Block Inc.

or 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 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, strategy, and guidance, as well as our long-term targets and goals. 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 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. Further discussion during this call of Cash App's banking services, refer to those offered through our bank partners. Within these remarks, we will also discuss metrics related to our investment framework, including Rule of 40. With Rule of 40, we are evaluating the sum of our gross profit growth and adjusted operating income margin. 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 and our historical financial information spreadsheet 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 Namreta'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. I focused my shareholder letter this quarter on our go-to-market strategy for Square and our efforts to improve acquisition across sales, partnerships, marketing, and products. If you haven't yet, please read that letter for details. As part of this, I'm thrilled to share that Nick Molnar, the CEO and co-founder of Afterpay, will be leading a centralized sales function across Block, working across Square, Cash App, and Afterpay. Nick shaped Afterpay's high-performing sales culture, and we're excited for him to raise the bar for square and across block. This aligns with our recent decision to reorganize our company's reporting structure by function, enabling more collaboration across our different ecosystems. This will also help our people get to true mastery of their craft and open up opportunities for mobility within disciplines. We plan to execute this change this month with minimal disruption. The new reporting structure does not impact our strategy, roadmaps, or financial goals. Instead, we believe it will allow us to move with greater speed, agility, and efficiency on the growth initiatives we've already discussed. Similar to prior quarters, we're going to keep our remarks brief to focus on your questions. And with that, I'll turn it over to Amrita.

Thanks, Jack. We've delivered strong results across the company during the second quarter. Gross profit was $2.23 billion, up 20% year over year. By business, Square gross profit was $923 million, up 15% year-over-year, and Cash App gross profit was $1.3 billion, up 23% year-over-year. Both businesses showed strengths in areas aligned to our strategies. Gross profit outperformance compared to our guidance was mostly driven by Cash App. We saw strengths across Cash App Card, Cash App Borrow, and Buy Now, Pay Later. Infos Proactive saw healthy growth, up 10% year-over-year in the quarter, and was consistent quarter-over-quarter, despite coming off the first quarter's seasonal benefit of tax refunds. Square's gross profit was in line with our expectations, with strength in software and integrated payments and banking. GTV growth in the quarter was up 8% year-over-year, as strength from our markets outside the U.S. was offset by a continued moderation in U.S. same-store sales growth. consistent with broader macro data points. From a profitability perspective, we saw a significant increase on a year-over-year basis with meaningful margin improvement due to our improved efficiency and discipline on expenses. Adjusted EBITDA was $759 million, nearly doubling year-over-year, and adjusted operating income was $399 million, up 16 times year-over-year. For the 12 months ending in June, Adjusted free cash flow was $1.43 billion, which was up more than two times versus the prior 12 months and represented 57% of adjusted EBITDA, an improvement compared to the 44% conversion rate in the prior period. Our strong profitable growth shows that our ecosystems continue to serve our customers with differentiated value, and our teams are operating with purpose and efficiency. As Jack noted, our shift to a functional organizational structure is about deepening collaboration across our ecosystems. What doesn't change is our commitment to our long-term target of achieving rule of 40 in 2026 and our reporting of gross profit by business segment. We'll also continue to hold our leaders accountable to our existing product roadmap and go-to-market timelines. Turning to our expectations for the remainder of the year. we are raising our full year 2024 guidance for both gross profit and profitability, reflecting not only outperformance in the second quarter, but also increased expectations for the remainder of the year. For full year 2024, we are now expecting gross profit of at least $8.89 billion or 18% growth year over year. This reflects our strong top line momentum as we head into the back half of the year. We expect Cash App to deliver strong gross profit growth in the back half of the year, with growth expected to moderate only slightly from the second quarter's 23%, even as we fully lap the benefit from improvements to our structural costs in the second half. For Square, we expect year-over-year gross profit growth for the back half of the year to be relatively in line with the second quarter's growth rate. We remain focused on cross-selling banking and software further into our seller base and optimizing our processing value chain. In the back half of the year, we expect GPV growth to be relatively stable, although we are mindful of the backdrop for consumer discretionary spending continues to be dynamic. Our focus is on the things we can control, including executing against our product strategy and the go-to-market approach Jack outlined in his letter. Over the past year, our discipline on operating expenses has driven significant operating leverage in our business. While we do not share segment adjusted operating income, we wanted to share a view of the business level profit margins we expect this year. For 2024, we expect each of Cash App and Square's adjusted operating income margins to be in the high teens range, delivering meaningful improvement in the underlying profitability of these businesses each of the last two years. Across both ecosystems, our efforts are centered on initiatives that improve our product and go to market velocity. and which we expect to benefit us into 2025. For Cash App, we continue to round out the features that support our banks-based strategy and are starting to increase marketing investment behind them. For Square, we're excited about our partnership strategy and planned product launches post-completion of the orders migration work this summer. Sellers will start to see our single point of sale app before year end, which will be a significant unlock for simplifying our value proposition. From a profitability perspective, we are now expecting at least $1.44 billion in adjusted operating income in 2024, or 16% margins on gross profit, with efficiency initiatives underway to improve our structural costs and corporate overhead. This also reflects plans for a step up in sales and marketing in the back half for both Square and Cash App, as we invest behind the strong unit economics and margins in each business to drive growth into 2025. Our updated guidance now implies Rule of 35 for full year 2024, a significant improvement compared to 2023, and progressing us towards our goal of achieving Rule of 40 in 2026. Finally, as our margins and free cash flow generation have improved, we also plan to return more capital to shareholders. We very recently completed our inaugural $1 billion share repurchase authorization. And today, we're excited to announce an incremental $3 billion share repurchase program. With that, I'll now turn it back to the operator to start the Q&A portion of the call.