BLOCK, INC. You should read the following discussion and analysis in conjunction with the information set forth within the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, our plans, estimates, beliefs and expectations that involve risks and uncertainties, and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Overview
OnDecember 1, 2021 , we changed our name as a corporate entity from Square to Block. We started Block with the Square ecosystem inFebruary 2009 to enable businesses (also referred to as sellers) to accept card payments, an important capability that was previously inaccessible to many businesses. However, sellers need many solutions to thrive, and we have expanded to provide them additional products and services and to give them access to a cohesive ecosystem of tools to help them manage and grow their businesses. Similarly, with Cash App, we have built an ecosystem of financial services to help individuals manage their money. We also added TIDAL and TBD as businesses to contribute to our purpose of economic empowerment. TIDAL, a global music and entertainment platform, focuses on putting both the artist experience and fan experience at the center of decisions, providing artists direct access to their audience, and allowing fans deeper connections to their favorite artists through original, exclusive, and curated content and events. TBD, a bitcoin-focused business, was established to build an open developer platform with the goal of making it easy to create non-custodial, permissionless, and decentralized financial services. InJanuary 2022 , we completed the acquisition ofAfterpay Limited ("Afterpay"), a buy now pay later ("BNPL") platform that facilitates commerce between retail merchants and consumers by allowing its retail merchant clients to offer their customers the ability to buy goods and services on a BNPL basis. Square is a cohesive commerce ecosystem that helps sellers start, run, and grow their businesses, and consists of over 30 distinct software, hardware, and financial services products. We monetize the majority of these products through a combination of transaction, subscription, and service fees. Our suite of cloud-based software solutions are integrated to create a seamless experience and enable a holistic view of sales, customers, employees, and locations. With our offerings, a seller can accept payments in person via swipe, dip, or tap of a card, or online via Square Invoices,Square Virtual Terminal , or the seller's website. We also provide hardware to facilitate commerce for sellers, which includes magstripe readers, contactless and chip readers, Square Stand,Square Register ,Square Terminal , and third-party peripherals. Square Banking consists of a suite of products for ourU.S. sellers, including Square Savings, Square Checking, and Square Loans (formerly known asSquare Capital ). Square Checking is offered through a partner bank, and Square Savings and Square Loans are offered through our wholly-owned subsidiarySquare Financial Services, Inc. ("Square Financial Services" or "SFS"). Square Financial Services offers banking services including certain loan and deposit products. In addition tothe United States , we also offer Square Loans inAustralia .Canada , and theUnited Kingdom . Square Savings allows sellers to automatically set aside funds from daily sales into savings accounts that earn interest. Square Checking provides sellers with anFDIC -insured account allowing them instant access to their sales and the ability to use those funds for business expenses using their Square Debit Card, withdraw from an ATM, transfer via ACH, or pay employees via Square Payroll. Square Loans offers sellers access to business loans based on the seller's payment processing history. We recognize revenue upon the sale of the loans to third-party investors or over time as the sellers pay down the outstanding amounts for the loans that we hold as available for sale or for investment. We have grown rapidly to serve millions of sellers that represent a diverse set of industries including services, food-related business, and retail businesses; and sizes, ranging from a single vendor at a farmers' market to multi-location businesses. Square sellers also span geographies, includingthe United States ,Canada ,Japan ,Australia , theUnited Kingdom ,Ireland ,France , andSpain . Our Cash App ecosystem provides financial tools for individuals to store, send, receive, spend, and invest money. With Cash App, customers can fund their account with a bank account or debit card, send and receive peer-to-peer payments, add physical cash at participating retailers, deposit mobile checks, and receive direct deposit payments. Customers can make purchases with their CashApp Card , aVisa prepaid card that is linked to the balance stored in Cash App. Additionally, customers can use CashApp Pay , a checkout option which allows customers to pay using their Cash App account. With Cash Boost, customers receive instant discounts when they make CashApp Card purchases at designated merchants. Customers can also use their stored funds to buy and sell bitcoin and equity investments within Cash App. CashApp Borrow offers 52 -------------------------------------------------------------------------------- customers a short-term loan to send, spend, or invest across the ecosystem. The Cash App ecosystem also includes a tax filing product for individuals, providing a seamless, mobile-first solution for individuals to file their taxes for free. With the acquisition of Afterpay, we added a BNPL platform to our offerings. Through the use of this BNPL platform, consumers can split their purchase price across three to four installments, generally due over six to eight weeks, without paying fees (if payments are made on time). Afterpay provides consumers with the ability to get desired items now but pay for them later and can simultaneously help merchants increase sales and order values. The Company pays BNPL sellers the full order value upfront, less a merchant fee, and assumes the risk of non-payment from the end-customer. Apart from capped late payment fees, consumers do not incur additional fees. Afterpay also provides an online shop directory, which allows consumers to search by product category for stores that offer Afterpay as a payment option, and offers an Afterpay in-store card for in-person transactions at a merchant's point of sale. The BNPL platform is being integrated into the Cash App and Square ecosystems, strengthening the connection between these ecosystems, expanding access to more sellers and customers, increasing Square's omnichannel platform, and helping drive more commerce between our sellers and customers. Customers will be able to manage their installments and repayments directly within Cash App, potentially driving increased engagement, while the commerce discovery functionality will be integrated with Cash App to help drive lead generation for merchants and customer engagement. As discussed in Note 21, Segment and Geographical Information within Notes to the Condensed Consolidated Financial Statements, the financial results of Afterpay have been equally allocated to the Cash App and Square segments. Results of Operations
Revenue (in thousands, except for percentages)
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Transaction-based revenue $ 1,475,707 $ 1,227,472 $ 248,235 20 % $ 2,708,676 $ 2,187,205 $ 521,471 24 %
Subscription and
services-based revenue 1,094,856 685,178 409,678 60 % 2,054,413 1,242,859 811,554 65 %
Hardware revenue 48,051 43,726 4,325 10 % 85,377 72,514 12,863 18 %
Bitcoin revenue 1,785,885 2,724,296 (938,411) (34) % 3,516,678 6,235,364 (2,718,686) (44) %
Total net revenue $ 4,404,499 $ 4,680,672 $ (276,173) (6) % $ 8,365,144 $ 9,737,942 $ (1,372,798) (14) %
Total net revenue for the three and six months ended June 30, 2022 decreased by
$276.2 million , or 6%, and $1.4 billion , or 14% compared to the three and six
months ended June 30, 2021 , respectively. Bitcoin revenue decreased by $938.4
million and $2.7 billion for the three and six months ended June 30, 2022
compared to the three and six months ended June 30, 2021 , respectively.
Excluding bitcoin revenue, total net revenue increased by $662.2 million , or
34%, and $1.3 billion , or 38% in the three and six months ended June 30, 2022
compared to the three and six months ended June 30, 2021 , respectively. Revenue
from the BNPL platform, following the acquisition of Afterpay in the first
quarter of 2022, was 5% of the total net revenue in the three months ended June
30, 2022 , and 4% from the date of acquisition through June 30, 2022 .
Transaction-based revenue for the three and six months ended June 30, 2022
increased by $248.2 million , or 20%, and $521.5 million , or 24% compared to the
three and six months ended June 30, 2021 , respectively. This increase was
consistent with the increase in Gross Payment Volume ("GPV") of 23% and 26% for
the three and six months ended June 30, 2022 compared to the three and six
months ended June 30, 2021 , respectively. The increase in transaction-based
revenue was driven by:
•continued improvements in both card-present and card-not-present volumes as a result of growth in online channels, as well as growth in our international markets; and
•growth in Cash App Business GPV which includes peer-to-peer transactions received by business accounts and peer-to-peer payments sent from a credit card.
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Subscription and services-based revenue for the three and six months ended June
30, 2022 increased by $409.7 million , or 60% and $811.6 million or 65% compared
to the three and six months ended June 30, 2021 , respectively. This increase was
driven by:
•revenue generated from the BNPL platform following the acquisition of Afterpay
in the first quarter of 2022, which contributed $208.1 million during the three
months ended June 30, 2022 , and $337.9 million from the date of acquisition
through June 30, 2022 ;
•an increase in Cash App subscription and services-based revenue primarily due
to increased Cash
•growth in seller banking products, including the increased origination volumes of Square Loans, as well as software subscriptions.
Subscription and services-based revenue also includes revenue generated from music streaming services following the acquisition of TIDAL in the second quarter of 2021.
Hardware revenue for the three and six months endedJune 30, 2022 increased by$4.3 million , or 10% and$12.9 million or 18%, compared to the three and six months endedJune 30, 2021 , respectively. This increase was primarily a result of an overall increase in sales of hardware across many of our product offerings includingSquare Register ,Square Terminal , and Square Reader. Bitcoin revenue for the three and six months endedJune 30, 2022 decreased by$0.9 billion , or 34% and$2.7 billion or 44%, compared to the three and six months endedJune 30, 2021 respectively. The amount of bitcoin revenue recognized will fluctuate depending on customer demand as well as changes in the market price of bitcoin. This decrease in the three and six months endedJune 30, 2022 was driven by the market price of bitcoin and reduced customer demand compared to the three and six months endedJune 30, 2021 , respectively. While bitcoin revenue contributed 41% and 42% of the total net revenue in the three and six months endedJune 30, 2022 , gross profit generated from bitcoin transactions was only 3% of the total gross profit in the three and six months endedJune 30, 2022 , compared to 5% and 6% of total gross profit in the three and six months endedJune 30, 2021 respectively.
Cost of Revenue (in thousands, except for percentages)
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Transaction-based costs $ 875,762 $ 682,349 $ 193,413 28 % $ 1,591,998 $ 1,206,629 $ 385,369 32 %
Subscription and
services-based costs 213,271 120,810 92,461 77 % 396,128 209,382 186,746 89 %
Hardware costs 83,494 61,403 22,091 36 % 147,158 101,885 45,273 44 %
Bitcoin costs 1,744,425 2,669,641 (925,216) (35) % 3,431,884 6,105,776 (2,673,892) (44) %
Amortization of acquired
technology assets 17,899 5,405 12,494 231 % 33,368 9,705 23,663 244 %
Total cost of revenue $ 2,934,851 $ 3,539,608 $ (604,757) (17) % $ 5,600,536 $ 7,633,377 $ (2,032,841) (27) %
Total cost of revenue for the three and six months ended June 30, 2022 decreased
by $0.6 billion , or 17% and $2.0 billion , or 27% compared to the three and six
months ended June 30, 2021 , respectively. Bitcoin costs of revenue decreased by
$0.9 billion and $2.7 billion in the three and six months ended June 30, 2022 ,
respectively, compared to the three and six months ended June 30, 2021 ,
respectively. Excluding bitcoin costs of revenue, total cost of revenue
increased by approximately $320.5 million , or 37%, and $641.1 million , or 42% in
the three and six months ended June 30, 2022 , compared to the three and six
months ended June 30, 2021 , respectively.
Transaction-based costs increased by $193.4 million , or 28%, and $385.4 million ,
or 32%, compared to the three and six months ended June 30, 2021 , respectively,
while GPV grew by 23% and 26% in the same periods. Transaction-based
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costs during the three and six months ended June 30, 2022 were affected by a
decrease in the percentage of debit card transactions, which have continued to
normalize towards pre-pandemic levels and have a lower cost per transaction.
Subscription and services-based costs for the three and six months ended June
30, 2022 increased by $92.5 million , or 77%, and 186.7 million, or 89%, compared
to the three and six months ended June 30, 2021 , respectively. The increase in
the three and six months ended June 30, 2022 was driven by:
•BNPL costs of revenue following the acquisition of Afterpay in the first
quarter of 2022. The costs of revenues associated with the BNPL platform were
$58.5 million for the three months ended June 30, 2022 , and $96.0 million from
the date of acquisition through June 30, 2022 ;
•growth in Cash
•an increase in costs related to music streaming services following the acquisition of TIDAL in the second quarter of 2021.
Hardware costs for the three and six months endedJune 30, 2022 increased by$22.1 million , or 36%, and$45.3 million , or 44% compared to the three and six months endedJune 30, 2021 , respectively. The increase was due to the increased sales of hardware, as further discussed in hardware revenue above, as well as increased purchase price variances and inbound shipping rates due to supply chain disruptions. Bitcoin costs for the three and six months endedJune 30, 2022 decreased by$0.9 billion , or 35%, and$2.7 billion , or 44% compared to the three and six months endedJune 30, 2021 , respectively. Bitcoin cost of revenue comprises of the total amounts we pay to purchase bitcoin, which fluctuates in line with bitcoin revenue. Amortization of acquired technology assets increased by$12.5 million and$23.7 million in the three and six months endedJune 30, 2022 , respectively, compared to the three and six months endedJune 30, 2021 , respectively. The increase was driven by amortization related to the acquired technology assets from the acquisition of Afterpay of$11.2 million and$20.1 million in the three and six months endedJune 30, 2022 , respectively. 55
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Operating Expenses (in thousands, except for percentages)
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
Product development $ 524,827 $ 324,059 $ 200,768 62 % $ 983,051 $ 631,769 $ 351,282 56 %
% of total net
revenue 12 % 7 % 12 % 6 %
Sales and marketing $ 530,827 $ 373,878 $ 156,949 42 % $ 1,032,389 $ 723,338 $ 309,051 43 %
% of total net
revenue 12 % 8 % 12 % 7 %
General and
administrative $ 395,720 $ 220,865 $ 174,855 79 % $ 839,869 $ 416,621 $ 423,248 102 %
% of total net
revenue 9 % 5 % 10 % 4 %
Transaction, loan,
and consumer
receivable losses $ 156,697 $ 48,173 $ 108,524 225 % $ 247,847 $ 68,568 $ 179,279 261 %
% of total net
revenue 4 % 1 % 3 % 1 %
Bitcoin impairment
losses $ 35,961 $ 45,266 $ (9,305) (21) % $ 35,961 $ 65,126 $ (29,165) (45) %
% of total net
revenue 1 % 1 % - % 1 %
Amortization of
customer and other
acquired intangible
assets $ 39,389 $ 3,829 $ 35,560 NM (i) $ 66,053 $ 6,413 $ 59,640 NM
% of total net
revenue 1 % - % 1 % - %
Total operating
expenses $ 1,683,421 $ 1,016,070 $ 667,351 66 % $ 3,205,170 $ 1,911,835 $ 1,293,335 68 %
(i) Not meaningful ("NM")
Product development expenses for the three and six months ended June 30, 2022
increased by $200.8 million , or 62%, and $351.3 million , or 56% compared to the
three and six months ended June 30, 2021 , respectively, due primarily to the
following:
•an increase of $161.5 million and $287.7 million in personnel costs for the
three and six months ended June 30, 2022 , respectively, related to an increase
in headcount among our engineering, data science, and design teams, as we
continue to improve and diversify our products. The increase was additionally
driven by the acquisition of Afterpay in the first quarter of 2022. The increase
in product development personnel costs also includes an increase in share-based
compensation expense of $73.0 million and $131.2 million for the three and six
months ended June 30, 2022 , respectively;
•an increase of $33.5 million and $58.3 million in software and data center
costs, consulting, and certain Cash App crypto networks operating costs for the
three and six months ended June 30, 2022 , respectively, as a result of increased
capacity needs and expansion of our cloud-based services.
Sales and marketing expenses for the three and six months ended June 30, 2022
increased by $156.9 million or 42%, and $309.1 million or 43% compared to the
three and six months ended June 30, 2021 , respectively, primarily due to the
following:
•an increase of $42.6 million and $79.5 million in sales and marketing personnel
costs for the three and six months ended June 30, 2022 , respectively, to enable
growth initiatives. The increase in personnel related costs includes an
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increase in share-based compensation expense of
•an increase of$34.4 million and$63.7 million in advertising costs for our Square services for the three and six months endedJune 30, 2022 , respectively, primarily from increased online and television marketing campaigns; •an increase in Cash App marketing costs for the three and six months endedJune 30, 2022 of$20.6 million and$39.3 million , respectively. For the three and six months endedJune 30, 2022 , Cash App customer acquisition costs increased by$34.3 million and$67.1 million , respectively, and peer-to-peer risk loss increased by$17.5 million and$33.6 million , respectively. Cash App customer acquisition costs include advertising costs and costs associated with various incentives to customers. We consider the free services such as stock investing, Cash App Taxes, and certain CashApp Card and peer-to-peer services to Cash App customers to be marketing initiatives aimed at attracting new customers and encouraging the usage of Cash App; and •an increase in sales and marketing expenses due to the acquisitions of Afterpay and TIDAL, which were completed in the first quarter of 2022 and second quarter of 2021, respectively. General and administrative expenses for the three and six months endedJune 30, 2022 increased by$174.9 million or 79%, and$423.2 million or 102% compared to the three and six months endedJune 30, 2021 , respectively, primarily due to the following: •an increase of$114.8 million and$279.5 million in general and administrative personnel costs for the three and six months endedJune 30, 2022 , respectively, mainly as a result of additions to our customer support, finance, and legal personnel as we continued to add resources and skills to support our long-term growth as our business continues to scale, and as a result of the acquisition of Afterpay in the first quarter of 2022. The increase in general and administrative personnel costs includes an increase in share-based compensation expense of$40.4 million and$47.8 million for the three and six months endedJune 30, 2022 , respectively; •acquisition-related integration and other expenses related to Afterpay of$13.5 million and$55.9 million for the three and six months endedJune 30, 2022 , as well as a$66.3 million one-time charge related to the acceleration of various stock compensation arrangements in connection with the Afterpay acquisition during the three months endedMarch 31, 2022 , which was additional to ongoing share-based compensation expense for Afterpay employees; and
•an increase in software and third-party legal, subscription costs and other professional fees, and other administrative expenses.
Transaction, loan, and consumer receivable losses for the three and six months endedJune 30, 2022 increased by$108.5 million , or 225%, and$179.3 million , or 261% compared to the three and six months endedJune 30, 2021 , respectively, primarily due to the following: •an increase in the allowance for credit losses related to consumer receivables of$93.0 million fromJanuary 31, 2022 , the date of the acquisition of Afterpay, toJune 30, 2022 , including an increase of$56.5 million in the allowance during the three months endedJune 30, 2022 ; •an increase in transaction losses for the three and six months endedJune 30, 2022 of$39.0 million and$64.5 million compared to the three and six months endedJune 30, 2021 , respectively. The increase in the three and six months endedJune 30, 2022 was primarily due to growth in Square GPV; and •an increase in loan losses for the three and six months endedJune 30, 2022 of$13.0 million and$21.8 million compared to the three and six months endedJune 30, 2021 , respectively. The increase in loan losses in the three and six months endedJune 30, 2022 as compared toJune 30, 2021 was due to increased loan volumes. We recorded$36.0 million of bitcoin impairment losses in the three months endedJune 30, 2022 and no bitcoin impairment losses in the three months endedMarch 31, 2022 . In the three and six months endedJune 30, 2021 , bitcoin impairment losses were$45.3 million and$65.1 million , respectively. As ofJune 30, 2022 , the fair value of our investment in bitcoin was$160.0 million based on observable market prices, which is$47.1 million in excess of the carrying value of our 57 -------------------------------------------------------------------------------- investment of$112.9 million after impairment charges. Any unrealized gains or losses on our bitcoin investment will only be recognized upon the sale of such bitcoin investment. Amortization of customer and other acquired intangible assets increased$35.6 million and$59.6 million for the three and six months endedJune 30, 2022 , respectively, primarily as a result of the intangible assets from the Afterpay acquisition, which increased the amortization of intangibles by$35.0 million and$57.1 million for the three and six months endedJune 30, 2022 . Refer to Note 11, Acquired Intangible Assets within Notes to the Condensed Consolidated Financial Statements for more details. Interest Expense, Net, and Other Expense (Income), Net (in thousands, except for percentages) Three Months Ended Six Months Ended June 30, June 30, 2022 2021 $ Change % Change 2022 2021 $ Change % Change
Interest expense, net$ 12,966 $ 6,464 $ 6,502 101 %$ 28,714 $ 6,717 $ 21,997 327 % Other income, net$ (18,766) $ (75,788) $ 57,022 (75) %$ (52,238) $ (48,260) $ (3,978) 8 % Interest expense, net for the three and six months endedJune 30, 2022 increased by$6.5 million and$22.0 million compared to the three and six months endedJune 30, 2021 , respectively. The increase was primarily due to interest expense related to our 2026 Senior Notes and 2031 Senior Notes. Refer to Note 15, Indebtedness within Notes to the Condensed Consolidated Financial Statements for further details. We recognized other income, net of$18.8 million and$52.2 million for the three and six months endedJune 30, 2022 , respectively, compared to other income, net of$75.8 million and$48.3 million for the three and six months endedJune 30, 2021 , respectively. The decrease of$57.0 million in the three months endedJune 30, 2022 was primarily due to a$73.3 million mark to market net gain of our equity investment in DoorDash in the three months endedJune 30, 2021 . We completed the sale of our investment in DoorDash inJune 2021 , and as a result this investment did not impact the results in subsequent periods. The increase of$4.0 million in the six months endedJune 30, 2022 was primarily due to an unrealized gain of$59.8 million recorded during the first quarter of 2022, arising from the revaluation of a non-marketable investment, partially offset by the net gain on our DoorDash investment recorded in 2021, as described above. 58
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Segment Results
The Company has two reportable segments, Square and Cash App. The results of Afterpay have been equally allocated to the Square and Cash App segments as management has determined that Afterpay's BNPL platform will contribute equally to both the Square and Cash App platforms. Refer to Note 21, Segment and Geographical Information within Notes to the Condensed Consolidated Financial Statements for more details.
Square Results
The following tables provide a summary of the revenue and gross profit for our Square segment for the three and six months endedJune 30, 2022 and 2021 (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 $ Change % Change 2022 2021 $ Change % Change Net revenue$ 1,725,525 $ 1,311,488 $ 414,037 32 %$ 3,169,229 $ 2,329,142 840,087 36 % Cost of revenue 970,086 726,351 243,735 34 % 1,752,569 1,275,989 476,580 37 % Gross profit$ 755,439 $ 585,137 $ 170,302 29 %$ 1,416,660 $ 1,053,153 $ 363,507 35 % Revenue Revenue for the Square segment for the three and six months endedJune 30, 2022 increased by$414.0 million , or 32%, and$840.1 million , or 36% compared to the three and six months endedJune 30, 2021 , respectively. The increase was primarily due to growth in Square GPV as well as attributable to continued improvements experienced in both card-present volumes and growth in higher-priced card-not-present transactions, as well as an increase in subscription and services-based revenue, which was primarily due to the growth in seller banking products, including the increased origination volumes of Square Loans, as well as software subscriptions. The increase in revenue for the Square segment was also due to the revenue generated from the BNPL platform following the acquisition of Afterpay.
Cost of Revenue
Cost of revenue for the Square segment for the three and six months endedJune 30, 2022 increased by$243.7 million , or 34%, and$476.6 million , or 37% compared to the three and six months endedJune 30, 2021 , respectively, which was consistent with the increase in Square revenue of$414.0 million and$840.1 million for the three and six months endedJune 30, 2022 , compared to the three and six months endedJune 30, 2021 , respectively. Transaction-based costs during the three and six months endedJune 30, 2022 were affected by a decrease in the percentage of debit card transactions, which have continued to normalize towards pre-pandemic levels, and have a lower cost per transaction,
Cash App Results
The following tables provide a summary of the revenue and gross profit for our Cash App segment for the three and six months endedJune 30, 2022 and 2021 (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 $ Change % Change 2022 2021 $ Change % Change Net revenue$ 2,622,133 $ 3,330,191 $ (708,058) (21) %$ 5,084,476 $ 7,369,807 $ (2,285,331) (31) % Cost of revenue 1,917,240 2,784,138 (866,898) (31) % 3,755,924 6,328,269 (2,572,345) (41) % Gross profit$ 704,893 $ 546,053 $ 158,840 29 %$ 1,328,552 $ 1,041,538 $ 287,014 28 % 59
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Revenue
Revenue for the Cash App segment for the three and six months endedJune 30, 2022 decreased by$708.1 million , or 21%, and$2.3 billion , or 31% compared to the three and six months endedJune 30, 2021 , respectively. The primary driver was a decrease in bitcoin revenue, slightly offset by growth in Cash App Instant Deposit, CashApp Card , and Cash for Business. Bitcoin revenue has and will fluctuate depending on customer demand, as well as changes in the market price of bitcoin. The decrease in bitcoin revenue in the three and six months endedJune 30, 2022 was driven primarily reduced customer demand and by the market price of bitcoin during the three and six months endedJune 30, 2022 , compared to the three and six months endedJune 30, 2021 . While bitcoin contributed 41% and 42% of the total net revenue for the three and six months endedJune 30, 2022 , respectively, gross profit generated from bitcoin was 3% of the total gross profit. Excluding$1.8 billion and$3.5 billion in bitcoin revenue for the three and six months endedJune 30, 2022 , Cash App revenue increased by$230.4 million , or 38%, and$433.4 million , or 38% in the three and six months endedJune 30, 2022 , compared to the three and six months endedJune 30, 2021 , respectively, due to growth in the number of active Cash App accounts, an increase in the number of business accounts, an increase of transaction fees related to CashApp Card and instant deposit, and revenue generated from the BNPL platform following the acquisition of Afterpay.
Cost of Revenue
Cost of revenue for the Cash App segment for the three and six months endedJune 30, 2022 decreased by$866.9 million , or 31%, and$2.6 billion , or 41% compared to the three and six months endedJune 30, 2021 , respectively. The primary driver was a decrease in bitcoin revenue and the associated costs of such revenue, as discussed further above. Excluding$1.7 billion and$3.4 billion in bitcoin cost of revenue in the three and six months endedJune 30, 2022 , Cash App cost of revenue increased by approximately$58.3 million , or 51%, and$101.5 million , or 46% in the three and six months endedJune 30, 2022 , compared to the three and six months endedJune 30, 2021 , respectively, due to growth in CashApp Card , Cash App Instant Deposit, and Cash App business GPV.
Key Operating Metrics and Non-GAAP Financial Measures
We collect and analyze operating and financial data to evaluate the health of
our business, allocate our resources, and assess our performance. In addition to
total net revenue, net income (loss), and other results under generally accepted
accounting principles ("GAAP"), the following tables set forth key operating
metrics and non-GAAP financial measures we use to evaluate our business. We
believe these metrics and measures are useful to facilitate period-to-period
comparisons of our business, and to facilitate comparisons of our performance to
that of other payment solution providers.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Gross Payment Volume ("GPV") (in millions)
Adjusted EBITDA (in thousands)$ 187,342 $ 359,820
Adjusted Net Income Per Share:
Basic$ 0.19 $ 0.56 $ 0.38 $ 0.93 Diluted$ 0.18 $ 0.49 $ 0.36 $ 0.81 Gross Payment Volume (GPV) 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 is comprised of Cash App activity related to peer-to-peer transactions received by business accounts, and peer-to-peer payments sent from a credit card. GPV does not include BNPL. 60
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Adjusted EBITDA and Adjusted Net Income Per Share ("Adjusted EPS")
Adjusted EBITDA and 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 items as described below. We have included these non-GAAP financial measures in this Quarterly Report on Form 10-Q 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 these measures 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 believe it is useful to exclude certain non-cash charges, such as amortization of intangible assets, and share-based compensation expenses, from our non-GAAP financial measures because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. •Subsequent to the adoption of ASU 2020-06 onJanuary 1, 2021 , we recognize non-cash interest expense related to amortization of debt issuance costs on convertible notes and senior notes. We believe that excluding this expense from our non-GAAP measures is useful to investors because such incremental non-cash interest expense does not represent a current or future cash outflow for the Company and is therefore not indicative of our continuing operations or meaningful when comparing current results to past results. Additionally, for purposes of calculating diluted Adjusted EPS we add back cash interest expense on convertible notes, as if converted at the beginning of the period, if the impact is dilutive. •We exclude gain or loss on the disposal of property and equipment, gain or loss on revaluation of equity investments, and bitcoin impairment losses on our investment in bitcoin, as applicable, from non-GAAP financial measures because we do not believe that these items are reflective of our ongoing business operations. •To aid in comparability of our results across periods and with peer companies that may not have similar expenses, we also exclude certain transaction and integration costs associated with business combinations, and various other costs that are not normal operating expenses. Transaction costs include amounts paid to redeem acquirees' unvested share-based compensation awards, and legal, accounting, valuation, and due diligence costs. Integration costs include advisory and other professional services or consulting fees necessary to integrate acquired businesses. Other costs that are not reflective of our core business 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.
In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure also excludes depreciation and amortization, other cash interest income and expense, and other income and expense.
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 prior period Adjusted EPS presentation has also been revised to conform with our new calculation and presentation.
Non-GAAP financial measures have limitations, should be considered as supplemental in nature, and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:
•share-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;
•the intangible assets being amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and
•non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs.
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In addition to the limitations above, Adjusted EBITDA as a non-GAAP financial
measure does not reflect the effect of depreciation and amortization expense and
related cash capital requirements, income taxes that may represent a reduction
in cash available to us, and the effect of foreign currency exchange gains or
losses, which is included in other income and expense.
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.
Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including net income (loss) and our other financial results presented in accordance with GAAP.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net income (loss) attributable to common stockholders
$ 204,021 $ (412,213) $ 243,029 Net loss attributable to noncontrolling interests (1,263) (343) (4,427) (343) Net income (loss) (209,277) 203,678 (416,640) 242,686 Share-based compensation expense 256,638 146,365 532,061 264,988 Depreciation and amortization 90,839 28,394 160,895 57,595 Acquisition-related, integration and other costs 17,067 14,292 93,132 14,318 Interest expense, net 12,966 6,464 28,714 6,717 Other income, net (18,766) (75,788) (52,238) (48,260) Bitcoin impairment losses 35,961 45,266 35,961 65,126 Provision (benefit) for income taxes 1,304 (9,360) (398) (8,413) Loss on disposal of property and equipment 548 374 1,082 989 Acquired deferred revenue adjustment 103 195 221 447 Acquired deferred cost adjustment (41) (60) (87) (124) Adjusted EBITDA$ 187,342 $ 359,820 $ 382,703 $ 596,069 62
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The following table presents a reconciliation of net income (loss) to Adjusted
Net Income and Adjusted EPS for each of the periods indicated, with revisions to
the prior period to include the tax effect of non-GAAP net income adjustments as
described above (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net income (loss) attributable to common stockholders
$ 204,021 $ (412,213) $ 243,029 Net loss attributable to noncontrolling interests (1,263) (343) (4,427) (343) Net income (loss) (209,277) 203,678 (416,640) 242,686 Share-based compensation expense 256,638 146,365 532,061 264,988 Acquisition-related, integration and other costs 17,067 14,292 93,132 14,318 Amortization of intangible assets 57,288 9,234 99,421 16,118 Amortization of debt discount and issuance costs 3,826 2,305 7,456 4,137 Loss (gain) on revaluation of equity investments 5,115 (76,744) (44,626) (47,844) Bitcoin impairment losses 35,961 45,266 35,961 65,126 Loss on disposal of property and equipment 548 374 1,082 989 Acquired deferred revenue adjustment 103 195 221 447 Acquired deferred cost adjustment (41) (60) (87) (124) Tax effect of non-GAAP net income adjustments (57,734) (90,447) (96,060) (137,984) Adjusted Net Income - basic$ 109,494 $ 254,458 $ 211,921 $ 422,857 Cash interest expense on convertible notes 1,247 1,611 2,488 3,339 Adjusted Net Income - diluted$ 110,741
Weighted-average shares used to compute Adjusted Net Income Per Share: Basic 581,350 455,431 561,501 455,203 Diluted 619,272 522,577 602,002 523,557 Adjusted Net Income Per Share: Basic$ 0.19 $ 0.56 $ 0.38 $ 0.93 Diluted$ 0.18 $ 0.49 $ 0.36 $ 0.81 Diluted Adjusted Net Income Per Share is computed by dividing Adjusted Net Income by the weighted-average number of shares of common stock outstanding adjusted for the dilutive effect of all potential shares of common stock. In periods when we reported an Adjusted Net Loss, diluted Adjusted Net Income Per Share is the same as basic Adjusted Net Income Per Share because the effects of potentially dilutive items were anti-dilutive. The following table presents a reconciliation of the tax effect of non-GAAP net income adjustments to our provision (benefit) for income taxes (in thousands, except effective tax rate): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021
Provision (benefit) for income taxes, as reported
57,734 90,447 96,060 137,984
Adjusted provision for income taxes, non-GAAP $ 59,038 $ 81,087 $ 95,662 $ 129,571
Non-GAAP effective tax rate 35% 24% 31% 23%
We determined the adjusted provision 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.
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Liquidity and Capital Resources
Liquidity Sources
As ofJune 30, 2022 , we had approximately$6.8 billion in available funds, including an undrawn amount of$600.0 million available under our revolving credit facility. Additionally, we had$1.5 billion available under our warehouse funding facilities. Refer to Note 15, Indebtedness within Notes to the Condensed Consolidated Financial Statements for more details. We intend to continue focusing on our long-term business initiatives and believe that our available funds are sufficient to meet our liquidity needs for the foreseeable future. As ofJune 30, 2022 , we were in compliance with all covenants associated with our revolving credit facility and senior notes. None of our warehouse funding facilities contain financial covenants. The following table summarizes our cash, cash equivalents, restricted cash, customer funds, and investments in marketable debt securities (in thousands): December 31, June 30, 2022 2021 Cash and cash equivalents$ 4,020,466 $ 4,443,669 Short-term restricted cash 156,984 18,778 Long-term restricted cash 71,702 71,702 Customer funds cash and cash equivalents 2,905,377 2,440,941
Cash, cash equivalents, restricted cash, and customer funds 7,154,529
6,975,090
Investments in short-term debt securities 938,998 869,283
Investments in long-term debt securities 1,019,340 1,526,430
Cash, cash equivalents, restricted cash, customer funds, and investments in marketable debt securities
$
9,112,867
Our principal sources of liquidity are our cash and cash equivalents, including cash from operations, and investments in marketable debt securities. As ofJune 30, 2022 , we had$9.1 billion of cash and cash equivalents, restricted cash, customer funds cash and cash equivalents, and investments in marketable debt securities. Cash and cash equivalents related to customer funds are separate from our corporate funds and are not used for any corporate purposes. These funds are not used for our liquidity, but rather to meet the obligations set aside for customers. Investments in marketable debt securities were held primarily in cash deposits,U.S. government and agency securities, corporate bonds, money market funds, reverse repurchase agreements, and commercial paper. We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Our investments in marketable debt securities are classified as available-for-sale. Excluding customer funds, the balance of cash and cash equivalents, restricted cash, and investments in marketable debt securities as ofJune 30, 2022 was$6.2 billion . From time to time, we have raised capital by issuing equity, equity-linked, or debt securities such as our convertible notes and senior notes. We do not have any off-balance sheet arrangements during the periods presented. We purchased an aggregate$220.0 million in bitcoin in 2020 and 2021, with no purchases in the three and six months endedJune 30, 2022 . We believe cryptocurrency is an instrument of economic empowerment that aligns with our corporate purpose. We expect to hold these investments for the long term but will continue to reassess our investment in bitcoin relative to our balance sheet. As bitcoin is considered an indefinite-lived intangible asset, under the accounting policy for such assets, we are required to recognize any decreases in market prices below carrying value as an impairment charge, with any mark up in value or reversal of impairment prohibited if the market price of bitcoin subsequently increases. We recorded an impairment charge on our investment in bitcoin of$36.0 million in the three months endedJune 30, 2022 . We did not record an impairment charge in the three months endedMarch 31, 2022 . As ofJune 30, 2022 , the cumulative impairment charges to date were$107.1 million . The fair value of our investment in bitcoin was$160.0 million as ofJune 30, 2022 based on observable market prices, which was$47.1 million in excess of the Company's carrying value of$112.9 million after impairment charges were recorded. InSeptember 2020 , we announced our intent to invest$100.0 million in supporting underserved communities, particularly, racial and ethnic minority groups who have been disproportionately affected by COVID-19. This initiative further deepens our commitment toward economic empowerment to help broaden such communities' access to financial services. As ofJune 30, 2022 , we have invested$26.2 million in aggregate towards this initiative, of which$2.1 million and$4.3 million was invested in the three and six months endedJune 30, 2022 , respectively. 64 -------------------------------------------------------------------------------- Our principal commitments consist of convertible notes, senior notes, revolving credit facility, warehouse funding facilities, operating leases, capital leases, and purchase commitments.
Senior Notes and Convertible Notes
As ofJune 30, 2022 , we held over$4.6 billion in aggregate principal amount of debt, comprised of$460.6 million in aggregate principal amount of convertible senior notes that mature onMay 15, 2023 ("2023 Convertible Notes"),$1.0 billion in aggregate amount of convertible senior notes that mature onMarch 1, 2025 ("2025 Convertible Notes"),$575.0 million in aggregate amount of convertible senior notes that mature onMay 1, 2026 ("2026 Convertible Notes"), and$575.0 million in aggregate amount of convertible senior notes that mature onNovember 1, 2027 ("2027 Convertible Notes," and together with the 2023 Convertible Notes, 2025 Convertible Notes, and 2026 Convertible Notes, the "Convertible Notes"). Additionally, onMay 20, 2021 , we issued$1.0 billion in aggregate principal amount of outstanding senior unsecured notes that mature onJune 1, 2026 ("2026 Senior Notes") and$1.0 billion in aggregate principal amount of outstanding senior unsecured notes that mature onJune 1, 2031 ("2031 Senior Notes" and, together with the 2026 Senior Notes, the "Senior Notes" and, together with the Convertible Notes, the "Notes"). The 2023 Convertible Notes bear interest at a rate of 0.50% payable semi-annually onMay 15 andNovember 15 of each year, the 2025 Convertible Notes bear interest at a rate of 0.125% payable semi-annually onMarch 1 andSeptember 1 of each year, the 2026 Convertible Notes bear no interest, and the 2027 Convertible Notes bear interest at a rate of 0.25% payable semi-annually onMay 1 andNovember 1 of each year. These Convertible Notes can be converted or repurchased prior to maturity if certain conditions are met. The 2026 Senior Notes bear interest a rate of 2.75% payable semi-annually onJune 1 andDecember 1 , while the 2031 Senior Notes bear interest at a rate of 3.50% payable semi-annually onJune 1 andDecember 1 of each year. These Senior Notes can be redeemed or repurchased prior to maturity if certain conditions are met. OnJanuary 31, 2022 , we closed the acquisition of Afterpay and assumed Afterpay's outstanding convertible notes of$1.1 billion , which we redeemed in cash onMarch 4, 2022 at face value. Refer to Note 9, Acquisitions within Notes to the Condensed Consolidated Financial Statements for further details.
Revolving Credit Facility
We have entered into a revolving credit agreement with certain lenders, as subsequently amended, which provides a$500.0 million senior unsecured revolving credit facility (the "2020 Credit Facility") maturing inMay 2024 . OnFebruary 23, 2022 , the Company entered into a sixth amendment to the Credit Agreement to, among other things, provide for a new tranche of unsecured revolving loan commitments in an aggregate principal amount of up to$100.0 million (the "Tranche B Loans"). Loans under the 2020 Credit Facility, excluding the Tranche B Loans, bear interest at our option of (i) a base rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and the adjusted LIBOR rate plus 1.00%, in each case, plus a margin ranging from 0.25% to 0.75% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.25% to 1.75%. The margin is determined based on our total net leverage ratio, as defined in the agreement. The Tranche B Loans bear interest at the Company's option of (i) an annual rate based on the forward-looking term rate based on the Secured Overnight Financing Rate ("Term SOFR") or (ii) a base rate. Tranche B Loans based on Term SOFR shall bear interest at a rate equal to Term SOFR plus a margin of between 1.25% and 1.75%, depending on the Company's total net leverage ratio. Tranche B Loans based on the base rate shall bear interest at a rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and Term SOFR with a tenor of one-month plus 1.00%, in each case, plus a margin ranging from 0.25% to 0.75%, depending on the Company's total net leverage ratio. We are obligated to pay other customary fees for a credit facility of this size and type including an unused commitment fee of 0.15%. To date, no funds have been drawn and no letters of credit have been issued under the 2020 Credit Facility. Refer to Note 15, Indebtedness within Notes to the Condensed Consolidated Financial Statements for more details on these transactions.
Warehouse Funding Facilities
Following the acquisition of Afterpay, we assumed Afterpay's existing warehouse
funding facilities ("Warehouse Facilities") with an aggregate commitment amount
of $1.7 billion on a revolving basis, of which $0.2 billion was drawn and $1.5
billion remained available as of June 30, 2022 . The Warehouse Facilities have
been arranged utilizing wholly-owned and consolidated entities formed for the
sole purpose of financing the origination of consumer receivables to partly fund
our BNPL platform. Borrowings under the Warehouse Facilities are secured against
the respective consumer receivables. Refer to Note 15, Indebtedness within Notes
to the Condensed Consolidated Financial Statements for more details.
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Cash, Restricted Cash, and Working Capital
We believe that our existing cash and cash equivalents, investment in marketable debt securities, and availability under our line of credit will be sufficient to meet our working capital needs, including any expenditures related to strategic transactions and investment commitments that we may from time to time enter into, and planned capital expenditures for at least the next 12 months. From time to time, we may seek to raise additional capital through equity, equity-linked, and debt financing arrangements. We cannot provide assurance that any additional financing will be available to us on acceptable terms or at all. When we were last rated in 2021, we received a non-investment grade rating byS&P Global Ratings (BB),Fitch Ratings, Inc. (BB), and Moody's Corporation (Ba2). We expect that these credit rating agencies will continue to monitor our performance, including our capital structure and results of operations. Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating. Short-term restricted cash of$157.0 million as ofJune 30, 2022 primarily reflects pledged cash deposited into savings accounts at the financial institutions that process our sellers' payments transactions and as collateral pursuant to agreements with third-party originating banks for certain loan products. We use the restricted cash to secure letters of credit with these financial institutions to provide collateral for liabilities arising from cash flow timing differences in the processing of these payments. We have recorded this amount as a current asset on our condensed consolidated balance sheets given the short-term nature of these cash flow timing differences and that there is no minimum time frame during which the cash must remain restricted. Additionally, this balance includes certain amounts held as collateral pursuant to multi-year lease agreements, which we expect to become unrestricted within the next year. Long-term restricted cash of$71.7 million as ofJune 30, 2022 is primarily related to a reserve deposit to satisfy the capital and liquidity requirements associated with the banking operations of SFS mandated by theFDIC , as well as cash deposited into money market funds that is used as collateral pursuant to multi-year lease agreements. We have recorded these amounts as non-current assets on our condensed consolidated balance sheets as we are required to establish and maintain the reserve deposit at all times to support the ongoing liquidity obligations of SFS, and due to certain lease terms extending beyond one year.
We experience significant day-to-day fluctuations in our cash and cash equivalents due to fluctuations in settlements receivable, and customers payable, and hence working capital. These fluctuations are primarily due to:
•Timing of period end. For periods that end on a weekend or a bank holiday, our
cash and cash equivalents, settlements receivable, and customers payable
balances typically will be higher than for periods ending on a weekday, as we
settle to our sellers for payment processing activity on business days; and
•Fluctuations in daily GPV. When daily GPV increases, our cash and cash
equivalents, settlements receivable, and customers payable amounts increase.
Typically our settlements receivable and customers payable balances at period
end represent one to four days of receivables and disbursements to be made in
the subsequent period. Customers payable, excluding amounts attributable to Cash
App stored funds, and settlements receivable balances typically move in tandem,
as pay-out and pay-in largely occur on the same business day. However, customers
payable balances will be greater in amount than settlements receivable balances
due to the fact that a subset of funds are held due to unlinked bank accounts,
risk holds, and chargebacks. Also customer funds obligations, which are included
in customers payable, may cause customers payable to trend differently than
settlements receivable. Holidays and day-of-week may also cause significant
volatility in daily GPV amounts.
66
--------------------------------------------------------------------------------Safeguarding Obligation Liability and Safeguarding Asset Related to Bitcoin Held for Other Parties
As detailed in Note 14, Bitcoin Held for Other Parties within Notes to the Condensed Consolidated Financial Statements, upon the adoption ofSAB 121, we recorded a safeguarding obligation liability and a corresponding safeguarding asset related to the bitcoin held for other parties. As ofJune 30, 2022 , the safeguarding obligation liability related to bitcoin held for other parties was$507.5 million . We have taken steps to mitigate the potential risk of loss for the bitcoin held for other parties, including holding insurance coverage specifically for certain bitcoin incidents and using secure cold storage to store the vast majority of bitcoin.SAB 121 also asks us to consider the legal ownership of the bitcoin held for other parties, including whether the bitcoin held for other parties would be available to satisfy general creditor claims in the event of Block's bankruptcy. The legal rights of people with respect to crypto-assets held on their behalf by a custodian, such as us, upon the custodian's bankruptcy have not yet been settled by courts and are highly fact dependent. Our contractual arrangements state that our customers and trading partners retain legal ownership of the bitcoin custodied by us on their behalf; they have the right to sell, pledge, or transfer the bitcoin; and they also benefit from the rewards and bear the risks associated with the ownership, including as a result of any bitcoin price fluctuations. We have been monitoring and will continue to actively monitor legal and regulatory developments and may consider further steps, as appropriate, to support this contractual position so that in the event of Block's bankruptcy, the bitcoin custodied by us should not be deemed to be part of Block's bankruptcy estate. We do not expect potential future cash flows associated with the bitcoin safeguarding obligation liability.
Cash Flow Activities
The condensed consolidated statements of cash flows for the six months endedJune 30, 2022 has been revised to reflect changes in the cash flow presentation adopted in 2021. Previously, the total changes in customer funds and customers payable were presented within operating activities within the Company's condensed consolidated statements of cash flows. The adjustment resulted in reclassifying changes in customer funds and cash and cash equivalents associated with customers payable as financing activities. The adjustment also resulted in the portion of customer funds that is held in cash and cash equivalents, restricted cash, and customer funds to be included in the beginning and ending period totals of cash, cash equivalents, restricted cash, and customer funds. Prior period amounts have been adjusted to this presentation. Refer to Note 1, Description of the Business and Summary of Significant Accounting Policies within Notes to the Condensed Consolidated Financial Statements for further details.
The following table summarizes our cash flow activities (in thousands):
Six Months Ended
June 30,
2022 2021
Net cash provided by operating activities $ 114,797 $ 246,154
Net cash provided by (used in) investing activities 1,340,283 (933,039)
Net cash provided by (used in) financing activities (1,240,199) 2,920,992
Effect of foreign exchange rate on cash and cash equivalents (35,442)
(7,092)
Net increase in cash, cash equivalents, restricted cash, and
customer funds $ 179,439 $ 2,227,015
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Cash Flows from Operating Activities
Cash provided by operating activities consisted of our net income (loss) adjusted for certain non-cash items, including share-based compensation expense, depreciation and amortization, non-cash interest and other expense, transaction, loan, and consumer receivable losses, bitcoin impairment losses, deferred income taxes, non-cash lease expense, gain on sale of asset group, gain or loss on revaluation of equity investments, as well as the effect of changes in operating assets and liabilities, including working capital. For the six months endedJune 30, 2022 , cash provided by operating activities was$114.8 million . Net loss was$416.6 million , adjusted for the add back of net non-cash expenses of$740.5 million , consisting primarily of share-based compensation; transaction, loan, and consumer receivable losses; depreciation and amortization; bitcoin impairment losses; and non-cash lease expenses; which contributed positively to operating activities; partially offset by gains on revaluation of equity investments. Additionally, there was a net inflow from the repayment and forgiveness of PPP loans, and a net outflow related to changes in other assets and liabilities of$238.4 million due to timing of period end. For the six months endedJune 30, 2021 , cash provided by operating activities was$246.2 million . Net income was$242.7 million , adjusted for the add back of net non-cash expenses of$460.3 million , consisting primarily of share-based compensation, transaction and loan losses, bitcoin impairment losses, depreciation and amortization, and non-cash lease expenses, which contributed positively to operating activities. This was offset by net outflow of PPP loans of$269.9 million , as well as a net outflow from changes in other assets and liabilities of$185.3 million due to timing.
Cash Flows from Investing Activities
Cash flows provided by, or used in, investing activities primarily relate to capital expenditures to support our growth, investments in marketable debt securities, bitcoin, and business acquisitions.
For the six months endedJune 30, 2022 , cash provided by investing activities was$1.3 billion , primarily due to the net proceeds from the sales and maturities of marketable securities including investments from customer funds of$1.2 billion , the net cash acquired through acquisitions during the period including Afterpay of$539.5 million , and a net inflow related to consumer receivables of$144.4 million . These were partially offset by the purchases of marketable debt securities, property and equipment, and other investments of$383.4 million ,$85.4 million , and$39.4 million , respectively. For the six months endedJune 30, 2021 , cash used in investing activities was$933.0 million , primarily due to the net investments of marketable securities including investments from customer funds of$864.9 million , purchases of bitcoin and other investments of$215.4 million , business acquisitions, net of cash acquired of$164.3 million , and the purchase of property and equipment of$66.6 million , partially offset by the proceeds from sale of equity investments of$378.2 million .
Cash Flows from Financing Activities
For the six months endedJune 30, 2022 , cash used in financing activities was$1.2 billion primarily as a result of the payment to redeem convertible notes assumed upon the acquisition of Afterpay of$1.1 billion , repayments of the PPPLF advances of$429.1 million , partially offset by net proceeds from Warehouse Facilities borrowings of$93.7 million , a change in customer funds of$74.4 million , a net increase in non-interest bearing deposits related to Square Financial Services of$53.8 million , as well as proceeds from the exercise of stock options and purchases under the employee stock purchase plan of$43.1 million . For the six months endedJune 30, 2021 , cash provided by financing activities was$2.9 billion as a result of$2.0 billion in net proceeds from the 2031 Senior Notes and 2026 Senior Notes offerings, the change in customer funds of$809.6 million , as well as proceeds, net of repayments of the PPPLF advances, of$359.6 million , proceeds from issuances of common stock from the exercise of options, and purchases under our employee share purchase plan of$72.2 million , partially offset by payments for employee tax withholding related to vesting of restricted stock units of$292.2 million . 68
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make certain estimates and judgments that affect the amounts reported in our financial statements. We base our estimates on historical experience, anticipated future trends, and other assumptions we believe to be reasonable under the circumstances. Because these accounting policies require significant judgment, our actual results may differ materially from our estimates.
As disclosed in our Annual Report on Form 10-K for the year ended
Additionally, we consider accounting for business combinations under ASC 805, Business Combinations, to also be a critical accounting policy and estimate as it requires management to make significant estimates and assumptions, including the valuation of intangible assets acquired, determination of fair values of liabilities assumed including pre-acquisition contingencies, and valuation of contingent consideration, where applicable. Although we believe that the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Recent Accounting Pronouncements
See "Recent Accounting Pronouncements" described in Note 1, Description of Business and Summary of Significant Accounting Policies within Notes to the Condensed Consolidated Financial Statements.
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