What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-23 · 197 added, 204 removed, 351 unchanged (53% of the section changed)

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

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

to Block, Inc.

(together with its subsidiaries, "Block").

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

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

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

We have expanded to provide sellers additional products and services and to give them access to a cohesive ecosystem of tools to help them manage and grow their businesses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In addition, we also operate TIDAL, a global platform for musicians and fans, and TBD, an open developer platform, to contribute to our purpose of economic empowerment.

We delivered strong growth across our primary ecosystems in 2023.

Gross profit was $7.5 billion , up 25% year over year, driven primarily by our Cash App and Square ecosystems.

Cash App generated gross profit of $4.3 billion in 2023, up 33% year over year.

Performance was driven by growth in transacting actives and adoption by transacting actives of our broader ecosystem, including financial services products.

Square generated gross profit of $3.1 billion in 2023, up 16% year over year as we continued to make progress growing upmarket with larger sellers and optimizing our go-to-market strategies.

In 2023, operating loss was $278.8 million and Adjusted Operating Income was $351.4 million, a decrease of 55% and an increase of 342% year over year, respectively.

For the same period, net income was $9.8 million, an increase of 102%, year over year, and Adjusted EBITDA was $1.8 billion, an increase of 81% year over year.

Refer to the Key Operating Metrics and Non-GAAP Financial Measures section below for reconciliations of non-GAAP financial measures to their nearest generally accepted accounting principles ("GAAP") equivalents.

In 2023, we sharpened our focus on our organizational structure and expenditures with a view to identifying areas where we can be more cost efficient as we focus on disciplined growth and pursuing cost efficiencies and we expect to continue these efforts in 2024.

This involves implementing greater expense discipline and reassessing certain contractual vendor arrangements.

In November 2023, we announced we would implement an absolute cap of 12,000 on the number of employees we have at our company.

We plan to operate below this cap through a combination of performance management, centralizing teams and functions to reduce duplication, and prioritization of our scope.

The Company recorded $104.0 million of severance and other related expenses for the year ended December 31, 2023, of which $70.2 million related to severance recognized in the fourth quarter of 2023.

We may continue to incur expenses, including restructuring costs, in the short term to implement these initiatives, but we expect to benefit from these actions in future periods.

We ended 2023 with $7.7 billion in available liquidity, with $6.9 billion in cash, cash equivalents, restricted cash, and investments in marketable debt securities, as well as an undrawn amount of $775.0 million available under our revolving credit facility.

This represents an increase of $205.8 million from the end of 2022, including a $461.8 million cash payment for the settlement of the outstanding 2023 Convertible Notes that matured in May 2023.

On October 26, 2023, the board of directors of the Company authorized the repurchase of up to $1 billion of the Company’s Class A common stock, which commenced in the fourth quarter of 2023.

The goal of the program is to offset a portion of the dilution associated with stock-based compensation issued to employees as part of the Company’s overall compensation program.

The timing and amount of shares repurchased will depend on a variety of factors, including the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors.

In the fourth quarter of 2023, we repurchased $156.8 million under this program.

We have historically allocated the financial results from our BNPL platform equally to the Cash App and Square segments.

In the fourth quarter of 2023, we changed our management reporting structure and moved the business activities and management of our BNPL platform fully under the Cash App segment.

We believe that this transition will allow us to better focus on consumer based commerce as well as the development of its financial tools within the Cash App segment.

Accordingly, beginning with this Annual Report on Form 10-K, we have updated our segment reporting to incorporate the financial results of the BNPL platform within the Cash App segment, rather than allocating 50% of revenue and gross profit from our BNPL platform to each of the Square and Cash App segments.

We have also reflected this change for the applicable historical periods presented.

Components of Results of Operations

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

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

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

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

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

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

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

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

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

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hardware related development and tooling costs;

software and cloud computing infrastructure fees;

and fees for software licenses, consulting, legal, and other services that are directly related to growing and maintaining our portfolio of products and services.

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

Bitcoin Impairment Losses

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

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

Amortization of Customer and Other Acquired Intangible Assets

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Interest Expense, net, and Other Income, net

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

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

Provision (Benefit) for Income Taxes

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Subscription and services-based revenue 5,944,842 4,552,773 1,392,069 31 %

Hardware revenue 164,418 145,679 18,739 13 %

Hardware revenue 157,178 164,418 (7,240) NM (i)

Bitcoin revenue 9,498,302 7,112,856 2,385,446 34 %

Total net revenue $ 21,915,623 $ 17,531,587 $ 4,384,036 25 %

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

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

(i) Not meaningful ("NM")

Total net revenue for the year ended December 31, 2023, increased by $4.4 billion, or 25%, compared to the year ended December 31, 2022.

Bitcoin revenue increased by $2.4 billion and represented the primary driver of the increase in total net revenue.

Excluding bitcoin revenue, total net revenue increased by $2.0 billion, or 19%, in the year ended December 31, 2023, compared to the year ended December 31, 2022.

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

Transaction-based revenue for the year ended December 31, 2023 increased by $613.8 million, or 11%, compared to the year ended December 31, 2022.

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Subscription and services-based revenue for the year ended December 31, 2023 increased by $1.4 billion, or 31%, compared to the year ended December 31, 2022.

The increase was driven by:

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

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

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

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

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

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

The increase was primarily due to growth in Cash App's financial service-related products, including Cash App Card usage, Cash App Instant Deposit volumes, as well as revenue from the BNPL platform and interest earned on customer funds.

Revenue generated from the BNPL platform was $1.0 billion for the year ended December 31, 2023 compared to $811.4 million for the year ended December 31, 2022.

Bitcoin revenue for the year ended December 31, 2023 increased by $2.4 billion, or 34%, compared to the year ended December 31, 2022.

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

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

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

This increase for the year ended December 31, 2023 was driven primarily by the quantity of bitcoin sold to customers compared to the year ended December 31, 2022.

The prevailing bitcoin prices fluctuated significantly within each year, but the average price for 2023 was only approximately 2% higher than 2022.

While bitcoin contributed 43% and 41% of the total revenue in 2023 and 2022, respectively, gross profit generated from bitcoin was only 3% of the total gross profit in both 2023 and 2022.

Cost of Revenue (in thousands, except for percentages)

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Subscription and services-based costs 1,075,129 861,745 213,384 25 %

Hardware costs 286,995 221,185 65,810 30 %

Hardware costs 267,650 286,995 (19,345) NM (i)

Bitcoin costs 9,293,113 6,956,733 2,336,380 34 %

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

Amortization of acquired technology assets 72,829 70,194 2,635 NM (i)

Total cost of revenue $ 14,410,737 $ 11,539,695 $ 2,871,042 25 %

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

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

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

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

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

(i) Not meaningful ("NM")

Total cost of revenue for the year ended December 31, 2023 increased by $2.9 billion, or 25%, compared to the year ended December 31, 2022.

Bitcoin costs of revenue, which increased by $2.3 billion, was the primary driver of the increase in total cost of revenue, with the remaining increase related to an increase in GPV.

Excluding bitcoin costs of revenue, total cost of revenue increased by approximately $534.7 million, or 12%, in the year ended December 31, 2023, compared to the year ended December 31, 2022.

Transaction-based costs for the year ended December 31, 2023 increased by $338.0 million, or 10%, compared to the year ended December 31, 2022, largely in line with the growth of GPV of 12%.

Transaction-based costs grew at a slower pace compared to GPV due to more favorable interchange economics, which offset a higher percentage of card-present and credit card transactions, which are less favorable to our economics on a per transaction basis.

Subscription and services-based costs for the year ended December 31, 2023 increased by $213.4 million, or 25%, compared to the year ended December 31, 2022.

The increase was driven by:

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

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

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

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

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

• growth in Cash App's financial service-related products, including Cash App Card and related processing costs and fees, which is partially offset by favorable terms on such processing costs due to a contract renewal executed during the third quarter of fiscal year 2023;

• the cost of revenues associated with the BNPL platform, which were $286.6 million for the year ended December 31, 2023 and $223.2 million from the date of acquisition through December 31, 2022.

Bitcoin costs for the year ended December 31, 2023 increased by $2.3 billion, or 34%, compared to the year ended December 31, 2022.

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

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

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

Operating Expenses (in thousands, except for percentages)

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Product development expenses for the year ended December 31, 2023, increased by $585.2 million, or 27%, compared to the year ended December 31, 2022, due primarily to the following:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• an increase of $451.5 million in personnel costs primarily due to an increase in headcount among our engineering teams, as we continue to improve and diversify our products.

The increase in product development personnel costs includes an increase in share-based compensation expense of $200.4 million for the year ended December 31, 2023;

• an increase of $112.5 million in software and cloud computing infrastructure fees as well as consulting fees for the year ended December 31, 2023, as a result of increased capacity needs and expansion of our cloud-based services.

Sales and marketing expenses for the year ended December 31, 2023, decreased by $38.9 million, or 2%, compared to the year ended December 31, 2022, primarily due to:

• a decrease of $163.4 million in advertising costs, primarily from decreased online and television campaigns as we focused on expense discipline;

partially offset by

• an increase of $87.7 million in sales and marketing personnel costs to maintain initiatives and $52.7 million in Cash App marketing.

The increase in sales and marketing personnel costs also includes an increase in share-based compensation expense of $25.4 million.

General and administrative expenses for the year ended December 31, 2023, increased by $522.3 million, or 31%, compared to the year ended December 31, 2022, primarily due to:

• an increase of $288.1 million in general and administrative personnel costs, mainly as a result of additions to our customer support and compliance personnel as we continue to maintain resources and skills to support our long-term growth;

• a goodwill impairment charge of $132.3 million related to TIDAL recognized in the fourth quarter of 2023.

Refer to Note 10, Goodwill within Notes to the Consolidated Financial Statements for more details.

Transaction, loan, and consumer receivable losses for the year ended December 31, 2023, increased by $110.0 million, or 20%, compared to the year ended December 31, 2022, primarily due to the following:

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

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

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

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

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

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

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

• an increase in loan losses of $89.0 million compared to the year ended December 31, 2022, primarily due to increased loan volumes;

• an increase in transaction losses of $21.0 million for the year ended December 31, 2023, primarily due to an operational outage as well as growth in Cash App Card and Square GPV.

Amortization of customer and other acquired intangible assets increased $35.3 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily as a result of the revision of certain intangibles' useful lives as well as the timing of the acquisition of Afterpay in the first quarter of fiscal year 2022 and the related intangible assets and measurement period adjustments.

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

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

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

Year Ended December 31,

2023 2022 $ Change % Change

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

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

(i) Not meaningful ("NM")

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

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

Interest expense (income), net $ (47,221) $ 36,228 $ (83,449) (230) %

Other income, net

(202,475) (95,443) (107,032) 112 %

Interest income, net, of $47.2 million for the year ended December 31, 2023 was primarily due to an increase in interest income received as a result of both higher interest rates and investment balances, which more than offset interest expense in the period.

Interest expense, net of $36.2 million, for the year ended December 31, 2022 was primarily due to interest expense related to our 2026 Senior Notes and 2031 Senior Notes, which were issued in May 2021.

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

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

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

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

Other income, net, of $202.5 million for the year ended December 31, 2023 was primarily driven by a gain of $207.1 million from the remeasurement of our bitcoin investment following the adoption of Accounting Standards Update 2023-08, Accounting for and Disclosure of Crypto Assets ("ASU 2023-08") .

Refer to Note 14, Bitcoin within Notes to the Consolidated Financial Statements for further details.

Other income, net, of $95.4 million for the year ended December 31, 2022 was primarily driven by revaluation of certain equity investments.

Segment Results

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

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

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

Square Results

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Segment gross profit $ 3,128,654 $ 2,706,901 $ 421,753 16 %

Segment Net Revenue

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

The increase was primarily due to:

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

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

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

Segment Cost of Revenue

Revenue for the Square segment for the year ended December 31, 2023 increased by $739.2 million compared to the year ended December 31, 2022.

The increase was primarily due to growth in Square GPV from both card-present and card-not-present volumes.

Cost of Revenue

Cost of revenue for the Square segment for the year ended December 31, 2023 increased by $317.5 million compared to the year ended December 31, 2022.

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

The increase was primarily due to a higher percentage of card-present and credit card transactions, which are less favorable to our economics on a per transaction basis, partially offset by more favorable interchange economics.

Cash App Results

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Segment gross profit $ 4,323,463 $ 3,245,044 $ 1,078,419 33 %

Segment Net Revenue

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

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

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

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

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

Segment Cost of Revenue

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

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

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

Revenue for the Cash App segment for the year ended December 31, 2023 increased by $3.6 billion compared to the year ended December 31, 2022, primarily due to growth in bitcoin revenue, Cash App's financial service-related products, including Cash App Card, Cash App Instant Deposit volumes, as well revenue from the BNPL platform and interest earned on customer funds.

Bitcoin revenue has and will fluctuate depending on customer demand, as well as changes in the market price of bitcoin.

The increase in bitcoin revenue was driven primarily by an increase in quantity of bitcoin sold to customers compared to prior year.

The prevailing bitcoin prices fluctuated significantly within each year, but the average price for 2023 was approximately 2% higher than 2022.

While bitcoin revenue contributed 65% and 64% of Cash App revenue in 2023 and 2022, respectively, gross profit generated from bitcoin was only 5% of Cash App gross profit in both 2023 and 2022.

Excluding bitcoin revenue, Cash App net revenue increased $1.3 billion, or 32%, compared to the year ended December 31, 2022.

Cost of Revenue

Cost of revenue for the Cash App segment for the year ended December 31, 2023 increased by $2.6 billion compared to the year ended December 31, 2022.

The increase was due to the items referenced within the revenue discussion.

Excluding bitcoin cost of revenue, Cash App cost of revenue increased $235.1 million, or 28%.

Key Operating Metrics and Non-GAAP Financial Measures

We collect and analyze operating and financial data to evaluate the health of our business, allocate our resources, and assess our performance.

In addition to total net revenue, net income (loss), and other results under generally accepted accounting principles ("GAAP"), the following table sets forth key operating metrics and non-GAAP financial measures we use to evaluate our business.

In addition to total net revenue, operating income (loss), net income (loss), and other results under GAAP, the following table sets forth key operating metrics and non-GAAP financial measures we use to evaluate our business.

We believe these metrics and measures are useful to facilitate period-to-period comparisons of our business, and to facilitate comparisons of our performance to that of other payment solution providers.

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Gross Payment Volume (GPV) (in millions) $ 227,699 $ 203,536 $ 167,720

Adjusted Operating Income (Loss) (in thousands)

$ 351,351 $ (145,408) $ 306,104

Adjusted EBITDA (in thousands) $ 1,792,420 $ 990,964 $ 1,013,657

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

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

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

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

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

Adjusted EBITDA, Adjusted Net Income Per Share ("Adjusted EPS") and Adjusted Operating Income

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

Adjusted Operating Income is a non-GAAP financial measure that represents our operating income (loss), adjusted to eliminate the effect of items as described below.

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

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

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

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

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

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

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

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

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

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gain or loss on revaluation of equity investments;

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

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

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

gain or loss from the remeasurement of our bitcoin investment, and bitcoin impairment losses on our bitcoin investment (prior to the adoption of ASU 2023-08), as applicable.

• To aid in comparability of our results across periods, we also exclude certain acquisition-related and integration costs associated with business combinations, various restructuring and other costs, and goodwill impairment charges, each of which are not normal operating expenses.

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

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

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

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

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

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

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

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

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

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

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

In view of the limitations associated with Adjusted EBITDA, we also present Adjusted Operating Income (Loss), which is a non-GAAP financial measure that excludes certain expenses that we believe are not reflective of our core operating performance, including amortization of intangible assets, bitcoin investment impairment losses (prior to the adoption of ASU 2023-08), acquisition-related accelerated share-based compensation expenses, acquisition-related and integration costs, restructuring and other costs, and goodwill impairment charges.

Adjusted Operating Income (Loss) does however include the effect of share-based compensation expense, which is a significant recurring expense in our business and an important part of our compensation strategy, as well as depreciation expense.

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

Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including net income (loss) and our other financial results presented in accordance with GAAP.

The following table presents a reconciliation of operating income (loss) to Adjusted Operating Income (Loss) for each of the periods indicated (in thousands):

Year Ended December 31,

2023 2022 2021

Operating income (loss) $ (278,839) $ (624,532) $ 161,112

Amortization of acquired technology assets 72,829 70,194 22,645

Acquisition-related and integration costs 11,422 105,518 15,474

Restructuring and other charges 239,582 51,746 20,000

Goodwill impairment 132,313 — —

Bitcoin impairment losses — 46,571 71,126

Amortization of customer and other acquired intangible assets 174,044 138,758 15,747

Acquisition-related share based acceleration costs — 66,337 —

Adjusted Operating Income (Loss) $ 351,351 $ (145,408) $ 306,104

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated (in thousands):

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Depreciation and amortization 408,560 340,523 134,756

Acquisition related, integration, and other costs 157,264 35,474 7,482 9,739 4,708

Interest expense, net 36,228 33,124 56,943 21,516 17,982

Other expense (income), net (95,443) (29,474) (291,725) 273 (18,469)

Acquisition-related and integration costs 11,422 105,518 15,474

Restructuring and other charges 239,582 51,746 20,000

Goodwill impairment 132,313 — —

Interest expense (income), net (47,221) 36,228 33,124

Other income, net (202,475) (95,443) (29,474)

Bitcoin impairment losses — 46,571 71,126

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

Loss (gain) on disposal of property and equipment 1,619 2,633 2,570 1,008 (224)

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

Acquired deferred revenue adjustment 382 744 1,497 7,457 12,853

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

Benefit for income taxes (8,019) (12,312) (1,364)

Loss on disposal of property and equipment 3,186 1,619 2,633

Acquired deferred revenue and cost adjustment 99 230 514

Adjusted EBITDA $ 1,792,420 $ 990,964 $ 1,013,657

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Share-based compensation expense 1,276,097 1,069,289 608,042

Acquisition related, integration, and other costs 157,264 35,474 7,482 9,739 4,708

Acquisition-related and integration costs 11,422 105,518 15,474

Restructuring and other charges 239,582 51,746 20,000

Goodwill impairment 132,313 — —

Amortization of intangible assets 246,873 208,952 40,522

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Loss (gain) on revaluation of equity investments 16,523 (73,457) (35,493)

Bitcoin remeasurement (207,084) — —

Bitcoin impairment losses — 46,571 71,126

Loss on extinguishment of long-term debt — — 6,651 — 5,028

Loss (gain) on disposal of property and equipment 1,619 2,633 2,570 1,008 (224)

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

Acquired deferred revenue adjustment 382 744 1,497 7,457 12,853

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

Loss on disposal of property and equipment 3,186 1,619 2,633

Acquired deferred revenue and cost adjustment 99 230 514

Tax effect of non-GAAP net income adjustments (582,703) (264,523) (222,104)

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2023 2022 2021

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

Benefit for income taxes, as reported $ (8,019) $ (12,312) $ (1,364)

Tax effect of non-GAAP net income adjustments 582,703 264,523 222,104

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Liquidity and Capital Resources

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

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

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

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

As of December 31, 2023, we had approximately $7.7 billion in available liquidity, with $6.9 billion in cash, cash equivalents, restricted cash, and investments in marketable debt securities, as well as an undrawn amount of $775.0 million available under our revolving credit facility subject to compliance with our covenants.

Additionally, we had $99.4 million available to be withdrawn under our warehouse funding facilities.

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

We intend to continue focusing on our long-term business initiatives and believe that our available funds are sufficient to meet our liquidity needs for the foreseeable future, including the $1.0 billion share repurchase program.

As of December 31, 2023, we were in compliance with all financial covenants associated with our revolving credit facility and senior notes.

None of our warehouse funding facilities contain financial covenants.

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

Year Ended December 31,

The following table summarizes our available liquidity (in thousands):

2023 December 31,

Cash and cash equivalents $ 4,996,465 $ 4,544,202

Short-term restricted cash 639,780 18,778

Short-term restricted cash (i)

770,380 639,780

Long-term restricted cash 71,812 71,600

Customer funds cash and cash equivalents 3,180,324 2,440,941

Cash, cash equivalents, restricted cash, and customer funds 8,435,906 6,975,090

Investments in short-term debt securities 851,901 1,081,851

Investments in long-term debt securities 251,127 573,429

Cash, cash equivalents, restricted cash, customer funds, and investments in marketable debt securities $ 10,091,186 $ 9,370,803

Revolving credit facility

775,000 600,000

Total liquidity

$ 7,716,685 $ 7,510,862

(i) As of December 31, 2023, the Company has invested $291.4 million of restricted cash into a money market fund.

See Note 5, Fair Value Measurements.

Our principal sources of liquidity are our cash and cash equivalents, and investments in marketable debt securities.

As of December 31, 2022, we had $10.1 billion of cash and cash equivalents, restricted cash, customer funds cash and cash equivalents, and investments in marketable debt securities.

Customer funds cash and cash equivalents are separate from the Company's corporate funds and are not used for any corporate purposes.

These funds are not used for Company liquidity, but rather to meet the obligations set aside for customers.

Customer funds cash and cash equivalents are excluded from our liquidity as these are funds we hold on behalf of customers that are separate from our corporate funds and are not available for corporate purposes.

Investments in marketable debt securities were held primarily in cash deposits, money market funds, reverse repurchase agreements, U.S.

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Our investments in marketable debt securities are classified as available-for-sale.

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

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

As of December 31, 2023, we held approximately 8,038 bitcoins for investment purposes ("bitcoin investment") with a fair value of $339.9 million based on observable market prices, which is included within “Other non-current assets” on the consolidated balance sheets.

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

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

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

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

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

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

Bitcoin is considered an indefinite-lived intangible asset, and upon adoption of Accounting Standards Update No.

2023-08, Accounting for and Disclosure of Crypto Assets , effective January 1, 2023, our bitcoin investment is remeasured at fair value at each reporting date with changes recognized in net income through “Other expense (income), net” in the consolidated statements of operations.

We did not purchase or sell any of our bitcoin investment during the year ended December 31, 2023.

We recognized a gain of $207.1 from the remeasurement of our bitcoin investment during the fourth quarter of 2023.

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

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As of December 31, 2023, we have invested $44.3 million in aggregate towards this initiative, of which $12.3 million and $10.1 million were invested in the years ended December 31, 2023 and 2022, respectively.

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

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

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

Senior Notes and Convertible Notes

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

As of December 31, 2023, we held $4.2 billion in aggregate principal amount of debt, comprised of, $1.0 billion in aggregate amount of convertible senior notes that mature on March 1, 2025 ("2025 Convertible Notes"), $575.0 million in aggregate amount of convertible senior notes that mature on May 1, 2026 ("2026 Convertible Notes"), and $575.0 million in aggregate amount of convertible senior notes that mature on November 1, 2027 ("2027 Convertible Notes," collectively referred to as the “Convertible Notes”).

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

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

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

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

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

On May 25, 2018, the Company issued an aggregate principal amount of $862.5 million of convertible senior notes ("2023 Convertible Notes").

On May 15, 2023, we paid $461.8 million in cash to settle the outstanding principal balance and interest on the 2023 Convertible Notes upon maturity.

Revolving Credit Facility

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

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

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

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

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

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

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

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

On June 9, 2023, the Company entered into a seventh amendment to the Credit Agreement to, among other things, extend the maturity date of the loans advanced to June 9, 2028 and provide for additional unsecured revolving loan commitments in an aggregate principal amount of up to $175 million.

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 million, tested on a quarterly basis.

The Company is obligated to pay customary fees for a credit facility of this size and type including a commitment fee of 0.10% to 0.20% per annum on the undrawn portion available under the 2020 Credit Facility, depending on the Company's total net leverage ratio.

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

Warehouse Funding Facilities

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

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

The Warehouse Facilities have been arranged utilizing wholly-owned and consolidated entities (collectively, the "Warehouse Special Purpose Entities (SPEs)") formed for the sole purpose of financing the origination of consumer receivables to partly fund our BNPL platform.

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

While the Warehouse SPEs are included in our consolidated financial statements, they are separate legal entities that maintain legal ownership of the receivables they hold.

The assets of the Warehouse SPEs are not available to satisfy our claims or those of our creditors.

Cash, Restricted Cash, and Working Capital

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Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating.

We have entered into various non-cancelable operating leases for certain offices with contractual lease periods expiring between 2022 and 2034.

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

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

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

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

Short-term restricted cash of $770.4 million as of December 31, 2023 primarily includes cash held by the Warehouse SPEs used in the Warehouse Facilities funding arrangements that will be used to pay the borrowings under the Warehouse Facilities or will be distributed to us.

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

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However, customers payable balances will be greater in amount than settlements receivable balances due to the fact that a subset of funds are held due to unlinked bank accounts, risk holds, and chargebacks.

Also customer funds obligations, which are included in customers payable, may cause customers payable to trend differently than settlements receivable.

Customer funds obligations, which may be impacted by the timing of period end, number of processors used and processing times, are included in customers payable and may also cause customers payable to trend differently than settlements receivable.

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

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

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

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

As detailed in Note 14, Bitcoin within Notes to the Consolidated Financial Statements, we recorded a safeguarding obligation liability and a corresponding safeguarding asset related to the bitcoin held for other parties.

As of December 31, 2023, the safeguarding obligation liability related to bitcoin held for other parties was $1.0 billion.

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

Staff Accounting Bulletin No.

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

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Net cash provided by operating activities $ 100,961 $ 175,903

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

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

Net cash provided by investing activities 683,201 1,225,696

Net cash provided by (used in) financing activities (240,137) 97,580

Effect of foreign exchange rate on cash and cash equivalents 29,156 (38,363)

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Cash Flows from Operating Activities

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

For the year ended December 31, 2023, cash provided by operating activities was $101.0 million, primarily due to net loss of $21.1 million, adjusted for non-cash expenses of $2.6 billion consisting primarily of share-based compensation;

transaction, loan, and consumer receivable losses;

depreciation and amortization;

non-cash interest and lease expense;

and goodwill impairment.

This was partially offset by amortization of discounts and premiums and other non-cash adjustments of $984.4 million;

bitcoin remeasurement of $207.1 million;

a change in deferred income taxes of $85.9 million;

and a net outflow related to changes in other assets and liabilities of $1.2 billion due to timing of period end, including a $350.0 million deposit held by a processor to meet requirements related to processing volumes.

For the year ended December 31, 2022, cash provided by operating activities was $175.9 million, primarily due to net loss of $553.0 million, adjusted for non-cash expenses of $2.0 billion consisting primarily of share-based compensation;

transaction, loan, and consumer receivable losses;

depreciation and amortization;

non-cash interest;

and bitcoin impairment losses.

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

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

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

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

Cash Flows from Investing Activities

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

For the year ended December 31, 2023, cash provided by investing activities was $683.2 million, primarily due to the net proceeds from investments of marketable securities of $600.3 million and a net inflow related to consumer receivables of $272.9 million.

These were partially offset by the purchase of property and equipment of $151.2 million;

purchases of other investments of $33.9 million;

and business combinations, net of cash acquired, of $5.0 million.

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

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

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

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

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

Cash Flows from Financing Activities

For the year ended December 31, 2023, cash used in financing activities was $240.1 million, primarily as a result of a cash payment of $461.8 million to settle the 2023 Convertible Notes in May 2023, stock repurchases of $156.8 million, a net outflow for other financing activities of $20.0 million, and the repayment and forgiveness of PPP loans of $16.8 million.

These were partially offset by net proceeds from warehouse facilities borrowings of $269.6 million and proceeds from issuances of common stock from the exercise of options and purchases under our employee share purchase plan of $130.4 million.

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

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

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

Critical Accounting Policies and Estimates

These were offset by the payment to redeem convertible notes assumed upon the acquisition of Afterpay of $1.1 billion and the repayment and forgiveness of PPP loans of $480.7 million.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.

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We base our estimates on historical experience, anticipated future trends, and other assumptions we believe to be reasonable under the circumstances.

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

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

Business Combinations

As a result of the acquisitions of TIDAL, completed in the second quarter of 2021, and Afterpay, completed on January 31, 2022, we consider accounting for business combinations under ASC 805, Business Combinations, to also be a critical accounting policy and estimate as it requires management to make significant estimates and assumptions, including the valuation of intangible assets acquired, determination of fair values of liabilities assumed including pre-acquisition contingencies and valuation of contingent consideration, where applicable.

Although we believe that the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

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

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

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

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

We believe accounting policies and the assumptions and estimates associated with transaction losses and allowance for credit losses related to consumer receivables could potentially have a material effect on our consolidated financial statements, and therefore are critical accounting policies and estimates.

Accrued Transaction Losses

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

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

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

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

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

As of December 31, 2023, we had accrued $54.0 million related to transaction losses.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis