Okay. We are going to get started with the next session. We are very excited to have Amrita Ahuja here, CFO and COO at Block. Thank you for joining us yet again.
Thank you for having me.
All right. I am going to read a quick disclaimer and then we can get into it. 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. Please refer to Block's most recent SEC filings for a discussion of the company's risk factors. She may also discuss certain non-GAAP financial metrics. Reconciliations to the most directly comparable GAAP metrics are available on Block's shareholder letters 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, Amrita, thanks for being here again.
I always look forward to hosting this. This year has felt like a harvesting year. We have been talking about a lot of the initiatives inside the organization to improve execution, growth, product and distribution investments on the Square side, lending and banking on the Cash App side, broader operational excellence initiatives like Rule of 40, obviously the firm's AI initiatives. As a close follower of the story, it feels like we are starting to see those investments bear fruit this year. Maybe for those that hear all that is going on and see a lot of the execution-related initiatives to keep track of, what is the state of the union and how do you think about where the company is on that journey?
Sure. When I look back at what we said we would deliver this year at Investor Day in November and where we are today, I think there is a lot to be incredibly excited about. In November, we thought we would deliver 17% gross profit growth and about $2.7 billion in adjusted operating income. Our latest guidance calls for 21% gross profit growth and nearly $3.5 billion in adjusted operating income for 2026, with 70% growth on adjusted EPS and seven points of adjusted OI margin improvement year-over-year. What's encouraging to me is that the incredible traction that we've seen so far this year is broad-based across each of our ecosystems.
Whether you look at Square, where we had the strongest U.S. GPV growth in the second quarter that we had seen in three years, with compounding benefits across product velocity, delivered three times more features at 130 features in the first half of this year than we did in the first half of last year. Or it's the compounding benefits that we have of our scaling distribution channels across field sales, telesales, the ISO channel, and of course, tried and true self-onboarding, which continues to also grow at the fastest rate of growth that we've seen in five years. So that's Square. From a Cash App perspective, growth of 31% in the second quarter, growth of 59% on our consumer lending originations, growth of 17% on our primary banking actives. This is broad based across commerce, banking, and lending within Cash App.
We see an opportunity to do even more when we look at each of those ecosystems. This is all fundamentally underpinned well by us refactoring and redesigning how we operate the company in an AI world. That what you see is greater product velocity, our ability to start small, experiment, and double down on what's working, whether it's products or it's distribution channels, our agility and ability to move more quickly with a flatter organizational structure. This is the year, as you say, where we're harvesting all of those benefits, all those changes that we've been making over the past few years, and you see that bearing fruit. Maybe the final thing I'll say is, three years ago, we set out to be a Rule of 40 company, and that's inclusive of stock-based compensation expenses, we feel is a higher bar.
So far what we've delivered is Rule of 52, and our guidance shows we should be at close to a Rule of 50 company for the year. We continue to push even above and beyond what our own internal financial targets are.
I guess let's talk about the financial targets. The team's done a lot of work on the cost structure.
Yeah.
Also on increasing the runway for growth. As CFO, can you tie that back to the financial growth algorithm? The 30% growth on the bottom line is a big number. For longer-term investors in the audience, how do you feel about the sustainability of that beyond a harvesting year?
Sure. We feel that there's a tremendous amount of leverage in our business. First, before I get to the fixed cost aspects and what we've done there, I want to talk about how we run the business from a unit economic standpoint. There's two key things that we think about. One, on a product-by-product and initiative-by-initiative scale. We look at returns on investment, we look at payback periods, and we look at unit economics. We don't think about scaling loss leader products. We think about the health and the overall value of an ecosystem that we're delivering to our customers. That then ultimately means that we can continue to invest in the business. We don't see it as a trade-off between investment and growth.
The two need to move in tandem with each other, and that's only when we are able to hold ourselves accountable and deliver on the returns on investment for those investments that we're making. By the way, that may look different depending on the investment type. Go-to-market, very measurable, deep years of data science underpinning those models where we can measure by channel and by customer type. Other types of investments, like our AI investments, we need to come up with new forms of measure, things like developer velocity or time to customer value that we would be measuring and that we are now rigorously measuring on a week-by-week basis. The second key thing that we look at is incremental margins. As we said at our Investor Day last year, and as you saw in Q2, just this past year, we had 50% incremental margins.
That means that half of the incremental gross profit that we accrete to the business flows through to the bottom line. It is only from those investments, those focus, and that rigor, and that discipline in driving strong unit economics that we can drive the 50% incremental margins. Then finally, we think about the leverage of our fixed cost base and how we run the business overall, which has been, as I said, a big journey that we have been on and involved making ourselves a much smaller and flatter company earlier this year.
Makes sense. One of the most significant changes this year was the 40% headcount reduction, which you talked about it largely impacting the second half of this year. One of the common questions we have received on the most recent quarter was just how much of that is being actively reinvested into the business. So could you talk about maybe a postmortem of how the exercise has gone and how much of that is being reinvested?
Yeah. Well, first, let us talk about why we did it. It was not about necessarily or specifically a cost-saving exercise. It was about fundamentally redesigning how we operate our business. What we wanted to see was clear lines of ownership and accountability. Who was delivering what project and on what timeline? And extreme clarity on that. Two is a flatter organization. Fewer layers between people making decisions and setting strategy and people fundamentally building. What we needed to see was agility in our workforce, the ability to move quickly and think in four- or six-week increments, not four- or six-month increments, so that pods of people are working on specific initiatives and can see near-term real-time results as they move those initiatives along. As initiatives may change over time, shift to other things.
As I said, double down on the things that are working and pivot on the things that aren't working. So this reduction for us, the 40% reduction earlier this year, was as much about refactoring how we work as it was about the overall size of the team required to deliver upon our roadmap. We took three fundamental principles to how we made the change. One was our products had to work as intended. We had to have resilience and uptime for our products throughout this pretty significant transition, and we have seen that. Touch wood, we continue to see that. Second, we have major commitments as a public company, as a regulated company, from a compliance, customer operations, governance perspective, and we must honor all of those obligations.
And third of all, we have a significant roadmap, one that we outlined at Investor Day, one that we continually dialogue with our customers on, and we need to continue to deliver on that roadmap. I would say our roadmap has only gotten more ambitious in the last six months. As I look back on it, we have absolutely fulfilled those three principles from this reduction. What it has shown us is that we have a tremendous amount of leverage in our business to be able to actually continue to make significant investments but still deliver margin expansion. Some of those investment areas for us have been around AI infrastructure, how we are delivering AI to ourselves and also to our customers through things like Manager Bot on the seller side and Money Bot on the consumer side.
Neighborhoods, how we are connecting the two sides of our ecosystem to do things that we believe we can uniquely do, and go-to-market. As we said, we have really broad ecosystems on both sides of the counter, and we want to be able to tell that story more and more to sellers and to consumers. Those are the three incremental investment areas that we have been able to invest into while still delivering, as I said, that seven points of margin expansion year-over-year.
Jack has made this point that Block is a tech company, not a point-of-sale or a financial services company. You can see that in a lot of the foundational tools that the company has rolled out. Buzz for human and agent collaboration, BuilderBot, Berd. How do these capabilities fit together, and what differentiates your approach? Longer term, how should investors think about the impact on product velocity and customer experience?
Yeah. First, what I would say is that all of these capabilities and interfaces from an AI perspective are built on the same core infrastructure and built not in the last just six months, but based on the last two years of deep work we have been doing from an AI perspective. We launched what we believe is the first agentic harness with Goose in early 2024 and have now followed that up in three ways. First, Berd. We love our names, our cute and quirky names at the company. Berd, B-E-R-D, is the next-gen version of Goose. It allows personalization and greater automation and is model agnostic. You do not get locked into a particular vendor or particular company when you are using Goose or Berd as your harness. Second is Buzz. This one we are extremely excited about. Trending on GitHub.
Many customers outside of our four walls, but certainly everyone within Block is using Buzz. You can think of it as a co-working space for your team, whether your team is made up of humans or agents. In fact, many of the team spaces that I am in in Buzz put those humans and agents on a level playing field. Because it is co-working, it is a multiplayer AI space. You get to see how other people are using their agents. It is an incredible way of cross-disseminating, cross-pollinating all of these automation AI opportunities. The third piece is Builderbot, which is primarily a tool for builders, for engineers, albeit anyone within Block can use Builderbot.
It really supports developer velocity, and it supports really important elements, but oftentimes deterministic elements within the engineering realm around when something has not worked, or when we see downtime in a particular area, or when we need to triage. Builderbot can find those things, can discover those things, oftentimes much faster than a human. These are some of the reasons that we have been able to improve our product velocity, as well as improve the reliability of our products with the increasing use of AI in the past many months.
Okay, I want to pivot and start talking about Cash App and in particular on network growth. We have heard a lot more folks on growing the network and the user base in addition to wallet share and monetization activities, which we will get to in a second. What are the strategies for growing the overall size of the Cash App network?
Sure. What we have said overall is consistent this year with Investor Day, which is we expect to see low single digit growth from a Cash App actives perspective at nearly 60 million monthly actives, 59 million monthly actives, by our most recent count. As we think medium to long term, we see some pretty meaningful opportunities to explore or expose, I should say, many millions more people to Cash App. I think of two new invention or product, sort of zero to one product led opportunities, as well as a number of core feature enhancements. Core blocking and tackling, if you will, in terms of the funnels for how the product works. First, Neighborhoods. We have hundreds of millions of buyers who walk into our Square sellers, whether online or in person in a given year.
Many of those are new to Cash App or not active within the Cash App ecosystem. In fact, what we have seen so far from a Neighborhood standpoint, I am sure we will talk more about Neighborhoods, but 50% of the buyers within our Neighborhoods program have not been recent actives or are brand new to Cash App. The opportunity to expose millions of more people to Cash App with a true value proposition where you can earn and then spend that local cash at a local Square seller is incredible from an active growth perspective for Cash App. Secondly, Managed Accounts. We have had a teen account offering now for a couple of years, and we are making feature enhancements as well as go-to-market enhancements to that product. More recently, we introduced a Managed Accounts product, which is accounts for six to 12-year-olds.
Both my kids happen to be in that age range, and I will tell you, it is incredible to see how empowering it is for them to be able to spend their own money, their own allowance on a card that they personalize themselves, that has their own self-expression on it, the pride they feel, the empowerment they feel from that. That brings in the family around them as well. We are incredibly excited about the Managed Account opportunity within Cash App. Then, as I said, a whole bunch of tried and true blocking and tackling from core peer-to-peer flows to go-to-market enhancements and partnerships to other new products that we have introduced that just bring greater value into the broader Cash App ecosystem, so people keep wanting to come back. Whether it is things like tags or our new phone plans program.
There is a whole series of Afterpay on Cash App Card, adding incremental utility to these powerful distribution surfaces that we have, the fourth largest debit card in the U.S. These sort of tried and true product ecosystem expansion as well as funnel optimizations. Those are the core focus areas in addition to Neighborhoods and Managed Accounts that gets us very excited about the opportunity to grow active medium to long term.
Let us talk a little bit about Neighborhoods.
Yeah.
You have seen some good initial success. I think you recently announced that 30,000 new sellers have been added. I think investors have long viewed this as sort of an option value in the story.
Yeah.
About bringing the two sides of the ecosystem together. What do you think is a reasonable window for this to show up in the model tangibly? What would you point us to as milestones or proof points along the way?
Yeah. Look, we know this one is a long time coming, and we are incredibly excited now that it is here. We think that this is something, the connection at sitting at the counter in between the buyer and the seller, the buyer on Cash App and the seller on Square is a value that we can uniquely provide. It drives incrementality and demand generation into the seller, and it drives incentives and a reason to be loyal into the consumer. What we are seeing from our more recent cohorts of sellers onboarding auto-enabled into the Neighborhoods program is really encouraging. The metrics that we look at are things like retention, 90% retention of sellers who are auto onboarding into our Neighborhoods program, which means many of our sellers want quick throughput. They do not want extra frictions.
What that means is they are actually seeing value from this. They are actually seeing an an opportunity to bring new customers or more loyal customers into the Neighborhoods program. That is part of the reason that we have decided to 10x the number of sellers in recent weeks involved in the Neighborhoods program, and we are excited to continue to ramp that over the coming months and quarters. I think to your point about timelines and when it shows up, I think we will probably see it. What we expect is to see it show up from an actives perspective, start to be a little bit more meaningful from a Cash App actives perspective in the back half of this year.
And then as we prove out the demand incrementality to the seller, be able to actually make the case to the sellers to use it more and potentially for new sellers to join the ecosystem as we look into 2027 and beyond.
Yeah, makes sense. Let's switch gears into Cash App on the lending side. Lending's been a major driver of growth. Consumer lending originations grew over 80% in Q1, 60% in Q2. You've been clear that you expect that to normalize as you lap the really significant expansion of the Borrow surface area last year. How do you think about a durable level of lending growth in the business? How do you balance that growth against risk loss and overall returns?
Yeah.
And maybe if you could talk about near-term opportunities across Borrow and some of the new Afterpay products.
Yeah.
To keep growth rates elevated.
Yeah. Let's talk risk loss first, and then we'll talk about growth opportunities for consumer lending, maybe even product by product. From a risk loss perspective, we grew risk loss greater than the 59% originations. There are a number of reasons for that underlying it. First is you can imagine that large and ramping products like Borrow and Afterpay and Cash App Card grew far in excess of the 59%. The mix of products underlying that growth rate and how quickly those ramping products, newer products that have newer cohorts of customers as ramping, is really the primary thing that determines what risk loss looks like. Ultimately, at the end of the day, what we saw was gross profit margin dollars ramping, or gross profit growth, I should say, ramping as quickly as origination dollars ramping.
Unpacking what's driving transaction and loan loss reserves is both a mix, as I said, of products, how quickly Borrow's ramping, how quickly Afterpay and Cash App Card, both post-purchase and pre-purchase, are ramping. The mix of new versus existing or mature cohorts. Newer customers tend to have higher loss rates than mature customers. As they mature over time, those loss rates come down. Then third, a product construct shift that we've been making for Borrow over the past quarter, where we're shifting from a 4-week construct to a 6-week construct. What that does is it helps us align Borrow to the term lengths that we typically see for BNPL. It gives us an opportunity to price slightly higher, which allows us to withstand slightly higher loss rates as well, but on a variable profit dollar and variable profit margin perspective is accretive to us.
This shift from four weeks to six weeks is an accretive shift to us, albeit it comes with higher loss rates.
What we've seen is we took a conservative stance as we shifted from four week to six week, which has kept everyone's limits the same. So whether a four-week product or a six-week product, you got the same call it $200 limit or $300 limit. We have an opportunity, as we now read the results of that, to actually increase people's limits commensurate with the longer duration.
Yep.
That is an opportunity for us as we think about future growth from a six-week perspective. Fundamentally, we see loss rates. We are optimizing for variable profit, incremental variable profit dollars, optimizing that curve against loss rates. We see a tremendous opportunity to continue to grow these businesses while managing risk loss as an input, not an output.
Yeah. Makes sense. Okay, let us shift over to banking. A lot of investor focus over the last year has understandably been on lending. There has been a lot of momentum on the bank, the base strategy. Primary banking actives, I think as you mentioned, up to roughly 9.7 million, growing high teens. Commerce enablement volume has also been growing in the high teens. From here, how do you think about the durable growth algorithm for your banking initiatives?
Yeah. We are incredibly excited. If you think about less than 10 million of our nearly 60 million monthly actives consider us or we consider them to be a primary banking active, that either comes through paychecks or it comes through a spend type, through Cash App Card or Cash App Pay. We have a significant opportunity. By the way, those customers are delivering gross profit 10x greater than a peer-to-peer active is. The opportunity to convert more of our funnel, the other 20 million-ish customers who are using Cash App Card, or the other 30 million customers, these are all round numbers, who are using Cash App but not yet using Cash App Card to convert them up into the funnel.
The first seeds of it we planted in Q4 of last year with Cash App Green, which is our first sort of loyalty status program that really rewards you for being a loyal Cash App customer, again, whether you are depositing your paycheck or you are spending over a certain amount with us. It gives people a reason to want to bring that much of their business to us. You can imagine the evolution of this over time provides greater personalization, more customization, and more segmentation as we think about proliferating and expanding those sort of segments. It is always giving a Cash App customer the next thing that is just in reach to be able to bring more of their wallet share into Cash App.
Yeah. Makes sense. I want to turn to Square. We have been tracking the new volume added disclosures as a forward-looking indicator for Square. 2025 was your strongest NVA year to date. This year, you called out further momentum, particularly around self-onboarding and some of the ISO partnerships. More importantly, we are starting to see the NVA translate into volume growth in Square. Now that you have seen multiple distribution channels in flight higher, how do you think about where to lean into with the incremental dollar?
Yeah.
How do you expect that channel mix to look two to three years down the line?
Sure. Will, just to quickly answer the question first, we have not hit limits or diminishing returns on any of these channels yet. We want to continue to ramp each one of them, and I will talk about each of them. Secondly, longer term, we see a mix of 50/50 between sales-led versus self-onboard-led, which means as we continue to grow self-onboard, sales is ramping even faster. We see an opportunity to see more equivalence in the mix than we see today. From a channel-by-channel standpoint, we had our strongest self-onboard in five years, which shows that these other channels, from field sales to ISOs to telesales, partner-led, are driving true incrementality. They are reaching sellers who we were not able to reach through the self-onboard channel.
What we see with field sales, for instance, is we drove 2x the new volume added in Q2 than we did in Q4 of last year. We are ramping obviously with new field sales folks, but we are also making them more efficient over time. We are delivering stronger incremental returns with that base of our team. A lot of what they are delivering is the larger seller, the million-dollar-plus seller, that would not be self-onboarding onto the Square platform. We just were not reaching them before.
ISOs. This is a channel that our Independent Sales Organizations who we were not working with in the past, just in the past few quarters, we started experimenting here. As of the end of Q2, we had 200 ISOs on our platform who delivered 150% quarter-over-quarter growth for us. We feel we are just in the beginning with that channel, and frankly, in the beginning, in the early days of our field sales and telesales channels as well. I am incredibly encouraged here about these new distribution motions that we have. We put the strategy in place a year and a half ago, and it is great to see it working and compounding and beginning to show up in the numbers.
Yeah. As I mentioned at the top, this has been a story of both distribution and product investments. There has been a lot of encouraging momentum in the food and beverage and restaurant space, particularly in the QSR space. How does the product roadmap expand from here?
Yeah.
How do you feel about the role that Manager Bot will play-
Sure.
Across the Square base?
First, there is more for us to do in the food and beverage space. We have gotten well beyond the point of closing gaps, and we are now truly innovating. You saw us launch Drive-Thru earlier this year for QSRs. You see us do more from a kitchen display system and back-of-house operations from a full-service restaurant perspective. There is so much more. It is a space that is rife with opportunity. You will see us do more in the food and beverage space. You will see more hardware, for instance, in the future. We also have priority verticals around retail and around services like health and beauty.
First of all of these verticals are well-served by many of the horizontal products that we have that stretch across that are relevant for all types of small businesses, from payroll to marketing to loyalty, a whole host of SaaS, as well as banking, Square Savings, Square Loans, et cetera, Square credit cards. The ability to cross-sell that attach, continue to innovate against the broader horizontal product set into each of the verticals is something that we think we are still in the early days of and have tremendous opportunity. Second of all, I think taking that playbook around product velocity with food and beverage, which has been our primary focus over the past 18 months, but bringing it now to retail and bringing it to health and beauty and services is a key focus for us as we think about the next 18 months.
Then you layer on top of that Manager Bot, which puts the power in the seller's hands to actually create bespoke iterations of our own product base that is tailored to them, that is tailored to their staff, their hours, their inventory types, their number of locations. That is something that gets incredibly exciting when our sellers can use the simple tools that we provide them that are incredibly powerful through Manager Bot.
Yeah. Okay. Obviously, hardware costs have seen a lot of upward bias across the industry, given some of the supply constraints in the market. How do you expect this to manifest in the business, and what is Block's approach to hardware around mitigating those impacts?
Yeah. I think Block's approach to hardware has been relatively unique in the space because we have been truly vertically integrated with our own team for our existence in the last 17 years. The way that shows up is not only beautifully designed hardware that's resilient and works well, but it's also incredibly fast and interoperable with all of our software, payments, commerce, and all the elements of the SaaS that we bring to our customer base. That shouldn't be discounted. But the third thing that I would say that our hardware team does that's truly differentiated and world-class is how deeply integrated we are with our supply chain. We have visibility and have constant dialogue with our suppliers to know what's around the corner.
What that means is when things like the memory chip shortage that happened recently happen, it doesn't mean we're fully immune, but it meant that we saw it well over a year ago. We saw it well before the crunch time actually hit, and that gave us a chance to plan ahead. That gave us a chance to think about inventory count, to think about different suppliers, to think about different mechanisms that mean that we could insulate ourselves a bit from what the broader industry is seeing now. Truly differentiated approach to hardware that I think serves us well, not only from a product innovation standpoint, but also from a cost standpoint. Yeah.
Makes sense. All right, stepping back, there's a lot of focus on GPV trends and seller, as well as the broader macro. Maybe we take this opportunity to separate structural tailwinds in the business versus ebbs and flows in macro. Is there anything you'd flag in the current quarter, either on the seller side or what you're seeing in the Cash App data around the health of the consumer worth flagging?
Sure. What I would say is that what we saw in Q2 was incredibly resilient from a consumer spend perspective, whether you're looking at GPV or from a Cash App perspective, inflows per active or repayment rates. That resilience continued into this quarter from what we saw, not only in July, but also through August. We see the benefit of being able to track these trends in real time, which gives us an opportunity to also respond quickly to the extent we do see any shifts. But what we've seen has been incredibly resilient from a consumer perspective.
That's great. All right, I wanted to maybe close it out on capital allocation. The company's seen a really significant increase in profitability, doubling year-over-year in the back half. With such a large increase in free cash flow, how are you thinking about capital allocation framework?
Sure. The framework we put in place, again, at Investor Day, I think continues to be ever present today, which is we expect about 20% of our gross profit to convert to our non-GAAP free cash flows, and to be able to deliver about 80% of those non-GAAP free cash flows, in terms of return to our shareholders. There are always reasons from quarter to quarter why things may vary in terms of the opportunities that we see or in terms of capital needs, but that overall framework continues to abide today. We're focused really from a prioritization standpoint in three key areas. One is investing in our business, ensuring that we have the firepower that we need to continue to organically invest and opportunistically as needed.
Second of all, it's around ensuring that we have the appropriate capital structure and repayment needs, funding our lending origination growth, so capital structure around our balance sheet. Third is maintaining a strong balance sheet to eventually become an investment-grade company.
Yeah, makes sense. Will, I think that just about takes us to the end here. Amrita, thanks for joining us today. Really enjoyed the conversation.
All right. Thank you so much, Will.