an impairment charge, with any mark up in value prohibited if the market price of bitcoin subsequently increases.

As bitcoin is considered an indefinite-lived intangible asset, under the accounting policy for such assets, we are required to recognize any decreases in market prices below carrying value as an impairment charge, with any mark up in value or reversal of impairment prohibited if the market price of bitcoin subsequently increases.

We recorded impairment charges of $46.6 million in the year ended December 31, 2022 due to the observed market price of bitcoin decreasing below the carrying value during the period.

As of December 31, 2021, the fair value of the investment in bitcoin was $371.0 million based on observable market prices which is $222.1 million in excess of the Company's carrying value of $149.0 million.

As of December 31, 2022, the fair value of the investment in bitcoin was $132.7 million based on observable market prices, which is $30.4 million in excess of our carrying value of $102.3 million after cumulative impairment charges.

In September 2020, we announced our intent to invest $100.0 million in supporting underserved communities, particularly, racial and ethnic minority groups who have been disproportionately affected by COVID-19.

This initiative further deepens our commitment toward economic empowerment to help broaden such communities' access to financial services.

As of December 31, 2021 , we have invested $21.9 million in aggregate towards this initiative, of which $21.5 million and $0.4 million w ere invested in the years ended December 31, 2021 and 2020, respectively.

Our principal commitments consist of convertible senior notes, liquidity facility, revolving credit facility, operating leases, capital leases, and purchase commitments.

As of December 31, 2021, we held $2.6 billion in aggregate principal amount of long-term debt, comprised of $0.5 million in aggregate principal amount of outstanding convertible senior notes that mature on March 1, 2022 ("2022 Convertible Notes"), $460.6 million in aggregate principal amount of convertible senior notes that mature on May 15, 2023 ("2023 Convertible Notes"), $1.0 billion in aggregate amount of convertible senior notes that mature on March 1, 2025 ("2025 Convertible Notes"), $575.0 million in aggregate amount of convertible senior notes that mature on May 1, 2026 ("2026 Convertible Notes"), and $575.0 million in aggregate amount of convertible senior notes that mature on November 1, 2027 ("2027 Convertible Notes," and together with the 2022 Convertible Notes, 2023 Convertible Notes, 2025 Convertible Notes, and 2026 Convertible Notes, the “Convertible Notes”).

As of December 31, 2022, we have invested $32.0 million in aggregate towards this initiative, of which $10.1 million and $21.5 million were invested in the years ended December 31, 2022 and 2021, respectively.

Our principal commitments consist of convertible notes, senior notes, revolving credit facility, warehouse funding facilities, operating leases, and purchase commitments.

Refer to Note 15, Indebtedness and Note 20, Commitments and Contingencies within Notes to the Consolidated Financial Statements for more details on these commitments.

Senior Notes and Convertible Notes

As of December 31, 2022, we held $4.6 billion in aggregate principal amount of debt, comprised of $460.6 million in aggregate principal amount of convertible senior notes that mature on May 15, 2023 ("2023 Convertible Notes"), $1.0 billion in aggregate amount of convertible senior notes that mature on March 1, 2025 ("2025 Convertible Notes"), $575.0 million in aggregate amount of convertible senior notes that mature on May 1, 2026 ("2026 Convertible Notes"), and $575.0 million in aggregate amount of convertible senior notes that mature on November 1, 2027 ("2027 Convertible Notes," and together with the 2023 Convertible Notes, 2025 Convertible Notes, and 2026 Convertible Notes, the “Convertible Notes”).

Additionally, on May 20, 2021, we issued $1.0 billion in aggregate principal amount of outstanding senior unsecured notes that mature on June 1, 2026 ("2026 Senior Notes") and $1.0 billion in aggregate principal amount of outstanding senior unsecured notes that mature on June 1, 2031 ("2031 Senior Notes" and, together with the 2026 Senior Notes, the “Senior Notes” and, together with the Convertible Notes, the “Notes”).

The 2022 Convertible Notes bear interest at a rate of 0.375% payable semi-annually on March 1 and September 1 of each year, while the 2023 Convertible Notes bear interest at a rate of 0.50% payable semi-annually on May 15 and November 15 of each year, and the 2025 Convertible Notes bear interest at a rate of 0.125% payable semi-annually on March 1 and September 1 of each year.

The 2026 Convertible Notes bear no interest, whereas, the 2027 Convertible Notes bear interest at a rate of 0.25% payable semi-annually on May 1 and November 1 of each year.

The 2023 Convertible Notes bear interest at a rate of 0.50% payable semi-annually on May 15 and November 15 of each year, the 2025 Convertible Notes bear interest at a rate of 0.125% payable semi-annually on March 1 and September 1 of each year, the 2026 Convertible Notes bear no interest, and the 2027 Convertible Notes bear interest at a rate of 0.25% payable semi-annually on May 1 and November 1 of each year.

These Convertible Notes can be converted or repurchased prior to maturity if certain conditions are met.

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These Senior Notes can be redeemed or repurchased prior to maturity if certain conditions are met.

In June 2020, we entered into the Paycheck Protection Program Liquidity Facility ("PPPLF") agreement with the Federal Reserve Bank of San Francisco ("First PPPLF Agreement") to secure additional credit collateralized by PPP loans.

The advances under this facility are repayable if the associated PPP loans are forgiven, repaid by a customer or settled by the government guarantee.

On January 29, 2021, we entered into a second PPPLF agreement with the Federal Reserve Bank of San Francisco ("Second PPPLF Agreement") to secure additional credit, collateralized by loans from the second round of the PPP program, in an aggregate principal amount of up to $1.0 billion under both PPPLF Agreements.

The maturity date of any PPPLF advances is the maturity date of the PPP loan pledged to secure the advance, and will be accelerated upon the occurrence of certain events of default.

Although loans originated under the PPP have a stated maturity of between two and five years from origination, some of the loans may be forgiven 24 weeks after disbursement if they meet certain specified criteria.

The PPPLF advances are repayable if the associated PPP loan is forgiven, repaid by the customer, or settled by the government guarantee.

As of December 31, 2021, $497.5 million of PPPLF advances were outstanding and are, generally, collateralized by the same value of PPP loans.

Any differences between the amounts are generally due to the timing of PPP loan repayment or forgiveness, and repayment of PPPLF advances.

In May 2020, we entered into a revolving credit agreement with certain lenders, as subsequently amended, which provides a $500 million senior unsecured revolving credit facility (the "2020 Credit Facility") maturing in May 2023.

Loans under the 2020 Credit Facility bear interest at our option of (i) a base rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and the adjusted LIBOR rate plus 1.00%, in each case, plus a margin ranging from 0.25% to 0.75% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.25% to 1.75%.

On January 31, 2022, we closed the acquisition of Afterpay and assumed Afterpay's outstanding convertible notes of $1.1 billion, which we redeemed in cash on March 4, 2022 at face value.

Refer to Note 9, Acquisitions within Notes to the Consolidated Financial Statements for further details.

Revolving Credit Facility

We have entered into a revolving credit agreement with certain lenders, as subsequently amended, which provides a $500.0 million senior unsecured revolving credit facility (the "2020 Credit Facility") maturing in May 2024.

On February 23, 2022, the Company entered into a sixth amendment to the Credit Agreement to, among other things, provide for a new tranche of unsecured revolving loan commitments in an aggregate principal amount of up to $100.0 million (the "Tranche B Loans").

Loans under the 2020 Credit Facility, excluding the Tranche B Loans, bear interest at our option of (i) a base rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and the adjusted LIBOR rate plus 1.00%, in each case, plus a margin ranging from 0.25% to 0.75% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.25% to 1.75%.

The margin is determined based on our total net leverage ratio, as defined in the agreement.

The Tranche B Loans bear interest at the Company's option of (i) an annual rate based on the forward-looking term rate based on the Secured Overnight Financing Rate ("Term SOFR") or (ii) a base rate.

Tranche B Loans based on Term SOFR shall bear interest at a rate equal to Term SOFR plus a margin of between 1.25% and 1.75%, depending on the Company's total net leverage ratio.

Tranche B Loans based on the base rate shall bear interest at a rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and Term SOFR with a tenor of one-month plus 1.00%, in each case, plus a margin ranging from 0.25% to 0.75%, depending on the Company's total net leverage ratio.

We are obligated to pay other customary fees for a credit facility of this size and type including an unused commitment fee of 0.15%.

To date, no funds have been drawn and no letters of credit have been issued under the 2020 Credit Facility.

See Note 13, Indebtedness , of the Notes to the Consolidated Financial Statements for more details on these transactions.

Warehouse Funding Facilities

Following the acquisition of Afterpay, we assumed Afterpay's existing warehouse funding facilities ("Warehouse Facilities") with an aggregate commitment amount of $1.7 billion on a revolving basis, of which $1.3 billion was drawn and $0.4 billion remained available as of December 31, 2022.

The Warehouse Facilities have been arranged utilizing wholly-owned and consolidated entities formed for the sole purpose of financing the origination of consumer receivables to partly fund our BNPL platform.

Borrowings under the Warehouse Facilities are secured against the respective consumer receivables.

Cash, Restricted Cash, and Working Capital

We believe that our existing cash and cash equivalents, investment in marketable debt securities, and availability under our line of credit will be sufficient to meet our working capital needs, including any expenditures related to strategic transactions and investment commitments that we may from time to time enter into, and planned capital expenditures for at least the next 12 months.

From time to time, we may seek to raise additional capital through equity, equity-linked, and debt financing arrangements.

We cannot provide assurance that any additional financing will be available to us on acceptable terms or at all.

As of December 31, 2021, we hold a non-investment grade rating by S&P Global Ratings (BB), Fitch Ratings, Inc.

From time to time, we have raised capital by issuing equity, equity-linked, or debt securities such as our convertible notes and senior notes;

and we may do so in the future, however, such funding may not be available on terms acceptable to us or at all.

When we were last rated, in the second half of 2022, we received a non-investment grade rating by S&P Global Ratings (BB), Fitch Ratings, Inc.

(BB), and Moody's Corporation (Ba2).

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We recognized total rental expenses under operating leases of $93.6 million, $80.3 million, and $75.2 million during the years ended December 31, 2022, 2021, and 2020, respectively.

We had non-cancelable purchase obligations to hardware suppliers for $85.7 million for the year ended December 31, 2021.

As of December 31, 2022, we had non-cancelable purchase obligations related to cloud computing infrastructure of $1.3 billion.

We do not have any off-balance sheet arrangements during the periods presented.

Short-term restricted cash of $18.8 million as of December 31, 2021 reflects pledged cash deposited into savings accounts at the financial institutions that process our sellers' payments transactions and as collateral pursuant to agreements with third party originating banks for certain loan products.

We use the restricted cash to secure letters of credit with these financial institutions to provide collateral for liabilities arising from cash flow timing differences in the processing of these payments.

We have recorded this amount as a current asset on our consolidated balance sheets given the short-term nature of these cash flow timing differences and that there is no minimum time frame during which the cash must remain restricted.

Additionally, this balance includes certain amounts held as collateral pursuant to multi-year lease agreements, discussed in the paragraph above, which we expect to become unrestricted within the next year.

Long-term restricted cash of $71.7 million as of December 31, 2021 is primarily related to a reserve deposit to satisfy the capital and liquidity requirements associated with the banking operations of SFS mandated by the FDIC, as well as cash deposited into money market funds that is used as collateral pursuant to multi-year lease agreements.

We have recorded these amounts as non-current assets on the consolidated balance sheets as we are required to establish and maintain the reserve deposit at all times to support the ongoing liquidity obligations of SFS, and due to certain lease terms extending beyond one year.

Short-term restricted cash of $639.8 million as of December 31, 2022 primarily includes cash held by the wholly-owned consolidated entities used in the Warehouse Facilities funding arrangements, that will be used to pay the borrowings under the Warehouse Facilities or will be distributed to us.

It also includes pledged cash deposits in accounts at the financial institutions that process our sellers' payment transactions and collateral pursuant to various agreements with banks relating to our products.

We use restricted cash to secure letters of credit with the related financial institutions to provide collateral for cash flow timing differences in the processing of payments.

We have recorded these amounts as current assets on our consolidated balance sheet given the short-term nature of these cash flow timing differences and that there is no minimum time frame during which the cash must remain restricted.

Long-term restricted cash of $71.6 million as of December 31, 2022 is primarily related to cash held as collateral as required by the FDIC for Square Financial Services.

We have recorded these amounts as non-current assets on our consolidated balance sheet as the requirement by the FDIC specifies a time frame of 12 months or longer during which the cash must remain restricted.

We experience significant day-to-day fluctuations in our cash and cash equivalents due to fluctuations in settlements receivable, and customers payable, and hence working capital.

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Holidays and day-of-week may also cause significant volatility in daily GPV amounts.

Safeguarding Obligation Liability and Safeguarding Asset Related to Bitcoin Held for Other Parties

As detailed in Note 14, Bitcoin Held for Other Parties within Notes to the Consolidated Financial Statements, upon the adoption of SAB 121, we recorded a safeguarding obligation liability and a corresponding safeguarding asset related to the bitcoin held for other parties.

As of December 31, 2022, the safeguarding obligation liability related to bitcoin held for other parties was $428.2 million.

We have taken steps to mitigate the potential risk of loss for the bitcoin held for other parties, including holding insurance coverage specifically for certain bitcoin incidents and using secure cold storage to store materially all of the bitcoin held for other parties.

SAB 121 also asks us to consider the legal ownership of the bitcoin held for other parties, including whether the bitcoin held for other parties would be available to satisfy general creditor claims in the event of Block’s bankruptcy.

The legal rights of people with respect to crypto-assets held on their behalf by a custodian, such as us, upon the custodian’s bankruptcy have not yet been settled by courts and are highly fact dependent.

Our contractual arrangements state that our customers and trading partners retain legal ownership of the bitcoin custodied by us on their behalf;

they have the right to sell, pledge, or transfer the bitcoin;

and they also benefit from the rewards and bear the risks associated with the ownership, including as a result of any bitcoin price fluctuations.

We do not use any of the bitcoin held for other parties as collateral for our loans or any other financing arrangements, nor do we lend or pledge bitcoin held for others to any third parties.

We have been monitoring and will continue to actively monitor legal and regulatory developments and may consider further steps, as appropriate, to support this contractual position so that in the event of Block’s bankruptcy, the bitcoin custodied by us should not be deemed to be part of Block's bankruptcy estate.

We do not expect potential future cash flows associated with the bitcoin safeguarding obligation liability.

Cash Flow Activities

In the fourth quarter of 2021, we adjusted our Consolidated Statement of Cash Flows to include changes in customer funds, cash and cash equivalents associated with Customer payable as a financing activity.

Previously, the changes in customer funds and customer payable were presented within operating activities our Consolidated Statements of Cash Flows.

The adjustment results in the portion of customer funds that is held in cash and cash equivalents, restricted cash and customer

funds being included in the beginning and ending period totals of cash, cash equivalents, restricted cash and customer funds.

Prior period amounts have been adjusted to this presentation.

Please see Note 1 of the Notes to our consolidated financial statements for further details.

The following table summarizes our cash flow activities (in thousands):

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Net cash provided by operating activities $ 175,903 $ 847,830

Net cash used in investing activities (1,310,879) (606,636)

Net cash provided by (used in) investing activities 1,225,696 (1,310,879)

Net cash provided by financing activities 97,580 2,652,034

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Cash Flows from Operating Activities

Cash provided by operating activities consisted of our net income adjusted for certain non-cash items, including gain or loss on revaluation of equity investments, depreciation and amortization, non-cash interest and other expense, share-based compensation expense, transaction and loan losses, bitcoin impairment losses, deferred income taxes, non-cash lease expense, gain on sale of asset group, as well as the effect of changes in operating assets and liabilities, including working capital.

For the year ended December 31, 2022, cash provided by operating activities was $175.9 million, primarily due to net income of $553.0 million, adjusted for the add back of non-cash expenses of $1.4 billion consisting primarily of share-based compensation;

transaction, loan, and consumer receivable losses;

depreciation and amortization;

non-cash interest;

and bitcoin impairment losses.

This was offset by a net outflow from amortization of discounts and premiums and other non-cash adjustments of $592.5 million and changes in other assets and liabilities of $674.4 million due to timing of period end.

For the year ended December 31, 2021, cash provided by operating activities was $847.8 million, primarily due to net income of $158.8 million, adjusted for the add back of non-cash expenses of $1.1 billion consisting primarily of share-based compensation, transaction and loan losses, depreciation and amortization, non-cash interest, bitcoin impairment losses and other expenses.

This was offset by a net outflow from changes in other assets and liabilities of $325.2 million due to timing of period end, as well as PPP loans facilitated, less loans sold, of $56.0 million.

For the year ended December 31, 2020, cash provided by operating activities was $173.1 million, primarily due to a net income of $213.1 million, offset by PPP loans facilitated, less loans sold, of $420.8 million, adjusted for the add back of non-cash expenses of $509.4 million consisting primarily of share-based compensation, transaction and loan losses, depreciation and amortization, and non-cash interest and other expenses.

Whereas the increase in transaction and loan losses was largely caused by estimated losses attributable to the COVID-19 pandemic, the increase in other non-cash expenses was primarily due to the growth and expansion of our business activities.

Additionally, the cash generated from operating activities increased due to a net inflow from changes in other assets and liabilities of $79.9 million due to timing.

Cash Flows from Investing Activities

Cash flows used in investing activities primarily relate to capital expenditures to support our growth, investments in marketable debt securities, investment in privately held entity, and business acquisitions.

For the year ended December 31, 2021, cash used in investing activities was $1.3 billion, primarily due to the net investments of marketable securities including investments from customer funds of $1.2 billion.

Cash flows used in investing activities primarily relate to business acquisitions, consumer receivables, capital expenditures to support our growth, and investments in marketable debt securities.

For the year ended December 31, 2022, cash provided by investing activities was $1.2 billion, primarily due to the net proceeds from investments of marketable securities, including investments from customer funds, of $1.1 billion.

Additional inflows of cash were as a result of business acquisitions, net of cash acquired, of $539.5 million.

These were partially offset by the purchase of property and equipment of $170.8 million, net consumer receivable originations of $169.4 million, and purchases of other investments of $56.7 million.

For the year ended December 31, 2021, cash used in investing activities was $1.3 billion, primarily due to the net proceeds from investments of marketable securities, including investments from customer funds, of $1.2 billion.

Additional uses of cash were as a result of business acquisitions, net of cash acquired of $164.0 million, the purchase of bitcoin investments of $170.0 million, the purchase of property and equipment of $134.3 million, and purchases of other investments of $48.5 million.

These were partially offset by proceeds from sales of equity investments of $420.6 million.

For the year ended December 31, 2020, cash provided by investing activities was $606.6 million, primarily due to the net investments of marketable securities including investments from customer funds of $337.7 million.

Additional uses of cash in investing activities were a result of purchases of property and equipment of $138.4 million, business combinations, net of cash acquired of $79.2 million, and other investments of $1.3 million.

Cash Flows from Financing Activities

For the year ended December 31, 2022, cash provided by financing activities was $97.6 million, primarily as a result of net proceeds from warehouse facilities borrowings of $1.2 billion, a change in customer funds of $349.3 million, as well as proceeds from issuances of common stock from the exercise of options and purchases under our employee share purchase plan of $81.8 million.

These were offset by the payment to redeem convertible notes assumed upon the acquisition of Afterpay of $1.1 billion and repayments of the PPPLF advances of $480.7 million.

For the year ended December 31, 2021, cash provided by financing activities was $2.7 billion, primarily as a result of $2.0 billion in net proceeds from the 2031 Senior Notes and 2026 Senior Notes offerings, proceeds from issuances of common stock from the exercise of options and purchases under our employee share purchase plan of $126.7 million, offset by payments for employee tax withholding related to vesting of restricted stock units of $323.0 million.

For the year ended December 31, 2020, cash provided by financing activities was $2.3 billion, primarily as a result of $1.1 billion in net proceeds from the 2026 Convertible Notes and 2027 Convertible Notes offering, $936.5 million in net proceeds from the 2025 Convertible Notes offering, proceeds from the First PPPLF Agreement advances of $464.1 million, proceeds from issuances of common stock from the exercise of options and purchases under the employee stock purchase plan, net of $162.0 million, offset by payments for employee tax withholding related to vesting of restricted stock units of $314.0 million

Critical Accounting Policies and Estimates

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Because these accounting policies require significant judgment, our actual results may differ materially from our estimates.

We believe accounting policies and the assumptions and estimates associated with transaction and loan losses, especially due to uncertainties associated with the COVID-19 pandemic, and business combinations have the greatest potential effect on our consolidated financial statements.

Therefore, we consider these to be our critical accounting policies and estimates.

Transaction Losses

We are exposed to transaction losses due to chargebacks as a result of fraud or uncollectibility of transaction payments.

We estimate accrued transaction losses based on available data as of the reporting date, including expectations of future chargebacks, and historical trends related to loss rates that is continuously adjusted for new information and incorporates, where applicable, reasonable and supportable forecasts about future expectations.

The Company continues to revise its estimates to reflect expected chargebacks from non-delivery of goods and services as well as increased failure rates of its sellers due to the emergence of more transmissible variants of COVID-19.

We believe accounting policies and the assumptions and estimates associated with transaction losses and business combinations could potentially have a material effect on our consolidated financial statements, and therefore are critical accounting policies and estimates.

Business Combinations

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Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

The carrying value of our acquired intangible assets as of December 31, 2022 was $2.0 billion.

Refer to Note 9, Acquisitions and Note 11, Acquired Intangible Assets within Notes to the Consolidated Financial Statements for further details.

Accrued Transaction Losses

We are exposed to credit losses related to transactions processed by sellers that are subsequently subject to chargebacks when we are unable to collect from the sellers primarily due to insolvency, disputes between a seller and their customer, or due to fraudulent transactions.

Generally, we estimate the potential loss rates based on historical experience that is continuously adjusted for new information and incorporates, where applicable, reasonable and supportable forecasts about future expectations.

We also consider other relevant market data in developing such estimates and assumptions.

Accrued transaction losses also include estimated losses on Cash App activity related to peer-to-peer payments sent from a credit card, Cash for Business, and Cash App Card.

As of December 31, 2022, we had accrued $64.5 million related to transaction losses.

Additions to the reserve are reflected in current operating results, while realized losses are offset against the reserve.

These amounts are classified within transaction, loan, and consumer receivable losses on the consolidated statements of operations, except for the amounts associated with the peer-to-peer service offered to Cash App customers for free that are classified within sales and marketing expenses.

Refer to Note 1, Description of Business and Summary of Significant Accounting Policies and Note 12, Other Consolidated Balance Sheet Components (Current) within Notes to the Consolidated Financial Statements for further details.

Allowance for Credit Losses Related to Consumer Receivables

We are exposed to credit losses on our consumer receivables portfolio.

We estimate the expected credit losses in the outstanding portfolio of consumer receivables using both quantitative and qualitative methods that analyze portfolio performance, uses judgment regarding the quantitative components of the reserve, and considers all available information relevant to assessing collectibility.

As of December 31, 2022, we had accrued $151.3 million related to allowance for credit losses.

Refer to Note 1, Description of Business and Summary of Significant Accounting Policies and Note 6, Consumer Receivables, net within Notes to the Consolidated Financial Statements for further details.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” described in Note 1 of the Notes to our consolidated financial statements.

See “Recent Accounting Pronouncements” described in Note 1, Description of Business and Summary of Significant Accounting Policies within Notes to the Consolidated Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis