Okay, great. Why don't we kick it off? I'm really glad to be here today with the team from Marqeta to really to kick off the 27th Annual Global Technology Conference. So my name is Tim Chiodo. I'm the lead Payments Processors and FinTech analyst here at UBS, and we are glad to have with us Mike Milotich, who is the CFO of Marqeta. Also a special thanks to Stacey Finerman, who is head of IR, and also Maria Graizer, who is also on the IR team and joining us here in Arizona. So with that, Mike, I know the investment community has recently gotten lots of new information on Marqeta, given you recently hosted an Investor Day.
And I think it would be a great place to start, just to recap some of the numbers that you provided to the market in terms of the gross profit outlook through 2026, with some of that acceleration starting in the second half of 2024, and then the, the low-20s growth that you're expecting in 2025 and-
Yeah, thank you and good morning. Thank you for having me. The process we go through to project the numbers going forward, we're pretty thorough. We obviously don't take it lightly when you're trying to set expectations on a three-year period. The process we go through is we first start with our existing customers, where we have very good visibility, and we also have several customers across, you know, several different use cases. So we can project the business based on our own data and our own expectations of the market. And then on top of that, we'll speak with our customers and get any customer-specific insights into their marketing or product plans that may affect our projections. We then overlay two potential implications for our existing business.
So one, we look at existing renewals that may come up in this three-year period. So we know when our contracts are going to expire. We assume that we would redo those deals a couple quarters in advance. And then for each of those customers, we bucket them into four different kind of tranches, if you will, of potential repricing from no price change based on a deal we look at and say it's very well priced to varying levels of price compression that we can expect when we get renewal. The second piece that we look at is on the volume side, potential volume losses that may happen in this three-year period, and particularly in the area of single-use commercial virtual card, which is the area of our business that has a low moat.
This is an area that we were an early pioneer, but it has gotten more competitive in the market over the last couple of years. So, we look at it in two ways. One, we look at it on a program basis. So how many programs do we have that are single-use commercial virtual card? And then we also look at on a customer basis, because if a customer has multiple programs with us, some of which are more sticky, some of which are this more competitive space, then we can bundle those volumes together and create a win-win between us and our customer. So on a pure program basis, the single-use commercial virtual card is a pretty small percentage of our revenue and gross profit, but when you look at it on that customer level, it's even smaller.
It's less than 5% of our current revenue and gross profit. The reason why it's more competitive is because you are creating... You can have true redundancy with a commercial virtual card because you're creating a new card each, with each payment, which allows you to actually have redundant providers. Typically in our business, it's pretty sticky and you only have diversification opportunities. The last piece has to do with new customers, and for that, we look at our bookings numbers that we have.
We have obviously good visibility for the last several quarters, and we make some projections about how those will grow into the future. And then our bookings numbers are year one net revenue, so then it's just a matter of how does it grow after year one. Typically what we see based on lots of history at Marqeta, we see about 50% revenue growth in year two, 25% revenue growth in year three. So we then stack those new cohorts of sales into the future years to get the
Two brief follow-ups. I think one inherent thing, past, if we were to see a headline that goes with a new provider, that type of redundancy, which is exactly what you're talking about, you've already planned for it. When we, as the market observer, that headline should mean, okay, we know.
Correct.
And then you mentioned renewals. Well. Maybe you could just touch a little bit - I'm skipping a little bit out of order. Topic of renewals. Can you just talk a little bit about how you've approached the price today versus to how some of the original and how that might help?
Yeah, I think our approach over the last 18 months has been to make sure that our contracts and our pricing remain competitive over the life of the deal and potentially even beyond that. I think some of the renewals we've done. We've had a lot of renewal activity in the last six quarters. We've renewed over 75% of our volume in the last six quarters, and actually, if you include Square Debit, it's now about 80% of our volume. So it's a substantial number, and in some cases, some of those customers in the last two, three years have had incredible growth, you know, 10x, 15x-like growth. And when that happens, then there's a pretty significant price discussion that needs to be had.
We've sort of learned from that experience and are now building in a lot more tiers into our contracts, including some aspirational tiers, to really ensure that we don't end up in situations where our customer outgrows their contract. Because the last thing you want is when you're about to start engaging in a renewal discussion, the customer is feeling like they aren't getting a fair deal from you, right? That's not a good way to start a negotiation. We really want our renewals to be non-events.... And so we've been trying to be very thoughtful about how to create win-win against scenarios between us and our customer, where we reward them for their growth, and they get slightly better pricing, but we can both grow effectively as the deal moves forward.
Excellent. Thank you, Mike. Low 20s gross profit in 2025 and accounted for.
Correct.
Excellent. Okay, let's go on to a pretty exciting topic: earned wage access. Maybe you could just talk a little bit about that opportunity. Notably, the fact that you already have two cards and also.
Yeah, so we do have two exciting customers live with this use case right now growing very fast. You know, a year ago, we really had no volume to speak of with this use case, and in Q3 2023, this accounted for about 2% of our TPV. So, this use case is ramping very fast, and we have already several customers signed who are going to be going live in the next quarter or two that will further fuel that growth. I think we see the big opportunity here is within gig and shift workers.
So, you know, there's tens of millions of people in the U.S. who are getting paid on an hourly basis or on a per ride basis if you're in the gig economy, for example. We feel that those, this is a very attractive value proposition for those workers. That is across, you know, retail, marketplaces, hospitality, restaurant, entertainment. It's a big pool of opportunity, and we feel like we have a very compelling solution that meets both the needs of the worker as well as the company.
Right. Thank you, Mike. Let's talk a little bit about the mechanics. So part of it is that employer... have the opportunity to earn. Basically, the salaries that are. Can we talk a little bit about the interchange revenue, working capital dynamic?
Sure. Think about how your bank account works. When you look at your bank account, you see a balance. That's really what's available to you, but that doesn't mean the money is actually in your account. It's being put to use by the bank. And in our use case, essentially, the company is operating in largely the same way. So at the end of a shift, a worker could, you know, swipe on the app within that their company provides in order to get paid. But what's really happening at that point is it's just a change in the ledger balance that the employee sees. There's no money moving at that time. So the money is staying in the corporate account with the company, earning interest on that working capital. And the money doesn't need to be arrived until the employee actually spends.
At that point, the company is earning the interchange associated with that. Then on top of those two potential value levers, the company can then also incent that employee to spend within their ecosystem by offering them discounts, for example. So then that employee is incentivized to then turn around and spend some of those proceeds within the employer's environment or, or workplace. So there's really three monetization levers.
In addition to that, you're really turning what is a cost of running, having multiple payroll runs into revenue. So you minimize the cost, you get working capital benefits, interchange revenue, and you can incentivize more loyalty and spend within your ecosystem. And then finally, the last piece, which is what's actually driving most of these companies to do this, is they're competing for workers. It's a very competitive marketplace. A lot of these people are living paycheck to paycheck, so it's a really a value play. It's something that these employees see as highly valuable, and therefore they're more likely to be loyal to their employer if they offer this kind.
I think you really hit the benefits. Maybe as a follow-up on Walmart, I believe you said that for the default, maybe just talk about the difference between existing Walmart, new and what kind of an opt-in is?
Yeah, so when a new associate is being onboarded, essentially, just as when you've maybe gone through a new job and you determine how you're getting paid, what the way Walmart is doing, approaching it now is more of it's the default option. Is this sort of the way they're saying, "This is how we would, we'll pay you unless you tell us differently." So at that time, when the employee is being onboarded, they can say, "No, that's not how I want to be paid. Here's my bank account information for you to deposit." But they will say that's their preferred way.
Default would be to get the paycheck at the end of the pay period. They would have to action or hit.
Correct.
Okay. All right, maybe we'll circle back to... How about we move on to the next opportunity, credit. Our finance acquisition. You've talked credit, particular in the card, and they're exceeding.
Yeah. So what really drove our desire to do the acquisition in the first place is a lot of our—Just to step back for a minute. Previously, we were doing processing for credit transactions. We just weren't doing program management. What we were repeatedly hearing from customers and prospects when we were engaging them in credit discussions was, "We'd really just like to work with you, like we work with you in debit, where you're both the processor and the program manager, and we can offer it as a truly-..." And so that's really what was behind the acquisition. And what was really important to us is that Power was set up with very similar technology DNA to ours, so we were able to integrate the business very fast and keep it single stack.
So and why that's important is because if there's an existing customer that has a debit program with us, they can very seamlessly launch a credit solution with us now, in a way that wasn't possible before and certainly isn't possible with most of our competitors, where that's a completely separate platform that has to be coded to again, and so there's a lot of upfront investment for the customer. The value proposition that we initially saw, as you sort of alluded to, what we thought the biggest opportunity was going to be in the consumer credit space. Because if you step back and you look at co-brand credit card, which is a big market, you know, it hasn't really changed in decades, right? The rewards you get are pretty static.
They don't vary from person to person, and you're the customer of the bank, right? The co-brand, the brand itself does not really own the customer. And so, you know, that's something we think that we can change. And the combination of the processing capabilities that Marqeta had and then the rewards engine that Power had put together, we feel that there's a huge opportunity to do dynamic rewards, where the co-brand could be changing the rewards based on the situation or the person. So think of it as the gamification of rewards, and we think that's sort of where the co-brand market will go, and that was the opportunity that we were most excited about in the acquisition. What's happened since then is, where there's been an incredible interest on the commercial credit side.
We initially didn't necessarily feel like there was a lot of incremental opportunities there because we have a lot of successful commercial debit programs, and we manage it with flexible funding models that sort of met our customers' needs. But what's changed is the interest rate environment, and with that, what we're finding is companies have working capital needs that the traditional banks just are not serving. And there's a lot of platform businesses that already do some lending to small businesses that operate on their platform. This is a pretty common occurrence, and what we're seeing the opportunity is to really digitize the covenants that are typically involved in that lending relationship.
So to use the card controls and the flexibility and configurability that Marqeta can provide to essentially give you, allow the lender, in this case, to restrict where the money can be spent and then have perfect visibility into when it's spent, how much is spent, and maybe even do a flexible authorization on a transaction-by-transaction basis, saying, "Yes, I will fund this. No, I won't fund that." So it really is a substantial step forward in what can be done with commercial credit, and so we've been pleasantly surprised by the level of demand.
Great, Mike. You mentioned when you were talking there about the credit opportunity, something that I wanted to follow up on, which is around the engagement with the consumer. So in the traditional co-brand credit card model, if I am a customer, I would go to the bank's website or the bank's app, and I would engage with the bank. And in this model, you're saying it's different. I would, my login that I would go to is more to the actual brand, which would be Marqeta's customer. Maybe just bring that to life a little bit more and how, how important that is to your customers.
Yeah, if you think about... It's very important for them to control the experience because they have apps and digital properties that they want to keep those customers in. And so if you think about a lot of even our programs today, if you think about the Cash App today, the Cash App Card, it's deeply embedded into the Cash App in a seamless way. That's really just a co-brand like debit proposition. And so there's no reason why co-brand credit can't operate largely the same way.
One of our programs that's live, where we're just the processor, because we did it before we acquired Power, is with Greenlight. And many of you may know the Greenlight application, they started in debit, which is actually not on the Marqeta platform. When they launched credit, they did it with us because, again, that's a credit value proposition where the customer goes directly to the Greenlight app in order to transact.
Great, Mike. You had a nice lead in there to the next topic we should hit on, which is the Cash App or the Block overall concentration. So post the renewal, first, maybe you could just recap the numbers in terms of where the gross profit dollar concentration went from and to, and where we sit today, and then a little bit more around the length of time that you've extended the deal, actually twice now in the last few months.
Yeah. So, in Q3 2023, our revenue concentration with Block is now 50%, which is down 28 percentage points from the prior quarter. A lot of that has to do with some of the accounting changes that were associated with the Cash App renewal. The gross profit concentration is down more than 5 points from Q2 in Q3 and is now in the 40s. So the gross profit concentration is a little bit lower than the revenue concentration.
And now with the Square Debit deal being done, both of those are now have been extended for 5 years. And that's a good amount of time for us to work together and do additional things. Particularly, one of the key components of that renewal is we're now the default provider for both Square and Cash App if they choose to expand into new markets. Right now, those are primarily U.S. or, or North America businesses in the case of Square.
Excellent. Thank you, Mike. I see we have about eight or 9- minutes left here. I want to hit one or two more, and then we'll go to the audience to see if there's a question that anyone would like to jump in with. Why don't we go to the traditional bank opportunity? So you mentioned very clearly that you've baked nothing into the guidance through 2026 for this opportunity, although it is a real opportunity. We could maybe hear news of this opportunity during that time period, but there's no expectation of it impacting the numbers meaningfully. Maybe just expand upon that opportunity.
Yeah, I mean, banks, you know, they don't move maybe as fast as, you know, some of our fintech customers. They're very planful and plan many years in advance. So, in that three year window, we don't think there'll be any meaningful contribution to our financials, but hopefully, we will have some activity and some announcements during that period. We think the opportunity will initially be in de novo programs, so it's unlikely to be a flip of existing volume and more, a bank doing new, innovative type product offerings, and also likely to be in commercial first before consumer.
The reason for that is if you look at the modern expense management players, many of which are on our platform, they've grown to pretty significant size, offering, you know, the flexibility, configurability, and control that just isn't possible with a traditional sort of corporate card that's supported by more legacy processing platforms. And given the success that some of these modern players have had on our platform, you know, there's definitely active competition in the market that the large financial institutions must feel the impact of that in terms of their growth and their opportunities for future growth. So that's a place where we feel like we're most likely to get our first traction with banks.
Okay, great. I'm glad we tackled that topic. Why don't we just move on to margins before we get to a Q&A here? So on the margins, you laid out a path towards getting Adjusted EBITDA margins in sort of the mid-single digits to low double digits, and you also talked about GAAP profitability in Q4 2026. Maybe just expand upon the scale that the platform has now that's allowing you to see this leverage.
Yeah, I mean, the beauty of a platform business is it has very low marginal costs once you've gotten to a certain level of scale, but it requires a significant amount of investment to get there. And we're right on the tail end of that investment phase, as we have sort of the anchor tenants, if you will, in place, where we developed a risk suite, and we launched the suite of banking and money-moving capabilities. Both those things happened in the second half of last year, and then early this year, through the Power acquisition, we added our credit program management. So the heavy investment phase is behind us, and on top of that, we're very focused on efficiency and optimization. We've been doing that now for well over a year, and we're really starting to see the benefits of that.
So we're pretty confident in our ability to manage the expenses going forward, and that, again, our the platform business, low marginal costs of the business will kick in. And that makes us confident that we can grow our expenses meaningfully slower than our gross profit growth. So we feel like we have a pretty good path based on the, you know, projections that we've put together.
Thank you, Mike. All right, let's hit on stock-based comp. So to make this one quick, I mean, essentially, you're saying that the absolute number is going to come down and for a few reasons. Maybe you could just recap how much it might come down and what those reasons are.
Yeah. So if you look at our 2023 numbers or the last few quarters, about 30% of our stock-based comp is related to the founder grant that was given a little bit before the IPO. That is something that there'll be a meaningful step down in that amount in 2025, and then essentially goes away in 2026. The way that works is, it were options, and all of you will be very familiar with this. When you have an option, then there's a value that's associated with it when it's given, and then the accountants determine how that value should be amortized over time. So it's really just an amortization that's happening on our P&L. It's not realization, as the strike prices are also quite high on that.
The second piece that we're getting is a lot more disciplined on our new issuance. So, you know, even simple things like we now have a budget associated with stock-based compensation, which is not something that the company has traditionally had. And so we feel like we can manage within dilution of 3% or lower going forward. Also this year, we have been buying back our stocks, so our buybacks are now well in excess of any new issuance we've done since the IPO, and so we feel like we have a much better, we have our arms around stock-based compensation, and it should start to come down in the future years. The last piece that I'll mention is we are in the process of building a low-cost location.
Up until now, we've been purely U.S.-based, and then we have some people in Europe for our European business. But we are setting up an office in a lower-cost jurisdiction, and that will not only help us with, you know, expenses, but also stock-based compensation, as you know, stock-based comp is not nearly as significant in that market.
Perfect. Thank you, Mike, for hitting that. We have a few minutes left. We probably have time for one question from the audience, if someone would like to. We have a microphone right here, if anyone would like to grab. Okay. All right. Oh, here we go. Up front here. Do you mind just for the webcast?
Thanks. So what do you plan to do with the extra cash you do have on the balance sheet right now?
Thank you for the question. So the primary use for the cash will be future M&A. We feel like there will be opportunities for us to expand our product suite or our geographic reach, and that's what primarily what that cash is for. We'll continue to be opportunistic with buybacks going forward, and by opportunistic, what we mean by that is we're just we're not going to be, at this point, programmatic buyers of our stock, where every year when we, you know, give our full year expectations, we also say the amount we're going to spend on buybacks. We're not quite there yet, but if our stock continues to be undervalued, which we currently feel it is, then we'll continue to use the cash for buybacks. But aside from that, we primarily look at it as a future growth accelerator through M&A.
Great. Thank you. We probably have time to squeeze in one last one. If not, I will wrap with one last one. Okay, we have only a minute or so here, Mike, but just wanna go back to one little just modeling item, just when we think about the credit opportunity. You just recapped that the, the gross profit take rate there is a little bit higher than maybe for debit, but some of the mechanics around how people should think about modeling out the credit business.
Yeah, the credit business is exciting because the gross profit take rate, which is really gross profit divided by our TPV, or think of it as, for every dollar volume, how much gross profit do we earn? The gross profit take rate is a little bit higher in credit than in debit. And so if you simplify every business down to price times volume, the gross profit take rate is a good proxy for price for us, and it is a little bit higher. That said, the gross margin will actually be lower in credit, and that's because there are also more costs associated with providing credit. The bank costs are higher. There's also additional services like collections, credit agency pulls, and things that you're doing to manage a credit program that has a higher cost of revenue, so it will be lower margin.
So what that means is, as credit becomes a bigger, bigger portion of the business, it will weigh a little bit on our, on our gross margin. So if you look at some of the numbers that we provided, for example, in 2025, we would expect gross profit to grow almost as fast as revenue. It's pretty close, and the gap starts to widen in 2026, and a lot of that is driven by our expectation for the ramp in the credit business. So in 2026, when you look at that gap between revenue and gross profit growth, about half of it is driven by credit. Just the mix of business shifting to credit. Less than 20% is related to renewals that we've expected that happen in this time, and then the rest is more business mix.
Mix within our business or, you know, existing customers working through different tiering in their pricing. So over time, we do expect that our gross margin will go down a little bit as credit gets bigger and bigger, but, you know, we think that's actually a good outcome because what we're really after is, for every dollar spent, we wanna drive more and more gross profit, and credit allows us to do that.
Absolutely. I'm glad we got that one in. That was a good way to cap it. So I would say on behalf of our team here at UBS and I think the investing community, thank you to you and Mike, you and Stacey and team, for the excellent Investor Day presentation, and for joining us here today and kicking off our conference. It's a pleasure having Marqeta here today. Thank you.
Thanks for having me.