Item 1. Financial Statements

BLOCK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

			June 30, 2022						December 31, 2021
Assets			(Unaudited)
Current assets:
Cash and cash equivalents			$	4,020,466					$	4,443,669
Investments in short-term debt securities			938,998						869,283
Settlements receivable			1,472,908						1,171,612
Customer funds			2,905,377						2,830,995
Consumer receivables, net			1,264,198						—
Loans held for sale			465,693						517,940
Safeguarding asset related to bitcoin held for other parties			507,533						1,100,596
Other current assets			951,162						687,429
Total current assets			12,526,335						11,621,524
Property and equipment, net			308,222						282,140
Goodwill			11,982,135						519,276
Acquired intangible assets, net			2,148,078						257,049
Investments in long-term debt securities			1,019,340						1,526,430
Operating lease right-of-use assets			446,237						449,406
Other non-current assets			454,813						370,535
Total assets			$	28,885,160					$	15,026,360
Liabilities and Stockholders’ Equity
Current liabilities:
Customers payable			$	4,545,675					$	3,979,624
Settlements payable			264,936						254,611
Accrued expenses and other current liabilities			989,335						638,854
Current portion of long-term debt			459,984						455
Safeguarding obligation liability related to bitcoin held for other parties			507,533						1,100,596
Operating lease liabilities, current			125,107						64,027
PPP Liquidity Facility advances			68,416						497,533
Total current liabilities			6,960,986						6,535,700
Deferred tax liabilities			189,198						15,236
Warehouse funding facilities			192,618						—
Long-term debt			4,104,664						4,559,208
Operating lease liabilities, non-current			332,768						395,017
Other non-current liabilities			213,515						207,610
Total liabilities			11,993,749						11,712,771
Commitments and contingencies (Note 20)
Stockholders’ equity:
Preferred stock, $0.0000001 par value: 100,000,000 shares authorized at June 30, 2022 and December 31, 2021. None issued and outstanding at June 30, 2022 and December 31, 2021.			—						—
Class A common stock, $0.0000001 par value: 1,000,000,000 shares authorized at June 30, 2022 and December 31, 2021; 524,712,126 and 403,237,209 issued and outstanding at June 30, 2022 and December 31, 2021, respectively.			—						—
Class B common stock, $0.0000001 par value: 500,000,000 shares authorized at June 30, 2022 and December 31, 2021; 60,657,578 and 61,706,578 issued and outstanding at June 30, 2022 and December 31, 2021, respectively.			—						—
Additional paid-in capital			17,725,198						3,317,255
Accumulated other comprehensive loss			(429,916)						(16,435)
Accumulated deficit			(440,178)						(27,965)
Total stockholders’ equity attributable to common stockholders			16,855,104						3,272,855
Noncontrolling interests			36,307						40,734
Total stockholders’ equity			16,891,411						3,313,589
Total liabilities and stockholders’ equity			$	28,885,160					$	15,026,360

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

BLOCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Revenue:
Transaction-based revenue			$	1,475,707					$	1,227,472					$	2,708,676					$	2,187,205
Subscription and services-based revenue			1,094,856						685,178						2,054,413						1,242,859
Hardware revenue			48,051						43,726						85,377						72,514
Bitcoin revenue			1,785,885						2,724,296						3,516,678						6,235,364
Total net revenue			4,404,499						4,680,672						8,365,144						9,737,942
Cost of revenue:
Transaction-based costs			875,762						682,349						1,591,998						1,206,629
Subscription and services-based costs			213,271						120,810						396,128						209,382
Hardware costs			83,494						61,403						147,158						101,885
Bitcoin costs			1,744,425						2,669,641						3,431,884						6,105,776
Amortization of acquired technology assets			17,899						5,405						33,368						9,705
Total cost of revenue			2,934,851						3,539,608						5,600,536						7,633,377
Gross profit			1,469,648						1,141,064						2,764,608						2,104,565
Operating expenses:
Product development			524,827						324,059						983,051						631,769
Sales and marketing			530,827						373,878						1,032,389						723,338
General and administrative			395,720						220,865						839,869						416,621
Transaction, loan, and consumer receivable losses			156,697						48,173						247,847						68,568
Bitcoin impairment losses			35,961						45,266						35,961						65,126
Amortization of customer and other acquired intangible assets			39,389						3,829						66,053						6,413
Total operating expenses			1,683,421						1,016,070						3,205,170						1,911,835
Operating income (loss)			(213,773)						124,994						(440,562)						192,730
Interest expense, net			12,966						6,464						28,714						6,717
Other income, net			(18,766)						(75,788)						(52,238)						(48,260)
Income (loss) before income tax			(207,973)						194,318						(417,038)						234,273
Provision (benefit) for income taxes			1,304						(9,360)						(398)						(8,413)
Net income (loss)			(209,277)						203,678						(416,640)						242,686
Less: Net loss attributable to noncontrolling interests			(1,263)						(343)						(4,427)						(343)
Net income (loss) attributable to common stockholders			$	(208,014)					$	204,021					$	(412,213)					$	243,029
Net income (loss) per share attributable to common stockholders:
Basic			$	(0.36)					$	0.45					$	(0.73)					$	0.53
Diluted			$	(0.36)					$	0.40					$	(0.73)					$	0.48
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic			581,350						455,431						561,501						455,203
Diluted			581,350						522,578						561,501						519,713

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

BLOCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Net income (loss)			$	(209,277)					$	203,678					$	(416,640)					$	242,686
Net foreign currency translation adjustments			(641,029)						(916)						(376,283)						(11,511)
Net unrealized loss on marketable debt securities			(7,244)						(1,445)						(37,198)						(3,979)
Total comprehensive income (loss)			$	(857,550)					$	201,317					$	(830,121)					$	227,196

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

BLOCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

			Six Months Ended June 30,
			2022						2021
Cash flows from operating activities:
Net income (loss)			$	(416,640)					$	242,686
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			160,895						57,595
Non-cash interest and other			(218,185)						11,324
Non-cash lease expense			47,871						41,047
Share-based compensation			532,061						264,988
Gain on revaluation of equity investments			(44,626)						(47,843)
Transaction, loan, and consumer receivable losses			247,847						68,568
Bitcoin impairment losses			35,961						65,126
Change in deferred income taxes			(21,374)						(473)
Changes in operating assets and liabilities:
Settlements receivable			(428,991)						(220,975)
Purchases and originations of loans			(2,382,295)						(1,664,016)
Proceeds from payments and forgiveness of loans			2,411,683						1,284,077
Customers payable			332,827						175,677
Settlements payable			10,325						17,646
Other assets and liabilities			(152,562)						(49,273)
Net cash provided by operating activities			114,797						246,154
Cash flows from investing activities:
Purchase of marketable debt securities			(383,372)						(1,482,486)
Proceeds from maturities of marketable debt securities			540,914						296,082
Proceeds from sale of marketable debt securities			234,142						374,760
Purchase of marketable debt securities from customer funds			—						(387,463)
Proceeds from maturities of marketable debt securities from customer funds			73,000						334,200
Proceeds from sale of marketable debt securities from customer funds			316,576						—
Originations of consumer receivables			(7,543,996)						—
Principal repayments of consumer receivables			7,688,413						—
Purchase of property and equipment			(85,420)						(66,628)
Purchase of bitcoin investments			—						(170,000)
Purchase of other investments			(39,448)						(45,425)
Proceeds from sale of equity investments			—						378,225
Business combinations, net of cash acquired			539,474						(164,304)
Net cash provided by (used in) investing activities			1,340,283						(933,039)

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

BLOCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(Unaudited)

(In thousands)

			Six Months Ended June 30,
			2022						2021
Cash flows from financing activities:
Proceeds from issuance of senior notes, net			—						1,971,828
Proceeds from PPP Liquidity Facility advances			—						681,542
Repayments of PPP Liquidity Facility advances			(429,117)						(321,953)
Payments to redeem convertible notes			(1,071,788)						—
Proceeds from warehouse facilities borrowings			376,219						—
Repayments of warehouse facilities borrowings			(282,550)						—
Proceeds from the exercise of stock options and purchases under the employee stock purchase plan			43,117						72,155
Payments for tax withholding related to vesting of restricted stock units			(4,253)						(292,225)
Net increase in non-interest bearing deposits			53,791						—
Change in customer funds, restricted from use in the Company's operations			74,382						809,645
Net cash provided by (used in) financing activities			(1,240,199)						2,920,992
Effect of foreign exchange rate on cash and cash equivalents			(35,442)						(7,092)
Net increase in cash, cash equivalents, restricted cash, and customer funds			179,439						2,227,015
Cash, cash equivalents, restricted cash, and customer funds, beginning of the period			6,975,090						4,793,171
Cash, cash equivalents, restricted cash, and customer funds, end of the period			$	7,154,529					$	7,020,186
Reconciliation of cash, cash equivalents, restricted cash, and customer funds:
Cash and cash equivalents			$	4,020,466					$	4,581,234
Short-term restricted cash			156,984						15,088
Long-term restricted cash			71,702						74,569
Customer funds cash and cash equivalents			2,905,377						2,349,295
Total			$	7,154,529					$	7,020,186

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

BLOCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except for number of shares)

						Class A and B common stock												Additional paid-in						Accumulated other comprehensive						Accumulated						Noncontrolling						Total stockholders’
						Shares						Amount						capital						income (loss)						deficit						interests						equity
Balance at December 31, 2021						464,943,787						$	—					$	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 plans						2,119,899						—						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 combination						113,617,352						—						13,827,929						—						—						—						13,827,929
Issuance of common stock in conjunction with the conversion of convertible notes						19,865						—						454						—						—						—						454
Exercise of bond hedges in conjunction with the conversion of convertible notes						(1,188,754)						—						—						—						—						—						—
Balance at March 31, 2022						579,496,146						$	—					$	17,426,629					$	218,357					$	(232,164)					$	37,570					$	17,450,392
			Net loss			—						—						—						—						(208,014)						(1,263)						(209,277)
Shares issued in connection with employee stock plans						2,866,242						—						39,024						—						—						—						39,024
Change in other comprehensive loss						—						—						—						(648,273)						—						—						(648,273)
Share-based compensation						—						—						261,342						—						—						—						261,342
Tax withholding related to vesting of restricted stock units						(14,101)						—						(1,797)						—						—						—						(1,797)
Issuance of common stock in conjunction with the conversion of convertible notes						182						—						—						—						—						—						—
Issuance of common stock in connection with the exercise of common stock warrants						3,021,235						—						—						—						—						—						—
Balance at June 30, 2022						585,369,704						$	—					$	17,725,198					$	(429,916)					$	(440,178)					$	36,307					$	16,891,411

						Class A and B common stock												Additional paid-in						Accumulated other comprehensive						Accumulated						Noncontrolling						Total stockholders’
						Shares						Amount						capital						income						deficit						interests						equity
Balance at December 31, 2020						456,184,776						$	—					$	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 plans						4,311,094						—						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 conjunction with the conversion of convertible notes						166,967						—						3,816						—						—						—						3,816
Exercise of bond hedges in conjunction with the conversion of convertible notes						(5,325,320)						—						—						—						—												—
Balance at March 31, 2021						454,668,441						$	—					$	2,459,415					$	10,199					$	(155,241)					$	—					$	2,314,373
			Net income			—						—						—						—						204,021						(343)						203,678
Shares issued in connection with employee stock plans						2,410,350						—						39,526						—						—						—						39,526
Change in other comprehensive loss						—						—						—						(2,361)						—						—						(2,361)
Share-based compensation						—						—						150,367						—						—						—						150,367
Tax withholding related to vesting of restricted stock units						(602,961)						—						(140,212)						—						—						—						(140,212)
Issuance of common stock in conjunction with the conversion of convertible notes						1,456,748												113,067						—						—												113,067
Exercise of bond hedges in conjunction with the conversion of convertible notes						(150,299)						—						—						—						—						—						—
Issuance of common stock in connection with business combination						41,138						—						10,071						—						—												10,071
Noncontrolling interests in connection with business combination						—						—						—						—						—						48,192						48,192
Balance at June 30, 2021						457,823,417						$	—					$	2,632,234					$	7,838					$	48,780					$	47,849					$	2,736,701

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

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 reportable segments, Square and Cash App. Square is a cohesive commerce ecosystem that helps sellers start, run, and grow their businesses, including enabling sellers to accept card payments, provide 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 is an ecosystem of financial products and services to help individuals manage their money by providing financial tools that allow individuals to store, send, receive, spend, and invest their money. Cash App seeks 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 globally. 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 and six months ended June 30, 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

and acquired intangible assets, 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 valuation of loans held for sale, allowance for credit losses associated with consumer receivables, and accrued transaction losses 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 5, Fair Value Measurements for further details on amortized cost over fair value of the loans, Note 6, Consumer Receivables, net for further details on consumer receivables, and Note 12, Other Consolidated Balance Sheet Components (Current) for further details on transaction losses.

Reclassification to Statement of Operations

Beginning in the second quarter of 2022, the Company reclassified its consolidated statements of operations to present the amortization of acquired technology assets and amortization of customer and other acquired intangible assets as separate line items. Previously, these expenses were classified within transaction-based costs and subscription and services-based costs in cost of revenue; and product development and general and administrative operating expenses, respectively. The condensed consolidated statements of operations for the three and six months ended June 30, 2021 have been revised to reflect these reclassifications to the presentation. There were no changes to gross profit, total operating expenses, operating income (loss), income (loss) before income tax, or net income (loss) for the three or six months ended June 30, 2021 as a result of these reclassifications.

Adjustment to Statement of Cash Flows

Beginning in the fourth quarter of 2021, the Company adjusted its consolidated statements of cash flows to present 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 on the Company's consolidated statements of cash flows. The adjustments result in customer funds and the portion of customer funds that is held in cash, cash equivalents, and restricted cash 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 statement of cash flows for the six months ended June 30, 2021 has been revised to reflect these adjustments to the presentation. These changes have been concluded to be immaterial to the condensed 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 on 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 statement of cash flows (in thousands):

			Six Months Ended June 30, 2021
			As Previously Reported (i)						Adjustments						As Adjusted
Net cash provided by (used in):
Operating activities (ii)			$	297,812					$	(51,658)					$	246,154
Investing activities			(933,039)						—						(933,039)
Financing activities (iii)			2,111,347						809,645						2,920,992
Effect of foreign exchange rate on cash and cash equivalents			(7,092)						—						(7,092)
Net increase in cash, cash equivalents, restricted cash, and customer funds			1,469,028						757,987						2,227,015
Cash, cash equivalents, restricted cash, and customer funds, beginning of the period			3,201,863						1,591,308						4,793,171
Cash, cash equivalents, restricted cash, and customer funds, end of the period			$	4,670,891					$	2,349,295					$	7,020,186
_______________
(i) As reported in the Company's 2021 Form 10-Q filed with the SEC on August 2, 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.

Concentration of Credit Risk

For the three and six months ended June 30, 2022 and June 30, 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 46% and 36% of settlements receivable as of June 30, 2022. As of December 31, 2021, there were two third-party payment processors that represented approximately 52% and 30% of settlements receivable. All other third-party payment 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 on the condensed consolidated statements of operations. Total advertising costs were $157.7 million and $314.0 million for the three and six months ended June 30, 2022, respectively, compared to $87.4 million and $173.3 million for the three and six months ended June 30, 2021, respectively.

In addition, services, incentives, and other costs to acquire 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 $205.6

million and $407.9 million for the three and six months ended June 30, 2022, respectively, compared to $189.0 million and $372.7 million for the three and six months ended June 30, 2021, respectively.

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, our significant interim accounting policies include the impact of foreign currency, and the accounting policies adopted based upon the acquisition of Afterpay.

Foreign Currency

The functional currency for most subsidiaries outside of the United States is the local currency. For purposes of the Company's consolidated financial statements, the assets and liabilities of these subsidiaries, including goodwill and acquired intangible assets, are translated into U.S. dollars using the exchange rates at the balance sheet dates. Gains and losses resulting from these translations are reported as a component of accumulated other comprehensive income (loss) on the Company's condensed consolidated statements of comprehensive income. Revenue, expenses, and gains or losses are translated into U.S. dollars using average exchange rates for each period.

Gains and losses from the remeasurement of foreign currency transactions into the functional currency are recognized as a component of other expense (income), net on the Company’s condensed consolidated statements of operations.

Afterpay Revenue

Through Afterpay's buy now pay later ("BNPL") platform, the Company enables consumers to pay for purchases by splitting their purchase price into three to four installments over six to eight weeks. The Company generally pays the seller the full order value upfront, 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 subscription and services-based revenue on 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 subscription and services-based revenue on 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. Late fees recorded from acquisition to June 30, 2022 were immaterial.

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 Related to Consumer Receivables

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 related 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 off 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.

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. In accordance with ASU 2021-05, 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.

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 a 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, subject to adjustments to reflect any actual or potential safeguarding loss events. The entity should also describe the asset and the corresponding liability in the footnotes to the financial statements and consider 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 Company adopted this guidance effective June 30, 2022. Refer to Note 14, Bitcoin Held for Other Parties for more details.

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 June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03") related to equity securities. The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. An entity is prohibited from recognizing a contractual sale restriction as a separate unit of account. ASU 2022-03 also requires specific disclosures related to equity securities that are subject to contractual restrictions, including the fair value of such equity securities, the nature and remaining duration of the corresponding restrictions, and any circumstances that could cause a lapse in the restrictions. The amendments are effective for fiscal years beginning after December 15, 2023, 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.

NOTE 2 - REVENUE

The following table presents the Company's net revenue disaggregated by revenue source (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Revenue from contracts with customers:
Transaction-based revenue			$	1,475,707					$	1,227,472					$	2,708,676					$	2,187,205
Subscription and services-based revenue			799,740						631,402						1,524,485						1,156,467
Hardware revenue			48,051						43,726						85,377						72,514
Bitcoin revenue			1,785,885						2,724,296						3,516,678						6,235,364
Revenue from other sources:
Subscription and services-based revenue (i)			295,116						53,776						529,928						86,392
Total net revenue			$	4,404,499					$	4,680,672					$	8,365,144					$	9,737,942

(i) Subscription and services-based revenue from other sources relates to revenue generated from the Company's Square Loans and, for 2022 amounts, also includes revenue generated from the BNPL platform, following the acquisition of Afterpay.

NOTE 3 - INVESTMENTS IN DEBT SECURITIES

The Company's short-term and long-term investments as of June 30, 2022 were as follows (in thousands):

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Short-term debt securities:
U.S. agency securities			$	61,807					$	6					$	(780)					$	61,033
Corporate bonds			289,608						—						(4,540)						285,068
Commercial paper			19,233						—						—						19,233
Municipal securities			5,065						—						(66)						4,999
Certificates of deposit			7,795						—						—						7,795
U.S. government securities			555,782						—						(6,206)						549,576
Foreign government securities			11,341						—						(47)						11,294
Total			$	950,631					$	6					$	(11,639)					$	938,998
Long-term debt securities:
U.S. agency securities			$	116,718					$	—					$	(4,562)					$	112,156
Corporate bonds			429,564						—						(14,768)						414,796
Municipal securities			18,617						—						(675)						17,942
U.S. government securities			481,794						79						(15,685)						466,188
Foreign government securities			8,551						—						(293)						8,258
Total			$	1,055,244					$	79					$	(35,983)					$	1,019,340

The Company's short-term and long-term investments as of December 31, 2021 were as follows (in thousands):

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Short-term debt securities:
U.S. agency securities			$	73,986					$	150					$	(8)					$	74,128
Corporate bonds			293,460						128						(269)						293,319
Commercial paper			36,088						—						—						36,088
Municipal securities			5,543						5						—						5,548
Certificates of deposit			9,200						—						—						9,200
U.S. government securities			430,992						106						(255)						430,843
Foreign government securities			20,256						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 bonds			667,699						80						(4,572)						663,207
Municipal securities			22,541						2						(126)						22,417
U.S. government securities			678,553						3						(4,080)						674,476
Foreign government securities			13,084						—						(74)						13,010
Total			$	1,536,331					$	111					$	(10,012)					$	1,526,430

The amortized cost of investments classified as cash equivalents approximated the fair value due to the short-term nature of the investments.

The Company's gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2022 and December 31, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

			June 30, 2022
			Less than 12 Months												Greater than 12 Months												Total
			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Short-term debt securities:
U.S. agency securities			$	59,802					$	(780)					$	—					$	—					$	59,802					$	(780)
Corporate bonds			246,716						(3,880)						28,599						(660)						275,315						(4,540)
Municipal securities			4,999						(66)						—						—						4,999						(66)
U.S. government securities			515,301						(5,303)						34,275						(903)						549,576						(6,206)
Foreign government securities			9,300						(27)						1,993						(20)						11,293						(47)
Total			$	836,118					$	(10,056)					$	64,867					$	(1,583)					$	900,985					$	(11,639)
Long-term debt securities:
U.S. agency securities			$	103,342					$	(4,201)					$	8,814					$	(361)					$	112,156					$	(4,562)
Corporate bonds			372,742						(13,178)						41,739						(1,590)						414,481						(14,768)
Municipal securities			14,842						(675)						—						—						14,842						(675)
U.S. government securities			391,308						(15,685)						—						—						391,308						(15,685)
Foreign government securities			8,257						(293)						—						—						8,257						(293)
Total			$	890,491					$	(34,032)					$	50,553					$	(1,951)					$	941,044					$	(35,983)

			December 31, 2021
			Less than 12 Months												Greater than 12 Months												Total
			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Short-term debt securities:
U.S. agency securities			$	26,749					$	(8)					$	—					$	—					$	26,749					$	(8)
Corporate bonds			241,792						(269)						311						—						242,103						(269)
U.S. government securities			347,380						(255)						—						—						347,380						(255)
Foreign government securities			12,734						(118)						—						—						12,734						(118)
Total			$	628,655					$	(650)					$	311					$	—					$	628,966					$	(650)
Long-term debt securities:
U.S. agency securities			$	151,472					$	(1,160)					$	—					$	—					$	151,472					$	(1,160)
Corporate bonds			627,467						(4,572)						—						—						627,467						(4,572)
Municipal securities			18,616						(126)						—						—						18,616						(126)
U.S. government securities			639,473						(4,080)						—						—						639,473						(4,080)
Foreign government securities			13,010						(74)						—						—						13,010						(74)
Total			$	1,450,038					$	(10,012)					$	—					$	—					$	1,450,038					$	(10,012)

The Company does not intend to sell nor anticipate that it will be required to sell these securities before recovery of the amortized cost basis. Unrealized losses on available-for-sale debt securities were determined not to be related to credit related losses, therefore, an allowance for credit losses is not required.

The contractual maturities of the Company's short-term and long-term investments as of June 30, 2022 are as follows (in thousands):

			Amortized Cost						Fair Value
Due in one year or less			$	950,631					$	938,998
Due in one to five years			1,055,244						1,019,340
Total			$	2,005,875					$	1,958,338

NOTE 4 - CUSTOMER FUNDS

The following table presents the assets underlying customer funds (in thousands):

			June 30, 2022						December 31, 2021
Cash			$	2,171,027					$	242,243
Cash equivalents:
Money market funds			583,930						2,126,579
Reverse repurchase agreement (i)			150,420						72,119
Short-term debt securities:
U.S. agency securities			—						29,994
U.S. government securities			—						360,060
Total customer funds			$	2,905,377					$	2,830,995

(i) The Company has accounted for the reverse repurchase agreement with a third-party as an overnight lending arrangement, collateralized by the securities subject to the repurchase agreement. The Company classified the amounts due from the counterparty as cash equivalents due to the short-term nature.

The Company's investments within customer funds as of December 31, 2021 are as follows (in thousands):

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Short-term debt securities:
U.S. agency securities			$	30,002					$	—					$	(8)					$	29,994
U.S. government securities			360,251						—						(191)						360,060
Total			$	390,253					$	—					$	(199)					$	390,054

The amortized cost of investments classified as cash equivalents approximated the fair value due to the short-term nature of the investments.

The gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous loss position are as follows (in thousands):

			Less than 12 Months												Greater than 12 Months												Total
			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
Short-term debt securities:
U.S. agency securities			$	29,994					$	(8)					$	—					$	—					$	29,994					$	(8)
U.S. government securities			360,060						(191)						—						—						360,060						(191)
Total			$	390,054					$	(199)					$	—					$	—					$	390,054					$	(199)

The Company does not have any available-for-sale debt securities for which the Company has recorded credit related losses.

NOTE 5 - FAIR VALUE MEASUREMENTS

The Company measures its cash equivalents, customer funds, short-term and long-term marketable debt securities, and marketable equity investment at fair value. The Company classifies these investments within Level 1 or Level 2 of the fair value hierarchy because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The Company measures its safeguarding obligation liability related to bitcoin held for other parties at the fair value of the bitcoin that the Company holds for other parties and classifies the liability within Level 2 because the Company uses observable market prices of the underlying bitcoin as an input for the valuation. The Company also classifies its safeguarding asset related to bitcoin held for other parties within Level 2, unless the asset's carrying amount is adjusted to reflect any actual or potential safeguarding loss events, in which case it would be classified within Level 3. The Company was not aware of any actual or possible safeguarding loss events as of June 30, 2022 or December 31, 2021.

The Company’s assets and liabilities that are measured at fair value on a recurring basis are classified as follows (in thousands):

			June 30, 2022																		December 31, 2021
			Level 1						Level 2						Level 3						Level 1						Level 2						Level 3
Cash equivalents:
Money market funds			$	1,447,981					$	—					$	—					$	2,344,768					$	—					$	—
Mutual funds			—						—						—						—						—						—
U.S. agency securities			—						12,397						—						—						22,999						—
Certificates of deposit			—						965						—						—						4,983						—
Commercial paper			—						113,322						—						—						—						—
Corporate bonds			—						558						—						—						790						—
Time deposits			—						—						—						—						—						—
U.S. government securities			55,725						—						—						—						—						—
Municipal securities			—						—						—						—						—						—
Foreign government securities			—						—						—						—						—						—
Customer funds:
Money market funds			583,930						—						—						2,126,579						—						—
Reverse repurchase agreement			150,420						—						—						72,119						—						—
U.S. agency securities			—						—						—						—						29,994						—
U.S. government securities			—						—						—						360,060						—						—
Short-term debt securities:
U.S. agency securities			—						61,033						—						—						74,128						—
Certificates of deposit			—						7,795						—						—						9,200						—
Corporate bonds			—						285,068						—						—						293,319						—
Commercial paper			—						19,233						—						—						36,088						—
Municipal securities			—						4,999						—						—						5,548						—
U.S. government securities			549,576						—						—						430,843												—
Foreign government securities			—						11,294						—						—						20,157						—
Long-term debt securities:
U.S. agency securities			—						112,156						—						—						153,320						—
Corporate bonds			—						414,796						—						—						663,207						—
Municipal securities			—						17,942						—						—						22,417						—
U.S. government securities			466,188						—						—						674,476						—						—
Foreign government securities			—						8,258						—						—						13,010						—
Other:
Investment in marketable equity security			13,168						—						—						—						—						—
Safeguarding asset related to bitcoin held for other parties			—						507,533						—						—						1,100,596						—
Safeguarding obligation liability related to bitcoin held for other parties			—						(507,533)						—						—						(1,100,596)						—
Total assets (liabilities) measured at fair value			$	3,266,988					$	1,069,816					$	—					$	6,008,845					$	1,349,160					$	—

The carrying amounts of certain financial instruments, including settlements receivable, consumer receivables, loans held for investment, accounts payable, customers payable, accrued expenses, and settlements payable, approximate their fair values due to their short-term nature. The carrying amounts of the Company's warehouse funding facilities approximate their fair values.

The Company estimates the fair value of its convertible notes and senior notes based on their last actively traded prices or significant other market observable inputs (Level 2). The estimated fair value and carrying value of the convertible notes and senior notes were as follows (in thousands):

			June 30, 2022												December 31, 2021
			Carrying Value						Fair Value (Level 2)						Carrying Value						Fair Value (Level 2)
2031 Senior Notes			$	987,466					$	791,203					$	986,774					$	1,018,113
2026 Senior Notes			989,008						875,674						987,626						994,579
2027 Convertible Notes			567,866						419,369						567,208						614,286
2026 Convertible Notes			568,460						459,049						567,621						595,548
2025 Convertible Notes			991,864						929,412						990,361						1,477,302
2023 Convertible Notes			459,984						503,871						459,618						958,927
2022 Convertible Notes			—						—						455						3,192
Total			$	4,564,648					$	3,978,578					$	4,559,663					$	5,661,947

The estimated fair value and carrying value of loans held for sale and loans held for investment were as follows (in thousands):

			June 30, 2022												December 31, 2021
			Carrying Value						Fair Value (Level 3)						Carrying Value						Fair Value (Level 3)
Loans held for sale			$	465,693					$	493,180					$	517,940					$	574,982
Loans held for investment			93,372						97,980						91,447						95,746
Total			$	559,065					$	591,160					$	609,387					$	670,728

As of June 30, 2022 and December 31, 2021, $61.3 million and $364.8 million of the carrying value of loans held for sale was attributable to loans under the PPP, respectively. The PPP was intended to provide relief to eligible businesses impacted by COVID-19, and to incentivize businesses to keep their workers on the payroll. These loans are guaranteed by the U.S. government and are eligible for forgiveness if the borrowers meet certain criteria. As the loans under the PPP qualify for forgiveness if certain criteria are met or are guaranteed by the U.S. government through the Small Business Administration ("SBA"), the related credit losses as of June 30, 2022 were immaterial.

To determine the fair value of the loans held for sale, the Company utilizes discounted cash flow valuation modeling, taking into account the probability of default and estimated timing and amounts of periodic repayments. In estimating the expected timing and amounts of the future periodic repayments for the loans outstanding, the Company considered other relevant market data in developing such estimates and assumptions. With respect to PPP loans, the Company also considers the impact of government guarantees and loan forgiveness on the timing and amounts of future cash flows. As of June 30, 2022, there were no material changes to the Company's estimates of fair value and the Company will continue to evaluate facts and circumstances that could impact its estimates and affect its results of operations in future periods. The charges for the excess of amortized cost over fair value of the loans held for sale were immaterial for the three and six months ended June 30, 2022.

If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. During the three and six months ended June 30, 2022 and 2021, the Company did not have any transfers in or out of Level 1, Level 2, or Level 3 assets or liabilities.

NOTE 6 - CONSUMER RECEIVABLES, NET

Consumer receivables represent amounts due from consumers for outstanding installment payments on orders processed on the Company's BNPL platform. Further discussed in Note 1, Description of Business and Summary of Significant Accounting Policies, consumer receivables are classified as held for investment. These receivables are interest free and are generally due within 14 to 56 days. The Company evaluates the consumer receivables as a single homogeneous portfolio as it is comprised of a single product type, point-of-sale unsecured installment loans.

The Company closely monitors credit quality for consumer receivables to manage and evaluate its related exposure to credit risk. The criteria the Company monitors when assessing the credit quality and risk of its consumer receivables portfolio is primarily based on internal risk assessments, as they provide insight into customer risk profiles and are useful as indicators of potential future credit losses. Consumer receivables are internally rated as "Pass" rated or "Classified." Pass rated consumer receivables generally consist of consumer receivables that are current or up to 60 days past due. Classified consumer receivables generally comprise of consumer receivables that are 60 days or greater past due and have a higher risk of default. Internal risk ratings are reviewed and, generally, updated at least once a year. As of June 30, 2022, the amortized cost of Pass rated consumer receivables was $1.3 billion and the amount of Classified consumer receivables was less than $0.1 billion.

For consumer receivables, an allowance for credit losses is determined based on the probability of a default event occurring over the life of the receivables. When a consumer has not paid by the due date, it is an indication that credit risk has increased. As a result, the allowance for credit losses for that receivable is measured at an amount equal to the lifetime allowance for credit losses for increased credit risk. Lifetime allowance for credit losses is the expected credit losses that result from all possible default events over the expected life of the receivables.

When the consumer receivable is greater than 61 days past due, there is considered to be objective evidence of impairment. Aging greater than 61 days is considered to have an adverse impact on the estimated future cash flows of the receivable.

The following table presents an aging analysis of the amortized cost of consumer receivables by delinquency status (in thousands):

			June 30, 2022
Non-delinquent loans			$	1,175,488
1 - 60 days past due			149,531
61 - 90 days past due			22,344
90+ days past due			38,414
Total amortized cost			$	1,385,777

The amount classified as 1 - 60 days past due in the above table includes $88.6 million of cash in transit, which reflects ongoing repayments from consumers that have been sent from consumers’ bank accounts but have not yet been received at the Company’s bank account as of the date of the financial statements. This cash in transit as of June 30, 2022 represents 6.4% of the total amortized cost of consumer receivables.

Consumer receivables are charged off when they are over 180 days past due and the Company has no reasonable expectation of recovery. When consumer receivables are charged off, the Company recognizes the charge against the allowance for credit losses. While the Company expects collections at that point to be unlikely, the Company may recover amounts from the respective consumers. Any subsequent recoveries following charge-off are credited to transaction, loan, and consumer receivable losses on the condensed consolidated statements of operations in the period in which they were recovered. The amount of recoveries for the three and six months ended June 30, 2022 were immaterial. The allowance for credit losses on consumer receivables is a valuation account that is deducted from the carrying value of the consumer receivables.

The following table summarizes activity in the allowance for credit losses subsequent to the acquisition of Afterpay (in thousands):

			Three Months Ended June 30, 2022						From Acquisition on January 31, 2022 to June 30, 2022
Allowance for credit losses, beginning of the period (i)			$	109,824					$	115,552
Provision for credit losses			59,493						97,570
Charge-offs and other adjustments			(34,616)						(88,397)
Foreign exchange effect			(13,122)						(3,146)
Allowance for credit losses, end of the period			$	121,579					$	121,579

(i) Consumer receivables acquired from Afterpay that reflect a more-than-insignificant deterioration of credit from origination are considered purchased credit deteriorated ("PCD") receivables. For PCD consumer receivables, the initial estimate of expected credit losses is recognized in the allowance for credit losses on the date of acquisition using the same methodology as other consumer receivables.

NOTE 7 - LOANS HELD FOR INVESTMENT

In April 2021, the Company began originating loans in the U.S. through its wholly-owned subsidiary bank, Square Financial Services. The Company sells the majority of the loans to institutional investors with a portion retained on its balance sheet. Loans retained by the Company are classified as held for investment as the Company has both the intent and ability to hold them for the foreseeable future, until maturity, or until payoff. The Company’s intent and ability in the future may change based on changes in business strategies, the economic environment, and market conditions. As of June 30, 2022, the Company held $93.4 million as loans held for investment, net of allowance, included in other current assets on the condensed consolidated balance sheet. Refer to Note 12, Other Consolidated Balance Sheet Components (Current) for more details.

Loans held for investment are recorded at amortized cost, less an allowance for potential uncollectible amounts. Amortized cost basis represents principal amounts outstanding, net of unearned income, unamortized deferred fees and costs on originated loans, premiums or discounts on purchased loans, and charge-offs. The allowance for loan losses, and amount of charge-offs and recoveries recorded as of June 30, 2022 were all immaterial.

The Company considers loans that are greater than 60 days past due to be delinquent, and loans 90 days or more past due to be nonperforming. Loans that are 120 days or more past due are generally considered to be uncollectible and are charged off. When a loan is identified as nonperforming, recognition of income is discontinued. Loans are restored to performing status after total overdue unpaid amounts are repaid and the Company has reasonable assurance that performance under the terms of the loan will continue. As of June 30, 2022, the amount of loans that were identified as nonperforming loans was immaterial.

The Company closely monitors economic conditions and loan performance trends to assess and manage its exposure to credit risk. The criteria the Company monitors when assessing the credit quality and risk of its loan portfolio is primarily based on internal risk ratings, as they provide insight into borrower risk profiles and are useful as indicators of potential future credit losses. Loans are internally rated as "Pass" rated or "Classified." Pass rated loans generally consist of loans that are current or up to 60 days past due. Classified loans generally comprise of loans that are 60 days or greater past due and have a higher risk of default. Internal risk ratings are reviewed and, generally, updated at least once a year. As of June 30, 2022, the amortized cost of Pass rated loans was $97.8 million and the amount of Classified loans was immaterial.

NOTE 8 - PROPERTY AND EQUIPMENT, NET

The following is a summary of property and equipment, less accumulated depreciation and amortization (in thousands):

			June 30, 2022						December 31, 2021
Leasehold improvements			$	221,302					$	208,228
Computer equipment			200,672						174,004
Capitalized software			157,497						116,827
Office furniture and equipment			45,470						42,393
Total			624,941						541,452
Less: Accumulated depreciation and amortization			(316,719)						(259,312)
Property and equipment, net			$	308,222					$	282,140

Depreciation and amortization expense on property and equipment was $33.5 million and $61.4 million for the three and six months ended June 30, 2022, respectively, and $19.2 million and $41.5 million for the three and six months ended June 30, 2021, respectively.

NOTE 9 - ACQUISITIONS

Afterpay

On January 31, 2022 (February 1, 2022 Australian Eastern Daylight Time), the Company completed the acquisition of Afterpay, a global BNPL platform. In connection with the acquisition, the Company issued 113,617,352 shares of the Company’s Class A common stock. The shares issued included a deemed vested component of outstanding employee awards, based on the ratio of time served in relation to the vesting term of each award, with the unvested portion being replaced with Block’s unvested replacement awards, with the same terms. The aggregate fair value of the shares issued was $13.8 billion based on the closing price of the Company’s Class A common stock on the acquisition date, of which $66.3 million was attributed to acceleration of various share-based arrangements and was accounted for as an expense immediately post-acquisition, included as a component of general and administrative expenses in the consolidated statement of operations. As of the completion of the acquisition, certain convertible notes with an outstanding principal amount of AU $1.5 billion (U.S. $1.1 billion based on the closing exchange rate on the acquisition date) remained outstanding, and were redeemed on March 4, 2022.

The acquisition meets the criteria to be accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment.

In the first quarter of 2022, the Company prepared an initial determination of the fair value of the assets acquired and liabilities assumed as of the acquisition date using preliminary information. Subsequently, the Company recognized measurement period adjustments to the assets and liabilities assumed resulting from return to provision true-ups for Afterpay’s fiscal year ended June 30, 2021 corporate income tax return filings that impacted the historical tax attributes of certain Afterpay entities. The net effect of these adjustments on the preliminary purchase price allocation was a decrease of $23.6 million in both goodwill and deferred tax liabilities assumed. There was no impact to the condensed consolidated statements of operations as result of these adjustments. The Company is still in the process of completing the determination of the fair value of certain assumed contingent consideration from Afterpay, the allocation of goodwill and certain intangible assets acquired to various operating units, and the evaluation of contingencies and tax effects related to the acquisition. Accordingly, the preliminary values reflected in the table below are subject to change. Refer to Note 12, Other Consolidated Balance Sheet Components (Current) for further details on the deferred consideration assumed from Afterpay.

The table below summarizes the consideration paid for Afterpay and the assessment of the fair value of the assets acquired and liabilities assumed at the closing date (in thousands, except share data):

Consideration:
Stock (113,617,352 shares of Class A common stock, excluding value accounted as post-combination expense of $66,337)			$	13,827,929
Cash paid to settle tax withholding in connection with replacement awards			8,693
Total			$	13,836,622
Recognized amounts of identifiable assets acquired and liabilities assumed:
Current assets (inclusive of cash, cash equivalents, and restricted cash acquired)			$	653,709
Consumer receivables			1,245,508
Intangible customer assets			1,378,000
Intangible technology assets			239,000
Intangible trade name			408,000
Other non-current assets			74,232
Long-term debt - current (i)			(1,058,065)
Current liabilities			(394,433)
Warehouse funding facilities (ii)			(107,996)
Deferred tax liabilities			(211,377)
Other non-current liabilities			(55,374)
Total identifiable net assets acquired			2,171,204
Goodwill			11,665,418
Total			$	13,836,622

(i) Long-term debt - current is comprised of the aforementioned Afterpay convertible notes, which were redeemed in cash at face value on March 4, 2022.

(ii) Refer to Note 15, Indebtedness for further details.

Goodwill from the acquisition was primarily attributable to the value of expected synergies created by incorporating Afterpay's BNPL platform, its business, and operations into the Company's Cash App and Square ecosystems and the value of the assembled workforce. The goodwill has no amortizable basis for income tax purposes. Additionally, the acquisition resulted in the recognition of $131.0 million of deferred tax assets in Australia; however, the realization of such deferred tax assets depends primarily on the Company's ability, post-acquisition, to generate taxable income in future periods of which there is not sufficient positive evidence of such income as of June 30, 2022. Accordingly, a valuation allowance of $131.0 million was recorded against the acquired Australian deferred tax assets. Additionally, the other non-current liabilities include an estimate of $34.0 million in unrecognized tax benefits as of June 30, 2022.

Pro Forma Financial Information

The following table summarizes the unaudited pro forma consolidated financial information of the Company as if the Afterpay acquisition had occurred on January 1, 2021. Pro forma adjustments have been made to reflect, among other things, the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable

intangible asset, stock-based compensation expense related to replacement equity awards, and the tax effects of such adjustments for the respective periods.

The unaudited pro forma financial results are as follows (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Net revenue			$	4,400,366					$	4,877,532					$	8,429,897					$	10,105,042
Net income (loss)			$	(201,951)					$	123,710					$	(317,817)					$	(81,549)

The unaudited pro forma financial information is not intended to present or be indicative of what the results of operations or financial position would have been had the events actually occurred on the dates indicated, nor is it meant to be indicative of future results of operations or financial position for any future period or as of any future date. The unaudited pro forma financial information does not give effect to the potential impact of current financial conditions, or any anticipated revenue enhancements, cost savings, or operating synergies that may result from the acquisition.

Pro forma net loss for the six months ended June 30, 2022 excludes $42.4 million of transaction costs directly attributable to the acquisition, as well as $66.3 million of incremental stock-based compensation expense, incurred by Block, that were included in the determination of the net loss during the six months ended June 30, 2022. Pro forma net loss for the six months ended June 30, 2021 includes $145.3 million of transaction costs directly attributable to the acquisition incurred by both Afterpay and Block, and $66.3 million of incremental stock-based compensation expense. Pro forma net loss for the three months ended June 30, 2022 had no adjustments. Pro forma net loss for the three months ended June 30, 2021 had immaterial adjustments.

TIDAL

On April 30, 2021, the Company acquired an 86.8% ownership interest in TIDAL, a global music and entertainment platform that brings fans and artists together through unique music, content, and experiences. The acquisition extends the Company's purpose of economic empowerment to musicians and other artists. The Company has the option, but not the obligation, to acquire any portion of the remaining noncontrolling interest any time after a three-year period has elapsed from the execution of the transaction agreement at a price based on the fair value of TIDAL shares, as determined in accordance with certain agreements between the Company and certain legacy shareholders of TIDAL.

The purchase consideration was comprised of $223.1 million in cash and 41,138 shares of the Company’s Class A common stock with an aggregate fair value of $10.1 million based on the closing price of the Company’s Class A common stock on the acquisition date. Third-party acquisition-related costs were immaterial. The results of TIDAL’s operations have been included in the condensed consolidated financial statements since the closing date.

The acquisition was accounted for as a business combination in accordance with ASC 805. This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment.

The table below summarizes the consideration paid for TIDAL and the fair value of the assets acquired and liabilities assumed at the closing date (in thousands, except share data):

Consideration:
Cash			$	176,663
Deferred consideration			46,475
Stock (41,138 shares of Class A common stock)			10,071
Total			$	233,209
Recognized amounts of identifiable assets acquired and liabilities assumed:
Current assets (inclusive of cash acquired of $12,358)			$	29,621
Intangible customer assets			69,000
Intangible technology assets			29,000
Intangible trade name			35,000
Intangible other assets			8,000
Other non-current assets			33,443
Accrued expenses and other current liabilities			(67,789)
Other non-current liabilities			(52,759)
Total identifiable net assets acquired			83,516
Noncontrolling interests			(48,192)
Goodwill			197,885
Total			$	233,209

Goodwill from the acquisition was primarily attributable to the value of expected synergies created by incorporating TIDAL product and operations into the Company's technology platform and the value of the assembled workforce. An estimated amount of approximately $70.7 million of the goodwill generated from the TIDAL acquisition and approximately $126.7 million of the acquired intangible assets are expected to be deductible for U.S. tax purposes based on the preliminary values. Additionally, the acquisition would have resulted in the recognition of U.S. deferred tax assets; however, the realization of such deferred tax assets depends primarily on the Company's ability, post-acquisition, to generate taxable income in future periods of which there is not sufficient evidence of such income as of June 30, 2022. Accordingly, a valuation allowance was recorded against the net acquired deferred tax asset in accounting for the acquisition.

Deferred consideration in the aggregate amount of $46.5 million primarily relates to pre-acquisition contingencies, and includes a portion of purchase consideration withheld, for a period of up to 4 years, as security for TIDAL's indemnification obligations related to general representations and warranties, in addition to certain potential exposures. The Company recognized certain liabilities for acquired pre-existing potential exposures, and an indemnification receivable in the amount of $22.8 million has been recorded related to such exposures in accordance with the terms of the indemnification agreement. The amounts have been determined in accordance with ASC 740, Income Taxes, and ASC 450, Contingencies.

In addition to the deferred consideration, an additional amount of $32.2 million in purchase consideration has been withheld related to defined post-acquisition activities. Because these amounts relate to post-acquisition activities, in accordance with ASC 805, such amounts will be recognized as expenses in future periods, as incurred.

The noncontrolling interest was recorded based on the fair value on the date of acquisition.

The acquisition of TIDAL did not have a material impact on the Company's condensed consolidated financial statements. Accordingly, pro forma financial information has not been presented.

Other Acquisitions

The Company completed certain acquisitions for a total consideration of $46.0 million during the six months ended June 30, 2022, which resulted in the recognition of additional intangible assets and goodwill. These acquisitions were not

material and therefore pro forma financial information has not been presented. None of the goodwill generated from the acquisitions or the acquired intangible assets are expected to be deductible for tax purposes.

NOTE 10 - GOODWILL

Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets acquired.

The change in carrying value of goodwill in the period was as follows (in thousands):

Balance at December 31, 2021			$	519,276
Acquisitions			11,707,851
Foreign currency translation adjustments			(244,992)
Balance at June 30, 2022			$	11,982,135

The Company performs an annual goodwill impairment test on December 31 and more frequently if events and circumstances indicate that the asset might be impaired.

The Company has two reportable segments, Square and Cash App (defined further in Note 21, Segment and Geographical Information). Goodwill arising from the acquisition of Afterpay has been equally allocated to Square and Cash App as management has concluded that the BNPL platform will contribute equally to each of these segments.

The change in carrying value of goodwill allocated to the reportable segments in the period was as follows (in thousands):

			Cash App						Square						Corporate and Other						Total
Balance at December 31, 2021			$	128,334					$	193,057					$	197,885					$	519,276
Acquisitions			5,855,115						5,852,736						—						11,707,851
Foreign currency translation adjustments			(122,821)						(122,171)						—						(244,992)
Balance at June 30, 2022			$	5,860,628					$	5,923,622					$	197,885					$	11,982,135

NOTE 11 - ACQUIRED INTANGIBLE ASSETS

The following table presents the detail of acquired intangible assets as of the periods presented (in thousands):

			Balance at June 30, 2022
Weighted Average Estimated Useful Life						Cost						Accumulated Amortization						Net
Technology assets			5 years						$	400,388					$	(98,054)					$	302,334
Customer assets			15 years						1,483,700						(61,799)						1,421,901
Trade name			9 years						450,721						(35,838)						414,883
Other			9 years						13,701						(4,741)						8,960
Total									$	2,348,510					$	(200,432)					$	2,148,078

			Balance at December 31, 2021
Weighted Average Estimated Useful Life						Cost						Accumulated Amortization						Net
Technology assets			5 years						$	164,977					$	(65,619)					$	99,358
Customer assets			15 years						128,316						(19,244)						109,072
Trade name			9 years						53,051						(14,169)						38,882
Other			9 years						13,743						(4,006)						9,737
Total									$	360,087					$	(103,038)					$	257,049

All intangible assets are amortized over their estimated useful lives.

The changes to the carrying value of intangible assets were as follows (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Acquired intangible assets, net, beginning of the period			$	2,275,199					$	129,796					$	257,049					$	137,612
Acquisitions			3,490						141,000						2,028,490						141,000
Amortization expense			(57,288)						(9,234)						(99,421)						(16,118)
Foreign currency translation adjustments			(73,323)						634						(38,040)						(298)
Acquired intangible assets, net, end of the period			$	2,148,078					$	262,196					$	2,148,078					$	262,196

The estimated future amortization expense of intangible assets in future periods as of June 30, 2022 was as follows (in thousands):

Remainder of 2022			$	112,301
2023			224,493
2024			221,032
2025			214,204
2026			200,138
Thereafter			1,175,910
Total			$	2,148,078

NOTE 12 - OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (CURRENT)

Other Current Assets

The following table presents the detail of other current assets (in thousands):

			June 30, 2022						December 31, 2021
Inventory, net			$	78,737					$	77,058
Restricted cash			156,984						18,778
Processing costs receivable			251,815						228,914
Prepaid expenses			111,994						63,341
Accounts receivable, net			114,867						89,702
Loans held for investment, net of allowance for loan losses (i)			93,372						91,447
Other			143,393						118,189
Total			$	951,162					$	687,429

(i) Refer to Note 7, Loans Held for Investment for further details*.*

Accrued Expenses and Other Current Liabilities

The following table presents the detail of accrued expenses and other current liabilities (in thousands):

			June 30, 2022						December 31, 2021
Accrued expenses			$	316,222					$	254,900
Accrued royalties			70,665						53,616
Pagantis deferred consideration (i)			42,254						—
Accrued transaction losses (ii)			61,835						55,167
Accounts payable			124,678						82,173
Deferred revenue, current			50,476						48,462
Other			323,205						144,536
Total			$	989,335					$	638,854

(i) On March 9, 2021, prior to acquisition by the Company, Afterpay completed the acquisition of Pagantis SAU and PMT Technology SLA (collectively, "Pagantis"). Pursuant to the acquisition agreement, Afterpay issued a convertible note to the sellers for deferred and contingent consideration. Under the terms of the note, upon a change in control of Afterpay, Afterpay had the option to redeem the convertible note for cash consideration, which Afterpay exercised. The settlement amount consists of two components: a deferred consideration portion of €40.3 million that is a fixed contractual amount, and an additional amount that is contingent on the underlying equity value of Pagantis exceeding certain agreed upon thresholds. Under the terms of the note, absent a bilateral agreement on value between the Company and the note holder, the Company and note holder were each required to use an independent valuation expert to establish the underlying value of the Pagantis business as of the time of the change in control of Afterpay. Because the difference between the two valuations was more than a specified threshold, a third valuation expert will be jointly selected by the first two experts, with support from the Company and the note holder. The third expert is required to determine a value that falls within the range of the values established by the first two experts. The process for selecting the third expert is underway, however no expert has been engaged. The third expert is expected to deliver their valuation in approximately five weeks from the date of their appointment. Absent any manifest error, the third expert's valuation will be final, and settlement of the note will occur on that basis, having regard to the formula for calculation of the settlement value as per the note terms. As of June 30, 2022, the Company determined that based on the estimated underlying value of Pagantis, the contingent consideration had no value. The Company therefore accrued $42.3 million, based on the period-end foreign exchange spot rate, related to only the fixed deferred consideration, which is included within other current liabilities. The ultimate settlement value may differ materially from the accrued amounts.

(ii) The Company is exposed to potential credit losses related to transactions processed by sellers that are subsequently subject to chargebacks when the Company is unable to collect from the sellers, primarily due to seller insolvency. Generally, the Company estimates the potential loss rates based on historical experience that is continuously adjusted for new information and incorporates, where applicable, reasonable and supportable forecasts about future expectations.

The following table summarizes the activities of the Company’s reserve for transaction losses (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Accrued transaction losses, beginning of the period			$	53,659					$	48,622					$	55,167					$	70,557
Provision for transaction losses			28,298						27,784						49,019						21,042
Charge-offs to accrued transaction losses			(20,122)						(27,926)						(42,351)						(43,119)
Accrued transaction losses, end of the period			$	61,835					$	48,480					$	61,835					$	48,480

In addition to amounts reflected in the table above, the Company recognized additional provision for transaction losses that were realized and written-off within the same period. The Company recorded $124.3 million and $211.7 million for the three and six months ended June 30, 2022, respectively, compared to $80.3 million and $162.4 million for the three and six months ended June 30, 2021, respectively, for such losses.

NOTE 13 - OTHER CONSOLIDATED BALANCE SHEET COMPONENTS (NON-CURRENT)

Other Non-Current Assets

The following table presents the detail of other non-current assets (in thousands):

			June 30, 2022						December 31, 2021
Investment in non-marketable equity securities (i)			$	161,888					$	81,919
Investment in bitcoin, net (ii)			112,913						149,000
Restricted cash			71,702						71,702
Other			108,310						67,914
Total			$	454,813					$	370,535

(i) Investment in non-marketable equity securities represents the Company's investments in equity of non-public entities. These investments are measured using the measurement alternative and are therefore carried at cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. Adjustments are recorded within other expense (income), net on the condensed consolidated statement of operations. During the three and six months ended June 30, 2022, the Company recorded an unrealized gain of $59.8 million, arising from the revaluation of a non-marketable investment, resulting in a cumulative unrealized gain of $78.8 million as of June 30, 2022. Unrealized losses were immaterial as of June 30, 2022.

(ii) The Company invested an aggregate $220.0 million in bitcoin in 2020 and 2021, with no additional investments made during the six months ended June 30, 2022. Investment in bitcoin is accounted for as an indefinite-lived intangible asset, and does not include any bitcoin held for other parties, which is further described in Note 14, Bitcoin Held for Other Parties. Investment in bitcoin is subject to impairment losses if the fair value of bitcoin decreases below the carrying value during the assessed period. Impairment losses cannot be recovered for any subsequent increase in fair value until the sale of the asset. The Company recorded an impairment charge on its investment in bitcoin of $36.0 million in the three months ended June 30, 2022, due to the observed market price of bitcoin decreasing below the carrying value during the period. There were no impairment charges recorded in the three months ended March 31, 2022. As of June 30, 2022, the cumulative impairment charges to date were $107.1 million and the fair value of the investment in bitcoin was $160.0 million based on

observable market prices, which was $47.1 million in excess of the Company's carrying value of $112.9 million after impairment charges.

Other Non-Current Liabilities

The following table presents the detail of other non-current liabilities (in thousands):

			June 30, 2022						December 31, 2021
Statutory liabilities (i)			$	168,824					$	117,784
Other			44,691						89,826
Total			$	213,515					$	207,610

(i) Statutory liabilities represent loss contingencies that may arise from the Company's interpretation and application of certain guidelines and rules issued by various federal, state, local, and foreign regulatory authorities.

NOTE 14 - BITCOIN HELD FOR OTHER PARTIES

The Company allows its Cash App customers to store their bitcoin in the Company’s digital wallets free of charge. The Company also holds an immaterial amount of bitcoin from select trading partners to facilitate bitcoin transactions for customers on Cash App. Other than bitcoin, the Company does not hold or store any other types of crypto-assets for customers or trading partners. The Company holds the cryptographic key information and maintains the internal recordkeeping of the bitcoin held for other parties. The Company's contractual arrangements state that its customers and trading partners retain legal ownership of the bitcoin; have the right to sell, pledge, or transfer the bitcoin; and also benefit from the rewards and bear the risks associated with the ownership, including as a result of any bitcoin price fluctuations. The customer also bears the risk of loss as a result of fraud or theft, unless the loss was caused by the Company’s gross negligence or the Company’s willful misconduct. The Company occasionally engages third-party custodians to store and safeguard bitcoin on the Company's behalf. As of June 30, 2022, an immaterial amount of the bitcoin was held by third-party custodians on the Company's behalf.

Upon the adoption of SAB 121, the Company recorded a bitcoin safeguarding obligation liability and a corresponding bitcoin safeguarding asset based on the fair value of the bitcoin held for other parties at each reporting date. The Company was not aware of any actual or possible safeguarding loss events as of June 30, 2022 or December 31, 2021, and accordingly, the bitcoin safeguarding obligation liability and the associated bitcoin safeguarding asset were recorded at the same value. The balance sheet as of December 31, 2021 has been revised to reflect the adoption of SAB 121. The adoption of SAB 121 had no impact on previously reported consolidated statements of operations, statements of cash flows, or statements of stockholders' equity.

The following table summarizes the Company’s bitcoin held for other parties (in thousands, except number of bitcoin):

			June 30, 2022						December 31, 2021
Approximate number of bitcoin held for customers			25,017						23,360
Approximate number of bitcoin held for trading partners			457						458
Total approximate number of bitcoin held for other parties			25,474						23,818
Safeguarding obligation liability related to bitcoin held for customers			$	498,423					$	1,079,412
Safeguarding obligation liability related to bitcoin held for trading partners			9,110						21,184
Safeguarding obligation liability related to bitcoin held for other parties			$	507,533					$	1,100,596
Safeguarding asset related to bitcoin held for other parties			$	507,533					$	1,100,596

NOTE 15 - INDEBTEDNESS

Revolving Credit Facility

In May 2020, the Company entered into a revolving credit agreement with certain lenders, which provided a $500.0 million senior unsecured revolving credit facility (the "2020 Credit Facility") maturing in May 2023. On May 28, 2020, the Company amended the credit agreement for the 2020 Credit Facility (the "Credit Agreement") to permit the Company’s wholly-owned subsidiary, Square Capital, LLC (“Square Capital”), to incur indebtedness in an aggregate principal amount of up to $500.0 million pursuant to the Paycheck Protection Program Liquidity Facility (“PPPLF”) authorized under the Federal Reserve Act of 1913. In connection with its convertible debt offerings in November 2020, the Company entered into a second amendment to the Credit Agreement on November 9, 2020 to permit convertible debt in an aggregate principal amount not to exceed $3.6 billion. On January 28, 2021, the Company entered into a third amendment to the Credit Agreement to increase the amount of indebtedness that Square Capital is permitted to incur pursuant to the PPPLF from an aggregate principal amount of up to $500.0 million to an aggregate principal amount of up to $1.0 billion. On May 25, 2021, the Company entered into a fourth amendment to the Credit Agreement to, among other things, extend the maturity date of the loans advanced to May 1, 2024. On January 28, 2022, the Company entered into a fifth amendment to the Credit Agreement to permit certain existing obligations of Afterpay and its subsidiaries to remain outstanding as of and after the completion of the Afterpay acquisition. On February 23, 2022, the Company entered into a sixth amendment to the Credit Agreement to, among other things, provide for a new tranche of unsecured revolving loan commitments in an aggregate principal amount of up to $100.0 million (the "Tranche B Loans). The Credit Agreement also contains a financial covenant that requires the Company to maintain a quarterly minimum liquidity amount (consisting of the sum of Unrestricted Cash and Cash Equivalents plus Marketable Securities, each as defined in the Credit Agreement) of at least $250.0 million, tested on a quarterly basis. The Company is obligated to pay customary fees for a credit facility of this size and type including a commitment fee of 0.15% per annum on the undrawn portion available under the 2020 Credit Facility. To date, no funds have been drawn and no letters of credit have been issued under the 2020 Credit Facility. As of June 30, 2022, $600.0 million remained available for draw. The Company incurred $0.2 million and $0.5 million in unused commitment fees during the three and six months ended June 30, 2022, respectively. The Company incurred $0.2 million and $0.4 million in unused commitment fees during the three and six months ended June 30, 2021, respectively. As of June 30, 2022, the Company was in compliance with all financial covenants associated with the 2020 Credit Facility.

Loans under the 2020 Credit Facility, excluding the Tranche B Loans, bear interest at the Company's option of (i) a base rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and the adjusted LIBOR rate plus 1.00%, in each case, plus a margin ranging from 0.25% to 0.75% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.25% to 1.75%. The Credit Agreement includes provisions allowing the Company to replace or update LIBOR with a replacement rate. The margin is determined based on the Company’s total leverage ratio, as defined in the Credit Agreement. The Tranche B Loans bear interest at the Company's option of (i) an annual rate based on the forward-looking term rate based on the Secured Overnight Financing Rate ("Term SOFR") or (ii) a base rate. Tranche B Loans based on Term SOFR shall bear interest at a rate equal to Term SOFR plus a margin of between 1.25% and 1.75%, depending on the Company's total net leverage ratio. Tranche B Loans based on the base rate shall bear interest at a rate based on the highest of the prime rate, the federal funds rate plus 0.50%, and Term SOFR with a tenor of one-month plus 1.00%, in each case, plus a margin ranging from 0.25% to 0.75%, depending on the Company's total net leverage ratio. The Credit Agreement also contains customary affirmative and negative covenants typical for a financing of this type that, among other things, restricts the Company and certain of its subsidiaries’ ability to incur additional indebtedness, create liens, merge or consolidate or make certain dispositions, pay dividends and make distributions, enter into restrictive agreements, enter into agreements with affiliates, and make certain investments and acquisitions.

Warehouse Funding Facilities

Following the acquisition of Afterpay, the Company assumed Afterpay's existing warehouse funding facilities. The Company has financing arrangements with financial institutions in Australia, New Zealand, the United States, and the United Kingdom (collectively, the “Warehouse Facilities”). The Warehouse Facilities have been arranged utilizing wholly-owned and consolidated entities formed for the sole purpose of financing the origination of consumer receivables to partly fund the Company's BNPL platform. Borrowings under the Warehouse Facilities are secured against the respective consumer receivables.

These Warehouse Facilities have maturity dates ranging from September 2023 to December 2024. As of June 30, 2022, the aggregate commitment amount of the Warehouse Facilities, using the respective exchange rates at period-end, was

$1.7 billion on a revolving basis, of which $0.2 billion was drawn and $1.5 billion remained available. All facilities contain portfolio parameters based on performance of the underlying consumer receivables, which each respective region has satisfied as of June 30, 2022. None of the Warehouse Facilities contain corporate financial covenants.

All Warehouse Facilities are on a variable rate basis which aligns closely to the weighted average life of the consumer receivables they finance. Borrowings under these facilities bear interest at (i) a base rate aligned to either the local risk free rate, such as Term SOFR and the Sterling Overnight Index Average ("SONIA") or similar, and (ii) a margin which is set for the term of the availability period. In addition, each facility requires payment of immaterial commitment fees.

The table below summarizes the amounts drawn on these facilities by year of maturity (in thousands):

			June 30, 2022
2023			$	44,543
2024			148,075
Total funding debt, net of deferred debt issuance costs			$	192,618

Paycheck Protection Program Liquidity Facility

On June 2, 2020, Square Capital was approved to borrow under the PPPLF with the Federal Reserve Bank of San Francisco (“First PPPLF Agreement”), at an annual interest rate of 0.35%. The PPPLF extends credit to eligible financial institutions that have originated or purchased PPP loans. Advances under the PPPLF are non-recourse and are secured by a pledge of PPP loans held by Square Capital. The maturity date of any PPPLF loan will be the maturity date of the PPP loans pledged to secure such PPPLF loan. The maturity date of any PPPLF loan will be accelerated on and to the extent of (i) the date of any loan forgiveness reimbursement by the SBA for any PPP loan securing such PPPLF loan; or (ii) the date of purchase by the SBA from Square Capital of any PPP loan securing such PPPLF loan to realize on the SBA’s guarantee of such PPP loan. The maturity date of all PPPLF loans shall be accelerated upon the occurrence of certain events of default by Square Capital, including but not limited to the failure to comply with a requirement of the PPPLF agreement or any representation, warranty, or covenant of Square Capital under the PPPLF agreement being inaccurate on or as of the date it is deemed to be made or on any date on which an PPPLF loan remains outstanding. The Company can also at its option prepay the advances in full or in part without penalty. Square Capital also shall prepay PPPLF loans so that the amount of any PPPLF loans outstanding does not exceed the outstanding amount of PPP loans pledged to secure such PPPLF loans.

On January 29, 2021, Square Capital entered into a second PPPLF agreement with the Federal Reserve Bank of San Francisco (“Second PPPLF Agreement”) to secure additional credit collateralized by loans from the subsequent rounds of the PPP program in an aggregate principal amount of up to $1.0 billion under both PPPLF agreements. As of June 30, 2022, $68.4 million of PPPLF advances were outstanding. These advances are generally collateralized by the same value of PPP loans. Any differences between the amounts are generally due to the timing of PPP loan repayment or forgiveness, and repayment of PPPLF advances.

Senior Unsecured Notes due in 2026 and 2031

On May 20, 2021, the Company issued an aggregate principal amount of $2.0 billion senior unsecured notes comprised of $1.0 billion of senior unsecured notes due 2026 ("2026 Senior Notes") and $1.0 billion senior unsecured notes due 2031 ("2031 Senior Notes" and, together with the 2026 Senior Notes, the “Senior Notes”). The 2026 Senior Notes mature on June 1, 2026, unless earlier redeemed or repurchased, and bear interest at a rate of 2.75% payable semi-annually on June 1 and December 1 of each year. The 2031 Senior Notes mature on June 1, 2031, unless earlier redeemed or repurchased, and bear interest at a rate of 3.50% payable semi-annually on June 1 and December 1 of each year. The Senior Notes are subject to optional redemption provisions. At any time prior to May 1, 2026, in the case of the 2026 Senior Notes, and March 1, 2031, in the case of the 2031 Senior Notes, the Company may redeem the applicable series in whole or part at a price equal to 100% of the principal amount of the notes to be redeemed plus an applicable premium and accrued and unpaid interest, if any, to but excluding the redemption date. The applicable premium for any note is the greater of: (i) 1.0% of the principal amount of such note, and (ii) the excess, if any, of (a) the present value at the redemption date of all scheduled payments of interest plus principal on such note (excluding accrued but unpaid interest, if any, to, but excluding, the redemption date) computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points, over (b) the principal amount of such note. At any time on or after May 1, 2026, in the case of the 2026 Senior Notes, and March 1, 2031, in the case of the 2031 Senior Notes, the Company may redeem the notes of the applicable series in whole or part at a price of 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest, if any, to but excluding the redemption date. If the Company experiences a change of control triggering event (as defined in the applicable indenture governing the applicable Senior Notes), the Company must offer to repurchase each series of Senior Notes at a repurchase price equal to 101% of the principal amount of the applicable notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. In the event of default, the trustee or holders of at least 25% in aggregate principal amount of the applicable series of outstanding Senior Notes under the applicable indenture may declare all of the notes of the applicable series to be due and immediately payable. If the event of default is the result of specified events of bankruptcy, insolvency or reorganization, all of the notes of the applicable series will become due without any declaration or action by the trustee or holders. If there is a default in the payment of interest, the Company shall pay the defaulted interest plus, to the extent lawful, interest payable on the defaulted interest at the rate provided in the Senior Notes.

Debt issuance costs related to the 2026 Senior Notes and 2031 Senior Notes were comprised of discounts and commissions payable to the initial purchasers of $22.5 million and third-party offering costs of $5.7 million. Issuance costs are amortized to interest expense using the effective interest method at an effective interest rate of 3.06% and 3.69% for each of the respective terms of the 2026 Senior Notes and 2031 Senior Notes, respectively.

Convertible Notes due in 2026 and 2027

On November 13, 2020, the Company issued an aggregate principal amount of $1.15 billion of convertible senior notes comprised of $575.0 million of convertible senior notes due 2026 ("2026 Convertible Notes") and $575.0 million of convertible senior notes due 2027 ("2027 Convertible Notes"). The 2026 Convertible Notes mature on May 1, 2026, unless earlier converted or repurchased, and bear a zero rate of interest. The 2027 Convertible Notes mature on November 1, 2027, unless earlier converted or repurchased, and bear interest at a rate of 0.25% payable semi-annually on May 1 and November 1 of each year. Both the 2026 Convertible Notes and 2027 Convertible Notes are convertible at an initial conversion rate of 3.3430 shares of the Company's Class A common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $299.13 per share of Class A common stock. Holders may convert their relevant series of notes at any time prior to the close of business on the business day immediately preceding February 1, 2026 and August 1, 2027 for the 2026 Convertible Notes and 2027 Convertible Notes, respectively, only under the following circumstances: (i) during any calendar quarter, commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2026 Convertible Notes and 2027 Convertible Notes) per $1,000 principal amount of 2026 Convertible Notes and 2027 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 2026 Convertible Notes and 2027 Convertible Notes for redemption, such relevant series of notes called for redemption may be converted at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events, including

certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2026 Convertible Notes and 2027 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets. In addition, upon occurrence of the specified corporate events prior to the maturity date, the Company would increase the conversion rate for a holder who elects to convert their relevant series of notes in connection with such an event in certain circumstances. On or after February 1, 2026 in the case of the 2026 Convertible Notes, and on or after August 1, 2027 in the case of the 2027 Convertible Notes, up until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder of the relevant series of notes may convert all or any portion of its 2026 Convertible Notes or 2027 Convertible Notes regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock, or a combination of cash and shares of its Class A common stock, at the Company’s election. The circumstances required to allow the holders to convert their 2026 Convertible Notes and 2027 Convertible Notes were not met during the six months ended June 30, 2022. On or after November 5, 2023 for the 2026 Convertible Notes, and on or after November 5, 2024 for the 2027 Convertible Notes, the Company may redeem all or a portion of each series of convertible notes for cash at its option, if the last reported sale price of the Company's Class A common stock has been at least 130% of the conversion price for the relevant series of notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Convertible Notes and 2027 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the 2026 Convertible Notes and 2027 Convertible Notes, prior to the adoption of ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), the Company separated the relevant series of convertible notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $198.0 million and was determined by deducting the fair value of the liability component from the par value of the 2026 Convertible Notes and the 2027 Convertible Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount ("debt discount") was amortized to interest expense at an effective interest rate of 3.35% and 3.66% for the 2026 Convertible Notes and 2027 Convertible Notes, respectively. Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2026 Convertible Notes and 2027 Convertible Notes wholly as debt. The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

Debt issuance costs related to the 2026 Convertible Notes and 2027 Convertible Notes were comprised of discounts and commissions payable to the initial purchasers of $17.5 million and third-party offering costs of $1.0 million. Prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2026 Convertible Notes and 2027 Convertible Notes based on their relative values. Issuance costs attributable to the liability component were $15.4 million and were amortized to interest expense using the effective interest method. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense at an effective interest rate of 0.49% and 0.30% for each of the respective terms of the 2026 Convertible Notes and 2027 Convertible Notes, respectively, with a cumulative adjustment to retained earnings on the adoption date.

Upon adoption of ASU 2020-06, the difference between the estimated fair value and the carrying value upon conversion is accounted for as a reduction to the related debt issuance costs, with the remainder recognized as additional paid in capital to reflect the par value of the shares issued. As of June 30, 2022, no principal had converted on either the 2026 Convertible Notes or 2027 Convertible Notes.

As of June 30, 2022, the if-converted value of the 2026 Convertible Notes and 2027 Convertible Notes did not exceed the outstanding principal amount.

Convertible Notes due in 2025

On March 5, 2020, the Company issued an aggregate principal amount of $1.0 billion of convertible senior notes ("2025 Convertible Notes"). The 2025 Convertible Notes mature on March 1, 2025, unless earlier converted or repurchased, and bear interest at a rate of 0.1250% payable semi-annually on March 1 and September 1 of each year. The 2025 Convertible Notes are convertible at an initial conversion rate of 8.2641 shares of the Company's Class A common stock per $1,000 principal amount of 2025 Convertible Notes, which is equivalent to an initial conversion price of approximately $121.01 per share of Class A common stock. Holders may convert their 2025 Convertible Notes at any time prior to the close of business on the business day immediately preceding December 1, 2024 only under the following circumstances: (i) during any calendar quarter, commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2025 Convertible Notes) per $1,000 principal amount of 2025 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day; (iii) if the Company calls any or all of the 2025 Convertible Notes for redemption, such 2025 Convertible Notes called for redemption may be converted at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (iv) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2025 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets. In addition, upon occurrence of the specified corporate events prior to the maturity date, the Company would increase the conversion rate for a holder who elects to convert their 2025 Convertible Notes in connection with such an event in certain circumstances. On or after December 1, 2024, up until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2025 Convertible Notes regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock, or a combination of cash and shares of its Class A common stock, at the Company’s election. The Company may redeem for cash all or any part of the 2025 Convertible Notes, at its option, on or after March 5, 2023, if the last reported sale price of the Company's Class A common stock has been at least 130% of the conversion price for the 2025 Convertible Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The circumstances to allow the holders to convert their 2025 Convertible Notes were met in the first quarter of 2021 and continued to be met through June 30, 2022. As of June 30, 2022, certain holders of the 2025 Convertible Notes had converted an immaterial aggregate principal amount of their 2025 Convertible Notes. The Company has settled the conversions through the issuance of an immaterial amount of shares of the Company's Class A common stock.

In accounting for the issuance of the 2025 Convertible Notes, prior to the adoption of ASU 2020-06, the Company separated the 2025 Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $154.6 million and was determined by deducting the fair value of the liability component from the par value of the 2025 Convertible Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The debt discount was amortized to interest expense over the term of the 2025 Convertible Notes at an effective interest rate of 3.81% over the contractual terms of the 2025 Convertible Notes. Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2025 Convertible Notes wholly as debt. The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

Debt issuance costs related to the 2025 Convertible Notes were comprised of discounts and commissions payable to the initial purchasers of $14.3 million and third-party offering costs of $0.9 million. Prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2025 Convertible Notes based on their relative values. Issuance costs attributable to the liability component were $12.8 million and will be amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount

as debt issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 0.43% for the 2025 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

Upon adoption of ASU 2020-06, the difference between the estimated fair value and the carrying value upon conversion is accounted for as a reduction to the related debt issuance costs, with the remainder recognized as additional paid in capital to reflect the par value of the shares issued.

As of June 30, 2022, the if-converted value of the 2025 Convertible Notes did not exceed the outstanding principal amount.

Convertible Notes due in 2023

On May 25, 2018, the Company issued an aggregate principal amount of $862.5 million of convertible senior notes ("2023 Convertible Notes"). The 2023 Convertible Notes mature on May 15, 2023, unless earlier converted or repurchased, and bear interest at a rate of 0.50% payable semi-annually on May 15 and November 15 of each year. The 2023 Convertible Notes are convertible at an initial conversion rate of 12.8456 shares of the Company's Class A common stock per $1,000 principal amount of 2023 Convertible Notes, which is equivalent to an initial conversion price of approximately $77.85 per share of Class A common stock. Holders may convert their 2023 Convertible Notes at any time prior to the close of business on the business day immediately preceding February 15, 2023 only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2023 Convertible Notes) per $1,000 principal amount of 2023 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Class A common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change (as defined in the indenture governing the 2023 Convertible Notes) or a transaction resulting in the Company’s Class A common stock converting into other securities or property or assets. On or after February 15, 2023, up until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2023 Convertible Notes regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock, or a combination of cash and shares of its Class A common stock, at the Company’s election. The circumstances to allow the holders to convert their 2023 Convertible Notes were met in the fourth quarter of 2020 and continued to be met through June 30, 2022. As of June 30, 2022, certain holders of the 2023 Convertible Notes had converted an aggregate principal amount of $401.9 million of their 2023 Convertible Notes. The Company has settled the conversions through the issuance of 5.2 million shares of the Company's Class A common stock.

In accounting for the issuance of the 2023 Convertible Notes, prior to the adoption of ASU 2020-06, the Company separated the 2023 Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $155.3 million and was determined by deducting the fair value of the liability component from the par value of the 2023 Convertible Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The debt discount was amortized to interest expense over the term of the 2023 Convertible Notes at an effective interest rate of 4.69% over the contractual terms of the 2023 Convertible Notes. Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the separation of the debt and equity components and accounted for the 2023 Convertible Notes wholly as debt. The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date.

Debt issuance costs related to the 2023 Convertible Notes comprised of discounts and commissions payable to the initial purchasers of $6.0 million and third-party offering costs of $0.8 million. Prior to the adoption of ASU 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 2023 Convertible Notes based on their relative values. Issuance costs attributable to the liability component were $5.6 million and will be amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Upon adoption of ASU 2020-06 on January 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt

issuance cost that will be amortized as interest expense over the remaining term at an effective interest rate of 0.66% for the 2023 Convertible Notes with a cumulative adjustment to retained earnings on the adoption date.

Upon adoption of ASU 2020-06, the difference between the estimated fair value and the carrying value upon conversion is accounted for as a reduction to the related debt issuance costs, with the remainder recognized as additional paid in capital to reflect the par value of the shares issued.

As of June 30, 2022, the if-converted value of the 2023 Convertible Notes did not exceed the outstanding principal amount.

Convertible Notes due in 2022

On March 6, 2017, the Company issued an aggregate principal amount of $440.0 million of convertible senior notes ("2022 Convertible Notes"). As of the maturity date on March 1, 2022, holders of the 2022 Convertible Notes converted the full aggregate principal amount of $440.0 million of the 2022 Convertible Notes, of which $0.5 million was converted in 2022. The Company settled the conversions through a combination of $219.4 million in cash and issuance of 16.5 million shares of the Company's Class A common stock. The conversions that occurred during 2022 were settled entirely in shares of the Company's Class A common stock.

Notes

The 2022 Convertible Notes, 2023 Convertible Notes, 2025 Convertible Notes, 2026 Convertible Notes, and 2027 Convertible Notes (collectively, the “Convertible Notes”), together with the Senior Notes, are collectively referred to as the “Notes.”

The net carrying amount of the Notes as of June 30, 2022 were as follows (in thousands):

			Principal Outstanding												Unamortized Debt Issuance Costs						Net Carrying Value
2031 Senior Notes			$	1,000,000											$	(12,534)					$	987,466
2026 Senior Notes			1,000,000												(10,992)						989,008
2027 Convertible Notes			575,000												(7,134)						567,866
2026 Convertible Notes			575,000												(6,540)						568,460
2025 Convertible Notes			1,000,000												(8,136)						991,864
2023 Convertible Notes			460,630												(646)						459,984
Total			$	4,610,630											$	(45,982)					$	4,564,648

The net carrying amount of the Notes as of December 31, 2021 were as follows (in thousands):

			Principal Outstanding												Unamortized Debt Issuance Costs						Net Carrying Value
2031 Senior Notes			$	1,000,000											$	(13,226)					$	986,774
2026 Senior Notes			1,000,000												(12,374)						987,626
2027 Convertible Notes			575,000												(7,792)						567,208
2026 Convertible Notes			575,000												(7,379)						567,621
2025 Convertible Notes			1,000,000												(9,639)						990,361
2023 Convertible Notes			460,630												(1,012)						459,618
2022 Convertible Notes			455												—						455
Total			$	4,611,085											$	(51,422)					$	4,559,663

The Company recognized interest expense on the Notes as follows (in thousands, except for percentages):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Contractual interest expense			$	16,700					$	8,497					$	33,166					$	10,225
Amortization of debt issuance costs (i)			2,738						2,305						5,442						4,137
Total			$	19,438					$	10,802					$	38,608					$	14,362

(i) Upon adoption of ASU 2020-06, the debt discount associated with the equity component on convertible debt outstanding was reversed which resulted in a decrease in the amount of non-cash interest expense to be recognized going forward.

Effective interest rates for the Company's Convertible Notes after the adoption of ASU 2020-06 are as follows:

2027 Convertible Notes									0.30		%
2026 Convertible Notes									0.49		%
2025 Convertible Notes									0.43		%
2023 Convertible Notes									0.66		%
2022 Convertible Notes									0.93		%

Convertible Note Hedge and Warrant Transactions

In connection with the offering of the 2027 Convertible Notes, the Company entered into convertible note hedge transactions ("2027 Convertible Note Hedges") with certain financial institution counterparties ("2027 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 1.9 million shares of its Class A common stock at a price of approximately $299.13 per share. The total cost of the 2027 convertible note hedge transactions was $104.3 million. In addition, the Company sold warrants ("2027 Warrants") to the 2027 Note Hedge Counterparties whereby the 2027 Note Hedge Counterparties have the option to purchase a total of 1.9 million shares of the Company’s Class A common stock at a price of approximately $414.18 per share for the 2027 Warrants. The Company received $68.0 million in cash proceeds from the sale of the 2027 Warrants. Taken together, the purchase of the 2027 Convertible Note Hedges and sale of the 2027 Warrants are intended to reduce dilution from the conversion of the 2027 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2027 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $299.13 per share to approximately $414.18 per share for the 2027 Warrants. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2027 Convertible Note Hedges and 2027 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the 2027 Convertible Note Hedges and 2027 warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

In connection with the offering of the 2026 Convertible Notes, the Company entered into convertible note hedge transactions ("2026 Convertible Note Hedges") with certain financial institution counterparties ("2026 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 1.9 million shares of its Class A common stock at a price of approximately $299.13 per share. The total cost of the 2026 Convertible Note Hedges was $84.6 million. In addition, the Company sold warrants ("2026 Warrants") to the 2026 Note Hedge Counterparties whereby the 2026 Note Hedge Counterparties have the option to purchase a total of 1.9 million shares of the Company’s Class A common stock at a price of approximately $368.16 per share for the 2026 Warrants. The Company received $64.6 million in cash proceeds from the sale of the 2026 Warrants. Taken together, the purchase of the 2026 Convertible Note Hedges and sale of the 2026 Warrants are intended to reduce dilution from the conversion of the 2026 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2026 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $299.13 per share to approximately $368.16 per share for the 2026 Warrants. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2026 Convertible Note Hedges and 2026 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs

incurred in connection with the 2026 Convertible Note Hedges and 2026 Warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

In connection with the offering of the 2025 Convertible Notes, the Company entered into convertible note hedge transactions ("2025 Convertible Note Hedges") with certain financial institution counterparties ("2025 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 8.3 million shares of its Class A common stock at a price of approximately $121.01 per share. The total cost of the 2025 Convertible Note Hedges was $149.2 million. In addition, the Company sold warrants ("2025 Warrants") to the 2025 Note Hedge Counterparties whereby the 2025 Note Hedge Counterparties have the option to purchase a total of 8.26 million shares of the Company’s Class A common stock at a price of approximately $161.34 per share. The Company received $99.5 million in cash proceeds from the sale of the 2025 Warrants. Taken together, the purchase of the 2025 Convertible Note Hedges and sale of the 2025 Warrants are intended to reduce dilution from the conversion of the 2025 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2025 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $121.01 per share to approximately $161.34 per share. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2025 Convertible Note Hedges and 2025 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the 2025 Convertible Note Hedges and 2025 Warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

In connection with the offering of the 2023 Convertible Notes, the Company entered into convertible note hedge transactions ("2023 Convertible Note Hedges") with certain financial institution counterparties ("2023 Note Hedge Counterparties") whereby the Company has the option to purchase a total of approximately 11.1 million shares of its Class A common stock at a price of approximately $77.85 per share. The total cost of the 2023 Convertible Note Hedges was $172.6 million. In addition, the Company sold warrants ("2023 Warrants") to the 2023 Note Hedge Counterparties whereby the 2023 Note Hedge Counterparties have the option to purchase a total of 11.1 million shares of the Company’s Class A common stock at a price of approximately $109.26 per share. The Company received $112.1 million in cash proceeds from the sale of the 2023 Warrants. Taken together, the purchase of the 2023 Convertible Note Hedges and sale of the 2023 Warrants are intended to reduce dilution from the conversion of the 2023 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2023 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $77.85 per share to approximately $109.26 per share. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2023 Convertible Note Hedges and 2023 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the 2023 Convertible Note Hedges and 2023 Warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets. The Company also exercised a pro-rata portion of the 2023 Convertible Note Hedges to offset the shares of the Company's Class A common stock issued to settle the conversion of the 2023 Convertible Notes. The Company has received 3.0 million shares of the Company's Class A common stock from the 2023 Note Hedge Counterparties, of which 1.0 million shares were received in the six months ended June 30, 2022.

In connection with the offering of the 2022 Convertible Notes, the Company entered into convertible note hedge transactions ("2022 Convertible Note Hedges") with certain financial institution counterparties ("2022 Note Hedge Counterparties") whereby the Company had the option to purchase a total of approximately 19.2 million shares of its Class A common stock at a price of approximately $22.95 per share. The total cost of the 2022 convertible note hedge transactions was $92.1 million. In addition, the Company sold warrants ("2022 Warrants") to the 2022 Note Hedge Counterparties whereby the 2022 Note Hedge Counterparties have the option to purchase a total of 19.2 million shares of the Company’s Class A common stock at a price of approximately $31.18 per share. The Company received $57.2 million in cash proceeds from the sale of the 2022 Warrants. Taken together, the purchase of the 2022 Convertible Note Hedges and sale of the 2022 Warrants are intended to reduce dilution from the conversion of the 2022 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2022 Convertible Notes, as the case may be, and to effectively increase the overall conversion price from approximately $22.95 per share to approximately $31.18 per share. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the 2022 Convertible Note Hedges and 2022 Warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the 2022 Convertible Note Hedges and 2022 Warrants were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets. The Company has exercised a pro-rata portion of the 2022 Convertible Note Hedges to offset the shares of the Company's Class A common stock issued to settle the conversion of the 2022 Convertible Notes discussed above. The 2022 Convertible Note Hedges were net share settled, and as of the 2022 Convertible Notes maturity date on March 1, 2022, the Company had

received 15.0 million shares of the Company's Class A common stock from the 2022 Note Hedge Counterparties, of which 0.2 million shares were received in 2022.

NOTE 16 - INCOME TAXES

The Company recorded an income tax expense of $1.3 million and income tax benefit of $0.4 million for the three and six months ended June 30, 2022, respectively, compared to an income tax benefit of $9.4 million and $8.4 million for the three and six months ended June 30, 2021, respectively. The difference between income before income tax at the U.S. federal statutory rate and the income tax expense recorded for the three months ended June 30, 2022 and the income tax benefit recorded for the six months ended June 30, 2022 is primarily due to a change in the valuation allowance in the U.S. and certain foreign jurisdictions.

The difference between the income tax expense for the three months ended June 30, 2022 and the income tax benefit for the three months ended June 30, 2021 primarily relates to a decrease in excess share-based compensation deductions. The difference between the income tax benefit for the six months ended June 30, 2022 and the income tax benefit for the six months ended June 30, 2021 primarily relates to a decrease in excess share-based compensation deductions and a change in the valuation allowance in certain jurisdictions.

The Company is subject to income taxes in the U.S. and certain foreign tax jurisdictions. The tax provision for the three and six months ended June 30, 2022 and June 30, 2021 is calculated on a jurisdictional basis. The Company estimated the worldwide income tax provision using the estimated annual effective income tax rate expected to be applicable for the full year. The Company’s effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as the mix of forecasted pre-tax earnings in the various jurisdictions in which the Company operates, changes in valuation allowances against deferred tax assets, the recognition and de-recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.

As of June 30, 2022, the Company retained a full valuation allowance on its net deferred tax assets in certain jurisdictions. The realization of the Company’s deferred tax assets depends primarily on its ability to generate taxable income in future periods. The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income.

NOTE 17 - STOCKHOLDERS’ EQUITY

Preferred Stock

As of June 30, 2022, the Company is authorized to issue 100,000,000 shares of preferred stock, each with a par value of $0.0000001 per share. No shares of preferred stock were outstanding as of June 30, 2022.

Common Stock

The Company has two classes of authorized common stock outstanding: Class A common stock and Class B common stock. Class A common stock and Class B common stock are referred to as "common stock" throughout these Notes to the Condensed Consolidated Financial Statements, unless otherwise noted. Holders of shares of Class A common stock are entitled to one vote per share, while holders of shares of Class B common stock are entitled to ten votes per share. Shares of the Company's Class B common stock are convertible into an equivalent number of shares of its Class A common stock and generally convert into shares of its Class A common stock upon transfer. The holders of Class A common stock and Class B common stock have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. As of June 30, 2022, the Company was authorized to issue 1,000,000,000 shares of Class A common stock and 500,000,000 shares of Class B common stock, each with a par value of $0.0000001 per share. As of June 30, 2022, there were 524,712,126 shares of Class A common stock and 60,657,578 shares of Class B common stock outstanding. Following the Company's initial public offering in 2015, all new stock options and stock-based awards are granted in Class A common stock.

Warrants

In conjunction with the 2022 Convertible Notes offering, the Company sold the 2022 Warrants whereby the counterparties have the option to purchase a total of approximately 19.2 million shares of the Company’s Class A common stock at a price of $31.18 per share. The 2022 Warrants expire evenly over a 60 trading day period starting on June 1, 2022. During the three months ended June 30, 2022, warrants were exercised for 3.0 million shares.

In conjunction with the 2023 Convertible Notes offering, the Company sold the 2023 Warrants whereby the counterparties have the option to purchase a total of approximately 11.1 million shares of the Company’s Class A common stock at a price of $109.26 per share. The 2023 Warrants expire evenly over a 60 trading day period starting on August 15, 2023. None of the warrants were exercised as of June 30, 2022.

In conjunction with the 2025 Convertible Notes offering, the Company sold the 2025 Warrants whereby the counterparties have the option to purchase a total of approximately 8.3 million shares of the Company’s Class A common stock at a price of $161.34 per share. The 2025 Warrants expire evenly over a 60 trading day period starting on June 1, 2025. None of the warrants were exercised as of June 30, 2022.

In conjunction with the 2026 Convertible Notes offering, the Company sold the 2026 Warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $368.16 per share. The 2026 Warrants expire evenly over a 60 trading day period starting on August 1, 2026. None of the warrants were exercised as of June 30, 2022.

In conjunction with the 2027 Convertible Notes offering, the Company sold the 2027 Warrants whereby the counterparties have the option to purchase a total of approximately 1.9 million shares of the Company’s Class A common stock at a price of $414.18 per share. The 2027 Warrants expire evenly over a 60 trading day period starting on February 1, 2028. None of the warrants were exercised as of June 30, 2022.

Conversion of Convertible Notes and Exercise of Convertible Note Hedges

In connection with the conversion of the 2022 Convertible Notes, the Company issued an aggregate 16.5 million shares of Class A common stock as of the maturity date on March 1, 2022, of which an immaterial number of shares were issued in 2022. The Company also exercised a pro-rata portion of the 2022 Convertible Note Hedges and received 15.0 million shares of Class A common stock from the 2022 Note Hedge Counterparties to offset the shares issued, of which 0.2 million shares were received in 2022.

In connection with the conversion of the 2023 Convertible Notes, the Company has issued an aggregate 5.2 million shares of Class A common stock as of June 30, 2022, of which an immaterial number of shares were issued in the three and six months ended June 30, 2022. The Company also exercised a pro-rata portion of the 2023 Convertible Note Hedges and received 3.0 million shares of Class A common stock from the 2023 Note Hedge Counterparties to offset the shares issued as of June 30, 2022, of which 1.0 million shares were received in the six months ended June 30, 2022.

Stock Plans

The Company maintains two share-based employee compensation plans: the 2009 Stock Plan ("2009 Plan") and the 2015 Equity Incentive Plan ("2015 Plan"). The 2015 Plan serves as the successor to the 2009 Plan. The 2015 Plan became effective as of November 17, 2015. Outstanding awards under the 2009 Plan continue to be subject to the terms and conditions of the 2009 Plan. Since November 17, 2015, no additional awards have been nor will be granted in the future under the 2009 Plan.

Under the 2015 Plan, shares of the Company's Class A common stock are reserved for the issuance of incentive and nonstatutory stock options ("ISOs" and "NSOs", respectively), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance shares, and stock bonuses to qualified employees, directors, and consultants. The awards must be granted at a price per share not less than the fair market value at the date of grant. Initially, 30,000,000 shares were reserved under the 2015 Plan and any shares subject to options or other similar awards granted under the 2009 Plan that expire, are forfeited, are repurchased by the Company, or otherwise terminate unexercised, will become available under the 2015 Plan. The number of shares available for issuance under the 2015 Plan has been and will be increased on the first day of each

fiscal year, in an amount equal to the least of (i) 40,000,000 shares, (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the Plan. The administrator consists of the board of directors who then delegates the responsibilities to the compensation committee. As of June 30, 2022, the total number of shares subject to stock options, RSAs and RSUs outstanding under the 2015 Plan was 27,978,648, and 125,577,124 shares were available for future issuance. As of June 30, 2022, the total number of shares subject to stock options, RSAs and RSUs outstanding under the 2009 Plan was 5,212,625.

A summary of stock option activity for the six months ended June 30, 2022 is as follows (in thousands, except share and per share data):

			Number of Stock Options Outstanding						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (in years)						Aggregate Intrinsic Value
Balance at December 31, 2021			8,916,100						$	26.09					3.89						$	1,226,105
Granted			731,438						96.42
Exercised			(1,304,983)						8.57
Forfeited			(71,416)						114.25
Balance at June 30, 2022			8,271,139						$	34.32					3.95						$	300,804
Options exercisable as of June 30, 2022			6,890,289						$	21.09					3.16						$	295,929

Restricted Stock Activity

Activity related to RSAs and RSUs during the six months ended June 30, 2022 is set forth below:

			Number of Shares						Weighted Average Grant Date Fair Value
Unvested as of December 31, 2021			13,221,953						$	137.86
Granted			16,373,383						100.83
Vested			(3,262,718)						112.45
Forfeited			(1,412,484)						126.96
Unvested as of June 30, 2022			24,920,134						$	117.47

Share-Based Compensation

The fair value of stock options and employee stock purchase plan rights are estimated on the date of grant using the Black-Scholes-Merton option valuation model. The fair value of RSAs and RSUs is determined by the closing price of the Company’s common stock on each grant date.

The following table summarizes the effects of share-based compensation on the Company's condensed consolidated statements of operations (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Cost of revenue			$	139					$	112					$	248					$	211
Product development			179,137						106,161						324,212						193,056
Sales and marketing			25,133						13,777						46,389						24,657
General and administrative			52,229						26,315						161,212						47,064
Total			$	256,638					$	146,365					$	532,061					$	264,988

The Company recorded $12.9 million and $25.9 million of share-based compensation expense related to the Company's 2015 Employee Stock Purchase Plan during the three and six months ended June 30, 2022, respectively, compared to $8.0 million and $16.8 million during three and six months ended June 30, 2021, respectively, which are included in the table above. The total share-based compensation expense for the six months ended June 30, 2022 also includes $66.3 million related to the acceleration of various share-based arrangements associated with the acquisition of Afterpay.

The Company capitalized $3.6 million and $7.6 million of share-based compensation expense related to capitalized software costs during the three and six months ended June 30, 2022, respectively, compared to $4.0 million and $7.4 million during the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, there was $2.8 billion of total unrecognized compensation cost related to outstanding stock options and restricted stock awards that are expected to be recognized over a weighted-average period of 3.09 years.

NOTE 18 - NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding adjusted for the dilutive effect of all potential shares of common stock. In periods when the Company reported a net loss, diluted net loss per share is the same as basic net loss per share because the effects of potentially dilutive items were anti-dilutive.

The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):

			Three Months Ended June 30,												Six Months Ended June 30,
2022						2021						2022						2021
Numerator:
Net income (loss)			$	(209,277)					$	203,678					$	(416,640)					$	242,686
Less: Net loss attributable to noncontrolling interests			(1,263)						(343)						(4,427)						(343)
Net income (loss) attributable to common stockholders			$	(208,014)					$	204,021					$	(412,213)					$	243,029
Denominator:
Basic shares:
Weighted-average common shares outstanding			581,704						455,820						561,846						455,618
Weighted-average unvested shares			(354)						(389)						(345)						(415)
Weighted-average shares used to compute basic net income (loss) per share			581,350						455,431						561,501						455,203
Diluted shares:
Stock options, restricted stock, and employee stock purchase plan			—						18,825						—						19,897
Convertible notes			—						23,351						—						19,585
Common stock warrants			—						24,971						—						25,028
Weighted-average shares used to compute diluted net income (loss) per share			581,350						522,578						561,501						519,713
Net income (loss) per share attributable to common stockholders:
Basic			$	(0.36)					$	0.45					$	(0.73)					$	0.53
Diluted			$	(0.36)					$	0.40					$	(0.73)					$	0.48

The following potential common shares were excluded from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive for the periods presented (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Stock options, restricted stock, and employee stock purchase plan			32,925						7,743						28,184						6,926
Convertible notes			18,025						—						18,032						3,845
Common stock warrants			41,479						17,390						41,917						17,333
Total anti-dilutive securities			92,429						25,133						88,133						28,104

NOTE 19 - RELATED PARTY TRANSACTIONS

In July 2019, the Company entered into an operating lease agreement to lease certain office space located in St. Louis, Missouri, from an affiliate of one of the Company’s co-founders and current member of its board of directors, Mr. Jim McKelvey. The lease commencement date varies by floor beginning in May 2020. The term of the agreement is 15.5 years with total future minimum lease payments over the term of approximately $42.7 million. As of June 30, 2022, the Company had recorded right-of-use assets of $20.3 million and associated lease liabilities of $32.9 million related to this lease arrangement.

NOTE 20 - COMMITMENTS AND CONTINGENCIES

Litigation and Regulatory Matters

The Company is currently subject to, and may in the future be involved in, various litigation matters, legal claims, investigations, and regulatory proceedings.

The Company has received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”), as well as from Attorneys General from multiple states, seeking the production of information related to, among other things, Cash App’s handling of customer complaints and disputes. The Company is cooperating with the CFPB and the state Attorneys General in connection with these CIDs. As of December 31, 2021, the Company had accrued an immaterial loss reserve in connection with the CFPB CIDs. There were no changes to the reserve balance as of June 30, 2022. Given the status of these matters, it is not possible to reliably determine the potential liability, if any, or reliably estimate the range of any potential liability in excess of the accrued amounts, that could result from these investigations. The Company regularly assesses the likelihood of adverse outcomes resulting from litigation and regulatory proceedings and adjusts the financial statements based on such assessments. The eventual outcome of these matters could differ materially from the estimates of loss reserves the Company has currently accrued in the financial statements.

On December 16, 2021, H&R Block, Inc. and HRB Innovations, Inc. (collectively, “HRB”) filed a complaint for trademark infringement against the Company in the United States District Court for the Western District of Missouri. HRB alleges that the Company’s rebranding to Block, Inc. and use of a green square logo in connection with the Company’s Cash App Taxes product infringe HRB’s trademarks and are likely to cause consumer confusion. HRB demands that the Company stop using the Block name and associated branding, and further demands that the Company stop using the green square Cash App logo. A preliminary injunction granted by the trial court on April 28, 2022 preventing the Company from using its Block, Inc. name in connection with Cash App Taxes was stayed by the appellate court on June 8, 2022 for the duration of the Company's appeal of the preliminary injunction. The Company continues to believe this lawsuit is without merit and intends to vigorously defend itself in this matter.

In addition, the Company is subject to various legal matters, investigations, claims, and disputes arising in the ordinary course of business. The Company cannot at this time fairly estimate a reasonable range of exposure, if any, of the potential liability with respect to these matters. Although occasional adverse decisions or settlements may occur, the Company does not believe that the final disposition of any of these other matters will have a material adverse effect on its results of operations, financial position, or liquidity. The Company cannot give any assurance regarding the ultimate outcome of these matters, and their resolution could be material to the Company's operating results for any particular period.

Other Contingencies

The Company is under examination, or may be subject to examination, by several tax authorities. These examinations may lead to proposed adjustments to the Company's taxes or net operating losses with respect to years under examination, as well as subsequent periods. The Company regularly assesses the likelihood of adverse outcomes resulting from tax examinations to determine the adequacy of the Company's provision for direct and indirect taxes. The Company continues to monitor the progress of ongoing discussions with tax authorities and the effect, if any, on the Company's provision for direct and indirect taxes.

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner not consistent with the Company’s expectations, the Company could be required to adjust the Company's provision for direct and indirect taxes in the period such resolution occurs.

NOTE 21 - SEGMENT AND GEOGRAPHICAL INFORMATION

The Company reports its segments to reflect the manner in which the Company's chief operating decision maker ("CODM") reviews and assesses performance. Accordingly, the Company has two reportable segments, Square and Cash App. The results of Afterpay have been equally allocated to the Cash App and Square segments as management has concluded that Afterpay's BNPL platform will contribute equally to both the Cash App and Square platforms. Further, Afterpay does not have a segment manager who reports to the CODM. Rather, the operations of Afterpay are managed by the segment managers of Cash App and Square, who are responsible for allocating resources and evaluating the performance of Afterpay. Products and services that are not assigned to a specific reportable segment, including but not limited to TIDAL, TBD, and Spiral, are aggregated and presented within a general corporate and other category. Square and Cash App are defined as follows:

• Cash App includes the financial tools available to individuals within the mobile Cash App, including peer-to-peer payments, bitcoin and stock investments. Cash App also includes Cash App Card which is linked to customer stored balances that customers can use to pay for purchases or withdraw funds from an ATM.

• Square includes managed payment services, software solutions, hardware, and financial services offered to sellers, excluding those that involve Cash App.

The primary financial measures used by the CODM to evaluate performance and allocate resources are revenue and gross profit. The CODM does not evaluate performance or allocate resources based on segment asset data, and therefore such information is not included.

Information on the reportable segments revenue and segment gross profit are as follows (in thousands):

			Three Months Ended June 30, 2022																								Six Months Ended June 30, 2022
			Cash App						Square						Corporate and Other (i)						Total						Cash App						Square						Corporate and Other (i)						Total
Revenue:
Transaction-based revenue			$	116,068					$	1,359,639					$	—					$	1,475,707					$	225,309					$	2,483,367					$	—					$	2,708,676
Subscription and services-based revenue			720,180						317,835						56,841						1,094,856						1,342,489						600,485						111,439						2,054,413
Hardware revenue			—						48,051						—						48,051						—						85,377						—						85,377
Bitcoin revenue			1,785,885						—						—						1,785,885						3,516,678						—						—						3,516,678
Segment revenue (ii)			$	2,622,133					$	1,725,525					$	56,841					$	4,404,499					$	5,084,476					$	3,169,229					$	111,439					$	8,365,144
Segment gross profit (iii)			$	704,893					$	755,439					$	9,316					$	1,469,648					$	1,328,552					$	1,416,660					$	19,396					$	2,764,608

			Three Months Ended June 30, 2021																								Six Months Ended June 30, 2021
			Cash App						Square						Corporate and Other (i)						Total						Cash App						Square						Corporate and Other (i)						Total
Revenue:
Transaction-based revenue			$	110,950					$	1,116,522					$	—					$	1,227,472					$	202,909					$	1,984,296					$	—					$	2,187,205
Subscription and services-based revenue			494,945						151,240						38,993						685,178						931,534						272,332						38,993						1,242,859
Hardware revenue			—						43,726						—						43,726						—						72,514						—						72,514
Bitcoin revenue			2,724,296						—						—						2,724,296						6,235,364						—						—						6,235,364
Segment revenue			$	3,330,191					$	1,311,488					$	38,993					$	4,680,672					$	7,369,807					$	2,329,142					$	38,993					$	9,737,942
Segment gross profit			$	546,053					$	585,137					$	9,874					$	1,141,064					$	1,041,538					$	1,053,153					$	9,874					$	2,104,565

(i) Corporate and other represents results related to products and services that are not assigned to a specific reportable segment.

(ii) The revenue for both Cash App and Square for the three and six months ended June 30, 2022 includes $104.1 million and $168.9 million each, respectively, from Afterpay post-acquisition results following the closing of the acquisition.

(iii) The gross profit for both Cash App and Square for the three and six months ended June 30, 2022 includes $74.8 million and $121.0 million each, respectively, from Afterpay post-acquisition results following the closing of the acquisition.

A reconciliation of total segment gross profit to the Company’s income (loss) before applicable income taxes is as follows (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Total segment gross profit			$	1,469,648					$	1,141,064					$	2,764,608					$	2,104,565
Less: Product development			524,827						324,059						983,051						631,769
Less: Sales and marketing			530,827						373,878						1,032,389						723,338
Less: General and administrative			395,720						220,865						839,869						416,621
Less: Transaction, loan, and consumer receivable losses			156,697						48,173						247,847						68,568
Less: Bitcoin impairment losses			35,961						45,266						35,961						65,126
Less: Amortization of customer and other intangible assets			39,389						3,829						66,053						6,413
Less: Interest expense, net			12,966						6,464						28,714						6,717
Less: Other income, net			(18,766)						(75,788)						(52,238)						(48,260)
Income (loss) before applicable income taxes			$	(207,973)					$	194,318					$	(417,038)					$	234,273

Revenue

Revenue by geography is based on the addresses of the sellers or customers. The following table sets forth revenue by geographic area (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
United States			$	4,147,502					$	4,536,603					$	7,812,685					$	9,499,938
International			256,997						144,069						552,459						238,004
Total			$	4,404,499					$	4,680,672					$	8,365,144					$	9,737,942

No individual country from the international markets contributed more than 10% of total revenue for the three and six months ended June 30, 2022 and 2021.

Long-Lived Assets

The following table sets forth long-lived assets by geographic area (in thousands):

			June 30, 2022						December 31, 2021
United States			$	8,151,732					$	1,426,103
Australia			4,881,043						26,680
Other international			1,851,897						55,088
Total			$	14,884,672					$	1,507,871

Assets by reportable segment were not included, as this information is not reviewed by the CODM to make operating decisions or allocate resources, and is reviewed on a consolidated basis.

NOTE 22 - SUPPLEMENTAL CASH FLOW INFORMATION

The supplemental disclosures of cash flow information consist of the following (in thousands):

			Six Months Ended June 30,
			2022						2021
Supplemental cash flow data:
Cash paid for interest			$	37,948					$	3,945
Cash paid for income taxes			7,347						8,009
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease obligations			37,572						36,667
Purchases of property and equipment in accounts payable and accrued expenses			8,680						17,115
Deferred purchase consideration related to business combinations			14,377						50,528
Fair value of common stock issued related to business combinations			(13,827,929)						(10,007)
Fair value of common stock issued to settle the conversion of convertible notes			(2,551)						(394,560)
Fair value of common stock shares received to settle convertible note hedges			133,142						1,292,705
Fair value of common stock issued in connection with the exercise of common stock warrants			(220,768)						—
Bitcoin lent to third-party borrowers			5,934						(6,334)