Block, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited U.S. GAAP results. Block operates Square and Cash App; Afterpay BNPL results are allocated equally between those segments.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Total net revenue | $5.535 billion | $4.404 billion | +26% |
| Gross profit | $1.866 billion | $1.470 billion | +27% |
| Gross margin | 33.7% | 33.4% | +0.3 percentage points |
| Operating loss | $132.1 million | $213.8 million | Loss narrowed |
| Net loss attributable to common stockholders | $122.5 million | $208.0 million | Loss narrowed |
| GAAP diluted loss per share | $0.20 | $0.36 | Improved |
| Adjusted EBITDA (non-GAAP) | $384.4 million | $187.3 million | +105% |
| Adjusted operating income (non-GAAP) | $25.5 million | $(103.5) million | Improved |
Bitcoin revenue was $2.391 billion, or 43% of Q2 revenue, but generated only 2% of gross profit. Excluding bitcoin revenue, total revenue grew 20%. Subscription and services revenue rose 33%, and transaction-based revenue rose 11%.
Cash App gross profit was $968.0 million (+37% year over year); Square gross profit was $888.3 million (+18%). Gross payment volume was $59.0 billion, up 12%.
For the six months ended June 30, operating cash flow was $407.7 million, investing cash flow was $578.9 million, and financing cash flow was negative $721.0 million. Cash, cash equivalents, restricted cash, and customer funds increased $272.6 million, to $8.708 billion.
At June 30, cash and cash equivalents were $4.746 billion and marketable debt securities totaled $1.419 billion. Management reported $6.8 billion of liquidity excluding customer funds and undrawn credit, plus $775 million available under the revolving facility and $895 million available under warehouse facilities. Customer funds are not available for corporate use.
Notes had $4.150 billion aggregate principal outstanding; warehouse facilities had $820.2 million drawn. Block paid $461.8 million to settle its 2023 convertible notes at maturity in May. Total assets were $31.076 billion and total liabilities were $13.306 billion.
Material changes and management commentary
- Revenue grew 26%, while gross profit grew 27%; the revenue increase includes substantial bitcoin pass-through sales. Bitcoin revenue and associated costs rose broadly in tandem.
- Operating expenses increased 19% to $1.998 billion. Product development rose 32%, general and administrative rose 39%, and transaction, loan, and consumer receivable losses rose 15% year over year.
- Q2 transaction, loan, and consumer receivable loss expense was $179.8 million. Consumer receivables included $96.5 million more than 60 days past due; the allowance for consumer credit losses was $153.8 million.
- Q2 adjusted operating income and Adjusted EBITDA are non-GAAP measures. The company added back $102.3 million of acquisition-related, integration, and other costs in its Q2 reconciliations. Share-based compensation was $319.2 million in Q2 and $598.8 million for the first half.
- Management said it continued to exercise expense discipline while investing for long-term growth. It stated that available funds should cover working capital and planned capital expenditures for at least the next 12 months. The filing provides no specific earnings or revenue guidance.
Risks, contingencies, and unusual items
- The CFPB and several state Attorneys General issued investigative demands concerning Cash App customer complaints and disputes. Block is cooperating; the recorded accrual was not material, and potential exposure beyond it could not be reliably estimated.
- The SEC and Department of Justice made inquiries following a March 2023 short-seller report. Block said it could not estimate any potential liability; outcomes of investigations and other proceedings could affect results.
- Bitcoin-related risks include price and demand volatility, regulatory uncertainty, safeguarding and custody risks, and asymmetric impairment accounting for Block’s own bitcoin investment. The $763.5 million safeguarding asset and matching liability for customers’ bitcoin are not company liquidity.
- Credit and macroeconomic risks include consumer and seller defaults, BNPL performance, and the availability of third-party purchasers for Square loans. Warehouse borrowings are secured by consumer receivables and facilities mature from December 2023 to December 2024.
- Other key exposures include competition, reliance on payment processors and bank partners, cybersecurity and service disruptions, evolving financial-services regulation, and ongoing Afterpay integration. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting.
Investor facts to verify
- Whether growth in gross profit and adjusted metrics persists after separating bitcoin pass-through revenue and non-GAAP add-backs.
- Trends in credit losses, delinquencies, BNPL receivables, and the adequacy of related allowances.
- Cash available for corporate purposes after excluding customer funds and restricted cash, alongside debt maturities and warehouse facility renewals.
- Developments in CFPB, state, SEC, and DOJ inquiries, including any new accruals or disclosed exposure.
- The sustainability of expense discipline given higher product-development, compliance, and share-based compensation costs.