Q1 2025 Block Inc Earnings Call
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Speaker Change: Good day, ladies and gentlemen, and welcome to the block first quarter 2025 earnings Conference call.
Speaker Change: Today's call will be 45 minutes I would now like to turn the call over to your host Nikhil Dixit head of Investor Relations. Please go ahead.
Speaker Change: Hi, everyone. Thanks for joining our first quarter 2025 earnings call, we have Jack and Amrita with us today.
Speaker Change: I'll 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.
Speaker Change: These forward looking statements include discussions of our outlook strategy and guidance as well as our long term targets and goals. These statements are subject to risks and uncertainties, including changes in macroeconomic conditions actual results could differ materially from those contemplated by our forward looking statements reported results should not be considered an.
Speaker Change: Asian of future performance.
Speaker Change: Let's take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ.
Speaker Change: Note that the forward looking statements, including earnings guidance for 2025 discussed on this call are based on information available to us and assumptions. We believe are reasonable as of today's date, we disclaim any obligation to update any forward looking statements, except as required by law further any discussion during this call of our lending and banking products.
Speaker Change: Refer to products that are offered through square financial services or our bank partners.
Speaker Change: During this call. We will also provide a preliminary estimate of G. P V growth for the month of April actual April results may differ from this estimate and may not be reflective of performance for the full second quarter.
Speaker Change: Within these remarks, we will also discuss metrics related to our investment framework, including rule of 40, where the 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.
Speaker Change: 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 is opening remarks will be available on our website.
Speaker Change: Shortly.
Jack: I would like to turn it to Jack.
Jack: Thank you all for joining.
Jack: My letter go through what we've seen in our performance so far in 2025, and why do we expect growth to accelerate in the second half of this year.
Jack: Our work on product velocity and go to market is showing results as square gained share this quarter.
Jack: We will keep pushing our roadmap, Florida, a faster pace and bring AI automation to more sellers.
Jack: On cash up our growth this year will be driven by increasing engagement with our base, but were focused focusing more of our efforts on expanding our network, including growing with teens and families optimizing our product controls and increasing marketing spend where we will see strong returns and with that I'll turn it over to Amrita.
Amrita: Thanks, Jack and the first quarter, we delivered strong results in square and demonstrating disciplined cross expenses with our highest adjusted operating income and adjusted EBITA ever.
Amrita: Well catch up gross profit came in below expectations, we have conviction in the growth drivers for the back half of the here and our ability to drive long term value.
Amrita: Let's talk about our results in the first quarter.
Amrita: Total block gross profit was $2 9 billion up 9% year over year.
Amrita: Square had a strong quarter with gross profit growth of 9% year over year, driven by GDP growth of seven 2% with constant currency <unk> growth of eight 2% and increasing banking attach rate, we see our product and go to market strategy is working.
Amrita: Expanded market share in our target verticals.
Amrita: We analyzed incremental market share across various consumer spending and small business volume benchmarks across the verticals. We operate in we saw improved growth relative to those benchmarks our product innovation has been robust and we're excited to host our first product release event in two weeks, where we will showcase over.
Amrita: 100 products and features such as New square online features improved food delivery integrations and better support for sellers with large invoices.
Amrita: From a go to market perspective, we signed several upmarket sellers and continue to add partners across horizontal vertical and third party sales organizations.
Amrita: Field sales and partnerships are key channels for us going forward and we're very encouraged by recent success.
Amrita: Cash at gross profit was up 10% year over year.
Amrita: Gross profit per monthly transacting active reached $81 in the quarter, we saw changes to consumer spending behavior that we believe impacted inflows and cash card spend.
Amrita: Tax refunds are an important seasonal driver of cash up inflows. This year, we saw a pronounced shift in consumer behavior. During the time period that we typically see the largest disbursement late February and into March.
Amrita: This coincided with inflows coming in below our expectations.
Amrita: During the quarter non discretionary cash card spend in areas like grocery and gas was more resilient.
Amrita: While we saw a more pronounced impact to discretionary spending in areas like travel and media.
Amrita: We believe this consumer softness with a key driver of our forecast Miss.
Amrita: From a profitability standpoint, adjusted EBITDA was $813 million up 15% year over year and.
Amrita: And adjusted operating income was $466 million up 28% year over year.
Amrita: For the trailing 12 months ending in March adjusted free cash flow was $1 five 3 billion compared to one point almost $7 billion a year ago.
Amrita: So far this year through the end of April we have repurchased approximately $600 million of stock and we intend to continue returning capital to shareholders over the course of the year.
Amrita: Let's talk about our outlook for the rest of the year, where we expect to accelerate growth across both cash up and square.
Amrita: We recognize we are operating in a more dynamic macro environment. So we've reflected a more cautious stance on the macro backdrop into our guidance.
Amrita: We're now expecting gross profit growth of 12% for 2025.
Amrita: Or $9 $96 billion, we expect gross profit growth of nine 5% in the second quarter. We continue to expect gross profit growth to accelerate in the back half of the year.
Amrita: Into the low double digits in the third quarter and end the year with mid teens gross profit growth in the fourth quarter.
Amrita: Let's unpack some of our growth drivers.
Amrita: We hit a key milestone in March by receiving FDIC approval to use our bank square financial services to issue consumer loans for cash up Aro nationwide.
Amrita: This unlocks two important benefits, which we expect to have a meaningful impact starting in the third and fourth quarters.
First it roughly doubles the number of cash up active we can offer borrow to buy enabling us to offer loans across more states.
Amrita: And second it enables significantly better unit economics, as we can originate and service loans in house.
Amrita: Given our expectation for borrow to be a meaningful contributor to gross profit acceleration in the second half I wanted to take a moment to talk through why we have such high conviction in our ability to scale. This product at attractive unit economics and margins.
Amrita: We have a world class underwriting team and we've maintained healthy loss rates for borrow across historical cohorts.
Amrita: With a weighted average duration under 30 days, we are confident in our ability to adapt to changing macro conditions.
Amrita: Our machine learning models leverage real time customer data, which we believe is one of the most reliable early indicators of credit quality.
Amrita: We monitor performance daily, enabling us to dynamically adjust originations and exposure based on our customer underwriting scores.
Amrita: Another driver of growth acceleration is our retroactive the NPL product catch up after pay launched in late February we have seen strong early conversion and adoption in April and are excited to continue ramping this product to more active.
Amrita: For square, we expect GTD growth to improve throughout the rest of the year.
We expect high single digit <unk> growth in the second quarter with April global GDP growth expected to be nine 6% on a year over year basis.
Amrita: Our seller acquisition payback periods continue to remain within five to seven quarters, despite increasing levels of investment.
Amrita: We're seeing traction from our investments in field sales and partnerships and we're leaning in more these channels have delivered strong returns exceeding our expectations for new volume and are foundational to our strategy of expanding up market and winning with more complex sellers.
Amrita: We expect that momentum to continue building as we move through the year.
Amrita: Finally in <unk>, we continue to expect to deliver our first bitcoin mining chips and systems in the second half of the year.
Amrita: These growth initiatives collectively drive nearly all of the gross profit growth acceleration required to achieve our guidance.
Amrita: As Jack noted in his letter, we're prioritizing efforts to expand cash ups network with initiatives spanning product and go to market. We're confident this work will contribute to long term growth, but we haven't embedded these initiatives into our 2025 outlook.
Amrita: From a profitability perspective, we now expect adjusted operating income of $1 9 billion for the year.
Amrita: Approximately 19% margin.
Amrita: We've reflected continued investment in sales and marketing and risk class into our profitability outlook as we expect to invest in high ROI growth initiatives across cash App and square.
Amrita: We understand the drivers behind our recent deceleration in growth and have incorporated updated views on the macro environment into our revised guidance for the year were ready to navigate a range of scenarios of supporting our customers, while responsibly growing our business as conditions evolve.
Amrita: Our path forward is clear square is moving faster building relevant tools and getting them in the more sellers hands cash up and becoming a fundamental part of People's financial lives through accessible credit and banking tools and we are leaning in more on the power of our network to expand new actives growth taken together, we expect this to.
Amrita: To support sustainable growth for block over the long run.
Amrita: We have the team strategy and organizational strength to navigate potential short term volatility while continuing to build for our customers.
Amrita: I'll now turn it back to the operator to start the Q&A portion of the call.
Speaker Change: Thank you and we will now begin the question and answer session.
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Speaker Change: To be able to take as many questions as possible. We ask that you. Please limit yourself to one question.
Speaker Change: Again, it is star one if you would like to join the queue.
Operator: And our first question comes from the line of Tien Tsin Huang with Jpmorgan. Your line is open.
Speaker Change: I appreciate it Jack in your letter you right.
Speaker Change: Quite clearly that the company is focused on all the right drivers.
Speaker Change: Youre, saying that youre going to call the bottom here and Youre looking for acceleration and then of course, there's a lot of macro uncertainty.
Speaker Change: Out there. So can you just give us a little more on how you develop this view given what's happening on the ground talking to customers clients employees Im sure Youre talking to your go to market teams.
Speaker Change: Your product teams.
Speaker Change: No the cash up surprised here.
Speaker Change: Later in the quarter and first quarter. So just trying to understand the path forward and what's driving your conviction.
Speaker Change: Yes, yes. Thank you for the question so.
Speaker Change: As we've been talking about for the past year like we have made a lot of changes internally.
Speaker Change: Also too our systems, our engineering systems and took all of your platforms.
Speaker Change: And we're finally starting to realize that.
Speaker Change: And square.
In particular like square is now gaining market share.
Speaker Change: This is a result of all the work we did to consolidate making sure that we're pushing on a unified interface looking deeply at the dashboard and also looking at go to market.
Speaker Change: Starting field sales.
Speaker Change: <unk>.
Speaker Change: Very excited about that and I know we can.
Speaker Change: Youre more and also bring that mindset more too.
Speaker Change: You catch up.
Speaker Change: To be honest I, just don't think we're focused enough and had enough attention on the network and the network density.
Speaker Change: And that is a foundation that is our base.
Speaker Change: We of course want to deepen engagement with their customers through banking services and borrow and I have no doubt we will.
Speaker Change: At the same time, we need to make sure that we continuously grow our network and that starts with peer to peer.
Speaker Change: And Thats doing things like looking at the density and making sure that were growing.
Speaker Change: Fully forward with this focus on teams, which is a natural audience for us families.
Speaker Change: One that we believe is massively underserved.
Speaker Change: So we're looking at our product controls there are people there.
Speaker Change: Don't see cash outflows of bank right now because.
Speaker Change: To put their money in and bloxham from doing what they want so there's really good customers there.
Speaker Change: Just aren't able to do what they wish and Thats, where the trust piece comes in and we need to turn that around and just look critically at all or Oliver velocity controls.
Speaker Change: Im sure that were really were there for a good customers.
Speaker Change: And then third is just looking deeply at our marketing spend.
Speaker Change: Investing in.
Speaker Change: And something that we know works we know that.
Speaker Change: Referrals is an area that works, we want to be smarter about it the world has changed thanks relaunch ketchup and since relaunch peer to peer.
Speaker Change: We need to update that view, but net net I believe.
We just haven't put enough attention on make sure.
Speaker Change: Making sure that we do the deal.
Speaker Change: And that for a long term strategic thing of increasing network density and also the.
Speaker Change: The expansion of such.
Speaker Change: Underpinning all of this is our work on AI as I said in my letter we have.
Speaker Change: We felt this tool called <unk>.
Dan Goose: So Dan Goose, which allows.
Dan Goose: And autonomous autonomous way for agents to help our engineers to be a lot more productive.
Dan Goose: What we're seeing this.
Dan Goose: Benefit the entire company.
Dan Goose: We have a huge number of people who are using this tool right now.
Dan Goose: Its model independent.
Dan Goose: So we're not dependent upon any one company for it to work.
Dan Goose: It is focused entirely on autonomy, which ultimately means productivity.
Dan Goose: And it's something that we think we can not only continue to increase their productivity around but also make it customer faces customer facing.
Dan Goose: And thats within cash App itself and Thats within square.
Dan Goose: We're starting to see some of that work in square today actually we rolled out to a small percentage today.
Dan Goose:
Dan Goose: The Mark to help sellers allowed it allows them to see their business in a much better way to get insights deeply by just asking a question.
Dan Goose: But theres a lot more to come and what excites me. The most is just the velocity at which we can move it.
Dan Goose: And Thats what gives me the confidence about growth ultimately is that we are focused on the right things and now we have much better tools to go after them.
Dan Goose: Thank you.
Darrin Peller: And your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.
Speaker Change: Hey, guys. Thanks.
Speaker Change: Maybe you can just give us a little bit more color on what changed over the past 90 days I know <unk> looked pretty good on the square side. So I know it was more cash abbvie is but really in the consumer you're referencing having change behavior.
Speaker Change: And then more importantly, I think looking forward. If you can give us a little bit more context into in specifics into what macro assumptions are now embedded maybe above and beyond what you're already seeing even is there a more conservative approach and your outlook for the rest of the year in some ways given the guide change and any granularity on the segments or what you're including in there would be very helpful for us.
Darrin Peller: Sure Darrin happy to jump in here.
Darrin Peller: So as I noted earlier in my prepared remarks, we saw change in behavior and our cash up customer base. This tax refund season versus what we've seen in prior tax season.
Darrin Peller: Our typical approach for guidance is to align closely with our internal forecast, but we took a different approach this quarter. Our gross profit guidance here reflects the view that what we saw in cash app in the first quarter may be a sign of a changing macro backdrop.
Darrin Peller: Given that uncertainty we have embedded macro softening even beyond what we've seen so far more meaningfully into our growth outlook.
Darrin Peller: We have not seen that materialize through April, but we thought this approach would be prudent given the wider error bars.
Darrin Peller: From a cost perspective, we wanted to maintain flexibility in our guidance to invest in ways.
Darrin Peller: Some of the ways that Jack was mentioning that fuel long term growth toward assuming we continue to invest throughout the remainder of the year.
Darrin Peller: Of course, we can be nimble here and believe we have the ability to change course on gross investments quickly if our ROI thresholds are not met but based on what we see today, we see.
Darrin Peller: Meaningful opportunities to drive long term growth at strong returns across our business and we will be nimble to the environment as it evolves.
Tim Chiodo: Your next question comes from the line of Tim Chiodo with UBS. Your line is open.
Tim Chiodo: Great. Thank you for taking my question I wanted to talk a little bit about the cash card after pay functionality in some of the early results you're seeing there so to set the stage. We gather that you have a large base of cash card volumes that gives an opportunity for this functionality to be added into meaning post transaction splitting of payments that are already being made or maybe even driving incremental.
Tim Chiodo: Payments. So the question I think investors have is really the first part is for the early users that are using this just a rough sense of the adoption or the penetration of their payments, meaning how much are they splitting are opting to split and then the second part is more of the longer term aspect, which is the game plan to help.
Tim Chiodo: To move some of these customers over to payroll direct deposit.
Tim Chiodo: Yes, I'll take the long term.
Tim Chiodo: We do believe that this is a great incentive for moving customers over and we think as deeply strategic we're super excited that after paying the cash card.
Tim Chiodo: Our together is why we have this massive distribution platform and we see cash.
Tim Chiodo: We see after pay I should say as an evolution of our credit function.
Tim Chiodo: One.
Tim Chiodo: As required some iteration and some invention.
Tim Chiodo: And this is one step along that path, but nonetheless up and this is even more critical for you.
Tim Chiodo: Young current generation specifically teams.
Tim Chiodo: Just wanted different options in order to.
Tim Chiodo: Plan their payments, so it's really about cash flow management more than anything else and the like.
Tim Chiodo: Cars that have the flexibility and have the ability to help me get to my next paycheck, which as opposed to pay.
Tim Chiodo: Environment that allows me to do what I need to do but not too much does not put too much burden on myself.
Tim Chiodo: I feel trapped or I don't want to use it again.
Tim Chiodo: The sweet spot and that's what we're offering and we're super excited to continue to build upon it. Although we have this first go out.
Tim Chiodo: Life.
Tim Chiodo: Yes, and I'll just add Tim really we saw two meaningful integrations for a cash up and after pay in the first quarter.
First in February as you know, we enabled eligible Atkins to split purchase purchases retroactively on their cash App card for a small fee. We're really encouraged by the early results. We've seen here with strong attach rates and healthy growth trends and we intend to make more actives eligible cash up card act is eligible.
Tim Chiodo: Well, obviously take a test and learn approach here, starting small and scaling thoughtfully isn't gather more data and build confidence behind this but we're pretty excited by what we see in these first month or two of being out in market.
Tim Chiodo: The second integration obviously in March we introduced cash up after pay in the U S, which is basically the integration of the two brands in a more meaningful way, allowing eligible active within cash app to use Apple pay is paying for pay monthly products, it's a pretty meaningful unlock for us it deepens the connection between the ecosystems and exposes.
Tim Chiodo: In our buy now pay later products to the 57 million monthly actives over time again will start small and build and this is something that we think can be a more meaningful driver as we think ahead to 2026 and as we continue to expose after after extensive merchant base at online checkout to to the large base of cash app customers.
Tim Chiodo: So we're excited about both integrations the product velocity that we're seeing between the two brands coming together in the recent months and in what can be ahead as we continue to ramp them.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Ramsey El <unk> with Barclays. Your line is open.
Speaker Change: Hi, Jack and Amrita, Thanks for taking my question.
Speaker Change: Your roadmap to Reaccelerate cash App gross profit.
Speaker Change: Growth later, this year really leans into barro and I'm reading it sounds like youre comfortable expanding borrow even if the macro deteriorates a bit further and maybe you could comment a bit.
Speaker Change: Add a little bit on your commentary around sort of the macro resiliency of the borrow model and also your confidence level that you are underwriting models that are mature enough and well tuned enough to really.
Speaker Change: Support accelerating that loan volume growth. Thanks.
Speaker Change: Sure.
Speaker Change: What I'd say first of all is that there are a couple of key factors that go into expanding borrow as you heard some of them on the call first as our Tam expansion that now that we're serving borrow Vyas square financial services. Our in House Bank, we have the ability to expand the number of states and effectively double the number of actives.
Speaker Change: That borrow will be made available to that also improves our unit economics, which gives us more room within the P&L to experiment. We're also increasing borrow limits for eligible customers who receive their direct deposit within cash app and potentially additional eligible actives as we build greater signal and data into our models. So there are.
Speaker Change: A number of different things that go into the broader based borrow expansion in the back half of the year.
Speaker Change: Why do we have confidence and that ultimately we believe underwriting so real time machine learning based models is a core competency of the companies.
Speaker Change: We haven't seen any changes to underwriting outcomes, we've seen very consistent repayment rates.
Speaker Change: But if we did we feel we have the ability to move quickly and manage underwriting outcomes.
Speaker Change: Not only obviously the team world class and very experienced here, but the design of our lending products with shorter duration smaller dollar loans no revolving balances help us mitigate potential risk and support healthier underwriting performance, maybe just to go deeper on borrow specifically loan durations are under 30 days.
Speaker Change: Which provides us with fast feedback loops.
Speaker Change: <unk> customer repayment activity and adjust if needed.
Speaker Change: Our model generate custom underwriting scores for our customers, which drives our underwriting decisions. Those scores are dynamic constantly evolving based on real time data and new information that we get we gather.
Speaker Change: We can take in those signals and move quickly if the risk profiles were to change.
Speaker Change: Ultimately, we are pretty early visibility into loan repayment as early as seven days. After origination we have a good understanding of cohort level underwriting performance within a week after borrow loans or do all of that goes towards the ability to determine eligibility and pivot quickly. If we were to see a change which we have not yet.
Speaker Change: Very helpful. Thank you.
Speaker Change: And your next question comes from the line of Dan <unk> with Mizuho. Your line is open.
Speaker Change: Hey, guys. Thank you so much for taking my question can I ask you about Jack about protocols. You said you continue to expect to delivery.
Speaker Change: In the second half of the year I think a lot of people a lot of investors in block are looking sort of for the next cash app and this feels like it could be one of those things kind of like a transformational product can you maybe talk a little bit more about the vision and how big it could be.
Speaker Change: If it becomes as big as we think it will thank you.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Mr. Dorsey I don't know if you might be on mute.
Mr. Dorsey: Oh, I'm, sorry, I was on mute sorry, okay. Thank you.
Speaker Change: So we're super excited about Protos, we're on track to deliver.
Speaker Change: Our chips and systems later this year as we said in the letter.
Speaker Change: And.
Speaker Change: The reason, we're so excited is because we've seen this huge opportunity with.
Speaker Change: With bitcoin miners in the systems that they have to deal with on a regular basis.
Speaker Change: We focused on reliability.
Speaker Change: Saddam flexibility.
Speaker Change: And we really went out and talked with customers about what their actual needs are.
Speaker Change: <unk>.
Speaker Change: Speed and technology, where obviously I can talk to that list as well. So we're in a very very good position, we have very close relationships with our vendors and our manufacturers and building in the United States.
Speaker Change: So these are all things that add up to a pretty compelling product.
Speaker Change: We believe the bitcoin hardware supply industry. It has a three 3% to $6 billion in your revenue industry.
Speaker Change: And what's unique about <unk> is that it's not just the common huge minor form factor, but will allow even consumers in tankers to play with mining and build novel.
Speaker Change: Platforms and experiments and products of their own.
Speaker Change: So we're.
Speaker Change: This is our this is our first step this is a completely open source initiative as well, which allows us to get a lot of the.
Speaker Change: Feedback from the community and also integrate any improvements right away and just build a totally new developer ecosystem around mining rich.
Speaker Change: Really hasnt been done.
Speaker Change: Scale before which we're also super excited about.
Speaker Change: I agree thank you.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of <unk> Kumar with Oppenheimer. Your line is open.
Speaker Change: Hi, Thanks for taking my question could you walk us through some of the products that will be the biggest driver behind whereas gross profit acceleration. This year and also give us a sense of how much of that square.
Speaker Change: Gross profit acceleration will come from the U S versus international.
Speaker Change: You may now I'm happy to start on this one.
Speaker Change: So I would say is what we've seen so far this year for square.
Speaker Change: It is encouraging in terms of the share gains.
Speaker Change: Embedded in our Q1 numbers as we compare our growth in Q1 relative to Q4 compared to broader industry indices.
Speaker Change: We feel we're clearly gaining share which gives us conviction to continue to invest here.
Speaker Change: Some of that growth in the first quarter was driven by strengthen in core verticals that are very strategic to us between food and beverage and retail and also with upmarket sellers or mid market seller segments greater than $5 million in annualized <unk>.
Speaker Change: So given the complex consumer spending backdrop, we're pretty excited by what we're seeing in the square business.
Speaker Change: Ultimately, we think this comes down to product innovation and go to market enhancements from a product innovation perspective, we've talked about some of the more recent releases that we have whether it's the square online enhancements improved delivery.
Speaker Change: Courier delivery integrations, better banking and invoices experiences for our sellers will have also a lot more to share about at our product release event in a few weeks' time. So we hope you tune in for that we've got some things that we're pretty excited about.
Speaker Change: And then from a go to market perspective.
Speaker Change: We're improving our motion to get the message out to more sellers.
Speaker Change: These product innovations with more effective sales through our field sales channel.
Speaker Change: We do.
Speaker Change: Began really towards the end of last year and are looking to accelerate hiring around given the strong early returns as well as the partnership motion where again, we are seeing strong returns there.
Speaker Change: And those two channels being paired with increased marketing spend as well, where we continue to be within our five to seven quarter payback thresholds. So those are kind of the key drivers that we're seeing in the near term, but clearly the improved cadence around product velocity product innovations paired with more effective go to market channel between sales and partner.
Speaker Change: Ships is driving some early success here for square.
Speaker Change: And your next question comes from the line of Andrew Bock with Wells Fargo. Your line is open.
Speaker Change: Hey, good evening. Thanks for taking the question you guys be operating income dollars margin dollars in the quarter I think by $30 million. Roughly however, you are lowering the full year expectation by 200 million it looks like at the midpoint can you unpack the components of this guide down from macro conservatism.
Speaker Change: Decremental margin incremental reinvestment.
Speaker Change: Are there any offsets that you are making on the cost savings side, there kind of bridging to that 200 guide down.
Speaker Change: Sure, let's talk to the different components, Andrew So as I mentioned earlier from a gross profit perspective, we are taking a different approach to our guidance. This quarter, we're embedding incremental conservatism into our gross profit guidance.
Speaker Change: Whereas previously our typical approach is is to share a view that's much closer to our internal forecast and that's just to reflect the wider error bars, frankly, and with a broader macro backdrop.
Speaker Change: And through April as I noted, we havent, yet seen that materialize, but we are taking an incrementally more cautious approach and our gross profit guidance.
Speaker Change: Obviously, our gross profit.
Speaker Change: The incremental margins on our gross profit are fairly high and so that's part of what's reflected in the flow through to operating income along with strong returns on the investments that we're looking to make across go to market and in risk loss areas overall.
Speaker Change: Overall, just stepping about stepping back for a minute on our profitability guide. We now expect full year adjusted operating income margins of 19% and so with you know despite the more cautious macro outlook. We continue to expect margins to expand this year versus last year.
Speaker Change: That guide gives us the flexibility to invest to drive long term growth, especially in go to market and risk loss, where we continue to see strong returns.
Speaker Change: Of course, we have the.
Speaker Change: The conviction opportunity to be prudent in how we manage the business if the macro environment begins to impact square our underwriting products in ways that we have not yet seen.
Speaker Change: As we look at our cost structure, our variable costs, so things like go to market and risk loss make up about 35% of our overall cost base again, we have the discretion to dial that back if warranted based on the returns that we see.
Speaker Change: And we maintain a disciplined approach across our fixed cost base and expect to get leverage out of our fixed cost base in 2025.
Speaker Change: Those are some of the key puts and takes around the flow through of a high incremental margin gross profit dollars the ability to invest in high return areas that should accrete to profitable growth into the future.
Speaker Change: Yeah, It sounds like a pretty balanced mix. Thank you.
Speaker Change: And your next question comes from the line of will Nance with Goldman Sachs. Your line is open.
Will Nance: Hey, guys I appreciate you taking the question if I could maybe dovetail off that last question.
Speaker Change: I wanted to.
Speaker Change: I wanted to maybe talk about your hiring on the square side of the business and particularly on field sales and kind of in direct distribution.
Speaker Change: Where are you on the process I was wondering if theres anything you can share in terms of head count today versus where you would like to be over time, and then just relating it back to that last question I didn't hear anything maybe I missed it on the head count exercise that was reported a couple of weeks ago. So can you just talk about that.
Speaker Change: Is that included in the outlook and I think there were some there was some commentary around removing all outstanding positions.
Speaker Change: Filled positions. So are you still hiring field sales and what you expect the pace to be as it moves through the year. Thank you.
Speaker Change: Sure will.
Speaker Change: Maybe starting on the second part of your question first and then we'll come back to where we are leaning in from a sales and field sales perspective, we did have our recent reduction in force from about a month ago embedded in our earlier outlook that we had we had shared in February.
Speaker Change: That was consistent with our plans as we entered the year and really driven by some strategic principles around aligning our teams to our strategy and our focus.
Speaker Change: Raising the bar on performance and flattening the organization, reducing the number of managers in the organization.
Speaker Change: We do still have areas of investment across the business.
Speaker Change: And some of those areas of investment are related to where we're seeing strong returns.
Speaker Change: And that is clearly in our field sales team, where we plan to accelerate the pace of hiring for field sales in the second half of this year on the back of the strong early returns that we're seeing we first launched the field sales efforts late last year and we started to see those efforts pay off as you saw on the letter some of the.
Speaker Change: Recent larger sellers that we signed in the first quarter.
Speaker Change: Were signed by our field sales team bamboo dessert and drink is a 60 locations seller, that's expanding across the U S. This year and they chose square due to our ability to provide more advanced control over the franchise's backend menu and loyalty options, that's where you see the breadth of our portfolio.
Speaker Change: Helping us win sales.
Speaker Change: When coupled with a strong channel that's now beginning to work for us.
Speaker Change: And we've made operational changes to maximize the performance of this channel and have continued to ramp field sales hiring through Q1, and as I noted intend to accelerate that hiring on the back of strong returns in the second half of this year.
Speaker Change: And maybe also just quickly note that we're seeing also strong returns in our partnership channels.
Speaker Change: Where we exceeded our expectations for partner driven leads and partner driven volume in the first quarter.
Speaker Change: We're continuing to sign new vertical or horizontal in third party sales partnerships globally and in April we actually began piloting our first U S. ISO partnership it's obviously still early but it's a channel we're excited to start exploring.
Speaker Change: So we're on track here as well to grow the number of leads in the amount of closed <unk> from partners by five to 10 times in 2025.
Speaker Change: Awesome sounds the side of Chris I appreciate you taking the question.
Speaker Change: And your next question comes from the line of Adam <unk> with Evercore.
Speaker Change: Your line is open.
Speaker Change: Thanks, just to continue along the lines of the lending theme. Two parts are you blending on are you planning on getting more aggressive with the entire base for borrow or just the consumers with direct deposit.
Speaker Change: <unk> capital also going to learn more.
Speaker Change: The seller side and then my second question is in prior quarters, you've disclosed the direct deposit users I think it was $2 5 million last quarter and it was growing 25% year over year. So sorry, if I missed it in the release, but what was what were these data points for the March quarter.
Sure so from borrow.
Speaker Change: Wouldn't really characterize it as getting more aggressive with our with offers around borrow.
Speaker Change: The mechanics of allowing square financial service to originate cash up borrow loans is that we can expand borrow to more states. We were only in a subset of the states in the United States that we could offer.
Speaker Change: Borrow too.
Speaker Change: And now by expanding to more states, we can actually double the number of potentially borrow eligible actives.
Speaker Change: So that's really it's not really about getting more aggressive it's just the mechanics of square financial services being our originator and servicer for borrow versus the external third party banks that you had.
Speaker Change: There are elements of borrow expansion that are around providing guaranteed access for borrow if you're a paycheck deposit active we think that there is a strong tie between providing credit and becoming someone's primary banker overall bank. The base strategy of these two elements of our business are inherently connected.
Speaker Change: We think borrow being such a compelling product for many of our customers.
Speaker Change: <unk> can provide an incentive for customers to explore deeper banking features including direct deposit.
Speaker Change: There are elements of being able to increase limits around borrow for existing active and I think those are in line with normal course business for us.
Speaker Change: As we improve our underwriting models and gather more data about.
About these customers from our banker base perspective, we're continuing to make progress here across our bank banking Ah.
Speaker Change: Tax rates and with Paycheck deposit Act as we continue to grow.
Speaker Change: That on a year over year basis, it's really about exposing more of our customers to the full set of offerings that we now have in the first quarter. We launched our first major brand campaign for cash App focused on banking and targeting markets, where we already have strong network effects in place.
Speaker Change: And so we're excited to see what more we can do here not only exposing greater awareness to our banking features but also bringing the credit elements around borrow more directly tied to direct deposit providing guaranteed access and higher limits in a way that we know our customers.
Speaker Change: We're pretty excited about.
Speaker Change: Okay. So what was the number in the quarter or the number of people using direct deposit.
Speaker Change: Yeah.
Speaker Change: We can provide a number this quarter what we're sharing is the growth on a year over year basis for a paycheck deposit active.
Speaker Change: Okay, and what was that group.
Speaker Change: We'll share more obviously as things progress we got a lot in the hamper in terms of what we're working on across the brand awareness campaign and ways to expand the the.
Speaker Change: The attach rates into pay check deposit based on a borrow connections.
Speaker Change: Okay.
I'll follow up offline thanks, guys.
Speaker Change: And your next question comes from the line of harsh you'd ever want with Bernstein. Your line is open.
Speaker Change: Hi, good afternoon.
Speaker Change: So under the adjusted for Leap year.
Speaker Change: FX here in the second quarter guide implies a deceleration from the first quarter and we had kind of expected acceleration because it's a new product. So you were talking about you talked about stability in April and I know, you're kind of baking in macro softness even beyond what you saw in Q.
Speaker Change: But then you also scratchy breathing stable cash I borrow after paying cash upscaling I'm, just trying to get more color on the second quarter deceleration I know you talked a little bit about that and also any insights you can provide on gas shack in square gross profit growth in April. Thank you.
Speaker Change: Sure. So we're guiding to nine 5% gross profit growth in the second quarter.
Speaker Change: And as we said we expect the first half of this year to be.
Speaker Change: The low point from which we can accelerate with low double digit growth in Q3 and mid teens growth in Q4, many of the acceleration drivers that we've spoken about sort of the four key drivers between borrow expansion retroactive be NPL.
Speaker Change: On cash App card square momentum and then the launch of <unk>.
Speaker Change: Oh really key drivers that impact, our third and fourth quarter more so than the second quarter.
Speaker Change: And so second quarter is really a reflection more of the run rate business that we see coming out of Q1.
Speaker Change: And again, we're we've reflected far more cautious stance than we would typically take in our guidance approach based on what we saw around softening consumer spend and the cash app business, specifically towards the end of the quarter again as I noted earlier, we haven't seen that materialize through April but the approach that we take.
Speaker Change: From a guidance perspective is that we see.
Speaker Change: See a more meaningful softening.
Speaker Change: And that's what's embedded in the guide for Q2 as well as full year perspective.
Speaker Change: And we will now take our final question from Trevor Williams with Jefferies. Your line is open.
Trevor Williams: Thanks, very much and kind of along those lines I wanted to ask on square <unk> building in more caution on the macro into the gross profit guide does that how does that funnel down into what youre assuming for square G. P V. Because prior you had been assuming an acceleration to low double digits by the end of the year. It sounds like you're already there in April so just any.
Trevor Williams: More specific on what you're assuming from here for <unk> would be helpful. Thanks.
Speaker Change: Yeah as we look forward, we expect square in CTV growth to accelerate to high single digits on a reported basis for Q2.
Speaker Change: And as we noted in April we saw what we expect to have seen was nine 6%.
Speaker Change: And we continue to expect G PV growth improvement.
Speaker Change: And from here throughout the end of the year.
Speaker Change: Obviously, we're making a number of product investments I'm gonna be exposing that innovation, along with our future roadmap to our sellers and our announcement on may 13th.
Speaker Change: And those investments are paired with our go to market enhancements across sales and partnerships.
Speaker Change: So that's what we're executing against from a guidance perspective, we have taken more of a cautious approach as we think about the broader.
Speaker Change: Broader macro backdrop, but based on what we see in our business so far and the conviction that we have behind the investments, we're making we're pretty encouraged about the trajectory of the square business.
Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Speaker Change: All my life.