I don't know, I don't know if you'll ever be able to match like Frank over at Pfizer, though. He's a different deal. Thank you very much, everybody for joining us here at the 2026 Morgan Stanley TMT Conference. We're right in the middle of day two and excited to speak with Block. We've got Amrita, CFO and COO. I think she's deserving of one name. I think anybody in the industry, in the investment community that says Amrita, they know exactly who we're talking about.
Oh, thank you, James.
That's... Anyway, before we get started, a couple of disclosures here. Please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. I was also asked to read Block's legal disclaimer. I'm gonna try not to mess this up. During this conversation, Amrita may make forward-looking statements, including about Block's expectations for its financial performance that are subject to certain risks and uncertainties. These statements are based on information available to Block and assumptions it believes are reasonable as of today's date. Block disclaims any obligation to update any forward-looking statements except as required by law. She may also speak as to certain non-GAAP metrics. Please take a look at Block's most recent filings with the SEC for a discussion of the company's risk factors.
Reconciliations of non-GAAP metrics to their most directly comparable GAAP financial measures are available in Block shareholder letter on its investor relations website. Further, any discussion of Block's lending and banking products refer to products that are offered through Square Financial Services or its bank partners. All right, we got all of that out of the way. Amrita, thanks for joining us. It's great to have you and the Block team back at the Morgan Stanley TMT Conference. Obviously, you guys shared some big news last week and that being for those of you that didn't see the headline, you're reducing the workforce by about 40%. I think that one investor was pointing out that may have been the largest single workforce reduction by an S&P company ever, at least in one fell swoop. Big news for sure.
You're doing that as you focus on driving growth and efficiencies with your intelligence tools. I guess maybe first question is, Amrita, what gives you and the team confidence that you can execute on the AI-powered strategy with just over half the current workforce? I mean, you have great momentum right now. You can see it in a lot of the metrics and the top-line acceleration. Like, how are you assuring that or making sure as best you can that you won't be disrupted?
All right. Thanks for the question, James, and thanks for having me here today. You know, of course, I'll start by saying this was a difficult decision. It was a bold decision for us to take, one where we had to say goodbye to many of our colleagues and have expressed gratitude to them for all that they've done to build Block. It's one that we believe positions us in a much more front-footed manner for the next era of the company. It was not a quick decision. It was one that was really built on the prior two years of history for us at the company. The prior two years of history involved two primary things for us. First is getting far, far deeper in the automation tools themselves and building some of those tools, and I'll get into that in a second.
Second was really reorienting the company from an operating model and organizational structure perspective. I think you see threads across each of those two elements in the move and the reduction that we made last week. First, from an automation perspective, we, for the better part of 18 months now, have been training, developing, and reskilling many of our employees around the use of automation tools. That started actually with building our own agent orchestration layer that sits on top of external LLMs. That's called Goose. It's an open source agent that enables actually any company that uses it, and there are other companies that do use it, but it enables our employees to build automation into their workflows.
That includes, of course, disciplines like engineering, where you can imagine code getting pushed to production, but it also includes accountants and lawyers and designers who can automate their workflows, build dashboards, build, you know, using this agent in a way that makes their work more seamless and more efficient. From an automation and AI perspective, while we have seen the speed of these technologies, in particular in the last few months, really pick up pace, it is also a continuation of what we have been doing internally to build mastery in these areas and to continue, you know, that work is never done. We will continue that work in reskilling our employees and bringing that discipline into our work and that rigor into our work.
This is really a continuation of a journey that we've been on for the better part of a year and a half now. The second piece of it is moving from deprecating our prior business unit structure, where we had a fair bit of duplication across each of Square and Cash App into a more cohesive functional structure. That's a change that we made 18 months ago, but we've continued some of the themes and the elements that we saw really worked in that transition around flattening manager hierarchies, expanding our spans of control so that we can speed decision-making, ensure we know who is accountable for what initiative, and really get to faster velocity.
We've seen that now play out in terms of both the combination of these automation tools and this more cohesive, less, bureaucratic speed to decision-making org structure come to bear fruit in how we move as a company on behalf of our customers in terms of our product velocity and ultimately in terms of our business performance.
I wanna ask a couple of follow-up questions there. First, this harness and orchestration layer, I've heard it referred to as Codename Goose and just Goose.
Yes.
What's the official title of it?
The official title, I believe, is codename goose.
Goose. Okay.
That's right.
Right.
We call it Goose internally.
Right.
We have created a version of Goose called BuilderBot, which is now able to push code end-to-end from idea, inception, prototype, and to production.
Got it. Then the second thing I wanted to ask is, and you repeated one of the comments that Jack made last week on the call, you know, obviously this has been a process that you've been going through. You know, the orchestration layer's been under construction for a while. He made the comment that you'd seen a real acceleration in what the LLMs could do.
Yeah
...really back in December as some of those new versions came out. How much did that impact where you thought you could get from a staffing level now? Like, did that change where you were headed?
Yes
...or?
I think it did give us the conviction and confidence to be more bold.
Okay.
Absolutely. I mean, we've seen an uplift in developer productivity metrics, you know, developers pushing code to production of 40% just since September. I think a lot of that is deploying more of these tools into our developers' hands and the tools themselves getting more and more, you know, high fidelity and more accessible. Again, it's not just engineering, but that is often where we see it take hold. We have a number of other examples. The risk model that we built for our one of our lending products, consumer lending products. This is the ability to post-purchase, Pay in 4 on Cash App Card. We built that in two days. The prior iteration of that model for a different consumer lending product, we took us a quarter to build.
we're condensing what took 90 days into 2 working days with the benefit of, the data that we bring to bear on top of these very powerful and profound tools.
Got it. Now trying to take this a little bit to targets and financials, how should we be thinking about your go-forward margin profile and your Rule of 40 framework?
Yeah. I mean, look, we were exceeding Rule of 40 in Q4...
Yep
...even, separate from a reduction like this, which obviously is happening during Q1 this year. You know, what you see from us is conviction that we can accelerate our path to achieving that long-term margin target that we had previously talked about. When we set out to become a Rule of 40 company a few years back, I think it was in the 2023 timeframe, we predicted that we would achieve it in 2026, and more importantly, sustain it. We are now in 2026, and our guidance has us exceeding Rule of 40 this year, and we forecast that we will be able to sustain it on an annual basis moving forward. What does that look like for 2026? Well, it looks like a 26% Adjusted Operating Income margin, which includes stock-based compensation. It deducts stock-based compensation.
That is a 6-point improvement versus where we were in 2025. That is factoring in the reinvestments that we will make after this personnel action, where we are gonna be reinvesting in the excellent people that we've maintained. We'll be investing to build in certain areas like our sales team or our engineering teams. We'll be investing in AI infrastructure, and we'll be investing in go-to-market. We have, through this action, made the space for the shifts in costs that we need to be front-footed for the go-forward future of this company.
Most importantly, we see that both that we are able to maintain and actually build margin from the 21% margin that we expect to have in Q1 throughout the year, achieving nearly 60% of our AOI guide in the second half of the year and ramping margins into Q2, Q3, and Q4. Also exiting the year in the mid-teens range from a gross profit perspective. As you're talking about being a Rule of 40 company, you don't wanna be a Rule of 40 company by having a 40% margin. You wanna be a Rule of 40 company and exceed Rule of 40 by having durable, compounding, profitable growth.
Ultimately, we believe that we're building the workforce and the operating model that enable us to continue to compound growth at scale in that mid-teens % range, which is what we outlined at Investor Day for 2027 and 2028 as well.
you know, last week we upgraded your stock to overweight, and one of the things that for sure was an impact was just the path to better profitability and margins, and that's just what you've talked about. Even before that, we were increasingly encouraged by what we were seeing from a product perspective.
Mm
that we really felt like was expanding the TAM.
Yep
...and was creating the opportunity to accelerate the top-line growth. I think we've seen some of that.
Yeah
...and the KPIs are improving. Going back to the product point, like, how should we interpret what seems to be an improvement in product velocity? Is this, are we still at the early stages? Is this really kind of the beginning? By that I mean, is this the impact of having worked on product for a couple of years, now it's coming to market?
Yeah.
Are we really seeing acceleration so that we can follow on more quickly than we have in the past? Like, help us evaluate and track, how we should be thinking about keeping track of the rate of new product introduction.
Yeah. I mean, look, it's our intention to build upon our product velocity momentum and increase it. We released more products for Square in Q4 2025 than we did in all of 2024. You know, our, as we talk to more and more sellers, we see that there are more and more use cases, there are more and more needs that they have. We are ever focused on expanding our product velocity, and we think that these tools enable us to do that. A. Everybody is a builder. We now have the ability to envision how we can make our workflows internally more efficient and build for our customers in faster fashion because of that. B. The time to build has gone down dramatically. I mentioned the Q1 to 2 days for our risk models.
There are a number of other examples like that across our, you know, various disciplines, but particularly I would say for engineering. We see it speeding time to answer for our customers themselves. Today, the most apparent example of that is in customer service, where we've automated 75% of the interactions on Cash App customer service with really strong CSAT and NPS scores. We are ramping the expansion of our automation tools for Square customer service.
Ultimately, the vision that we see is actually putting these tools in our customers' hands so that they are themselves empowered through the usage of AI on their dashboard if they're a Square seller, what we call Manager Bot, or through the use of the chat interface within Cash App, what we call MoneyBot, which becomes proactive intelligence in their own hands, and eventually see a vision where if Square can't solve every seller's needs or Cash App can't build every piece of software for an individual, they themselves can actually generate the dashboard or the widget or the UI that solves the answer that they're looking for.
In 2026, there's a lot more moving parts, especially with the change in employment structure, et cetera, than, you know, even we're used to with Block, and there's always a lot of moving pieces. Can you help frame for investors the top 2 or 3 priorities you are most focused on in 2026 and the KPIs that you think we should be tracking most closely?
I think first and foremost, it's product velocity, everything we were just talking about. I think that there's some very actionable, tangible examples of products across Square and Cash App that you should be seeing from expansion of commerce initiatives with Cash App Card and Cash App Pay and the integration of lending into those initiatives, the expansion of Cash App Green, which is our status tier sort of membership tier within Cash App, to food and beverage products and services across our Square business. There's some tangible things that you can see that you should be able to see in the months and quarters ahead. Then there's some bigger audacious things.
Our Neighborhoods initiative, we are shifting from an opt-in to an opt-out, an auto-enrollment motion, and you'd wanna see that ramping as we go throughout the year. Our AI initiatives, Manager Bot and Money Bot, we will start to be deploying these in bigger waves across our customer bases in the weeks and months ahead. Our Cash App credit score, the underlying technology that underpins our lending products. These are the host of sort of tangible everyday expansion that you can imagine ramping to being meaningful in customer utility and therefore our financials, as well as the much bigger, much more transformative, much more audacious things that may not impact 26 financials specifically, but could lay out the foundation for our next wave of growth.
I think the second key thing you need to be looking at for Block is the fundamental network growth KPIs around our business. In Square, what is that? I think it's the things that ladder up to GPV growth, which is retention and new volume added, and then further our software attach rates into our GPV or our seller base. Within Cash App, it's monthly actives growth, it's primary banking actives growth. It's our ability to grow our overall base of customers and also grow our engagement with those customers. The final thing I think is around our core financial growth. We've outlined ambitious but we believe achievable targets for the year around 18% gross profit growth and 54% Adjusted Operating Income growth to $3.2 billion.
We believe you should hold us accountable to those growth metrics.
Just on kind of some of those building blocks, in particular, I would say that things like retention and new volume tends to be some of the more debated questions in the investment community generally. Like, is that something that, like, we can get from the company? Or like, how should we think about, like, tracking those components of the algorithm?
Yeah. I mean, look, I think you need to see the proof points from us in terms of bringing new sellers onto the platform.
Mm-hmm
... as well as, understanding the mix of factors that impact retention for our customers. Really, it's primarily two things: same-store growth, which has an element of macro dynamic related to it, but also an element of the depth of our ecosystem. Are we able to serve more and more of our sellers' needs? They're no longer cobbling together, you know, Square point of sale with some external kiosk solution. Now they can get that all cohesively from us. As we've released new hardware over Square, you know, two new pieces of hardware just in the past 12 months or less, I think we have more potential to take on more of our sellers' business.
The other aspect of retention is around churn. What we've seen from a churn perspective across the broad base of the Square business has been relatively stable and very encouraging. Those are the two key elements that ladder up under retention overall. That is really what moves the base in any given period for the Square business. As we said at Investor Day, a point on new volume added, generally 7-8 points of new volume added move growth in the following year by 1 point. We grew new volume added by 17% in 2025, and we accelerated that growth throughout the year, ending the year at 29% growth for new volume added. Those are the sorts of, you know, that's the sort of momentum that you wanna see in our business.
Sticking with Square and kind of the financial metrics, as you move upmarket and international becomes a larger share of the mix, you have noticed some potential payment pricing mix headwinds that we should expect to offset, and you hope to or expect to be a little bit of a headwind, but you hope to offset those via higher software attach. Walk us through the path and timeframe for this software attach, the pricing and upsell to become more visible in results?
Yeah, I mean, if you think about the breadth of the Square ecosystem, we have 30-plus products across commerce, team management, buyer loyalty, marketing, hardware, banking that we can offer these customers. I think the opportunity to simplify that ecosystem, starting with our pricing and packaging tiering that we launched just this past Q4, where the early metrics are extremely encouraging. New sellers who onboard see an uplift in overall SaaS attach rates, and existing sellers who shift to the new 3-tier pricing approach that we've taken see an ARPU lift. You know, what we see from this as we continue to roll this through the much broader base of our millions of sellers is the potential to bring the broader set of our ecosystem to these sellers beyond just core payments or just core hardware. We're excited about that.
I also think as we think longer term about, and this is not necessarily a 2026 thing, but as we look into the future, the potential to simplify and almost abstract products from our customers into utilities through Square AI, through Manager Bot. All a customer is thinking about is what do they wanna do and asking that chatbot for what they wanna do, and that becomes immediately apparent to them without having to switch screens and being able to seamlessly navigate from there. I think that gives us the potential to create a much more personalized, customized experience for that seller that involves the full suite of the ecosystem that we bring to bear.
What we've talked about in terms of timeline is sort of the back half of the year where we expect to see more of that normalization across gross profit growth and GPV. Obviously, in the first half of the year, we've talked a lot about this processing partner change that we made and also investments, importantly, into hardware, which is where we see the opportunity to really attract new customers, especially larger customers. We believe our hardware and the integration with all of our software and payments is a differentiator for us, and one that really helps attract new customers. Those are some of the areas of investments that we're making in the first half of this year.
I wanna turn to Cash App and kind of along these same lines of accelerated product introductions and expansion of TAM, talk about the credit products within Cash App. Borrow originations have accelerated significantly, and you've highlighted maintaining loss rates while expanding access to Cash App customers to these Borrow products. How do you view the next phase of the Borrow roadmap? What are the types of products that we should be thinking about coming next?
Yeah. Borrow has been an incredible product for us and an incredible product for our customers, many of whom want to be able to make decisions in between paychecks to smooth their cash flows, to almost get this tap into a line of credit as they need it. You know, we see younger generations, the modern earner is either thin file and not able to get a credit card or find that sort of revolving debt to be sort of against the grain. A product like Cash App Borrow, which enables you to tap into it when you need it, or a product like Buy Now, Pay Later, or these consumer lending products that we have really give far more choice to our customers. What they've been for us is also an incredible business.
Because of the access to data that we have, because of the unique attributes and short-term nature of these products, we are able to drive meaningful variable profit growth and strong Return on Invested Capital through these products. What has driven Borrow's meaningful growth in the back half of 2025, and we think will continue to drive growth into 2026, particularly in the first half of this year, is really around two things. First, we have a bank, Square Financial Services, and we have just shifted originations for Borrow into our bank from a partner bank, which gives us stronger unit economics. The other thing that our banking license enables us to do is take Borrow nationwide. Whereas for the prior few years before we shifted originations to SFS, we were only in a subset of states.
That gives us immense TAM extension expansion opportunity for Borrow. As we build history with those Borrow customers over time, it also gives us the ability to underwrite them at greater levels, to expand limits for each of these Borrow loans and expand effectively that line of credit. The second piece that has driven Borrow growth, particularly in Q4, is a deep engagement of Borrow into Cash App. We launched, as I mentioned earlier, this new status tier called Cash App Green, which many of our customers really want access to because it gives them a differential premium offering within Cash App, access to priority phone support, overdraft protection, you know, specialized offers, and also access to Borrow or access to Borrow at higher limits. What we've seen is that these Borrow customers are deeply engaged within Cash App.
What we've seen is that the launch of Cash App Green actually brought a lot of new customers into Cash App Borrow, the most new customers in any period that we've seen coming into Cash App Borrow, which we're excited to grow with them as we build greater signals around their inflows and outflows into Cash App. We think we have the ability to continue that pace of growth into 2026.
Let's talk about as lending scales, one of the concerns that investors often have is just the cyclicality economically and credit products can be more cyclical than payments a lot of times. How do you think about managing risks in a, maybe in a recession scenario or a downturn in credit, especially as Borrow and BNPL continues to grow? Should we expect loss rates to go up as you try to maintain access for and maintain those customers? Or how do you try to keep those really flat? Like, talk to us about how you try to manage in a downturn.
maybe I'll share three points. First, on how we manage it, second, on the scenarios we've run, third, what we actually see in our customer base and who our customers are for Cash App and for Borrow. First, in terms of how we run the product, the models are incredibly responsive, the underwriting models. They are near real-time in terms of being able to flex the data we see about a broad population or an individual customer and then reflect that in the credit score, the internal credit score that we use to underwrite that customer.
As we shift, see a shift, which we have not yet seen, but as we see a shift in the broader environment, the model will respond and bring a customer's credit score down, which gets reflected in our underwriting and what we are able to provide in terms of either eligibility, where we determine eligibility for these loans, or in terms of limits. The second thing is that we can provide overlays. We can adjust manually any of those dynamics in terms of limits or eligibility, but also things like the amount of money that needs to be provided for upfront in a given loan scenario, term lengths. There are a number of different things where we have the ability to quickly adjust. These loans are very short in duration.
They're about 25 days, which means that we have the ability to pivot very quickly. From a scenario perspective, we've run moderate and even severe recession scenarios. What we've seen in, if you look at, you know, prior history, moderate recession scenario is typically about an incremental 2-3 percentage points of unemployment. What that would mean to Borrow is that we could actually keep variable profit margins stable to where they are today and see only a mid-teens percentage reduction to originations. We can make that decision to keep variable margins where they are today and see a modest top-line reduction from originations perspective, or we could decide to see less of a top-line reduction and bring margins down very slightly.
Even in a severe scenario, recession scenario, we still see variable profitability for Borrow loans on an individualized basis and a cohort basis. Finally, what I'd say is that when we look at the Cash App consumer, you know, we get a lot of questions about who our Cash App customers are. These are modern earners. These are folks who are looking for a more flexible way to live, but many of them, 50% of Cash App's customers actually come from households with $70,000 or more in household income. We serve a pretty broad base of customers, many of whom we believe can be resilient in whatever the economy holds. Again, our product attributes give us the opportunity to be very nimble in how we can respond to that.
Got it. I want to talk a little bit about, you know, another component within Cash App and these relationships, and that's kind of the primary banking account relationships as well as inflows per active. I think one of the KPIs that stood out to me in the December quarter was the really rapid growth in-
Yeah
... primary bank accounts. I mean, it grew over 10% sequentially.
Yeah
that number of accounts. You know, and you've highlighted that as a key driver of inflows per active and, you know, the ways that you can monetize that I think should be pretty clear to people. How are you thinking about scaling this cohort? I mean, whether that be through Cash App Green initiatives, direct deposit, teens, families, and what unit economics do you need to see-
Yeah
for Green to scale meaningfully?
Yeah. People are very excited to get access to Cash App Green and the suite of sort of privileges or benefits that we provide them. The way you get access to Cash App Green is you either are bringing us your paycheck, you know, through direct deposit above a certain amount each month, or you're bringing us $500 of commerce volumes in a given month, usually through Cash App Card or through one of our payment vehicles. Obviously, we monetize those as inflows run through our system in the, in the case of paycheck deposit or as those, you know, we see those payments through interchange on Cash App Card or Cash App Pay.
We have seen that this cohort of customers are primary banking actives generate 10x the gross profit per active of a peer-to-peer customer through Cash App. We've also seen since the launch of Cash App Green that this cohort of customers' retention has actually improved. They are more engaged and more retentive into Cash App since we packaged this suite of benefits together. We've also seen the volumes flow through in terms of activity and inflows. We saw inflows up sequentially as well, you know, 10% growth in Q3 to 12% growth on an inflows per active basis in Q4. We're seeing these volumes come through many of our products, and that's leading to sort of a rising tide lifting all boats across the broader Cash App ecosystem, and ultimately the monetization rate also growing.
We think we are just in the early days of exposing our 59 million monthly actives to this primary banking activity across both, you know, lending, you know, and banking products as well as our commerce products. We think we have a lot more opportunity to enhance these benefits, potentially tier them in the future, and also expand the attach rate to our overall base.
Got it. Last few minutes here, Amrita. I wanna talk about capital allocation and cash flow. You introduced non-GAAP cash flow as a key metric and you've discussed the ability to return a large portion of it via buybacks while still investing in growth and working towards an investment-grade balance sheet. How should investors think about the decision framework today for buybacks versus incremental growth investment? Like, what's taking priority and what can shift those prioritizations?
Sure. You know, I think what we outlined at Investor Day in terms of our prioritization still stands today, which is, we're going to, you know, ensure that we can continue to invest and grow our business, which includes our operating expense base and our lending portfolio. We used $3 billion of our capital to grow our expansive lending portfolio, which has high 20% range ROICs. You know, that's a decision we would make all day long because it leads to durable compounding profitable growth. The second priority is returning capital to shareholders. We returned $2.3 billion in capital to shareholders in the last 12 months as well, even as we've continued to invest both in our operating expense base and in our lending originations. That's a durable program for us.
We said we wanna maintain roughly 80% of that non-GAAP cash flow in the form of returning capital to shareholders, and that we'd expect that non-GAAP cash flow to grow to about the $4 billion range by 2028. Obviously, since Investor Day, we are accelerating the pace of our profitability year-end 2026 in terms of our expectations relative to November. Ultimately, over time, we think that it creates to longer term profitability as well as to our cash flows as well.
Last question to wrap up here, Amrita. You've had a very eventful last week. You've spoken to a lot of people, investors, press, et cetera, I'm sure. Excuse me. What is the key 1 or 2 messages that you wanna leave with people? In particular, where would you like to disabuse people, maybe of some misconceptions, et cetera?
I think the thing that is fundamentally true for us internally, and I would love people externally to feel this, is that we're incredibly mission-oriented to accelerate our product impact across our customer base. That includes building new products, but it also includes putting the power of these new powerful AI tools into our customers' hands because we won't even be able to build everything that they may need to power their lives or their business. I think the growth potential from what that could be in the future and our differentiated capabilities there from a data perspective, from a banking, underwriting, and risk model perspective, and from a proactive intelligence and design interface perspective are really unique to Block. The future, I, as I think about the next 3 to 5 years is only accelerating for our company.
Love it. Amrita, thank you so much for joining us. It's really been really good.
Thanks.