Block, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2022, compared with the same period in 2021. Block operates Square, serving sellers, and Cash App, serving individuals; it also reports TIDAL and other activities. Block completed its acquisition of Afterpay on January 31, 2022, and included two months of Afterpay post-acquisition results.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total net revenue | $3.961 billion | $5.057 billion | Down 22%; excluding bitcoin revenue, up 44% to $2.230 billion |
| Gross profit | $1.295 billion | $963.5 million | Up 34%; gross margin 32.7%, versus 19.1% |
| Operating income (loss) | $(226.8) million | $67.7 million | Operating margin approximately (5.7%), versus 1.3% |
| Net income (loss) | $(207.4) million | $39.0 million | Common-stockholder loss was $204.2 million, or $(0.38) per diluted share |
| Adjusted EBITDA | $195.4 million | $236.2 million | Down 17%; non-GAAP measure |
| Adjusted diluted EPS | $0.18 | $0.41 | Non-GAAP measure; prior period revised for tax-effect presentation |
| Operating cash flow | $229.4 million | $(29.2) million | Improved year over year |
| Cash, equivalents, restricted cash and customer funds | $7.366 billion | $6.975 billion at Dec. 31, 2021 | Includes customer funds unavailable for corporate use |
Revenue and segments. Transaction revenue increased 28% to $1.233 billion, subscription and services revenue increased 72% to $959.6 million, and hardware revenue increased 30% to $37.3 million. Bitcoin revenue fell 51% to $1.731 billion, primarily reflecting lower customer demand and trading activity amid relative price stability. Bitcoin contributed 44% of revenue but only 3% of gross profit. GPV was $43.5 billion, up 31%. Square revenue was $1.444 billion, up 42%, and gross profit was $661.2 million, up 41%. Cash App revenue was $2.462 billion, down 39% due to bitcoin, while gross profit rose 26% to $623.7 million; excluding bitcoin revenue, Cash App revenue increased 38%.
Costs and unusual items. Operating expenses rose 70% to $1.522 billion. General and administrative expense more than doubled to $444.3 million, including $42.4 million of Afterpay integration and acquisition-related costs and a $66.3 million one-time charge for accelerated employee awards. Share-based compensation totaled $275.4 million, versus $118.6 million. Transaction, loan and consumer receivable losses rose to $91.2 million, including a $36.5 million provision for Afterpay consumer receivables. Other income of $33.5 million included a $59.8 million unrealized gain on a non-marketable investment.
Balance sheet, debt and liquidity. At March 31, total assets were $29.127 billion, including $12.429 billion of goodwill and $2.275 billion of acquired intangibles, largely reflecting Afterpay. Total liabilities were $11.677 billion. Notes had a net carrying value of $4.562 billion; the company also reported $208.1 million of warehouse funding facilities and $124.6 million of PPP Liquidity Facility advances. Afterpay’s approximately $1.1 billion of assumed convertible notes were redeemed at face value on March 4. The company reported $6.3 billion of cash, equivalents, restricted cash and marketable debt securities excluding customer funds, plus $600 million available under its revolving credit facility and $1.6 billion available under warehouse facilities. Management said available funds should meet liquidity needs for the foreseeable future and working-capital needs for at least 12 months; it was in compliance with credit-facility covenants.
Investing cash flow was $1.131 billion, primarily reflecting $570.7 million of cash acquired with Afterpay and net proceeds from securities. Financing cash flow was $(968.6) million, primarily reflecting the $1.072 billion redemption of Afterpay notes and PPP facility repayments, partly offset by customer-fund movements and warehouse borrowings. Cash-flow presentation classifies movements in customer funds as financing activities; customer funds are segregated and not available for corporate purposes.
Material changes, outlook and risks
- Afterpay acquisition: Consideration was approximately $13.8 billion, primarily 113.6 million Block shares. Preliminary goodwill was $11.689 billion; purchase accounting valuations remained subject to change. Management’s stated strategic rationale was to integrate BNPL with Square and Cash App, but realization of expected benefits was uncertain.
- Operating outlook: Management described Square and Cash App performance as positive amid economic recovery and reopening, but gave no numerical revenue, earnings or GPV guidance in the provided filing text. It cited uncertainty from COVID-19, inflation, consumer spending and regional restrictions, and said it would adjust investment and discretionary spending as conditions evolve.
- Credit and consumer receivables: Afterpay consumer receivables had $1.414 billion amortized cost and a $109.8 million allowance at quarter-end; $49.2 million was 61–90 days past due and $8.8 million was over 90 days past due. The business assumes consumer repayment risk and relies partly on secured, variable-rate warehouse funding.
- Bitcoin and investments: Block’s bitcoin investment had a $149.0 million carrying value and $365.5 million fair value; accounting rules do not permit recognition of unrealized gains, while declines below carrying value may require impairment. Market volatility and investment valuation remain relevant risks.
- Legal and regulatory matters: CFPB and several state Attorneys General sought information about Cash App complaints and disputes; the company was cooperating and could not estimate potential exposure beyond an immaterial reserve. On April 28, 2022, a court granted H&R Block a preliminary injunction barring use of the Block, Inc. name in connection with Cash App Taxes; Block said it intended to defend the case. The filing also disclosed a former employee’s unauthorized download of Cash App Investing reports containing U.S. customer information, announced in April.
- Other risks: The filing highlights acquisition integration and assumed liabilities, BNPL credit and funding risks, competition, fraud and transaction losses, cybersecurity and service disruptions, supply-chain constraints and hardware tariffs, extensive financial-services and privacy regulation, foreign-exchange exposure, and possible tax valuation allowances. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
- Accounting item: Adoption of SEC Staff Accounting Bulletin 121 was expected to add an asset and corresponding safeguarding liability for bitcoin held for customers. Had it been adopted at March 31, 2022, assets and liabilities each would have increased by $1.1 billion, with no impact on operating results or cash flows.
Investor verification priorities
- Reconcile revenue growth excluding bitcoin with GPV, gross profit, and segment trends; bitcoin revenue materially affects reported top-line comparisons.
- Track whether Afterpay integration delivers expected merchant and consumer benefits, and verify final purchase accounting, acquisition costs, goodwill allocation, and share dilution.
- Monitor Afterpay receivable delinquencies, credit-loss provisions, charge-offs, and the availability and terms of warehouse funding.
- Distinguish corporate liquidity from customer funds and restricted cash; review debt maturities, conversion and settlement choices, and facility covenant headroom.
- Follow the H&R Block injunction and other regulatory inquiries, and assess any costs or customer impact from the disclosed data incident.
- Compare GAAP results with adjusted EBITDA and adjusted EPS, noting recurring share-based compensation and other excluded items.