Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Marqeta Inc (MQ, Financial) reported second-quarter results that exceeded expectations in net revenue, gross profit, and adjusted EBITDA.
- Total processing volume (TPV) increased by 32% year-over-year, reaching $71 billion.
- The company signed a significant five-year exclusive contract with Varo Bank, which has 5 million cards in the market.
- Marqeta Inc (MQ) continues to innovate, becoming the first US issuer processor certified by Visa to support Visa Flexible Credential.
- Non-GAAP adjusted operating expenses decreased by 3% year-over-year due to effective cost discipline and optimization.
Negative Points
- Net revenue contracted by 46% year-over-year, primarily due to a 60 percentage point decrease from the revenue presentation change related to the Cash App contract renewal.
- Gross profit contracted by 6% compared to the same quarter in 2023, mainly due to the Cash App renewal pricing.
- Adjusted EBITDA was negative $2 million for the quarter.
- The company faces challenges in the expense management space due to virtual card acceptance costs for some suppliers.
- The impact of the Cash App renewal will continue to affect comparisons until Q3 2024.
Q & A Highlights
Q: You mentioned the Affirm partnership with VisaFlex Credentials. Can you expand on Affirm's role within Apple Pay and Marqeta's involvement in the Apple Pay Buy Now, Pay Later ecosystem?
A: Simon Khalaf, CEO: The trend of Buy Now, Pay Later (BNPL) migrating to wallets and cards is significant. Visa Flexible Credential allows consumers to toggle between debit, credit, and BNPL without merchant integration, creating ecosystem efficiency. Apple integrating third-party BNPL providers into Apple Pay, with Affirm taking a prime spot, will benefit Marqeta significantly. Our role remains enabling BNPL anywhere, supporting this trend early on.
Q: Is the Visa Flex Credential certification challenging and time-consuming for others to achieve?
A: Simon Khalaf, CEO: Marqeta's real-time and flexible platform allowed us to move quickly to support this innovation. Legacy stacks may find it more challenging, but Marqeta will continue to support innovations rapidly due to our modern and nimble platform.
Q: Can you discuss the Varo Bank win and any associated risks? Is this a credit and debit deal?
A: Simon Khalaf, CEO: This is not our first conversion; we are currently completing another. Varo is excited about the partnership, and we plan to execute the migration in 2025. This is a debit deal.
Q: Are virtual card acceptance costs a problem for suppliers in the expense management world?
A: Michael Milotich, CFO: This challenge has been around for some time, and our experience and leadership in this area help us manage it effectively. It does not affect our expense management business trajectory.
Q: Can you provide more color on the differentiation that helped win the Varo Bank business and an update on embedded finance trends?
A: Simon Khalaf, CEO: Our experience with Cash App and other neobanks prepared us to demonstrate innovation at scale. The demand for embedded finance is growing fast, driven by brands wanting to be the bank for their consumers and commercial platforms seeking engagement with suppliers. Marqeta's comprehensive solution, including credit, debit, BNPL, and working capital, positions us well in this space.
Q: What convinced Varo to switch from DPS, and what is the expected TPV impact?
A: Simon Khalaf, CEO: Innovation at scale and real-time transactional experience were key factors. Michael Milotich, CFO: We expect to complete the conversion in 2025, with full benefits realized in 2026. The deal implies $10 billion to $15 billion in additional TPV.
Q: What is the timeline for the Visa Flex Credential opportunity to convert into revenue?
A: Simon Khalaf, CEO: We will see some benefits in 2024, with gross profit starting in Q4. The pipeline is strong, and we expect revenue to trickle in through 2025. Michael Milotich, CFO: It will take time for customers to fully appreciate and adopt this capability, with broader use expected over a couple of years.
Q: How should we think about growth from new customers versus existing customers?
A: Simon Khalaf, CEO: Both new and existing customers are growth drivers. New cohorts are on track to generate $20 million in revenue, and existing customers are launching multiple programs. Michael Milotich, CFO: Bookings are balanced between expansions with existing customers and new logos. Existing customers are growing significantly, contributing to our growth.
Q: How are recent cybersecurity events impacting the ecosystem and Marqeta's pipeline?
A: Simon Khalaf, CEO: The CrowdStrike event did not impact us, thanks to our security team's efforts. Regulatory scrutiny may create tailwinds for Marqeta due to our demonstrated ability to scale compliantly. Our business with Evolve is not significantly impacted.
Q: Can you elaborate on the optimizations you are doing and their impact?
A: Michael Milotich, CFO: We are focusing on tech tool usage optimization, insourcing, hiring in lower-cost locations, and renegotiating contracts. These efforts are driving significant efficiency and cost optimization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
