Block, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 23, 2023. Although the request metadata refers to 2022 Q4, this is an annual filing. The company reports Square and Cash App as its two segments. Afterpay results are included from its January 31, 2022 acquisition and allocated equally between those segments.
Business context and key metrics
Block operates Square’s commerce and seller-services ecosystem and Cash App’s consumer financial-services ecosystem, with newer investments in Afterpay/BNPL, TIDAL, and bitcoin-related initiatives. At year-end, Cash App had more than 51 million monthly transacting actives. Square processed $186.5 billion of GPV in 2022; mid-market sellers represented 39% of Square GPV in Q4, versus 37% in Q4 2021.
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Total net revenue | $17.53 billion | $17.66 billion | Down 1% |
| Revenue excluding bitcoin | Not stated as a total | Not stated as a total | Up 36% |
| Gross profit | $5.99 billion | $4.42 billion | Up 36% |
| Gross margin | 34.2% | 25.0% | Up 9.2 percentage points |
| Operating income (loss) | $(624.5) million | $161.1 million | Turned to loss |
| Net income (loss) attributable to common stockholders | $(540.7) million | $166.3 million | Turned to loss |
| Adjusted EBITDA (non-GAAP) | $991.0 million | $1.014 billion | Down 2% |
| Adjusted diluted EPS (non-GAAP) | $1.00 | $1.28 | Down 22% |
| Net cash from operating activities | $175.9 million | $847.8 million | Down $671.9 million |
Segment performance and material changes
- Square: Revenue rose 29% to $6.70 billion and gross profit rose 30% to $3.00 billion. Growth reflected higher GPV, seller banking and software, and Afterpay.
- Cash App: Revenue fell 14% to $10.63 billion, mainly because bitcoin revenue declined; gross profit nevertheless rose 43% to $2.95 billion. Excluding bitcoin, Cash App revenue increased 53%, according to the filing.
- Bitcoin: Revenue fell 29% to $7.11 billion, accounting for 41% of consolidated revenue versus 57% in 2021. Bitcoin contributed only 3% of consolidated gross profit in 2022. The company recorded $46.6 million of bitcoin impairment expense.
- Afterpay: Contributed $811.4 million of revenue from acquisition through year-end. The acquisition consideration was $13.8 billion, primarily Block shares; it generated $11.7 billion of goodwill. Block issued 113.6 million Class A shares.
- Expense and credit trends: Operating expenses rose 55% to $6.62 billion. Transaction, loan, and consumer receivable losses rose to $550.7 million from $188.0 million; this included a $197.6 million increase in the allowance for Afterpay consumer receivables from acquisition through year-end.
Cash, debt, and liquidity
- At December 31, 2022, cash, cash equivalents, restricted cash, customer funds, and marketable debt securities totaled $10.09 billion. Customer funds of $3.18 billion are restricted from corporate use; Block reported $6.9 billion of liquidity excluding customer funds.
- Management reported approximately $7.5 billion in available funds, including $600 million undrawn under the revolving credit facility, and said liquidity was sufficient for foreseeable needs and at least the next 12 months. These stated liquidity measures have different scopes.
- Outstanding notes had $4.61 billion aggregate principal; $460.6 million of 2023 convertible notes was current at year-end. Afterpay warehouse facilities had $1.3 billion drawn and $389.4 million available. The revolving facility was undrawn, and Block reported compliance with its covenants.
- Operating cash flow fell to $175.9 million. Cash flow included substantial working-capital and lending-related movements; investing cash flow was positive $1.23 billion, while financing cash flow was positive $97.6 million.
- Non-cancelable cloud-computing purchase commitments totaled approximately $1.28 billion. The company paid $1.07 billion to redeem Afterpay convertible notes in 2022.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific numeric revenue, earnings, or margin guidance. Management said available liquidity should meet foreseeable needs and planned capital expenditures for at least 12 months, while emphasizing continued investment in products, employees, infrastructure, and growth.
- Key disclosed risks include weaker consumer and small-business spending, competition, credit losses in BNPL and lending, Afterpay integration, bitcoin volatility, cybersecurity and fraud, dependence on payment networks and third parties, and changing financial-services regulation.
- Consumer receivables were $2.02 billion at amortized cost with a $151.3 million credit-loss allowance. The filing identifies elevated estimation uncertainty around this allowance and transaction-loss reserves.
- Block received CFPB and multi-state Attorney General investigative demands concerning Cash App customer complaints and disputes. It accrued an immaterial amount, but said it could not reliably estimate additional potential exposure.
- H&R Block’s trademark case remained unresolved: the appellate court vacated the preliminary injunction in January 2023, and H&R Block sought rehearing in February 2023.
- The company disclosed that a former employee downloaded Cash App Investing customer reports without permission; Block incurred investigation and response costs and could face further costs or liabilities.
- Share-based compensation was $1.07 billion, including a $66.3 million one-time Afterpay-related acceleration charge. Management also reported a full valuation allowance on certain deferred tax assets. Block recorded $96.1 million of unrealized gains from revaluing certain equity investments.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile the reported $6.9 billion of liquidity excluding customer funds with the approximately $7.5 billion available-funds figure and identify which balances are restricted or otherwise unavailable.
- Track operating cash flow, working-capital movements, lending-related cash flows, and the sustainability of cash generation alongside non-GAAP Adjusted EBITDA.
- Monitor Afterpay integration, BNPL receivable delinquencies and losses, and changes to the $151.3 million allowance against $2.02 billion of consumer receivables.
- Assess the maturity, refinancing, conversion, and potential dilution implications of the $4.61 billion of notes, including the 2023 maturity, plus warehouse-facility funding needs.
- Follow developments in the CFPB and state investigations, the H&R Block litigation, and the consequences of the disclosed customer-data incident.
- Separate bitcoin’s high gross-revenue contribution from its comparatively low gross-profit contribution, and consider the asymmetric impairment accounting on Block’s own bitcoin holdings.