Block (NYSE: XYZ) delivered a strong second quarter, raising its full-year 2026 guidance after gross profit grew 25% year-over-year. The company achieved a record 27% adjusted operating income margin and saw adjusted diluted earnings per share rise 65%.

The results reflect broad-based strength across both the Square and Cash App ecosystems. Management attributed the outperformance to accelerated product velocity driven by AI integration and effective go-to-market strategies, including expanded field sales and independent sales organization (ISO) partnerships.

Financial Performance and Guidance

Block exceeded its initial expectations for the quarter, prompting an upward revision to its annual outlook. For the full year 2026, the company now expects gross profit of $12.51 billion, representing 21% year-over-year growth. Adjusted operating income is projected at $3.47 billion, implying a 28% margin. Adjusted diluted EPS is expected to increase by 70% year-over-year.

For the third quarter specifically, Block forecasts 18% year-over-year gross profit growth and an 89% surge in adjusted diluted EPS. The company anticipates third-quarter interest expense between $50 million and $55 million, with a mid-20% non-GAAP effective tax rate for both the quarter and the full year.

Segment Highlights

Square demonstrated accelerating momentum, with gross profit and gross payment volume (GPV) both rising 13% year-over-year. U.S. GPV growth reached its strongest rate since the second quarter of 2023. The company noted that over 200 active ISO partners contributed to more than 150% quarter-over-quarter growth in new sellers joining through that channel. International GPV grew 25% on a constant-currency basis, while mid-market sellers saw growth exceeding 20%.

Cash App gross profit expanded by 31% year-over-year. Monthly transacting actives grew 3% in June, with inflows per active up 9%. Consumer lending origination volume surged 59%, reflecting deeper engagement within the ecosystem. Commerce enablement volume within Cash App grew 17%.

What the Numbers Show

The divergence between Cash App’s 31% gross profit growth and Square’s 13% growth highlights a shift in value creation dynamics. While Square drives volume through GPV expansion, Cash App is leveraging higher-margin financial services and lending products to accelerate profitability. This suggests that as lending volumes normalize in the second half, Cash App’s growth may rely more heavily on monetization rates and engagement depth rather than pure origination spikes.

Strategic Initiatives

Management emphasized the role of artificial intelligence in driving operational efficiency and product development. The company launched Buzz, an agentic collaboration platform, which has increased code changes per engineer by 150% since the start of the year. Square shipped 130 features in the first half of 2026, a threefold increase compared to the same period in 2025.

Hardware innovations also gained traction, particularly Cash App Tags. The second drop of the Wand form factor sold out in over 30 minutes without marketing spend, with over 3 million users requesting notification for future releases. Block continues to invest in supply chain resilience, noting deep relationships with suppliers’ suppliers to mitigate memory cost pressures.

Looking ahead, Block plans to expand Square Financial Services (SFS) capabilities beyond lending into deposit-taking and acquiring. Sellers maintaining at least $10,000 in Square Savings can now earn a 3.5% APY, eight times the national average, aiming to build a stable, low-cost deposit base to fund future lending products.

Block has submitted an application to the Office of the Comptroller of the Currency (OCC) to establish Builders Bank and Trust. If approved, the entity would operate as a federally regulated national trust bank providing custody services for bitcoin and stablecoins.

Regulatory Framework

The proposed charter would place Builders Bank under OCC supervision, creating a consistent national framework for Block’s scaling business. This federal supervisory structure aims to standardize the custody and related fiduciary activities currently offered by the company.

Operational Scope

Builders Bank is structured as an uninsured, non-deposit-taking national trust bank. It will not accept deposits or make loans. Instead, its primary function is to provide custody and related fiduciary services, specifically including support for digital assets like bitcoin and stablecoins.

Strategic Implications

This move allows Block to support its digital asset activities through a dedicated banking charter. By establishing a federal supervisory framework, the company seeks to align its operational scale with regulatory clarity for these specific custody functions.