Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Marqeta’s Fourth Quarter 2022 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Stacey Finerman, Vice President of Investor Relations, to begin.

Thanks, operator. Before we begin, I would like to remind everyone that today’s call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website, including our Annual Report on Form 10-K for the period ended December 31, 2021, and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the time of this call, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today’s call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today’s earnings press release or earnings release supplemental materials, which are available on our Investor Relations website. Hosting today’s call are Simon Khalaf, Marqeta’s CEO; and Mike Milotich, Marqeta’s Chief Financial Officer. With that, I’d like to turn the call over to Simon to begin.

Thank you, Stacey. And thank you, everyone, for joining us for Marqeta’s fourth quarter 2022 earnings call. I'll briefly touch on our results for the fourth quarter and full year 2022 and then share our top priorities for 2023. We ended the year in a position of strength, once again demonstrating our ability to grow and innovate at scale. Total processing volume, or TPV was one hook was $47 billion in the fourth quarter, a 41% increase compared to the same quarter of 2021 and 2.5x the TPV in the fourth quarter of 2020. Our net revenue of $204 million in the quarter grew 31% year-over-year with financial services empowered by Marqeta as the fastest growing segments. Gross profit was $87 million in the quarter, a 15% increase versus Q4 2021. This growth was 16 percentage points more than net revenue as we lapped the incredible ram in the buy now, pay later business we had in Q4 last year. Our gross margin for the quarter was 43%. The full year 2022 was another great one for Marqeta. Total processing volume, net revenue and gross profit grew 50%, 45% and 38%, respectively. We attribute our success to our great product market Fit, where our scale platform has been adopted by many of the innovators in this changing digital economy. As a result, we have strong growth among our customers and continued satisfaction with our products, which is evident in our healthy net revenue retention of 144% compared to 2021. This revenue retention is consistent for both our Block and non-Block business. While I'm pleased with where we ended 2022, I'm actually more excited about the opportunities ahead of us. The embedded finance market is rapidly expanding and evolving. Marqeta has powered embedded finance for years, one application at a time.…

Thank you, Simon, and good afternoon, everyone. Q4 was a strong finish to a great year for Marqeta with Q4 TPV growth of 41%, net revenue growth of 31%. Gross margin of 43% and adjusted EBITDA margin of negative 4%. The net revenue growth and gross margin were both on the high end of our expectations, while adjusted EBITDA was better than expected as we continued to slow incremental investment by leveraging improvements in our efficiency and effectiveness. I will cover the Q4 highlights before spending more time detailing our current expectations for 2023, Q4 TPV was $47 billion, growing 41%, once again demonstrating our ability to grow fast at scale. Let me put the rapid scale of our TPV in perspective. In Q4, we had over 50 days, where we processed over $500 million in volume compared to over 30 days in Q3 and less than 20 days in Q2 of this year. And Q4 TPV of $47 billion is more than our first three quarters of 2020 combined. Looking at our TPV performance by vertical, growth in the financial services vertical was consistent with Q3 growing a touch faster than the overall company, fueled by cash apps rising card penetration among the rapidly growing users and engagement driving higher spend per card user. On demand delivery has been relatively consistent all year, growing double digits driven by merchant category expansion and steadily rising consumer demand. Lending, including buy now, pay later growth slowed this quarter, but did remain in the double digits. The growth is typically low for three reasons. First, one customer migrated a portion of one of their programs to another processor in Q3 for diversification reasons. If you adjust for this migration, this verticals growth would have been a little shy of our overall TPV…

[Operator Instructions] Our first question comes from Tien-Tsin Huang with JPMorgan.

Great. Thanks for taking the question here. I wanted to ask on the gross margin side if you don't mind. I know a lot of moving pieces there. I heard the sales bookings change; I heard a lot more deals getting renewed longer term. And you're giving us some economics. But what gives you confidence that things will improve beyond 2023? And Mike, can you go through again why this Visa renewal is a onetime factor. And it sounds like some of it is being influenced by some of your partner relationships as well. It's not just straight up with Visa. So would you mind just giving a little bit more detail around that because I was a little bit confused by it. Thank you.

Yes, let me start with that, Tien-Tsin. So we've talked about before that the level of our incentives is based on the nature of our relationship with our customer and the relationship with the network. So there are some customers that are referred to us by the networks, which means that we don't make incentives. There are some customers where we absolutely control the brand decision and we get full incentives and then there are several variations in between those two extremes. And what is happening in this case is that with two of our larger customers, the nature of that relationship is shifting in a way that is not a positive for the level incentives that we are. And so that is creating, as I mentioned, over five points of gross profit growth drag in 2023 and it lowers our ‘23 margin by almost two percentage points. That's our gross margin. So it does, that will have an impact going forward beyond ‘23. But it particularly is impactful to growth because this is happening this year on volumes we already have. While we have new customers that have yet to ramp that will be growing much faster once we get beyond ‘23. So we see this as although it is something that will impact us beyond this year, the significance of that impact is magnified in 2023 based on just the situation that we're in, the dynamics of the business. In terms of the overall gross profit growth, what makes us also more confident is one, as you know, when you do these longer term deals with customers, we get better economics. That for the first four quarters of that you have the pressure particularly on gross profit because what's happening when we do a renewal is our revenue…

Next question comes from Darrin Peller with Wolfe Research.

Thanks, guys. Hey, first of all, Simon, congrats on the new role. Maybe just start off with you. And I'd love to hear your thoughts strategically on what you see when you look in this business going forward. Really, when you look at the next couple of years, the measure of mix between Block and other categories and the vertical differentiation that the company has been having. Where do you really want to put more investment into? And then how important is that profitability metric for you again? And then just quick follow up, Mike. I guess I'll just ask both questions at once, and it's a little bit of an add on to Tien-Tsin’s question I guess, when we look at the factors you went through that are impacting the results last year and into this year's guide, I guess if you were to sort of force rank and back out the incentive side, the readjustment there as well as backing out some of the, if there were -- maybe there were one or two big noteworthy renewal at a different price point. What was the underlying growth metrics beyond that? I'm just curious if it's a little bit more of a one off thing we can isolate.

Darren, thank you so much for the question. Let me start by saying what I see is actually what I hear from our customers. And ever since I joined, I've been spending a lot of time with our customers. And then one thing that came clear everybody wants more from Marqeta to the point where fewer frustrated Marqeta was not delivering the full solutions to them. So there's great product market set. The second thing is as the market shifts towards embedded finance and by that we mean companies whose major business is not financial services, they actually want a full suite, they want a bundle. They don't want to go and shop around to multiple fintechs to get a single solution. They want a full suite product, they want credit, they want debit, they want prepaid, they want banking and money movement and they also want program management over that. And so that's what we offer. So that's effectively what we see going forward. I mean the line would say that finance or fintechs are just not going anywhere. They're going everywhere. And I think we're the engine that is going to power that. So in terms of profitability, look, at some point in time, once you reach the scale we reach, it is extremely important to focus on profitability. It's not just a vanity metric, it is something that scale teams do. We focus on operational excellence in every function of areas. We put processes that are sustainable and repeatable and then we don't succumb to incrementalism. In other words, we continue to innovate at scale. But all these things lead you to be a healthy and profitable company and that's something we're committed to put ourselves, we're committed to put our customers as well, because the healthier we become, the healthier our customers become. I'll turn it over to Mike for your second question.

Yes. So, Dan, for the, kind of to isolate some of the factors. So a couple of things to keep in mind. So first is when you're looking at buy now, pay later, we have just some unique factors impacting just our Q4 numbers that are indicative to what's to come in 2023. So we have some volume loss from one program from one of our customers, which we will lap in Q3 of ‘23. And then we also just are lapping an incredible acceleration in BNPL use during the holiday season of 2021. And so if you take BNPL aside, and of course, what's happening with Block, which grows very significantly. One of the things I mentioned in the quarter is that our gross profit growth outside of Block and BNPL is growing 3x faster than our total company growth in the quarter, which was 15%. So the rest of the business gross profit is growing faster than 45%. And we think that shows you the trajectory that the rest of the business is on. The second thing that I would also comment on is Block and particularly cash app, continues to grow really fast and it continues to increase our revenue concentration. It's up another 1.5 this quarter, and it is lower margin business for us, just given their size and just the nature of their business and the use case. But I think what's important too, and why you hear me, maybe spending more focus on gross profit growth and not margin is because as that business, if you take the Block business, for example, as it continues to grow fast, although it weighs on our margin, it's still driving incremental gross profit which is ultimately what matters on our path to profitability. And so that is also something that we think is a positive going into next year. And so those are the two things, I guess, that would help you isolate some of the factors. And again, just to reiterate, the issue with the Visa incentives resetting is approximately or a little over five points of our gross profit growth in 2023.

Next question comes from Ashwin Shirvaikar with Citi.

Thank you. Hey, Simon. Hi, Mike. I wanted to ask about the comment on Block, the assumption of no renewal this year. Is that just to clarify, is that a simplifying assumption or do you genuinely not expect to sign a renewal this year? Any incremental information there would be great. Then as we sort of try to build out the overall model, anything you can provide with regards to the underlying macro assumptions would also be great.

Ashwin. This is Simon. Thanks for the question. I'll take the first part and then hand off to Mike about the macro assumptions. So in terms of Block renewal, we're highly confident that we will be able to renew the partnership this year. So the agreements go through 2024 but we do have a high degree of confidence that we will renew them this year. And I say our confidence stems from a couple of things. I mean, the first one is the cash app success is not a random event. It is the result of their team's excellence and relentless focus on delivering consumer value and also leveraging partners like ourselves. Our relationship is very symbiotic. So I do expect that to continue. The issue is the timing is not something that we have full confidence on the timing, right. So is it next week, is it in a couple of months? So on and so forth. And hence why we want to wait until we have the deal renewed so that we share more information. So we don't want to be in speculation land. So that's why we're taking a more cautious approach around the renewal. But in terms of the confidence of a renewal, it's very high, right.

Yes. And then on the macro assumptions so I guess first is what we're seeing generally what we're seeing in spending is that and I'm sure you've seen it and you've heard it from many other payment companies. Generally speaking, payment spending is holding up quite well both within consumers and businesses. There are some signs out there, right, the BNPL players are tightening credit a little bit, which does have some impact on spend growth. Within the expense management, we are starting to see a little bit of impact there, but I would say it's relatively minor at this point. And so what we are assuming is a modest slowdown in consumer and business spending as the year progresses. So right now what we can see through most of February is things are still holding up which is what's reflected in what we are expectations for Q1. But as we look further out, right, there are a lot of I guess conflicting signs of what's going to happen as we get into the spring and summer. And so we've been, I guess a little bit cautious but have not gotten bearish on what's going to happen macroeconomically and we'll just have to wait and see and stay flexible. And just, I guess one more point just related to that flexibility. For example, with the number of hires that we are making in 2023, which is relatively low, most of them are in the back half of the year, just as an example of where we are trying to maintain some flexibility to wait and see what happens from a macroeconomic perspective.

Next question comes from Bob Napoli with William Blair.

Thank you. Good afternoon. So, Simon, maybe just some, what are your thoughts on what the right growth rate for this business is? The target operating model that was put out there during the IPO. Just any thoughts around the growth of that and your confidence in a target operating model? And Mike, if you can give any color on the Power Finance, what kind of revenue or growth your rate that company is driving. Thank you very much.

Thanks, Bob, for the question. I'll give you kind of my philosophy as what I would consider sustainable and profitable growth. And that's something we're aiming for. So I would consider a healthy company and something we're aiming for is growth in the 30% and that's gross profit in the 30% and then EBITDA in the above 20%. That's the kind of company we're building towards. And that’s as a management team, we're committed to that type of organization. So and we have a plan internally that we'll be able to look at to deliver that kind of numbers. But it's also tied to given the concentration we have with Block, it's tied to the Block renewal, but just kind of a backup envelope that would as the management team, as a scale management team, we're aiming for is a 30% year-over-year growth, sustainable growth in gross profit and 20% EBITDA a norm. Mike, any comment.

And then in terms of the impact of bringing Power into the business as of the beginning of February, there is really a very insignificant impact on our revenue and gross profit. Power has a few customers and they're really all in beta mode, which we actually see as a positive. So they had cards in the wild, but a relatively small number. And as you may remember, when we've talked about acquisitions in the past, what we are really focused on is accelerating our product roadmap. We don't need an acquisition to bring us sort of sales pipeline because we are already engaged with all the major players who would want to be interested in credit in the ecosystem. So what Power is bringing is the technology, which is a very good fit with our platform. So we actually saw as a positive in this case that they were very early because we don't have to focus on customer migrations and kind of maintaining the business while we're integrating. We can really start fresh once the business is integrated in Q3. So really the revenue and gross profit is what's going to be driven after we integrate in Q3, which will be quite minimal. On the expense side, again, they were also early. It's relatively small and so we expect the expenses to just increase our growth by about two percentage points for the year. So it's again a relatively small number as we integrate the business.

Next question comes from Timothy Chiodo with Credit Suisse.

Great, thank you for taking the question. I was hoping you could bring to light a topic that comes up in investor discussions and it has to do with Block, but I guess it could be applied more generally. When we look back at the last negotiation back in 2021 and we look at what's happened with take rates and gross margins since then, there was no drastic change, at least that we can observe. Sure, there's been a slight downward trend, but there hasn't been a drastic change. And I think part of the reason for that has been increased services that you've been able to attach and more value that you've been able to deliver to this one large important customer. I was hoping you could bring to life examples of some of the additional services that you've been able to deliver maybe as cash app has evolved into more of a banking platform and just a peer to peer app.

Thanks Tim, this is Simon. And thanks for the question. There are actually quite a few. We cannot say much because that's something that they would have to disclose, but there are many services that I say Cash and Block has introduced over the past couple of years around more banking services, more BNPL for the Afterpay acquisition. And I say we've been working very, very closely with the Block team around adding and powering some of those features and additions. So I'll point you towards, I'd say, BNPL as an area that we are very excited to work with Block in general and Cash in particular. And that's something that we have great confidence in. There's many, many others, but I would prefer to the Block team to share those.

Next question comes from Ramsey El-Assal with Barclays.

Hi, thank you for taking my question this evening. I wanted to ask about bookings and kind of ask you to comment a little further on your confidence level that the bookings headwind issue that you faced last year is behind you. Specifically, I'm thinking about the shifting demand environment from more sort of fintech customers to more traditional customers. I'm just curious if that's not making visibility a little bit cloudier or whether you feel like you got a pretty good handle on what's to come at this point.

Thank you, Ramsey, for the question. Actually, it doesn't. So as we put together what I say a very strong enterprise sales discipline and practice, we look at the pipeline like hawks on a daily basis and a weekly basis, and you always don't look at a snapshot. You always look at trajectory. And that's the methods we have put in place in the August-September time frame, and we were pretty close to what we have delivered in Q4. So there's three things that are giving us the confidence. One is how the pipeline is actually moving forward. So in terms of confidence levels, our reps have the management discussion we're putting on top and also the diversity of the use cases that are coming from our customers, the breadth, which means the market segment that is coming after us. And the third one, the global nature of that demand. So that points to a broad product market fit versus an isolated solution. And the second thing I'd say is a lot of our customers and prospects are coming to us and saying, hey, we're changing our strategy and our thinking because our OpEx is tighter this year and hence we want to reduce the number of vendors that we want to work with. We want more from you because you have more and you can support us on a global basis. So that is actually shifting some of demand to us. So and a lot of our customers that actually put together solutions from Marqeta and many other partners or players, they found themselves spending all their energy stitching all these solutions together versus innovating on their end. So I do believe that there is a combination of three things. First one is enterprise quality, pipeline hygiene and management and account based marketing. The second one is the right solutions that has been packaged to address that market. And last but not least, that demand itself. It's actually invigorating to see the type of demand that we're seeing.

I'll just, Ramsey, I’ll just add two additional things that I think are important. So one is that as the market is shifting, as you're describing, what is very beneficial to us about it is that it's shifting from sort of smaller but well-funded fintechs to much larger organizations that have maybe bigger ambitions that could come sooner because of their large existing user base. And so our scale is a huge benefit. The fact that the combination of our kind of modern, highly configurable platform and our proven scale delivering for very large customers is a big benefit as the market shifts because that aligns better with the types of customers who are coming our way. The second thing I would say that I guess hinted that briefly in my prepared remarks is not only was Q4 really strong, but we're also seeing Q1 at least through the first two months, we're seeing that pace continue. So we're quite confident that. We've sort of turned the ship, if you will. And we're now very much moving in the right direction at a rapid pace.

Next question comes from James Faucette with Morgan Stanley.

Hey. Good afternoon. I wanted to follow up on a couple of the questions have just been asked and all time together. Is that first should we understand then that your current outlook for this year is based on the assumption of some sort of renewal with Block later this year? Would that any renewal this year actually have impact on financials from your perspective during the course of 2023 and then just back on kind of the new customers and programs, Mike, I know you just said that you see a lot of those new wins are with more established companies et cetera not necessarily fintechs, but I'm wondering if you can talk a little bit about the maturity of programs they may be looking at what your position within those programs is likely to be and where there's potential variance there just once again trying to gauge confidence in the ability to show that acceleration you're talking about once we get beyond this year. Thanks.

Thanks James. I'll quickly answer your first one, then hand it over to Simon. So, yes, the specifically the, I guess the projections we shared and our expectations for 2023 do not have any impact related to a Block renewal. So we have assumed that the current contract we have is in place through the end of 2023. And as I mentioned, we, of course, I guess, hope that that is not the case and that a deal is done in that time. But because we don't want to speculate for now, what we are assuming is that the existing contract remains in place.

Cool.

In terms of the new customers, James, I'd say there are multiple use cases that we're kind of focused on and we expect, I'd say sustained demand from and I'll explain our role in them. So the first one is co brands from specific, I'd say retailers or brand, consumer brands that have very wide distribution. So they do want the loyalty play, the traditional loyalty play, and a new revenue stream. So and our solution is ideal for that. The second use case that is coming up a lot and we're extremely well positioned to win is wage disbursement and early wage access, especially with gig and shift workers. So the free labor marketplaces. That's another use case that's very strong. And then there's two more. One is flexible account stable, which is creating a virtual card in order to settle a payment in a short period of time given the rising interest rates and on working capital. And last but not least, I call it BNPL NV, which is everybody is looking at this mechanism, which is culturally accepted installment payments and trying to bring it to the point of sale but in a broader solution. I call that point of sale lending, but in a highly innovative manner. You don't need to send paperwork, you don't need to scan the lawn, you just take a snap, a QR code and you swipe and you actually underwrite that transaction. So those are, I'd say, four use cases that our solution is actually made for. And we see the demands on all four coming from, coming fast at us.

Next question comes from Andrew Jeffrey with Truist.

Hi. Appreciate taking the question Simon, It's interesting to hear sort of the discussion of the business. I feel like evolved a little bit from the modern card issuing platform to being a full-fledged embedded finance company. And I wonder if you just put a little bit of a finer point on how you think you compete in that market. I know you mentioned some of the verticals, but is there -- is this the kind of transition that you now think is complete? And that's what we've seen in terms of ramping 4Q bookings, or is there more work to do? Obviously, credit is going to help, but it just feels like it's almost a cultural shift in the go-to-market for the business. I just wonder, maybe more philosophically, how you think about that.

Andrew, great question, and thank you for the question. I wouldn't say it's a philosophical shift. I think it's an operational choice. So we, again, there's many embedded use cases that Marqeta has powered already, and we're very proud of a lot of the use cases. And everywhere we've gone and embedded finance, we were the entity that helped, I say the brand achieves their success in financial services. But I'd say the market itself is shifting and a lot of companies do want these embedded services in their experience. Co brands would be another example. Again, the relationship between an entity and its employees or its contractors, they want to control that flow. And honestly, it's a lot of money for them because it's pure EBITDA. So it's a new revenue stream. So we're very well positioned to do that. So in terms of the shift itself, it is when we reorganize into modular themes, we went sector by sector and we've given the leader, let's say, of that module complete ownership from prospecting all the way to managing the relationship. So they develop expertise, they develop account partnerships, but also, they develop an ability to sit down with a customer who's usually not an expert in fintech and put together those solutions. So it's not a cultural shift, it's an operational shift that has led to us succeeding in this space. And the second thing is, the market came to us because that's how Marqeta is. Marqeta is the API first, so by definition, we could dwell into somebody else's technology. We're comprehensive and with the addition of credit, that completed the solution. So honestly, Marqeta was standing what the puck was going to be if I want to use a hockey analogy, and I think that is what happened.

Thank you. This concludes today's Q&A session and today's teleconference. You may disconnect your lines at this time. Thank you for your participation.