What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 780 added, 708 removed, 1120 unchanged (57% of the section changed)

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Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Stockholders' Equity

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We have audited the accompanying consolidated balance sheets of Block, Inc.

and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

(the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

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Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The following critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the following critical audit matters, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combinations - Valuation

Description of the Matter As discussed in Notes 1 and 9 to the consolidated financial statements, the Company completed an acquisition of Afterpay Limited during 2022 for consideration of $13.8 billion.

The Company accounted for this acquisition as a business combination.

Auditing the Company’s accounting for the acquisition was complex due to the estimation uncertainty in the Company’s determination of the fair value of acquired identifiable intangible assets, which principally consisted of customer assets, trade names, and technology assets, of $1.4 billion, $386.0 million, and $239.0 million, respectively.

The estimation uncertainty for the acquired intangible assets was primarily due to the underlying assumptions about the future performance of the acquired business, which were utilized in determining the fair value of the acquired intangible assets.

The significant assumptions used by management included discount rates and certain assumptions that form the basis of the forecasted results, including revenue growth rates.

These significant assumptions were forward-looking and could be affected by future economic and market conditions.

Addressed the

Matter in Our

Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for the acquisition.

This included testing controls over the estimation process supporting the recognition and measurement of the intangible assets, and management’s review and evaluation of underlying assumptions and estimates with regards to the determination of the fair value of the intangible assets.

To test the Company’s estimated fair value of the acquired intangible assets, our audit procedures included, among others, reading the underlying agreements, and involving a valuation specialist to assist us in evaluating the Company’s selected valuation methodologies and testing the significant assumptions, including discount rates and revenue growth rates, used in those methodologies.

We compared revenue growth rates against historical trends and to those of guideline public companies and other industry participants.

We also tested the completeness and accuracy of the underlying data supporting the assumptions and estimates.

Accrued Transaction Losses

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The Company’s reserve is estimated based on available data as of the reporting date, including expectations of future chargebacks and historical trends related to loss rates.

Auditing management’s estimate of the reserve for transaction losses was challenging because management’s estimate required a high degree of judgement in evaluating historical trends related to loss rates and expectations of future chargebacks and the need for a qualitative adjustment.

Auditing management’s estimate of the reserve for transaction losses was challenging because management’s estimate required a high degree of judgment in evaluating historical trends related to loss rates and expectations of future chargebacks and the need for a qualitative adjustment.

Addressed the

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We also reviewed subsequent events, which included actual chargebacks, and considered whether they corroborated the Company’s conclusion.

Business combinations

Description of the Matter As discussed in Note 8 to the consolidated financial statements, the Company completed an acquisition of TIDAL during 2021 for consideration of $233.2 million.

The Company accounted for this acquisition as a business combination.

Auditing the Company’s accounting for the acquisition was complex due to the estimation uncertainty in determining the fair value of identifiable intangibles assets, which principally consisted of customer and technology assets and trade name, and liabilities assumed of $141.0 million and $120.5 million, respectively.

The estimation uncertainty for intangible assets was primarily due to the underlying assumptions about the future performance of the acquired business which were utilized in determining the fair value of the acquired business.

The assumptions used by management included forecasted financial results including revenue base, discount rate and growth rates.

These assumptions were forward-looking and could be affected by future economic and market conditions.

The estimation uncertainty for assumed liabilities was primarily due to pre-acquisition contingencies and the indemnification obligations for certain tax and contingency exposures.

Allowance for Credit Losses Related to Consumer Receivables

Description of the Matter The Company’s consumer receivables and the associated allowance for credit losses were $2.0 billion and $151.3 million as of December 31, 2022, respectively.

The provision for credit losses was $203.7 million for the year ended December 31, 2022.

As discussed in Notes 1 and 6 to the consolidated financial statements, the Company has exposure to expected credit losses from consumer receivables, for which an allowance for credit losses is recorded under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The Company estimates the allowance for credit losses related to consumer receivables using both quantitative methods, which consider historical losses and recoveries, recent and historical trends in delinquencies, past-due receivables and charge-offs, and qualitative methods, which consider consumer behavior, current and historical macroeconomic trends, along with other factors.

Auditing management’s estimate of the allowance for credit losses related to consumer receivables was challenging because management’s estimate required a high degree of judgment in evaluating historical trends related to loss rates and an assessment of a need for a qualitative adjustment in the Company’s expected credit loss methodology.

Addressed the

Matter in Our

Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for the acquisition.

This included testing controls over the estimation process supporting the recognition and measurement of the intangible assets and assumed liabilities, and management’s review and evaluation of underlying assumptions and estimates with regards to the fair value of the intangible assets and pre-acquisition contingencies and indemnification obligations.

To test the Company’s estimated fair value of intangible assets, our audit procedures included, among others, reading the underlying agreements, and involving a valuation specialist to assist us in evaluating the Company’s valuation methodology and testing the significant assumptions used in the methodology.

We also compared the revenue base assumptions to guideline public companies and growth rates against guideline public companies and other industry participants.

We also tested the completeness and accuracy of the underlying data supporting the assumptions and estimates.

To test the fair value of pre-acquisition contingencies, our audit procedures included, among others, reading the underlying agreements for indemnifiable obligations and with the support of tax professionals, evaluating the Company’s pre-acquisition contingencies and indemnification obligations for tax exposures and the associated ASC 740 outcomes.

Audit To test the Company’s allowance for credit losses related to consumer receivables, we involved EY specialists in testing management’s methodology and key assumptions.

Our audit procedures included, among others, evaluating the Company’s methodology as well as performing procedures over historical losses incurred by the Company by aging category and testing recoveries.

In addition, we evaluated and tested management’s conclusion for the need for a qualitative adjustment in the Company’s expected credit loss methodology including the examination of current macroeconomic conditions such as changes in unemployment and GDP.

We also reviewed subsequent events, which included actual collections on current and aged receivables as of December 31, 2022, to consider whether they corroborated the Company’s conclusion related to the overall allowance for credit losses related to consumer receivables.

/s/ Ernst & Young LLP

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Opinion on Internal Control Over Financial Reporting

We have audited Block, Inc.

and subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).

We have audited Block, Inc.'s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Block, Inc.

and subsidiaries (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of TIDAL, which is included in the 2021 consolidated financial statements of the Company and constituted less than 2% of total assets as of December 31, 2021 and 1% of total net revenue and 1% of total gross profit for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of TIDAL.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years ended December 31, 2021, and the related notes and our report dated February 24, 2022 expressed an unqualified opinion thereon.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years ended December 31, 2022, and the related notes and our report dated February 23, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Form 10-K.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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Customer funds 3,180,324 2,830,995

Consumer receivables, net 1,871,160 —

Loans held for sale 474,036 517,940

Safeguarding asset related to bitcoin held for other parties 428,243 1,100,596

Other current assets 1,627,265 687,429

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Accrued expenses and other current liabilities 1,056,676 702,881

Operating lease liabilities, current 64,027 52,747

Current portion of long-term debt (Note 15)

Warehouse funding facilities, current 461,240 —

Safeguarding obligation liability related to bitcoin held for other parties 428,243 1,100,596

PPP Liquidity Facility advances 16,840 497,533

Total current liabilities 8,434,516 6,535,700

Long-term debt 4,559,208 2,586,924

Deferred tax liabilities 132,498 15,236

Warehouse funding facilities, non-current 877,066 —

Long-term debt (Note 15)

4,109,829 4,559,208

Operating lease liabilities, non-current 357,419 395,017

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Additional paid-in capital 18,314,681 3,317,255

Accumulated other comprehensive income ( 16,435 ) 23,328

Accumulated other comprehensive loss ( 523,090 ) ( 16,435 )

Accumulated deficit ( 568,712 ) ( 27,965 )

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Total liabilities and stockholders’ equity $ 31,364,340 $ 15,026,360

See accompanying notes to consolidated financial statements.

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

CONSOLIDATED STATEMENTS OF OPERATIONS

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Bitcoin costs 6,956,733 9,794,992 4,474,534

Amortization of acquired technology assets 70,194 22,645 11,174

Total cost of revenue 11,539,695 13,241,380 6,764,169

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General and administrative 1,686,849 982,817 579,203

Transaction and loan losses 187,991 177,670 126,959

Transaction, loan, and consumer receivable losses 550,683 187,991 177,670

Bitcoin impairment losses 46,571 71,126 —

Amortization of customer and other acquired intangible assets 138,758 15,747 3,855

Total operating expenses 6,616,424 4,258,711 2,752,224

Operating income (loss) ( 624,532 ) 161,112 ( 18,815 )

Gain on sale of asset group — — ( 373,445 )

Interest expense, net 36,228 33,124 56,943

Other expense (income), net ( 29,474 ) ( 291,725 ) 273

Income before income tax 157,462 215,967 378,213

Other income, net ( 95,443 ) ( 29,474 ) ( 291,725 )

Income (loss) before income tax ( 565,317 ) 157,462 215,967

Provision (benefit) for income taxes ( 12,312 ) ( 1,364 ) 2,862

Net income 158,826 213,105 375,446

Net income (loss) ( 553,005 ) 158,826 213,105

Net loss attributable to noncontrolling interests ( 12,258 ) ( 7,458 ) —

Net income attributable to common stockholders $ 166,284 $ 213,105 $ 375,446

Net income per share attributable to common stockholders:

Net income (loss) attributable to common stockholders $ ( 540,747 ) $ 166,284 $ 213,105

Net income (loss) per share attributable to common stockholders:

Basic $ ( 0.93 ) $ 0.36 $ 0.48

Diluted $ ( 0.93 ) $ 0.33 $ 0.44

Weighted-average shares used to compute net income per share attributable to common stockholders:

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:

Basic 578,949 458,432 443,126

Diluted 578,949 501,779 482,167

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

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2022 2021 2020

Net income $ 158,826 $ 213,105 $ 375,446

Net income (loss) $ ( 553,005 ) $ 158,826 $ 213,105

Net foreign currency translation adjustments ( 471,166 ) ( 24,667 ) 20,439

Net unrealized gain on revaluation of intercompany loans — — 75

Net unrealized gain (loss) on marketable debt securities ( 35,489 ) ( 15,096 ) 1,260

Total comprehensive income $ 119,063 $ 234,804 $ 383,128

See accompanying notes to consolidated financial statements.

Total comprehensive income (loss) $ ( 1,059,660 ) $ 119,063 $ 234,804

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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Shares issued in connection with employee stock plans 19,013,638 — 161,984 — — — 161,984

Change in other comprehensive loss — — — 7,682 — — 7,682

Issuance of common stock in connection with business combination 607,974 — 35,319 — — — 35,319

Change in other comprehensive income — — — 21,699 — — 21,699

Share-based compensation — — 411,673 — — — 411,673

Tax withholding related to vesting of restricted stock units ( 2,852,127 ) — ( 314,019 ) — — — ( 314,019 )

Conversion feature of convertible notes, net of allocated costs — — 347,059 — — — 347,059

Purchase of bond hedges in conjunction with issuance of convertible notes — — ( 338,145 ) — — — ( 338,145 )

Sale of warrants in conjunction with issuance of convertible notes — — 232,095 — — — 232,095

Issuance of common stock in conjunction with the conversion of convertible notes 8,853,484 — 195,749 — — — 195,749

Exercise of bond hedges in conjunction with the conversion of convertible notes ( 2,234,913 ) — — — — — —

Recovery of common stock in

connection with indemnification settlement agreement ( 20,793 ) — ( 1,069 ) — — — ( 1,069 )

Balance at December 31, 2020 456,184,776 $ — $ 2,955,464 $ 23,328 $ ( 297,223 ) $ — $ 2,681,569

Net income — — — — 213,105 — 213,105

Cumulative adjustment due to adoption of ASU 2020-06 — — ( 502,707 ) — 102,974 — ( 399,733 )

Net income (loss) — — — — 166,284 ( 7,458 ) 158,826

Shares issued in connection with employee stock plans 11,975,907 — 126,829 — — — 126,829

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Tax withholding related to vesting of restricted stock units ( 1,403,146 ) — ( 323,012 ) — — — ( 323,012 )

Conversion feature of convertible senior notes, due 2027, net of allocated costs — — 109,207 — — — 109,207

Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2027 — — ( 104,305 ) — — — ( 104,305 )

Sale of warrants in conjunction with issuance of convertible senior notes, due 2027 — — 68,022 — — — 68,022

Conversion feature of convertible senior notes, due 2026, net of allocated costs — — 85,594 — — — 85,594

Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2026 — — ( 84,640 ) — — — ( 84,640 )

Sale of warrants in conjunction with issuance of convertible senior notes, due 2026 — — 64,573 — — — 64,573

Conversion feature of convertible senior notes, due 2025, net of allocated costs — — 152,258 — — — 152,258

Purchase of bond hedges in conjunction with issuance of convertible senior notes, due 2025 — — ( 149,200 ) — — — ( 149,200 )

Sale of warrants in conjunction with issuance of convertible senior notes, due 2025 — — 99,500 — — — 99,500

Class A and B common stock Additional paid-in Accumulated other comprehensive Accumulated Noncontrolling Total stockholders’

Shares Amount capital income (loss) deficit interests equity

Issuance of common stock in conjunction with the conversion of convertible notes 5,514,727 — 408,879 — — — 408,879

Exercise of bond hedges in conjunction with the conversion of convertible notes ( 7,446,920 ) — — — — — —

Noncontrolling interests in connection with business combination — — — — — 48,192 48,192

Balance at December 31, 2021 464,943,787 $ — $ 3,317,255 $ ( 16,435 ) $ ( 27,965 ) $ 40,734 $ 3,313,589

Cumulative adjustment due to adoption of ASU No.

2020-06 — — ( 502,707 ) — 102,974 — ( 399,733 )

Net income (loss) — — — — 166,284 ( 7,458 ) 158,826

Net loss — — — — ( 540,747 ) ( 12,258 ) ( 553,005 )

Shares issued in connection with employee stock plans 11,824,138 — 81,768 — — — 81,768

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Tax withholding related to vesting of restricted stock units ( 37,629 ) — ( 4,735 ) — — — ( 4,735 )

Class A and B common stock Additional paid-in Accumulated other comprehensive Accumulated Noncontrolling Total stockholders’

Shares Amount capital income (loss) deficit interests equity

Issuance of common stock in conjunction with the conversion of convertible notes 20,055 — 454 — — — 454

Exercise of bond hedges in conjunction with the conversion of convertible notes ( 1,188,734 ) — — — — — —

Noncontrolling interests in connection with business combination — — — — — 48,192 48,192

Issuance of common stock in connection with the exercise of common stock warrants 10,880,573 — — — — — —

Balance at December 31, 2022 600,059,542 $ — $ 18,314,681 $ ( 523,090 ) $ ( 568,712 ) $ 28,476 $ 17,251,355

See accompanying notes to consolidated financial statements.

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Cash flows from operating activities:

Net income $ 158,826 $ 213,105 $ 375,446

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ ( 553,005 ) $ 158,826 $ 213,105

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 340,523 134,757 84,212

Non-cash interest and other 31,104 76,129 33,478

Amortization of discounts and premiums and other non-cash adjustments ( 592,489 ) 31,104 76,129

Loss on extinguishment of long-term debt — — 6,651

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Share-based compensation 1,071,278 608,040 397,800

Gain on sale of asset group — — ( 373,445 )

Loss (gain) on revaluation of equity investments ( 35,492 ) ( 295,297 ) 12,326

Transaction and loan losses 187,991 177,670 126,959

Gains on revaluation of equity investments ( 73,457 ) ( 35,492 ) ( 295,297 )

Transaction, loan, and consumer receivable losses 550,683 187,991 177,670

Bitcoin impairment losses 46,571 71,126 —

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Purchases and originations of loans ( 6,114,847 ) ( 3,227,172 ) ( 1,837,137 )

Sales, principal payments, and forgiveness of loans 3,067,344 1,505,406 2,168,682

Proceeds from payments and forgiveness of loans 6,040,369 3,067,344 1,505,406

Customers payable 1,060,861 171,555 371,598

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Cash flows from investing activities:

Purchase of marketable debt securities ( 2,714,560 ) ( 1,322,362 ) ( 992,583 )

Purchases of marketable debt securities ( 755,697 ) ( 2,714,560 ) ( 1,322,362 )

Proceeds from maturities of marketable debt securities 999,569 831,019 607,134

Proceeds from sale of marketable debt securities 449,723 617,097 585,427

Purchase of marketable debt securities from customer funds ( 488,851 ) ( 642,252 ) ( 311,499 )

Purchases of marketable debt securities from customer funds — ( 488,851 ) ( 642,252 )

Proceeds from maturities of marketable debt securities from customer funds 73,000 505,501 382,887

Proceeds from sale of marketable debt securities from customer funds 316,576 35,071 51,430

Purchase of property and equipment ( 134,320 ) ( 138,402 ) ( 62,498 )

Purchase of bitcoin investments ( 170,000 ) ( 50,000 ) —

Purchase of other investments ( 48,510 ) ( 1,277 ) ( 15,250 )

Payments for originations of consumer receivables ( 18,361,871 ) — —

Proceeds from principal repayments and sales of consumer receivables 18,192,470 — —

Purchases of property and equipment ( 170,815 ) ( 134,320 ) ( 138,402 )

Purchases of bitcoin investments — ( 170,000 ) ( 50,000 )

Purchases of other investments ( 56,712 ) ( 48,510 ) ( 1,277 )

Proceeds from sale of equity investments — 420,644 —

Proceeds from sale of asset group — — 309,324

Business combinations, net of cash acquired 539,453 ( 163,970 ) ( 79,221 )

Net cash provided by (used in) investing activities 1,225,696 ( 1,310,879 ) ( 606,636 )

See accompanying notes to consolidated financial statements.

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

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Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net — 2,116,544 —

Purchase of convertible senior note hedges — ( 338,145 ) —

Proceeds from issuance of convertible notes, net — — 2,116,544

Purchases of senior note hedges — — ( 338,145 )

Proceeds from issuance of warrants — — 232,095

Proceeds from issuance of senior unsecured notes, net 1,971,828 — —

Proceeds from issuance of senior notes, net — 1,971,828 —

Payments to redeem convertible notes ( 1,071,788 ) — —

Proceeds from PPP Liquidity Facility advances — 681,539 464,094

Repayments of PPP Liquidity Facility advances ( 480,694 ) ( 648,100 ) —

Proceeds from warehouse facilities borrowings 1,620,805 — —

Repayments of warehouse facilities borrowings ( 391,463 ) — —

Proceeds from the exercise of stock options and purchases under the employee stock purchase plan 81,768 126,719 161,985

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Net increase in cash, cash equivalents, restricted cash, and customer funds 1,460,816 2,181,919 3,256,204

Cash, cash equivalents, restricted cash and customer funds, beginning of the year 4,793,171 1,536,967 866,902

Cash, cash equivalents, restricted cash and customer funds, end of the year $ 6,975,090 $ 4,793,171 $ 1,536,967

Cash, cash equivalents, restricted cash, and customer funds, beginning of the period 6,975,090 4,793,171 1,536,967

Cash, cash equivalents, restricted cash, and customer funds, end of the period $ 8,435,906 $ 6,975,090 $ 4,793,171

Reconciliation of cash, cash equivalents, restricted cash, and customer funds:

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Total $ 8,435,906 $ 6,975,090 $ 4,793,171

See accompanying notes to consolidated financial statements.

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On December 10, 2021, Square, Inc.

changed its name to Block, Inc.

In conjunction with this name change, the Seller business and reportable segment was renamed “Square”.

(together with its subsidiaries, "Block" or the "Company") creates tools that empower businesses, sellers, and individuals to participate in the economy.

Square enables sellers to accept card payments and also provides reporting and analytics, and next-day settlement.

Block is comprised of two reportable segments, Square and Cash App.

Square is a cohesive commerce ecosystem that helps sellers start, run, and grow their businesses, including enabling sellers to accept card payments, provide reporting and analytics, and facilitate next-day settlement.

Square’s point-of-sale software and other business services help sellers manage inventory, locations, and employees;

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and grow sales.

Cash App is an easy way for people to store, send, receive, spend, and invest money.

On March 1, 2021, Square Financial Services, Inc.

("Square Financial Services"), a wholly-owned subsidiary of the Company, began its banking operations after its industrial loan company charter was approved by the Federal Deposit Insurance Corporation ("FDIC") and the State of Utah.

On April 30, 2021, the Company completed the acquisition of a majority ownership interest in TIDAL, a global music and entertainment platform that brings fans and artists together through unique music, content, and experiences.

In the third quarter of 2021, the Company launched TBD, a bitcoin-focused business established to build an open developer platform with the goal of making it easy to create non-custodial, permissionless, and decentralized financial services.

In 2019, the Company launched Spiral, a team solely focused on contributing to bitcoin open source work.

The results of operations of TBD and Spiral are immaterial.

On January 31, 2022 (February 1, 2022 Australian Eastern Daylight Time), the Company completed the acquisition of Afterpay LTD (“Afterpay”), to strengthen its position to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes.

See Note 8, Acquisitions for further details.

Block was founded in 2009 and has offices in the United States, Canada, Japan, Australia, Ireland, the United Kingdom, Spain, Lithuania, and Norway.

As of 2021, we do not designate a headquarters location as we have adopted a distributed work model.

Cash App is an ecosystem of financial products and services to help consumers manage their money by providing financial tools that allow individuals to store, send, receive, spend, and invest their money.

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

On January 31, 2022, the Company completed the acquisition of Afterpay Limited (“Afterpay”), to strengthen its position to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes.

Refer to Note 9, Acquisitions for further details.

Block was founded in 2009 and has offices globally.

The Company does not designate a headquarters location as it adopted a distributed work model in 2021.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S.

Our consolidated financial statements include the accounts of Block, Inc.

our wholly-owned subsidiaries, and entities for which we control a majority of the entity’s outstanding common stock.

We record non-controlling interest in our consolidated financial statements to recognize the minority ownership interest in our consolidated subsidiaries.

Non-controlling interest in the earnings and losses of consolidated subsidiaries represent the share of net income or loss allocated to the minority interest holders of our consolidated entities, which includes the non-controlling interest share of net income or loss.

We have eliminated significant intercompany transactions and accounts in our consolidated financial statements.

GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC").

The consolidated financial statements include the financial statements of Block and its wholly-owned and majority-owned subsidiaries.

All intercompany transactions and balances have been eliminated in consolidation.

Minority interests are recorded as a noncontrolling interest, which is reported as a component of stockholders' equity on the consolidated balance sheets.

Use of Estimates

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The Company evaluates these estimates on an ongoing basis.

Estimates, judgments, and assumptions in these consolidated financial statements include, but are not limited to, those related to accrued transaction losses, contingencies, valuation of loans held for sale, valuation of goodwill and acquired intangible assets, the determination of allowance for loan loss reserves for loans held for investment, pre-acquisition contingencies associated with business combinations, assessing the likelihood of adverse outcomes from claims and disputes,

accrued royalties, income and other taxes, operating and financing lease right-of-use assets and related liabilities, and share-based compensation.

While the Company's business continues to be impacted by the COVID-19 pandemic, it experienced improvements in 2021 as compared to 2020, as the majority of U.S.

markets transitioned to varying states of economic recovery and reopenings.

However, the emergence of new and more transmissible variants of COVID-19 such as Delta and Omicron has led to a possible resurgence of the virus, particularly in populations with low vaccination rates, and has resulted in new restrictions in certain geographies and among certain businesses.

The Company continues to monitor the carrying values of its assets and liabilities based on estimates, judgments and circumstances it is aware of and consider the effects and trends of COVID-19.

The Company's estimates of accrued transaction losses and valuation of loans held for sale are based on historical experience, adjusted for market data relevant to the current economic environment including COVID-19 trends.

Estimates, judgments, and assumptions in these consolidated financial statements include, but are not limited to, those related to valuation of goodwill and acquired intangible assets, accrued transaction losses, valuation of loans held for sale and investment, determination of allowance for loan loss reserves for loans held for investment, determination of allowance for credit losses for consumer receivables, pre-acquisition contingencies associated with business combinations, allocation of acquired goodwill to reporting units, assessing contingencies including the likelihood of adverse outcomes from claims and disputes, accrued royalties, income and other taxes, operating and financing lease right-of-use assets and related liabilities, and share-based compensation.

The Company's estimates of valuation of loans held for sale and investment, allowance for credit losses associated with consumer receivables, and accrued transaction losses are based on historical experience, adjusted for market data relevant to the current economic environment.

The Company will continue to update its estimates as developments occur and additional information is obtained.

See Note 5, Fair Value of Financial Instruments , for further details on amortized cost over fair value of the loans, and Note 11 Other Consolidated Balance Sheet Components (Current) , for further details on transaction losses.

Cash Flow Adjustment

Beginning in the fourth quarter of 2021, the Company adjusted its Consolidated Statement of Cash Flows to include changes in customer funds, and 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 in the Company's 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 to be included in the beginning and ending period totals of cash, cash equivalents, restricted cash and customer funds.

The Company holds customer funds separate from its corporate funds and does not use customer funds for any corporate purposes.

Prior period amounts have been adjusted to this presentation.

These changes have been concluded to be immaterial to the consolidated financial statements and have no impact on previously reported consolidated statements of operations and balance sheets.

The adjusted presentation shows all changes associated with customer funds in the consolidated statements of cash flows instead of in the notes to the consolidated financial statements.

The following tables present the effects of the changes on the presentation of these cash flows to the previously reported consolidated statements of cash flows:

Year Ended December 31, 2020

Net cash provided by (used in):

As Previously Reported (i)

Adjustments As Adjusted

Operating activities (ii)

$ 381,603 $ ( 208,493 ) $ 173,110

Investing activities ( 606,636 ) — ( 606,636 )

Financing activities (iii)

2,315,195 1,361,540 3,676,735

Effect of foreign exchange rate on cash and cash equivalents 12,995 — 12,995

Net increase in cash, cash equivalents, restricted cash and customer funds 2,103,157 1,153,047 3,256,204

Cash, cash equivalents, restricted cash and customer funds, beginning of the year 1,098,706 438,261 1,536,967

Cash, cash equivalents, restricted cash and customer funds, end of the year $ 3,201,863 $ 1,591,308 $ 4,793,171

___________________

(i) As reported in our 2020 Form 10-K filed with the SEC on February 23, 2021.

(ii) Financial statement lines impacted in operating activities were Customer funds and Customers payable.

(iii) Financial statement line impacted in financing activities was the addition of a new line called Change in customer funds, restricted from use in the Company's operations.

Year Ended December 31, 2019

Net cash provided by (used in):

As Previously Reported (i)

Adjustments As Adjusted

Operating activities (ii)

$ 465,699 $ ( 138,069 ) $ 327,630

Investing activities 95,193 — 95,193

Financing activities (iii)

( 98,874 ) 342,275 243,401

Effect of foreign exchange rate on cash and cash equivalents 3,841 — 3,841

Net increase in cash, cash equivalents, restricted cash and customer funds 465,859 204,206 670,065

Cash, cash equivalents, restricted cash and customer funds, beginning of the year 632,847 234,055 866,902

Cash, cash equivalents, restricted cash and customer funds, end of the year $ 1,098,706 $ 438,261 $ 1,536,967

___________________

(i) As reported in our 2019 Form 10-K filed with the SEC on February 26, 2020.

(ii) Financial statement lines impacted in operating activities were Customer funds and Customers payable.

(iii) Financial statement line impacted in financing activities was the addition of a new line called Change in customer funds, restricted from use in the Company's operations.

Refer to Note 5, Fair Value Measurements for further details on amortized cost over fair value of the loans;

Note 6, Consumer Receivables, net for further details on consumer receivables;

and Note 12, Other Consolidated Balance Sheet Components (Current) for further details on transaction losses.

Reclassification to Statement of Operations

Beginning in the second quarter of 2022, the Company reclassified its consolidated statements of operations to present the amortization of acquired technology assets and amortization of customer and other acquired intangible assets as separate line items.

Previously, these expenses were classified within transaction-based costs and subscription and services-based costs in cost of revenue;

and product development and general and administrative operating expenses, respectively.

Prior period amounts have been revised to reflect these reclassifications to the presentation.

There were no changes to gross profit, total operating expenses, operating income (loss), income (loss) before income tax, or net income (loss) as a result of these reclassifications.

Concentration of Credit Risk

For the years ended December 31, 2022, 2021, and 2020, the Company had no customer that accounted for greater than 10% of total net revenue.

As of December 31, 2022, the Compa ny had two third-party payment processors that represented approximately 54 % and 31 % of settlements receivable.

As of December 31, 2021, these two parties represented approximately 52 % and 30 % of settlements receivable.

In both years, all other third-party processors were insignificant.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable debt securities, settlements receivable, customer funds, consumer receivables, loans held for sale, and loans held for investment.

The associated risk of concentration for cash and cash equivalents and restricted cash is mitigated by banking with creditworthy institutions.

At certain times, amounts on deposit exceed federal deposit insurance limits.

The associated risk of concentration for marketable debt securities is mitigated by holding a diversified portfolio of highly rated investments.

Settlements receivable are amounts due from well-established payment processing companies and normally take one or two business days to settle which mitigates the associated risk of concentration.

The associated risk of concentration for loans and consumer receivables is partially mitigated by credit evaluations that are performed prior to facilitating the offering of loans and receivables and ongoing performance monitoring of the Company’s loan customers.

Significant Accounting Policies

Revenue Recognition

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The Company charges its sellers a transaction fee for managed payments solutions that is generally calculated as a percentage of the total transaction amount processed.

The Company selectively offers custom pricing for certain sellers.

The Company selectively offers custom pricing for certain large sellers.

The Company collects the transaction amount from the seller's customer's bank, net of acquiring interchange and assessment fees, processing fees, and bank settlement fees paid to third-party payment processors and financial institutions.

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Subscription and Services-based Revenue

Subscription and services-based revenue is primarily comprised of revenue the Company generates from Instant Deposit and Cash Card, Square Loans (formerly known as Square Capital), website hosting and domain name registration services, TIDAL, and various other software as a service (SaaS) products.

Subscription and services-based revenue is primarily comprised of revenue the Company generates from Cash App including Instant Deposit and Cash App Card, Square Loans, Afterpay's buy now, pay later ("BNPL") platform, website hosting and domain name registration services, TIDAL, and various other software as a service ("SaaS") products.

Instant Deposit is a functionality within the Cash App and the Company's managed payments solution that enables customers, including individuals and sellers, to instantly deposit funds into their bank accounts.

The Company charges a per transaction fee which is recognized as revenue when customers instantly deposit funds to their bank account.

The Company also offers Cash App customers the ability to use funds stored in the Cash App via a Visa prepaid card (Cash Card), for which the Company earns a per transaction fee that is recorded as revenue.

Beginning in April 2021, the Company started originating loans to customers through Square Financial Services.

Prior to April 2021, the Company facilitated loans to customers through a partnership with an industrial bank.

The 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.

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

The Company also earns 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 (formerly Square Capital) facilitates loans to qualified Square sellers through the Company's subsidiary, Square Financial Services ("SFS"), which is an industrial loan corporation.

The loans are either repaid through withholding a percentage of the collections of the seller's receivables processed by the Company or a specified monthly amount.

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For some of the loans, it is the Company’s intent to sell all of its rights, title, and interest of these loans to third-party investors for an upfront fee when the loans are sold.

The Company records as cost of the loans, the amounts advanced to the customers or the net amounts paid to purchase the loans.

The Company records the amounts advanced to the customers or the net amounts paid to purchase the loans as cost of the loans.

Subsequently, the Company records a gain on sale of the loans to the third-party investors as revenue upon transfer of title.

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For the loans which are not immediately sold to third-party investors or for which the Company has the intent and ability to hold through maturity, interest and fees earned are recognized as revenue using the effective interest method.

The Company offers customers website hosting services for a fee that is generally billed at inception.

The Company also acts as a reseller of domain names registration services for a registrar for a fee, which is also generally billed at inception.

The Company considers that it satisfies its performance obligations over time and as such recognizes revenue ratably over the term of the relevant arrangements, which vary from one month to twenty four months for website hosting, and one year to ten years for domain name registration.

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.

The loan fee and late fees are recorded within subscription and services-based revenue on the consolidated statement of operations.

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

The Company generally pays the seller the full order value upfront, less taxes, if applicable, and a merchant fee, which consists of fixed and variable rates as contracted with the sellers.

The Company also incurs other costs such as fees paid to third-party partners and processing fees to complete the consumer purchase transaction.

The Company generally assumes non-repayment risk from the consumers.

The Company initially recognizes a consumer receivable equal to net amounts paid to the seller plus any costs incurred to originate the consumer receivable.

The Company recognizes the merchant fee less costs incurred to originate the consumer receivables as revenue using the effective interest method.

This revenue is included within subscription and services-based revenue on the consolidated statement of operations.

The effective interest rate is determined based on estimated future cash receipts over the expected life of the consumer receivable, having consideration for the historical repayment pattern of the consumer receivables on a portfolio basis.

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

As of October 2022, the Company also offers 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 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.

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

With both offerings, the Company charges customers a monthly fee for those subscription services, which is recognized ratably as revenue as the service is provided.

SaaS represents software products and solutions that provide customers with access to various technologies for a fee which is recognized as revenue ratably as the service is provided.

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Hardware Revenue

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.

The Company generates revenue through the sale of hardware through e-commerce and through its retail distribution channels.

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Distributors and retailers have payment terms that range from 30 to 90 days after delivery.

The Company offers hardware installment sales to customers with terms ranging from three to twenty four months.

The Company allocates a portion of the consideration received from these arrangements to a financing component when it determines that a significant financing component exists.

The financing component is subsequently recognized as financing revenue separate from hardware revenue, within subscription and services-based revenue, over the terms of the arrangement

with the customer.

Pursuant to practical expedients afforded under ASC 606, the Company does not recognize a financing component for hardware installment sales that have a term of one year or less.

Bitcoin Revenue

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The Company purchases bitcoin from private broker dealers or from Cash App customers and applies a marginal fee before selling it to its customers.

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

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

The Company has concluded it is the principal because it controls the bitcoin before delivery to the customers, it is primarily responsible for the delivery of the bitcoin to the customers, it is exposed to risks arising from fluctuations of the market price of bitcoin before delivery to customers, and has discretion in setting prices charged to customers.

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Subscription and Services-based Costs

Subscriptions and services-based costs consists of costs associated with Cash Card, Instant Deposit, and TIDAL costs.

Prior to 2020, subscription and services-based costs consisted primarily of Caviar-related costs.

The Caviar business was sold in the fourth quarter of 2019.

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

Hardware Costs

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

Product costs consist of third-party manufacturing-related overhead and personnel costs, certain royalties, packaging, and fulfillment costs.

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

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

Bitcoin Costs

Bitcoin cost of revenue comprises of the amounts the Company pays to purchase bitcoin, which will fluctuate in line with the price of bitcoin in the market.

Generally, other costs such as employee costs, rent, and occupancy charges are not allocated to cost of revenues and are reflected in operating expenses and are not material.

Bitcoin costs consist of the total amount the Company pays to purchase bitcoin that is sold to customers.

These costs fluctuate in line with bitcoin revenue.

Generally, other costs such as personnel-related costs, rent, and occupancy charges are not allocated to cost of revenues and are reflected in operating expenses and are not material.

Sales and Marketing Expenses

Advertising costs are expensed as incurred and included in sales and marketing expense in the consolidated statements of operations.

Total advertising costs for the y ears ended December 31, 2021, 2020, and 2019 were $ 435.8 million, $ 224.7 million, and $ 142.7 million, respectively.

In ad dition, services, incentives, and other costs to customers that are not directly related to a revenue generating transaction are recorded as sales and marketing expenses, as the Company considers these 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 related transaction losses, card issuance costs, customer referral bonuses, and promotional giveaways , and w ere $ 778.3 million, $ 635.3 million , and $ 279.7 million, for the years ended December 31, 2021, 2020, and 2019, respectively.

Advertising costs are expensed as incurred and included in sales and marketing expenses on the consolidated statements of operations.

Total advertising costs for the years ended December 31, 2022, 2021, and 2020 were $ 544.2 million, $ 435.8 million, a nd $ 224.7 million, respectively.

The Company also records services, incentives, and other costs to customers that are not directly related to a revenue generating transaction as sales and marketing expenses, as the Company considers these 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 related transaction losses, card issuance costs, customer referral bonuses, and promotional giveaways.

These costs are expensed as incurred.

The Company recorded $ 840.0 million, $ 778.3 million, and $ 635.3 million, for the years ended December 31, 2022, 2021, and 2020, respectively, for such expenses.

Share-based Compensation

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The Company uses the simplified calculation of expected term, defined as an average of the vesting term and the contractual term to maturity.

Expected volatility is based on a weighted average of the historical volatilities of the Company's common stock along with several entities with characteristics similar to those of the Company.

In May 2020, the Company began using its own volatility, as the Company uses its own historical stock price information, such that a peer group is no longer considered necessary.

Expected volatility is based on a weighted-average of the historical volatilities of the Company's common stock.

The expected risk-free rate is based on the U.S.

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The Company accounts for forfeitures as they occur.

Interest Income and Expense, net

Interest Income and Expense

Interest income consists of interest income from the Company's investment in marketable debt securities and interest expense relating to the Company's long-term debt.

Interest income for the years ended December 31, 2021, 2020, and 2019 were $ 25.0 million, $ 18.3 million, and $ 23.4 million, respectively.

Interest expense for the years ended December 31, 2021, 2020, and 2019 were $ 58.1 million, $ 75.2 million, and $ 44.9 million, respectively.

Interest income and interest expense were both immaterial for the years ended December 31, 2022, 2021, and 2020.

Foreign Currency

The functional currency for most subsidiaries outside of the United States is the local currency.

For purposes of the Company's consolidated financial statements, the assets and liabilities of these subsidiaries, including goodwill and acquired intangible assets, are translated into U.S.

dollars using the exchange rates at the balance sheet dates.

Gains and losses resulting from these translations are reported as a component of accumulated other comprehensive income (loss) on the consolidated statements of comprehensive income (loss).

Revenue, expenses, and gains or losses are translated into U.S.

dollars using average exchange rates for each period.

Gains and losses from the remeasurement of foreign currency transactions into the functional currency are recognized as a component of other income, net on the consolidated statements of operations.

Income and Other Taxes

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Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company records interest and penalties related to uncertain tax positions in the provision for income tax expense on the consolidated statements of operations.

Cash and Cash Equivalents and Restricted Cash and Customer Funds

The Company records interest and penalties related to uncertain tax positions in the provision (benefit) for income tax expense on the consolidated statements of operations.

Cash and Cash Equivalents, Restricted Cash, and Customer Funds

Cash and Cash Equivalents

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Restricted Cash

Restricted cash represents pledged cash deposits in savings accounts at the financial institutions that process the Company's sellers' payment transactions and collateral pursuant to various agreements with banks relating to the Company's loan products.

The Company uses the restricted cash to secure letters of credit with the financial institution to provide collateral for cash flow timing differences in the processing of payments.

The Company records amounts as a current asset on the consolidated balance sheets if the restriction expires in less than 12 months, or as a non-current asset if the restriction is 12 months or longer.

The Company records restricted cash amounts as a current asset on the consolidated balance sheets if the restriction expires in less than 12 months, or as a non-current asset if the restriction is 12 months or longer.

If there is no minimum time frame during which the cash must remain restricted, the nature of the transactions related to the restriction determine the classification.

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

As of December 31, 2021 and 2020, restricted cash for these purposes was $ 18.8 million and $ 30.3 million, respectively.

As of December 31, 2021, the remaining restricted cash of $ 71.7 million is primarily related to collateral as required by the FDIC for Square Financial Services.

As of December 31, 2020, the remaining restricted cash of $ 13.5 million is primarily related to cash held as collateral pursuant to multi-year lease agreements (Note 18).

The Company has recorded these amounts as non-current assets on the consolidated balance sheets as the terms of the related leases extend beyond one year, and the requirement by the FDIC specifies a time frame of 12 months or longer during which the cash must remain restricted.

The Company's short-term restricted cash was $ 639.8 million and $ 18.8 million as of December 31, 2022 and 2021, respectively.

The balance as of December 31, 2022 was primarily comprised of cash held by the wholly-owned consolidated entities used in the warehouse funding facility arrangements.

This restricted cash will be used to pay the borrowings under the warehouse funding facilities or will be distributed to the Company.

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

The Company uses 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.

The Company's long-term restricted cash of $ 71.6 million and $ 71.7 million as of December 31, 2022 and December 31, 2021, respectively, is primarily related to cash held as collateral as required by the FDIC for Square Financial Services.

The Company has recorded these amounts as non-current assets on the consolidated balance sheets as the requirement by the FDIC specifies a time frame of 12 months or longer during which the cash must remain restricted.

Customer Funds

Customer funds represent customers' stored balances that customers would later use to send money or make payments, or customers cash in transit.

Under the terms of service associated with these funds, the Company is restricted from using the funds from use in the Company's operations.

The Company invests a portion of these stored balances in short-term marketable debt securities (Note 4).

The Company determines the appropriate classification of the investments in marketable debt securities within customer funds at the time of purchase and reevaluates such designation at each balance sheet date.

Concentration of Credit Risk

For the years ended December 31, 2021, 2020 and 2019, the Company had no customer that accounted for greater than 10% of total net revenue.

The Compa ny had two third-party payment processors that represented approximately 52 % and 30 % of settlements receivable as of December 31, 2021.

As of December 31, 2020, there were two parties that represented approximately 59 % and 27 % of settlements receivable.

All other third-party processors were insignificant.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable debt securities, settlements receivable, customer funds, loans held for sale, and loans held for investment.

The associated risk of concentration for cash and cash equivalents and restricted cash is mitigated by banking with creditworthy institutions.

At certain times, amounts on deposit exceed federal deposit insurance limits.

The associated risk of concentration for marketable debt securities is mitigated by holding a diversified portfolio of highly rated investments.

Settlements receivable are amounts due from well-established payment processing companies and normally take one or two business days to settle which mitigates the associated risk of concentration.

The associated risk of concentration for loans held for sale is partially mitigated by credit evaluations that are performed prior to facilitating the offering of loans and ongoing performance monitoring of the Company’s loan customers.

The risk associated with the PPP loans is considered low due to government guarantees on those loans.

Under the terms of service associated with these funds, the Company is restricted from using the funds in the Company's operations.

Interest income from customer funds is recorded as a component of subscription and services-based revenue on the consolidated statements of operations, and was immaterial for the year ended December 31, 2022.

The Company may invest a portion of these stored balances in short-term marketable debt securities.

Refer to Note 4, Customer Funds for more details.

Investments in Marketable Debt Securities

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The Company has the ability and intent to hold these investments with unrealized losses for a reasonable period of time, sufficient for the recovery of their amortized cost bases, which may be at maturity.

The Company determines any realized gains or losses on the sale of marketable debt securities on a specific identification method, and records such gains and losses as a component of other expense (income), net.

Investments in Equity Securities

The Company holds marketable and non-marketable equity investments, over which the Company does not have a controlling interest or significant influence.

The Company holds marketable and non-marketable equity investments.

Marketable equity investments are measured using quoted prices in active markets with changes recorded in other expense (income), net on the consolidated statements of operations.

Non-marketable equity investments have no readily determinable fair values and are measured using the measurement alternative, which is defined as cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer.

Adjustments are recorded in other expense (income), net on the consolidated statements of operations.

Non-marketable equity investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires our judgment due to the absence of market prices and inherent lack of liquidity.

Non-marketable equity investments, which have no readily determinable fair values, are measured using the measurement alternative, which is defined as cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer.

Adjustments are recorded in other income, net on the consolidated statements of operations.

Non-marketable equity investments are valued using significant unobservable inputs or data in an inactive market and the valuation requires judgment due to the absence of market prices and inherent lack of liquidity.

The carrying value for these investments is not adjusted if there are no observable transactions for identical or similar investments of the same issuer or if there are no identified events or changes in circumstances that may indicate impairment.

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The impairment analysis encompasses an assessment of the severity and duration of the impairment and a qualitative and quantitative analysis of other key factors including the investee’s financial metrics, market acceptance of the investee’s product or technology, other competitive products or technology in the market, general market conditions, and the rate at which the investee is using its cash.

If the investment is considered to be impaired, the Company will record an impairment in other expense (income), net on the consolidated statements of operations and establish a new carrying value for the investment.

Fair Value of Financial Instruments

The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

If the investment is considered to be impaired, the Company will record an impairment in other income, net on the consolidated statements of operations and establish a new carrying value for the investment.

Fair Value Measurements

The Company applies fair value accounting for assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

Fair value accounting establishes a three-level hierarchy priority for disclosure of assets and liabilities recorded at fair value.

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• Level 2 Inputs:

Other than quoted prices included in Level 1 Inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3 Inputs:

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Customer Loans

Prior to April 2021, the Company purchased loans from an industrial bank partner.

In April 2021, the Company began originating loans through Square Financial Services.

The Company classifies customer loans that the Company has the intent to sell all of its rights, title, and interest in these loans to third-party investors as loans held for sale, as there is an available market for such loans.

The Company classifies customer loans retained on its balance sheet that the Company has both the intent and ability to hold for the foreseeable future, or until maturity or payoff, as loans held for investment.

The Company classifies customer loans as loans held for sale when the Company has the intent to sell all of its rights, title, and interest in these loans to third-party investors, and there is an available market for such loans.

The Company classifies customer loans as loans held for investment when the Company has both the intent and ability to hold for the foreseeable future, or until maturity or payoff.

Loans Held for Sale

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To determine the fair value the Company utilizes discounted cash flow valuation modeling, taking into account the probability of default and estimated timing and amounts of periodic repayments.

In estimating the expected timing and amounts of the future periodic repayments for the loans outstanding, the Company considered other relevant market data, including the impact of the COVID-19 pandemic.

With respect to PPP loans, the Company also considers the impact of government guarantees and loan forgiveness on the timing and amounts of future cash flows.

The Company recognizes a charge within transaction and loan losses in the consolidated statement of operations 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.

In estimating the expected timing and amounts of the future periodic repayments for the loans outstanding, the Company considered other relevant market data.

The Company recognizes a charge within transaction, loan, and consumer receivable losses on the consolidated statement of operations 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.

A loan that is initially designated as held for sale may be reclassified to held for investment if and when the Company's intent for that loan changes.

For the year ended December 31, 2021, $ 224.8 million have been reclassified from loans held for sale to loans held for investment.

For the year ended December 31, 2022, $ 357.4 million of total loan balances was reclassified from loans held for sale to loans held for investment.

Upon origination, the Company's loans are designated as available for sale.

The majority of loans are subsequently sold.

For the years ended December 31, 2022 and 2021, net gains on sales of loans were $ 164.3 million and $ 95.5 million, respectively.

Net gains on sales of loans were immaterial in the year ended December 31, 2020.

Loans that are not sold within one to two business days from origination are reclassified as held for investment.

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2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").

The Company assesses impairment of its financial instruments based on current estimates of expected credit losses over the contractual term of its loans held for investment portfolio as of each balance sheet date.

The Company determines the allowance for loan losses using both quantitative and qualitative methods and considers all available information relevant to assessing collectability.

This includes but is not limited to:

historical loss and recovery experience, recent and historical trends in delinquencies, past-due loans and charge-offs, borrower behavior and repayment speed, underwriting and collection management changes, changes in the legal and regulatory environment, changes in risk and underwriting standards, current and historical macroeconomic conditions such as changes in unemployment and GDP, and various other factors that may affect the sellers’ ability to make future payments.

This includes, but is not limited to, historical loss and recovery experience, recent and historical trends in delinquencies, past-due loans and charge-offs, borrower behavior and repayment speed, underwriting and collection management changes, changes in the legal and regulatory environment, changes in risk and underwriting standards, current and historical macroeconomic conditions such as changes in unemployment and GDP, and various other factors that may affect the sellers’ ability to make future payments.

Settlements Receivable

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No valuation allowances have been established, as funds are due from large, well-established financial institutions with no historical collections issue.

Inventory is comprised of contactless and chip readers, chip card readers, Square Stand, Square Register, Square Terminal and third-party peripherals, as well as component parts that are used to manufacture these products.

Consumer Receivables

The Company evaluates the consumer receivables as a single homogeneous portfolio as it is comprised of a single product type, point-of-sale unsecured installment loans.

The Company classifies consumer receivables as held for investment when the Company has the intent and ability to hold these investments for the foreseeable future or until maturity or payoff.

The Company classifies consumer receivables as held for sale when the Company has the intent to sell all of its rights, title, and interest in these receivables to third-party investors, and there is an available market for such receivables.

Consumer receivables are reported at amortized cost, which includes the cost to originate the consumer receivables, adjusted for unearned merchant fees, origination costs, charge-offs, and the allowance for credit losses.

Refer to Note 6, Consumer Receivables, net for more information.

Allowance for Credit Losses Related to Consumer Receivables

The Company calculates an allowance for credit losses on the consumer receivables portfolio in accordance with ASU 2016-13.

The guidance requires an entity to assess impairment of its financial instruments based on the entity's current estimates of expected credit losses over the contractual term of its loans held for investment portfolio as of each balance sheet date.

Allowance for credit losses related to consumer receivables represents management’s estimate of the expected credit losses in the outstanding portfolio of consumer receivables, as of the balance sheet date.

The Company determines the allowance for credit losses 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.

This includes, but is not limited to, historical loss and recovery experience, recent and historical trends in delinquencies, past-due receivables and charge-offs, consumer behavior and repayment speed, underwriting and collection management changes, changes in the legal and regulatory environment, changes in risk and underwriting standards, current and historical macroeconomic conditions such as changes in unemployment and GDP, and various other factors that may affect the consumers’ ability to make future payments.

When available information confirms that specific consumer receivables or portions thereof are uncollectible, identified amounts are charged off against the allowance for credit losses.

Consumer receivables are charged off when management considers amounts to be uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due.

Inventory consists of contactless and chip readers, chip card readers, Square Stand, Square Register, Square Terminal, and third-party peripherals, as well as component parts that are used to manufacture these products.

Inventory is stated at the lower of cost (generally on a first-in, first-out basis) or net realizable value.

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The Company's inventory is held at third-party warehouses and contract manufacturer premises.

Deferred Revenue

Deferred revenue is primarily comprised of payments for website hosting and domain name registration received from customers at inception of the arrangements prior to the services being rendered.

Investments in bitcoin

Investment in Bitcoin

Bitcoin is a cryptocurrency that is considered to be an indefinite-lived intangible asset because bitcoin lacks physical form and there is no limit to its useful life.

Accordingly, bitcoin is not subject to amortization but is tested for impairment on a daily basis to assess if it is more likely than not that it is impaired.

The Company has concluded that because bitcoin is traded in an active market where there are observable prices, a decline in the quoted price below cost is generally viewed as an impairment indicator, in which case the fair value is used to assess whether an impairment loss should be recorded.

Accordingly, the Company's investment in bitcoin is not subject to amortization but is tested for impairment on a daily basis.

If the fair value of bitcoin decreases below the carrying value during the assessed period, an impairment charge is recognized at that time.

After an impairment loss is recognized, the adjusted carrying amount of bitcoin becomes its new accounting basis.

A subsequent reversal of a previously recognized impairment loss is prohibited until the sale of the asset.

After an impairment loss is recognized, the adjusted carrying value becomes the new accounting basis of the Company's investment in bitcoin.

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

The Company's investment in bitcoin does not include any bitcoin held for other parties.

Property and Equipment

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Capitalized costs are included in property and equipment, net, and amortized on a straight-lined basis over the estimated useful life of the software and included in product development costs on the consolidated statements of operations.

The Company capitalized $ 39.2 million and $ 42.0 million of internally developed software during the years ended December 31, 2021 and 2020, respectively, and recognized $ 33.4 million , $ 19.8 million and $ 18.9 million of amortization expense during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company leases office space and equipment under non-cancellable finance and operating leases with various expiration dates.

The Company adopted Accounting Standards Codification (ASC) 842, Leases (ASC 842) on January 1, 2019, and elected the optional transition method to apply the transition provisions from the effective date of adoption, which requires the Company to report the cumulative effect of the adoption of the standard on the date of adoption with no changes to the prior period balances.

Pursuant to the practical expedients, the Company elected not to reassess:

(i) whether expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or, (iii) initial direct costs for any existing leases.

The Company elected to apply the short-term lease measurement and recognition exemption to its leases where applicable.

Operating lease right-of-use assets and operating lease liabilities are recognized at the present value of the future lease payments, generally for the base noncancellable lease term, at the lease commencement date for each lease.

The Company determines whether an arrangement is a lease for accounting purposes at contract inception.

Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the present value of the future lease payments, generally for the base noncancellable lease term, at the lease commencement date for each lease.

The interest rate used to determine the present value of the future lease payments is the Company's incremental borrowing rate because the interest rate implicit in most of the Company's leases is not readily determinable.

The Company's incremental borrowing rate is estimated to approximate the interest rate that the Company would pay to borrow on a collateralized basis with similar terms and payments as the lease, and in economic environments where the leased asset is located.

Operating lease right-of-use assets also include any prepaid lease payments and lease incentives.

Operating lease ROU assets also include any prepaid lease payments and lease incentives.

The Company's lease agreements generally contain lease and non-lease components.

Non-lease components, which primarily include payments for maintenance and utilities, are combined with lease payments and accounted for as a single lease component.

The Company includes the fixed non-lease components in the determination of the right-of-use assets and operating lease liabilities.

Variable lease payments are not included in the calculation of the right-of-use asset and lease liability, and they are recognized as lease expense is incurred.

The Company applies the practical expedient to account for the lease and non-lease components as a single lease component for all leases, where applicable.

Non-lease components primarily include payments for maintenance and utilities.

The Company includes the fixed non-lease components in the determination of the ROU assets and operating lease liabilities.

Variable lease payments that are not based on a rate or index are not included in the calculation of the ROU asset and lease liability, and they are recognized as lease expense in the period in which the obligation for those payments is incurred.

Variable lease payments predominantly relate to variable operating expenses, taxes, parking, and electricity.

The Company records the amortization of the right of use asset and the accretion of lease liability as a component of rent expense in the consolidated statement of operations.

The accounting for finance leases remained substantially unchanged.

The Company records the amortization of the ROU asset and the accretion of lease liability as a component of rent expense in the consolidated statements of operations.

The Company evaluates ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable.

When a decision has been made to exit a lease prior to the contractual term or to sublease that space, the Company evaluates the asset for impairment and recognizes the associated impact to the ROU asset and related expense, if applicable.

The evaluation is performed at the asset group level initially and when appropriate, at the lowest level of identifiable cash flows, which is at the individual lease level.

Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives.

If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques.

When lease agreements provide allowances for leasehold improvements, the Company assesses whether it is the owner of the leasehold improvements for accounting purposes.

When the Company concludes that it is the owner, it capitalizes the leasehold improvement assets and recognizes the related depreciation expense on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset.

Additionally, the Company recognizes the amounts of allowances to be received from the lessor as a reduction of the lease liability and the associated right of use asset.

Additionally, the Company recognizes the amounts of allowances to be received from the lessor as a reduction of the lease liability and the associated ROU asset.

When the Company concludes that it is not the owner, the payments that the Company makes towards the leasehold improvements are accounted as a component of the lease payments.

The Company records a liability for the estimated fair value for asset retirement obligations (ARO) associated with its leases, with an offsetting asset.

In the determination of the fair value of AROs, the Company uses various assumptions and judgments, including such factors as the existence of a legal obligation, estimated amounts and timing of settlements, and discount rates.

The liability is subsequently accreted while the asset is depreciated.

As of December 31, 2021, the Company had a liability for AROs of $ 3.8 million and an associated asset, net of depreciation, of $ 0.7 million.

Business Combinations

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Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded on the consolidated statements of operations.

Long-Lived Assets, including Goodwill and Acquired Intangibles

Long-Lived Assets, including Goodwill and Acquired Intangible Assets

The Company evaluates the recoverability of property and equipment and finite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable.

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If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.

For the periods presented, the Company had recorded no impairment charges.

Acquired intangibles consist of acquired technology and customer relationships associated with various acquisitions.

Acquired technology is amortized over its estimated useful life on a straight-line basis within cost of revenue.

Customer relationships acquired are amortized on a straight-line basis over their estimated useful lives within operating expenses.

For the periods presented, the Company recorded no impairment charges.

Acquired intangible assets consist of acquired technology and customer relationships associated with various acquisitions.

Acquired technology is amortized over its estimated useful life on a straight-line basis and included as a component of cost of revenue on the consolidated statements of operations.

Acquired customer relationships and other intangible assets are amortized on a straight-line basis over their estimated useful lives, and included as a component of operating expenses on the consolidated statements of operations.

The Company evaluates the remaining estimated useful life of its intangible assets being amortized on an ongoing basis to determine whether events and circumstances warrant a revision to the remaining period of amortization.

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Customers payable represents the transaction amounts, less revenue earned by the Company, owed to sellers or Cash App customers.

The payable amount comprises amounts owed to customers due to timing differences as the Company typically settles within one business day, amounts held by the Company in accordance with its risk management policies, and amounts held for customers who have not yet linked a bank account.

The payable amount consists of amounts owed to customers due to timing differences as the Company typically settles within one business day, amounts held by the Company in accordance with its risk management policies, and amounts held for customers who have not yet linked a bank account.

This balance also includes the Company's liability for customer funds held on deposit in the Cash App.

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

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 Card.

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.

Generally, the Company estimates 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.

The Company also considers other relevant market data in developing such estimates and assumptions, including the impact of the COVID-19 pandemic.

The Company also considers other relevant market data in developing such estimates and assumptions.

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

These amounts are classified within transaction and loan 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.

Effective June 30, 2020, the Company changed its operating segments to reflect the manner in which the Company's Chief Operating Decision Maker ("CODM") reviews and assesses performance.

The Company has two reportable segments, which are Square (formerly Seller) and Cash App.

Square includes managed payment services, software solutions, hardware and financial services products offered to sellers, while Cash App includes financial tools available to individuals such as P2P (peer-to-peer) payments, Cash Card transactions, bitcoin and stock investing that enable customers to easily send, spend, and store money.

Products and services that are not assigned to a specific reportable segment including TIDAL, TBD, and Spiral are aggregated and presented within a general corporate and other category, as their results of operations are immaterial.

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.

The Company reports its segments to reflect the manner in which the Company's chief operating decision maker ("CODM") reviews and assesses performance.

The Company has two reportable segments, Square (formerly Seller) and Cash App.

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

Rather, the operations of Afterpay are managed by the segment managers of Cash App and Square, who are responsible for allocating resources and evaluating the performance of Afterpay.

Products and services that are not assigned to a specific reportable segment, including but not limited to TIDAL, TBD, and Spiral, are aggregated and presented within a general corporate and other category.

Square and Cash App are defined as follows:

• Cash App includes the financial tools available to individuals within the mobile Cash App, including peer-to-peer payments, bitcoin and stock investments.

Cash App also includes Cash App Card which is linked to customer stored balances that customers can use to pay for purchases or withdraw funds from an ATM.

• Square includes managed payment services, software solutions, hardware, and financial services offered to sellers, excluding those that involve Cash App.

The primary financial measures used by the CODM to evaluate performance and allocate resources are revenue and gross profit.

The CODM does not evaluate performance or allocate resources based on segment asset data, and therefore such information is not included.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.

The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.

The Company early adopted the new guidance on January 1, 2021 using the modified retrospective approach and recorded a cumulative effect upon adoption of $ 103.0 million as a reduction to accumulated deficit and a reduction to other paid in capital of $ 502.7 million related to amounts attributable to conversion options that had previously been recorded in equity.

Additionally, the Company recorded an increase to its convertible notes balance by an aggregate amount of $ 399.7 million as a result of the reversal of the separation of the convertible debt between debt and equity.

The adoption of this standard also significantly decreased the amount of non-cash interest expense to be recognized in future periods as a result of eliminating the discount associated with the equity component.

There was no impact to the Company’s statements of cash flows as the result of the adoption of ASU No.

In October 2020, the FASB issued ASU No.

2020-10, Codification Improvements ("Codification") .

The update provides incremental improvements on various topics in the Codification to provide clarification, correct errors in, and to provide simplification on a variety of topics.

Among other items, the guidance includes presentation disclosures for the amount of income tax expense or benefit related to other comprehensive income.

The amendments are effective for public entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Early adoption is permitted.

The Company adopted this guidance effective January 1, 2021 and has applied the guidance prospectively.

The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

Recently issued accounting pronouncements not yet adopted

In July 2021, the FASB issued ASU No.

2021-05 ("ASU 2021-05") " Lease (Topic 842):

Lessors - Certain Leases with Variable Lease Payments " which amends the lease classification requirements for lessors with certain leases containing variable payments.

A lessor should classify and account for a lease with variable lease payments that do not depend on an index or a rate as an operating lease if both of the following criteria are met:

In July 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2021-05, Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments ("ASU 2021-05"), which amends the lease classification requirements for lessors with certain leases containing variable payments.

In accordance with ASU 2021-05, a lessor should classify and account for a lease with variable lease payments that do not depend on an index or a rate as an operating lease if both of the following criteria are met:

1) the lease would have been classified as a sales-type lease or a direct financing lease;

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The amendments in ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

The Company is evaluating the effect of adopting this new accounting guidance, but does not expect the adoption to have a material impact on the Company’s financial statements.

The Company adopted this guidance effective January 1, 2022, and has applied the guidance prospectively.

The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

In May 2021, the FASB issued ASU No.

2021-04 (“ASU 2021-04”) “ Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) ” which provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic.

2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”), which provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic.

An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument, and provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange.

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Early adoption is permitted.

The Company is evaluating the effect of adopting this new accounting guidance, but does not expect adoption to have a material impact on the Company’s financial statements.

In October 2021, the FASB issued ASU No 2021-08 ("ASU 2021-08") "Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers.

Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date.

The amendments in ASU 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606.

The amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company is evaluating the effect of adopting this new accounting guidance.

The Company adopted this guidance effective January 1, 2022, and has applied the guidance prospectively.

The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

In March 2022, the SEC staff released Staff Accounting Bulletin No.

121 ("SAB 121"), which expressed the views of the SEC staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for users of its crypto platform.

This guidance requires entities that hold crypto-assets on behalf of platform users to recognize a liability to reflect the entity’s obligation to safeguard the crypto-assets held for its platform users.

The liability should be measured at initial recognition and each reporting date at the fair value of the crypto-assets that the entity is responsible for holding for its platform users.

The entity should also recognize an asset at the same time that it recognizes the safeguarding liability, measured at initial recognition and each reporting date at the fair value of the crypto-assets held for its platform users, subject to adjustments to reflect any actual or potential safeguarding loss events.

The entity should also describe the asset and the corresponding liability in the footnotes to the financial statements and consider including information regarding who (e.g., the company, its agent, or another third party) holds the cryptographic key information, maintains the internal recordkeeping of those assets, and is obligated to secure the assets and protect them from loss or theft.

This guidance is effective from the first interim period after June 15, 2022 and should be applied retrospectively.

The Company adopted this guidance effective June 30, 2022.

Refer to Note 14, Bitcoin Held for Other Parties for more details.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2022, the FASB issued ASU No.

2022-01, Derivatives and Hedging (Topic 815):

Fair Value Hedging—Portfolio Layer Method ("ASU 2022-01") related to the portfolio layer method of hedge accounting.

The amendments allow nonprepayable financial assets to be included in a closed portfolio hedge using the portfolio layer method.

ASU 2022-01 also allows for multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

The Company does not expect the adoption to have a material impact on the Company's financial statements.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) related to troubled debt restructuring and vintage disclosures for financing receivables.

The amendments eliminate recognition and measurement guidance for troubled debt restructurings for creditors and requires entities to evaluate if the modification represents a new loan or a continuation of the existing loan.

ASU 2022-02 also enhances disclosure requirements for certain loan refinancing and restructurings made to borrowers experiencing financial difficulty and requires disclosure of current period write-offs by year of origination for financing receivables.

The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

The Company does not expect the adoption to have a material impact on the Company’s financial statements.

In June 2022, the FASB issued ASU No.

2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03") related to equity securities.

The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

An entity is prohibited from recognizing a contractual sale restriction as a separate unit of account.

ASU 2022-03 also requires specific disclosures related to equity securities that are subject to contractual restrictions, including the fair value of such equity securities, the nature and remaining duration of the corresponding restrictions, and any circumstances that could cause a lapse in the restrictions.

The amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted.

The Company does not expect the adoption to have a material impact on the Company's financial statements.

NOTE 2 - REVENUE

The following table presents the Company's revenue disaggregated by revenue source (in thousands):

The following table presents the Company's net revenue disaggregated by revenue source (in thousands):

Year Ended December 31,

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Revenue from other sources:

Subscription and services-based revenue 263,920 92,215 147,534

Subscription and services-based revenue (i)

1,166,989 263,920 92,215

Total net revenue $ 17,531,587 $ 17,661,203 $ 9,497,578

(i) Subscription and services-based revenue from other sources relates to revenue generated from the Company's Square Loans and, for 2022 amounts, also includes revenue generated from consumer receivables originated through the BNPL platform, following the acquisition of Afterpay.

NOTE 3 - INVESTMENTS IN DEBT SECURITIES

The Company's short-term and long-term investments as of December 31, 2021 are as follows (in thousands):

The Company's short-term and long-term investments as of December 31, 2022 were as follows (in thousands):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

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Municipal securities 5,543 5 — 5,548

Certificates of deposit 9,200 — — 9,200

government securities 430,992 106 ( 255 ) 430,843

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The amortized cost of investments classified as cash equivalents approximated the fair value due to the short-term nature of the investments.

The Company's gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2021 and 2020, aggregated by investment category and the length of time that individual securities have been in a continuous loss position are as follows (in thousands):

The Company's gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2022 and 2021, aggregated by investment category and the length of time that individual securities have been in a continuous loss position were as follows (in thousands):

December 31, 2022

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Corporate bonds 34,795 ( 423 ) 320,748 ( 7,052 ) 355,543 ( 7,475 )

Municipal securities 587 ( 13 ) 5,811 ( 178 ) 6,398 ( 191 )

government securities 146,974 ( 839 ) 394,880 ( 8,098 ) 541,854 ( 8,937 )

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Corporate bonds 241,792 ( 269 ) 311 — 242,103 ( 269 )

Municipal securities 2,566 ( 3 ) — — 2,566 ( 3 )

government securities 347,380 ( 255 ) — — 347,380 ( 255 )

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Corporate bonds 627,467 ( 4,572 ) — — 627,467 ( 4,572 )

Municipal securities 18,616 ( 126 ) — — 18,616 ( 126 )

government securities 639,473 ( 4,080 ) — — 639,473 ( 4,080 )

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Total $ 1,450,038 $ ( 10,012 ) $ — $ — $ 1,450,038 $ ( 10,012 )

The Company does not intend to sell nor anticipate that it will be required to sell the securities before recovery of the amortized cost basis.

Unrealized losses related to available for sale debt securities were determined not to be due to credit related losses, therefore, an allowance for credit losses is not required.

The contractual maturities of the Company's short-term and long-term investments as of December 31, 2021 are as follows (in thousands):

The Company does not intend to sell nor anticipate that it will be required to sell these securities before recovery of the amortized cost basis.

Unrealized losses on available-for-sale debt securities were determined not to be related to credit related losses, therefore, an allowance for credit losses is not required.

The contractual maturities of the Company's short-term and long-term investments as of December 31, 2022 were as follows (in thousands):

Amortized Cost Fair Value

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Cash $ 1,748,983 $ 242,243

Customer funds in transit — 262,562

Cash equivalents:

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Reverse repurchase agreement (i)

agency securities — 47,300

government securities — 111,796

580,045 72,119

Short-term debt securities:

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(i) The Company has accounted for the reverse repurchase agreement with a third party as an overnight lending arrangement, collateralized by the securities subject to the repurchase agreement.

The Company classifies the amounts due from the counterparty as cash equivalents due to the short term nature.

The Company invests customer funds in short-term debt securities, as follows as of December 31, 2021 (in thousands):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

Short-term debt securities:

agency securities $ 30,002 $ — $ ( 8 ) $ 29,994

government securities 360,251 — ( 191 ) 360,060

Total $ 390,253 $ — $ ( 199 ) $ 390,054

The Company invests customer funds in short-term debt securities, as follows as of December 31, 2020 (in thousands):

The Company classifies the amounts due from the counterparty as cash equivalents due to their short term nature.

The Company does not have any available-for-sale debt securities for which the Company has recorded credit related losses.

The amortized cost of investments classified as cash equivalents approximated the fair value due to the short-term nature of the investments.

The Company did not hold any investments within customer funds as of December 31, 2022.

The Company's investments within customer funds as of December 31, 2021 were as follows (in thousands):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

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Total $ 390,253 $ — $ ( 199 ) $ 390,054

The amortized cost of investments classified as cash equivalents approximated the fair value due to the short-term nature of the investments.

The gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2021 and 2020, aggregated by investment category and the length of time that individual securities have been in a continuous loss position are as follows (in thousands):

The gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2021, aggregated by investment category and the length of time that individual securities were in a continuous loss position, were as follows (in thousands):

December 31, 2021

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Total $ 390,054 $ ( 198 ) $ — $ — $ 390,054 $ ( 198 )

December 31, 2020

Less than 12 months Greater than 12 months Total

Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses

Short-term debt securities:

government securities $ 73,609 $ ( 5 ) $ — $ — $ 73,609 $ ( 5 )

Total $ 73,609 $ ( 5 ) $ — $ — $ 73,609 $ ( 5 )

The Company does not have any available for sale debt securities for which the Company has recorded credit related losses.

The contractual maturities of the Company's investments within customer funds as of December 31, 2021 are as follows (in thousands):

Amortized Cost Fair Value

Due in one year or less $ 390,253 $ 390,054

Due in one to five years — —

Total $ 390,253 $ 390,054

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 5 - FAIR VALUE MEASUREMENTS

The Company measures its cash equivalents, customer funds, short-term and long-term marketable debt securities, and marketable equity investment at fair value.

The Company classifies these investments within Level 1 or Level 2 of the fair value hierarchy because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis are classified as follows (in thousands):

The Company measures its safeguarding obligation liability related to bitcoin held for other parties at the fair value of the bitcoin that the Company holds for other parties and classifies the liability within Level 2 because the Company uses observable market prices of the underlying bitcoin as an input for the valuation.

The Company also classifies its safeguarding asset related to bitcoin held for other parties within Level 2, unless the asset's carrying amount is adjusted to reflect any actual or potential safeguarding loss events, in which case it would be classified within Level 3.

The Company was not aware of any actual or possible safeguarding loss events as of December 31, 2022 or December 31, 2021.

The Company’s assets and liabilities that are measured at fair value on a recurring basis were classified as follows (in thousands):

December 31, 2022 December 31, 2021

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Certificates of deposit — — — — 4,983 —

Commercial paper — 25,080 — — — —

Corporate bonds — — — — 790 —

government securities — — — 15,000 — —

Customer funds:

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agency securities — 94,441 — — 74,128 —

Certificates of deposit — 9,200 — — — —

Corporate bonds — 360,637 — — 293,319 —

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Municipal securities — 9,693 — — 5,548 —

Certificates of deposit — 6,400 — — 9,200 —

government securities 571,637 — — 430,843 —

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Investment in marketable equity security 11,092 — — — — —

Total $ 6,008,845 $ 1,349,160 $ — $ 4,052,716 $ 863,219 $ —

The carrying amounts of certain financial instruments, including settlements receivable, loans held for investment, accounts payable, customers payable, accrued expenses and settlements payable, approximate their fair values due to their short-term nature.

Safeguarding asset related to bitcoin held for other parties — 428,243 — — 1,100,596 —

Safeguarding obligation liability related to bitcoin held for other parties — ( 428,243 ) — — ( 1,100,596 ) —

Total assets (liabilities) measured at fair value $ 3,500,686 $ 860,954 $ — $ 6,008,845 $ 1,349,160 $ —

The carrying amounts of certain financial instruments, including settlements receivable, consumer receivables, loans held for investment, accounts payable, customers payable, accrued expenses, and settlements payable, approximate their fair values due to their short-term nature.

The carrying amounts of the Company's warehouse funding facilities approximate their fair values.

The Company estimates the fair value of its convertible and senior notes based on their last actively traded prices (Level 1) or market observable inputs (Level 2).

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Total $ 4,570,185 $ 3,989,994 $ 4,559,663 $ 5,661,947

The estimated fair value and carrying value of loans held for sale and loans held for investment is as follows (in thousands):

The estimated fair value and carrying value of loans held for sale and loans held for investment were as follows (in thousands):

December 31, 2022 December 31, 2021

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Total $ 597,995 $ 617,929 $ 609,387 $ 670,728

As of December 31, 2021, $ 364.8 million of the carrying value of loans held for sale was attributable to loans under the Paycheck Protection Program ("PPP").

As of December 31, 2022 and 2021, $ 19.9 million and $ 364.8 million of the carrying value of loans held for sale were attributable to loans under the Paycheck Protection Program ("PPP"), respectively.

The PPP was intended to provide relief to eligible businesses impacted by COVID-19, and to incentivize businesses to keep their workers on the payroll.

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government through the Small Business Administration ("SBA"), the related credit losses as of December 31, 2022 were immaterial.

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, $ 725.9 million in PPP loans held for sale have been forgiven by the SBA, of which $ 679.6 million have been forgiven in the year ended December 31, 2021.

Overall, for the year ended December 31, 2021, the Company recognized $ 96.2 million of revenue associated with PPP loans primarily as a result of forgiveness.

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

For the years ended December 31, 2022, 2021, and 2020, the Company recorded incremental charges for the excess of amortized cost over the fair value of the loans of $ 27.5 million, $ 6.4 million, and $ 26.0 million, respectively.

To determine the fair value of the loans held for sale, the Company utilizes discounted cash flow valuation modeling, taking into account the probability of default and estimated timing and amounts of periodic repayments.

In estimating the expected timing and amounts of the future periodic repayments for the loans outstanding, the Company considered other relevant market data in developing such estimates and assumptions, including the continuing impact of the COVID-19 pandemic.

With respect to PPP loans, the Company also considers the impact of government guarantees and loan forgiveness on the timing and amounts of future cash flows.

As of December 31, 2021, there were no material changes to our estimates of fair value, and the Company will continue to evaluate facts and circumstances that could impact our estimates and affect our results of operations in future periods.

As of December 31, 2022, there were no material changes to the Company's estimates of fair value, and the Company will continue to evaluate facts and circumstances that could impact its estimates and affect its results of operations in future periods.

If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs.

During the years ended December 31, 2022, 2021, and 2020, the Company did not have any transfers in or out of Level 1, Level 2, or Level 3 assets or liabilities.

NOTE 6 - CONSUMER RECEIVABLES, NET

Consumer receivables represent amounts due from consumers for outstanding installment payments on orders processed on the Company's BNPL platform.

Further discussed in Note 1, Description of Business and Summary of Significant Accounting Policies , consumer receivables are classified as held for investment.

These receivables are interest free and are generally due within 14 to 56 days.

The Company closely monitors credit quality for consumer receivables to manage and evaluate its related exposure to credit risk.

The criteria the Company monitors when assessing the credit quality and risk of its consumer receivables portfolio is primarily based on internal risk assessments, as they provide insight into customer risk profiles and are useful as indicators of potential future credit losses.

Consumer receivables are internally rated as "Pass" rated or "Classified." Pass rated consumer receivables generally consist of consumer receivables that are current or up to 60 days past due.

Classified consumer receivables generally comprise of consumer receivables that are 60 days or greater past due and have a higher risk of default.

Internal risk ratings are reviewed and, generally, updated at least once a year.

As of December 31, 2022, the amortized cost of Pass rated consumer receivables was $ 1.9 billion and the amount of Classified consumer receivables was less than $ 0.1 billion.

The following table presents an aging analysis of the amortized cost of consumer receivables by delinquency status (in thousands):

December 31, 2022

Non-delinquent loans $ 1,643,874

1 - 60 days past due 295,830

61 - 90 days past due 20,612

90+ days past due 62,134

Total amortized cost $ 2,022,450

The amount listed as 1 - 60 days past due in the above table includes $ 224.9 million of cash in transit, which reflects ongoing repayments from consumers that have been sent from consumers’ bank accounts but have not yet been received at the Company’s bank account as of the date of the financial statements.

This cash in transit as of December 31, 2022 represents 11.1 % of the total amortized cost of consumer receivables.

For consumer receivables, an allowance for credit losses is determined based on the probability of a default event occurring over the life of the receivables.

When a consumer has not paid by the due date, it is an indication that credit risk has increased.

As a result, the allowance for credit losses for that receivable is measured at an amount equal to the lifetime allowance for credit losses for increased credit risk.

Lifetime allowance for credit losses is the expected credit losses that result from all possible default events over the expected life of the receivables.

The allowance for credit losses on consumer receivables is a valuation account that is deducted from the carrying value of the consumer receivables.

Consumer receivables are charged off when they are over 180 days past due and the Company has no reasonable expectation of recovery.

When consumer receivables are charged off, the Company recognizes the charge against the allowance for credit losses.

While the Company expects collections at that point to be unlikely, the Company may recover amounts from the respective consumers.

Any subsequent recoveries following charge-off are credited to transaction, loan, and consumer receivable losses on the consolidated statements of operations in the period they were recovered.

The amount of recoveries for the year ended December 31, 2022 was immaterial.

The following table summarizes activity in the allowance for credit losses subsequent to the acquisition of Afterpay (in thousands):

From Acquisition on

January 31, 2022 to

December 31, 2022

Allowance for credit losses, beginning of the period (i)

Provision for credit losses 203,670

Charge-offs and other adjustments ( 168,664 )

Foreign exchange effect 732

Allowance for credit losses, end of the period $ 151,290

(i) Consumer receivables acquired from Afterpay that reflect a more-than-insignificant deterioration of credit from origination are considered purchased credit deteriorated ("PCD") receivables.

For PCD consumer receivables, the initial estimate of expected credit losses is recognized in the allowance for credit losses on the date of acquisition using the same methodology as other consumer receivables.

NOTE 7 - LOANS HELD FOR INVESTMENT

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The Company’s intent and ability in the future may change based on changes in business strategies, the economic environment, and market conditions.

As of December 31, 2021, the Company held $ 91.4 million as loans held for investment, net of allowance, other current assets on the condensed consolidated balance sheet, see Note 11, Other Consolidated Balance Sheet Components .

As of December 31, 2022, the Company held $ 124.0 million as loans held for investment, net of allowance, included in other current assets on the consolidated balance sheets.

Refer to Note 12, Other Consolidated Balance Sheet Components (Current) for more details.

Loans held for investment are recorded at amortized cost, less an allowance for potential uncollectible amounts.

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The allowance for loan losses and amount of charge offs recorded as of December 31, 2022 were immaterial.

There were no recoveries recorded as of December 31, 2021.

Recoveries recorded as of December 31, 2022 were immaterial.

The Company considers loans that are greater than 60 days past due to be delinquent, and loans 90 days or more past due to be nonperforming.

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NOTE 8 - PROPERTY AND EQUIPMENT, NET

The following is a summary of property and equipment, less accumulated depreciation and amortization (in thousands):

The following table details property and equipment, less accumulated depreciation and amortization (in thousands):

2022 December 31,

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NOTE 9 - ACQUISITIONS

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

In connection with the acquisition, the Company issued 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.

As of the completion of the acquisition, certain convertible notes with an outstanding principal amount of AU$ 1.5 billion (US$ 1.1 billion based on the closing exchange rate on the acquisition date), remained outstanding.

As a result of the acquisition of Afterpay, the original holders of the convertible notes may require Afterpay to redeem some or all of the notes at 100 % of their principal amount no later than March 4, 2022.

The acquisition meets the criteria to be accounted for as a business combination.

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

In connection with the acquisition, the Company issued 113,617,352 shares of the Company’s Class A common stock.

The shares issued included a deemed vested component of outstanding employee awards, based on the ratio of time served in relation to the vesting term of each award, with the unvested portion being replaced with Block’s unvested replacement awards, with the same terms.

The aggregate fair value of the shares issued was $ 13.8 billion based on the closing price of the Company’s Class A common stock on the acquisition date, of which $ 66.3 million was attributed to acceleration of various share-based arrangements and was accounted for as an expense immediately post-acquisition, included as a component of general and administrative expenses in the consolidated statement of operations.

As of the completion of the acquisition, certain convertible notes with an outstanding principal amount of AU $ 1.5 billion (U.S.

$ 1.1 billion based on the closing exchange rate on the acquisition date) remained outstanding, and were redeemed on March 4, 2022.

The acquisition meets the criteria to be accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”).

This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment.

The Company is in the process of determining the fair values of purchase consideration transferred, as well as the fair values of tangible and intangible assets acquired and liabilities assumed.

In the first quarter of 2022, the Company prepared an initial determination of the fair value of the assets acquired and liabilities assumed as of the acquisition date using preliminary information.

This included the recognition of $ 131.0 million of deferred tax assets and a corresponding valuation allowance of $ 131.0 million in Australia.

Subsequently in 2022, the Company recognized measurement period adjustments to the assets acquired and liabilities assumed, including adjustments to the value of the deferred and contingent consideration liability assumed through the acquisition.

The Company also refined its analysis of the value of the tax basis of certain acquired intangible assets of the Afterpay entities in Australia, and completed its determination of the allocation of goodwill and certain intangible assets acquired to various operating units.

This resulted in a reduction to the preliminary estimate of the deferred tax asset and a reversal of the valuation allowance of $ 131.0 million.

The Company also completed its evaluation of unrecognized tax benefits and tax contingencies, resulting in an increase in the assumed liabilities.

The net effect of the adjustments recorded in the year ended December 31, 2022 resulted in an increase in current and other non-current liabilities assumed of $ 52.8 million, a decrease in deferred tax liabilities assumed of $ 44.3 million, a decrease in intangible assets acquired of $ 22.0 million, and a net increase in goodwill of $ 30.5 million.

There was no impact to the consolidated statements of operations as a result of these adjustments.

As of December 31, 2022, the Company's purchase price allocation is complete and the measurement period is closed.

The table below summarizes the consideration paid for Afterpay and the assessment of the fair value of the assets acquired and liabilities assumed at the closing date (in thousands, except share data):

Consideration:

Stock ( 113,617,352 shares of Class A common stock, excluding value accounted as post-combination expense of $ 66,337

Cash paid to settle tax withholding in connection with replacement awards 8,693

Total consideration $ 13,836,622

Recognized amounts of identifiable assets acquired and liabilities assumed:

Current assets (inclusive of cash, cash equivalents, and restricted cash acquired) $ 653,709

Consumer receivables 1,245,508

Intangible customer assets 1,378,000

Intangible technology assets 239,000

Intangible trade names 386,000

Other non-current assets 74,232

Long-term debt - current (i)

( 1,058,065 )

Current liabilities ( 439,358 )

Warehouse funding facilities (ii)

Deferred tax liabilities ( 190,689 )

Other non-current liabilities ( 63,213 )

Total identifiable net assets acquired 2,117,128

Goodwill 11,719,494

Total $ 13,836,622

(i) Long-term debt - current is comprised of the aforementioned Afterpay convertible notes, which were redeemed in cash at face value on March 4, 2022.

(ii) Refer to Note 15, Indebtedness for further details.

Goodwill from the acquisition was primarily attributable to the value of expected synergies created by incorporating Afterpay's BNPL platform, its business, and operations into the Company's Cash App and Square ecosystems and the value of the assembled workforce.

The goodwill has no amortizable basis for income tax purposes.

Pro Forma Financial Information

The following table summarizes the unaudited pro forma consolidated financial information of the Company as if the Afterpay acquisition had occurred on January 1, 2021.

Pro forma adjustments have been made to reflect, among other things, the incremental intangible asset amortization to be incurred based on the values of each identifiable intangible asset, stock-based compensation expense related to replacement equity awards, and the tax effects of such adjustments for the respective periods.

The unaudited pro forma financial results are as follows (in thousands):

Year Ended December 31,

Net revenue $ 17,601,817 $ 18,494,077

Net loss $ ( 356,568 ) $ ( 183,616 )

The unaudited pro forma financial information is not intended to present or be indicative of what the results of operations or financial position would have been had the events actually occurred on the dates indicated, nor is it meant to be indicative of future results of operations or financial position for any future period or as of any future date.

The unaudited pro forma financial information does not give effect to the potential impact of current financial conditions, or any anticipated revenue enhancements, cost savings, or operating synergies that may result from the acquisition.

Pro forma net loss for the year ended December 31, 2022 excludes $ 42.4 million of transaction costs incurred by Block directly attributable to the acquisition, as well as $ 66.3 million of incremental stock-based compensation expense incurred by Block, that were included in the determination of the Company's net loss for the year ended December 31, 2022.

Pro forma net loss for the year ended December 31, 2021 includes an adjustment of $ 45.9 million of transaction costs directly attributable to the acquisition incurred by both Afterpay and Block, and $ 66.3 million of incremental stock-based compensation expense.

On April 30, 2021, the Company acquired an 86.8 % ownership interest in TIDAL, 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.

The acquisition extends the Company's purpose of economic empowerment to musicians.

The Company has the option, but not the obligation, to acquire any portion of the remaining noncontrolling interest any time after a three-year period has elapsed from the execution of the merger agreement at a price based on the fair value of TIDAL shares.

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Stock ( 41,138 shares of Class A common stock)

Total consideration $ 233,209

Recognized amounts of identifiable assets acquired and liabilities assumed:

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Accordingly, a valuation allowance was recorded against the net acquired deferred tax asset in accounting for the acquisition.

Deferred consideration in the aggregate amount of $ 46.5 million primarily relates to pre-acquisition contingencies, and includes a portion of purchase consideration withheld, for a period of up to 4 years, as security for TIDAL's indemnification obligations related to general representations and warranties, in addition to certain potential exposures.

Deferred consideration in the aggregate amount of $ 46.5 million primarily relates to pre-acquisition contingencies, and includes a portion of purchase consideration withheld, for a period of up to four years , as security for TIDAL's indemnification obligations related to general representations and warranties, in addition to certain potential exposures.

The Company recognized certain liabilities for acquired pre-existing potential exposures, and an indemnification receivable in the amount of $ 22.8 million has been recorded related to such exposures in accordance with the terms of the indemnification agreement.

The amounts have been determined in accordance with ASC 740, Income Taxes , and ASC 450, Contingencies .

The Company prepared an initial determination of the fair value of the assets acquired and liabilities assumed as of the acquisition date using preliminary information.

Subsequently, the Company has recognized measurement period adjustments to the purchase consideration and the jurisdictional allocation of the fair value of certain assets and liabilities assumed as a result of further refinements in the Company’s estimates.

The net effect of these adjustments on the preliminary purchase price allocation was an increase of $ 13.1 million in goodwill and deferred tax liabilities assumed.

In addition to the deferred consideration, an additional amount of $ 32.2 million in purchase consideration has been withheld related to defined post-acquisition activities.

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Other Acquisitions

The Company completed certain acquisitions for a total consideration of $ 20.5 million, $ 126.7 million, and $ 25.2 million, during the years ended December 31, 2021, 2020, and 2019, respectively, which resulted in the recognition of additional intangible assets and goodwill.

There were no material acquisitions during these periods therefore pro forma financial information has not been presented.

During the years ended December 31, 2022, 2021, and 2020, the Company completed certain acquisitions for a total consideration of $ 46.0 million, $ 20.5 million, and $ 126.7 million, respectively, which resulted in the recognition of additional intangible assets and goodwill.

These acquisitions were not material and therefore pro forma financial information has not been presented.

None of the goodwill generated from the acquisitions or the acquired intangible assets are expected to be deductible for tax purposes.

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Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets acquired.

The change in carrying value of goodwill in the period was as follows (in thousands):

The change in the carrying value of goodwill was as follows (in thousands):

Balance at December 31, 2020 $ 316,701

Acquisitions completed during the year ended December 31, 2020 49,571

Acquisitions 203,079

Other adjustments ( 504 )

Balance at December 31, 2021 519,276

Acquisitions completed during the year ended December 31, 2021 203,079

Other adjustments ( 504 )

Acquisitions 11,761,866

Foreign currency translation adjustments ( 314,381 )

Balance at December 31, 2022 $ 11,966,761

Effective June 30, 2020, the Company changed its operating and reporting segments to reflect the manner in which the CODM reviews and assesses performance.

Accordingly, the Company has two operating and reportable segments, which are Square and Cash App (defined further in Note 19, Segment and Geographical Information ).

The Company allocated $ 183.4 million and $ 112.4 million of the goodwill balance at June 30, 2020 to Square and Cash App, respectively.

In addition, the Company completed an assessment of any potential goodwill impairment for the reporting units immediately before and after the reallocation and determined that no impairment existed as of June 30, 2020.

The change in carrying value of goodwill allocated to the reportable segments in the period was as follows (in thousands):

As defined further in Note 21, Segment and Geographical Information , the Company has two reportable segments, Square and Cash App.

Goodwill arising from the acquisition of Afterpay has been equally allocated to Square and Cash App as management has concluded that the BNPL platform will contribute equally to each of these segments.

The change in the carrying value of goodwill allocated to the reportable segments was as follows (in thousands):

Cash App Square Corporate and Other Total

Balance as of June 30, 2020 $ 112,389 $ 183,371 $ — $ 295,760

Balance at December 31, 2020 $ 128,838 $ 187,863 $ — $ 316,701

Acquisitions — 5,194 197,885 203,079

Other adjustments ( 504 ) — — ( 504 )

Balance as of December 31, 2020 128,838 187,863 — 316,701

Balance at December 31, 2021 128,334 193,057 197,885 519,276

Acquisitions 5,882,133 5,879,733 — 11,761,866

Other adjustments ( 504 ) — — ( 504 )

Balance as of December 31, 2021 $ 128,334 $ 193,057 $ 197,885 $ 519,276

Foreign currency translation adjustments ( 157,537 ) ( 156,844 ) — ( 314,381 )

Balance at December 31, 2022 $ 5,852,930 $ 5,915,946 $ 197,885 $ 11,966,761

Additionally, the Company performed its annual goodwill impairment assessment as of December 31, 2022.

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NOTE 11 - ACQUIRED INTANGIBLE ASSETS

The following table presents the detail of acquired intangible assets as of the periods presented (in thousands):

The following table details acquired intangible assets (in thousands):

Balance at December 31, 2022

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Customer assets 15 years 1,474,163 ( 110,316 ) 1,363,847

Trade name 9 years 53,051 ( 14,169 ) 38,882

Trade names 9 years 434,766 ( 58,352 ) 376,414

Other 9 years 13,701 ( 5,477 ) 8,224

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Customer assets 15 years 128,316 ( 19,244 ) 109,072

Trade name 6 years 18,529 ( 8,031 ) 10,498

Trade names 9 years 53,051 ( 14,169 ) 38,882

Other 9 years 13,743 ( 4,006 ) 9,737

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All intangible assets are amortized over their estimated useful lives.

The changes to the carrying value of intangible assets were as follows (in thousands):

The change in the carrying value of intangible assets was as follows (in thousands):

Year Ended December 31,

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Amortization expense ( 208,952 ) ( 40,522 ) ( 19,239 )

Sale of asset group — — ( 7,582 )

Other adjustments 859 1,812 —

Foreign currency translation and other adjustments ( 40,553 ) 859 1,812

Acquired intangible assets, net, end of the period $ 2,014,034 $ 257,049 $ 137,612

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Other Current Assets

The following table presents the detail of other current assets (in thousands):

The following table details other current assets (in thousands):

2022 December 31,

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Loans held for investment, net of allowance for loan losses (i)

123,959 91,447

Other 185,485 118,189

Total $ 1,627,265 $ 687,429

(i) In April 2021, the Company began originating loans in the U.S.

through its wholly-owned subsidiary bank, Square Financial Services, Inc., and discontinued a prior arrangement with an industrial bank partner.

Refer to Note 6, Loans Held for Investment for further details .

(i) Refer to Note 7, Loans Held for Investment for further details .

Accrued Expenses and Other Current Liabilities

The following table presents the detail of accrued expenses and other current liabilities (in thousands):

The following table details accrued expenses and other current liabilities (in thousands):

2022 December 31,

Accrued expenses $ 382,571 $ 254,900

Accrued royalties 53,616 —

Accrued transaction losses (i) 55,167 70,557

Accounts payable 95,846 82,173

Deferred revenue, current 48,462 44,908

Current portion of long-term debt 455 —

Customer deposits 141,893 59,844

Accrued transaction losses (i)

64,539 55,167

Accrued royalties 63,684 53,616

Operating lease liabilities, current 66,854 64,027

Other 241,289 133,154

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The reconciliation of the beginning and ending accrued transaction losses is as follows:

The following table summarizes the activities of the Company’s reserve for transaction losses (in thousands):

Year Ended December 31,

Accrued transaction losses, beginning of the year $ 70,557 $ 34,771

Accrued transaction losses, beginning of the period $ 55,167 $ 70,557

Provision for transaction losses 100,735 63,436

Charge-offs to accrued transaction losses ( 91,363 ) ( 78,826 )

Accrued transaction losses, end of the year $ 55,167 $ 70,557

In addition to amounts reflected in the table above, the Company recognized additional provision for transaction losses that were realized and written-off within the same period.

The Company recorded $ 338.6 million and $ 264.3 million for the year ended December 31, 2021, and 2020, respectively, for such losses.

Accrued transaction losses, end of the period $ 64,539 $ 55,167

In addition to amounts reflected in the table above, the Company recognized additional provision for transaction losses that was realized and written-off within the same period.

The Company recorded $ 411.7 million and $ 338.6 million for the years ended December 31, 2022 and 2021, respectively, for such losses.

NOTE 13 - OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (NON-CURRENT)

Other Non-Current Assets

The following table presents the detail of other non-current assets (in thousands):

The following table details other non-current assets (in thousands):

2022 December 31,

Investment in non-marketable equity securities (i)

Investment in marketable equity security (ii) — 376,258

Investment in bitcoin, net (iii) 149,000 50,000

$ 208,880 $ 81,919

Investment in bitcoin, net (ii)

102,303 149,000

Restricted cash 71,600 71,702

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(i) Investment in non-marketable equity securities represents the Company's investments in equity of non-public entities.

The Company also holds a non-marketable common stock warrant in a public entity.

These investments are measured using the measurement alternative and are therefore carried at cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer.

Adjustments are recorded within other expense (income), net o n the consolidated statement of operations.

During the year ended December 31, 2021, the Company recorded a net loss of $ 12.4 million, a rising from the revaluation of the non-marketable investments.

(ii) In December 2020, upon DoorDash's initial public offering, the shares of preferred stock held by the Company converted into Class A common stock of DoorDash.

The investment was carried at fair value, with changes in fair value being recorded within other income or expense on the consolidated statement of operations.

During the year ended December 31, 2021, the Company recorded a net gain of $ 44.4 million.

In June 2021, the Company completed the sale of its remaining investment in DoorDash, which will have no further impact on the Company's results in future periods.

(iii) The Company invested $ 50.0 million and $ 170.0 million in bitcoin in the fourth quarter of 2020 and the first quarter of 2021, respectively.

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.

Adjustments are recorded within other expense (income), net on the consolidated statements of operations.

During the year ended December 31, 2022, the Company recorded unrealized gains of $ 96.1 million arising from the revaluation of certain non-marketable investments, resulting in cumulative unrealized gains of $ 115.2 million as of December 31, 2022.

Unrealized losses were immaterial as of December 31, 2022.

(ii) As of December 31, 2022, the Company has purchased a cumulative $ 220.0 million in bitcoin for investment purposes.

Investment in bitcoin is accounted for as an indefinite-lived intangible asset, and does not include any bitcoin held for other parties, which is further described in Note 14, Bitcoin Held for Other Parties .

Investment in bitcoin 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.

The Company recorded impairment losses 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.

Other Non-Current Liabilities

The following table presents the detail of other non-current liabilities (in thousands):

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

NOTE 14 - BITCOIN HELD FOR OTHER PARTIES

The Company allows its Cash App customers to store their bitcoin in the Company’s digital wallets free of charge.

The Company also holds an immaterial amount of bitcoin from select trading partners to facilitate bitcoin transactions for customers on Cash App.

Other than bitcoin, the Company does not hold or store any other types of crypto-assets for customers or trading partners.

The Company holds the cryptographic key information and maintains the internal recordkeeping of the bitcoin held for other parties.

The Company's contractual arrangements state that its customers and trading partners retain legal ownership of the bitcoin;

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

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

The customer also bears the risk of loss as a result of fraud or theft, unless the loss was caused by the Company’s gross negligence or the Company’s willful misconduct.

The Company does not use any of the bitcoin custodied for customers or trading partners as collateral for any of the Company’s loans or other financing arrangements;

nor does it lend or pledge bitcoin held for others to any third parties.

The Company occasionally engages third-party custodians to store and safeguard bitcoin on the Company's behalf.

As of December 31, 2022, no bitcoin custodied for customers was held by third-party custodians.

As of the adoption of SAB 121, the Company records a bitcoin safeguarding obligation liability and a corresponding bitcoin safeguarding asset based on the fair value of the bitcoin held for other parties at each reporting date.

The Company was not aware of any actual or possible safeguarding loss events as of December 31, 2022 or December 31, 2021, and accordingly, the bitcoin safeguarding obligation liability and the associated bitcoin safeguarding asset were recorded at the same value.

The balance sheet as of December 31, 2021 has been revised to reflect the adoption of SAB 121.

The adoption of SAB 121 had no impact on previously reported consolidated statements of operations, statements of cash flows, or statements of stockholders' equity.

The following table summarizes the Company’s bitcoin held for other parties (in thousands, except number of bitcoin):

2022 December 31,

Statutory liabilities (i) $ 133,020 $ 75,370

Other (ii) 89,826 9,921

Total $ 222,846 $ 85,291

(i) Statutory liabilities represent loss contingencies that may arise from the Company's interpretation and application of certain guidelines and rules issued by various federal, state, local, and foreign regulatory authorities.

(ii) Other non-current liabilities includes deferred purchase consideration associated with the acquisition of TIDAL.

Approximate number of bitcoin held for customers 25,850 23,360

Approximate number of bitcoin held for trading partners 62 458

Total approximate number of bitcoin held for other parties 25,912 23,818

Safeguarding obligation liability related to bitcoin held for customers $ 427,221 $ 1,079,412

Safeguarding obligation liability related to bitcoin held for trading partners $ 1,022 21,184

Safeguarding obligation liability related to bitcoin held for other parties $ 428,243 $ 1,100,596

Safeguarding asset related to bitcoin held for other parties $ 428,243 $ 1,100,596

NOTE 15 - INDEBTEDNESS

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On May 25, 2021, the Company entered into a fourth amendment to the Credit Agreement to, among other things, extend the maturity date of the loans advanced to May 1, 2024.

On January 28, 2022, the Company entered into a fifth amendment to the Credit Agreement to permit certain existing obligations of Afterpay and its subsidiaries to remain outstanding as of and after the completion of the Afterpay acquisition.

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).

The Credit Agreement also contains a financial covenant that requires the Company to maintain a quarterly minimum liquidity amount (consisting of the sum of Unrestricted Cash and Cash Equivalents plus Marketable Securities, each as defined in the Credit Agreement) of at least $ 250.0 million, tested on a quarterly basis.

2 unchanged sentences

As of December 31, 2022, $ 600.0 million remained available for draw.

The Company incurred $ 0.8 million and $ 0.7 million in commitment fees during the years ended December 31, 2021 and 2020, respectively.

The Company incurred immaterial unused commitment fees during the years ended December 31, 2022, 2021, and 2020.

As of December 31, 2022, the Company was in compliance with all financial covenants associated with the 2020 Credit Facility.

Loans under the 2020 Credit Facility bear interest at the Company's 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 %.

Loans under the 2020 Credit Facility, excluding the Tranche B Loans, bear interest at the Company's 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 Credit Agreement includes provisions allowing the Company to replace or update LIBOR with a replacement rate.

The margin is determined based on the Company’s total leverage ratio, as defined in the Credit 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.

The Credit Agreement also contains customary affirmative and negative covenants typical for a financing of this type that, among other things, restricts the Company and certain of its subsidiaries’ ability to incur additional indebtedness, create liens, merge or consolidate or make certain dispositions, pay dividends and make distributions, enter into restrictive agreements, enter into agreements with affiliates, and make certain investments and acquisitions.

Warehouse Funding Facilities

Following the acquisition of Afterpay, the Company assumed Afterpay's existing warehouse funding facilities.

The Company has financing arrangements with financial institutions in Australia, New Zealand, the United States, and the United Kingdom (collectively, the “Warehouse Facilities”).

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 the Company's BNPL platform.

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

These Warehouse Facilities have maturity dates ranging from December 2023 to December 2024.

As of December 31, 2022, the aggregate commitment amount of the Warehouse Facilities, using the respective exchange rates at perio d-end, was $ 1.7 billion on a revolving basis, of which $ 1.3 billion was drawn and $ 0.4 billion remained available.

All facilities contain portfolio parameters based on performance of the underlying consumer receivables, which each respective region has satisfied as of December 31, 2022.

None of the Warehouse Facilities contain corporate financial covenants.

All Warehouse Facilities are on a variable rate basis which aligns closely to the weighted-average life of the consumer receivables they finance.

Borrowings under these facilities bear interest at (i) a base rate aligned to either the local risk free rate, such as Term SOFR and the Sterling Overnight Index Average ("SONIA") or similar, and (ii) a margin which is set for the term of the availability period.

In addition, each facility requires payment of immaterial commitment fees.

The table below summarizes the amounts drawn on these facilities by year of maturity (in thousands):

Total funding debt, net of deferred debt issuance costs $ 1,338,306

(i) Disclosed as warehouse funding facilities, current portion within total current liabilities on the consolidated balance sheet.

Paycheck Protection Program Liquidity Facility

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On May 20, 2021, the Company issued an aggregate principal amount of $ 2.0 billion senior unsecured notes comprised of $ 1.0 billion of senior unsecured notes due 2026 ("2026 Senior Notes") and $ 1.0 billion senior unsecured notes due 2031 ("2031 Senior Notes" and, together with the 2026 Senior Notes, the “Senior Notes”).

The 2026 Senior Notes mature on June 1, 2026, unless earlier redeemed or repurchased, and bear interest a rate of 2.75 % payable semi-annually on June 1 and December 1 of each year.

The 2026 Senior Notes mature on June 1, 2026, unless earlier redeemed or repurchased, and bear interest at a rate of 2.75 % payable semi-annually on June 1 and December 1 of each year.

The 2031 Senior Notes mature on June 1, 2031, unless earlier redeemed or repurchased, and bear interest at a rate of 3.50 % payable semi-annually on June 1 and December 1 of each year.

The Senior Notes are subject to optional redemption provisions.

1 unchanged sentence

The applicable premium for any note is the greater of:

(1) 1.0 % of the principal amount of such note, and (2) the excess, if any, of (a) the present value at the redemption date of all scheduled payments of interest plus principal on such note (excluding accrued but unpaid interest, if any, to, but excluding, the redemption date) computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points, over (b) the principal amount of such note.

(i) 1.0 % of the principal amount of such note, and (ii) the excess, if any, of (a) the present value at the redemption date of all scheduled payments of interest plus principal on such note (excluding accrued but unpaid interest, if any, to, but excluding, the redemption date) computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points, over (b) the principal amount of such note.

At any time on or after May 1, 2026, in the case of the 2026 Senior Notes, and March 1, 2031, in the case of the 2031 Senior Notes, the Company may redeem the notes of the applicable series in whole or part at a price of 100 % of the principal amount of the notes to be redeemed plus accrued and unpaid interest, if any, to but excluding the redemption date.

7 unchanged sentences

On November 13, 2020, the Company issued an aggregate principal amount of $ 1.15 billion of convertible senior notes comprised of $ 575.0 million of convertible senior notes due 2026 ("2026 Convertible Notes") and $ 575.0 million of convertible senior notes due 2027 ("2027 Convertible Notes").

The 2026 Convertible Notes mature on May 1, 2026, unless earlier converted or repurchased, and bears a zero rate of interest.

The 2026 Convertible Notes mature on May 1, 2026, unless earlier converted or repurchased, and bear a zero rate of interest.

The 2027 Convertible Notes mature on November 1, 2027, unless earlier converted or repurchased, and bear interest at a rate of 0.25 % payable semi-annually on May 1 and November 1 of each year.

1 unchanged sentence

Holders may convert their relevant series of notes at any time prior to the close of business on the business day immediately preceding February 1, 2026 and August 1, 2027 for the 2026 Convertible Notes and 2027 Convertible Notes, respectively, only under the following circumstances:

(1) during any calendar quarter, commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2026 Convertible Notes and 2027 Convertible Notes) per $1,000 principal amount of 2026 Convertible Notes and 2027 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;

(3) if the Company calls any or all of the 2026 Convertible Notes and 2027 Convertible Notes for redemption, such relevant series of notes called for redemption may be converted at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

or (4) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2026 Convertible Notes and 2027 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets.

(i) during any calendar quarter, commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(ii) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2026 Convertible Notes and 2027 Convertible Notes) per $1,000 principal amount of 2026 Convertible Notes and 2027 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;

(iii) if the Company calls any or all of the 2026 Convertible Notes and 2027 Convertible Notes for redemption, such relevant series of notes called for redemption may be converted at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

or (iv) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2026 Convertible Notes and 2027 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets.

In addition, upon occurrence of the specified corporate events prior to the maturity date, the Company would increase the conversion rate for a holder who elects to convert their relevant series of notes in connection with such an event in certain circumstances.

4 unchanged sentences

In accounting for the issuance of the 2026 Convertible Notes and 2027 Convertible Notes, prior to the adoption of ASU No.

2020-06, the Company separated the relevant series of convertible notes into liability and equity components.

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"), the Company separated the relevant series of convertible notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was $ 198.0 million and was determined by deducting the fair value of the liability component from the par value of the 2026 Convertible Notes and the 2027 Convertible Notes.

The equity component was not re-measured as long as it continued to meet the conditions for equity classification.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount ("debt discount") was amortized to interest expense at an effective interest rate of 3.35 % and 3.66 % for the 2026 Convertible Notes and 2027 Convertible Notes, respectively.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the

Company reversed the separation of the debt and equity components and accounted for the Notes wholly as debt.

Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2026 Convertible Notes and 2027 Convertible Notes wholly as debt.

The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

Debt issuance costs related to the 2026 Convertible Notes and 2027 Convertible Notes were comprised of discounts and commissions payable to the initial purchasers of $ 17.5 million and third party offering costs of $ 1.0 million.

Prior to the adoption of ASU No.

2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2026 Convertible Notes and 2027 Convertible Notes based on their relative values.

Prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2026 Convertible Notes and 2027 Convertible Notes based on their relative values.

Issuance costs attributable to the liability component were $ 15.4 million and were amortized to interest expense using the effective interest method.

Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense at an effective interest rate of 0.49 % and 0.30 % for each of the respective terms of the 2026 Convertible Notes and 2027 Convertible Notes, respectively, with a cumulative adjustment to retained earnings on the adoption date.

Upon adoption of ASU No.

2020-06, the difference between the estimated fair value and the carrying value upon conversion is accounted for as a reduction to the related debt issuance costs, with the remainder recognized as additional paid in capital to reflect the par value of the shares issued.

As of December 31, 2021, there has been no principal converted on either the 2026 Convertible Notes or 2027 Convertible Notes.

Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense at an effective interest rate of 0.30 % and 0.49 % for each of the respective terms of the 2026 Convertible Notes and 2027 Convertible Notes, respectively, with a cumulative adjustment to retained earnings on the adoption date.

Upon adoption of ASU 2020-06, the difference between the estimated fair value and the carrying value upon conversion is accounted for as a reduction to the related debt issuance costs, with the remainder recognized as additional paid in capital to reflect the par value of the shares issued.

As of December 31, 2022, no principal had converted on either the 2026 Convertible Notes or 2027 Convertible Notes.

As of December 31, 2022, the if-converted value of the 2026 Convertible Notes and 2027 Convertible Notes did not exceed the outstanding principal amount.

4 unchanged sentences

Holders may convert their 2025 Convertible Notes at any time prior to the close of business on the business day immediately preceding December 1, 2024 only under the following circumstances:

(1) during any calendar quarter, commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2025 Convertible Notes) per $1,000 principal amount of 2025 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;

(3) if the Company calls any or all of the 2025 Convertible Notes for redemption, such 2025 Convertible Notes called for redemption may be converted at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

or (4) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2025 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets.

(i) during any calendar quarter, commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(ii) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2025 Convertible Notes) per $1,000 principal amount of 2025 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;

(iii) if the Company calls any or all of the 2025 Convertible Notes for redemption, such 2025 Convertible Notes called for redemption may be converted at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

or (iv) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2025 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets.

In addition, upon occurrence of the specified corporate events prior to the maturity date, the Company would increase the conversion rate for a holder who elects to convert their 2025 Convertible Notes in connection with such an event in certain circumstances.

2 unchanged sentences

The Company may redeem for cash all or any part of the 2025 Convertible Notes, at its option, on or after March 5, 2023, if the last reported sale price of the Company's Class A common stock has been at least 130 % of the conversion price for the 2025 Convertible Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The circumstances to allow the holders to convert their 2025 Convertible Notes were met in the first quarter of 2021.

In accounting for the issuance of the 2025 Convertible Notes, prior to the adoption of ASU No.

2020-06, the Company separated the 2025 Convertible Notes into liability and equity components.

The circumstances to allow the holders to convert their 2025 Convertible Notes were met in the first quarter of 2021 and continued to be met through March 31, 2022.

The circumstances were not met in the second, third, and fourth quarters of 2022.

As of December 31, 2022, certain holders of the 2025 Convertible Notes had converted an immaterial aggregate principal amount of their 2025 Convertible Notes.

The Company has settled the conversions through the issuance of an immaterial amount of shares of the Company's Class A common stock.

In accounting for the issuance of the 2025 Convertible Notes, prior to the adoption of ASU 2020-06, the Company separated the 2025 Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was $ 154.6 million and was determined by deducting the fair value of the liability component from the par value of the 2025 Convertible Notes.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the 2025 Convertible Notes at an effective interest rate of 3.81 % over the contractual terms of the 2025 Convertible Notes.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2025 Convertible Notes wholly as debt.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

The debt discount was amortized to interest expense over the term of the 2025 Convertible Notes at an effective interest rate of 3.81 % over the contractual terms of the 2025 Convertible Notes.

Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2025 Convertible Notes wholly as debt.

The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

Debt issuance costs related to the 2025 Convertible Notes were comprised of discounts and commissions payable to the initial purchasers of $ 14.3 million and third party offering costs of $ 0.9 million.

Prior to the adoption of ASU No.

2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2025 Convertible Notes based on their relative values.

Prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2025 Convertible Notes based on their relative values.

Issuance costs attributable to the liability component were $ 12.8 million and will be amortized to interest expense using the effective interest method over the contractual term.

Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the

entire amount as debt issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 0.43 % for the 2025 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

Upon adoption of ASU No.

As of December 31, 2021, there has been no principal converted on the 2025 Convertible Notes.

As of December 31, 2021, the if-converted value of the 2025 Convertible Notes exceeded the outstanding principal amount by $ 334.7 million.

Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 0.43 % for the 2025 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

As of December 31, 2022, there has been an immaterial aggregate principal amount converted on the 2025 Convertible Notes.

As of December 31, 2022, the if-converted value of the 2025 Convertible Notes did not exceed the outstanding principal amount.

Convertible Notes due in 2023

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On or after February 15, 2023, up until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2023 Convertible Notes regardless of the foregoing circumstances.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock, or a combination of cash and shares of its Class A common stock, at the Company’s election.

The circumstances to allow the holders to convert their 2023 Convertible Notes were met in the fourth quarter of 2020 and continued to be met through December 31, 2021.

As of December 31, 2021, certain holders of the 2023 Convertible Notes have converted an aggregate principal amount of $ 401.9 million of their 2023 Convertible Notes, all of which was converted during the twelve months ended December 31, 2021.

Upon conversion, the Company will deliver shares of its Class A common stock.

The circumstances to allow the holders to convert their 2023 Convertible Notes were met in the fourth quarter of 2020 and continued to be met through the first half of 2022.

The circumstances were not met in the third and fourth quarters of 2022.

As of December 31, 2022, certain holders of the 2023 Convertible Notes had converted an aggregate principal amount of $ 401.9 million of their 2023 Convertible Notes, all of which was converted during the year ended December 31, 2022.

The Company has settled the conversions through the issuance of 5.2 million shares of the Company's Class A common stock.

In accounting for the issuance of the 2023 Convertible Notes, prior to the adoption of ASU No.

2020-06, the Company separated the 2023 Convertible Notes into liability and equity components.

In accounting for the issuance of the 2023 Convertible Notes, prior to the adoption of ASU 2020-06, the Company separated the 2023 Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was $ 155.3 million and was determined by deducting the fair value of the liability component from the par value of the 2023 Convertible Notes.

The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount ("debt discount") is amortized to interest expense over the term of the 2023 Convertible Notes at an effective interest rate of 4.69 % over the contractual terms of the 2023 Convertible Notes.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2023 Convertible Notes wholly as debt.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

The debt discount was amortized to interest expense over the term of the 2023 Convertible Notes at an effective interest rate of 4.69 % over the contractual terms of the 2023 Convertible Notes.

Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2023 Convertible Notes wholly as debt.

The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

Debt issuance costs related to the 2023 Convertible Notes comprised of discounts and commissions payable to the initial purchasers of $ 6.0 million and third-party offering costs of $ 0.8 million.

Prior to the adoption of ASU No.

2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2023 Convertible Notes based on their relative values.

Prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2023 Convertible Notes based on their relative values.

Issuance costs attributable to the liability component were $ 5.6 million and will be amortized to interest expense using the effective interest method over the contractual term.

Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the

Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 0.66 % for the 2023 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

Upon adoption of ASU No.

As of December 31, 2021, the if-converted value of the 2023 Convertible Notes exceeded the outstanding principal amount by $ 495.0 million.

Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 0.66 % for the 2023 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

As of December 31, 2022, the if-converted value of the 2023 Convertible Notes did not exceed the outstanding principal amount.

Convertible Notes due in 2022

On March 6, 2017, the Company issued an aggregate principal amount of $ 440.0 million of convertible senior notes ("2022 Convertible Notes").

The 2022 Convertible Notes mature on March 1, 2022, unless earlier converted or repurchased, and bear interest at a rate of 0.375 % payable semi-annually on March 1 and September 1 of each year.

The 2022 Convertible Notes are convertible at an initial conversion rate of 43.5749 shares of the Company's Class A common stock per $1,000 principal amount of 2022 Convertible Notes, which is equivalent to an initial conversion price of approximately $ 22.95 per share of Class A common stock.

Holders may convert their 2022 Convertible Notes at any time prior to the close of business on the business day immediately preceding December 1, 2021 only under the following circumstances:

(1) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2022 Convertible Notes) per $1,000 principal amount of 2022 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day;

or (3) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2022 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets.

On or after December 1, 2021, up until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2022 Convertible Notes regardless of the foregoing circumstances.

The circumstances required to allow the holders to convert their 2022 Convertible Notes were met in the fourth quarter of 2017 and continued to be met through December 31, 2021.

As of December 31, 2021, certain holders of the 2022 Convertible Notes have converted an aggregate principal amount of $ 439.5 million of their 2022 Convertible Notes, of which $ 8.1 million was converted during the twelve months ended December 31, 2021.

The Company has settled the conversions through a combination of $ 219.4 million in cash and issuance of 16.5 million shares of the Company's Class A common stock.

The conversions during the twelve months ended December 31, 2021 were settled entirely in shares of the Company's Class A common stock.

In accounting for the issuance of the 2022 Convertible Notes, prior to the adoption of ASU No.

2020-06, the Company separated the 2022 Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was $ 86.2 million and was determined by deducting the fair value of the liability component from the par value of the 2022 Convertible Notes.

The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

The debt discount is amortized to interest expense over the term of the 2022 Convertible Notes at an effective interest rate of 5.34 % over the contractual terms of the 2022 Convertible Notes.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2022 Convertible Notes wholly as debt.

The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

Debt issuance costs related to the 2022 Convertible Notes comprised of discounts and commissions payable to the initial purchasers of $ 11.0 million and third party offering costs of $ 0.8 million.

Prior to the adoption of ASU No.

2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2022 Convertible Notes based on their relative values.

Issuance costs attributable to the liability component were $ 9.4 million and will be amortized to

interest expense using the effective interest method over the contractual term.

Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

Upon adoption of ASU No.

2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 0.93 % for the 2022 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

Prior to the adoption of ASU No.

2020-06, the debt component associated with the 2022 Convertible Notes that were converted was accounted for as an extinguishment of debt, with the Company recording loss on extinguishment as the difference between the estimated fair value and the carrying value of such 2022 Convertible Notes.

The equity component associated with the 2022 Convertible Notes that were converted was accounted for as a reacquisition of equity upon the conversion of such 2022 Convertible Notes.

Upon adoption of ASU No.

There no longer is a gain or loss on extinguishment of debt recognized upon conversion, as the debt is settled in equity.

As of December 31, 2021, the if-converted value of the 2022 Convertible Notes exceeded the outstanding principal amount by $ 2.7 million.

The net carrying amount of the Notes were as follows (in thousands):

As of the maturity date on March 1, 2022, holders of the 2022 Convertible Notes had converted the full aggregate principal amount of $ 440.0 million of the 2022 Convertible Notes, of which $ 0.5 million was converted in 2022.

The conversions that occurred during 2022 were settled entirely in shares of the Company's Class A common stock.

The 2022 Convertible Notes, 2023 Convertible Notes, 2025 Convertible Notes, 2026 Convertible Notes, and 2027 Convertible Notes (collectively, the “Convertible Notes”), together with the Senior Notes, are collectively referred to as the “Notes.”

The following table summarizes the Company's Notes as of December 31, 2022 (in thousands):

Principal Outstanding Unamortized Debt Issuance Costs Net Carrying Value

December 31, 2021

2031 Senior Notes $ 1,000,000 $ ( 11,829 ) $ 988,171

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2025 Convertible Notes 1,000,000 ( 6,606 ) 993,394

2023 Convertible Notes 460,630 ( 1,012 ) 459,618

2022 Convertible Notes 455 — 455

Total $ 4,611,085 $ ( 51,422 ) $ 4,559,663

As discussed above, upon the adoption of ASU No.

2020-06, the Company reversed the separation of the debt and equity components of the Convertible Notes, and accounted for the Convertible Notes wholly as debt.

Additionally, the issuance costs of the Notes were accounted for as debt issuance costs in its entirety.

Refer to Note 1, Description of Business and Summary of Significant Accounting Policies for further details on the impact of adoption.

Principal outstanding Unamortized debt discount Unamortized debt issuance costs Net carrying value

December 31, 2020

2027 Convertible Notes $ 575,000 $ ( 109,134 ) $ ( 7,370 ) $ 458,496

2026 Convertible Notes 575,000 ( 85,085 ) ( 7,711 ) 482,204

2025 Convertible Notes 1,000,000 ( 130,335 ) ( 11,333 ) 858,332

2023 Convertible Notes 862,500 ( 79,980 ) ( 2,474 ) 780,046

2022 Convertible Notes 8,545 ( 629 ) ( 70 ) 7,846

2023 Convertible Notes (i)

460,630 ( 274 ) 460,356

Total $ 4,610,630 $ ( 40,445 ) $ 4,570,185

The net carrying amount of the equity component of the Convertible Notes as of December 31, 2020 were as follows (in thousands):

Amount allocated to conversion option Less:

allocated issuance costs Equity component, net

December 31, 2020

(i) Net carrying value disclosed as current portion of long-term debt within total current liabilities on the consolidated balance sheet.

The following table summarizes the Company's Notes as of December 31, 2021 (in thousands):

Principal Outstanding Unamortized Debt Issuance Costs Net Carrying Value

2031 Senior Notes $ 1,000,000 $ ( 13,226 ) $ 986,774

2026 Senior Notes 1,000,000 ( 12,374 ) 987,626

2027 Convertible Notes 575,000 ( 7,792 ) 567,208

4 unchanged sentences

Total $ 4,611,085 $ ( 51,422 ) $ 4,559,663

The Company recognized interest expense on the Notes as follows (in thousands, except for percentages):

(i) Net carrying value disclosed as current portion of long-term debt within total current liabilities on the consolidated balance sheet.

The following table summarizes the interest expense of the Notes (in thousands):

Year Ended December 31,

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Amortization of debt discount and issuance costs (i)

10,979 9,823 67,979

Total $ 77,889 $ 53,964 $ 74,057

(i) Upon adoption of ASU No.

2020-06, the debt discount associated with the equity component on convertible debt outstanding was reversed which resulted in a decrease in the amount of non-cash interest expense to be recognized going forward.

Prior to the adoption of ASU No.

2020-06, the effective interest rate for the 2027 Convertible Notes, 2026 Convertible Notes, 2025 Convertible Notes, 2023 Convertible Notes, and 2022 Convertible Notes was 3.66 %, 3.35 %, 3.81 %, 4.69 % and 5.34 %, respectively.

After the adoption of ASU No.

2020-06, the effective interest rates for the 2027 Convertible Notes, 2026 Convertible Notes, 2025 Convertible Notes, 2023 Convertible Notes, and 2022 Convertible Notes are 0.30 %, 0.49 %, 0.43 %, 0.66 %, and 0.93 %, respectively.

(i) Upon adoption of ASU 2020-06 on January 1, 2021, the debt discount associated with the equity component on convertible debt outstanding was reversed, which resulted in a decrease in the amount of non-cash interest expense to be recognized going forward.

Convertible Note Hedge and Warrant Transactions

In connection with the offering of the 2027 Convertible Notes, the Company entered into convertible note hedge transactions ("2027 convertible note hedges") with certain financial institution counterparties ("2027 Convertible Notes Counterparties") whereby the Company has the option to purchase a total of approximately 1.92 million shares of its Class A common stock at a price of approximately $ 299.13 per share.

In connection with the offering of the 2027 Convertible Notes, the Company entered into convertible note hedge transactions ("2027 Convertible Note Hedges") with certain financial institution counterparties ("2027 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 1.9 million shares of its Class A common stock at a price of approximately $ 299.13 per share.

The total cost of the 2027 convertible note hedge transactions was $ 104.3 million.

In addition, the Company sold warrants ("2027 warrants") to the 2027 Convertible Notes Counterparties whereby the 2027 Convertible Notes Counterparties have the option to purchase a total of 1.92 million shares of the Company’s Class A common stock at a price of approximately $ 414.18 per share for the 2027 warrants.

In addition, the Company sold warrants ("2027 Warrants") to the 2027 Note Hedge Counterparties whereby the 2027 Note Hedge Counterparties have the option to purchase a total of 1.9 million shares of the Company’s Class A common stock at a price of approximately $ 414.18 per share for the 2027 Warrants.

The Company received $ 68.0 million in cash proceeds from the sale of the 2027 Warrants.

Taken together, the purchase of the 2027 Convertible Note Hedges and sale of the 2027 Warrants are intended to reduce dilution from the conversion of the 2027 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2027 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $ 299.13 per share to approximately $ 414.18 per share for the 2027 Warrants.

As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2027 convertible note hedges and 2027 warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not re-measured each reporting period.

The net costs incurred in connection with the 2027 convertible note hedges and 2027 warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

In connection with the offering of the 2026 Convertible Notes, the Company entered into convertible note hedge transactions ("2026 convertible note hedges") with certain financial institution counterparties ("2026 Convertible Notes Counterparties") whereby the Company has the option to purchase a total of approximately 1.92 million shares of its Class A common stock at a price of approximately $ 299.13 per share.

As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2027 Convertible Note Hedges and 2027 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives, and are not remeasured each reporting period.

The net costs incurred in connection with the 2027 Convertible Note Hedges and 2027 warrant transactions were recorded as a reduction to additional paid-in capital on the consolidated balance sheets.

In connection with the offering of the 2026 Convertible Notes, the Company entered into convertible note hedge transactions ("2026 Convertible Note Hedges") with certain financial institution counterparties ("2026 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 1.9 million shares of its Class A common stock at a price of approximately $ 299.13 per share.

The total cost of the 2026 Convertible Note Hedges was $ 84.6 million.

In addition, the Company sold warrants ("2026 warrants") to the 2026 Convertible Notes Counterparties whereby the 2026 Convertible Notes Counterparties have the option to purchase a total of 1.92 million shares of the Company’s Class A common stock at a price of approximately $ 368.16 per share for the 2026 warrants.

In addition, the Company sold warrants ("2026 Warrants") to the 2026 Note Hedge Counterparties whereby the 2026 Note Hedge Counterparties have the option to purchase a total of 1.9 million shares of the Company’s Class A common stock at a price of approximately $ 368.16 per share for the 2026 Warrants.

The Company received $ 64.6 million in cash proceeds from the sale of the 2026 Warrants.

1 unchanged sentence

As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2026 Convertible Note Hedges and 2026 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives, and are not remeasured each reporting period.

The net costs incurred in connection with the 2026 convertible note hedges and 2026 warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

In connection with the offering of the 2025 Convertible Notes, the Company entered into convertible note hedge transactions ("2025 convertible note hedges") with certain financial institution counterparties ("2025 Convertible Notes Counterparties") whereby the Company has the option to purchase a total of approximately 8.26 million shares of its Class A common stock at a price of approximately $ 121.01 per share.

The net costs incurred in connection with the 2026 Convertible Note Hedges and 2026 Warrants were recorded as a reduction to additional paid-in capital on the consolidated balance sheets.

In connection with the offering of the 2025 Convertible Notes, the Company entered into convertible note hedge transactions ("2025 Convertible Note Hedges") with certain financial institution counterparties ("2025 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 8.3 million shares of its Class A common stock at a price of approximately $ 121.01 per share.

The total cost of the 2025 Convertible Note Hedges was $ 149.2 million.

In addition, the Company sold warrants ("2025 warrants") to the 2025 Convertible Notes Counterparties whereby the 2025 Convertible Notes Counterparties have the option to purchase a total of 8.26 million shares of the Company’s Class A common stock at a price of approximately $ 161.34 per share.

In addition, the Company sold warrants ("2025 Warrants") to the 2025 Note Hedge Counterparties whereby the 2025 Note Hedge Counterparties have the option to purchase a total of 8.26 million shares of the Company’s Class A common stock at a price of approximately $ 161.34 per share.

The Company received $ 99.5 million in cash proceeds from the sale of the 2025 Warrants.

1 unchanged sentence

As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2025 Convertible Note Hedges and 2025 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives, and are not remeasured each reporting period.

The net costs incurred in connection with the 2025 convertible note hedges and 2025 warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

In connection with the offering of the 2023 Convertible Notes, the Company entered into convertible note hedge transactions ("2023 convertible note hedges") with certain financial institution counterparties ("2018 Counterparties") whereby the Company has the option to purchase a total of approximately 11.1 million shares of its Class A common stock at a price of approximately $ 77.85 per share.

The net costs incurred in connection with the 2025 Convertible Note Hedges and 2025 Warrants were recorded as a reduction to additional paid-in capital on the consolidated balance sheets.

In connection with the offering of the 2023 Convertible Notes, the Company entered into convertible note hedge transactions ("2023 Convertible Note Hedges") with certain financial institution counterparties ("2023 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 11.1 million shares of its Class A common stock at a price of approximately $ 77.85 per share.

The total cost of the 2023 Convertible Note Hedges was $ 172.6 million.

In addition, the Company sold warrants ("2023 warrants") to the 2018 Counterparties whereby the 2018 Counterparties have the option to purchase a total of 11.1 million shares of the Company’s Class A common stock at a price of approximately $ 109.26 per share.

In addition, the Company sold warrants ("2023 Warrants") to the 2023 Note Hedge Counterparties whereby the 2023 Note Hedge Counterparties have the option to purchase a total of 11.1 million shares of the Company’s Class A common stock at a price of approximately $ 109.26 per share.

The Company received $ 112.1 million in cash proceeds from the sale of the 2023 Warrants.

1 unchanged sentence

As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2023 Convertible Note Hedges and 2023 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives, and are not remeasured each reporting period.

The net costs incurred in connection with the 2023 convertible note hedges and 2023 warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

The net costs incurred in connection with the 2023 Convertible Note Hedges and 2023 Warrants were recorded as a reduction to additional paid-in capital on the consolidated balance sheets.

The Company also exercised a pro-rata portion of the 2023 Convertible Note Hedges to offset the shares of the Company's Class A common stock issued to settle the conversion of the 2023 Convertible Notes.

The Company has received 2.0 million shares of the Company's Class A common stock from the 2018 Counterparties, all of which was received in the twelve months ended December 31, 2021

In connection with the offering of the 2022 Convertible Notes, the Company entered into convertible note hedge transactions ("2022 convertible note hedges") with certain financial institution counterparties ("2017 Counterparties") whereby the Company has the option to purchase a total of approximately 19.2 million shares of its Class A common stock at a price of approximately $ 22.95 per share.

The Company has received 3.0 million shares of the Company's Class A common stock from the 2023 Note Hedge Counterparties, of which 1.0 million shares were received in the year ended December 31, 2022.

In connection with the offering of the 2022 Convertible Notes, the Company entered into convertible note hedge transactions ("2022 Convertible Note Hedges") with certain financial institution counterparties ("2022 Note Hedge Counterparties") whereby the Company had the option to purchase a total of approximately 19.2 million shares of its Class A common stock at a price of approximately $ 22.95 per share.

The total cost of the 2022 convertible note hedge transactions was $ 92.1 million.

In addition, the Company sold warrants ("2022 warrants") to the 2017 Counterparties whereby the 2017 Counterparties have the option to purchase a total of 19.2 million shares of the Company’s Class A common stock at a price of approximately $ 31.18 per share.

In addition, the Company sold warrants ("2022 Warrants") to the 2022 Note Hedge Counterparties whereby the 2022 Note Hedge Counterparties had the option to purchase a total of 19.2 million shares of the Company’s Class A common stock at a price of approximately $ 31.18 per share.

The Company received $ 57.2 million in cash proceeds from the sale of the 2022 Warrants.

Taken together, the purchase of the 2022 convertible note hedges and sale of the 2022 warrants are intended to reduce dilution from the conversion of the 2022 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2022 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $ 22.95 per share to approximately $ 31.18 per share.

As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2022 convertible note hedges and 2022 warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period.

The net costs incurred in connection with the 2022 convertible note hedges and 2022 warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

The Company has exercised a pro-rata portion of the 2022 convertible note hedges to offset the shares of the Company's Class A common stock issued to settle the conversion of the 2022 Convertible Notes discussed above.

The 2022 convertible note hedges were net share settled, and as of December 31, 2021, the Company has received 14.9 million shares of the Company's Class A common stock from the 2017 Counterparties, of which 5.5 million was received in the twelve months ended December 31, 2021.

Taken together, the purchase of the 2022 Convertible Note Hedges and sale of the 2022 Warrants were intended to reduce dilution from the conversion of the 2022 Convertible Notes and/or offset any cash payments the Company was required to make in excess of the principal amount of the converted 2022 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $ 22.95 per share to approximately $ 31.18 per share.

As these instruments were considered indexed to the Company's own stock and were considered equity classified, the 2022 Convertible Note Hedges and 2022 Warrants were recorded in stockholders’ equity, were not accounted for as derivatives, and were not remeasured each reporting period.

The net costs incurred in connection with the 2022 Convertible Note Hedges and 2022 Warrants were recorded as a reduction to additional paid-in capital on the consolidated balance sheets.

The Company exercised all of the 2022 Convertible Note Hedges to offset the shares of the Company's Class A common stock issued to settle the conversion of the 2022 Convertible Notes discussed above.

The 2022 Convertible Note Hedges were net share settled, and as of the 2022 Convertible Notes maturity date of March 1, 2022, the Company received 15.0 million shares of the Company's Class A common stock from the 2022 Note Hedge Counterparties, of which 0.2 million shares were received in 2022.

NOTE 16 - INCOME TAXES

The domestic and foreign components of income (loss) before income taxes are as follows (in thousands):

The domestic and foreign components of income (loss) before income taxes were as follows (in thousands):

Year Ended December 31,

2 unchanged sentences

Foreign ( 217,349 ) ( 259,894 ) ( 153,049 )

Income before income taxes $ 157,462 $ 215,967 $ 378,213

The components of the provision for income taxes are as follows (in thousands):

Income (loss) before income taxes $ ( 565,317 ) $ 157,462 $ 215,967

The components of the provision for income taxes were as follows (in thousands):

Year Ended December 31,

10 unchanged sentences

The following is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate:

Balance at December 31,

2022 2021 2020

8 unchanged sentences

Change in uncertain tax positions ( 1.5 ) 5.0 2.3

Sale of Caviar business line — — 1.2

Loss inclusions of US foreign subsidiaries 2.1 0.9 —

Non-deductible executive compensation ( 0.3 ) 5.9 3.6

3 unchanged sentences

Total 2.2 % ( 0.9 ) % 1.3 %

The tax effects of temporary differences and related deferred tax assets and liabilities are as follows (in thousands):

Balance at December 31,

The tax effects of temporary differences and related deferred tax assets and liabilities were as follows (in thousands):

Deferred tax assets:

Capitalized costs $ 12,409 $ 17,994

Capitalized costs & research and development capitalization $ 474,766 $ 12,409

Accrued expenses 129,695 62,707

8 unchanged sentences

Convertible notes 52,915 70,316

Safeguarding liability related to bitcoin held for other parties 110,150 272,287

Total deferred tax assets 2,671,032 2,305,573

4 unchanged sentences

Indefinite-lived intangibles ( 1,309 ) ( 867 )

Other — ( 1,392 )

Unrealized gain on investments ( 29,554 ) ( 4,712 )

Operating lease right-of-use asset ( 96,894 ) ( 108,747 )

Safeguarding asset related to bitcoin held for other parties ( 110,150 ) ( 272,287 )

Total deferred tax liabilities ( 689,256 ) ( 418,388 )

1 unchanged sentence

Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain.

Due to the history of tax losses generated in the U.S.

and certain foreign jurisdictions, the Company believes that it is more likely than not that its deferred tax assets in these jurisdictions will not be realized as of December 31, 2021.

The Company's deferred tax assets and liabilities are primarily related to U.S.

As of December 31, 2022, the Company has two separate U.S.

federal corporate income tax filing groups:

& Subsidiaries and Afterpay US, Inc.

In 2022, the Block Inc.

& Subsidiaries group generated a current tax provision resulting from the requirement to capitalize research and development expenses under Internal Revenue Code ("IRC") Section 174 starting in 2022 and a decline in stock-based compensation deductions.

& Subsidiaries has significant deferred tax assets in the form of net operating loss carryovers, tax credit carryovers, capitalized costs resulting from the IRC Section 174 capitalization requirement, and other tax deductible temporary differences.

Due to the history of tax losses generated by Block Inc.

& Subsidiaries, the Company believes it is not more likely than not that the deferred tax assets as of December 31, 2022 will be realized.

Accordingly, the Company retained a full valuation allowance on the deferred tax assets in Block Inc.

& Subsidiaries.

In 2022, Afterpay US Inc.

generated a tax loss.

Afterpay US Inc.

has significant deferred tax liabilities in relation to acquired intangible assets, which can be used as a source of future income to realize its deferred tax assets as of December 31, 2022.

Accordingly, the Company has not recognized a valuation allowance in Afterpay U.S.

The Company also has a history of tax losses in certain foreign jurisdictions, which it believes are not more likely than not to be realized as of December 31, 2022.

Accordingly, the Company retained a full valuation allowance on its deferred tax assets in these jurisdictions.

1 unchanged sentence

The valuation allowance increased by approximately $ 213.3 million and $ 649.1 million during the years ended December 31, 2022, and 2021, respectively.

As of December 31, 2021, the Company had $ 4,487.1 million of federal, $ 5,105.2 million of state, and $ 976.9 million of foreign net operating loss carryforwards, which will begin to expire in 2031 for federal and 2022 for state tax purposes.

The foreign net operating loss carryforwards will begin to expire in 2023.

As of December 31, 2021, the Company had $ 299.0 million of federal and $ 182.4 million of state research credit carryforwards.

The federal credit carryforward will begin to expire in 2029 and the state credit carryforward has no expiration date.

As of December 31, 2022, the Company had $ 2.8 billion of federal, $ 4.2 billion of state, and $ 1.3 billion of foreign net operating loss carryforwards.

In 2022, $ 1.7 billion of federal net operating losses from tax years 2009 through 2018 are estimated to be utilized.

The remaining carryforward amount from tax years 2018 through 2020 have no expiration date.

The state and foreign net operating loss carryforwards will begin to expire in 2023.

As of December 31, 2022, the Company had $ 402.3 million of federal, $ 250.9 million of state, and $ 19.5 million of foreign research credit carryforwards.

In 2022, $ 30.6 million of federal research credits from tax years 2009 through 2017 are estimated to be utilized.

The remaining federal research credit carryforward for tax years 2017-2021 will begin to expire in 2037.

The state and foreign credit carryforwards have no expiration date.

Utilization of the net operating loss carryforwards and credits may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions.

2 unchanged sentences

As of December 31, 2022, the Company had unrecognized tax benefits of $ 506.5 million, of which $ 73.5 million would impact the annual effective tax rate if recognized and the remainder of which would result in a corresponding adjustment to the valuation allowance.

A reconciliation of the beginning and ending amount of unrecognized tax benefit is presented below (in thousands):

The change in the balance of unrecognized tax benefit was as follows (in thousands):

Year Ended December 31,

2022 2021 2020

Balance at the beginning of the year $ 295,182 $ 217,574 $ 198,540

Unrecognized tax benefit, beginning of the period $ 448,392 $ 295,182 $ 217,574

Gross increases and decreases related to prior period tax positions 5,431 6,552 ( 2,615 )

2 unchanged sentences

Gross increases related to acquisitions 24,651 22,420 3,037

Balance at the end of the year $ 448,392 $ 295,182 $ 217,574

Unrecognized tax benefit, end of the period $ 506,512 $ 448,392 $ 295,182

The Company recognizes interest and penalties related to income tax matters as a component of income tax expense.

14 unchanged sentences

No shares of preferred stock are outstanding as of December 31, 2022.

The Company has authorized the issuance of Class A common stock and Class B common stock.

The Company has two classes of authorized common stock outstanding:

Class A common stock and Class B common stock.

Class A common stock and Class B common stock are referred to as "common stock" throughout these Notes to the Consolidated Financial Statements, unless otherwise noted.

Holders of the Company's Class A common stock and Class B common stock are entitled to dividends when, as and if, declared by the Company's board of directors, subject to the rights of the holders of all classes of stock outstanding having priority rights to dividends.

3 unchanged sentences

The holders of Class A common stock and Class B common stock have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.

Class A common stock and Class B common stock are referred to as "common stock" throughout these Notes to the Consolidated Financial Statements, unless otherwise noted.

As of December 31, 2022, the Company was authorized to issue 1,000,000,000 shares of Class A common stock and 500,000,000 shares of Class B common stock, each with a par value of $ 0.0000001 per share.

As of December 31, 2022, there were 539,408,009 shares of Class A common stock and 60,651,533 shares of Class B common stock outstanding.

Options and awards granted following the Company's November 2015 initial public offering are related to underlying Class A common stock.

Following the Company's initial public offering in 2015, all new stock options and stock-based awards are granted in Class A common stock.

Additionally, holders of Class B common stock are able to convert such shares into Class A common stock.

In conjunction with the 2022 Convertible Notes offering, the Company sold the 2022 warrants whereby the counterparties have the option to purchase a total of approximately 19.2 million shares of the Company’s Class A common stock at a price of $ 31.18 per share, and expire on June 1, 2022.

None of the warrants were exercised as of December 31, 2021.

In conjunction with the 2023 Convertible Notes offering, the Company sold the 2023 warrants whereby the counterparties have the option to purchase a total of approximately 11.1 million shares of the Company’s Class A common stock at a price of $ 109.26 per share, and expire on August 15, 2023.

In conjunction with the 2022 Convertible Notes offering, the Company sold the 2022 Warrants whereby the counterparties have the option to purchase a total of approximately 19.2 million shares of the Company’s Class A common stock at a price of $ 31.18 per share.

The 2022 Warrants expired evenly over a 60 trading day period starting on June 1, 2022 and ending on August 25, 2022.

During the year ended December 31, 2022, all 2022 Warrants were exercised on a net share settlement basis for 10.9 million shares.

In conjunction with the 2023 Convertible Notes offering, the Company sold the 2023 Warrants whereby the counterparties have the option to purchase a total of approximately 11.1 million shares of the Company’s Class A common stock at a price of $ 109.26 per share.

The 2023 Warrants expire evenly over a 60 trading day period starting on August 15, 2023.

None of the warrants were exercised as of December 31, 2022.

In conjunction with the 2025 Convertible Notes offering, the Company sold the 2025 warrants whereby the counterparties have the option to purchase a total of approximately 8.3 million shares of the Company’s Class A common stock at a price of $ 161.34 per share, and expire on June 1, 2025.

In conjunction with the 2025 Convertible Notes offering, the Company sold the 2025 Warrants whereby the counterparties have the option to purchase a total of approximately 8.3 million shares of the Company’s Class A common stock at a price of $ 161.34 per share.

The 2025 Warrants expire evenly over a 60 trading day period starting on June 1, 2025.

None of the warrants were exercised as of December 31, 2022.

In conjunction with the 2026 Convertible Notes offering, the Company sold the 2026 warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $ 368.16 per share, and expire on August 1, 2026.

In conjunction with the 2026 Convertible Notes offering, the Company sold the 2026 Warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $ 368.16 per share.

The 2026 Warrants expire evenly over a 60 trading day period starting on August 1, 2026.

None of the warrants were exercised as of December 31, 2022.

In conjunction with the 2027 Convertible Notes offering, the Company sold the 2027 warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $ 414.18 per share, and expire on February 1, 2028.

In conjunction with the 2027 Convertible Notes offering, the Company sold the 2027 Warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $ 414.18 per share.

The 2027 Warrants expire evenly over a 60 trading day period starting on February 1, 2028.

None of the warrants were exercised as of December 31, 2022.

Indemnification Arrangements

During the year ended December 31, 2019, the Company received 20,793 shares of its common stock, respectively, that were forfeited back to the Company as indemnification against liabilities related to certain acquired businesses preacquisition matters.

The receipt of the forfeited shares was accounted for as equity repurchases.

The Company received no shares related to indemnification arrangements in the years ended December 31, 2021 and 2020.

Conversion of Convertible Notes and Exercise of Convertible Note Hedges

In connection with the conversion of certain of the 2022 Convertible Notes, the Company issued 16.5 million shares of Class A common stock, of which 0.4 million shares were issued in the year ended December 31, 2021.

The Company also exercised a pro-rata portion of the 2022 convertible note hedges and received 14.9 million shares of Class A common stock from the counterparties to offset the shares issued, of which 5.5 million shares were received in the year ended December 31, 2021.

In connection with the conversion of the 2023 Convertible Notes, the Company issued 5.2 million shares of Class A common stock during the twelve months ended December 31, 2021.

The Company also exercised a pro-rata portion of the 2023 convertible note hedges and received 2.0 million shares of Class A common stock from the 2018 Counterparties to offset the shares issued as of December 31, 2021.

In connection with the conversion of certain of the 2022 Convertible Notes, the Company issued an aggregate 16.5 million shares of Class A common stock as of the maturity date on March 1, 2022, of which an immaterial number of shares were issued in the year ended December 31, 2022.

The Company also exercised all of the 2022 Convertible Note Hedges and received 15.0 million shares of Class A common stock from the counterparties to offset the shares issued, which is inclusive of 0.2 million shares that were received in the year ended December 31, 2022.

In connection with the conversion of the 2023 Convertible Notes, the Company has issued an aggregate 5.2 million shares of Class A common stock as of December 31, 2022, of which an immaterial number of shares were issued in the year ended December 31, 2022.

The Company also exercised a pro-rata portion of the 2023 Convertible Note Hedges and received 3.0 million shares of Class A common stock from the 2023 Note Hedge Counterparties to offset the shares issued as of December 31, 2022, which is inclusive of 1.0 million shares that were received in the year ended December 31, 2022.

The Company maintains two share-based employee compensation plans:

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Since November 17, 2015, no additional awards have been nor will be granted in the future under the 2009 Plan.

As of December 31, 2022, the total number of shares subject to stock options, RSAs, and RSUs outstanding under the 2009 Plan was 3,730,601 shares.

Under the 2015 Plan, shares of the Company's Class A common stock are reserved for the issuance of incentive and nonstatutory stock options ("ISOs" and "NSOs", respectively), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance shares, and stock bonuses to qualified employees, directors, and consultants.

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As of December 31, 2022, the total number of shares subject to stock options, RSAs, and RSUs outstanding under the 2015 Plan was 31,308,210 shares, and 117,238,742 shares were available for future issuance.

Under the 2009 Plan, shares of common stock are reserved for the issuance of ISOs or NSOs to eligible participants.

The options may be granted at a price per share not less than the fair market value at the date of grant.

Options granted generally vest over a 4 year term from the date of grant, at a rate of 25 % after one year , then monthly on a straight-line basis thereafter.

Generally, options granted are exercisable for up to 10 years from the date of grant.

The Plan allows for early exercise of employee stock options whereby the option holder is allowed to exercise prior to vesting.

Any unvested shares are subject to repurchase by the Company at their original exercise prices.

As of December 31, 2021, the total number of shares subject to stock options, RSAs, and RSUs outstanding under the 2009 Plan was 15,690,278 shares.

A summary of stock option activity for the year ended December 31, 2022 is as follows (in thousands, except share and per share data):

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(in years) Aggregate

Balance at December 31, 2020 13,630,882 $ 17.84 3.84 $ 2,723,394

Outstanding, beginning of the period 8,916,100 $ 26.09 3.89 $ 1,226,105

Granted 796,719 94.61

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Forfeited ( 93,371 ) 105.85

Balance at December 31, 2021 8,916,100 $ 26.09 3.89 $ 1,226,105

Options exercisable as of December 31, 2021 7,769,686 $ 16.58 3.30 $ 1,129,046

Expired ( 13,056 ) 190.75

Outstanding, end of the period 6,738,783 $ 40.37 4.02 $ 224,484

Exercisable, end of the period 5,701,097 $ 28.32 3.30 $ 221,311

Aggregate intrinsic value represents the difference between the Company’s estimated fair value of its common stock and the exercise price of outstanding, in-the-money options.

Aggregate intrinsic value for stock options exercised for the years ended December 31, 2021, 2020, and 2019 was $ 1.1 billion, $ 1.2 billion, and $ 616.3 million, respectively.

Aggregate intrinsic value for stock options exercised for the years ended December 31, 2022, 2021, and 2020 was $ 0.2 billion, $ 1.1 billion, and $ 1.2 billion, respectively.

The total weighted-average grant-date fair value of options granted was $ 73.31 , $ 131.57 , and $ 27.04 per share for the years ended December 31, 2022, 2021, and 2020, respectively.

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Date Fair Value

Unvested as of December 31, 2020 15,622,645 $ 71.71

Unvested, beginning of the period 13,221,953 $ 137.86

Granted 26,437,317 85.17

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Forfeited ( 3,160,728 ) 123.83

Unvested as of December 31, 2021 13,221,953 $ 137.86

The total fair value of shares vested in the year ended December 31, 2021, 2020, and 2019 were $ 1.6 billion, $ 817.5 million, and $ 552.9 million, respectively.

Unvested, end of the period 28,300,028 $ 97.89

The total fair value of shares vested was $ 724.2 million, $ 1.6 billion, and $ 817.5 million in the years ended December 31, 2022, 2021, and 2020, respectively.

Employee Stock Purchase Plan

On November 17, 2015, the Company’s 2015 Employee Stock Purchase Plan ("ESPP") became effective.

The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 % of their eligible compensation, (or 25 % for offering periods that commence after November 1, 2019), subject to any plan limitations.

The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 25 %, subject to any plan limitations.

The ESPP provides for 12 -month offering periods.

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Share-Based Compensation

The fair value of stock options granted was estimated using the following weighted-average assumptions:

The fair values of stock options granted were estimated using the following weighted-average assumptions:

Year Ended December 31,

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Expected term (years) 6.02 6.02 6.02

The following table summarizes the effects of share-based compensation on the Company's consolidated statements of operations (in thousands):

The following table summarizes the effects of share-based compensation on the consolidated statements of operations (in thousands):

Year Ended December 31,

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Total $ 1,069,289 $ 608,042 $ 397,500

The Company recorded tax benefits related to stock-based compensation expense of $ 218.9 million, $ 10.5 million and $ 7.8 million, during the years ended December 31, 2022, 2021, and 2020, respectively.

The Company recorded $ 61.4 million, $ 34.9 million, and $ 18.2 million of share-based compensation expense related to the Company's 2015 Employee Stock Purchase Plan during the years ended December 31, 2022, 2021 and 2020, respectively.

The total share-based compensation expense for the year ended December 31, 2022 also includes a $ 66.3 million one-time charge related to the acceleration of various share-based arrangements associated with the acquisition of Afterpay.

The Company capitalized $ 20.7 million, $ 15.1 million, and $ 13.9 million of share-based compensation expense related to capitalized software during the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, there was $ 2.7 billion of total unrecognized compensation cost related to outstanding stock options and restricted stock awards that are expected to be recognized over a weighted-average period of 2.9 years.

NOTE 16 - NET INCOME PER SHARE

Basic net income per share is computed by dividing the net income by the weighted-average number of shares of common stock outstanding during the period.

NOTE 18 - NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period.

Diluted net income per share is computed by dividing 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 the years when the Company reported a net loss, diluted loss per share is the same as basic loss per share because the effects of potentially dilutive items were anti-dilutive.

In periods when the Company reported a net loss, diluted net loss per share is the same as basic net loss per share because the effects of potentially dilutive items were anti-dilutive.

The following table presents the calculation of basic and diluted net income per share (in thousands, except per share data):

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2022 2021 2020

Net income $ 158,826 $ 213,105 $ 375,446

Net income (loss) $ ( 553,005 ) $ 158,826 $ 213,105

Net loss attributable to noncontrolling interests ( 12,258 ) ( 7,458 ) —

Net income attributable to common stockholders $ 166,284 $ 213,105 $ 375,446

Net income (loss) attributable to common stockholders $ ( 540,747 ) $ 166,284 $ 213,105

Basic shares:

Weighted-average common shares outstanding 458,780 443,773 425,728

Weighted-average unvested shares ( 348 ) ( 647 ) ( 729 )

Weighted-average shares used to compute basic net income per share attributable to common stockholders 458,432 443,126 424,999

Weighted-average shares used to compute basic net income (loss) per share 578,949 458,432 443,126

Diluted shares:

Stock options, restricted stock, and employee stock purchase plan — 17,849 23,628

Convertible senior notes 408 — —

Convertible notes — 408 —

Common stock warrants — 25,090 15,413

Weighted-average shares used to compute diluted net income per share attributable to common stockholders 501,779 482,167 466,076

Net income per share attributable to common stockholders:

Weighted-average shares used to compute diluted net income (loss) per share 578,949 501,779 482,167

Net income (loss) per share attributable to common stockholders:

Basic $ ( 0.93 ) $ 0.36 $ 0.48

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Stock options, restricted stock, and employee stock purchase plan 32,185 7,680 12,509

Convertible notes 18,029 23,947 25,073

Common stock warrants 33,699 17,271 22,140

Convertible senior notes 23,947 25,073 20,305

Total anti-dilutive securities 83,913 48,898 59,722

NOTE 19 - RELATED PARTY TRANSACTIONS

In July 2019, the Company entered into a lease agreement to lease certain office space located in St.

Louis, Missouri, from an affiliate of one of the Company’s co-founders and current member of its board and directors, Mr.

Jim McKelvey, under an operating lease agreement as discussed in Note 18, Commitments and Contingencies .

The lease commencement date varies by floor beginning in May 2020.

The term of the agreement is 15.5 years with total future minimum lease payments over the term of approximately $ 42.7 million.

In July 2019, the Company entered into a lease agreement for office space in St.

Louis, Missouri, from an affiliate of one of the Company’s co-founders and current member of its board of directors, Mr.

Jim McKelvey, for a term of 15.5 years with options to extend the lease term for two five-year terms.

The lease possession date varied by floor, beginning in May 2020.

As of December 31, 2022, the Company had recorded right-of-use assets of $ 19.9 million and associated lease liabilities of $ 32.2 million related to this lease arrangement.

Under the lease agreement, the Company also has an option to terminate the lease for up to 50 % of the leased space any time between January 1, 2024 and December 31, 2026, as well as an option to terminate the lease for the entire property on January 1, 2034.

Termination penalties specified in the lease agreement will apply if the Company exercises any of the options to terminate the lease.

On January 2, 2023, the Company notified the lessor of its intention to exercise the early termination option with respect to approximately 48 % of the leased space, effective December 31, 2023.

As a result, the Company will pay a termination penalty of approximately $ 5.2 million to exercise the option.

NOTE 20 - COMMITMENTS AND CONTINGENCIES

Operating and Finance Leases

The Company’s operating leases are primarily comprised of office facilities, with the most significant leases relating to its offices in San Francisco, Oakland, St.

Louis, and New York.

The Company's leases have remaining lease terms of 1 year to 15 years, some of which include options to extend for 5 year terms, or include options to terminate the leases within 1 year.

The Company’s operating leases are primarily comprised of office facilities.

The Company's leases have remaining lease terms of one year to 14 years, some of which include options to extend up to five year terms, or include options to terminate the leases with advanced notice.

None of the options to extend the leases have been included in the measurement of the right-of-use asset or the associated lease liability.

In July 2019, the Company entered into a lease arrangement for 226,185 square feet of office space in St Louis, Missouri, with an affiliate of one of the Company’s co-founders, Mr.

Jim McKelvey, who is also a Company stockholder and a member of its board of directors, for a term of 15.5 years with options to extend the lease term for two 5 year terms.

The Company also has an option to terminate the lease for up to 50 % of the leased space any time between January 1, 2024 and December 31, 2026, as well as an option to terminate the lease for the entire property on January 1, 2034.

Termination penalties specified in the lease agreement will apply if the Company exercises any of the options to terminate the lease.

The lease commencement date varies by floor beginning in May 2020 with total future minimum lease payments over the term of approximately $ 42.7 million.

Refer to Note 17, Related Party Transactions for further details.

There were no finance lease obligations as of December 31, 2022.

The components of lease expense for the year ended December 31, 2021 were as follows (in thousands):

The components of lease costs for the year ended December 31, 2022 were as follows (in thousands):

Year Ended December 31,

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Sublease income ( 15,965 ) ( 12,210 )

Finance lease costs

Amortization of finance right-of-use assets — 2,446

Total lease costs $ 108,797 $ 88,447

Other information related to leases was as follows:

Weighted Average Remaining Lease Term:

Operating leases 8.3 years

Other information related to operating leases was as follows:

Year Ended December 31,

Weighted-average remaining lease term 7.7 years 8.3 years

Weighted-average discount rate 3.55 % 3.55 %

Operating leases 4 %

Cash flows related to leases were as follows (in thousands):

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Payments for operating lease liabilities $ ( 92,730 ) $ ( 77,201 )

Cash flows from financing activities:

Principal payments on finance lease obligation $ — $ ( 2,446 )

Supplemental cash flow data:

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

Purchase Commitments

During the year ended December 31, 2022, we entered into non-cancelable purchase obligations related to cloud computing infrastructure.

The commitment amounts in the table below are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, and the approximate timing of the actions under the contracts.

As of December 31, 2022, the future minimum payments under the purchase commitments were as follows (in thousands):

Payments Due By Period

2023 $ 182,500

Total $ 1,279,200

Litigation and Regulatory Matters

The Company is currently subject to, and may in the future be involved in, various litigation matters, legal claims, investigations, and regulatory proceedings.

We have received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”), as well as from Attorneys General from multiple states, seeking the production of information related to, among other things, Cash App’s handling of customer complaints and disputes.

We are cooperating with the CFPB and the state Attorneys General in connection with these CIDs.

During the three months ended December 31, 2021, we accrued a non-material loss reserve in connection with the CFPB CIDs.

Given the status of these matters, it is not possible to reliably determine the potential liability, if any, or reliably estimate the range of any potential liability in excess of the accrued amounts, that could result from these investigations.

The Company received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”), as well as from Attorneys General from multiple states, seeking the production of information related to, among other things, Cash App’s handling of customer complaints and disputes.

The Company is cooperating with the CFPB and the state Attorneys General in connection with these CIDs.

The Company has accrued a liability for an estimated amount in connection with these CIDs in accordance with ASC 450-20, Contingencies:

Loss Contingencies.

The accrued amount was not material as of December 31, 2022.

Given the status of these matters, it is not possible to reliably determine the range of potential liability in excess of the accrued amounts that could result from these investigations.

The Company regularly assesses the likelihood of adverse outcomes resulting from litigation and regulatory proceedings and adjusts the financial statements based on such assessments.

The eventual outcome of these matters could differ materially from the estimates of loss reserves we have currently accrued in the financial statements.

The eventual outcome of these matters may differ materially from the estimates the Company has currently accrued in the financial statements.

On December 16, 2021, H&R Block, Inc.

and HRB Innovations, Inc.

(collectively, “HRB”) filed a complaint for trademark infringement against the Company.

(collectively, “HRB”) filed a complaint for trademark infringement against the Company in the United States District Court for the Western District of Missouri.

HRB alleges that the Company’s rebranding to Block, Inc.

and use of a green square logo in connection with the Company’s Cash App Taxes product infringe HRB’s registered trademarks and are likely to cause consumer confusion.

The Company believes this lawsuit is without merit.

and use of a green square logo in connection with the Company’s Cash App Taxes product infringe HRB’s trademarks and are likely to cause consumer confusion.

HRB demands that the Company stop using the Block name and associated branding, and further demands that the Company stop using the green square Cash App logo.

A preliminary injunction granted by the trial court on April 28, 2022 preventing the Company from using its Block, Inc.

name in connection with Cash App Taxes was stayed by the appellate court on June 8, 2022 for the duration of the Company's appeal of the preliminary injunction.

On January 24, 2023, the Eighth Circuit reversed and vacated the injunction granted by the trial court.

On February 21, 2023, HRB filed a petition for rehearing en banc, which is now under consideration by the Eighth Circuit.

The Company continues to believe this lawsuit is without merit and intends to vigorously defend itself in this matter.

In addition, the Company is subject to various legal matters, investigations, claims, and disputes arising in the ordinary course of business.

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Other Contingencies

We are under examination, or may be subject to examination, by several tax authorities.

These examinations may lead to proposed adjustments to our taxes or net operating losses with respect to years under examination, as well as subsequent periods.

We regularly assess the likelihood of adverse outcomes resulting from tax examinations to determine the adequacy of our provision for direct and indirect taxes.

We continue to monitor the progress of ongoing discussions with tax authorities and the effect, if any, on our provision for direct and indirect taxes.

We believe that an adequate provision has been made for any adjustments that may result from tax examinations.

The Company is under examination, or may be subject to examination, by several tax authorities.

These examinations may lead to proposed adjustments to the Company's taxes or net operating losses with respect to years under examination, as well as subsequent periods.

The Company regularly assesses the likelihood of adverse outcomes resulting from tax examinations to determine the adequacy of the Company's provision for direct and indirect taxes.

The Company continues to monitor the progress of ongoing discussions with tax authorities and the effect, if any, on the Company's provision for direct and indirect taxes.

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations.

However, the outcome of tax audits cannot be predicted with certainty.

If any issues addressed in our tax audits are resolved in a manner not consistent with the Company’s expectations, we could be required to adjust our provision for direct and indirect taxes in the period such resolution occurs.

If any issues addressed in the Company's tax audits are resolved in a manner not consistent with the Company’s expectations, the Company could be required to adjust the Company's provision for direct and indirect taxes in the period such resolution occurs.

NOTE 21 - SEGMENT AND GEOGRAPHICAL INFORMATION

The Company reports its operating segments to reflect the manner in which the Company's CODM reviews and assesses performance.

Accordingly, the Company has two reportable segments, which are Square and Cash App.

The Company reports its segments to reflect the manner in which the Company's chief operating decision maker ("CODM") reviews and assesses performance.

Accordingly, the Company has two reportable segments, Square and Cash App.

The financial results of the Company's BNPL platform have been allocated equally to the Cash App and Square segments as management has concluded that the BNPL platform will contribute equally to both the Cash App and Square platforms.

Further, Afterpay does not have a segment manager who reports to the CODM.

Rather, the operations of Afterpay are managed by the segment managers of Cash App and Square, who are responsible for allocating resources and evaluating the performance of Afterpay.

Disclosures regarding the Company’s reportable segments for prior periods have been adjusted to conform to the current period presentation.

Square and Cash App are defined as follows:

• Square includes managed payment services, software solutions, hardware, and financial services offered to sellers, excluding those that involve Cash App.

• Cash App includes the financial tools available to individuals within the mobile Cash App, including peer-to-peer payments, bitcoin and stock investments.

Cash App also includes Cash Card which is linked to customer stored balances that customers can use to pay for purchases or withdraw funds from an ATM.

Cash App also includes Cash App Card which is linked to customer stored balances that customers can use to pay for purchases or withdraw funds from an ATM.

• Square includes managed payment services, software solutions, hardware, and financial services offered to sellers, excluding those that involve Cash App.

The primary financial measures used by the CODM to evaluate performance and allocate resources are revenue and gross profit.

The CODM does not evaluate performance or allocate resources based on segment asset data, and therefore such information is not included.

Information on the reportable segments revenue and segment gross profit are as follows (in thousands):

The following tables present information on the reportable segments revenue and segment gross profit (in thousands):

Year Ended December 31, 2022

Cash App Square Corporate and Other (i) Total

Cash App Square Corporate and Other (i)

Transaction-based revenue $ 466,171 $ 5,235,369 $ — $ 5,701,540

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Bitcoin revenue 7,112,856 — — 7,112,856

Segment revenue 12,315,499 5,193,348 152,356 17,661,203

Segment gross profit $ 2,070,847 $ 2,316,671 $ 32,305 $ 4,419,823

Segment revenue (ii)

10,626,111 6,699,830 205,646 17,531,587

Segment gross profit (iii, iv)

$ 2,950,967 $ 3,000,978 $ 39,947 $ 5,991,892

Year Ended December 31, 2021

Cash App Square Corporate and Other (i) Total

Cash App Square Corporate and Other (i)

Transaction-based revenue $ 409,844 $ 4,383,302 $ — $ 4,793,146

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Segment revenue 12,315,499 5,193,348 152,356 17,661,203

Segment gross profit $ 1,225,578 $ 1,507,831 $ — $ 2,733,409

Segment gross profit (iv)

$ 2,070,847 $ 2,316,671 $ 32,305 $ 4,419,823

Year Ended December 31, 2020

Cash App Square Corporate and Other (i) Total

Cash App Square Corporate and Other (i)

Transaction-based revenue $ 233,747 $ 3,061,231 $ — $ 3,294,978

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Segment revenue 5,968,386 3,529,192 — 9,497,578

Segment gross profit $ 457,668 $ 1,390,427 $ — $ 1,848,095

(i) Corporate and other represents results related to products and services that are not assigned to a specific reportable segment.

Comparable prior period amounts have not been disclosed as they were not material.

The amounts in the tables above exclude the Caviar business, a food ordering and delivery platform business, which was sold in the year ended December 31, 2019.

A reconciliation of total segment revenues, as indicated above, to the Company's consolidated revenues is as follows (in thousands):

Year Ended December 31,

Segment gross profit (iv)

$ 1,225,578 $ 1,507,831 $ — $ 2,733,409

Total segment revenue $ 17,661,203 $ 9,497,578 $ 4,567,587

Caviar revenue — — 145,913

Total net revenue $ 17,661,203 $ 9,497,578 $ 4,713,500

A reconciliation of total segment gross profit to the Company's income before applicable income taxes is as follows (in thousands):

(i) Corporate and other represents results related to products and services that are not assigned to a specific reportable segment, and intersegment eliminations.

(ii) The revenue for both Cash App and Square for the year ended December 31, 2022 included $ 405.7 million each, from Afterpay post-acquisition results following the closing of the acquisition.

(iii) The gross profit for both Cash App and Square for the year ended December 31, 2022 included $ 294.1 million each, from Afterpay post-acquisition results following the closing of the acquisition.

(iv) Segment gross profit for Cash App for the years ended December 31, 2022, 2021, and 2020 included $ 32.1 million, $ 10.5 million, and $ 5.4 million of amortization of acquired technology assets expense, respectively.

Segment gross profit for Square for the years ended December 31, 2022, 2021, and 2020 included $ 32.2 million, $ 8.3 million, and $ 5.8 million of amortization of acquired technology assets expense, respectively.

Amortization of acquired technology assets expense included in Corporate and Other was immaterial for the years ended December 31, 2022, 2021, and 2020.

The following table provides a reconciliation of total segment gross profit to the Company’s income (loss) before applicable income taxes (in thousands):

Year Ended December 31,

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Total segment gross profit $ 5,991,892 $ 4,419,823 $ 2,733,409

Caviar gross profit — — 41,590

Total reported operating gross profit 4,419,823 2,733,409 1,889,685

Product development 2,135,612 1,383,841 881,826

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General and administrative 1,686,849 982,817 579,203

Transaction and loan losses 187,991 177,670 126,959

Transaction, loan, and consumer receivable losses 550,683 187,991 177,670

Bitcoin impairment losses 46,571 71,126 —

Gain on sale of asset group — — ( 373,445 )

Amortization of customer and other intangible assets 138,758 15,747 3,855

Interest expense, net 36,228 33,124 56,943

Other expense (income), net ( 29,474 ) ( 291,725 ) 273

Income before applicable income taxes $ 157,462 $ 215,967 $ 378,213

Other income (loss), net ( 95,443 ) ( 29,474 ) ( 291,725 )

Income (loss) before applicable income taxes $ ( 565,317 ) $ 157,462 $ 215,967

Revenue by geography is based on the addresses of the sellers or customers.

The following table sets forth revenue by geographic area (in thousands):

The following table details revenue by geographic area (in thousands):

Year Ended December 31,

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International 1,216,818 583,671 311,138

Total net revenue $ 17,661,203 $ 9,497,578 $ 4,713,500

No individual country from the international markets contributed in excess of 10% of total revenue for the years ended December 31, 2021, 2020, and 2019.

Long-Lived Assets

The following table sets forth long-lived assets by geographic area (in thousands):

Total $ 17,531,587 $ 17,661,203 $ 9,497,578

No individual country from the international markets contributed more than 10% of total revenue for the years ended December 31, 2022, 2021, and 2020.

Long-Lived Assets

The following table details long-lived assets by geographic area (in thousands):

United States $ 8,023,535 $ 1,426,103

Australia 4,801,434 26,680

International 1,858,300 55,088

Total long-lived assets $ 1,507,871 $ 1,144,721

Total $ 14,683,269 $ 1,507,871

Assets by reportable segment were not included, as this information is not reviewed by the CODM to make operating decisions or allocate resources, and is reviewed on a consolidated basis.

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Purchases of property and equipment in accounts payable and accrued expenses 5,212 15,071 ( 3,975 )

Unpaid business combination purchase price 50,079 8,974 8,411

Non-cash proceeds from sale of asset group — — 100,000

Fair value of common stock issued related to business combination ( 28,735 ) ( 35,318 ) —

Recovery of common stock in connection with indemnification settlement agreement — — 789

Fair value of common stock issued to settle the conversion of senior notes ( 1,258,562 ) ( 1,398,829 ) —

Fair value of shares received to settle senior note hedges 1,800,933 369,015 —

Deferred purchase consideration related to business combinations 14,377 50,079 8,974

Fair value of common stock issued related to business combinations ( 13,827,929 ) ( 28,735 ) ( 35,318 )

Fair value of common stock issued to settle the conversion of convertible notes ( 2,523 ) ( 1,258,562 ) ( 1,398,829 )

Fair value of shares received to settle convertible note hedges 133,144 1,800,933 369,015

Fair value of common stock issued in connection with the exercise of common stock warrants ( 806,446 ) — —

Bitcoin lent to third-party borrowers 5,934 ( 6,084 ) —

NOTE 21 - SUBSEQUENT EVENTS

The Company completed the acquisition of Afterpay on January 31, 2022 as discussed in Note 8 Acquisitions .

On February 23, 2022, the Company entered into a sixth amendment to the Credit Agreement to increase the revolving commitments under the 2020 Credit Facility by $ 100 million to an aggregate principal amount of up to $ 600 million.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data