Block Inc.

This time that she cry a lot, how many chances she done gave you, run with these thoughts Every day that I'm alive, I'ma ride with this stick, I'd rather be broke in jail than be dead and rich Told my brothers take my breath if I turn to a snitch, but I'm 21 for air, ain't no way I'ma switch I could put it in my cup game verse the world me and my dog it was us then you went and wrote a statement and that really me up my brother lost his life and it turned me to a beast my brother got life and it turned me to the streets I've been through the storm and it turned me to a G but the other side was sunny I get paid to rap on beats how much money you got a lot how many problems you got a lot how many people in doubted

6 hour drive, 6 and a half

How many fakin' they streams, gettin' they plays from machines I can see behind the smokin' members, they ain't really big as they seem I never say anything, everybody got they thing Some n****s make millions, other n****s make memes I'm on the money routine, I don't want smoke, I want cream I don't want no more comparisons, this is a marathon And I'm aware I've been playing a bet from a lack of promotions I never was one for the bragging and boasting I guess I was hoping the music would speak for itself But the people want everything else Okay, no problem, I show up on every one album You know what the outcome will be I'm betting a thousand, it's got to the point That these rappers don't even like rapping with me Come on, 21 Savage has hit me and told me he sent me a spot On a new record he got, he call it a lot I open my book and I jot, pray for Tekashi, they wantin' a ride I picture him inside a cell on a cot Flettin' on how he made it to the top Wondering if it was worth it or not I pray for Markel cause they f***ed up his shot Just want you to know that you got it, my d*** Though I never met you, I know that you special And that the Lord bless you, don't doubt it, my d*** Dennis McJunior, stay solid, my d*** I'm on a tangent, not how I planned it, I had some fans that hopped in a bandit shit when they thought that I wasn't gon' pan out, I got a plan, they say that success is the greatest revenge, tell all your friends, call on a mission, submitting to spot is the greatest that did it before it all ends How much money you got? A lot How many problems you got?

A lot How many people done doubted you? A lot

How much money you got? How much money you got? How much money you got? How much money you got?

How much money you got? How many problems you got? How many people in doubt? I'd rather be broke in jail than be dead and rich Tell my brothers take my breath if I turn to a snitch But I'm 21 for air, ain't no way I'ma switch Thank you for watching!

Question, how many fakin' they streams, gettin' they plays from machines? I can see behind the smokin' memories, they ain't really big as they seem I never say anything, everybody got they thing Some make millions, other make memes I'm on a money routine, I don't want smoke, I want cream I don't want no more comparisons, this is a marathon And I'm aware I've been playing the bet from a lack of promotions I never was one for the bragging and boasting I guess I was hoping the music would speak for itself But the people want everything else Okay, no problem, I show up on every one album You know what the outcome will be I'm betting a thousand, it's got to the point That these rappers don't even like rapping with me Come on, 21 Savage just hit me and told me he sent me a spot On a new record he got, he call it a lot I open my book and I jot, pray for Tekashi, they wantin' a ride I picture him inside a cell on a cot Flettin' on how he made it to the top Winterin' if it was worth it or not I pray for Markel cause they f***ed up his shot Just want you to know that you got it, my n***a Though I never met you, I know that you special And that the Lord bless you, don't doubt it, my n***a Dennis Majunia, stay solid, my n***a I'm on a tangent, not how I planned it, I had some fans that hopped in a bandit ship when they thought that I wasn't gon' pan out, I got a plan, they say that success is the greatest revenge, tell all your friends, call on a mission, submitting the spot is the greatest, they did it before it all ends How much money you got? A lot How many problems you got?

A lot How many people done doubted you?

How much money you got? How much money you got? How much money you got? How much money you got? How much money you got?

How many problems you got? How many people in doubt? How many times did you cheat? How many times did you lie? How many times did she leave? How many times did she cry? How many chances she done gave you? Run with these thoughts Every day that I'm alive, I'ma ride with this stick I'd rather be broke in jail than be dead and rich Tell my brothers take my breath if I turn to a snitch But I'm 21 for air, ain't no way I'ma switch My brother lost his life and it turned me to a beast My brother got life and it turned me to the streets I been through the storm and it turned me to a G But the other side was sunny, I get paid to rap on beats How much money you got? A lot How many problems you got? A lot How many people done doubted you? A lot

Question, how many fakin' they streams? Gettin' they plays from machines? I can see behind the smokin' memories, they ain't really big as they seem I never say anything, everybody got they thing Some n****s make millions, other n****s make memes I'm on the money routine, I don't want smoke, I want cream I don't want no more comparisons, this is a marathon And I'm aware I've been playin' a bet from a lack of promotions I never was one for the braggin' and boastin' I guess I was hopin' the music would speak Thank you for watching!

Thank you all for joining today's call. We have Jack and Amrita with us today, along with Owen Jennings, our business lead, and Thomas Templeton, hardware lead for Block. Today's discussion includes forward-looking statements regarding our strategy, guidance, and long-term goals. Actual results may differ materially due to risks and uncertainties described in materials filed and furnished with the SEC, and should not be considered an indication of future performance. These statements speak only as of today, and we undertake no obligation to update them except as required by law. Reconciliations of any non-GAAP financial measures that we discuss to the most directly comparable GAAP measures are available in our shareholder letter. Further, any discussion of our lending and banking products refer to products offered through Square Financial Services or our bank partners. Before turning the call over to Jack, I wanted to note that we're trying something new this quarter. In addition to taking questions on the call, we've sourced questions directly from shareholders on X. Throughout the call, I will ask questions directly of Jack, Amrita, Owen, and Thomas based on topics our shareholders asked us to explore on our earnings call. For that, over to you, Jack.

Thank you all for joining us. We had a strong second quarter and we're raising our guidance for the year based on the strength of our execution. My letter this quarter focuses on our capabilities and how we build. Intelligence tools are making it easier to build all the software we need. What's harder is knowing what's to build, owning the capabilities behind it, and connecting those capabilities in ways that create value for customers. That's been our focus from the beginning and it's why our network gets stronger with every seller and every customer who joins Cashout. There's more detail in my letter and I hope you get a chance to read through it. With that, I'll turn it over to Amrita.

Thanks, Jack. We outperformed our guidance and achieved record profitability in the second quarter. A few of the highlights. We grew gross profit 25% year over year while delivering an all-time high 27% adjusted operating income margin and growing adjusted diluted EPS 65% year over year. Square Gross Profit and GPV both grew 13% year-over-year in the second quarter, with U.S. GPV growth accelerating to our strongest growth rate since the second quarter of 2023. We continue to grow our field sales motion, and we now have more than 200 active ISO partners, helping drive over 150% quarter-per-quarter growth in the number of new sellers joining Square from the ISO channel. We drove strong gross profit growth across commerce enablement and financial solutions, and we continue to expect gross profit to grow roughly in line with GPV in the second half of the year. Cash App gross profit grew 31% year-over-year in the second quarter. Monthly transacting actives grew 3% year-over-year in June, and we continue to expect low single-digit actives growth in 2026 as we execute on our network growth strategies. Cash App Commerce Enablement volume grew 17% and Cash App Consumer Lending Origination volume grew 59%, reflecting our focus on driving deeper engagement. We continue to ship innovative new products in the second quarter, including Cash App Tags and Cash App Mobile, and we brought after-pay pre-purchase on Cash App Card to general availability. We achieved record profitability this quarter while continuing to invest in the long-term growth of our business. We expanded go-to-market investment in the second quarter across Square and Cash App, and we continued to drive product velocity through our investments in AI, most notably in the public launch of Buzz, our agentic collaboration platform, in July. We're raising our 2026 guidance across gross profit, adjusted operating income, and adjusted diluted EPS, flowing through the Q2 outperformance and raising our expectations for the second half of the year. For the full year, we now expect gross profit of $12.51 billion, up 21% year-over-year, adjusted operating income of $3.47 billion, or a 28% margin, and adjusted diluted EPS growth of 70% year-over-year. For the third quarter, we expect year-over-year gross profit growth of 18%, adjusted operating income margin of 28%, and year-over-year adjusted diluted EPS growth of 89%. We expect third quarter interest expense of $50 to $55 million, full year interest expense of $200 to $210 million and a mid 20% non-GAAP effective tax rate in the third quarter and for the full year. As we look to the second half of 2026, we have several initiatives that we can invest in to sustain attractive long-term growth. In Square, we've proven strong ROIs for new go-to-market motions and have further opportunities to invest across self-on-board, field sales, and ISOs. In Cash Hub, we have numerous products that we expect to continue to grow, including Cash Hub tags and after-pay pre-purchase. Neighborhoods, our program to connect our two ecosystems, has demonstrated strong product-market fit, and we expect to lean into investments to scale this differentiated network faster in the second half of the year. AI is helping us deliver more value to more customers. We plan to continue to invest in our AI infrastructure, including Buzz, to drive further velocity gains. The breadth of high ROI growth opportunities we have is significant, and we plan to increase the magnitude of our investment if we see the right opportunities to deploy profit upside. Our increased guidance reflects the strength of our first half execution and the momentum we're carrying into the second half of 2026. Nearly six months after we reorganized Block to make intelligence the center of the company, We're moving faster to deliver value to customers and are executing on our long-term growth initiatives, all while delivering meaningful margin expansion and profitable growth. With that, I'd like to open up the call to Q&A.

Now we will begin the Q&A portion of the call. Please click the raise hand feature to ask a question. Please limit yourself to one question. Our first question comes from the line of Tinjin Huang from JP Morgan.

Thanks, Katie. Great results here. For Jack, I was hoping like last quarter to maybe just to get a progress report six months into the reorg. And I'll ask you last quarter, I just want to get an update here. What have you learned about the incremental AI investment and talent you need to scale this model across Square and Cash App? And I know you've talked about streaming intelligence a bunch. and a lot of different places. I'm curious if you're on track with that and what proof points you'd call out to say if you're on track or not on track with your journey there.

Yeah, thanks, Tenjin. I would say we're definitely on track. The biggest proof point is our shipping velocity. The team, we have a very small team on a product like Buzz, which is not just something that we launch internally, but we're using internally as well. We're using it internally to develop, We're using it internally to collaborate, and we think there's a very, very long runway for a product like this. But it's really something that's foundational, and the only reason we could get it out so quickly with such richness is because of all the work that has compounded over the past two years. We were the first to release a coding harness to the world months before Cloud Code. and we've been building this discipline and intelligence within the company ever since then and it's allowed us to do things that other companies just haven't been able to do with the organizational structure including having a more and more cohesive context and memory for the entire company which I think Buzz is probably the greatest manifestation of. For us, but also for other companies as we look to build around this product as well. I think we're well along the path of implementing these tools to help our organization move faster. and now it's a function of making sure that that same sort of magic we can deliver to all of our Cash App customers and sellers as well and I think sellers are some of the most important and probably the most relevant in this next one because they're also looking for help with AI and I think we're one of the few that can really make it Simple enough that people can use it and not have to think about it. And it actually gives them time back instead of is a burden of learning.

We'll take our next question from a shareholder on X. And Jack, this one's to you. It's a two parter on both Buzz and open source. So how does Block plan to monetize its open source efforts, such as Buzz and Goose? and talk more broadly about open source strategy. Does open sourcing, some of our AI initiatives limit how much they benefit block because they're public by definition?

It doesn't limit it. I think it gives us a lot more information. It gives us a lot more people who can actually contribute to the code. We're already seeing ideas in the ecosystem and the community that we can integrate within Buzz proper. The reason we built Buzz, as I answered in the last question, is to make ourselves more efficient and to remove our single points of failure on vendors that just haven't met the agentic age in the way that we'd like and in the way that we need. and also how we know our customers, specifically our sellers, will want to operate their businesses, operate their teams and build for themselves and alongside of us. So there's a huge menu of options that we can go down to monetize Buzz. We do intend to do so, but we don't want to custom fit one too early without having a lot more information. We're in a fortunate position where we can experiment with a number of models and then choose the right one that's going to align all of our incentives with our customers. We've talked with very small businesses in that regard, and we've talked with some of the largest enterprises we can imagine as well, and we think there's something meaningful there. We do intend on the roadmap to offer full Git hosting and code repositories. We're going to have a hosted option for teams that don't want to run infrastructure that's live today. We think there's a lot we can do on token efficiency. We're already model agnostic, but much more to do there. And then as I said in one of my posts about Buzz, agents that can transact feels like a natural place that we can Our next question comes from the line of Jason Kufferberg from Wells Fargo.

Hi, guys. Thank you. So just look at the numbers here. I mean, for the past four or five quarters, you've beaten your quarterly guidance, not just for ALI, but really for gross profit as well. And this quarter, you're raising the full year outlook for both metrics by more than the Q2B, which is obviously great to see. So just as investors contemplate the second half outlook, would it be fair to assume that some of the conservatism we've seen in recent quarters has been factored in? and just any color on how to think about gross profit growth at the segment level over the next two quarters would be great to help tune our models. I know that the square comps get a bit easier and cash apps obviously get harder, but any color there would be great. Thanks.

Hey, Jason, thanks for the question. Let me first start by talking about the numbers and some of what we're seeing in real time across the business and then talk about what we're seeing in each in each of our ecosystems and kind of The longer term opportunities to compound growth in the back half of the year and heading into 27. First on the numbers, obviously very strong quarter for us in the second quarter. You know, 25% gross profit growth, 65% just a diluted EPS growth on a year over year basis. What was encouraging for me to see was how broad-based the strength was. And we feel really good about the momentum that we've got as we head into the back half as a result. You know, if you look at Cash App, we were able to grow actives year over year and inflows proactive year over year at a 9% growth rate. And with that performance really flowing through numerous products from commerce to banking to lending. From a Square perspective, we accelerated growth on a global GPV basis, on a U.S. GPV basis. and obviously on a gross profit basis with some of the strongest growth rates we've seen in the U.S. since the first half of 2023 in three years, whether you're looking at U.S. food and beverage GPV or more broadly U.S. GPV. And continued strength in the other target Thank you so much for joining us. Thank you for joining us today. So then you carry through the run rates that we're seeing. Where that gets you is the 18% gross profit growth in Q3 with continued margin expansion and exiting the year in Q4 in that gross profit growth range of sort of that mid-teens growth rate, which is consistent with what We've been sharing for some time now and since our investor day guidance in last November, even as obviously, as you noted, we reached some of the tougher comps for a product like Cash.Borrow, which was scaling dramatically in the back half of last year. And as that growth normalizes, as we look to the back half of this year. So coming now to some of the key drivers across the ecosystems. For Square, we'd expect to accelerate gross profit growth in the back half of this year, and that's on the back of both strong GPV growth as we compound the benefits of not only stronger product velocity, but also our ramping distribution channels. And also in the back of expanding our pricing and packaging initiatives that we rolled out towards the end of last year. From a cash out perspective, as we look to the back half of this year, as I noted earlier, we'd expect actives growth in sort of the low single digit percentage range. And we believe we have far more room to continue to drive deeper engagement across you know commerce and and lending as well from a consumer lending origination volume perspective we do expect to see normalization in the back half but we believe we've built a much broader platform here from a lending infrastructure perspective that should be a driver of growth in multiple ways beyond borrow too as we look to the back half and and to the longer term And then finally, just as we're talking about guidance, of course, we think continuously about efficiency and profitable growth. And as we look at how we've operated post the changes earlier this year, nearly six months in, we have built increasing conviction on our ability to shift our operating rhythms as an intelligence company with AI central to all of our workflows. And that that way of working ultimately drives improved efficiency over time and greater leverage to our business over time, which then of course gives us the opportunity to invest where we see strong returns. As I noted in my intro remarks, go to market, neighborhoods, AI, These are opportunities for us to lean in where we see strong returns and as we build that room for ourselves in the back half of this year and into next year.

Our next question comes from the line of Will Nance from Goldman Sachs.

Hi, thank you for taking the question. I thought I'd take advantage of Thomas being on the call here because memory costs and hardware have been very top of mind for a lot of investors and probably more relevant as the volume growth and new customer acquisition and seller keeps accelerating. So can you talk about the hardware and pricing environment that you all are seeing? How's it impacting the business? And could you help sort of frame the range of outcomes as we think about hardware costs on the business, your access to hardware, and talk a little bit about how Block's hardware strategy may differ from competition. Thanks for taking the question.

Hey, this is Thomas. Thanks for the question. This is definitely top of mind, especially memory. Typically, when we talk about hardware as a differentiator, most often it's in the context of our new products, right? Like in the very beginning, I've been able to come up with the square original card reader setting the bar for what point of sale could be with square register and most recently with tags creating magical payment wands. And while hardware expertise definitely allows us to differentiate on the product side, and I'm really excited about new products we have in the pipeline, hardware is much more than that. One area that I'm particularly proud of and we don't often discuss is our supply chain and operations team. Over the years, we've built deep expertise and gone deep into the supply chain. Most companies have a relationship with their supplier, but we're different in that we go deeper and we have relationships with our supplier suppliers. And for key and core technologies, we go down to the supplier, supplier, supplier. And not only does this allow us to build best in class products, but it also enables us to manage supply in a very differentiated way. Thinking back to COVID, everything was out of stock. It's hard to find toilet paper. And one thing that I'm proud of is that We were the only company in our space never to go on backorder. Fast forward today, hardware costs, specifically memory, are top of mind for everybody. But because we go so deep in the supply chain, we have really strong relationships with key suppliers. We actually identified this constraint coming middle of last year. And so since then, for the last year plus, both our engineering and operations team have been working to mitigate these. And this is why, unlike many companies, you haven't heard us talking about supply constraints or cost. Now, I do want to caveat that what's happening across every industry is unprecedented. And I think we've heard that our friends down in Cupertino called this a 100-year flood. And while I haven't been here 100 years, in my almost 30-plus years in this industry, I've never seen anything like this. So we can't say that we'll never be impacted. And we do expect our costs to go up over time, just like everybody else. But we have a really good handle on the trajectory of costs and supply dynamics. And we feel that we can manage this accordingly.

Our next question comes from the line of Darren Peller from Wolf Research.

Hey, guys. Thanks. Look, it was great to see the acceleration in GPV to 13% global and 10% in the US. Can you just touch on some of the key drivers? I mean, we know NVA was converting well, and I think it was up 17% last year. So just how's NVA trending now? Where are you on your sales bill and ISO efforts and partnerships? And then just as attached to that, it was also nice to see the spread between gross profit and GPV narrow, even without the tariff refund dynamic. Do you still expect that growth rate between GP and GPV and Square to grow in line with each other in the second half? Thanks, guys.

Hey, Darren. Thanks for the question. Yeah, so let's unpack the momentum we're seeing with GPV. You know, I think first, fundamentally, it all goes back to the compounding benefits of our progress against our product strategy and shipping more products at pace. and are expanding our distribution channels from a go-to-market perspective. And what we're seeing is that those efforts are really resonating with our sellers and with new sellers as well. From a product perspective, we launched a number of different products that really resonate for food and beverage sellers, things like drive-through for QSRs and dozens of new features across the board. From a go-to-market perspective, we saw the fastest pace of self-onboard NVA Fastest pace of growth since Q2 of 2021, actually, which is really encouraging for us to see. In addition to ramping channels from a field sales perspective, from an ISO perspective, from a partnership perspective. And all of that leads to this acceleration that we've seen that's, I think, particularly notable in the U.S., but broad-based as well. with our strongest US GPV growth rate in three years, since Q2 23. And international performance also coming in strong, even with some of the FX headwinds at 25% constant currency. You know, I'd particularly call out the strategic verticals that we've been targeting with global food and beverage GPV up 20% year over year and the strongest US F&B growth we've seen since Q1 23. And mid markets also continue to be our fastest ramping segment, also with growth over 20%. As I noted earlier, a lot of that strength that we saw in Q2 carrying forward into July. On the gross profit point, yeah, we were excited to see growth roughly in line and accelerating growth from a gross profit perspective, but roughly in line with GPV growth. I think fundamentally what underpins that gross profit growth is not only the strong sort of engine underneath it with compounding these gains in GPV, but things like continued software adoption growth and momentum in financial solutions driven by products like Square Loans where we still have tremendous room for continued growth. Products like Cash App Card, or sorry, Square Card, our credit card that we're ramping within our Square ecosystem as well. the broader suite of software and banking features continue to resonate with existing sellers and new sellers alike. We did have in the quarter a tariff reimbursement benefit of about two points that roughly offset a network remediation comparison from Q2 25. So those two sort of, if you will, one time elements roughly offset each other by about two points this quarter. and we continue to expect Square Growth Profit and GPV to grow roughly in line with each other as we look at the back half of the year.

Our next question comes from the line of Adam Frisch from Evercore.

Hey guys, thanks for taking my question. The motion on Square is pretty simple in terms of better product with expanded distribution, but for Cash App, what gives you the confidence as you lap the huge borrow growth this year that you can continue to drive OutSize grows profit growth in the next couple of years. We like to say it's more people using more products more frequently, but what's the playbook here for cash app growth? And then if I could just ask on the law side, what was it in the quarter? Was it still around where it was previously? And how do you expect that to trend? Thanks very much.

Thanks, Adam. Happy to take this question. I'll give some context on kind of the durable growth of Cash App overall first, and then I can touch on the loss rate question. I think even though cash has evolved massively over the past decade plus, I think our core approach to growth hasn't changed that much. And I think that's largely because just the addressable market is so massive. We see over 100 million modern earners in the US and we think that's going to be like the fastest growing demographic over the next five to 10 years. I think still with our existing customer base, we still have massive room to deepen engagement. Obviously, cash app card attach rate is pretty high, but there's still a number of customers who are still peer to peer only. and then increasingly we're seeing with products like neighborhoods, teens and families, tags, this is giving us more of a right to win up market and actually expanding the addressable market. So our approach has remained the same which is really just focusing on the ecosystem. and I think this is unique relative to some of the other players in consumer FinTech where top line is coming from one or two different sources. We think of the cash ecosystem in four parts. There's our network based products, our banking and financial services products, our commerce solutions and then Bitcoin of course. and I think we have massive runway across the board. So on the network side, we're continuing to invest in network health and core peer to peer. Neighborhoods I think is set to have a massive impact on Cash App going forward and then continuing to push on our managed accounts U13 product as well as teens and families more broadly. On the banking side, still have a lot of room to go with Cash App Green and also new products that we're calling internally like these essentials. So things like launching Cash App phone plans, and then continuing to twist knobs and tune dials on the borrow side and the retro side. For commerce, some really exciting things related to the card. So after pay on cash card pre-purchase just became generally available a few weeks ago. And then obviously the tags launched, we've had a few viral moments, but that's a massive platform for us and continuing to push on distribution with Cash App Pay as well as after pay, some large merchants we've signed recently. on the Bitcoin side, pricing decisions, deliberate pricing decisions have actually been a headwind for us this year. But that was a deliberate move to make sure that we're the simplest and cheapest Bitcoin exchange out there. And I think that's proven really successful in terms of relative share gains versus others. All of that is like the core ecosystem of Cash App. And then you can layer on some of the newer bets like how we're monetizing Cash App Score, same thing for Moneybot, new things that we're working on that are not public yet. And I think all of these pieces are gonna flow through the inflows framework pretty differently. Some of them will hit active, some of them will hit inflows proactive, some of them will hit monetization rate. From an actives perspective, I think the biggest drivers in the coming months are really neighborhoods and our families, teens and families products. On the engagement driver side and how we think about growing inflows, I think it's really our focus on the modern earner and spending tools. For what it's worth, Cash Card just turned 10 years old a few weeks ago, which is super exciting. So a decade old and we're still running GPV growth at more than 20% year over year, fourth largest debit program in the US. So overall, the way I feel is we have the most expansive product portfolio that we've ever had. And our job is to bring all the different pieces of this ecosystem together in the back half of this year as we head into 2027 and ensure we can we can maintain those strong, durable growth rates over time. And that's despite lapping the kind of meteoric growth and borrow. And I think I think we have a strong track record of doing this over the past decade plus. Amrita, do you want to just touch on the loss rates piece?

Sure. I presume that's a question on cash at borrow loss rates, which continue to be healthy. You know, we look at cohort level loss rates, as you know, and as borrower cohorts season, we generally see that repayment behavior improves and losses decline. That's just based on our underwriting and the rich, you know, first party data that we have that feed into our models. More broadly, I would say, based on our consumer lending origination volume forecast and As I noted earlier, the normalization of the growth rates and the maturation of the borrow cohorts, we'd expect to see year over year growth on transaction loan and consumer receivable losses to moderate as well through the remainder of 26.

Our next question comes from the line of Tim Chiodo from UBS.

Thank you for taking the question. I want to shift gears a little bit. So a little bit of an unsung hero, if you will, with the SFS part in the shareholder letter. So two things there that could help margins and maybe free cash flow. But you mentioned that SFS will start to take deposits, which could help with some of the funding for some of the loan products. And then also that SFS is also serving as effectively the acquiring sponsor bank, and it could start to support both Square and Cash App, which would effectively remove some costs. And I was hoping you could talk a little bit about SFS role across those two use cases. Thank you.

Hey, Tim. Yeah, you know, look, we think the capabilities that we're building here around banking with SFS are incredibly powerful and we're really just at the beginning in terms of this journey that we're on. When I sort of step back and think about the strategic elements that SFS provides to us, I think there's three primary benefits. First, SFS gives us greater optionality. When it comes to how we bring our products to market whether through partners or through SFS that ultimately provides us with greater resilience and redundancy. Secondly, it enables us to serve more customers and frankly expand our products, often at better economics. You've obviously seen how that's flown through from a borrower perspective, being able to bring borrow nationwide and improve from a variable profit perspective over this past year, such that it's a much more meaningful Thank you for joining us today. In terms of where we're entering with this next phase of growth for SFS, we are expanding beyond lending. And I think there's kind of two important milestones as I look at where we are and where we're about to head that I'm pretty excited about. First, deposit taking. As you noted, we are expanding our capabilities there. So sellers maintaining at least $10,000 in square savings are now eligible to earn a 3.5% APY. That's eight times the national average, which attracts, obviously, sellers bringing more of their business to block. It deepens our relationship, expands retention possibility, and expands our deposit base further. So as we grow balances, we can ultimately build a stable base here that's relatively low cost deposits that then helps us fund future lending products at a lower cost of capital. And so near term, we continue to externalize those lending originations through warehouse facilities and other funding sources, but over time, You can expect deposits through SFS to become a much bigger part of how we fund those lending originations, and it's far more efficient from a capital and returns perspective. And then secondly, as you noted, we are now building acquiring capabilities into SFS. And in June, we had a new milestone for SFS as we processed our first Square acquiring transactions. Over time, we can gradually kind of migrate more of those acquiring transactions into both Square and Cash App. But that is a multi-year endeavor as we bring more of that processing infrastructure in-house with, again, the primary benefit to us being increased resilience and redundancy. So all that to say, Tim, we agree with you. We're super excited about SFS and the opportunity to expand far beyond this first chapter of lending as we look at deposits and acquiring next and the much longer roadmap beyond that.

We'll shift to our next question. from Shareholder OnX. And this is a couple of questions that we've amalgamated, but this is over to you, Owen. What updates can you share on neighborhoods, including a status update on the broader rollout of the product?

Sure, thanks Matt. I think at this point we're extremely confident that we've found product market fit with neighborhoods and now we're scaling incredibly quickly. So annualized seller GPV on the platform crossed the $1 billion threshold in June, which is up 220% year over year. And then new sellers that were onboarding onto neighborhoods was 8X in July, what it was in March. And then the great part from the product perspective is as we've ramped, We've seen really, really strong and consistent data. So spend from followers reaches about 10% of a seller's GPV in three quarters on average. It's like a really meaningful share of GPV. And then we're seeing really strong conversion rates just just across every funnel that we're tracking, whether it's buyer enrollments per location or signups versus neighborhoods impressions or claims per location, the list goes on. So we feel really good about the product. And now in the coming weeks and months, we're focused on just massively accelerating the distribution and the go to market on the seller side. We're confident in the performance. I think the auto enrollment motion that we talked about last earnings is working really well. And then, of course, there's an incredibly strong correlation between the number of sellers who are on the neighborhoods platform and then the number of buyers who are engaging via cash app. On the product side, a few additional things that we're focused on as well. We are testing a motion that's aimed at increasing density. So this is a combination of auto-enrollment plus also kind of dedicated outreach and in-person time from our account management team, which has been really successful with more upmarket, multi-location, complex sellers. also it's been interesting just just kind of understanding how critical it is for the the employees at a given square seller to get bought in and fully educated on the on the program and so we've started experimenting with various incentive programs to kind of get to a world where you know everyone who's working at a square seller where neighborhoods is turned on becomes an advocate of the neighborhoods program and ultimately using using cash app We're also going to close out the work where we're making neighborhoods work for every hardware product. And we'll be launching a tab at the top level in Cash App that shows on kind of a map view geographic basis all of the merchants that you can follow and order ahead and engage with. So feeling really, really excited about neighborhoods to me. My honest reflection is it feels like the early days of peer-to-peer, where we have this proprietary onboarding funnel. We're seeing the numbers starting to inflect in a meaningful way. It's pretty clear that this is going to reach massive scale. And then ahead of us, we have a huge opportunity to drive deeper engagement and deeper monetization.

Our next question comes from the line of James Friedman from Susquehanna.

Thank you, Katie. Thomas, another hardware-related question. We'd love to hear how Cash App Tags, Cash Tags is doing. For example, does it lead to increased engagement or changes in ticket size? What sort of cohorts are embracing it? Any perspective on Cash Tags would be helpful. Thank you.

Yeah, thanks for the question. We're super excited about Tags. We believe we created the next new viral hardware product. typically and you know when you're developing any product you're excited in the development process but when I first got a prototype of the wand and I took it to a seller for the first time and just seeing the reactions you know the reaction of the cashier the people in line the cashier actually pulled over another cashier to show it to them it was pretty clear we're on to something it reminds me and a lot of ways of early square days where the first time you swiped your card on a phone and signed your name with your finger and got an email receipt is pretty magical and this feels in a lot of ways very similar. Now I'll get into some of the details of your question, but first I wanted to level set a little bit on why and how we're doing tags. as Owen mentioned Cash App Card launched 10 years ago and when we launched it we took a pretty different approach and that was around customization you know we offer lots of different colors lots of different materials you know we have a glow-in-the-dark card we have a tortoise card and then and customers can personalize they can write on it then we have stamps and it can really make these one of one and our customers love it especially younger audiences one in five teens have a Cash App Card today But the biggest problem with the card form factor, and then I see this, you know, when I take my Cash App card out and I have a Tortoise card, people comment on it, they ask me where I got it all the time. But the problem is, is cards are stuck buried in your wallet 99% of the time. And so what we wanted to do was we wanted to take the best parts of our Cash App card and just take it to the next level. And so what we did is we developed TAGS. And TAGS, it's a module that has an NFC chip, an antenna, and some other things, but it's fully sealed, waterproof. You can put it through the washer and dryer hundreds of times. It has no battery. And the great thing is with this module, you can put it into pretty much anything. And once you put it into something, that thing turns immediately into a Cash App payment device. So we're pretty excited about that. Earlier this summer, we launched three form factors. We launched our wand, mini card and our heart and the reception exceeded expectations. We sold out much quicker than we thought. The second one drop sold out in just over 30 minutes. And the really exciting thing is we did this all with zero marketing. This was all viral. And today we have over 3 million people who have asked to be notified for the next drop. So what's next? So right now, we're ramping production of those three models that we just announced. And in the coming weeks, we're going to make that more generally available. And then later this year and early next year, we have lots of new tags coming, some fun new colorways of the existing SKUs, but also some different form factors. We're going to be making more key change with some other pretty interesting form factors and materials we're playing with that I'm really, really excited about. But not just first party products. One of the things we're also doing is working on collabs and partnerships. And what's exciting about the partnership space is that allows us to reach other demographics that already have a relationship with a given brand. Right. And to your point, like we can expand demographics through partnerships really well. So, again, I'm really, really excited about the reception so far of tags. And I just say, like, if you don't have one yet, I recommend getting a wand. and when you I mean you need to see it and feel it to really understand and when you pay for it for the first time you see others reactions and I think you'll get what we're on to.

I would just I would just add on top of this and broaden it a little bit like I think tags is obviously an incredible and super innovative product and we were able to get it to market like incredibly quickly especially for a for a hardware product but I think That motion is just reflective of how development at Block has changed, especially over the past six to 12 months. I think that the flow through from AI tools is just making it so that we can ship higher quality features and products to our customers at a higher clip. Those things used to conceptually be at odds with each other, and it's just not the case anymore, given how the AI tools are flowing through. At this point at Block, AI is involved in basically every single production code change or production code review. Code changes per engineer is up 150% since the start of the year. Square, just for reference, we shipped 130 features in the first half of 2026. That's up more than 3x relative to the first half of 2025. and I think all of that is because of the foundation and the investment in AI tools over the past three years, whether it's Goose or contributing to the MCP or it's Buzz or it's everything else that we've built internally. And so now I think that you're really seeing that start to flow through in terms of of shipping things to customers. Tags is a great example, as Thomas went through. I think the acceleration in neighborhoods is a great example. Square credit card just reached over a billion dollars in annualized spend. You know, ManagerBot and MoneyBot are GA'd. Afterpay on the Cash App card is GA'd. Stablecoins on Cash App are GA'd. The list goes on. So I think just fundamentally that thesis and narrative around high quality, high velocity that we've been talking about for the past two to four quarters, we're seeing it come to life in Q2.

Our next question comes from the line of Nick Cremo from Barclays.

Hey, thanks for taking my question. I wanted to ask on Block's AI cost strategy with your model agnostic approach, as you lean deeper into AI as an organization, given token costs are becoming an important topic. And separately, it would be helpful to hear how you're thinking about AI monetization over the near to medium term with ManagerBot and MoneyBot. Thank you.

Hey, Nick, thanks for the question. Maybe I'll start off on the cost strategy. And Owen, you can chime in on manager bot, money bot monetization. First, I'd say, look, we see the headlines. It's obviously a major one. And we think around costs for AI. And we think relative to the industry, we feel we're pretty well positioned here for a couple of the reasons, including one that you noted around the model agnostic builds for Goose. I'd say more broadly, our budgets obviously are going up, but we're focused on a strategy that ensures returns from those budgets. And I think what you just heard from Owen on product velocity is that we are seeing tremendous speed and quality. come through in terms of development capabilities using these tools and even back of house in terms of how we run the company and our workflows now from an intelligence perspective. But the strategy from a cost perspective for us starts with intelligently routing our workloads, you know, being efficient in how we think about compute and leveraging multiple models, including open source models where appropriate. and then obviously the technology is continuously advancing so we evolve our strategy you know as we see those advancements as rapidly as week to week or month to month. We don't think the right answer is to constrain developer velocity or productivity using these tools. We think the answer as I noted is really just to be thoughtful and intentional about how we deploy the tools. And we know that there's, you know, it's an evolving, you know, paradigm and it's one where we feel we've built a strong foundation and have identified a number of ways to improve efficiency over time, but there's more work to do for us and for many others. Maybe I'll just quickly note, I think the two core capabilities that we're building that are truly differentiated here, especially as we think about the efficiency returns and cost component of our AI approach. So first, as you noted, Nick, you know, Goose is model agnostic, and we think this is a component that we foresaw, you know, some years ago that's really important. It means that we're not locked into a single provider's capabilities or pricing structure. And that's true for anyone, obviously, who would use Goose. You know, we are seeing sometimes the leading open source models are better today than what existed six months ago. And therefore, we have the ability to leverage, you know, whatever is the frontier model from an intelligence or cost perspective, based on what we've built. You don't need the most leading edge model now for the vast majority of knowledge work. and so we can then route based on what we're seeing as the advancements play out. Then secondarily, what I'd say is that from an engineering perspective, we've built an internal evaluation system that is scoring each model on a number of metrics from quality to cost based on our real production data. And so that means that we're continuously evaluating on a task level basis all of the new models as they're released and as pricing evolves. And of course, we're all seeing extremely powerful models now become lower priced, which then gives us the opportunity to build the right efficiency approach into each of our workflows where we can see a lot of our work get done with older models, which are increasingly powerful.

Turn it to you, Owen.

Yeah, happy to touch on monetization for our AI products. I think it's pretty clear that we have an opportunity to monetize ManagerBot, MoneyBot, and Buzz. I think Jack talked about on the Buzz side and how we've had conversations with sellers and businesses of all sizes from the small businesses that use Square all the way up to some of the biggest companies I think on the ManagerBot side in particular, it's a pretty interesting opportunity for us. We've been testing an updated version of ManagerBot that's capable of some of the most complex and also some of the most time-consuming tasks that our sellers are faced with. I've talked to a number of them and there's a really, really clear willingness to I think that this could take a bunch of different shapes over time. You could think about building ManagerBot into one of our SaaS tiers. You could think about charging directly for ManagerBot. You could think about more usage-based pricing, especially for enterprise sellers who are more used to that sort of model. Right now we're focused on the quality of ManagerBot, we're focused on distribution, and we're focused on making it as useful as possible as a partner for these businesses. I think the one other thing that I would add is that I wouldn't just think about the first order monetization for something like ManagerBot. I think fundamentally when sellers win, we win. It's good for them, it's good for Block, it's good for the economy, frankly. And so if we can help a seller make 10% better decisions or increase the chances that they don't go out of business by 10%, that's a win-win. And obviously from a business perspective, that ends up flowing through same store growth, retention, and ultimately GPV overall.

We'll take our final question that was submitted via X. So this one is for you, Jack. Blog's mission is centered around increasing access to the economy. How are you balancing investment and deepening that core mission with newer AI initiatives like Buzz?

I think the only way we've been able to really serve more of the economy and increasing access is through the technologies behind what you know of as AI today. We started the company with a pretty rich machine learning and deep learning discipline because we needed to understand and model risk. and that went on to us using the same tools for lending and these technologies have always been a pretty deep part of our DNA and something that we have benefited from At a company level, but also as we pass this on to our customers, I think Buzz takes it to a different level. I've been talking with a lot of sellers recently, and one of the things that is common amongst all of them is that they all talk to their staff. They're all frustrated with the tools that they have. They're all interested in building. They are using AI tools today and they're looking for something that's just built in, batteries included, and they can use right away to build up their business, grow their sales, help manage their employees, help manage the operations. and that's a perfect place for Buzz to fit in but we think there's so much more and a lot of what building comes down to is really building for the economy and I think that hits our purpose directly and I believe we're going to be on the frontier of this and we're super excited about what people are doing with it already.

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