Block, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Block operates the Square and Cash App ecosystems, with BNPL results allocated between them. Afterpay was acquired on January 31, 2022, so the prior-year comparison includes only its results from the acquisition date. Amounts below are U.S. dollars.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total net revenue | $4.990B | $3.961B | +26% |
| Revenue excluding bitcoin | $2.826B | $2.230B | +27% |
| Gross profit | $1.715B | $1.295B | +32% |
| Gross margin | 34.4% | 32.7% | +1.7 percentage points |
| Operating loss | $(6.2)M | $(226.8)M | Improved |
| Net loss | $(19.3)M | $(207.4)M | Improved |
| Net loss attributable to common stockholders | $(16.8)M | $(204.2)M | Improved |
| GAAP diluted loss per share | $(0.03) | $(0.38) | Improved |
| Operating cash flow | $294.4M | $229.4M | Higher |
| Gross Payment Volume | $51.1B | $43.5B | +17% |
- Bitcoin revenue was $2.164B, or 43% of total revenue, while bitcoin transaction gross profit was only 3% of total gross profit. Revenue and costs both rose with bitcoin sales volume; bitcoin revenue is therefore not a direct measure of underlying profitability.
- Square revenue was $1.667B (+15%) and gross profit was $770.3M (+16%). Cash App revenue was $3.272B (+33%) and gross profit was $931.2M (+49%). Cash App revenue excluding bitcoin increased 52%.
- Subscription and services revenue rose 42% to $1.366B; transaction-based revenue rose 15% to $1.423B. Hardware revenue was essentially unchanged at $37.5M.
- Adjusted operating income, a non-GAAP measure, was $51.0M versus a $42.3M loss. Adjusted EBITDA was $368.4M versus $195.4M; adjusted diluted EPS was $0.40 versus $0.18. These measures exclude specified costs and should be considered alongside GAAP results.
- Operating expenses increased 13% to $1.721B. Product development rose 37% to $626.9M; transaction, loan, and consumer receivable losses rose 40% to $127.9M. Share-based compensation was approximately $279.6M.
Cash, liquidity, and debt
- Cash and cash equivalents were $5.061B at March 31, 2023, versus $4.544B at December 31, 2022. Cash, restricted cash, customer funds, and marketable debt securities totaled $10.783B; customer funds are held for customers and are not available for corporate use.
- Management reported $7.0B of liquidity excluding customer funds and undrawn revolver availability, and approximately $7.6B of available funds including $600M available under the revolving facility. A further $1.0B was available under warehouse facilities for BNPL receivables.
- Operating cash flow was $294.4M; investing cash flow was $623.9M; financing cash flow used $9.1M. Investing cash flow included a net inflow from consumer receivables; financing cash flow reflected warehouse-facility repayments, largely offset by an increase in customer funds.
- Notes had $4.611B of principal outstanding ($4.573B net carrying value). The $460.6M of 2023 convertible notes outstanding at quarter-end matured May 15, 2023; holders had converted approximately $401.9M of principal by March 31. Warehouse funding debt was $690.2M, secured by consumer receivables, with $1.0B of facility capacity remaining.
- Block said it was in compliance with revolving-credit covenants. Its revolving facility required minimum quarterly liquidity of $250M. The filing cites non-investment-grade ratings from S&P, Fitch, and Moody’s when last rated in the second half of 2022.
Material changes, outlook, and risks
- Revenue growth reflected higher bitcoin sales, Cash App financial services and card activity, Square payment volume, and Afterpay. The prior-year Afterpay period was shorter, limiting comparability.
- Product development spending increased with personnel, cloud, and data-center costs. Management attributed higher transaction, loan, and receivable losses primarily to increased loan volume and Cash App Card growth.
- Management stated that existing cash, marketable debt securities, and credit availability should meet working-capital needs and planned capital expenditures for at least the next 12 months. The filing provides no formal numerical revenue or earnings guidance.
- Key disclosed risks include consumer and merchant credit losses, macroeconomic weakness, bitcoin market volatility, banking and payment-processor reliance, cybersecurity and safeguarding risks, regulatory scrutiny of Cash App and BNPL, and the ongoing integration of Afterpay.
- The CFPB and multiple state Attorneys General sought information about Cash App customer complaints and disputes. Block was cooperating; the accrued liability was not material, and the filing says potential exposure beyond accruals could not be reliably estimated.
- Block and H&R Block settled their trademark dispute on March 31, 2023; the settlement was not material, and the case was dismissed April 24. Block reported no material change in internal control over financial reporting and concluded disclosure controls were effective at a reasonable-assurance level.
Most important facts for investors to verify
- Whether growth and gross-profit gains persist when bitcoin’s high-volume, low-margin revenue is separated from core business performance.
- Trends in credit losses, delinquencies, charge-offs, and allowance adequacy across BNPL receivables, Square loans, and transactions.
- How the May 2023 maturity of the remaining 2023 convertible notes was settled, and the resulting cash use or dilution.
- Whether reported liquidity remains adequate after excluding customer funds and considering debt maturities, warehouse-facility conditions, and credit ratings.
- Developments in CFPB and state investigations, BNPL regulation, banking oversight, and other litigation or tax contingencies.