Block, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis in conjunction with the information set forth within the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q , as well as our Annual Report on Form 10-K . The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, our plans, estimates, beliefs and expectations that involve risks and uncertainties, and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q . Our actual results may differ materially from those contained in or implied by any forward-looking statements. Overview 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. 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 the first quarter of 2024, with gross profit of $2.1 billion, up 22% year over year. Cash App generated gross profit of $1.3 billion in the first quarter of 2024, up 25% year over year. Performance was driven by strength across our financial services products. Square generated gross profit of $820.3 million in the first quarter of 2024, up 19% year over year, driven by notable strength in our banking products and international markets. In the first quarter of 2024, operating income was $249.7 million and Adjusted Operating Income was $364.3 million, compared to an operating loss of $6.2 million and Adjusted Operating Income of $51.0 million in the first quarter of 2023. For the same period, net income attributable to common stockholders was $472.0 million and Adjusted EBITDA was $705.1 million, compared to a net income attributable to common stockholders of $98.3 million and Adjusted EBITDA of $368.4 million in the first quarter of 2023. Net income for the first quarter of 2024 and 2023 included a gain of $233.4 million and $96.1 million, respectively, from the remeasurement of our bitcoin investment. 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. 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, the centralization of teams and functions to reduce duplication, and prioritization of our scope. In the first quarter of 2024, we continued to make progress on these goals. We expect to continue these efforts through the remainder of 2024, including implementing greater expense discipline and reassessing certain contractual vendor arrangements. To date, we have recorded $121.6 million of severance and other related expenses, of which $17.6 million was recorded in the quarter ended March 31, 2024. 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. 37 We ended the first quarter of 2024 with $8.0 billion in available liquidity, with $7.2 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 $304.8 million from the end of 2023. On October 26, 2023, the board of directors of the Company authorized the repurchase of up to $1 billion of our Class A common stock. The goal of the program is to offset a portion of the dilution associated with share-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. To date, we have purchased $408.9 million of our Class A common stock under this program, of which $252.1 million was purchased in the first quarter of 2024. Results of Operations Revenue (in thousands, except for percentages) Three Months Ended March 31, 2024 2023 $ Change % Change Transaction-based revenue $ 1,511,209 $ 1,422,705 $ 88,504 6 % Subscription and services-based revenue 1,682,294 1,366,224 316,070 23 % Hardware revenue 32,501 37,451 (4,950) NM (i) Bitcoin revenue 2,731,124 2,163,751 567,373 26 % Total net revenue $ 5,957,128 $ 4,990,131 $ 966,997 19 % (i) Not meaningful ("NM") Total net revenue for the three months ended March 31, 2024 increased by $967.0 million, or 19%, compared to the three months ended March 31, 2023. Bitcoin revenue increased by $567.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Excluding bitcoin revenue, total net revenue increased by $399.6 million, or 14%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Transaction-based revenue for the three months ended March 31, 2024 increased by $88.5 million, or 6%, compared to the three months ended March 31, 2023, driven primarily by growth in Gross Payment Volume ("GPV"), which grew by 6% in the same period. The growth in Square GPV was driven by improvements in both card-present and card-not-present volumes as a result of growth from in-person and online channels, as well as growth in our international markets. See below in Key Operating Metrics and Non-GAAP Financial Measures for further discussion of GPV. Subscription and services-based revenue for the three months ended March 31, 2024 increased by $316.1 million, or 23%, compared to the three months ended March 31, 2023. This increase was primarily due to growth in Cash App's financial service-related products, including Cash App Card, BNPL platform, and Cash App Borrow, as well as revenue from Square banking products, which primarily include Square Loans, Instant Transfer, and Square Debit Card. Revenue generated from the BNPL platform was $283.5 million and $223.7 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Bitcoin revenue for the three months ended March 31, 2024 increased by $567.4 million, or 26%, compared to the three months ended March 31, 2023. As bitcoin revenue is the total sale amount of bitcoin to customers, the amount of bitcoin revenue recognized will fluctuate depending on customer demand as well as changes in the market price of bitcoin. The increase in the three months ended March 31, 2024 was driven by an increase in the average market price of bitcoin, partially offset by a decrease in the quantity of bitcoin sold to customers, compared to the three months ended March 31, 2023. While bitcoin contributed 46% and 43% of the total revenue for the three months ended March 31, 2024 and March 31, 2023, respectively, gross profit generated from bitcoin was only 4% and 3%, respectively, of the total gross profit for both the three months ended March 31, 2024 and 2023. 38 Cost of Revenue (in thousands, except for percentages) Three Months Ended March 31, 2024 2023 $ Change % Change Transaction-based costs $ 873,165 $ 820,787 $ 52,378 6 % Subscription and services-based costs 269,668 264,092 5,576 2 % Hardware costs 50,785 58,785 (8,000) NM (i) Bitcoin costs 2,651,010 2,113,375 537,635 25 % Amortization of acquired technology assets 18,027 18,508 (481) NM (i) Total cost of revenue $ 3,862,655 $ 3,275,547 $ 587,108 18 % (i) Not meaningful ("NM") Total cost of revenue for the three months ended March 31, 2024 increased by $587.1 million, or 18%, compared to the three months ended March 31, 2023. Bitcoin costs of revenue, which increased by $537.6 million in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was the primary driver of the increase in total cost of revenue, with the remaining increase related to an increase in Square GPV. Excluding bitcoin costs of revenue, total cost of revenue increased by approximately $49.5 million, or 4%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023. Transaction-based costs for the three months ended March 31, 2024 increased by $52.4 million, or 6%, compared to the three months ended March 31, 2023, in line with GPV growth of 6% in the same periods. Subscription and services-based costs for the three months ended March 31, 2024 increased by $5.6 million, or 2%, compared to the three months ended March 31, 2023. The increase in the three months ended March 31, 2024 was driven by growth in Cash App's financial service-related products, including Cash App Card and related processing costs and fees, which was more than offset by favorable terms on such processing costs due to a contract renewal executed during the third quarter of 2023. Bitcoin costs for the three months ended March 31, 2024 increased by $537.6 million, or 25%, compared to the three months ended March 31, 2023. Bitcoin costs are comprised of the total amount we pay to purchase bitcoin, which fluctuates in line with bitcoin revenue. 39 Operating Expenses (in thousands, except for percentages) Three Months Ended March 31, 2024 2023 $ Change % Change Product development $ 720,574 $ 626,937 $ 93,637 15 % % of total net revenue 12 % 13 % % of total gross profit 34 % 37 % Sales and marketing $ 443,885 $ 496,011 $ (52,126) (11) % % of total net revenue 7 % 10 % % of total gross profit 21 % 29 % General and administrative $ 471,260 $ 432,825 $ 38,435 9 % % of total net revenue 8 % 9 % % of total gross profit 23 % 25 % Transaction, loan, and consumer receivable losses $ 165,729 $ 127,896 $ 37,833 30 % % of total net revenue 3 % 3 % % of total gross profit 8 % 7 % Amortization of customer and other acquired intangible assets $ 43,282 $ 37,087 $ 6,195 17 % % of total net revenue 1 % 1 % % of total gross profit 2 % 2 % Total operating expenses $ 1,844,730 $ 1,720,756 $ 123,974 7 % Product development expenses for the three months ended March 31, 2024 increased by $93.6 million, or 15%, compared to the three months ended March 31, 2023, due primarily to the following: • an increase of $43.9 million in personnel costs for the three months ended March 31, 2024 related to an increase in headcount among our engineering teams, as we continue to develop and diversify our products. This increase in product development personnel costs also includes an increase in share-based compensation expense of $24.1 million for the three months ended March 31, 2024; and • an increase of $43.5 million in software and cloud computing infrastructure fees for the three months ended March 31, 2024, as a result of increased capacity needs and expansion of our cloud-based services. Sales and marketing expenses for the three months ended March 31, 2024 decreased by $52.1 million, or 11%, compared to the three months ended March 31, 2023, primarily due to a release of chargeback losses of $27.3 million and a decrease in both Cash App marketing and other advertising efforts as we have continued to focus on expense discipline. General and administrative expenses for the three months ended March 31, 2024 increased by $38.4 million, or 9%, compared to the three months ended March 31, 2023, primarily due to a charge of $32.2 million recognized during the first quarter of 2024 related to certain purchase considerations related to the TIDAL acquisition that had been previously withheld for post-acquisition activities. Transaction, loan, and consumer receivable losses for the three months ended March 31, 2024 increased by $37.8 million, or 30%, compared to the three months ended March 31, 2023, primarily due to: • an increase in loan losses of $53.5 million for the three months ended March 31, 2024, primarily due to increased loan volumes; partially offset by • a decrease in transaction losses of $15.7 million for the three months ended March 31, 2024, primarily due to a release of previously established risk loss provisions related to prior periods. 40 Interest Expense (Income), Net, and Other Expense (Income), Net (in thousands, except for percentages) Three Months Ended March 31, 2024 2023 $ Change % Change Interest income, net $ (18,745) $ (3,161) $ (15,584) 493 % Other income, net $ (237,824) $ (77,717) $ (160,107) 206 % Interest income, net, for the three months ended March 31, 2024 increased by $15.6 million, compared to the three months ended March 31, 2023, driven by an increase in interest income received as a result of both higher interest rates and investment balances. Other income, net, of $237.8 million for the three months ended March 31, 2024 was primarily driven by a gain of $233.4 million from the remeasurement of our bitcoin investment. Refer to Note 11, Bitcoin within Notes to the Condensed Consolidated Financial Statements for further details. Other income, net, of $77.7 million for the three months ended March 31, 2023 was primarily due to a gain of $96.1 million from the remeasurement of our bitcoin investment, partially offset by unrealized losses on certain marketable and non-marketable investments. Segment Results Square Results The following table provides a summary of the revenue and gross profit for our Square segment for the three months ended March 31, 2024 and March 31, 2023 (in thousands, except for percentages): Three Months Ended March 31, 2024 2023 $ Change % Change Segment net revenue $ 1,730,037 $ 1,555,377 $ 174,660 11 % Segment cost of revenue 909,765 863,815 45,950 5 % Segment gross profit $ 820,272 $ 691,562 $ 128,710 19 % Revenue Revenue for the Square segment for the three months ended March 31, 2024 increased by $174.7 million, or 11%, compared to the three months ended March 31, 2023. The increase was primarily due to growth in Square GPV as well as growth in Square Banking products, which primarily include Square Loans, Instant Transfer, and Square Debit Card. Cost of Revenue Cost of revenue for the Square segment for the three months ended March 31, 2024 increased by $46.0 million, or 5%, compared to the three months ended March 31, 2023. The increase was primarily due to an increase in Square GPV and an increase in Square Banking services. Cash App Results The following table provides a summary of the revenue and gross profit for our Cash App segment for the three months ended March 31, 2024 and March 31, 2023 (in thousands, except for percentages): Three Months Ended March 31, 2024 2023 $ Change % Change Segment net revenue $ 4,172,904 $ 3,384,162 $ 788,742 23 % Segment cost of revenue 2,914,377 2,374,209 540,168 23 % Segment gross profit $ 1,258,527 $ 1,009,953 $ 248,574 25 % 41 Revenue Revenue for the Cash App segment for the three months ended March 31, 2024 increased by $788.7 million, or 23%, compared to the three months ended March 31, 2023. The increase was due to the Cash App items referenced within the Company's overall revenue discussion. While bitcoin revenue contributed 65% and 64% of Cash App revenue for three months ended March 31, 2024 and 2023, respectively, gross profit generated from bitcoin was only 6% and 5% of Cash App gross profit for the three months ended March 31, 2024 and 2023, respectively. Excluding $2.7 billion in bitcoin revenue for the three months ended March 31, 2024, Cash App revenue increased by $221.4 million, or 18%, compared to the three months ended March 31, 2023. Cost of Revenue Cost of revenue for the Cash App segment for the three months ended March 31, 2024 increased by $540.2 million, or 23%, compared to the three months ended March 31, 2023. The increase was due to the items referenced within the Company's overall cost of revenue discussion. Excluding $2.7 billion in bitcoin cost of revenue for the three months ended March 31, 2024, Cash App cost of revenue increased by approximately $2.5 million, or 1%, compared to the three months ended March 31, 2023. 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, operating income (loss), net income (loss), and other results reported 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. Three Months Ended March 31, 2024 2023 Gross Payment Volume (GPV) (in millions) $ 54,426 $ 51,117 Adjusted Operating Income (in thousands) $ 364,264 $ 50,974 Adjusted EBITDA (in thousands) $ 705,074 $ 368,367 Adjusted Net Income Per Share: Basic $ 0.88 $ 0.45 Diluted $ 0.85 $ 0.43 Gross Payment Volume (GPV) GPV includes Square GPV and Cash App Business GPV. Square GPV is defined as the total dollar amount of all card payments processed by sellers using Square, net of refunds, and ACH transfers. Cash App Business GPV is comprised of Cash App activity related to peer-to-peer transactions received by business accounts, 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. 42 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 Quarterly Report on Form 10-Q because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain non-cash items and certain variable charges that do not vary with our operations. • We believe it is useful to exclude certain non-cash charges, such as amortization of intangible assets, and share-based compensation expenses, from our non-GAAP financial measures because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. • 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. • We exclude the following from non-GAAP financial measures because we do not believe that these items are reflective of our ongoing business operations: gain or loss on the disposal of property and equipment; gain or loss on revaluation of equity investments; 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, charges associated with holdback liabilities, and legal, accounting, valuation, and due diligence costs. Integration costs include advisory and other professional services or consulting fees necessary to integrate acquired businesses. 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. 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. These limitations include the following: • share-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy; • the intangible assets being amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and • non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs. 43 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, and acquisition-related, integration, 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. 44 The following table presents a reconciliation of operating income (loss) to Adjusted Operating Income (Loss) for each of the periods indicated (in thousands): Three Months Ended March 31, 2024 2023 Operating income (loss) $ 249,743 $ (6,172) Amortization of acquired technology assets 18,027 18,508 Acquisition-related and integration costs 32,512 1,479 Restructuring and other charges 14,063 72 Restructuring share-based compensation 6,637 — Amortization of customer and other acquired intangible assets 43,282 37,087 Adjusted Operating Income $ 364,264 $ 50,974 The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated (in thousands): Three Months Ended March 31, 2024 2023 Net income attributable to common stockholders $ 472,005 $ 98,316 Net loss attributable to noncontrolling interests (1,185) (2,488) Net income 470,820 95,828 Share-based compensation expense 304,531 279,591 Restructuring share-based compensation expense 6,637 — Depreciation and amortization 97,640 93,173 Acquisition-related and integration costs 32,512 1,479 Restructuring and other charges 14,063 72 Interest income, net (18,745) (3,161) Other income, net (237,824) (77,717) Provision (benefit) for income taxes 35,492 (21,122) Loss (gain) on disposal of property and equipment (71) 191 Acquired deferred revenue and cost adjustment 19 33 Adjusted EBITDA $ 705,074 $ 368,367 45 The following table presents a reconciliation of net income (loss) to Adjusted Net Income (Loss) Per Share for each of the periods indicated (in thousands, except per share data): Three Months Ended March 31, 2024 2023 Net income attributable to common stockholders $ 472,005 $ 98,316 Net loss attributable to noncontrolling interests (1,185) (2,488) Net income 470,820 95,828 Share-based compensation expense 304,531 279,591 Restructuring share-based compensation expense 6,637 — Acquisition-related and integration costs 32,512 1,479 Restructuring and other charges 14,063 72 Amortization of intangible assets 61,309 55,595 Amortization of debt discount and issuance costs 3,071 2,949 Loss on revaluation of equity investments 1,111 14,885 Bitcoin remeasurement (233,404) (96,088) Loss (gain) on disposal of property and equipment (71) 191 Acquired deferred revenue and cost adjustment 19 33 Tax effect of non-GAAP net income adjustments (118,336) (84,607) Adjusted Net Income - basic $ 542,262 $ 269,928 Cash interest expense on convertible notes 673 1,236 Adjusted Net Income - diluted $ 542,935 $ 271,164 Weighted-average shares used to compute Adjusted Net Income Per Share: Basic 616,401 602,234 Diluted 637,360 627,423 Adjusted Net Income Per Share: Basic $ 0.88 $ 0.45 Diluted $ 0.85 $ 0.43 Diluted Adjusted Net Income Per Share is computed by dividing Adjusted Net Income by the weighted-average number of shares of common stock outstanding adjusted for the dilutive effect of all potential shares of common stock. In periods when we reported an Adjusted Net Loss, diluted Adjusted Net Income Per Share is the same as basic Adjusted Net Income Per Share because the effects of potentially dilutive items were anti-dilutive. The following table presents a reconciliation of the tax effect of non-GAAP net income adjustments to our provision (benefit) for income taxes (in thousands, except effective tax rate): Three Months Ended March 31, 2024 2023 Provision (benefit) for income taxes, as reported $ 35,492 $ (21,122) Tax effect of non-GAAP net income adjustments 118,336 84,607 Adjusted provision for income taxes, non-GAAP $ 153,828 $ 63,485 Non-GAAP effective tax rate 23 % 18 % We determined the adjusted provision for income taxes by calculating the estimated annual effective tax rate based on adjusted pre-tax income and applying it to Adjusted Net Income before income taxes. 46 Liquidity and Capital Resources Liquidity Sources As of March 31, 2024, we had approximately $8.0 billion in av ailable liquidity, with $7.2 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 $0.6 billion available to be withdrawn under our warehouse funding facilities. Refer to Note 12, Indebtedness within Notes to the Condensed 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 remaining $591.1 million related to our share repurchase program. As of March 31, 2024, 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 available liquidity (in thousands): March 31, 2024 December 31, 2023 Cash and cash equivalents $ 5,753,436 $ 4,996,465 Short-term restricted cash (i) 660,153 770,380 Long-term restricted cash 71,588 71,812 Investments in short-term debt securities 573,390 851,901 Investments in long-term debt securities 187,922 251,127 Revolving credit facility 775,000 775,000 Total liquidity $ 8,021,489 $ 7,716,685 (i) As of March 31, 2024, the Company has invested $292.2 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. 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. government and agency securities, commercial paper, and corporate bonds. We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Our investments in marketable debt securities are classified as available-for-sale. As of March 31, 2024, we held approximately 8,038 bitcoins for investment purposes ("bitcoin investment") with a fair value of $573.3 million based on observable market prices, which is included within “Other non-current assets” on the condensed 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 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 condensed consolidated statements of operations. We did not purchase or sell any of our bitcoin investment during the three months ended March 31, 2024. We recognized a gain of $233.4 million from the remeasurement of our bitcoin investment during the first quarter of 2024. 47 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 12, Indebtedness and Note 17, Commitments and Contingencies within Notes to the Condensed Consolidated Financial Statements for more details on these commitments. Senior Notes and Convertible Notes As of March 31, 2024, we held over $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”). Refer to Note 12, Indebtedness within Notes to the Condensed Consolidated Financial Statements for further details. Revolving Credit Facility We have entered into a revolving credit agreement with certain lenders, as subsequently amended, which provides a $775.0 million senior unsecured revolving credit facility (the "2020 Credit Facility") maturing in June 2028. Refer to Note 12, Indebtedness within Notes to the Condensed Consolidated Financial Statements for further details. Warehouse Funding Facilities We have warehouse funding facilities ("Warehouse Facilities") with an aggregate amount of $1.5 billion on a revolving basis, of which $0.9 billion was drawn as of March 31, 2024. 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 condensed 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 We believe that our existing cash and cash equivalents, investment in marketable debt securities, and availability under our line of credit will be sufficient to meet our working capital needs, including any expenditures related to strategic transactions and investment commitments that we may from time to time enter into, and planned capital expenditures for at least the next 12 months. From time to time, we have raised capital by issuing equity, equity-linked, or debt securities such as our convertible notes and senior notes; and we may do so in the future. However, such funding may not be available on terms acceptable to us or at all. When we were last rated, in the second half of 2023, we received a non-investment grade rating by S&P Global Ratings (BB+), Fitch Ratings, Inc. (BB+), and Moody's Corporation (Ba2). We expect that these credit rating agencies will continue to monitor our performance, including our capital structure and results of operations. Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating. 48 Short-term restricted cash of $660.2 million as of March 31, 2024 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. We use restricted cash to secure letters of credit with the related financial institutions to provide collateral for cash flow timing differences in the processing of payments. We have recorded these amounts as current assets on our condensed consolidated balance sheet given the short-term nature of these cash flow timing differences and that there is no minimum time frame during which the cash must remain restricted. Long-term restricted cash of $71.6 million as of March 31, 2024 is primarily related to cash held as collateral as required by the FDIC for Square Financial Services. We have recorded these amounts as non-current assets on our condensed consolidated balance sheet as the requirement by the FDIC specifies a time frame of 12 months or longer during which the cash must remain restricted. We experience significant day-to-day fluctuations in our cash and cash equivalents due to fluctuations in settlements receivable and customers payable, and hence working capital. These fluctuations are primarily due to: • Timing of period end. For periods that end on a weekend or a bank holiday, our cash and cash equivalents, settlements receivable, and customers payable balances typically will be higher than for periods ending on a weekday, as we settle to our sellers for payment processing activity on business days; and • Fluctuations in daily GPV. When daily GPV increases, our cash and cash equivalents, settlements receivable, and customers payable amounts increase. Typically our settlements receivable and customers payable balances at period end represent one to four days of receivables and disbursements to be made in the subsequent period. Customers payable, excluding amounts attributable to Cash App stored funds, and settlements receivable balances typically move in tandem, as pay-out and pay-in largely occur on the same business day. 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. 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 11, Bitcoin within Notes to the Condensed Consolidated Financial Statements, we recorded a safeguarding obligation liability and a corresponding safeguarding asset related to the bitcoin held for other parties. As of March 31, 2024, the safeguarding obligation liability related to bitcoin held for other parties was $1.7 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 partie s. Staff Accounting Bulletin No. 121 ("SAB 121") als o asks us to consider the legal ownership of the bitcoin held for other parties, including whether the bitcoin held for other parties would be available to satisfy general creditor claims in the event of Block’s bankruptcy. The legal rights of people with respect to crypto-assets held on their behalf by a custodian, such as us, upon the custodian’s bankruptcy have not yet been settled by courts and are highly fact dependent. Our contractual arrangements state that our customers and trading partners retain legal ownership of the bitcoin custodied by us on their behalf; they have the right to sell, pledge, or transfer the bitcoin; and they also benefit from the rewards and bear the risks associated with the ownership, including as a result of any bitcoin price fluctuations. We do not use any of the bitcoin held for other parties as collateral for our loans or any other financing arrangements, nor do we lend or pledge bitcoin held for others to any third parties. We have been monitoring and will continue to actively monitor legal and regulatory developments and may consider further steps, as appropriate, to support this contractual position so that in the event of Block’s bankruptcy, the bitcoin custodied by us should not be deemed to be part of Block's bankruptcy estate. We do not expect potential future cash flows associated with the bitcoin safeguarding obligation liability. 49 Cash Flow Activities The following table summarizes our cash flow activities (in thousands): Three Months Ended March 31, 2024 2023 Net cash provided by operating activities $ 489,395 $ 294,401 Net cash provided by investing activities 1,042,387 623,924 Net cash provided by (used in) financing activities 32,409 (9,083) Effect of foreign exchange rate on cash and cash equivalents (41,755) 1,033 Net increase in cash, cash equivalents, restricted cash, and customer funds $ 1,522,436 $ 910,275 Cash Flows from Operating Activities For the three months ended March 31, 2024, cash provided by operating activities was $489.4 million, comprised of net income of $470.8 million, adjusted for non-cash expenses of $590.2 million, consisting primarily of share-based compensation; transaction, loan, and consumer receivable losses; depreciation and amortization; non-cash lease expense; and losses on revaluation of equity investments, all of which contributed positively to operating activities. These were partially offset by the amortization of discounts and other non-cash adjustments on consumer receivables of $267.0 million; bitcoin remeasurement of $233.4 million; net outflows from loan products of $185.7 million; and the change in deferred income taxes of $8.0 million. Changes in other assets and liabilities, including settlements receivable and customers payable, of $122.5 million contributed positively and was primarily due to the timing of period end. For the three months ended March 31, 2023, cash provided by operating activities was $294.4 million, comprised of net income of $95.8 million, adjusted for non-cash expenses of $539.9 million, consisting primarily of share-based compensation; transaction, loan, and consumer receivable losses; depreciation and amortization; non-cash lease expense; and losses on revaluation of equity investments, all of which contributed positively to operating activities. These were partially offset by bitcoin remeasurement of $96.1 million; amortization of discounts and other non-cash adjustments on consumer receivables of $85.3 million; net outflows from loan products of $80.9 million; as well as changes in other assets and liabilities, including settlements receivable, customers payable, and settlements payable, of $80.3 million, primarily due to the timing of period end. Cash Flows from Investing Activities For the three months ended March 31, 2024, cash provided by investing activities was $1.0 billion, primarily due to a net inflow related to consumer receivables of $729.5 million and net proceeds from investments of marketable securities of $347.8 million. These were partially offset by the purchases of property and equipment and other investments of $32.0 million and $2.9 million, respectively. For the three months ended March 31, 2023, cash provided by investing activities was $623.9 million, primarily due to a net inflow related to consumer receivables of $428.3 million and net proceeds from investments of marketable securities of $232.7 million. These were partially offset by the purchases of property and equipment and other investments of $32.3 million and $4.8 million, respectively. Cash Flows from Financing Activities For the three months ended March 31, 2024, cash provided by financing activities was $32.4 million primarily as a result of a change in customer funds of $875.9 million, proceeds from issuances of common stock upon the exercise of options and purchases under our employee share purchase plan of $19.9 million, and a net increase in interest-bearing deposits of $18.7 million. These were partially offset by net repayments under Warehouse Facilities borrowings of $630.0 million as well as repurchases of common stock of $252.1 million. For the three months ended March 31, 2023, cash used in financing activities was $9.1 million primarily as a result of net repayments under Warehouse Facilities borrowings of $644.6 million. The majority of this was offset by a change in customer funds of $620.1 million and a net increase in interest-bearing deposits of $13.6 million. 50 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. GAAP requires us to make certain estimates and judgments that affect the amounts reported in our financial statements. We base our estimates on historical experience, anticipated future trends, and other assumptions we believe to be reasonable under the circumstances. Because these accounting estimates require significant judgment, our actual results may differ materially from our estimates. There were no significant changes in our critical accounting estimates during the quarter ended March 31, 2024 compared to those previously disclosed in “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023. Recent Accounting Pronouncements See “Recent Accounting Pronouncements” described in Note 1, Description of Business and Summary of Significant Accounting Policies within Notes to the Condensed Consolidated Financial Statements.