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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
______________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  ________ to ________
Commission File Number: 001-37622
______________________
Block, Inc.
(Exact name of registrant as specified in its charter)
______________________
Delaware80-0429876
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)

Address Not Applicable1
(Address of principal executive offices, including zip code)
(415375-3176
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0000001 par value per shareSQNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer     Accelerated filer     Non-accelerated filer   Smaller reporting company   Emerging growth company





1 We do not designate a headquarters location as we have adopted a distributed work model.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 29, 2022, the number of shares of the registrant’s Class A common stock outstanding was 518,807,380 and the number of shares of the registrant’s Class B common stock outstanding was 61,696,578.




TABLE OF CONTENTS
 

Page No.




SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “appears,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our future financial performance, the impact of the COVID-19 pandemic and related public health measures on our business, customers, and employees, our expectations regarding transaction and loan losses, the adequacy of our allowance for loan losses on loans held for investment, or increased delinquencies, and the impact of inaccurate estimates or inadequate reserves, our potential exposure as a participant in the Paycheck Protection Program ("PPP"), our anticipated growth and growth strategies and our ability to effectively manage that growth, our ability to invest in and develop our products and services to operate with changing technology, the expected benefits of our products to our customers and the impact of our products on our business, and our expectations regarding Gross Payment Volume ("GPV", as defined below in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations), and revenue, including our expectations regarding the Cash App and Square ecosystems, our expectations regarding product launches, the expected impact of our recent acquisitions, including the integration of Afterpay Limited ("Afterpay") with our business and its benefits to the Square and Cash App ecosystems, our plans with respect to patents and other intellectual property, our expectations regarding litigation and regulatory matters and the adequacy of reserves for such matters, our expectations regarding share-based compensation, our expectations regarding the impacts of accounting guidance and the timing of our compliance therewith, our expectations regarding restricted cash, and the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements.
We have based the forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

    All forward-looking statements are based on information and estimates available to the Company at the time of this Quarterly Report on Form 10-Q and are not guarantees of future performance. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.




Part I—Financial Information
Item 1. Financial Statements
BLOCK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
  March 31, 2022December 31, 2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$3,993,565 $4,443,669 
Investments in short-term debt securities796,749 869,283 
Settlements receivable1,341,852 1,171,612 
Customer funds3,190,905 2,830,995 
Consumer receivables, net1,304,300  
Loans held for sale357,115 517,940 
Other current assets876,198 687,429 
Total current assets11,860,684 10,520,928 
Property and equipment, net302,247 282,140 
Goodwill12,428,930 519,276 
Acquired intangible assets, net2,275,199 257,049 
Investments in long-term debt securities1,333,139 1,526,430 
Operating lease right-of-use assets455,914 449,406 
Other non-current assets471,354 370,535 
Total assets$29,127,467 $13,925,764 
Liabilities and Stockholders’ Equity
Current liabilities:
Customers payable$4,634,657 $3,979,624 
Settlements payable264,971 254,611 
Accrued expenses and other current liabilities934,364 639,309 
Operating lease liabilities, current71,393 64,027 
PPP Liquidity Facility advances124,636 497,533 
Total current liabilities6,030,021 5,435,104 
Deferred tax liabilities238,683 15,236 
Warehouse funding facilities208,141  
Long-term debt4,561,911 4,559,208 
Operating lease liabilities, non-current395,602 395,017 
Other non-current liabilities242,717 207,610 
Total liabilities11,677,075 10,612,175 
Commitments and contingencies (Note 19)
Stockholders’ equity:
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at March 31, 2022 and December 31, 2021. None issued and outstanding at March 31, 2022 and December 31, 2021.
  
Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at March 31, 2022 and December 31, 2021; 517,799,568 and 403,237,209 issued and outstanding at March 31, 2022 and December 31, 2021, respectively.
  
Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at March 31, 2022 and December 31, 2021; 61,696,578 and 61,706,578 issued and outstanding at March 31, 2022 and December 31, 2021, respectively.
  
Additional paid-in capital17,426,629 3,317,255 
Accumulated other comprehensive income (loss)218,357 (16,435)
Accumulated deficit(232,164)(27,965)
Total stockholders’ equity attributable to common stockholders17,412,822 3,272,855 
Noncontrolling interests37,570 40,734 
Total stockholders’ equity17,450,392 3,313,589 
Total liabilities and stockholders’ equity$29,127,467 $13,925,764 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


BLOCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
20222021
Revenue:
Transaction-based revenue$1,232,969 $959,733 
Subscription and services-based revenue959,557 557,681 
Hardware revenue37,326 28,788 
Bitcoin revenue1,730,793 3,511,068 
Total net revenue3,960,645 5,057,270 
Cost of revenue:
Transaction-based costs718,700 526,779 
Subscription and services-based costs195,862 90,373 
Hardware costs63,664 40,482 
Bitcoin costs1,687,459 3,436,135 
Total cost of revenue2,665,685 4,093,769 
Gross profit1,294,960 963,501 
Operating expenses:
Product development484,761 310,141 
Sales and marketing501,562 349,460 
General and administrative444,276 195,909 
Transaction, loan, and consumer receivable losses91,150 20,395 
Bitcoin impairment losses 19,860 
Total operating expenses1,521,749 895,765 
Operating income (loss)(226,789)67,736 
Interest expense, net15,748 253 
Other expense (income), net(33,472)27,528 
Income (loss) before income tax(209,065)39,955 
Provision (benefit) for income taxes(1,702)947 
Net income (loss)(207,363)39,008 
Less: Net loss attributable to noncontrolling interests(3,164) 
Net income (loss) attributable to common stockholders$(204,199)$39,008 
Net income (loss) per share attributable to common stockholders:
Basic$(0.38)$0.09 
Diluted$(0.38)$0.08 
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic541,435 454,973 
Diluted541,435 501,353 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


BLOCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months Ended
March 31,
20222021
Net income (loss)$(207,363)$39,008 
Net foreign currency translation adjustments264,746 (10,595)
Net unrealized loss on marketable debt securities(29,954)(2,534)
Total comprehensive income$27,429 $25,879 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6


BLOCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
20222021
Cash flows from operating activities:
Net income (loss)$(207,363)$39,008 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization70,056 29,201 
Non-cash interest and other(64,351)5,207 
Non-cash lease expense22,696 20,432 
Share-based compensation275,423 118,623 
Loss (gain) on revaluation of equity investments(49,741)28,900 
Transaction, loan, and consumer receivable losses91,150 20,395 
Bitcoin impairment losses 19,860 
Change in deferred income taxes(7,653)(60)
Changes in operating assets and liabilities:
Settlements receivable(220,361)(114,458)
Purchases and originations of loans(951,665)(812,492)
Proceeds from payments and forgiveness of loans1,112,266 531,716 
Customers payable136,474 80,310 
Settlements payable10,360 24,564 
Other assets and liabilities12,132 (20,399)
Net cash provided by (used in) operating activities229,423 (29,193)
Cash flows from investing activities:
Purchase of marketable debt securities(209,981)(401,161)
Proceeds from maturities of marketable debt securities262,559 139,353 
Proceeds from sale of marketable debt securities178,352 249,342 
Purchase of marketable debt securities from customer funds (119,411)
Proceeds from maturities of marketable debt securities from customer funds73,000 187,500 
Proceeds from sale of marketable debt securities from customer funds316,576  
Originations of consumer receivables(1,946,468) 
Principal repayments of consumer receivables1,943,554  
Purchase of property and equipment(41,187)(34,149)
Purchase of bitcoin investments (170,000)
Purchase of other investments(16,495)(28,470)
Proceeds from sale of equity investments 18,973 
Net cash acquired through business combination570,703  
Net cash provided by (used in) investing activities1,130,613 (158,023)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


BLOCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands)

Three Months Ended
March 31,
20222021
Cash flows from financing activities:
Proceeds from PPP Liquidity Facility advances 494,300 
Repayments of PPP Liquidity Facility advances(372,897)(194,186)
Payments to redeem convertible notes(1,071,788) 
Proceeds from warehouse facilities borrowings183,440  
Repayments of warehouse facilities borrowings(90,491) 
Proceeds from the exercise of stock options and purchases under the employee stock purchase plan4,093 32,891 
Payments for tax withholding related to vesting of restricted stock units(2,456)(152,013)
Net increase in non-interest bearing deposits21,633  
Change in customer funds, restricted from use in the Company's operations359,910 938,596 
Net cash provided by (used in) financing activities(968,556)1,119,588 
Effect of foreign exchange rate on cash and cash equivalents(948)(8,206)
Net increase in cash, cash equivalents, restricted cash, and customer funds390,532 924,166 
Cash, cash equivalents, restricted cash, and customer funds, beginning of period6,975,090 4,793,171 
Cash, cash equivalents, restricted cash, and customer funds, end of period$7,365,622 $5,717,337 
Reconciliation of cash, cash equivalents, restricted cash, and customer funds:
Cash and cash equivalents$3,993,565 $3,022,485 
Short-term restricted cash109,450 32,891 
Long-term restricted cash71,702 63,509 
Customer funds cash and cash equivalents3,190,905 2,598,452 
Total$7,365,622 $5,717,337 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8


BLOCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except for number of shares)
Class A and B common stockAdditional paid-inAccumulated other comprehensiveAccumulatedNoncontrollingTotal stockholders’
SharesAmountcapitalincome (loss)deficitinterestsequity
Balance at December 31, 2021464,943,787 $ $3,317,255 $(16,435)$(27,965)$40,734 $3,313,589 
Net loss— — — — (204,199)(3,164)(207,363)
Shares issued in connection with employee stock plans2,119,899 — 4,093 — — — 4,093 
Change in other comprehensive income— — — 234,792 — — 234,792 
Share-based compensation— — 279,354 — — — 279,354 
Tax withholding related to vesting of restricted stock units(16,003)— (2,456)— — — (2,456)
Issuance of common stock in connection with business combination113,617,352 — 13,827,929 — — — 13,827,929 
Issuance of common stock in conjunction with the conversion of convertible notes19,865 — 454 — — — 454 
Exercise of bond hedges in conjunction with the conversion of convertible notes(1,188,754)— — — — — — 
Balance at March 31, 2022579,496,146 $ $17,426,629 $218,357 $(232,164)$37,570 $17,450,392 

Class A and B common stockAdditional paid-inAccumulated other comprehensiveAccumulatedNoncontrollingTotal stockholders’
SharesAmountcapitalincomedeficitinterestsequity
Balance at December 31, 2020456,184,776 $ $2,955,464 $23,328 $(297,223)$ $2,681,569 
Cumulative adjustment due to adoption of ASU 2020-06— — (502,708)— 102,974 — (399,734)
Net income— — — — 39,008 — 39,008 
Shares issued in connection with employee stock plans4,311,094 — 32,891 — — — 32,891 
Change in other comprehensive loss— — — (13,129)— — (13,129)
Share-based compensation— — 121,965 — — — 121,965 
Tax withholding related to vesting of restricted stock units(669,076)— (152,013)— — — (152,013)
Issuance of common stock in connection with business combination166,967 — 3,816 — — — 3,816 
Exercise of bond hedges in conjunction with the conversion of convertible notes(5,325,320)— — — — — 
Balance at March 31, 2021454,668,441 $ $2,459,415 $10,199 $(155,241)$ $2,314,373 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9

BLOCK, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
    
Block, Inc. (together with its subsidiaries, "Block" or the "Company") creates tools that empower businesses, sellers, and individuals to participate in the economy. Block is comprised of two operating and reportable segments, Square and Cash App. Square enables sellers to accept card payments and also provides reporting and analytics, and next-day settlement. Square’s point-of-sale software and other business services help sellers manage inventory, locations, and employees; access financing; engage buyers; build a website or online store; and grow sales. Cash App provides an ecosystem of financial products and services to help individuals manage their money by providing financial services that allow individuals to store, send, receive, spend, and invest their money. Cash App’s goal is to redefine the world’s relationship with money by making it more relatable, instantly available, and universally accessible.

On January 31, 2022, the Company completed the acquisition of Afterpay Limited (“Afterpay”), to strengthen its position to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes. See Note 9, Acquisitions for further details.

Block was founded in 2009 and has offices in the United States, Canada, Japan, Australia, New Zealand, Ireland, the United Kingdom, Spain, Lithuania, China, Italy, and Norway. The Company does not designate a headquarters location after it adopted a distributed work model in 2021.

Basis of Presentation
    
The accompanying interim condensed consolidated financial statements of the Company are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2021 condensed consolidated balance sheet was derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company's consolidated financial position, results of operations, comprehensive income, and cash flows for the interim periods. The condensed consolidated financial statements include the financial statements of Block and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Minority interests are recorded as a noncontrolling interest, which is reported as a component of stockholders' equity on the condensed consolidated balance sheets. The interim results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or for any other future annual or interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and related notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be materially affected. The Company bases its estimates on current and past experience, to the extent that historical experience is predictive of future performance and other assumptions that the Company believes are reasonable under the circumstances. The Company evaluates these estimates on an ongoing basis.

Estimates, judgments, and assumptions in these condensed consolidated financial statements include, but are not limited to, those related to accrued transaction losses, contingencies, valuation of loans held for sale, valuation of goodwill
10


and acquired intangible assets, the determination of allowance for loan loss reserves for loans held for investment, determination of allowance for credit losses for consumer receivables, pre-acquisition contingencies associated with business combinations, allocation of acquired goodwill to segments, assessing the likelihood of adverse outcomes from claims and disputes, accrued royalties, income and other taxes, operating and financing lease right-of-use assets and related liabilities, and share-based compensation.

The Company's estimates of accrued transaction losses, valuation of loans held for sale, and allowance for credit losses associated with consumer receivables are based on historical experience, adjusted for market data relevant to the current economic environment. The Company will continue to update its estimates as developments occur and additional information is obtained. Refer to Note 6, Consumer Receivables, net for further details on consumer receivables, Note 5, Fair Value of Financial Instruments for further details on amortized cost over fair value of the loans, and Note 12, Other Consolidated Balance Sheet Components (Current) for further details on transaction losses.
Adjustment to Statement of Cash Flows

Beginning in the fourth quarter of 2021, the Company adjusted its consolidated statement of cash flows to include changes in customer funds and cash and cash equivalents associated with customers payable as financing activities. Previously, the changes in customer funds and customers payable were presented within operating activities in the Company's consolidated statements of cash flows. The adjustment results in the portion of customer funds that is held in cash and cash equivalents, restricted cash, and customer funds to be included in the beginning and ending period totals of cash, cash equivalents, restricted cash, and customer funds. The Company holds customer funds separate from its corporate funds and does not use customer funds for any corporate purposes.

The condensed consolidated statements of cash flows for the three months ended March 31, 2021 has been revised to reflect this adjustment to the presentation. These changes have been concluded to be immaterial to the consolidated financial statements and have no impact on previously reported condensed consolidated statements of operations and balance sheets. The adjusted presentation shows all changes associated with customer funds in the condensed consolidated statements of cash flows instead of in the notes to the condensed consolidated financial statements.

The following table presents the effects of the changes on the presentation of these cash flows to the previously reported condensed consolidated statements of cash flows (in thousands):

Three Months Ended March 31, 2021
Net cash provided by (used in):
As Previously Reported (i)
AdjustmentsAs Adjusted
Operating activities (ii)
$(97,741)$68,548 $(29,193)
Investing activities(158,023) (158,023)
Financing activities (iii)
180,992 938,596 1,119,588 
Effect of foreign exchange rate on cash and cash equivalents(8,206) (8,206)
Net increase (decrease) in cash, cash equivalents, restricted cash, and customer funds(82,978)1,007,144 924,166 
Cash, cash equivalents, restricted cash, and customer funds, beginning of the period3,201,863 1,591,308 4,793,171 
Cash, cash equivalents, restricted cash, and customer funds, end of period$3,118,885 $2,598,452 $5,717,337 
_______________
(i)
As reported in our 2021 Form 10-Q filed with the SEC on May 6, 2021.
(ii)
Financial statement lines impacted in operating activities were Customer funds and Customers payable.
(iii)
Financial statement line impacted in financing activities was the addition of a new line called Change in customer funds, restricted from use in the Company's operations.

11


Concentration of Credit Risk
    
For the three months ended March 31, 2022 and March 31, 2021, the Company had no customer that accounted for greater than 10% of total net revenue.

The Company had two third-party payment processors that represented approximately 48% and 34% of settlements receivable as of March 31, 2022. As of December 31, 2021, there were two parties that represented approximately 52% and 30% of settlements receivable. All other third-party processors were insignificant.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable debt securities, settlements receivable, customer funds, consumer receivables, loans held for sale, and loans held for investment. The associated risk of concentration for cash and cash equivalents and restricted cash is mitigated by banking with creditworthy institutions. At certain times, amounts on deposit exceed federal deposit insurance limits. The associated risk of concentration for marketable debt securities is mitigated by holding a diversified portfolio of highly rated investments. Settlements receivable are amounts due from well-established payment processing companies and normally take one or two business days to settle which mitigates the associated risk of concentration. The associated risk of concentration for loans and consumer receivables is partially mitigated by credit evaluations that are performed prior to facilitating the offering of loans and receivables and ongoing performance monitoring of the Company’s loan customers. The risk associated with the Paycheck Protection Program ("PPP") loans is considered low due to government guarantees on those loans.

Sales and Marketing Expenses

Advertising costs are expensed as incurred and included in sales and marketing expenses in the condensed consolidated statements of operations. Total advertising costs were $156.3 million for the three months ended March 31, 2022, compared to $85.9 million for the three months ended March 31, 2021.

In addition, services, incentives, and other costs to customers that are not directly related to a revenue generating transaction are recorded as sales and marketing expenses, as the Company considers these to be marketing costs to encourage the usage of Cash App. These expenses include, but are not limited to, Cash App peer-to-peer processing costs and related transaction losses, card issuance costs, customer referral bonuses, and promotional giveaways, and were $202.3 million for the three months ended March 31, 2022, compared to $183.6 million for the three months ended March 31, 2021.
Significant Accounting Policies
Following the acquisition of Afterpay, the Company adopted the following significant accounting policies, in addition to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Afterpay Revenue

Through Afterpay's buy now pay later ("BNPL") platform, the Company enables consumers the ability to pay for purchases by splitting their payments into four installments over six weeks. The Company generally pays the seller the net amount of the consumer order value less a merchant fee, which consists of fixed and variable rates as contracted with the sellers. The Company also incurs other costs such as fees paid to third-party partners and processing fees to complete the consumer purchase transaction. The Company generally assumes non-repayment risk from the consumers. The Company initially recognizes a consumer receivable equal to net amounts paid to the seller plus any costs incurred to originate the consumer receivable. The Company recognizes the merchant fee less costs incurred to originate the consumer receivables as revenue using the effective interest method and is included within subscriptions and services-based revenue in the condensed consolidated statement of operations. The effective interest rate is determined based on estimated future cash receipts over the expected life of the consumer receivable, having consideration for the historical repayment pattern of the consumer receivables on a portfolio basis. The Company does not charge interest or fees to the consumers, other than late fees which are used by the Company as an incentive to encourage consumers to pay their outstanding balances as and when they fall due. Late fees are recognized and included within subscriptions and services-based revenue in the condensed consolidated statement of operations when chargeable to consumers and collectibility is reasonably assured based on, among other factors, consumer behavior and historical recovery experience.

12


Consumer Receivables

The Company classifies consumer receivables as held for investment as the Company has the intent and ability to hold these investments for the foreseeable future or until maturity or payoff. These consumer receivables are reported at amortized cost, which includes the cost to originate the consumer receivables, adjusted for unearned merchant fees, origination costs, charge-offs, and the allowance for credit losses. Refer to Note 6, Consumer Receivables, net for more information.

Allowance for Credit Losses

The Company calculates an allowance for credit losses on the consumer receivables portfolio in accordance with ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance requires an entity to assess impairment of its financial instruments based on the entity's current estimates of expected credit losses over the contractual term of its loans held for investment portfolio as of each balance sheet date.

Allowance for credit losses relating to consumer receivables represents management’s best estimate of the expected credit losses in the outstanding portfolio of consumer receivables, as of the balance sheet date. The Company determines the allowance for credit losses using both quantitative and qualitative methods that analyze portfolio performance, uses judgment regarding the quantitative components of the reserve, and considers all available information relevant to assessing collectibility. This includes but is not limited to historical loss and recovery experience, recent and historical trends in delinquencies, past-due receivables and charge-offs, consumer behavior and repayment speed, underwriting and collection management changes, changes in the legal and regulatory environment, changes in risk and underwriting standards, current and historical macroeconomic conditions such as changes in unemployment and GDP, and various other factors that may affect the consumers’ ability to make future payments. When available information confirms that specific consumer receivables or portions thereof are uncollectible, identified amounts are charged against the allowance for credit losses. Consumer receivables are charged off when management considers amounts to be uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due.

13


Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

    In July 2021, the FASB issued ASU No. 2021-05,
Lease (Topic 842): Lessors—Certain Leases with Variable Lease Payments ("ASU 2021-05"), which amends the lease classification requirements for lessors with certain leases containing variable payments. A lessor should classify and account for a lease with variable lease payments that do not depend on an index or a rate as an operating lease if both of the following criteria are met: 1) the lease would have been classified as a sales-type lease or a direct financing lease; and 2) the lessor would have otherwise recognized a day-one loss. The amendments in ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and has applied the guidance prospectively. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

    In May 2021, the FASB issued ASU No. 2021-04,
Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”), which provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic. An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument, and provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASU 2021-04 also provides guidance on the recognition of the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. The amendments are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this guidance effective January 1, 2022, and has applied the guidance prospectively. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

    In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method ("ASU 2022-01") related to the portfolio layer method of hedge accounting. The amendments allow nonprepayable financial assets to be included in a closed portfolio hedge using the portfolio layer method. ASU 2022-01 also allows for multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect the adoption to have a material impact on the Company's financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) related to troubled debt restructuring and vintage disclosures for financing receivables. The amendments eliminate recognition and measurement guidance for troubled debt restructurings for creditors and requires entities to evaluate if the modification represents a new loan or a continuation of the existing loan. ASU 2022-02 also enhances disclosure requirements for certain loan refinancing and restructurings made to borrowers experiencing financial difficulty and requires disclosure of current period write-offs by year of origination for financing receivables. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not expect the adoption to have a material impact on the Company’s financial statements.

In March 2022, the SEC staff released Staff Accounting Bulletin No. 121 ("SAB 121"), which expressed the views of the SEC staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for users of its crypto platform. This guidance requires entities that hold crypto-assets on behalf of platform users to recognize liability to reflect the entity’s obligation to safeguard the crypto-assets held for its platform users. The liability should be measured at initial recognition and each reporting date at the fair value of the crypto-assets that the entity is responsible for holding for its platform users. The entity should also recognize an asset at the same time that it recognizes the safeguarding liability, measured at initial recognition and each reporting date at the fair value of the crypto-assets held for its platform users. The entity should also describe the asset and the corresponding liability in the footnotes to the financial statements and consider
14


including information regarding who (e.g. the company, its agent, or another third party) holds the cryptographic key information, maintains the internal recordkeeping of those assets, and is obligated to secure the assets and protect them from loss or theft. This guidance is effective from the first interim period after June 15, 2022 and should be applied retrospectively. The adoption of this guidance will result in the Company recognizing an asset and liability related to the bitcoin held by the Company on behalf of the Company’s customers. The adoption of this guidance will have no impact to the Company's condensed consolidated statements of operations and condensed consolidated statements of cash flows. If the Company had adopted this standard, the Company's assets and liabilities would have increased by $1.1 billion as of March 31, 2022 and December 31, 2021.

NOTE 2 - REVENUE

The following table presents the Company's revenue disaggregated by revenue source (in thousands):
Three Months Ended
March 31,
20222021
Revenue from contracts with customers:
Transaction-based revenue$1,232,969 $959,733 
Subscription and services-based revenue724,745 525,065 
Hardware revenue37,326 28,788 
Bitcoin revenue1,730,793 3,511,068 
Revenue from other sources:
Subscription and services-based revenue (i)
234,812 32,616 
Total net revenue$3,960,645 $5,057,270 

(i) 2022 amount includes Afterpay revenue.
15


NOTE 3 - INVESTMENTS IN DEBT SECURITIES

The Company's short-term and long-term investments as of March 31, 2022 are as follows (in thousands):
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term debt securities:
U.S. agency securities$27,774 $ $(117)$27,657 
Corporate bonds301,285 22 (1,637)299,670 
Commercial paper13,763   13,763 
Municipal securities4,074  (39)4,035 
Certificates of deposit8,495   8,495 
U.S. government securities425,679 3 (2,589)423,093 
Foreign government securities20,187 3 (154)20,036 
Total$801,257 $28 $(4,536)$796,749 
Long-term debt securities:
U.S. agency securities$148,553 $8 $(4,463)$144,098 
Corporate bonds581,770 10 (14,881)566,899 
Municipal securities19,124  (606)18,518 
U.S. government securities606,465 106 (15,700)590,871 
Foreign government securities13,013  (260)12,753 
Total$1,368,925 $124 $(35,910)$1,333,139 

The Company's short-term and long-term investments as of December 31, 2021 are as follows (in thousands):
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term debt securities:
U.S. agency securities$73,986 $150 $(8)$74,128 
Corporate bonds293,460 128 (269)293,319 
Commercial paper36,088   36,088 
Municipal securities5,543 5  5,548 
Certificates of deposit9,200   9,200 
U.S. government securities430,992 106 (255)430,843 
Foreign government securities20,256 19 (118)20,157 
Total$869,525 $408 $(650)$869,283 
Long-term debt securities:
U.S. agency securities$154,454 $26 $(1,160)$153,320 
Corporate bonds667,699 80 (4,572)663,207 
Municipal securities22,541 2 (126)22,417 
U.S. government securities678,553 3