block q4 2023 29
key operating metrics and
non-gaap financial measures
To supplement our financial information presented in accordance
with generally accepted accounting principles in the United States
(GAAP), from period to period, we consider and present certain
operating and financial measures that we consider key metrics or
are not prepared in accordance with GAAP, including Gross
Payment Volume (GPV), Adjusted EBITDA, Adjusted EBITDA
margin, Adjusted Net Income (Loss), Diluted Adjusted Net Income
(Loss) Per Share (Adjusted EPS), Adjusted Operating Income
(Loss), Adjusted Operating Income (Loss) margin, Adjusted Free
Cash Flow, constant currency, and non-GAAP operating expenses
as well as other measures defined in this letter such as measures
excluding bitcoin revenue, and measures excluding PPP loan
forgiveness gross profit. We believe these metrics and measures
are useful to facilitate period-to-period comparisons of our business
and to facilitate comparisons of our performance to that of other
payments solution providers.
We define GPV as the total dollar amount of all card payments
processed by sellers using Square, net of refunds, and ACH
transfers. Additionally, GPV includes Cash App Business GPV,
which comprises Cash App activity related to peer-to-peer
transactions received by business accounts, and peer-to-peer
payments sent from a credit card. GPV does not include
transactions from our BNPL platform.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income
(Loss), and Diluted Adjusted Net Income (Loss) Per Share (Adjusted
EPS) are non-GAAP financial measures that represent our net
income (loss) and net income (loss) per share, adjusted to eliminate
the effect of share-based compensation expenses; amortization of
intangible assets; gain or loss on revaluation of equity investments;
bitcoin impairment losses; amortization of debt discount and
issuance costs; and the gain or loss on the disposal of property and
equipment, as applicable. Adjusted Operating Income (Loss) is a
non-GAAP financial measure that represents our operating income
(loss), adjusted to eliminate the effect of amortization of acquired
technology assets; acquisition-related and integration cost,;
restructuring and other charges; goodwill impairment; bitcoin
impairment losses; amortization of customer and other acquired
intangible assets; and acquisition-related share-based acceleration
costs. We also exclude from these measures certain acquisition-
related and integration costs associated with business
combinations, and various other costs that are not reflective of our
core operating performance. We exclude amortization of intangible
assets arising from business combinations because the amount of
such expenses in any specific period may not directly correlate to
the underlying performance of our ongoing business operations.
Acquisition-related costs include amounts paid to redeem
acquirees’ unvested stock-based compensation awards, and legal,
accounting, and due diligence costs. Integration costs include
advisory and other professional services or consulting fees
necessary to integrate acquired businesses. Other costs that are
not reflective of our core business operating expenses may include
contingent losses, impairment charges, and certain litigation and
regulatory charges. We also add back the impact of the acquired
deferred revenue and deferred cost adjustment, which was written
down to fair value in purchase accounting. Additionally, for purposes
of calculating diluted Adjusted EPS, we add back cash interest
expense on convertible senior notes, as if converted at the
beginning of the period, if the impact is dilutive. In addition to the
items above, Adjusted EBITDA is a non-GAAP financial measure
that also excludes depreciation and amortization, interest income
and expense, other income and expense, and provision or benefit
from income taxes, as applicable. Adjusted Operating Income
(Loss) margin is calculated as Adjusted Operating Income (Loss)
divided by gross profit.
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided
by gross profit.To calculate the diluted Adjusted EPS, we adjust the
weighted-average number of shares of common stock outstanding
for the dilutive effect of all potential shares of common stock. In
periods when we recorded an Adjusted Net Loss, the diluted
Adjusted EPS is the same as basic Adjusted EPS because the
effects of potentially dilutive items were anti-dilutive given the
Adjusted Net Loss position.
Adjusted Free Cash Flow is a non-GAAP financial measure that
represents our net cash provided by operating activities adjusted for
changes in settlements receivable, changes in customers payable,
changes in settlements payable, the purchase of property and
equipment, payments for originations of consumer receivables,
proceeds from principal repayments and sales of consumer
receivables, and sales, principal payments, and forgiveness of PPP
loans. We present Adjusted Free Cash Flow because we use it to
understand the cash generated by our business and make strategic
decisions related to our balance sheet, and because we are focused
on growing our Adjusted Free Cash Flow generation over time. It is
not intended to represent amounts available for discretionary
purposes.
Constant currency growth is calculated by assuming international
results in a given period and the comparative prior period are
translated from local currencies to the U.S. dollar at rates consistent
with the monthly average rates in the comparative prior period. We
discuss growth on a constant currency basis because a portion of our
business operates in markets outside the U.S. and is subject to
changes in foreign exchange rates.
Non-GAAP operating expenses is a non-GAAP financial measure
that represents operating expenses adjusted to remove the impact
of share-based compensation, depreciation and amortization, bitcoin
impairment losses, loss on disposal of property and equipment, and
acquisition-related integration and other costs.
We have included Adjusted EBITDA, Adjusted EBITDA margin,
Adjusted Operating Income (Loss), Adjusted Operating Income
(Loss) margin, Adjusted Net Income, Adjusted EPS, and non-GAAP
operating expenses because they are key measures used by our
management to evaluate our operating performance, generate future
operating plans, and make strategic decisions, including those
relating to operating expenses and the allocation of internal
resources. Accordingly, we believe that Adjusted EBITDA, Adjusted
EBITDA margin, Adjusted Operating Income (Loss), Adjusted
Operating Income (Loss) margin, Adjusted Net Income, Adjusted
EPS, and non-GAAP operating expenses provide useful information
to investors and others in understanding and evaluating our operating
results in the same manner as our management and board of
directors. In addition, they provide useful measures for period-to-
period comparisons of our business, as they remove the effect of
certain non-cash items and certain variable charges that do not vary
with our operations. We have included measures excluding our BNPL
platform because we believe these measures are useful in
understanding the ongoing results of our operations. We have
included measures excluding bitcoin revenue because our role is to
facilitate customers’ access to bitcoin. When customers buy bitcoin
through Cash App, we only apply a small margin to the market cost of
bitcoin, which tends to be volatile and outside our control. Therefore,
we believe deducting bitcoin revenue or gross profit better reflects
the economic benefits as well as our performance from these
transactions. We have included measures excluding PPP loan
forgiveness gross profit because we believe these measures are
useful in order to facilitate comparisons of our business without PPP
loan forgiveness.