Block, Inc. (XYZ)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with the information set forth within the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K. The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, our plans, estimates, beliefs and expectations that involve risks and uncertainties, and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

We launched the Square ecosystem in February 2009 to enable businesses ("sellers") to accept card payments, a critical capability that had previously been inaccessible to many businesses. We have since expanded to provide sellers additional products and services and to give them access to a cohesive ecosystem of tools to help them start, run, and grow their businesses. Similarly, with Cash App, we have built an ecosystem of financial products and services to help consumers manage their money. Cash App now provides an ecosystem of commerce solutions, financial solutions, and bitcoin capabilities focused on helping consumers make their money go further by enabling customers to store, send, receive, spend, invest, BNPL, borrow, or save their money. In addition, our nascent ecosystems include TIDAL as well as Bitcoin, which includes businesses such as Proto and Bitkey.

In the second quarter of 2026, we generated gross profit of $3.2 billion, up 25% year over year. Cash App generated gross profit of $2.0 billion in the second quarter of 2026, up 31% year over year, driven by growth in Cash App Borrow and Cash App Card. Square generated gross profit of $1.2 billion in the second quarter of 2026, up 13% year over year, driven primarily by Square processing, Square software, and Square Loans.

In the second quarter of 2026, operating income was $446.9 million and Adjusted Operating Income was $863.8 million, compared to operating income of $484.3 million and Adjusted Operating Income of $549.6 million in the second quarter of 2025. Net income attributable to common stockholders was $88.5 million for the second quarter of 2026, compared to net income attributable to common stockholders of $538.5 million for the same period in 2025, and Adjusted EBITDA was $1.2 billion for the second quarter of 2026, compared to $891.4 million for the same period in 2025. Net income for the second quarter of 2026 and 2025 included a loss of $88.5 million and gain of $212.2 million, respectively, from the remeasurement of our bitcoin investment.

Refer to the Key Operating Metrics and Non-GAAP Financial Measures section below for reconciliations of non-GAAP financial measures to their nearest generally accepted accounting principles ("GAAP") equivalents.

In February 2026, we announced a workforce reduction restructuring plan (the “Workforce Plan”) designed to better align our organizational structure with our operating model and strategic priorities. As part of the Workforce Plan, we reduced our workforce by more than 40%. Restructuring charges in connection with the Workforce Plan for the six months ended June 30, 2026 were $495.0 million, which primarily consisted of cash expenditures for notice period and severance payments, employee benefits and related costs, as well as share-based compensation expense. Restructuring charges for the three months ended June 30, 2026 were immaterial. The Workforce Plan concluded during the second quarter of fiscal 2026, and we do not expect to incur any additional material charges related to the Workforce Plan. We have begun realizing benefits related to our focus on disciplined growth and cost efficiencies, and we expect to continue to benefit from these actions in future periods. We plan to continue to operate at this smaller size and are continuing to look at ways to improve our efficiency through a combination of AI automation, prioritization of our scope, performance management, and centralization of teams and functions to reduce duplication.

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The following table presents a summary of severance and other personnel costs related to the Workforce Plan for the six months ended June 30, 2026 (in thousands):

We expect annualized net cost savings associated with the Workforce Plan of approximately $800 million to $900 million, related to employee compensation, a portion of which we expect to strategically reinvest in the Company. We began to realize these cost savings during the second quarter of fiscal 2026 following the conclusion of the Workforce Plan. Refer to Note 19, Restructuring, within Notes to the Condensed Consolidated Financial Statements for further details regarding charges related to the Workforce Plan.

We ended the second quarter of 2026 with $8.8 billion in available liquidity, with $7.9 billion in cash, cash equivalents, restricted cash, and investments in marketable debt securities, as well as an undrawn amount of $900.0 million available under our revolving credit facility. During the second quarter of fiscal 2026, we settled $1.6 billion of debt upon the maturity of our 2026 Senior Notes and 2026 Convertible Notes and continued to invest in our lending products, while maintaining a strong liquidity position. Refer to Liquidity and Capital Resources section below for further details.

In November 2025, the board of directors of the Company authorized an increase to the Company's share repurchase program to repurchase up to an additional $5 billion of the Company's Class A common stock, for a total authorization of $9 billion. The goal of the program is to return capital to shareholders. The timing and number of shares repurchased will depend on a variety of factors, including the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors. As of June 30, 2026, we have repurchased a total of $4.4 billion of our Class A common stock under the program, of which $700.9 million was purchased in fiscal 2026.

Results of Operations

Revenue (in thousands, except for percentages)

Total net revenue for the three and six months ended June 30, 2026 increased by $563.2 million, or 9%, and $848.3 million, or 7%, compared to the three and six months ended June 30, 2025, respectively. Bitcoin ecosystem revenue decreased by $277.9 million and $811.3 million, respectively. Excluding bitcoin ecosystem revenue, total net revenue increased by $841.1 million, or 22%, and $1.7 billion, or 23%, respectively.

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Commerce enablement revenue for the three and six months ended June 30, 2026 increased by $443.3 million, or 15%, and $814.8 million, or 15%, compared to the three and six months ended June 30, 2025, respectively. The increase in revenue was driven by growth in Square processing of $218.1 million and $379.7 million, growth in Cash App Card of $76.2 million and $147.3 million, and growth in Afterpay Post-Purchase revenue of $62.1 million and $134.4 million, in each case for the three and six months ended June 30, 2026, respectively. The growth in Square processing was in line with Square gross payment volume ("GPV") growth of 13% for both the three and six months ended June 30, 2026, driven primarily by strength in Food and Beverage sellers. See below in Key Operating Metrics and Non-GAAP Financial Measures for further discussion of GPV.

Financial solutions revenue for the three and six months ended June 30, 2026 increased by $397.8 million, or 40%, and $844.8 million, or 45%, compared to the three and six months ended June 30, 2025, respectively. The increase was primarily due to growth in Cash App's financial solutions-related products, specifically Cash App Borrow where revenue increased by $281.1 million and $650.5 million, respectively, as we continued to expand access to the product, resulting in higher origination volumes. Additionally, revenue from Square's financial solutions-related products increased by $54.4 million and $110.8 million for the three and six months ended June 30, 2026, respectively, primarily related to Square Loans.

Bitcoin ecosystem revenue for the three and six months ended June 30, 2026 decreased by $277.9 million, or 13%, and $811.3 million, or 18%, compared to the three and six months ended June 30, 2025, respectively. As bitcoin ecosystem revenue is primarily the total sale amount of bitcoin to customers, the amount of bitcoin ecosystem revenue recognized will fluctuate depending on customer demand and changes in the market price of bitcoin. The decreases were driven by lower bitcoin trading volume and a lower average market price of bitcoin compared to the prior year periods. While the bitcoin ecosystem contributed 29% of total revenue for the three and six months ended June 30, 2026, and 36% and 38% for the three and six months ended June 30, 2025, respectively, gross profit generated from the bitcoin ecosystem was only 2% of total gross profit for both the three and six months ended June 30, 2026, and 4% for both the three and six months ended June 30, 2025.

Cost of Revenue (in thousands, except for percentages)

(i) Not meaningful ("NM")

Total cost of revenue for the three and six months ended June 30, 2026 decreased by $66.3 million, or 2%, and $400.9 million, or 6%, compared to the three and six months

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management's discussion and analysis provides a review of the results of operations, key operating metrics and non-GAAP financial measures, and liquidity and capital resources of Block, Inc. on a historical basis and outlines the factors that have affected recent earnings, as well as those factors that may affect future earnings. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K ("Form 10-K").

This section of this Form 10-K generally discusses fiscal 2025 compared to fiscal 2024. The comparison of the fiscal 2024 results with the fiscal 2023 results that are not included in this Form 10-K can be found in the "Management's Discussion and Analysis Results of Operations" section in the Company's fiscal 2024 Annual Report within Part II, Item 7 of Form 10-K, filed on February 24, 2025.

The statements in this discussion regarding our expectations of our future performance, liquidity, and capital resources; our plans, estimates, beliefs, and expectations that involve risks and uncertainties; and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under Item 1A. Risk Factors and elsewhere in this Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

We launched the Square ecosystem in February 2009 to enable businesses ("sellers") to accept card payments, a critical capability that had previously been inaccessible to many businesses. We have since expanded to provide sellers additional products and services and to give them access to a cohesive ecosystem of tools to help them start, run, and grow their businesses. Similarly, with Cash App, we have built an ecosystem of financial products and services to help consumers manage their money. Cash App now provides an ecosystem of commerce solutions, financial services, and bitcoin capabilities focused on helping consumers make their money go further by enabling customers to store, send, receive, spend, invest, BNPL, borrow, or save their money. In addition, our nascent ecosystems include TIDAL as well as Bitcoin, which includes businesses such as Proto and Bitkey.

In 2025, we generated gross profit of $10.4 billion, up 17% year over year. Cash App generated gross profit of $6.3 billion in 2025, up 21% year over year, primarily driven by growth in Cash App Borrow. Square generated gross profit of $3.9 billion in 2025, up 9% year over year, driven by financial solutions, most notably Square Loans.

In 2025, operating income was $1.7 billion and Adjusted Operating Income was $2.1 billion, compared to operating income of $892.3 million and Adjusted Operating Income of $1.6 billion in 2024. Net income attributable to common stockholders was $1.3 billion compared to net income attributable to common stockholders of $2.9 billion for the same period in 2024, and Adjusted EBITDA was $3.5 billion, an increase of 14% year over year. Net income for 2025 and 2024 included a loss of $55.9 million and gain of $420.9 million, respectively, from the remeasurement of our bitcoin investment. In 2024, we released our valuation allowance associated with certain federal and state deferred tax assets, as well as recognized deferred tax assets as part of internal legal entity restructuring efforts, which resulted in benefits to net income for 2024 of $1.9 billion. Refer to the Key Operating Metrics and Non-GAAP Financial Measures section below for reconciliations of non-GAAP financial measures to their nearest generally accepted accounting principles ("GAAP") equivalents.

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Starting in 2023, we sharpened our focus on our organizational structure and expenditures with a view to identifying areas where we can be more cost efficient as we focus on disciplined growth. We made progress on our cost efficiency goals in 2025, and we expect to continue these efforts. For the year ended December 31, 2025 and 2024, we recorded $78.6 million and $26.8 million of severance and other expenses related to these efforts, respectively. In February 2026, we announced a workforce reduction restructuring plan (the “Workforce Plan”) designed to better align our organizational structure with our operating model and strategic priorities. As part of the Workforce Plan, we expect to reduce our current workforce by more than 40%. We expect that the execution of the Workforce Plan will be substantially complete by the end of the second quarter of fiscal 2026. We will continue to incur expenses, including additional restructuring costs, in the short term to implement these initiatives. We expect to realize benefits related to our focus on disciplined growth and cost efficiencies, and we expect to continue to benefit from these actions in future periods. We plan to continue to operate at this smaller size and are continuing to look at ways to improve our efficiency through a combination of AI automation, prioritization of our scope, performance management, and centralization of teams and functions to reduce duplication.

During the third quarter of 2025, we issued $2.2 billion in aggregate principal amount of senior unsecured notes comprised of $1.2 billion in aggregate principal amount of senior notes due 2030 ("2030 Senior Notes") and $1.0 billion in aggregate principal amount due 2033 ("2033 Senior Notes"). We ended 2025 with $9.2 billion in available liquidity, with $8.4 billion in cash, cash equivalents, restricted cash, and investments in marketable debt securities, as well as an undrawn amount of $775.0 million available under our revolving credit facility, which was amended on January 14, 2026 to, among other things, increase the unsecured revolving loan facility to $900 million. This represents a decrease of $1.5 billion from the end of 2024, primarily due to a $1.0 billion cash payment for the settlement of the outstanding 2025 Convertible Notes that matured in March 2025 and $2.3 billion of share repurchases in 2025, partially offset by $2.2 billion cash received related to the issuance of the 2030 Senior Notes and 2033 Senior Notes.

In November 2025, the board of directors of the Company authorized an increase to the Company's share repurchase program to repurchase up to an additional $5 billion of the Company's Class A common stock, for a total authorization of $9 billion. The goal of the program is to return capital to shareholders. The timing and amount of shares repurchased will depend on a variety of factors, including the stock price, business and market conditions, corporate and regulatory requirements, alternative investment opportunities, acquisition opportunities, and other factors. As of December 31, 2025, we have repurchased $3.7 billion of our Class A common stock under the program, of which $2.3 billion was purchased in 2025.

Components of Results of Operations

Revenue

Commerce Enablement Revenue

Commerce enablement revenue is primarily comprised of revenue generated from Square payments, software, and hardware, Cash App Card, Cash App Pay, the Company’s BNPL products, Cash App Business accounts, and TIDAL. Commerce enablement revenue also includes various other software as a service (“SaaS”) products offered through Square. Our other SaaS products include subscription fees on our vertical software solutions, operational tool products (including Square Team Management and Square Payroll), and other products.

We charge our sellers a transaction fee that is generally calculated as a percentage of the total transaction amount processed. We also selectively offer custom pricing for certain larger sellers. We also charge transaction fees to Cash App Business customers for peer-to-peer transactions or funding transactions with a credit card.

Cash App Card offers Cash App customers the ability to use their stored funds via a Visa prepaid card that is linked to the balance the customer stores in Cash App. We also earn interchange fees when a Cash App Card is used to make a purchase. These transaction and interchange fees are treated as revenue when charged.

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Revenue from our BNPL products include merchant fees generated from consumer receivables, late fees, gift cards, and certain affiliate and advertising fees. Through the use of our BNPL products, consumers can pay for their purchases over time by splitting their purchase price generally into three or four installments, typically due in two-week increments, without paying fees (if payments are made on time). For the majority of our BNPL products, we do not charge consumers interest or fees, other than late fees, which may be charged in certain regions as an incentive to encourage consumers to pay their outstanding balances as and when they fall due. We also offer the ability for consumers to pay for larger transaction sizes over a three-, six-, twelve-, or twenty-four-month period using a monthly payment option, which includes no late fees and no compounding interest with a cap on total interest owed. We may sell the rights, title, and interest to a third-party investor for an upfront consideration subsequent to origination of some of the loans. We are retained by the third-party investor to service the loans and earn a servicing fee for facilitating the repayment of these loans through our payments solutions.

TIDAL primarily generates revenue from subscriptions to customers, and such subscriptions allow access to the song library, video library, and improved sound quality. Customers can subscribe to services directly from the TIDAL website or through the Apple store. For both subscription channels, we charge customers a monthly fee for those subscription services.

Revenue from Square hardware includes revenue from sales of magstripe readers, contactless and chip readers, Square Stand, Square Register, Square Terminal, and third-party peripherals. Third-party peripherals include cash drawers, receipt printers, scales, and barcode scanners, all of which can be integrated with Square Stand, Square Register, or Square Terminal to provide a comprehensive point-of-sale solution.

Financial Solutions Revenue

Financial solutions revenue is primarily comprised of revenue the Company generates from Cash App Borrow, Cash App Instant Deposit, ATM withdrawal fees, interest earned on customer funds, and Square Loans.

Cash App Borrow allows customers to access short-term loans for a fee. The loans are repaid at the end of the loan term and customers may elect to prepay all or a part of the outstanding balance. If the outstanding balance is not paid when due, late fees in the form of interest may be charged. Historically, all Cash App Borrow loans were facilitated through a partnership with a third-party industrial bank. Beginning in the second quarter of 2025, the Company also began originating Cash App Borrow loans through our wholly-owned subsidiary bank, Square Financial Services. For loans originated by the bank partner, the Company purchases the loans obtaining all rights, title, and interest. Net amounts paid to the bank partner are recorded as the cost of the loans purchased, and amounts collected in excess of the carrying value are recognized as revenue over the life of the loans. For loans originated through our wholly-owned subsidiary bank, Square Financial Services, the Company records the loans at the amount originated and amounts collected in excess of the originated amount are recognized as revenue over the life of the loans.

Instant Deposit is a functionality within Cash App and our managed payment solutions that enables customers, including individuals and sellers, to instantly deposit funds into their

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