Block, Inc. (SQ) Q1 2023 Earnings Conference Call Transcript

Block, Inc. (NYSE:SQ) Q1 2023 Earnings Conference Call May 4, 2023 5:00 PM ET

Company Participants

Nikhil Dixit – Head of Investor Relations

Jack Dorsey – Co-Founder, Chairman and President

Amrita Ahuja – Chief Financial Officer and Treasurer

Conference Call Participants

Tien-Tsin Huang – JPMorgan

Timothy Chiodo – Credit Suisse

Lisa Ellis – SVB MoffettNathanson

Harshita Rawat – Bernstein

Ramsey El Assal – Barclays

Darrin Peller – Wolfe Research

Michael Ng – Goldman Sachs

Trevor Williams – Jefferies

Operator

Good day, ladies and gentlemen, and welcome to the Block First Quarter 2023 Earnings Conference Call.

I would now like to turn the call over to your host, Nikhil Dixit, Head of Investor Relations. Please go ahead.

Nikhil Dixit

Hi, everyone. Thanks for joining our first quarter 2023 earnings call. We have Jack and Amrita with us today. We will begin this call with some short remarks before opening the call directly to your question. During Q&A, we will take questions from our customers in addition to questions from conference call participants.

We would also like to remind everyone that we will be making forward-looking statements on this call. All statements, other than statements of historical fact could be deemed to be forward-looking. These forward-looking statements include discussions of our outlook and guidance as well as our long-term targets and goals, and we may decide to shift our priorities move away from these targets and goals at any time. These statements are subject to risks and uncertainties.

Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ.

Also note that the forward-looking statements on this call are based on information available to us as of today’s date. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will provide preliminary estimates of gross profit growth and GMV performance for the month of April. These represent our current estimate for April performance as we have not yet finalized our financial statements for the month of April, and our monthly results are not subject to interim review by our auditors. As a result, actual April results may differ from these estimates and may not be reflective of performance for the full second quarter.

Moreover, this financial information has been prepared solely on the basis of currently available information by, and is the responsibility of management. This preliminary financial information has not been reviewed or audited by our independent public accounting firm. This preliminary financial information is not a comprehensive statement of our financial results for April or the second quarter.

We will also discuss combined company gross profit during this call. Block combined company gross profit assumes we acquired our BNPL platform on January 1, 2022 and includes a $51 million gross profit contribution from our BNPL platform for the month of January 2022. For purpose of comparison, fourth quarter combined company gross profit assumes a $185 million contribution to Block gross profit from our BNPL platform in the fourth quarter of 2021, as if we acquired our BNPL platform on October 1, 2021.

Also, we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter, historical financial information spreadsheet and Investor Day materials on our Investor Relations’ website. These non-GAAP measures are not intended to be a substitute for our GAAP results.

Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call and the transcript for Jack and Amrita’s opening remarks will be available on our website shortly.

With that, I would like to turn it over to Jack.

Jack Dorsey

Thank you all for joining us. Last quarter, we shared our investment framework going forward. As a reminder, our framework can be articulated in a single sentence. Block in each ecosystem must show a believable path to gross profit retention of over a 100% and Rule of 40 on adjusted operating income.

The principles that led us to this framework were; Number one, ensure our investments are focused on customer retention and growth. Number two, account for ongoing costs of the business including stock-based compensation. And number three, utilize industry standard conventions that are simple to communicate and understand. We will not be distracted from living up to these principles and building our business according to this framework. Obviously, there are challenges ahead, including many out of our control.

I wanted to spend a moment talking about those who are aware of how we’re thinking about meeting them, and then hand it over to, Amrita to discuss our quarter. I’ll start with the macro challenges and then the prevailing trends we can use to advantage our customers and us.

There are three macro challenges affecting all businesses now and over the long-term. Number one, constant state of global crisis. Number two, regulatory fragmentation. Number three, global financial system shifts. The world seems to be moving from one global crisis to the next and suffering from an overwhelming amount of information, which is causing people and organizations of all sizes to be distracted and reactive to the moment. From COVID to inflation, to the war in Ukraine, to bank failures, the number of things we all need to pay attention to grows unbounded.

Throughout this time, we want to remain focused and not reactive to anyone particular moment in time. This is easier said than done, but it’s something that underlies everything we do. Ensuring our long-term view guides all of our actions, especially those we take in the short-term.

At the same time, regulators around the world are coming up with slightly or entirely different answers to problems facing their citizens. Instead of having global standards, we end up with rules which are different for every market, effectively slowing the pace of development. While this might be a good thing for each market, and makes it very challenging to grow a global internet business, especially for smaller companies. Part of our job will be to help our customers navigate this complexity by taking it on ourselves.

Finally, there have been numerous challenges to the global financial system, and it’s experiencing some significant shifts, from new global reserve currency candidates, centralization of banks through failure of smaller ones, to adoption of central bank digital currencies with entirely new capabilities. These all affect our core business and are all trends we need to navigate carefully.

I’m confident we will, as we see and acknowledge them early. We want to be proactive in our approach and not just react when it’s too late. And there are few technology trends that I believe will help us do just that. There are three trends we’re focused on. Number one, is artificial intelligence. Number two, is open protocols. And number three is the Global South. Consider how many times you’ve heard the term AI or GPT in the earnings calls just this quarter versus all quarters in history prior. This trend seems to be moving faster than anyone can comprehend or get a hand on. Everyone feels like they’re on their back foot and struggling to catch up.

Utilizing machine learning is something we’ve always employed at Block, and the recent acceleration in availability of tools is something we’re eager to implement across all of our products and services. We see this first as a way to create efficiencies, both internally and for our customers. And we see many opportunities to apply these technologies to create entirely new features for our customers.

More and more effort in the world will shift to creative endeavors as AI continues to automate mechanical tasks away and we believe we are well positioned for that shift with our strategy for artists on title.

Open protocols represent another fork in the road moment for people and companies. Bitcoin, Nostr, Bluesky, Web5, and others are all working to level the playing field for competition and give individuals and organizations entirely new capabilities. I believe this trend is growing as fast as AI. We’ll have just as larger impacts and may even help address some of the harms AI presents.

We are embracing this early so we can figure how to best contribute to these protocols and build valuable businesses on top of them. This isn’t just about centralization versus decentralization. If these protocols are even remotely successful, they will present a customer base far larger than anyone company can create a loan. And there is good precedent for this happening again. Look at the web, email, and the overall Internet for proof.

We have a number of efforts towards these trends, including our Bitcoin Wallet, miner, Bitcoin exchange, Spiral, and TBD. If we consider where the internet population will grow the fastest, we must look at the so called Global South, countries within Africa, Latin America, Asia, and Louisiana, where most of humanity resides.

This region is adopting open protocols faster than western countries because the use cases they provide are increasingly becoming a necessity, such as money ribbons. We are choosing to focus on these markets because we believe the total addressable market over time is bigger than anything we’re currently in. The assumption you have to make here, of course, is that nearly everyone in these markets has access to the internet, which is a credible one to make over the next decade.

We have already started this work in earnest, and with our partnership between TBD and Yellowcard, enables be on and off ramps in 16 African countries. Open protocols and focused AI solutions will help us to move even faster, and in a way that’s complementary to the businesses that already exist within these markets and the ones starting up in the future. I realize this is a lot to kick in, but I want to make sure you all had the context for how we will be driving our road maps and businesses in the future.

With our investment framework, we will have the right accountability as we look to grow Block’s many ecosystems together. Together is the keyword here, as our real value comes from our multiple ecosystems working to positively reinforce one another and provide resiliency through challenging times. I couldn’t be more excited about what’s ahead, and how we’re positioned as a company to grow.

Over to you, Amrita.

Amrita Ahuja

Thanks, Jack. You’ve now heard three of the longer term trends we are prioritizing in the coming years to expand our market opportunity and help advance our ecosystems. As we pursue these opportunities, we’ll continue our day-to-day focus on serving our customers, operating with discipline, and driving long-term profitable growth at scale.

There are three topics related to our more recent performance that I’d like to cover today. First, an overview of our strong first quarter results. Second, trends we’ve seen across our business in April. And third, a look at our investments through the remainder of the year.

In the first quarter, we delivered strong growth across our ecosystems with gross profit of $1.71 billion up 32% year-over-year. On a combined company basis, gross profit grew 27% year-over-year in the first quarter, up from 21% in the prior quarter. We delivered adjusted EBITDA of $368 million during the quarter, an increase from $195 million in the prior year period.

Adjusted operating income, which includes expenses related to stock based compensation and depreciation and amortization, was $51 million in the first quarter, up from a $42 million loss in the prior year period.

We also continued to diversify our monetization streams across our ecosystems. In the first quarter, we had 14 revenue streams across Square and Cash App that generated $100 million or more in annualized gross profit, up from 11 a year ago.

Let’s get into each ecosystem. Cash App generated $931 million of gross profit in the first quarter an increase of 49% year-over-year. On a combined company basis, cash out gross profit grew 43% year-over-year up from 39% in the prior quarter.

We delivered year-over-year growth across each component of our inflows framework; active, inflows per active, and monetization rate. We reached 53 million monthly transacting active in March, an increase of 17% year-over-year.

Inflows per transacting active averaged $1136 in the first quarter up 8% year-over-year and quarter-over-quarter. And overall inflows into Cash App totaled $61 billion, up 27% year-over-year.

We remain focused on driving growth in inflows for active, by growing product adoption, diversifying ways in which people can bring their money into Cash App and investing in areas that strengthen trust in Cash App.

Monetization rate was 1.41% excluding gross profit contributions from our BNPL platform, up from 1.19% in the first quarter of 2022, benefiting from growth in monetized products and pricing changes implemented in 2022. On a quarter-over-quarter basis, monetization rate was up slightly from 1.39% in the fourth quarter including a modest benefit from interest income.

Our financial services products are a key driver of inflows in Cash App and help us build retentive relationships with our active, particularly Cash App Card.

In March, there were 20 million monthly Cash App Card active, up 34% year-over-year. An average spend per active increased on a year-over-year and quarter-over-quarter basis. In March, we had 2 million monthly direct deposit actives, one-tenth in the scale of Cash App Card monthly actives. In particular, paycheck deposits continued to increase as a percentage of overall inflows totaling $2.5 billion in March or $30 billion on an annualized basis. These paycheck deposits grew 69% year-over-year 2.5 times as fast as overall inflows in the Cash App.

We’ve driven adoption for direct deposit active through unique boosts. And more recently, we’ve introduced free and network ATM withdrawal for those receiving their paycheck in Cash App.

We also launched savings on Cash App earlier this year, which was a top requested feature amongst our customers. This gives customers a simple and flexible way to manage money and easily set aside funds as a separate savings balance.

Since it launched in January, more than 3 million savings actives added funds to their savings balance as of the end of April. Square generated $770 million of gross profit in the first quarter, an increase of 16% year-over-year.

On a combined company basis, Square gross profit was up 12% year-over-year, and further excluding gross profit from TTP loan forgiveness, Square combined company gross profit grew 21% in the first quarter, up from 16% in the prior quarter.

Looking at the drivers of Square’s first quarter performance. First, we continue to drive growth in software and integrated payments, with gross profit from these products up 19% year-over-year.

Within this, we’ve seen strong momentum from our vertical point of sale offering across retail, restaurants, and appointments, where gross profit was up 42% year-over-year in aggregate. By channel, gross profit from in person channels grew faster than our online channels as we’ve seen online growth rates normalized compared to pandemic levels.

Second, we continue to grow with larger sellers. Gross profit from mid-market sellers was also up 19% year-over-year. We remain focused on driving acquisition of larger sellers across our three key verticals of restaurants, retail, and beauty and our software offerings for those verticals. We recently introduced vertical specific home pages on our website that offers customized experiences to sellers. The updated website funnels demand to our sales team, which we are also verticalizing in order to further support our go-to-market efforts.

Third, we continue to expand globally. Gross profit in our international markets outpaced overall square gross profit up 29% year-over-year, excluding contributions from our BNPL platform. We remain focused on Square’s top strategic priorities in omnichannel software, upmarket and global and have been orienting our roadmaps and investments towards these areas a meaningful growth in recent years.

These priorities have helped us proactively evolve our business mix from our roots inside car payments, or transactions where sellers enter an amount on a keypad and hit charge towards software and integrated payments, which enable us to create more retentive long-term relationships with sellers.

As a result, Squares gross profit from flight car payments grew 5% year-over-year and represented 21% of Square gross profit during the first quarter down from 30% two years ago. We intend for the mix of Squares business related to sidecar payments to continue to decline over time. As sidecar use cases are now also well served by peer to peer solutions such as cash for business within our Cash App ecosystem.

Finally, our BNPL platform generated $5.6 billion of GMD in the first quarter, an increase of 18% year-over-year inclusive of January 2022 volumes. Loss on consumer receivables were 0.7% of GMV, an improvement year-over-year and quarter-over-quarter.

Next, an update on April trends. For the month of April, we expect total gross profit growth of 24% year-over-year which we expect to remain relatively consistent for the second quarter. Looking at the dynamics of each ecosystem, for the month of April, we expect Cash App gross profit to grow 35% year-over-year. A moderation compared to 43% combined company growth in the first quarter as we have lacked the benefit of pricing changes made in the first quarter of 2022.

We expect Square gross profit to grow 14% year-over-year in April compared to 12% combined company growth during the first quarter as we lap the more meaningful TTP benefits from the first quarter of 2022. Excluding TTP, combined company gross profit for Square is expected to be up 16% year-over-year in April. Consistent with the fourth quarter’s 16% growth and moderating compared to the first quarter’s 21% growth.

While first quarter growth benefited from lapping Omicron in the prior year period, April trends were in line with the fourth quarter which is when we started to see a moderation in processing volume growth particularly in discretionary verticals. For our BNPL platform, we expect year-over-year GMD growth of 20% in April, an improvement from 18% in the first quarter.

Turning to our expectations for the remainder of the year. Given the gross profit momentum in our business during the first quarter, we are increasing our expectations for profitability this year. We expect to deliver adjusted EBITDA of $1.36 billion and adjusted operating loss of $115 million for the full-year 2023. This primarily incorporates stronger top line outperformance during the first quarter as we intend on shifting some expenses that we had tended for the first quarter to later in the year.

We remain focused on operating with efficiency in 2023, driving operating leverage across hiring, sales and marketing, and corporate overhead. For the full year, we continue to expect margin improvement year-over-year on both an adjusted EBITDA, and adjusted operating income basis.

Shifting to share based compensation. Last year, in the second quarter, Our share based compensation expenses increased by $47 million quarter-over-quarter when excluding a one-time SBC expense of $66 million related to the acquisition of Afterpay recognized in the first quarter of 2022. We expect a similar quarter-over-quarter increase in the second quarter of this year. This remains an area on which we are focused and expect to drive greater leverage over time.

I’ll now turn it back to the operator to start the Q&A portion of the call.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Tien-Tsin Huang from JPMorgan. Please proceed. Your line is open, sir. Please go ahead.

Tien-Tsin Huang

Hi, great. Thanks. I hope you can hear me okay. I appreciate your opening comments, Jack on constant crisis and your thoughts on long term trends here. But I want to ask about the near term, if you don’t mind, because we fielded a lot of questions on the share report earlier and now get a lot of questions on turmoil in the banking system. So I’m curious if these, let’s call them challenges, change your near term priorities or strategy in any way in 2023.

And want to also ask just from a risk management standpoint, how do you think about benchmarking your investments and governance and compliance and things of that nature versus peers? Thanks.

Jack Dorsey

Yep. So I’ll take the first part of this question. I would say that we stand by our response to the share report. We will not be distracted from our strategy and from our prepositions. We have a pretty compelling road map ahead of us in every one of our ecosystems. And as I said in in my opening remarks, I think it’s really important to focus as much as possible on that despite what’s happening around in macro and as you mentioned, there’s a lot happening obviously, in the financial industry, and finance larger.

And being able to acknowledge us, take them into account and make sure that we’re building appropriately according to what our customers need and what our customers want in growing that customer base is a most important thing to us.

We also want to make sure that we continue to build trust. And as I’ve talked about before, trust is earned in many ways, it’s through transparency, through reliability, dependability and that is all something that we earn. We’re not given and that comes over time. And a lot of that has to be focused on how our customers ultimately trust us, how our partners including our banking partners and our regulators trust us as well. So this is a significant focus for us and always has been. It has to be as you do anything in the financial space. It’s certainly always been part of our mind set and our approach. I will turn it over to Amrita to talk about benchmarking against peers and more broadly investment.

Amrita Ahuja

Yeah. Thanks for the question, Tien-Tsin. Block operates a business that is highly regulated, and our goal is ultimately to expand access to the economy through intuitive financial products. In order to do that, we must maintain a culture of compliance and responsible risk management, including through investment in programs, processes, controls, and teams with deep compliance expertise. Prioritizing compliance ultimately helps us drive trust with our customers, with regulators and external partners, and that enables us to then develop innovative products responsibly.

We have significantly grown our investment in compliance over the last few years. At a company level, we expect to invest approximately $160 million in compliance in 2023, which represents an increase in our investment dollars of more than five times since 2020 outpacing OpEx growth by approximately two times during that same period.

Specifically within Cash App, the pace of growth on compliance investment has been even faster than that. You know, with regards to how you might benchmark that, other companies may calculate compliance investment differently. So it can be hard to benchmark across companies. What we include in these figures is investments that go towards personnel, as well as software and tooling amongst other areas to support our program. These dedicated compliance resource support our business units and our customers that our business units serve and ultimately provide oversight across the ecosystem.

Maybe just too very quickly handle, you also asked about banking, sort of banking crisis in our partner ecosystem, Look, we benefit from having a diverse ecosystem of products and services with diverse business models. As you heard now with 14 revenue streams at a $100 million or more in gross profit up from 11 a year ago. Across our products and our partners, we are always focused on building redundancies wherever we can in addition to assessing potential future risk. So we have a diverse set of products and we build redundancies where we can and we have a transparent approach to our partnership as we always have.

Tien-Tsin Huang

Perfect.

Operator

Our next question comes from the line of Tim Chiodo from Credit Suisse. Please proceed.

Timothy Chiodo

Great. Thank you, everyone. I want to touch on the verticalized offerings in retail, restaurants and beauty. They are the key to moving up market. They were focused at the Investor Day. I know they’re in the letter and you touched on it earlier. But specifically for those three, if you could talk a little bit about the investment you’ve made behind the product specifically. And then on the distribution, you mentioned the call to action on the website and how that’s changed and drove more leads for the larger sellers. But maybe you could also talk about maybe the next steps around the on the street salespeople that will also support the vertical offerings.

Jack Dorsey

Yep. I’ll start this up. So, the key differentiator to our mind is our ecosystem of tools. And it’s not just about any one particular vertical but how everything works together ultimately. We have over 30 products, including some vertical specific software. And a developer platform, which if our customers don’t find the tools they need in our platform that can always build their own or hire developer to do the same. And we also see, because of that, we see a lot of growth in upmarket because we provide flexibility for folks.

In terms of our vertical software, our solutions addressing key verticals of restaurants, retail and beauty allows us to serve much more complex sellers with very specific needs, which again goes back to that flexibility point and the strength of our ecosystem. And the developer platform continues to be stronger and stronger as we move forward.

In terms of just the investment behind products that I can talk about, like, go to market, actually, a little bit. We we’re constantly looking for refinements for how we think about rolling these tools out including the website and the first time that someone see Square, this is inclusive of sales, this is inclusive of our direct marketing. And this is something that is never done in terms of having a final point. It’s just a constant iteration, and we’re really excited to always take a fresh look at how to improve this and make it better.

Amrita Ahuja

And I’ll add Tim just a couple of data points to help frame up the response. So in the first quarter, as we look at this broad set of mid-market sellers that we can serve and the specific solutions, we see outsized growth in those areas around vertical points of sale and developer solutions.

The mid-market sellers overall up 19% year-over-year in the first quarter outpacing our blended Square gross profit growth rate of 16%. And our strong growth in our vertical points of sale growing at 42% year-over-year, with gross profit growth from our developer tools also outpacing overall Square gross profit growth.

This is a large TAM that we’re addressing here with an upmarket and with our vertical points of sale. We believe that we’re less than 1% penetrated in a larger seller opportunity just in the U.S. based on gross receipts alone, which is why we’re making the investments and doing the hard work on verticalizing our Salesforce and our go to market efforts. So to contextualize that a little bit, we’ve pulled back meaningfully on Square sales and marketing investments year-over-year, as we optimize channel mix and refine our operations in the first quarter, and we’re seeing positive growth in acquisition even as we’ve pulled back on spend.

Within sales, the work that we’ve been doing is continuing to shift to a verticalized software led sales team. We’ve now implemented this with our U.S. inbound sales team, which is verticalized and over the next two quarters, we’re going to be doing that with our U.S. outbound sales team. It’s early here, but we’re seeing encouraging improvements in the efficiency and productivity of our sales reps.

From a website perspective, we recently redesigned this website, allowing our sellers to select vertical specific experiences, cater to the products needed to run their businesses. And to direct sellers to our sales team, making it easier for both existing and prospective sellers to contact support.

And again, it’s early, but we’ve seen strength in overall acquisition as well as new lead generation for sales since introducing our new homepage. These are long term initiatives that we’re continuing to work on, and we expect them to drive results over the coming years as we continue that work.

Timothy Chiodo

Thank you, Jack and Amrita.

Operator

We have [Dan Chapman] (ph) dialling in to ask your next question comes from the line of [Dan Chapman] (ph). Please proceed.

Unidentified Analyst

Hi, Jack. Thank you for taking my question. My name is Dan, of course. And I use Square to run operations for a couple of businesses, a craft beer and a pizza restaurant, we call AW Wander and 105 year old movie theatre called the [Mally Cinema] (ph). I’ve been a Square seller for about six years now, and I currently use Square point of sale, Square aligned, gift cards, loyalty, and a few others. When the pandemic struck, we were forced to quickly pivot our business model and set up an online store within two days. And I always credit Square for giving us the tools we needed to be flexible in the moment. Now business owners like myself must adapt again as we face economic uncertainty.

My question is how can small business build resilience and really set ourselves up for success in this current climate?

Jack Dorsey

Thank you. Thank you for using Square, and thank you for the question and spent some time with us. I would say that the biggest lesson I’ve learned in building our business is just the importance of having really good and clear data about how your business is doing and making sure that you compare that and kind of look for patterns elsewhere. Whether those be patterns within your own community, your town, your city, against other competitors. To me, that’s the only way to really inform decisions in order to create resilience especially in more challenging times, making sure that, like you are looking for opportunities to convert more customers to recurring. And ways to get them to keep coming back and constantly sponsor you, which, again, continues to seem to get harder right now.

But I think there’s a general trend, and I think the trend will continue to more and more local and less and less about global answers. And I think small businesses are set up extremely well for that, and we’re really happy to support in every way that we can, that effort, and that trend. And hopefully, we’re doing the right work by making sure that our tools just work together. And you don’t really have to think much about adding entirely new system like customer relationship management or subscriptions or, moving to an online business, you just press the button and it’s done. And so that you can really focus on the core fundamentals of your business by looking at the data and making judgments around it.

So, we’ll continue to improve our dashboard where, hopefully you’re seeing a lot of those metrics and information and enable more and more actions and activities that you can make based on that insight and data.

Unidentified Analyst

That’s great advice. Thank you. Really appreciate it.

Jack Dorsey

Thank you.

Operator

Our next question comes from the line of Lisa Ellis from MoffettNathanson. Please proceed.

Lisa Ellis

Hi, good afternoon. Thanks for taking my question. I wanted to focus in on Cash App, gross profit growth there. You said on a combined company basis, up 42%, again, up from 39% in 4Q. So in acceleration, another quarter of really extraordinary growth. Can you just help disaggregate a little bit where you’re really seeing that acceleration and growth and how you’re thinking about the sustainability of it going forward? For example, continuing to diversify Cash App’s revenue streams, etcetera. Thank you.

Amrita Ahuja

Thanks so much for the question, Lisa. I can start us off here. I would look at unpacking Cash App’s performance according to our inflows framework, where we have seen strong growth in each of the three variables that ultimately ladder up to gross profit, whether it’s active, inflows per active, or monetization rate. So, if we look at Q1 growth, monthly transacting active were $53 million in March, up 17% year-over-year. This is really driven by both the virality of our peer-to-peer network effects, as well as increasing focus on leveraging marketing and acquisition tools to drive qualified new customers and higher product adoption overtime.

We’ve been targeting, using marketing, new and higher value audiences, while also remaining disciplined and how we deploy those funds to ultimately see returns, from an inflows per active perspective, at $1,136 in the first quarter. This is an increase of 8% both on a year-over-year and quarter-over-quarter basis, where we’ve been encouraged by the healthy trends we see here.

The key drivers of inflows per active are really around product adoption, where we continue to see strong adoption of products like Cash App Card now reaching 38% of those monthly transacting actives at $20 million Cash App Card customers active in our March timeframe. And with strong growth in spend per Cash App Card active as well, underpinning the overall inflows that we see growing in the overall Cash App ecosystem.

So this product’s adoption on critical products like Cash App Cards leads to greater activity on our platform, stronger engagement and ultimately inflows per active. Another key piece of that is driving increasing the ways in which customers can inflow their funds into Cash App overtime, which can lead to incremental volumes as we’ve seen in the past for example, with things like our paper money inflow channel.

Finally, on inflows per active, a key driver that we’ll be mindful of as we move forward is that is the mix shift of our customer base. As we target a younger audience and see success with Gen Z or with our family’s product, there could actually be some pressure on inflows per active overtime. As those customers are likely to have lower inflows per active earlier in their financial journey, but we’d expect to see that grow over time as they become the earners and spenders of the future. Even with that mix shift, we’ve continued to see strong growth on inflows per active.

And then the third key driver, of course, for Cash App is monetization rate, which also grew strongly year-over-year given the pricing changes and more moderately quarter-over-quarter on the back of some interest income benefits. Ultimately, as we look forward, as you noted in the first quarter, combined company growth rate of about 43% for Cash App. What we saw in April or expect to see in April was about a 35% year-over-year growth rate. This is, as we expected, and as we’ve shared on our last earnings call, now that we’re lapping pricing changes that we instituted in the first quarter of 2022, but still strong growth 35% year-over-year in April.

Final thing to note here is, of course, margin expansion for the Cash App business. Again, as we noted last quarter, we expect to see this year Cash App to not only grow strongly but continue to see operating leverage in the Cash App margin. As we continue to operate our business with discipline and continue on the path that we’ve been on for a few years now with Cash App and growing our margins.

Lisa Ellis

Thank you.

Operator

Our next question comes from the line of Darrin Peller from Wolfe Research. Please proceed.

Darrin Peller

Hey. Thanks, guys. Look, TTP growth was obviously strong in the quarter. It was good to see the spread versus the industry hold up well. I think you talked about 14% gross profit growth into April for Square. If there’s any comment you can give us on volume growth into April or May, close to 17%, that’d be really helpful.

And then more importantly, I think just revisiting the key drivers of the GPV and the seller or the Square business overall, differentiation, and the sustainability. International obviously was up over 40%. So maybe you can comment on that together with ecomm and some of the other drivers that we’ve been seeing and your view of sustainability. Thanks again, guys.

Amrita Ahuja

Thanks for the question, Darrin. I’ll start us off. So, you know, look, overall, as we think about the health of the ecosystem, I’d orient you more to gross profit than GPV as we look at our performance. Let me start there with gross profit in April at 16% year-over-year. This is on an ex-TTP basis for comparison purposes. The comparable figure was 21% in Q1 where obviously, we had more favourable comp related to Omicron in the prior year.

And then into Q4 comparable ex-TTP was 16% on a combined company basis. So that trend in April looks very consistent with the trend that we saw in Q4 from a gross profit perspective on a combined company basis ex-TTP. And really unpacking some of the trends what we see is growth in the areas where we are strategically oriented, software and integrated payments, versus sidecar, you know, our vertical points of sale. And even in Q1, we saw outsized growth and in person versus online channels, albeit omni-channel more broadly the key focus for us. We’ve also seen strength from our banking ecosystem with loans ex-TTP, instant deposit and square card outpacing overall Square gross profit growth.

Now when we look at the overall sort of growth rates in terms of key verticals, we have seen some moderation as we noted. Since that mid Q4 mid-November time frame, across certain discretionary verticals, food and beverage and retail, churn has been relatively stable where we’ve seen a bit of pressure is on the processing volumes at existing sellers similar to the trends that we noted back in February. Because of the breadth of the overall Square ecosystem, we have resilience because we serve multiple verticals, multiple types of customers increasingly upmarket and obviously multiple revenue streams across multiple products.

And then maybe to address your international question. We have also seen some strong growth in international. Ex-BNPL, we grew 11% — mix it was about 11% of Square’s gross profit, and ex-BNPL grew 28% year-over-year outpacing overall Square gross profit growth. We’re really taking sort of a product led — product centric approach to our global expansion, where, again, the key differentiator is the breadth and integration and the confusion of our ecosystem. And so our priority continues to be driving product parity in these markets. And as we bring new markets new products to bear look to global launches of those products increasingly so. In the first quarter, we had Square loyalty and square for restaurants in Japan. And we’ve also had Tap to Pay launches over the past couple of months across Android and iPhone in the U.S.

So more to come here and again, our key focus is on these top three strategic priorities in driving the Square business forward.

Darrin Peller

Understood. Thanks, Amrita.

Operator

Our next question comes from the line of Harshita Rawat from Bernstein. Please proceed.

Harshita Rawat

Hi. Good afternoon. Can you talk about recession sensitivity across the different businesses? So on the Square side, how should we think about exposure to business formation, consumer discretionary spend? And then on the Cash App side, are you more exposed to unemployment trends? The consumer spending trends given the demographics SKU. And then just as a follow-up, can you also touch upon your credit businesses and the sensitivity there to a credit cycle? Thank you.

Amrita Ahuja

Sure. Thanks for the question, Harshita. Let me start with saying first, the works that we do to broaden our ecosystem is bearing fruit in the diversity of our revenue streams now. In the first quarter, 14 revenue streams at a $100 million and more in annualized gross profit, across Cash App and Square, Cash App with six and Square with seven along with BNPL as well. And so each of our ecosystems is doing the work to broaden our product set that can serve our customers in uncertain times, and doing that increasingly at scale, it was — we were at 11 revenue streams a year ago. So, we’ve grown three new ones, while continuing to grow our currently at scale revenue streams.

And I think this is really important as we think about our ecosystems driving resiliency through uncertain times. And when we look at engagement on our platforms, we’re also seeing that grow through these uncertain times. Cash App, as I noted earlier, growth across each of the various components of inflows, in particular with Cash App Card, we get to see both the discretionary spend and nondiscretionary spend in 2022, nearly a third of spend on Cash App Card was for grocery, gas, auto, utilities, etcetera. And with spend per active, average spend per active for Cash App Card growing both year-over-year and quarter-over-quarter.

So clearly, we see through that signals around consumer spend and discretionary and nondiscretionary income along with signals around the strong engagement on our platform. From a Square perspective, and we have an ecosystem now of 30 plus products that helps to drive those retentive relationships. And as we see — we’ve shared last quarter as more customers take on more of our products that we see a meaningful improvement and retention over time. So, our focus there’s being on continuing to drive product adoption in the breadth of our ecosystem which drives retention and overall growth for us.

Ultimately, the signals that we can read in real time across our key indicators, across both our consumer ecosystem and our seller ecosystem is what enabled us to be able to be agile to the environment and move quickly addressing our customer needs as well as our own business and how we’re able to react.

From a lending product perspective, look, I think our core products share some attributes that make them fairly unique in an uncertain macro environment. First, we take a very data driven approach. Our risk in underwriting models are updated in real time, based on a broad set of customer data, both of that individual, that individual customer as well as millions of other customers like them. And in fact, some of our core lending products like Cash App Borrow and Square Loans are offered to customers based on specific eligibility criteria where we determine those eligibility criteria.

There’s also unique structures to these products where we design our products really simplify access to capital. They’re often short in duration and have simplified repayment processes that’s part of the reason that we’ve seen healthy repayment behavior across each of these different lending types. As we noted with Afterpay, actually saw an improvement in gross loss as a percent of receivables in Q1, both quarter-over-quarter and year-over-year. And finally, we see strong repeat usage.

Historically, we’ve seen strong adoption from these customers with increasing frequency. These are customers we know well and have a history of repayment and have ability therefore to better underwrite. So we think those unique attributes of these products that really serve as working capital to our customers, are important to note during uncertain times like this.

Harshita Rawat

Thank you.

Operator

Our next question comes from the line of Ramsey El Assal from Barclays. Please proceed.

Ramsey El Assal

Hi. Thank you for taking my question. I wanted to ask about the Cash App, the savings product. And just wondering if you could comment on just how that product fits into the overall Cash App value proposition. And also just give us your latest thoughts on the product road map and Cash App in terms of what types of other adjacent financial services you might contemplate adding or what looks most attractive from here?

Jack Dorsey

Yeah. Just some context for everyone. Earlier this year, we launched our savings product to allow customers to hold a separate savings balance within Cash App. And we’ve heard from our community that they want more tools for budgeting and money management. So this is where that came from. And it allows our customers to easily set and track towards financial goals, and they can easily add money to the savings account using their Cash App balance, a link, debit card or through roundups on purchases with the Cash App card.

So far, it’s one of our fastest growing products and what early we see that it’s a feature that can drive a lot more enclosed into our ecosystem over time. But in April, we had more than 3 million actives that have added funds to their savings balance account. And more than half are saving through roundups on Cash App card. So this is another strong example of our products across our ecosystems can reinforce one another and actually build one another.

Are you are you asking more about the general product roadmap for Cash App or within savings in particular, just clarify your question.

Ramsey El Assal

More in general, just other adjacent financial services that might look attractive or any kind of color in terms of the general product roadmap more so than just specifically within savings. Yeah. Thanks.

Jack Dorsey

Yeah. All of our products within Cash App are from looking at these adjacent, we started with the most viral with the greatest network effect which is peer-to-peer. And, that is a base level utility that has a lot of value for tons of people, easiest way to get into the app and into our ecosystem. But, you know, as we look at what our customers are doing and what products they’re adopting and what they’re more importantly trying to do, that’s where our new product ideas come. And I think our strength is really simplifying something that was traditionally fairly complex something that’s very easy to take our approach to taxes, for instance. So, we’ll continue to look for more of those and we do see behaviours today that are interesting. But a big part of our focus at the moment is making sure that, like the products that we do have are easily accessible and can actually spread.

And really focused on providing more opportunities from Discover and from that little search icon at the bottom of your Cash App. This is going to be a launch pad for much of the Cash App ecosystem and certainly is the way to bring in full bearing the Afterpay acquisition that we made. But it allows us to get more, potentially daily usage as, people can find things patches online, but also around them that then touches on every one of our financial products and really brings to life those adjacencies.

So there’s a lot of work to do there just to strengthen those connections and to make sure that we’re building something that’s robust and we can continue at more new products and more new features.

Ramsey El Assal

Thank you.

Jack Dorsey

Thank you.

Operator

Our next question comes from the line of Michael Ng from Goldman Sachs. Please proceed.

Michael Ng

Hey, good afternoon. Thank you very much for the question. Just about OpEx. First, OpEx came in a little bit better than guidance in the quarter. I was just wondering if you could talk about any areas of efficiencies that you may have benefited from in the quarter or timing elements that might impact how OpEx is recognized throughout the year?

And then second, could you just talk about how you’re viewing full-year OpEx growth, any notable areas of investing you’re making for the year and whether there are any changes in OpEx plans relative to last quarter. Thank you.

Amrita Ahuja

Hey, Mike. Thanks for the question. Let me start actually with talking about the full-year and our view on profitability for the year. And then we can kind of slice and dice OpEx from Q1. So look, of course, our goal as always is investing responsibly to deliver profitable growth. And for the full-year, we’re raising our profit targets to $1.36 billion on adjusted EBITDA, more than 35% growth year-over-year and a $115 million adjusted OI with improving margins on both. This primarily — this outlook primarily reflects our strong gross profit growth during the first quarter. On the expense side, we’re deferring some of the investments that we had intended for Q1 to later in the year.

Longer term, the investments that we’re making should follow our path on to deliver a rule of 40 on an adjusted OI basis longer term given the returns that we see. As we think about what underpins the work that we’re doing, the investments that we’re making, as I noted earlier, we continue to expect Cash App margins to expand. This is a trend that we’ve seen this quarter and a continuation of improving profitability over the last few years, while we expect Square margins, which are already healthy to be more consistent year-over-year.

And we intend to hold of these targets in the midst of macro uncertainty if we see growth slow, we’ll pull back on our planned expenses. The key areas of leverage that we think about across the year are similar to what we noted last quarter, which is hiring. As we see strength in the business, we’ll react accordingly, but we are deliberately slowing the pace of hiring as we shared last quarter, expect to increase headcount in the approximately 10% year-over-year range. And sales and marketing to increase at a much slower rate than the 25% growth we saw in 2022.

Now to unpack some of the quarterly variations for the second quarter, we expect EBITDA to be lower than the normalized rates that you saw in Q1 as implied in our guidance given the timing of expenses during the year. And that then brings me to sort of the operating expense growth that we saw in the first quarter which came in about $60 million in change lower than what we had included in our guidance. And it was really broad based across our key areas of investment. So sales and marketing was relatively flat year-over-year, Cash App sales and marketing expenses were up 9% driven by an increase in peer-to-peer processing costs. Peer-to-peer transaction losses and card issuance costs, but the rest of sales and marketing was down year-over-year.

Product development grew primary driver here is our teams and our personnel cost related to engineering, data science, and design. And then G&A, down slightly year-over-year, but excluding certain one-time expenses related to the Afterpay acquisition also grew year-over-year with investment human resources, compliance, and customer support personnel.

Risk also grew year-over-year, but we also now have a full quarter of Afterpay in our books this year versus last year. So these are kind of the key elements that we’re focused on operating with discipline across our business. And we’ll continue to do that through the year.

Michael Ng

Thanks, Amrita. That’s very clear. Thank you.

Operator

Alright. We’ll now take our last question. Our final question comes from the line of Trevor Williams from Jefferies. Please proceed.

Trevor Williams

[Technical Difficulty] NPL pulled it in. Amrita with the ex-BNPL monetization rate you gave for Cash App. We were backing into just over $140 million of BNPL gross profit for the first quarter. If you could just comment on that number. And then anything you can share on BNPL gross profit growth within the 24% combined company growth for April would be great. Thanks.

Amrita Ahuja

Hey, Trevor, a cut out in the first part of your question. Do I take your question to be primarily around sizing the performance for BNPL for the quarter?

Trevor Williams

Yeah, BNPL in Q1. And then if you could parse out the BNPL growth within the 24% for April.

Amrita Ahuja

Sure. You know, look, I think we’ll orient here to the volume based metrics that we provided earlier, which is 18% GMV growth in the first quarter. GMV continue to grow faster in the gross profit. In the first quarter gives mixed shifts to enterprise sellers and newer markets. So gross profit growth was below this. But we expect GMV growth in the April, in the month of April to be up from what we saw in the first quarter, 20% versus the 18% in the first quarter.

We’re encouraged by what we see here which is a continued growth and high quality customer acquisition with repeat engagement and healthy repayment rates. We see 98% of purchases not incurring late fees and 95% of instalments paid on time consistent with what we’ve shared in the past. And of course, we continue our work of integrating Afterpay with our Square and Cash App ecosystems, this combined scale of which we believe will be true differentiator for us within Cash App unlocking commerce with the Discover tab to drive increased engagement and within Square launching BNPL in person and online, where we’ve seen encouraging early adoption. We’re focused here on using that combined base across our ecosystems to build a strong pipeline of new merchants and to continue attracting new customers, new consumers to our BNPL platform.

Trevor Williams

Okay. Thanks.

Operator

Ladies and gentlemen, thank you for participating in today’s program. This does conclude the program. You may all disconnect. Thanks.