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
We started Square inFebruary 2009 to enable businesses (sellers) to accept card payments, an important capability that was previously inaccessible to many businesses. However, sellers need many innovative 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 a parallel ecosystem of financial services to help individuals manage their money. Our Seller ecosystem 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 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 offering, 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 Card is a business prepaid card that enables sellers to spend the balance they have stored with Square. Sellers can also deposit funds into their Square stored balance so they can manage all of their business expenses in one place. In addition, sellers gain access to business loans through Square Loans (formerlySquare Capital ) 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 , andIreland . 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, and receive direct deposit payments. Customers can make purchases with their Cash Card, aVisa prepaid card that is linked to the balance stored in Cash App. With Cash Boost, customers receive instant discounts when they make Cash Card purchases at designated merchants. Customers can also use their stored funds to buy and sell bitcoin and equity investments within Cash App. In the fourth quarter of 2020, we acquired CreditKarma Tax , which added a tax filing product for individuals to Cash App's ecosystem, providing a seamless, mobile-first solution for individuals to file their taxes for free. OnApril 30, 2021 , we completed the acquisition of a majority ownership interest in TIDAL as detailed in Note 8, Acquisitions, of Notes to the Condensed Consolidated Financial Statements. TIDAL is a global music and entertainment platform that brings fans and artists together through unique music, content, and experiences. The acquisition extends our purpose of economic empowerment to musicians. OnMay 20, 2021 , we issued an aggregate principal amount of$2.0 billion of senior unsecured notes comprised of$1.0 billion of senior unsecured notes that mature onJune 1, 2026 ("2026 Senior Notes") with a 2.75% interest rate, and$1.0 billion of senior unsecured notes that mature onJune 1, 2031 ("2031 Senior Notes") with a 3.50% interest rate. The 2026 Senior Notes and 2031 Senior Notes will mature on each of its respective dates, unless earlier redeemed or repurchased. Interest on the 2026 Senior Notes and 2031 Senior Notes will be payable semi-annually onJune 1 andDecember 1 of each year beginning onDecember 1, 2021 . We intend to use the net proceeds from our 2026 Senior Notes and 2031 Senior Notes offerings for general corporate purposes, which may include potential acquisitions and strategic transactions, capital expenditures, investments and working capital. 48 -------------------------------------------------------------------------------- OnMarch 1, 2021 , the industrial loan company charter forSquare Financial Services was approved by theFederal Deposit Insurance Corporation ("FDIC") and theState of Utah andSquare Financial Services began banking operations.Square Financial Services maintains capital and leverage ratios, as well as minimum liquidity levels that meet or exceed regulatory levels as defined by theFDIC to be considered "well capitalized".Square Financial Services offers banking services including certain loan and deposit products. To date, the operations of SFS have not been material but are expected to grow in the second half of 2021. InApril 2020 , we were licensed to participate in the Paycheck Protection Program ("First Round PPP") administered by theSmall Business Administration ("SBA") that was enacted inMarch 2020 under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in response to the COVID-19 pandemic. InFebruary 2021 , we began participating in the second round of the PPP program ("Second Round PPP"). The PPP was intended to provide relief to eligible businesses impacted by COVID-19, and to incentivize businesses to keep their workers on the payroll. These loans are guaranteed by theU.S. government and are eligible for forgiveness if the borrowers meet certain criteria. As ofJune 30, 2021 , we had facilitated the issuance of$1.4 billion loans in the aggregate under the program. Of the loans facilitated under the First Round PPP, we sold$399.0 million to an investor. We have not, and do not intend to sell loans originated under the Second Round PPP. As ofJune 30, 2021 , approximately$336.6 million in the aggregate of PPP loans we facilitated had been forgiven by the SBA, of which,$290.3 million was forgiven in the second quarter of 2021. We approved and funded the last remaining PPP applications under the Second Round PPP onMay 21, 2021 upon exhaustion of the funds in the program. OnJune 2, 2020 , we entered into the Paycheck Protection Program Liquidity Facility agreement with theFederal Reserve Bank of San Francisco ("First PPPLF Agreement") to secure additional credit in an aggregate principal amount of up to$500.0 million . The program was established by theFederal Reserve to supplement the SBA's PPP to support the economy in response to the COVID-19 crisis. The facility is intended to bolster the effectiveness of the PPP and provide liquidity to credit markets, helping to stabilize financial institutions supporting COVID-19 relief efforts. OnJanuary 29, 2021 , we entered into a second PPPLF agreement with theFederal Reserve Bank of San Francisco ("Second PPPLF Agreement") to secure additional credit, collateralized by loans from the second round of the PPP program in an aggregate principal amount of up to$1.0 billion under both PPPLF Agreements. As ofJune 30, 2021 ,$823.7 million of PPPLF advances were outstanding and collateralized by the same value of the PPP loans. Borrowings under these facilities accrue interest at a rate of 0.35% and advances must be collateralized with loans originated under the PPP. The maturity date of any PPPLF advance will be the maturity date of the PPP loan pledged to secure the advance, and will be accelerated upon the occurrence of certain events of default. The advances under these facilities are also repayable if the associated PPP loans are forgiven, repaid by the customer, or settled by the government guarantee.
Update on the Impact of COVID-19 on Current Trends and Outlook
In the second quarter of 2021, we continued to experience improvements in our business as the majority ofU.S. markets transitioned to varying states of economic recovery and re-openings. We saw strong performance in Seller GPV as in-person activity at sellers increased, and strong performance in our Cash App business due to increased consumer spending and inflows, as we continued to benefit from the strength of a broader macroeconomic recovery, regional re-openings, and government stimulus and relief programs enacted in response to COVID-19. Although our business results and outlook remain positive, the emergence of new and more transmissible variants of COVID-19 could lead to a possible resurgence of the virus, particularly in populations with low vaccination rates requiring us to move back under more restrictive guidelines. The extent to which the pandemic will further impact our financial results in the future is unknown. 49 -------------------------------------------------------------------------------- Results of Operations Revenue (in thousands, except for percentages) Three Months Ended Six Months Ended June 30, June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change Transaction-based revenue$ 1,227,472 $ 682,572 $ 544,900 80 %$ 2,187,205 $ 1,440,673 $ 746,532 52 % Subscription and services-based revenue 685,178 346,275 338,903 98 %$ 1,242,859 $ 642,510 $ 600,349 93 % Hardware revenue 43,726 19,322 24,404 126 % 72,514 39,997$ 32,517 81 % Bitcoin revenue 2,724,296 875,456 1,848,840 211 %$ 6,235,364 $ 1,181,554 $ 5,053,810 428 % Total net revenue$ 4,680,672 $ 1,923,625 $ 2,757,047 143 %$ 9,737,942 $ 3,304,734 $ 6,433,208 195 % Total net revenue for the three and six months endedJune 30, 2021 increased by$2.8 billion , or 143%, and$6.4 billion , or 195%, compared to the three and six months endedJune 30, 2020 , respectively. Bitcoin revenue increased by$1.8 billion and$5.1 billion for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , respectively, and represented 67% and 79% of the increase in total net revenue for the three and six months endedJune 30, 2021 , compared to the three and six months endedJune 30, 2020 , respectively. Excluding bitcoin revenue, total net revenue increased by$908.2 million , or 87%, and$1.4 billion , or 65%, in the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , respectively. Transaction-based revenue for the three and six months endedJune 30, 2021 increased by$544.9 million or 80%, and$746.5 million or 52%, compared to the three and six months endedJune 30, 2020 , respectively. These increases in revenue were in-line with the increase in GPV of 88% and 56% for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , respectively. The increase in transaction-based revenue was driven by the: •improvements experienced in card-present volumes as a result of regional re-openings and resumed in-person activity at sellers in addition to continued growth in higher-priced card-not-present transactions; •increase in consumer spending driven in part by a broader macro economic recovery, regional re-openings, as well as government disbursements related to stimulus programs enacted through the second quarter of 2021; and •growth in Cash App Business GPV which includes Cash for Business and peer-to-peer payments sent from a credit card. Cash for Business includes peer-to-peer transactions received by business accounts using Cash App. These factors had varying impacts on GPV growth and may continue to impact our revenues in the future. Subscription and services-based revenue for the three and six months endedJune 30, 2021 increased by$338.9 million , or 98%, and$600.3 million , or 93%, compared to the three and six months endedJune 30, 2020 , respectively. These increases were primarily driven by Cash App and Seller. Cash App subscription and services-based revenue is primarily comprised of transaction fees from both Cash Card and Cash App Instant Deposit. Seller subscription and services-based revenue increased primarily due to the recovery of Square Loans, other software subscriptions, and Instant Transfer for sellers. 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, 2021 increased by$24.4 million , or 126%, and$32.5 million , or 81%, compared to the three and six months endedJune 30, 2020 , respectively. These increases were primarily a result of an overall increase in sales of hardware across many of our product offerings primarily due toSquare Register ,Square Terminal , and third party peripherals. 50 -------------------------------------------------------------------------------- Bitcoin revenue for the three and six months endedJune 30, 2021 increased by$1.8 billion , or 211%, and$5.1 billion , or 428%, compared to the three and six months endedJune 30, 2020 , respectively. The increase was due to the market price of bitcoin, growth in the number of active bitcoin customers, and growth in customer demand. The amount of bitcoin revenue recognized will fluctuate depending on customer demand as well as changes in the market price of bitcoin. While bitcoin revenue contributed 58% and 64% of the total net revenue in the three and six months endedJune 30, 2021 , respectively, and 67% and 79% of the increase in total net revenues in the three and six months endedJune 30, 2021 , respectively, gross profit generated from bitcoin transactions was only 5% and 6% of the total gross profit in the three and six months endedJune 30, 2021 , compared to 3% and 2% of total gross profit in the three and six months endedJune 30, 2020 , respectively. Cost of Revenue (in thousands, except for percentages) Three Months Ended Six Months Ended June 30, June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Transaction-based costs
76 % $ 1,211,618 $ 855,602 $ 356,016 42 %
Subscription and
services-based costs 123,725 51,365 72,360 141 % 214,098 93,273 120,825 130 %
Hardware costs 61,403 28,320 33,083 117 % 101,885 63,128 38,757 61 %
Bitcoin costs 2,669,641 858,041 1,811,600 211 % 6,105,776 1,157,467 4,948,309 428 %
Total cost of revenue $ 3,539,608 $ 1,326,862 $ 2,212,746 167 % $ 7,633,377 $ 2,169,470 $ 5,463,907 252 %
Total cost of revenue for the three and six months ended June 30, 2021 increased
by $2.2 billion , or 167%, and $5.5 billion , or 252%, compared to the three and
six months ended June 30, 2020 , respectively. Bitcoin costs of revenue increased
by $1.8 billion and $4.9 billion in the three and six months ended June 30,
2021 , compared to the three and six months ended June 30, 2020 , respectively,
and represented 82% and 91% of the increase in the total cost of revenue in the
three and six months ended June 30, 2021 compared to the three and six months
ended June 30, 2020 , respectively. Excluding bitcoin costs of revenue, total
cost of revenue increased by approximately $401.1 million , or 86%, and $515.6
million , or 51%, in the three and six months ended June 30, 2021 , compared to
the three and six months ended June 30, 2020 , respectively.
Despite an increase in GPV of 88% and 56% for the three and six months ended
June 30, 2021 , compared to the three and six months ended June 30, 2020 ,
respectively, transaction-based costs for the three and six months ended June
30, 2021 increased by only $295.7 million , or 76%, and $356.0 million , or 42%,
compared to the three and six months ended June 30, 2020 , respectively, driven
mainly by a higher percentage of debit card transactions and larger average
transaction sizes. However, in the three months ended June 30, 2021 , we noted a
declining trend of the percentage of debit card transactions and average
transaction sizes, which led to transaction-based costs growing faster than GPV
during the period, and may impact the growth in future periods.
Subscription and services-based costs for the three and six months ended June
30, 2021 increased by $72.4 million , or 141%, and $120.8 million , or 130%,
compared to the three and six months ended June 30, 2020 , respectively. The
increase in the three and six months ended June 30, 2021 was driven primarily by
growth in Cash Card, Instant Deposit activity and 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 ended June 30, 2021 increased by
$33.1 million , or 117%, and $38.8 million , or 61%, compared to the three and six
months ended June 30, 2020 , respectively. The increase was primarily due to the
increased sales of hardware, as further discussed in hardware revenue above.
Bitcoin costs for the three and six months ended June 30, 2021 increased by $1.8
billion , or 211%, and $4.9 billion , or 428%, compared to the three and six
months ended June 30, 2020 , respectively. Bitcoin cost of revenue comprises of
the total amounts we pay to purchase bitcoin, which will fluctuate in line with
bitcoin revenue.
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Operating Expenses (in thousands, except for percentages)
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
Product development $ 326,510 $ 207,730 $ 118,780 57 % $ 636,651 $ 403,606 $ 233,045 58 %
% of total net revenue 7 % 11 % 7 % 12 %
Sales and marketing $ 375,101 $ 238,096 $ 137,005 58 % $ 724,561 $ 432,631 $ 291,930 67 %
% of total net revenue 8 % 12 % 7 % 13 %
General and administrative
62 % $ 416,929 $ 265,881 $ 151,048 57 %
% of total net revenue 5 % 7 % 4 % 8 %
Transaction and loan losses $ 48,173 $ 37,603 $ 10,570 28 % $ 68,568 $ 146,486 $ (77,918) (53) %
% of total net revenue 1 % 2 % 1 % 4 %
Bitcoin impairment losses $ 45,266 $ - $ 45,266 - % $ 65,126 $ - $ 65,126 - %
% of total net revenue 1 % - % 1 % - %
Total operating expenses $ 1,016,070 $ 619,815 $ 396,255 64 % $ 1,846,709 $ 1,248,604 $ 598,105 48 %
Product development expenses for the three and six months ended June 30, 2021
increased by $118.8 million and $233.0 million , or 57%, and 58%, respectively,
compared to the three and six months ended June 30, 2020 , due primarily to the
following:
•an increase of $82.9 million and $157.9 million in personnel costs for the
three and six months ended June 30, 2021 , 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 in personnel
related costs includes an increase in share-based compensation expense of $36.6
million and $66.1 million for the three and six months ended June 30, 2021 ,
respectively; and
•an increase of $31.5 million and $66.1 million in software, data center, and
crypto networks operating costs for the three and six months ended June 30,
2021 , 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, 2021
increased by $137.0 million or 58%, and $291.9 million or 67%, compared to the
three and six months ended June 30, 2020 , respectively, primarily due to the
following:
•an increase in Cash App marketing costs for the three and six months ended June
30, 2021 of $68.9 million and $176.0 million , respectively. The increase in Cash
App marketing costs includes a $34.2 million and $102.6 million increase in
processing costs and related transaction losses primarily associated with the
increased volume of activity with our Cash App peer-to-peer service and
increased card issuance costs for the three and six months ended June 30, 2021 ,
respectively. We offer services such as stock investing, and certain Cash Card
and peer-to-peer services to certain Cash App customers for free. Additionally,
Cash App customer acquisition costs increased by $28.7 million and $63.3 million
in the three and six months ended June 30, 2021 , respectively which includes
advertising costs and costs associated with various incentives to customers. We
consider the free peer-to-peer services and the customer incentives to be
marketing initiatives aimed at attracting new customers and encouraging the
usage of Cash App;
•an increase of $29.6 million and $53.2 million in advertising costs for our
Seller services for the three and six months ended June 30, 2021 , respectively,
primarily from increased online and television marketing campaigns; and
•an increase of $19.6 million and $36.4 million in Seller and Cash App sales and
marketing personnel costs for the three and six months ended June 30, 2021 ,
respectively to enable growth initiatives. The increase in personnel
52
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related costs includes an increase in share-based compensation expense of $4.9
million and $9.4 million for the three and six months ended June 30, 2021 ,
respectively.
General and administrative expenses for the three and six months ended June 30,
2021 increased by $84.6 million or 62% and $151.0 million or 57%, compared to
the three and six months ended June 30, 2020 , respectively, primarily due to the
following:
•an increase of $52.4 million and $90.7 million in general and administrative
personnel costs for the three and six months ended June 30, 2021 , 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. The increase in personnel related
costs includes an increase in share-based compensation expense of $8.7 million
and $16.0 million for the three and six months ended June 30, 2021 ,
respectively; and
•the remaining increase was primarily due to increase in software and subscription costs, third-party legal and other professional fees, and other administrative expenses.
Transaction and loan losses for the three and six months endedJune 30, 2021 increased by$10.6 million or 28% and decreased by$77.9 million or 53% compared to the three and six months endedJune 30, 2020 , respectively, primarily due to the following: •transaction losses for the three months endedJune 30, 2021 increased by$10.3 million , while transaction losses decreased by$53.7 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . The increase in the three months endedJune 30, 2021 was primarily due to increased transaction volumes associated with Cash Card, which was partially offset by releases in certain previously established Seller risk loss provisions related to the first quarter of 2021 due to better than expected realized transaction losses. The decrease in the six months endedJune 30, 2021 was due to lower Seller risk loss provisions recorded in the first half of 2021 as businesses recovered as a result of regional re-openings and broader macro economic recovery, reducing the risk of chargebacks related to uncollectibility. Additionally, we had recorded higher risk loss provisions for our Seller business in the first half of 2020 due to the expected impact of COVID-19, that were subsequently released based on realized transaction losses. •loan losses for the three months endedJune 30, 2021 increased slightly by$0.2 million compared to the three months endedJune 30, 2020 . Loan losses for the six months endedJune 30, 2021 decreased by$24.2 million compared to the six months endedJune 30, 2020 . The primary driver for the decrease in loan losses in the six months endedJune 30, 2021 was due to the higher incremental provisions that were recorded during the first quarter of 2020 associated with the COVID-19 pandemic. Bitcoin impairment losses were$45.3 million and$65.1 million in the three and six months endedJune 30, 2021 , respectively, due to the market price of bitcoin decreasing below the carrying value of our bitcoin investment observed during the period. As ofJune 30, 2021 , the fair value of our investment in bitcoin was$281.4 million based on observable market prices, which is$126.5 million in excess of the carrying value of our investment of$154.9 million . Any unrealized gains on our bitcoin investment will only be recognized upon the sale of such bitcoin investment. Interest Expense, Net, and Other Expense, Net (in thousands, except for percentages) Three Months Ended Six Months Ended June 30, June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Interest expense, net$ 6,464 $ 14,769 $ (8,305) (56) %$ 6,717 $ 23,975 $ (17,258) (72) % Other (income), net$ (75,788) $ (25,591) $ (50,197) NM$ (48,260) $ (19,729) $ (28,531) NM Interest expense, net, for the three and six months endedJune 30, 2021 decreased by$8.3 million and$17.3 million , compared to the three and six months endedJune 30, 2020 , respectively. The decrease was primarily due to lower non-cash interest expense related to our convertible notes as a result of the adoption of ASU No. 2020-06 onJanuary 1, 2021 . Under ASU No. 2020-06, convertible notes will no longer be separated into a debt and equity component, thereby eliminating the discount associated with the equity component and the interest expense associated with such discount. This was offset in part 53 -------------------------------------------------------------------------------- by increases in cash interest expense related to the issuance of the 2031 Senior Notes and 2026 Senior Notes issued inMay 2021 . Refer to Note 13, Indebtedness, of Notes to the Condensed Consolidated Financial Statements for further details. Other income, net for the three and six months endedJune 30, 2021 increased by$50.2 million and$28.5 million compared to the three and six months endedJune 30, 2020 , respectively, primarily due to the mark to market net gain of our equity investment in DoorDash of$73.3 million and$44.4 million in the three and six months endedJune 30, 2021 , respectively, arising from the revaluation of this investment. InJune 2021 , we completed the sale of this investment in DoorDash and as a result this investment will not impact the results in future periods. These activities are offset in part by the foreign exchange gains and losses. Segment Results Seller Results The following tables provide a summary of the revenue and gross profit for our Seller segment for the three and six months endedJune 30, 2021 and 2020 (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change Net revenue$ 1,311,488 $ 723,356 $ 588,132 81 %$ 2,329,142 $ 1,576,823 752,319 48 % Cost of revenue 726,351 407,656 318,695 78 % 1,275,989 905,354 370,635 41 % Gross profit$ 585,137 $ 315,700 $ 269,437 85 %$ 1,053,153 $ 671,469 $ 381,684 57 % Revenue Revenue for the Seller segment for the three and six months endedJune 30, 2021 increased by$588.1 million , or 81%, and$752.3 million or 48% compared to the three and six months endedJune 30, 2020 , respectively. The increase was primarily due to growth in GPV attributable to improvements experienced in card-present volumes as a result of regional re-openings and resuming of in-person business at sellers in addition to continued growth in higher-priced card-not-present transactions. We also saw an increase in Seller subscription and services-based revenue in the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 primarily due to the recovery of facilitating loan volumes in 2021, other software subscriptions, Instant Transfer for sellers, and Square Card. Additionally, Seller subscription and services-based revenue was lower in the first half of 2020 due to the suspension of facilitating loans in the second quarter of 2020, and the refund of software subscription fees to our customers in March and April of 2020.
Cost of revenue
Cost of revenue for the Seller segment for the three and six months endedJune 30, 2021 increased by$318.7 million or 78%, and$370.6 million or 41% compared to the three and six months endedJune 30, 2020 , despite an increase in Seller revenue of$588.1 million or 81%, and$752.3 million or 48% for the three and six months endedJune 30, 2021 , compared to the three and six months endedJune 30, 2020 . For the six months endedJune 30, 2021 , the smaller increase in Seller cost of revenues, relative to Seller revenues was primarily driven by higher percentage of debit card transactions and larger average transaction sizes. However, in the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , we noted a declining trend of the percentage of debit card transactions and average transaction sizes, which may impact the growth of transaction-based costs in future periods. 54 --------------------------------------------------------------------------------
Cash App
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, 2021 and 2020 (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change Net revenue$ 3,330,191 $ 1,200,269 $ 2,129,922 177 %$ 7,369,807 $ 1,727,911 5,641,896 327 % Cost of revenue 2,784,138 919,206 1,864,932 203 % 6,328,269 1,264,116 5,064,153 401 % Gross profit$ 546,053 $ 281,063 $ 264,990 94 %$ 1,041,538 $ 463,795 $ 577,743 125 % Revenue Revenue for the Cash App segment for the three and six months endedJune 30, 2021 increased by$2.1 billion , or 177%, and$5.6 billion or 327%, compared to the three and six months endedJune 30, 2020 . The primary drivers were growth in bitcoin revenue, and, to a lesser extent, Cash App Instant Deposit, Cash Card, and Cash for Business. Bitcoin revenue increased due to the market price of bitcoin, growth in the number of active bitcoin customers, and growth in customer demand. While bitcoin contributed 58% and 64% of the total net revenue and 67% and 79% of the increase in net revenues in the three and six months endedJune 30, 2021 , respectively, gross profit generated from bitcoin was only 5% and 6% of the total gross profit. Excluding bitcoin revenue, Cash App revenue increased by$281.1 million or 87%, and$588.1 million or 108% in the three and six months endedJune 30, 2021 , compared to the three and six months endedJune 30, 2020 due to growth in numbers of active Cash App customers, broader macroeconomic recovery, and from government stimulus and relief programs enacted in response to COVID-19. These programs provided government aid and unemployment benefits which resulted in an increase in consumer spending and inflows into our Cash App ecosystem. Cash App revenue growth may not be sustained at the same levels in future quarters and may be impacted by the enactment of further stimulus relief and benefit programs, as well as the demand and market prices for bitcoin, amongst other factors.
Cost of revenue
Cost of revenue for the Cash App segment for the three and six months endedJune 30, 2021 increased by$1.9 billion , or 203%, and$5.1 billion or 401% compared to the three and six months endedJune 30, 2020 . The primary driver for the increase was growth in bitcoin revenue and the associated costs of such revenue, as discussed further above. Excluding bitcoin cost of revenue, Cash App cost of revenue increased by approximately$53.3 million , or 87%, and$115.8 million or 109% in the three and six months endedJune 30, 2021 , compared to the three and six months endedJune 30, 2020 , due to growth in Cash Card, Cash App Instant Deposit, and Cash for Business. Key Operating Metrics and Non-GAAP Financial Measures We collect and analyze operating and financial data to evaluate the health of our business, allocate our resources, and assess our performance. In addition to total net revenue, net income (loss), and other results under generally accepted accounting principles (GAAP), the following table sets forth key operating metrics and non-GAAP financial measures we use to evaluate our business. We believe these metrics and measures are useful to facilitate period-to-period comparisons of our business and to facilitate comparisons of our performance to that of other payment solution providers. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020
Gross Payment Volume (GPV) (in millions)
Adjusted EBITDA (in thousands)$ 359,820 $ 97,931
Adjusted Net Income Per Share:
Basic$ 0.76 $ 0.20 $ 1.23 $ 0.18 Diluted$ 0.66 $ 0.18 $ 1.08 $ 0.17 55
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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 activity related to Cash for Business and peer-to-peer payments sent from a credit card. Cash for Business includes peer-to-peer transactions received by business accounts using Cash App.
Adjusted EBITDA and Adjusted Net Income (Loss) 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. •In connection with the issuance of our convertible senior notes (as described in Note 13, Indebtedness, of the Notes to the Condensed Consolidated Financial Statements), prior to the adoption of ASU No. 2020-06 onJanuary 1, 2021 , we were required to recognize non-cash interest expense related to amortization of debt discount and issuance costs. Subsequent to the adoption, we only recognize non-cash interest expense related to amortization of debt issuance costs on convertible notes and unsecured senior notes. We believe that excluding these expenses 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 senior 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, bitcoin impairment losses, and prior to the adoption of ASU No. 2020-06 onJanuary 1, 2021 , gain or loss on debt extinguishment related to the conversion of convertible notes, as applicable, from non-GAAP financial measures because we do not believe that these items are reflective of our ongoing business operations. •We also exclude certain costs associated with acquisitions that are not normal operating expenses, including amounts paid to redeem acquirees' unvested share-based compensation awards, and legal, accounting and due diligence costs, and we 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, other cash interest income and expense, other income and expense and provision or benefit from income taxes, as these items are not components of our core business operations.
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 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, net.
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,
2021 2020 2021 2020
Net income (loss) attributable to common stockholders $ 204,021 $ (11,478) $ 243,029 $ (117,369)
Net income (loss) attributable to noncontrolling
interests (343) - (343) -
Net income (loss) 203,678 (11,478) 242,686 (117,369)
Share-based compensation expense 146,365 96,180 264,988 173,483
Depreciation and amortization 28,394 21,056 57,595 41,117
Interest expense, net 6,464 14,769 6,717 23,975
Other (income), net (75,788) (25,591) (48,260) (19,729)
Bitcoin impairment losses 45,266 - 65,126 -
Loss on disposal of property and equipment 374 1,481 989 1,699
Acquisition related and other costs 14,292 2,056 14,318 3,580
Acquired deferred revenue adjustment 195 302 447 959
Acquired deferred costs adjustment (60) (92) (124) (236)
Benefit for income taxes (9,360) (752) (8,413) (217)
Adjusted EBITDA $ 359,820 $ 97,931 $ 596,069 $ 107,262
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The following table presents a reconciliation of net income (loss) to Adjusted net income (loss) and Adjusted EPS for each of the periods indicated (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Net income (loss) attributable to common stockholders $ 204,021 $ (11,478) $ 243,029 $ (117,369)
Net income (loss) attributable to noncontrolling
interests (343) - (343) -
Net income (loss) 203,678 (11,478) 242,686 (117,369)
Share-based compensation expense 146,365 96,180 264,988 173,483
Amortization of intangible assets 9,234 4,134 16,118 8,286
Amortization of debt issuance costs 2,305 17,580 4,137 30,108
Gain on revaluation of equity investment (76,744) (20,998) (47,844) (20,998)
Bitcoin impairment losses 45,266 - 65,126 -
Loss on extinguishment of long-term debt - - - 990
Loss on disposal of property and equipment 374 1,481 989 1,699
Acquisition related and other costs 14,292 2,056 14,318 3,580
Acquired deferred revenue adjustment 195 302 447 959
Acquired deferred costs adjustment (60) (92) (124) (236)
Adjusted Net Income - basic $ 344,905 $ 89,165 $ 560,841 $ 80,502
Cash interest expense on convertible senior notes $ 1,611 $ 1,565 $ 3,339 $ 2,938
Adjusted Net Income - diluted $ 346,516 $
90,730
Weighted-average shares used to compute Adjusted Net Income Per Share: Basic 455,431 440,117 455,203 437,529 Diluted 522,577 500,201 523,557 495,181 Adjusted Net Income Per Share: Basic$ 0.76 $ 0.20 $ 1.23 $ 0.18 Diluted$ 0.66 $ 0.18 $ 1.08 $ 0.17
To calculate the diluted Adjusted EPS we adjust the weighted-average number of shares of common stock outstanding for the dilutive effect of all potential shares of common stock.
In periods when we recorded an Adjusted Net Loss, the diluted Adjusted EPS is the same as basic Adjusted EPS because the effects of potentially dilutive items were anti-dilutive given the Adjusted Net Loss position.
Liquidity and Capital Resources
We continued to experience improvements in our business as the majority ofU.S. markets transitioned to varying states of economic recovery and reopenings. Although our outlook and business results continue to be positive, the extent to which the COVID-19 pandemic will further impact our results of operations, financial condition and cash flows in the future is unknown. We continue to evaluate our investment plans and discretionary expenditures and will make adjustments accordingly. As ofJune 30, 2021 , we had approximately$7.1 billion in available funds, including an undrawn amount of$500.0 million available under our revolving credit facility, as described in Note 13, Indebtedness, of Notes to the Condensed Consolidated Financial Statements. 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. We are carefully monitoring and managing our cash position in light of ongoing conditions and levels of operations. As ofJune 30, 2021 , the Company was in compliance with all financial covenants associated with the 2020 Credit Facility and Senior Notes. 58 --------------------------------------------------------------------------------
Liquidity Sources
The following table summarizes our cash, cash equivalents, restricted cash, and investments in marketable debt securities (in thousands):
December 31,
June 30, 2021 2020
Cash and cash equivalents $ 4,581,234 $ 3,158,058
Short-term restricted cash 15,088 30,279
Long-term restricted cash 74,569 13,526
Cash, cash equivalents, and restricted cash $ 4,670,891 $ 3,201,863
Investments in short-term debt securities 1,014,903 695,112
Investments in long-term debt securities 947,093 463,950
Cash, cash equivalents, restricted cash, and investments in marketable debt securities
$
6,632,887
Our principal sources of liquidity are our cash and cash equivalents and investments in marketable debt securities. As ofJune 30, 2021 , we had$6.6 billion of cash and cash equivalents, restricted cash, and investments in marketable debt securities, which were held primarily in cash deposits, money market funds, reverse repurchase agreements,U.S. government and agency securities, commercial paper, and corporate bonds. 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. From time to time, we have raised capital by issuing equity, equity-linked, or debt securities such as our convertible senior notes. As ofJune 30, 2021 , we held over$4.9 billion in aggregate principal amount of long-term debt, comprised of$4.7 million in aggregate principal amount of outstanding convertible senior notes that mature onMarch 1, 2022 ("2022 Convertible Notes"),$749.1 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"), and$575.0 million and$575.0 million in aggregate amount of convertible senior notes that mature onMay 1, 2026 , andNovember 1, 2027 , respectively ("2026 Convertible Notes" and "2027 Convertible Notes," respectively). Additionally, onMay 20, 2021 , we issued$1.0 billion and$1.0 billion in aggregate principal amount of outstanding senior unsecured notes that mature onJune 1, 2026 andJune 1, 2031 , respectively ("2026 Senior Notes" and "2031 Senior Notes"). The 2022 Convertible Notes bear interest at a rate of 0.375% payable semi-annually onMarch 1 andSeptember 1 of each year, while the 2023 Convertible Notes bear interest at a rate of 0.50% payable semi-annually onMay 15 andNovember 15 of each year, and 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, whereas, the 2027 Convertible Notes bear interest at a rate of 0.25% payable semi-annually onMay 1 andNovember 1 of each year. These convertible senior 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. We purchased$50.0 million and$170.0 million in bitcoin inOctober 2020 andFebruary 2021 , respectively, as 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 will be required to recognize any decreases in market prices below carrying value as an impairment charge, with any mark up in value prohibited if the market price of bitcoin subsequently increases. We recorded impairment charges of$45.3 million and$65.1 million in the three and six months endedJune 30, 2021 due to the observed market price of bitcoin decreasing below the carrying value during the period. As ofJune 30, 2021 , the fair value of our investment in bitcoin was$281.4 million based on observable market prices which is$126.5 million in excess of the Company's carrying value of$154.9 million . Impairment losses cannot be recovered for any subsequent increase in fair value until the sale of the asset. InSeptember 2020 , we announced our intent to invest$100 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 59 --------------------------------------------------------------------------------
services. As of
InJune 2020 , we entered into the Paycheck Protection Program Liquidity Facility agreement with theFederal Reserve Bank of San Francisco ("First PPPLF Agreement") to secure additional credit collateralized by PPP loans. The advances under this facility are repayable if the associated PPP loans are forgiven, repaid by a customer or settled by the government guarantee. OnJanuary 29, 2021 , we entered into a second PPPLF agreement with theFederal Reserve Bank of San Francisco ("Second PPPLF Agreement") to secure additional credit, collateralized by loans from the second round of the PPP program, in an aggregate principal amount of up to$1.0 billion under both PPPLF Agreements. As ofJune 30, 2021 ,$823.7 million of PPPLF advances were outstanding and are, generally, collateralized by the same value of PPP loans. Any differences between the amounts are generally due to the timing of PPP loan repayment or forgiveness, and repayment of PPPLF advances. InMay 2020 , we entered into a new revolving credit agreement with certain lenders, as subsequently amended, which provides a$500 million senior unsecured revolving credit facility (the "2020 Credit Facility") maturing inMay 2023 . Loans under the 2020 Credit Facility 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. 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.
See Note 13, Indebtedness, of the Notes to the Condensed Consolidated Financial Statements for more details on these transactions.
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. Short-term restricted cash of$15.1 million as ofJune 30, 2021 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, discussed in the paragraph below, which we expect to become unrestricted within the next year. Long-term restricted cash of$74.6 million as ofJune 30, 2021 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 the 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
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•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.
Cash Flow Activities
The following table summarizes our cash flow activities (in thousands):
Six Months Ended
June 30,
2021 2020
Net cash provided by (used in) operating activities $ 297,812 $ (151,833)
Net cash used in investing activities (933,039) (302,295)
Net cash provided by financing activities 2,111,347 1,366,812
Effect of foreign exchange rate on cash and cash equivalents (7,092)
(5,182)
Net increase in cash, cash equivalents, and restricted cash
Cash Flows from Operating Activities
Cash provided by (used in) operating activities consisted of our net income (loss) adjusted for certain non-cash items, including gain or loss on revaluation of equity investments, depreciation and amortization, non-cash interest and other expense, share-based compensation expense, transaction and loan losses, bitcoin impairment losses, deferred income taxes, non-cash lease expense, as well as the effect of changes in operating assets and liabilities, including working capital. For the six months endedJune 30, 2021 , cash provided by operating activities was$297.8 million . Net income was$242.7 million , adjusted for the add back of 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 PPP loans facilitated of$269.9 million , as well as a net outflow from changes in other assets and liabilities of$135.3 million due to timing. For the six months endedJune 30, 2020 , cash used in operating activities was$151.8 million . Net loss was$117.4 million , adjusted for the add back of non-cash expenses of$405.4 million , consisting primarily of share-based compensation, transaction and loan losses, depreciation and amortization, and non-cash interest and other expenses. This was offset by net PPP loans facilitated of$465.5 million . The increase in transaction and loan losses was largely caused by estimated losses attributable to the COVID-19 pandemic and the increase in other non-cash expenses was primarily due to the growth and expansion of our business activities.
Cash Flows from Investing Activities
Cash flows 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, 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 , as well as the purchase of property and equipment of$66.6 million , partially offset by the proceeds from sale of equity investments of$378.2 million . 61 -------------------------------------------------------------------------------- For the six months endedJune 30, 2020 , cash used in investing activities was$302.3 million , primarily due to the net proceeds from investments of marketable securities including investments from customer funds of$227.4 million . Additional uses of cash were as a result of the purchase of property and equipment of$56.6 million and business acquisitions, net of cash acquired of$18.4 million . Cash Flows from Financing Activities For the six months endedJune 30, 2021 , cash provided by financing activities was$2.1 billion primarily as a result of$2.0 billion in net proceeds from the 2031 Senior Notes and 2026 Notes offerings, the 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 , offset by payments for employee tax withholding related to vesting of restricted stock units of$292.2 million . For the six months endedJune 30, 2020 , cash provided by financing activities was$1.4 billion primarily as a result of$936.5 million in net proceeds from the 2025 Convertible Notes offering, proceeds from the PPPLF advances of$447.8 million , and proceeds from issuances of common stock from the exercise of options and purchases under our employee share purchase plan of$78.1 million , offset by payments for employee tax withholding related to vesting of restricted stock units of$93.7 million . Contractual Obligations and Commitments OnMay 20, 2021 , the Company issued an aggregate principal amount of$2.0 billion senior unsecured notes comprised of$1.0 billion of senior unsecured notes due 2026 ("2026 Senior Notes") and$1.0 billion senior unsecured notes due 2031 ("2031 Senior Notes"). The 2026 Senior Notes mature onJune 1, 2026 , unless earlier redeemed or repurchased, and bear interest at a rate of 2.75% payable semi-annually onJune 1 andDecember 1 . The 2031 Senior Notes mature onJune 1, 2031 , unless earlier redeemed or repurchased, and bear interest at a rate of 3.50% payable semi-annually onJune 1 andDecember 1 of each year. See Note 13, Indebtedness, of the Notes to the Condensed Consolidated Financial Statements for more details on this transaction. OnJanuary 29, 2021 , we entered into a second Paycheck Protection Program Liquidity Facility agreement with theFederal Reserve Bank of San Francisco ("Second PPPLF Agreement" and together with the First PPPLF Agreement, "PPPLF Agreements") to secure additional credit in an aggregate principal amount of up to$1.0 billion under both PPPLF Agreements. Borrowings under the facilities accrue interest at a rate of 0.35% and must be collateralized with loans originated under the PPP. The maturity date of any PPPLF advances will be the maturity date of the PPP loan pledged to secure the advance, and will be accelerated upon the occurrence of certain events of default. Although loans originated under the PPP have a stated maturity of between two and five years from origination, some of the loans may be forgiven 24 weeks after disbursement if they meet certain specified criteria. The PPPLF advances are also repayable if the underlying PPP loan is repaid by the customer. As ofJune 30, 2020 ,$823.7 million of PPPLF advances were outstanding and are, generally, collateralized by the same value of PPP loans. Any differences between the amounts are generally due to the timing of PPP loan repayment or forgiveness, and repayment of PPPLF advances. See Note 13, Indebtedness, of the Notes to the Condensed Consolidated Financial Statements for more details on this transaction. With the exception of the Senior Notes and PPPLF advances, there were no material changes in our commitments under contractual obligations, except for scheduled payments from the ongoing business, as disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements during the periods presented. 62 --------------------------------------------------------------------------------
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. We believe accounting policies and the assumptions and estimates associated with transaction and loan losses have the greatest potential effect on our condensed consolidated financial statements. Therefore, we consider this to be our critical accounting policy and estimate. Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Our critical accounting policies have not materially changed during the six months endedJune 30, 2021 .
Recent Accounting Pronouncements
See "Recent Accounting Pronouncements" described in Note 1, Description of Business and Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements.
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