Form 8-K Block, Inc. For: May 05

A transacting active is a Cash App account that has at least one financial transaction using any product or service within Cash App during the specified period. A transacting active for a specific Cash App product has at least one financial transaction using that product during the specified period and is referred to as an active. Certain of these accounts may share an alias identifier with one or more other transacting active accounts. This could represent, among other things, one customer with multiple accounts or multiple customers sharing one alias identifier (for example, families).

1. Piper Sandler Gen Z consumer survey, Spring 2022.

Cash App Ecosystem

Strengthening the network

Cash App has focused on strengthening its network by reaching families, a relatively new audience. While still early, Cash App has seen strong traction since offering peer-to-peer and banking capabilities to families in early November. We also started rolling out the ability for teens to deposit paper money at participating retailers like Walgreens and Walmart, which we believe can drive further inflows into Cash App. Historically teens have a higher mix of cash in their spend compared to the general population, which we believe underscores the opportunity to enable more teens to take advantage of the secular shift towards digital wallets.¹

Driving engagement

We are focused on expanding our customers’ awareness and access to bitcoin, which has allowed us to drive meaningful adoption: As of the end of the first quarter, more than 10 million Cash App accounts have bought bitcoin since the product was introduced. In April, we announced that U.S. customers can now send and receive bitcoin to anyone with a compatible wallet via the Lightning Network. The Lightning Network is built to process a large number of transactions per second. Typical transactions conducted directly on the bitcoin blockchain can take upwards of 10 minutes — now it’s nearly instant with Cash App over the Lightning Network. This new feature expands our peer-to-peer capabilities and presents an opportunity to strengthen our network with bitcoin while eliminating fees and processing times from sending bitcoin through on-chain transactions.

Increasing inflows into our ecosystem

In April, we announced a new direct deposit feature that allows customers to be paid in bitcoin. Cash App customers in the U.S. with an activated Cash Card are able to receive a portion of their recurring paycheck deposit in bitcoin with no transaction fee. We have experienced growing momentum with customers bringing their paychecks into Cash App, and hope this feature will expand awareness of our direct deposit capabilities.

In April, Cash App introduced a new feature allowing customers to have a percentage of their direct deposits automatically converted into bitcoin for free.

Afterpay active sellers are defined as a seller that has transacted in one channel at least once in the last 12 months. Active sellers are counted for each sales channel in which they transact.

1. Represents sellers who funded their account with at least $50 within the month after signing up.

Square Ecosystem

Enhancing our ecosystem of products

We are focused on enabling omnichannel commerce and building innovative solutions that meet sellers and their customers wherever they are. Since integrating Afterpay’s buy now, pay later (BNPL) functionality with Square Online and eCommerce API in the U.S. and Australia, we have seen nearly 13,000 Square merchants adopt and process BNPL sales through the first quarter, which grew Afterpay active sellers by 10%. We believe this will drive greater conversion and sales for our sellers, and we plan to make the offering available for in-person payments.

In April, we introduced the newest version of Square Stand, featuring modernized hardware and a redesigned customer experience to help sellers take in-person payments and manage eCommerce sales, deliveries, and in-store orders from a single place. Square Stand now integrates tap and dip payments directly (with no additional card reader needed) for an intuitive, transparent, and streamlined commerce experience. Priced at just $149, Square Stand is our most affordable countertop product, allowing sellers to pay one transparent rate for every tap or dip transaction, with no hidden fees or long-term contracts, and free access to the Square POS app. The new Square Stand is available in all eight of our global markets, reinforcing our commitment to improve global product parity while helping sellers run their entire business — whether they are just getting started or operating growing, large businesses.

Growing upmarket

Mid-market sellers continued to show strong momentum in the first quarter, with gross profit up 47% year over year, outpacing total Square gross profit. Mid-market sellers have been leveraging Square Savings, launched in July 2021, to set aside funds for the future: In the first quarter, mid-market sellers were twice as likely to fund their account soon after opening compared to the average seller using Square Savings.¹ Square Savings helps sellers simplify budgeting by automatically setting aside funds from daily sales into savings accounts.

Square Stand provides sellers of any size, from boutique retailers to multi-location restaurants, with a versatile command center for their business, enabling sellers to take in-person payments and manage eCommerce sales, deliveries, and buy online, pick up in-store orders from a single place.

We determine seller size based on annualized GPV during the applicable quarter. A mid-market seller generates more than $500,000 in annualized GPV. Does not include contributions from Afterpay because BNPL products are recognized as subscription and services based-revenue, and not transaction-based revenue.

Expanding globally

We further strengthened our international presence by improving product parity in both new and existing markets. We expanded our offerings in Canada with the introduction of Square Loans and On-Demand Delivery (ODD). With Square Loans, we are widening access to credit for sellers in Canada, helping them manage their cash flow and grow their business while also amplifying the ecosystem of tools and services we offer in our international markets. With ODD, Square Online sellers can offer third-party delivery to customers directly from their own website, providing control of the fulfillment process and more favorable economics as compared to directly using most third-party delivery services.

In Ireland, we launched both Square Loyalty and Square Marketing in February. Square Loyalty makes it easy to set up a customized loyalty program that rewards customers both in-store and online, and we’ve found it can increase repeat visits. With Square Marketing, sellers have more tools to retain and reengage their customers through driving repeat visits, increasing buyer spend, and also growing their customer base.

Square gross profit in markets outside the U.S. includes contributions from Afterpay during the first quarter of 2022. Excluding Afterpay, Square gross profit in markets outside the U.S. was $58 million, representing 9% of Square gross profit.

A reconciliation of non- GAAP metrics used in this letter to their nearest GAAP equivalents is provided at the end of this letter.

Financial Discussion

REVENUE AND GROSS PROFIT

Total net revenue was $3.96 billion in the first quarter of 2022, down 22% year over year, driven by a decrease in bitcoin revenue. Excluding bitcoin, total net revenue in the first quarter was $2.23 billion, up 44% year over year. Gross profit was $1.29 billion in the first quarter, up 34% year over year and up 55% on a two-year CAGR basis.

On January 31, we completed our acquisition of Afterpay, a global BNPL platform. In the first quarter of 2022, Afterpay contributed $130 million of revenue and $92 million of gross profit, which includes $9 million of amortization of acquired technology assets. Excluding bitcoin and Afterpay, revenue was $2.10 billion, up 36% year over year and up 40% on a two-year CAGR basis. Excluding Afterpay, gross profit was $1.20 billion, up 25% on a year-over-year basis and 49% on a two-year CAGR basis. We recognize Afterpay revenue as subscription and services-based revenue, and have allocated 50% of Afterpay revenue and gross profit to each of Square and Cash App.

Transaction-based revenue was $1.23 billion in the first quarter of 2022, up 28% year over year, and transaction-based gross profit was $514 million, up 19% year over year. We processed $43.5 billion in GPV in the first quarter of 2022, up 31% year over year. Transaction-based gross profit as a percentage of GPV was 1.18% in the first quarter of 2022, down 12 basis points year over year and flat quarter over quarter.

Subscription and services-based revenue was $960 million in the first quarter of 2022, up 72% year over year, and subscription and services-based gross profit was $764 million, up 63% year over year, including contributions from Afterpay. Excluding the $130 million in subscription and services-based revenue and $92 million in subscription and services-based gross profit from Afterpay, subscription and services-based revenue was $830 million, up 49% year over year, and subscription and services-based gross profit was $671 million, up 44% year over year.

Bitcoin revenue was $1.73 billion in the first quarter of 2022, down 51% year over year. Bitcoin gross profit was $43 million, or approximately 3% of bitcoin revenue.

Note: Square GPV and Cash App Business GPV are represented as a percent of total GPV. Does not include contributions from Afterpay because BNPL products are recognized as subscription and services based-revenue, and not transaction-based revenue.

CASH APP ECOSYSTEM REVENUE AND GROSS PROFIT

In the first quarter of 2022, Cash App generated $2.46 billion of revenue and $624 million of gross profit. On a year-over-year basis, Cash App revenue was down 39% and gross profit was up 26%, and on a two-year CAGR basis, Cash App revenue and gross profit grew 116% and 85%, respectively. Excluding bitcoin and Afterpay, Cash App revenue was $667 million, up 26% year over year and 73% on a two-year CAGR basis.

Afterpay contributed $65 million of revenue and $46 million of gross profit to Cash App in the first quarter of 2022. Excluding Afterpay, Cash App generated $578 million of gross profit, up 17% on a year-over-year basis and 78% on a two-year CAGR basis.

We continued to drive strong engagement across our broader ecosystem of products. We saw inflows improve in February and March compared to January, driven primarily by macroeconomic recovery and the benefit of tax refunds. Year-over-year gross profit growth was negatively impacted by the significant benefit Cash App received in March 2021 from government stimulus disbursements, which did not recur in 2022.

Cash App Business GPV was $4.0 billion, up 17% year over year and up 96% on a two-year CAGR basis. Cash App Business GPV includes Cash for Business, which consists of peer-to-peer transactions received by business accounts and peer-to-peer payments sent from a credit card. Cash App generated $109 million of transaction-based revenue during the first quarter of 2022, up 19% year over year and up 98% on a two-year CAGR basis. Growth was driven by an increase in the number of business accounts and in the number of transactions.

Bitcoin revenue is the total sale amount of bitcoin to customers. Bitcoin costs are the total amount of bitcoin that we purchase. We purchase bitcoin to facilitate customers’ access to bitcoin.

Cash App generated $622 million of subscription and services-based revenue during the first quarter, up 43% year over year and 79% on a two-year CAGR basis, including contributions from Afterpay. Growth in the quarter was driven by transaction fees from both Cash Card and Instant Deposit, as well as contributions from Afterpay. Excluding $65 million in revenue from Afterpay, subscription and services-based revenue was $557 million, up 28% year over year and up 70% on a two-year CAGR basis.

Cash App generated $1.73 billion of bitcoin revenue and $43 million of bitcoin gross profit during the first quarter of 2022, down 51% and 42% year over year, respectively. On a two-year CAGR basis, bitcoin revenue and gross profit grew 138% and 155%, respectively. The year-over-year decrease in bitcoin revenue and gross profit was driven primarily by relative stability in the price of bitcoin during the quarter, which affected consumer demand and trading activity compared to the prior year period. Bitcoin revenue and gross profit were relatively consistent compared to the fourth quarter of 2021. In future quarters, bitcoin revenue and gross profit may fluctuate as a result of changes in customer demand or the market price of bitcoin.

SQUARE ECOSYSTEM REVENUE AND GROSS PROFIT

In the first quarter of 2022, Square generated $1.44 billion of revenue and $661 million of gross profit. On a year-over-year basis, Square revenue and gross profit grew 42% and 41%, respectively, and on a two-year CAGR basis, Square revenue and gross profit grew 30% and 36%, respectively.

Afterpay contributed $65 million of revenue and $46 million of gross profit to Square in the first quarter of 2022. Excluding Afterpay, Square generated $1.38 billion of revenue and $615 million of gross profit, up 35% and 31% on a year-over-year basis, respectively. On a two-year CAGR basis, Square revenue and gross profit excluding Afterpay grew 27% and 31%, respectively.

In the first quarter of 2022, Square generated $1.12 billion of transaction-based revenue, up 29% year over year and 24% on a two-year CAGR basis. We saw strong growth on a year-over-year and two-year CAGR basis driven by both in-person and online channels. In January, Square GPV growth slowed due to impacts from COVID-19, before improving in February and March. During the quarter, Square transaction-based gross profit was affected by a lower percentage of debit card transactions on a year-over-year basis.

In the first quarter of 2022, Square GPV was up 33% year over year and 27% on a two-year CAGR basis. We observed the following trends in Square GPV during the first quarter of 2022.

Square generated $283 million of subscription and services-based revenue during the first quarter of 2022, up 133% year over year, and up 66% on a two-year CAGR basis, including contributions from Afterpay. Excluding $65 million of subscription and services-based revenue from Afterpay, subscription and services-based revenue was $218 million, up 80% year over year and 46% on a two-year CAGR basis.

Hardware revenue in the first quarter of 2022 was $37 million, up 30% year over year and 34% on a two-year CAGR basis, and generated a gross loss of $26 million as we use hardware as an acquisition tool. Revenue growth was driven primarily by strong unit sales of Square Register and Square Terminal.

CORPORATE AND OTHER REVENUE AND GROSS PROFIT

Corporate and Other generated $55 million in revenue and $10 million in gross profit during the first quarter of 2022, and comprised areas outside Square and Cash App, which was primarily TIDAL during the quarter.

SQUARE SUBSCRIPTION AND SERVICES-BASED REVENUE EX-PPP AND EX-AFTERPAY

We discuss Cash App marketing expenses because a large portion is generated by our peer-to-peer service, which we offer free to our Cash App customers, and we consider it to be a marketing tool to encourage the use of Cash App.

OPERATING EXPENSES

Operating expenses were $1.52 billion in the first quarter of 2022, up 70% year over year, and included certain expenses related to the Afterpay transaction including $42 million of one-time deal and integration-related expenses, $16 million of amortization of customer assets, $6 million of amortization of acquired trade names, and $66 million of one-time accelerated stock-based compensation. Non-GAAP operating expenses were $1.12 billion, up 52% year over year.

Product development expenses were $485 million on a GAAP basis and $294 million on a non-GAAP basis in the first quarter of 2022, up 56% and 44% year over year, respectively, driven primarily by headcount and personnel costs related to our engineering, data science, and design teams, as well as expenses related to Afterpay product development.

Sales and marketing expenses were $502 million on a GAAP basis and $478 million on a non-GAAP basis in the first quarter of 2022, up 44% and 42% year over year, respectively.

General and administrative expenses were $444 million on a GAAP basis and $252 million on a non-GAAP basis in the first quarter of 2022, up 127% and 48% year over year, respectively. The increase was due primarily to additions to customer support, finance, legal, and compliance personnel, as well as expenses related to Afterpay, including non-recurring deal and integration-related expenses.

The accounting rules for bitcoin require us to recognize any decreases in market price below carrying value as an impairment charge, with no upward revisions recognized when the market price increases until the sale of that bitcoin. The bitcoin impairment loss is a GAAP expense. Non-GAAP operating expenses exclude bitcoin impairment losses.

Transaction, loan, and consumer receivables losses were $91 million in the first quarter of 2022, up 347% year over year. The increase was driven primarily from losses related to Afterpay consumer receivables, as well as a release of provisions for transaction losses related to Square in the prior year period. In the first quarter, loss rates for Square GPV, Square Loans, and Afterpay BNPL receivables remained consistent with historical ranges, and we will continue to monitor trends closely given the dynamic macro environment.

In the fourth quarter of 2020 and first quarter of 2021, we invested $50 million and $170 million, respectively, in bitcoin. As an indefinite-lived intangible asset, bitcoin is subject to impairment losses if the fair value of bitcoin decreases below the carrying value during the assessed period. In the first quarter of 2022, we did not recognize a bitcoin impairment loss. As of March 31, 2022, the fair value of our investment in bitcoin was $366 million based on observable market prices, which is $217 million greater than the carrying value of the investment.

EARNINGS

In the first quarter of 2022, net loss attributable to common stockholders was $204 million, which was impacted by certain expenses related to Afterpay including $42 million of one-time deal and integration-related expenses, $31 million of amortization of acquired intangible assets, and $66 million of one-time accelerated stock-based compensation, offset by an unrealized gain of $50 million from the revaluation of equity investments; and excluding these items, net loss was $114 million. Net loss per share attributable to common stockholders was $0.38 on a basic and diluted basis in the first quarter of 2022, based on 541 million weighted-average basic and diluted shares outstanding, including 114 million shares of Class A common stock issued in connection with the acquisition of Afterpay.

Adjusted EBITDA was $195 million in the first quarter of 2022, compared to $236 million in the first quarter of 2021. The decrease in Adjusted EBITDA compared to the prior year period was driven by an increase in operating expenses, including expenses related to Afterpay.

Adjusted Net Income Per Share (Adjusted EPS) was $0.18 on a diluted basis based on 583 million weighted-average diluted shares for the first quarter of 2022, representing a $0.23 decrease year over year. Beginning in the first quarter of 2022, we have included the tax impact of the non-GAAP adjustments in determining the Adjusted EPS. We determined 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 following items affected net income (loss) per share during the respective periods. In the first quarter of 2022, we recognized an unrealized gain of $50 million driven by the revaluation of equity investments, as well as Afterpay transaction-related charges of $42 million of one-time deal and integration-related expenses, $31 million of amortization of acquired intangible assets, and $66 million of one-time accelerated stock-based compensation. In the fourth quarter of 2021, we recognized a loss of $6 million driven by the adjustment to the revaluation of equity investments. In the third quarter of 2021, we recognized a loss of $7 million driven by the adjustment to the revaluation of equity investments as well as a $6 million bitcoin impairment loss. In the second quarter of 2021, we recognized a $77 million gain on our equity investments and a $45 million bitcoin impairment loss. In the first quarter of 2021, we recognized a loss of $29 million related to the mark-to-market valuation of our investment in DoorDash, as well as a $20 million bitcoin impairment loss.

BALANCE SHEET/CASH FLOW

We ended the first quarter of 2022 with $6.9 billion in available liquidity, with $6.3 billion in cash, cash equivalents, restricted cash, and investments in marketable debt securities, as well as $600 million available to be withdrawn from our revolving credit facility. Additionally, we had $1.6 billion available to be withdrawn under our warehouse funding facilities, to support funding of growth in our consumer receivables related to the BNPL platform.

In the first quarter of 2022, Adjusted EBITDA contributed positively to our cash balance. We also increased our cash balance by $579 million related to Afterpay’s cash balance upon acquisition, which was then more than offset by the redemption of Afterpay’s convertible notes totaling $1.1 billion. Our cash balance was also impacted by cash outflows due to net investments in marketable debt securities, repayments of PPP Liquidity Facility advances, and purchases of property and equipment.

MEDIA CONTACT

[email protected]

INVESTOR RELATIONS CONTACT

[email protected]

Earnings

Webcast

Block (NYSE: SQ) will host a conference call and earnings webcast at 2:00 p.m. Pacific time/5:00 p.m. Eastern time, May 5, to discuss these financial results. To register to participate in the conference call, or to listen to the live audio webcast, please visit the Events & Presentations section of Block’s Investor Relations website at investors.block.xyz. A replay will be available on the same website following the call.

We will release financial results for the second quarter of 2022 on August 4, 2022, after the market closes, and will also host a conference call and earnings webcast at 2:00 p.m. Pacific time/5:00 p.m. Eastern time on the same day to discuss those financial results.

SAFE HARBOR STATEMENT

This letter contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, statements regarding the future performance of Block, Inc. and its consolidated subsidiaries (the Company); the Company’s expected financial results, guidance, and general business outlook for future periods; expected impact of the COVID-19 pandemic and related responses of governments and private industry, including the impact of reduced restrictions on businesses and individuals and reduced government stimulus and assistance programs, on the Company’s business, financial results, financial position, and liquidity; the Company’s acquisition of Afterpay, including its impact on the Company’s business and financial results; future profitability and growth in the Company’s businesses and products and the Company’s ability to drive such profitability and growth; the Company’s expectations regarding scale, economics, and the demand for or benefits from its products, product features, and services; the Company’s product development plans, including opportunities for Cash App and bitcoin; the ability of the Company’s products to attract and retain customers, particularly in new or different demographics; trends in the Company’s markets and the continuation of such trends; the Company’s expectations regarding future expenses, including future transaction and loan losses and the Company’s estimated reserves for such losses; and the Company’s bitcoin investments and strategy as well as the potential financial impact and volatility; and management’s statements related to business strategy, plans, investments, opportunities, and objectives for future operations. In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “appears,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Such statements are subject to a number of known and unknown risks, uncertainties, assumptions, and other factors that may cause the Company’s actual results, performance, or achievements to differ materially from results expressed or implied in this letter. Investors are cautioned not to place undue reliance on these statements, and reported results should not be considered as an indication of future performance.

Risks that contribute to the uncertain nature of the forward-looking statements include, among others, uncertainty around the COVID-19 pandemic and the related effects of government and other measures; an economic downturn in the United States and in other countries around the world; the Company’s investments in its business and ability to maintain profitability; the Company’s efforts to expand its product portfolio and market reach; the Company’s ability to develop products and services to address the rapidly evolving market for payments and financial services; the Company’s ability to deal with the substantial and increasingly intense competition in its industry; acquisitions, strategic investments, entries into new businesses, joint ventures, divestitures, and other transactions that the Company may undertake; the integration of Afterpay; the Company’s ability to ensure the integration of its services with a variety of operating systems and the interoperability of its technology with that of third parties; the Company’s ability to retain existing customers, attract new customers, and increase sales to all customers; the Company’s dependence on payment card networks and acquiring processors; the effect of extensive regulation and oversight related to the Company’s business in a variety of areas; the effect of management changes and business initiatives; the liabilities and loss potential associated with new products, product features, and services; litigation, including intellectual property claims, government investigations or inquiries, and regulatory matters or disputes; adoption of the Company’s products and services in international markets; changes in political, business, and economic conditions; as well as other risks listed or described from time to time in the Company’s filings with the Securities and Exchange Commission (the SEC), including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which is on file with the SEC and available on the Investor Relations page of the Company’s website. Additional information will also be set forth in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022. All forward-looking statements are based on information and estimates available to the Company at the time of this letter and are not guarantees of future performance. Except as required by law, the Company assumes no obligation to update any of the statements in this letter.

KEY OPERATING METRICS AND

NON-GAAP FINANCIAL MEASURES

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States (GAAP), we consider certain operating and financial measures that are not prepared in accordance with GAAP, including Gross Payment Volume (GPV), Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income (Loss), Diluted Adjusted Net Income (Loss) Per Share (Adjusted EPS), and non-GAAP operating expenses as well as other measures defined in the shareholder letter such as measures excluding bitcoin, bitcoin impairment loss, measures excluding gains or losses on equity investments and measures excluding Afterpay. 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 payments solution providers.

We define GPV as the total dollar amount of all card payments processed by sellers using Square, net of refunds, and ACH transfers. Additionally, GPV includes Cash App Business GPV, which comprises Cash App activity related to peer-to-peer transactions received by business accounts and peer-to-peer payments sent from a credit card.

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income (Loss), and Diluted Adjusted Net Income (Loss) Per Share (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 share-based compensation expenses; amortization of intangible assets; gain or loss on revaluation of equity investments; bitcoin impairment loss; and the gain or loss on the disposal of property and equipment, as applicable. We also exclude certain transaction and integration costs associated with business combinations, and various other costs that are not normal recurring operating expenses. Transaction costs include amounts paid to redeem acquirees’ unvested stock-based compensation awards, and legal, accounting, and due diligence costs. Integration costs include advisory and other professional services or consulting fees necessary to integrate acquired businesses. Other costs that are non-recurring operating expenses may include contingent losses, 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. Additionally, for purposes of calculating diluted Adjusted EPS, we add back cash interest expense on convertible senior notes, as if converted at the beginning of the period, if the impact is dilutive. In addition to the items above, Adjusted EBITDA is a non-GAAP financial measure that also excludes depreciation and amortization, interest income and expense, other income and expense, and provision or benefit from income taxes, as applicable. To calculate the diluted Adjusted EPS, we adjust the weighted-average number of shares of common stock outstanding for the dilutive effect of all potential shares of common stock. In periods when we recorded an Adjusted Net Loss, the diluted Adjusted EPS is the same as basic Adjusted EPS because the effects of potentially dilutive items were anti-dilutive given the Adjusted Net Loss position.

Non-GAAP operating expenses is a non-GAAP financial measure that represents operating expenses adjusted to remove the impact of share-based compensation, depreciation and amortization, bitcoin impairment loss, loss on disposal of property and equipment, and acquisition-related integration and other costs. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by gross profit.

We have included Adjusted EBITDA, Adjusted EPS, and non-GAAP operating expenses 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 that Adjusted EBITDA, Adjusted EPS, and non-GAAP operating expenses 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. We have included measures excluding Afterpay because we believe these measures are useful in understanding the ongoing results of our operations. We have included measures excluding bitcoin revenue because our role is to facilitate customers’ access to bitcoin. When customers buy bitcoin through Cash App, we only apply a small margin to the market cost of bitcoin, which tends to be volatile and outside our control. Therefore, we believe deducting bitcoin revenue better reflects the economic benefits as well as our performance from these transactions. We have included measures excluding gains or losses on equity investments as well as bitcoin impairment losses because we believe these measures are useful in understanding our operating results without regard to gains and losses due to non-operating market fluctuations of our investments.

Adjusted EBITDA, Adjusted EPS, and non-GAAP operating expenses, as well as other measures defined in the shareholder letter, such as measures excluding Afterpay, bitcoin revenue, bitcoin impairment loss, and measures excluding gains or losses on equity investments, have limitations as financial measures, and should be considered as supplemental in nature, and are not meant as substitutes for the related financial information prepared in accordance with GAAP.

We believe that the aforementioned metrics and measures provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects, and provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain variable amounts. Our management uses these measures 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.

These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP. 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.

Consolidated Statements

of Operations

UNAUDITED

In thousands, except per share data

Consolidated Balance Sheets

In thousands, except share and per share data

Consolidated Statements

of Cash Flows

UNAUDITED

In thousands

Operating Segment Disclosures

UNAUDITED

Information on the reportable segments revenue and segment operating profit are

as follows (in thousands):

A reconciliation of total segment gross profit to the Company’s income (loss)

before applicable income taxes is as follows (in thousands):

(i) Corporate and other represents results related to products and services that are not assigned to a specific reportable segment. Comparable prior period amounts have not been disclosed as they were not material.

(ii) The revenue for both Cash App and Square for the three months ended March 31, 2022 includes $64.9 million each from Afterpay post-acquisition results.

(iii) The gross profit for both Cash App and Square for the three months ended March 31, 2022 includes $46.1 million each from Afterpay post-acquisition results.

Key Operating Metrics and

Non-GAAP Financial Measures

UNAUDITED

In thousands, except GPV and per share data

Adjusted EBITDA

UNAUDITED

In thousands

Select Financial Results Excluding

Bitcoin and Afterpay

UNAUDITED

In thousands

Select Financial Results Excluding

Bitcoin and Afterpay, Continued

UNAUDITED

In thousands