Yahoo Finance Block, Inc. (NYSE:SQ) Q1 2024 Earnings Call Transcript
Block, Inc. (NYSE:SQ) Q1 2024 Earnings Call Transcript May 2, 2024
Block, Inc. beats earnings expectations. Reported EPS is $0.85, expectations were $0.72. Block, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen, and welcome to the Block First Quarter 2024 Earnings Conference Call. Today's call will be 45 minutes. And I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead.
Nikhil Dixit: Hi, everyone. Thanks for joining our first quarter 2024 earnings call. We have Jack and Amrita with us today. We will begin this call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from conference call participants. We would also like to remind everyone that we will be making forward-looking statements on this call. All statements other than statements of historical fact could be deemed to be forward looking. These forward-looking statements include discussions of our outlook, strategy and guidance as well as our long-term targets and goals. We may decide to shift our priorities or move away from these targets and goals at any time. These statements are subject to risks and uncertainties.
Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law. Further discussion during this call of Cash App's banking services referred to those offered by our bank partners. Within these remarks, we will also discuss metrics related to our investment framework, including Rule of 40. With Rule of 40 we are evaluating the sum of our gross profit growth and adjusted operating income margin.
Also, we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter and our historical financial information spreadsheet on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call and the transcript for Jack and Amrita's opening remarks will be available on our website shortly. With that, I would like to turn it over to Jack.
Jack Dorsey: Thank you all for joining us. In the last two quarters, I focused my shareholder letter on our priorities for Square and Cash App strategy to become one of the top providers of banking services. This quarter, my letter was focused on the Bitcoin strategy. If you haven't yet, please read that letter for details. Before Amrita talks about our performance, there was a news report yesterday I wanted to address directly. In general, these sorts of stories can lack full context. First, we do not believe that there are any new investigation in the Block, but rather that these reports relate to the existing inquiry by the DOJ that we've previously disclosed. Second, there was critical information omitted from the article when it was first published.
In 2022, our compliance engineering risk team who proactively investigate threats identified signals that lead us to conduct a thorough review of transactions potentially associated with sanctioned countries. We voluntarily reported these to the Office of Foreign Assets Control, OFAC, where we were transparent with them, and we stand by the scope of the transactions that were included in the report. OFAC then issued us in no action letter in which they determine no further investigation or action was needed at the time. This is how the process is supposed to work and this outcome was originally not originally included in the article. Third, as it relates to preventing tariffs financing via Bitcoin, we have a robust control environment in place to mitigate exposure from adversaries.
For instance, we use industry-leading blockchain analytics firms to screen transactions in real time. We also maintained some of the most restrictive limits in the industry for on chain Bitcoin withdrawals, which are deliberately calibrated to prevent bad activity. And of course, we require identity verification for customers engaging with our Bitcoin products and FIU suspicious activity reports when warranted, which is an important contributor to keeping the broader financial ecosystem safe and secure. We take compliance seriously at Block. A culture of compliance is foundational to our work. We have a radically transparent culture that supports us. Employees are empowered to raise issues through multiple channels, including directly to me or anonymously through our Whistleblower hotline.
We continuously improve our compliance program based on the number of different inputs, including self-identified issues, audits and guidance from our regulators. Adversaries have always and will continue to try to exploit the global financial system. No company is perfect at preventing this. Our work is to constantly be steps ahead of their attacks through better use of technology. This includes leveraging industry-leading machine learning models and product controls aimed at detecting and preventing bad activity in real time. It's an always-on part of our business, and it always will be. And with that, I'll turn it over to Amrita to talk about the quarter.
Amrita Ahuja: Thanks, Jack. I'll keep my remarks brief, as we've included information on our performance and guidance in the financial discussion of our shareholder letter. We delivered strong results during - across the company during the first quarter. Gross profit was $2.09 billion, up 22% year-over-year, consistent with the fourth quarter. Adjusted EBITDA was $705 million, nearly doubling year-over-year and adjusted operating income was $364 million, up seven times year-over-year. By business, Cash App's gross profit was $1.26 billion, up 25% year-over-year. And Square's gross profit was $820 million, up 19% year-over-year. Gross profit outperformance compared to our guidance was mostly driven by Cash App. We saw strength across Buy Now Pay Later, Bitcoin, Cash App Borrow and Cash App Card, where we had 24 million monthly actives.
Inflows per active were up 11% year-over-year in the quarter for our highest growth since the fourth quarter of 2021. Square's GPV growth in the quarter was in line with our expectations as we saw continued moderation in same-store sales growth. This was more than offset by strong attach rates on our broader ecosystem of software and banking products. Our profitability improved as we showed discipline across a range of expenses ending the quarter below our 12,000-person cap and achieving leverage on corporate overhead expenses. For the 12 months ending in March, adjusted free cash flow was $1.1 billion, up more than 2.5 times compared to the prior 12 months and represented 50% of adjusted EBITDA, an improvement compared to the 36% conversion rate in the prior period.
Turning to our expectations for the remainder of the year. We are raising our full year 2024 guidance for both gross profit and profitability, not only reflecting the Q1 outperformance, but also reflecting our raised expectations for the remainder of the year. For full year 2024, we are now expecting gross profit of at least $8.78 billion or 17% growth year-over-year. We expect Cash App's gross profit growth to moderate slightly from the first quarter's 25% as we lapse some meaningful pricing and structural cost benefits with relatively stable growth from the second quarter through fourth quarter. For Square, we expect gross profit growth to moderate from the first quarter's 19% growth rate as we lapped strong banking performance and pricing changes from the prior year.
In the back half of the year, we expect GPV growth to be stable to improving behind more favorable same-store growth comparisons with a narrowing delta between gross profit and GPV growth rates. We continue to focus on initiatives that improve our product velocity. These include several upcoming launches that further our strategies for Cash App and Square, most notably testing and rolling out Afterpay on Cash App Card. And for Square, completing the orders migration this summer and conversion to a single app by year-end. These initiatives remain on track, and we expect them to benefit our growth into 2025 and beyond. For profitability in 2024, we are now expecting at least $1.3 billion in adjusted operating income or 15% margins on gross profit.
With efficiency initiatives underway to improve our structural costs and corporate overhead, we also see opportunities to invest in the back half of the year in high-return areas like sales and marketing that can drive future growth. Our updated guidance now implies a Rule of 32 for full year 2024. This is an improvement compared to 2023 and compared to our prior guidance of at least Rule of 29 and progresses us towards our goal of achieving Rule 40 in 2026. With that, I'll now turn it back to the operator to start the Q&A portion of the call.
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