Block Inc.

be 9% on a three-year CAGR basis. Our developer tools have helped us serve the needs of larger, more complex sellers, allowing us to grow up market. During the third quarter, nearly 50% of mid-market GPV was generated by sellers connected to our open developer platform. Second, we continue to expand globally. In the third quarter, GPV from our markets outside the U.S. grew 40% year over year, or 55% on a constant currency basis. As foreign exchange, there's been significant drag on a year-over-year growth across all international markets. Looking at volume trends by market in the quarter, growth in Australia and Canada remained strong while we saw a macro-related slowdown in the UK. Now to provide an update on our BNPL platform, which we acquired through the Afterpay acquisition. In the third quarter, GMV for our BNPL platform was $5.4 billion. up 10% year-over-year, or 60% on a three-year taker basis. For overall growth trends, we've experienced an impact from spend shifts from online to in-person, competitive dynamics, as well as foreign currency, which slowed year-over-year GMV growth by five points in the third quarter. As we integrate Afterpay, our teams are focused on bridging commerce across Cash App and Square and are making steady progress towards our longer-term vision. On a GAAP basis, revenue for our BNPL platform was up 6% year-over-year, growing slower than GMB given mixed shifts to enterprise sellers and newer markets. Gross profit was down 3% year-over-year, impacted by $12 million in amortization of intangibles within cost of sales. Without this impact, gross profit would have been more in line with revenue growth. Losses on consumer receivables were 0.96% of GMB during the third quarter, an improvement quarter-over-quarter compared to 1.02% in the second quarter, and an improvement year over year, driven by mixed shifts as well as enhancements to our risk models and processes during the first half of the year. We continue to see healthy consumer repayment behavior with more than 95% of installments paid on time. As we enter into 2023, we intend on simplifying many of these disclosures. We don't intend on speaking to our BNPL performance separately once we anniversary the acquisition of Afterpay. And we'll also shift our focus away from three-year CAGRs and towards year-over-year growth rates as we lap the onset of the pandemic three years ago. Next, an update on recent trends. On both a year-over-year and three-year CAGR basis, October total gross profit growth is estimated to be relatively consistent with the third quarter. In October, We estimate overall company gross profit growth of 37% on a year-over-year basis, including our BNPL platform, or 24% excluding our BNPL platform. We expect fourth quarter gross profit growth to remain relatively consistent with third quarter growth rates on both a year-over-year and three-year CAGR basis at the total company level. Now let's dig into some of the dynamics by ecosystem. For Cash App, we expect the year-over-year gross profit growth rate to improve in the fourth quarter compared to the third quarter. We saw this play out in October, where we estimate Cash App's gross profit growth, excluding our BNPL platform, improved on a year-over-year basis compared to 37% in the third quarter. On a three-year taker basis, we expect to see a slight decrease on Cash App's gross profit growth in the fourth quarter relative to the third quarter as we lap the launch of TABS in 2019. Cash App's gross profit growth in October was driven by growth in actives and monetization rate, while inflows per active was relatively consistent on a year-over-year basis. Cash App Card continued to have strong momentum on actives and spend per active, which both increased on a year-over-year basis. For Square, we expect the year-over-year growth rate for gross profit, excluding our BNPL platform, to moderate in the fourth quarter compared to the third quarter. given we are now lapping $59 million of non-recurring PPP gross profit recognized in the fourth quarter of 2021. Excluding PPP and our BNPL platform, we expect year-over-year gross profit growth for Square in the fourth quarter to be relatively consistent with the third quarter, which had a 19% year-over-year growth rate with the same exclusions. On a three-year CAGR basis, we expect gross profit growth, excluding our BNPL platform, to decrease slightly in the fourth quarter relative to the third quarter. Looking at recent volume trends, we estimate square GPV in October was up 16% year-over-year compared to 20% growth in the third quarter, and on a constant currency basis, 19% year-over-year as compared to 22% in the third quarter. Trends on a three-year CAGR basis were more stable, as we estimate GPV grew by 21% in October, compared to 22% in the third quarter. By region, growth in the US remained relatively stable through October. However, we've seen a meaningful slowdown in year-over-year GPV growth in our international markets, primarily driven by foreign exchange rates, and to a lesser extent, the ongoing macro-related slowdown in the UK. In October, we estimate that international GPV was up 23% year-over-year or 44% on a constant currency basis. Moving to our planned investments for the fourth quarter of 2022. While our business trends have remained stable through October, we have been increasingly focused on our spend amidst an uncertain macro environment. We plan to reduce our investments for the full year 2022 by an additional $140 million. which brings the total pullback on our planned non-GAAP operating expenses on the year to $590 million, or approximately 25% of our expected step-ups entering the year. For the fourth quarter, we expect to increase non-GAAP operating expenses by $206 million compared to the third quarter. Looking ahead to 2023, we are still in the process of finalizing our plans for next year. And while we aren't quite ready to share specifics, we wanted to give you a sense of how we are thinking about next year. Over the past several years, we've significantly grown our business and our expense base. Looking to 2023, we're focused on operating more efficiently, and we expect to slow our pace of expense growth meaningfully compared to prior years. Based on our preliminary plans, our outlook includes a slowdown across several areas of our discretionary expenses, a continuation of the discipline you've seen from us in recent quarters. In particular, two areas to underscore. First, hiring. Headcount makes up the largest driver of our expense base. In 2023, we expect to significantly moderate our case of hiring compared to recent years, which will benefit our financial results on the lag, with greater leverage on headcount costs expected in the back half of 2023 and into 2024. Second, sales and marketing. In 2023, we intend on pulling back on lower ROI, more experimental areas, including brand and awareness spend, across both our Square and Cash App ecosystems. and continue investing in channels with more proven ROIs. Outside of these, one-third of our non-GAAP operating expenses include variable expenses, which has historically grown more in line with overall gross profit, including transaction and loan losses, peer-to-peer costs, cash-out card issuance costs, and expenses related to data and our platform infrastructure. We continue to see a compelling opportunity for long-term growth, and we're prepared to be dynamic with our spend as we see the macro environment play out. both investing more when we see returns and pulling back with lower or uncertain returns as we've done in the past. We'll look to share more on our approach for the coming year in our fourth quarter earnings call in February. Ultimately, we remain focused on balancing growth and profitability in this environment. We want to operate with efficiency and agility in 2023 and beyond, with an increasing focus on not only top-line growth, but also profitability across both adjusted EBITDA and profit metrics that factor in stock-based compensation. where we intend on driving leverage over time. To conclude, as we enter an uncertain macro environment, our agility means we can track our business trends in real time across a diverse set of products and customers and make strategic decisions quickly to support our customers and adapt to the changes we observe. With that, we'll open it up to your questions.

At this time, I would like to remind everyone, in order to ask a question, press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. In the interest of time, we request that you limit yourself to one question. Your first question comes from the line of Chen Xinghuang with JP Morgan. Your line is open.

Thank you. It's nice to see the strong revenue, gross profit, and EBITDA here. So I just want to Bill, on what you just talked about there, Amrita, just thinking ahead, I know you're not going to give too much specific guidance for fiscal 23, but is it reasonable to expect that Block is now in a position to show some operating leverage in 23, given the less certain macro and, you know, you've invested quite a bit? It looks like you're getting good returns since the bottom of the pandemic here, but can we get back to operating leverage when we get back to 23? Thank you.