Block Inc.

Good day, ladies and gentlemen, and welcome to the Block First Quarter 2023 Earnings Conference Call. I would now like to turn the call over to your host, Nikhil Digsit, Head of Investor Relations. Please go ahead.

Hi, everyone. Thanks for joining our First Quarter 2023 Earnings Call. We have Jack and Amrita with us today. We will begin this call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from our customers in addition to questions from conference call participants. We would also like to remind everyone that we will be making forward-looking statements on this call. All statements other than statements of historical fact could be deemed to be forward-looking. These forward-looking statements include discussions of our outlook and guidance as well as our long-term targets and goals, and we may decide to shift our priorities, move away from these targets and goals at any time. These statements are subject to risks and uncertainties. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will provide preliminary estimates of gross profit growth and GMV performance for the month of April. These represent our current estimates for April performance, as we have not yet finalized our financial statements for the month of April, and our monthly results are not subject to interim review by our auditors. As a result, actual April results may differ from these estimates and may not be reflective of performance for the full second quarter. Moreover, this financial information has been prepared solely on the basis of currently available information by and is the responsibility of management. This preliminary financial information has not been reviewed or audited by our independent public accounting firm. This preliminary financial information is not a comprehensive statement of our financial results for April or the second quarter. We will also discuss combined company gross profit during this call. Block combined company gross profit assumes we acquired our BNPL platform on January 1, 2022, and includes a $51 million gross profit contribution from our BNPL platform for the month of January 2022. For purpose of comparison, fourth quarter combined company gross profit assumes 185 million contribution to block gross profit from our BNPL platform in the fourth quarter of 2021, as if we acquired our BNPL platform on October 1st, 2021. Also, we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter, historical financial information spreadsheet, and investor-aided materials on our investor relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being audio webcast on our investor relations website. An audio replay of this call and the transcript for Jack and Amrita's opening remarks will be available on our website shortly. With that, I would like to turn it over to Jack.

Thank you all for joining us. Last quarter, we shared our investment framework going forward. As a reminder, our framework can be articulated in a single sentence. Block in each ecosystem must show a believable path to gross profit retention of over 100% and rule of 40 on adjusted operating income. The principles that led us to this framework were, number one, ensure our investments are focused on customer retention and growth. Number two, account for ongoing costs to the business, including stock-based compensation. And number three, utilize industry standard conventions that are simple to communicate and understand. We will not be distracted from living up to these principles and building our business according to this framework. Obviously, there are challenges ahead, including many out of our control. I wanted to spend a moment talking about those so you're aware of how we're thinking about meeting them and then hand it over to Amrita to discuss our quarter. I'll start with the macro challenges and then the prevailing trends we can use to advantage our customers and us. There are three macro challenges affecting all businesses now and over the long term. Number one, constant state of global crisis. Number two, regulatory fragmentation. Number three, global financial system shifts. The world seems to be moving from one global crisis to the next and suffering from an overwhelming amount of information, which is causing people and organizations of all sizes to be distracted and reactive to the moment. From COVID to inflation to the war in Ukraine to bank failures, the number of things we all need to pay attention to grows unbounded. Throughout this time, we want to remain focused and not reactive to any one particular moment in time. This is easier said than done, but it's something that underlies everything we do, ensuring our long-term view guides all of our actions, especially those we take in the short term. At the same time, regulators around the world are coming up with slightly or entirely different answers to problems facing their citizens. Instead of having global standards, we end up with rules which are different for every market, effectively slowing the pace of development. While this might be a good thing for each market, it makes it very challenging to grow a global internet business, especially for smaller companies. Part of our job will be to help our customers navigate this complexity by taking it on ourselves. Finally, there have been numerous challenges to the global financial system, and it's experiencing some significant shifts. From new global reserve currency candidates, centralization of banks through failure of smaller ones, to adoption of central bank digital currencies with entirely new capabilities. These all affect our core business and are all trends we need to navigate carefully. I'm confident we will, as we see and acknowledge them early. We want to be proactive in our approach and not just react when it's too late. And there are a few technology trends that I believe will help us do just that. There are three trends we're focused on. Number one is artificial intelligence. Number two is open protocols. And number three is the global south. Consider how many times you've heard the term AI or GPT in the earnings calls just this quarter versus all quarters in history prior. This trend seems to be moving faster than anyone can comprehend or get a handle on. Everyone feels like they're on their back foot and struggling to catch up. Utilizing machine learning is something we've always employed at Block, and the recent acceleration in availability of tools is something we're eager to implement across all of our products and services. We see this first as a way to create efficiencies, both internally and for our customers. And we see many opportunities to apply these technologies to create entirely new features for our customers. More and more effort in the world will shift to creative endeavors as AI continues to automate mechanical tasks away. And we believe we are well positioned for that shift with our strategy for artists on title. Open protocols represent another fork in the road moment for people and companies. Bitcoin, Nostra, BlueSky, Web5, and others are all working to level the playing field for competition and give individuals and organizations entirely new capabilities. I believe this trend is growing as fast as AI will have just as large an impact and may even help address some of the harms AI presents. We are embracing this early so we can figure out how to best contribute to these protocols and build valuable businesses on top of them. This isn't just about centralization versus decentralization. If these protocols are even remotely successful, they will present a customer base far larger than any one company can create alone. And there is good precedent for this happening again. Look at the web, email, and the overall internet for proof. We have a number of efforts towards this trend, including our Bitcoin wallet, miner, Bitcoin exchange, spiral, and TBD. If we consider where the internet population will grow the fastest, we must look at the so-called Global South, countries within Africa, Latin America, Asia, and Oceania, where most of humanity resides. This region is adopting open protocols faster than Western countries because the use cases they provide are increasingly becoming a necessity, such as money riddance. We are choosing to focus on these markets because we believe the total addressable market over time is bigger than anything we're currently in. The assumption you have to make here, of course, is that nearly everyone in these markets has access to the internet, which is a credible one to make over the next decade. We have already started this work in earnest and with our partnership between TBD and Yellowcard to enable Fiat on and off ramps in 16 African countries. Open protocols and focused AI solutions will help us to move even faster and in a way that's complementary to the businesses that already exist within these markets and the ones starting up in the future. I realize this is a lot to take in, but I want to make sure you all have the context for how we will be driving our roadmaps and businesses in the future. With our investment framework, we will have the right accountability as we look to grow Block's many ecosystems together. Together is the key word here, as our real value comes from our multiple ecosystems working to positively reinforce one another and provide resiliency through challenging times. I couldn't be more excited about what's ahead and how we're positioned as a company to grow. Over to Amrita.