Okay, great. Thank you, everyone, for joining us here. We're at the UBS Global Technology and AI Conference, and we want to welcome Mike Milotich, who is the CFO of Marqeta. Mike, thanks for being with us today.
Yeah, thank you for having me.
Also, thank you to Maria Graizer from the IR team. Thank you for also making the trip, Maria. Okay, all right, great. We've got a good list of topics that we're going to run through here. Just to kind of set the agenda, we're going to start with a little bit of a follow-up from last quarter around some of the insourcing comments. We'll then talk a little bit about the fiscal year 2025 EBITDA expectations. We'll talk about some more recent product offerings, Visa Flexible Credential, the Marqeta Flex product. And then we'll wrap up with some commentary around the cash on the balance sheet, and we'll get into the Block or Square ticker SQ concentration. So with that, Mike, on the insourcing, the night of earnings and from investor conversations, and this has been sort of the main topic.
So you described it as sort of a subset of some of the more sophisticated customers taking some of the roles and responsibilities in-house to customers that were taking over a bank relationship, one taking on risk services. There were a few that opted to connect their platforms directly to the end users. So with that context, maybe you could just bring to life some of those types of partners in a more, maybe in more generic terms.
Sure. So you mentioned there's three different flavors of this. Each of them are having roughly the same impact. I think one of the important points is that each of these things have happened in the past and are a part of our business. What's a little bit unique here is that there's a concentration of activity that's making it a little more impactful on us right now. We think that that concentration is in part due to the regulatory environment. So as you mentioned, we have two customers who are taking over the bank relationship, which essentially lowers our take rate. The reason why that may happen, like I'll give you one example. So many of our customers have a bank that they use for working capital because the nature of their business, they're providing net 30 or net 45 type terms to their customer base.
So this is common in expense management and buy now, pay later. And in this heightened regulatory environment, the regulators are requiring that there's very tight coordination if you're using two different institutions. So if you're using our bank partner for your issuing and you're getting your working capital from another partner, because it's all tied to one service, you have to be really tightly coordinating those two institutions, which is quite difficult. So one of our customers who they get their working capital from, they became aware that that bank uses us for processing. So they were able to essentially use one bank for both working capital, still use us for processing. We can still do all the program management for them. They just have to take on the additional responsibilities of all the compliance associated with owning that bank relationship, which is significant.
So I wouldn't want to underestimate that. That's very challenging, which is why we don't see a lot of customers do this. These are very specialized resources. And to do it in a creative way, you have to have a good amount of scale to have the resources to do those compliance aspects. But that's essentially what's happening. And this is somewhat common for us to provide program management services. So among our customers in the U.S. who own the bank relationship, almost half of them use us in some way for program management. So that's the first flavor. The second one for the one customer who's taking some of the risk services into an in-house solution, this is pretty unique. You have to be very large and sophisticated and have a lot of data. So this is not something that we think very many other people can do.
Our risk services are highly valued. We have over 40% of our customers use at least one of our risk services. And it definitely skews to larger customers, actually. So among our non-Block customers who use the risk service, they drive, at least on a year-to-date basis, about two-thirds of our non-Block TPV. So it definitely skews to the larger customer. But in this case, we have a very large customer who's sophisticated, who has built a form of an in-house solution. The last component is people connecting directly to one of their endpoints of their service. And if you think about our business in buy now, pay later or expense management, like in sort of AP automation or an on-demand delivery, in all of those instances, our customer can execute their business without issuing a card.
And so, what would happen here is, think of this as a buy now, pay later company connecting directly to a retailer or an on-demand delivery company connecting directly to a restaurant chain or a supermarket chain. So this is something that happens in our business. Why we think this isn't something that's going to repeat itself. So kind of going through each of those. So when you first look at taking over the bank relationship, as I mentioned before, you can't underestimate the specialized nature of these resources. And so to do this requires quite a bit of investment of a relatively small kind of pool of talent that does this. So scale is definitely a huge benefit.
The second thing that's also very important is when we own the bank relationship, we have scale that none of our individual customers could ever achieve in terms of the pricing we have with that bank. So the way it works is we aggregate all our volume with that bank across all our programs, and that allows us to get pricing that no one else could get. And we pass on some of that benefit to our customers, and some of that we keep for ourselves. So between those two things, it's very unusual that we see this. And even a time when a lot of people would consider it is potentially in the renewal process. And as you know, we've renewed a lot of our business, over 80% in the last two years. And this is not something that's come up.
So again, we feel like this is relatively unusual. On the risk side, again, you have to be very sophisticated, have a lot of data. It's just there are very few people who are going to want to be able to do that. And then I think on the last component about connecting to an endpoint, that's always something that can happen in our on-demand delivery and buy now, pay later business. But the reason why it's pretty unusual is because the benefit that particularly the merchant gets is that they can offer buy now, pay later, or they can offer delivery services without doing any technology or integration work. That's the core of the value proposition that we're providing. And those merchants don't want to do that work. And our customers very much value that expanded distribution that we give them.
All right. Mike, thank you. I think everyone appreciates that you brought those examples to life. I just want to put a couple of numbers on this. So the topic that we've been talking about thus far, which we just kind of broadly characterize as insourcing, it's important to note that of the slowdown in gross profit growth in Q4, the largest part was the timing related. This was actually only about, let's call it 250 basis points or so,
correct,
of a gross profit slowdown, which in real dollars, it's about $2 million or so for the quarter. So on an annualized basis, roughly $8 million. And just wanted to confirm for the audience that that was a full run rate number of roughly $2 million. That wasn't a kind of half quarter convention type of number.
That is the full impact in Q4, correct?
Okay, perfect. All right, great. Thank you, Mike. Let's move on to the next topic, which is fiscal year 2025 EBITDA expectations. So despite some of the timing related headwinds that we were talking through and some of the insourcing, you did reiterate confidence in getting to roughly a $50 million of EBITDA number for 2025. It implies a little bit of incremental expense discipline, maybe relative to the initial outlook that you provided at your investor day. Maybe just talk about the areas of operating leverage and the strong incremental margins.
So the last two years, we've been focusing a lot on getting a lot more efficient. And it's coming in a few different areas. The biggest area is in the use of the technology tools that we utilize to deliver our platform and program management services. And in the past, we weren't as focused on making sure we really optimized the usage of that service. And what we found is when we really started digging into it, that there was a good amount of waste. And so what we've been really doing over the last 12-18 months is really optimizing how we use those services so that there isn't a lot of waste and we're only paying for what is really adding value to our platform. The second thing is we've renegotiated with several of those providers as well to get better pricing.
The third area that we have made a lot of progress in is two years ago, our, again, platform and program management was purely built, operated, delivered with U.S. resources. And that's something that we've changed. We now have a large number of people in both Poland and Canada. And we're finding really great talent in those markets, and it's a little bit more efficient for us. So that's something that's helping. And then the final piece is just as we mature as a company, we are figuring out how to better utilize tools, processes to not only reduce manual work, but also reduce rework. So it's allowing sort of the very talented employees that we have at Marqeta to be just more efficient.
Okay, thank you, Mike, on the confidence around the 50. Let's move on to Visa Flexible Credentials. So we talked about this on stage earlier with Visa this morning. But on their earnings call, they talked about 100 or so or more than 100 issuers that are already looking to benefit from this new capability. Maybe you can talk about expectations for this offering being supported by Marqeta and what it means for your business in 2025 and beyond.
We were one of the first partners with them to do this globally and the first to do it in the U.S. And as we've gone through it, it wasn't super simple. So there's definitely some complexity to make it happen. And it definitely tapped into some of the unique capabilities we have as a platform. But ultimately, the value of the Visa Credential is it allows you to have multiple payment options on a single credential. And so right now, that's being applied in buy now, pay later, where you can have a debit card that also has buy now, pay later capabilities on it.
And so for that, we see this as a natural way to offer buy now, pay later on any Marqeta-issued debit card because of our unique position in buy now, pay later, where we already have relationships with all the major providers on our platform. So it gives us a unique opportunity to extend buy now, pay later to any debit card that Marqeta issues. And that's something, once the press release was put out with Visa and Affirm, where we had a lot of interest from people inbound. I think the second area that we think is very exciting that's sort of coming in the near future, I don't know how much Visa talked about it, but is also extending this in credit to revolving credit.
And so if you think about, particularly in the co-brand space, there's a lot of people who are applying for credit who then get declined because they don't have the creditworthiness. And so we're also talking to a lot of customers today about having a debit offering as sort of a fallback option. And the challenge with that is people don't ever want to re-card or switch cards. So if you think about the power of what Visa Flexible Credential could have in the future is someone gets declined for your credit card, so you give them a debit card. And maybe in that debit card, we have credit building capabilities. So we help them start building credit. Then you start giving them some access to buy now, pay later.
And then ultimately, as their credit improves, you can offer them revolving credit all with the same credential that allows you to not lose that top-of-wallet kind of position that you have with that consumer. So that's where we think this is going that we think is quite powerful and attractive. So in terms of what it means for us and our business, it's just another way, another capability that our platform has that separates us from competitors, at least at this time. So we have a head start. And that means we're having conversations with customers in our pipeline that maybe we wouldn't have had otherwise.
Okay, excellent. Thank you, Mike. Let's move on to another recent announcement. This was one that Marqeta unveiled right around or right before Money20/20, not too long ago. And that's Marqeta Flex. So Branch was listed as one of the kind of earlier large apps or platforms using this Marqeta Flex capability. Maybe just talk about what Marqeta Flex does and how it is somewhat of an added distribution channel.
Marqeta Flex is designed to revolutionize how buy now, pay later is offered for in-app purchases and in-wallet purchases. So the goal of it is really to extend buy now, pay later to any debit card. That's really the focus of the solution. And the value first for issuers is that, one, it's an enhanced value proposition. Now, you could offer a debit card that has built-in buy now, pay later capabilities that very few debit cards out there have today. So it's an incremental part of if you're launching a debit product, this would make your debit product stand out compared to what's in the market today. The second thing is it would allow you to capture spend that you might not have otherwise captured.
There are things that people are purchasing with their debit card that if it's a larger purchase, they may not be able to afford in a single payment. But if you were able to do it in installments, there would be many consumers who could afford to buy that item. So you do end up getting incremental spend and activity, which is what makes it attractive to the issuing partner. And then the last area is that you get to do this all with a single connection to Marqeta as opposed to having to do connections and contracts to multiple lenders. So we really simplify that process for the issuer. On the buy now, pay later side, what we're really offering is enhanced distribution. They get access to a lot more potential new customers.
We are potentially going to be sharing data with them that allows them to prove their underwriting that's coming from the issuing side, so it really gives them an ability to just have a much broader reach, which is sort of the role we've played in buy now, pay later for them up to this point, and we think this is sort of the next evolution of expanding the distribution of buy now, pay later.
All right, excellent. Mike, so we hit Visa Flexible Credential. We hit Marqeta Flex. Let's move on to the cash on the balance sheet. So as of Q3 2024, this past quarter, Marqeta had about $1.2 billion in cash and marketable securities on the balance sheet. That's about $2 a share. Can you talk about what that means for Marqeta, meaning when you head into RFPs, how much that helps you? It gives you M&A flexibility and then, of course, the potential for share buybacks.
Sure. So let me start with the RFPs. When we're meeting with prospective customers, particularly as the environment has changed in the last couple of years, there's been a little bit of shakeout, I would say, within fintech. And also with the heightened regulatory oversight that's happening, there's absolutely a flight to quality. And so the fact that when we are pitching for business, there's two things that help us. One is that we're public and we have a lot of cash. So when you look at our competitor set, most of them are private companies or issuing is a very small part of their business. And so it's hard for a potential prospect to really understand how much experience and skill that company really has. Versus for us as a public company, they can see the size of our business, that we're almost $300 billion in volume this year.
They can see the variety of use cases that we support, and they can see that we have over $1 billion in cash, which means we've got a lot of staying power. It just makes us a safe choice that definitely does help us in competitive processes from time to time. I think the bulk of the cash is really going to be used for both M&A and buybacks, and that's been the case up to this point. When it comes to M&A, we're mostly focused right now on things that would enhance our program management capabilities, and we're mostly looking at smaller things because we're very committed to our path to profitability. It has to be something that won't disrupt that, and those are the areas we're looking from an M&A perspective.
And then from a buyback perspective, we are not a systematic buyer of our stock. We've been opportunistic up until this point. But because of where our stock has been trading for the last 18-24 months, we've been a relatively consistent buyer of it. And in Q2 of this year, our board gave us an authorization for another $200 million. And as of the time of our earnings call in Q3, we still had over $85 million of that authorization remaining.
Okay, thank you, Mike. Let's move on to another topic that investors often ask about. So the customer concentration associated with the large and important customer Block. So we're now more than a year past that renewal. Maybe you can give a rough update on where that concentration sits. I mean, for what it's worth, our UBS estimate, we think that the gross profit mix is sort of in the mid-40s. And that's clearly down from being well above 50% before the renewal, which was ultimately renewed for five years with that extra extension. So maybe you could talk a little bit about the renewal, what it means for your business and working together going forward, and then help clarify some of the mix or concentration.
Sure, so last year in 2023, we renewed both the Cash App and the Square contract in the second half of the year. The Afterpay contract had been renewed earlier than that, so we do support kind of all aspects of Block's business. And there's still a lot of opportunity, we feel, so when you look at some of the things, even Block has talked about where they're focused, so one is they're really focused on the engagement of Cash App Card users to drive more spending within those existing users. And a lot of that has to do with, okay, what are new services and capabilities they can offer to make that card become more of their true banking relationship or make that debit card more of a top-of-wallet card, and so that's something that clearly benefits us and that we can help them with.
Another area that they've also talked a lot about is bringing together their buy now, pay later and their Cash App user base, so injecting more buy now, pay later directly to Cash App users. And so this is an area where they believe that by doing that, they can get incremental volume besides what they just captured today from Cash App and Afterpay, and obviously, that's something that we can help with and we would benefit from. Given their large debit base of business, both in Cash App and Square, credit would be a very natural extension for them over time to offer a credit card, and we, of course, would be happy to support them with that effort. And then finally, when we did renew the Square and Cash App contracts, they stated that we are their now preferred partner for expansion outside the U.S.
So if they choose to move those businesses to other geographies and we're capable of processing, then we're at least the default partner. So that's also an area of potential growth for us. In terms of the concentration, you're on your game. So in Q3, our revenue concentration with Block was 47% of our revenue. And that's now been below 50% for several quarters. And our gross profit concentration is several points lower than that. So you are in the ballpark.
In the ballpark. All right. Okay, so gross profit several points below the 47%.
Okay.
All right. Thank you, Mike. I think we covered the Block topic quite well, and we have a little bit of time to hit a few more, so I think a good one to touch on is a lot of the progress that the company has made outside the U.S., so international. Maybe you could talk about some of the progress you've made since the investor day.
Sure. The international business is growing really fast. Just to put it in perspective, in Q3, our international business as a whole is growing almost the volume is growing almost 100%. And the Europe business is growing well over 100%. So the business is growing very fast. And what we find very interesting about international markets and particularly Europe is that because interchange is often lower, our customers are less focused on the monetization that comes from the card usage and much more focused on strategic benefits that they're trying to achieve through issuing a card. So this is something like user acquisition, user engagement, or making something much more convenient for their customer in order to drive loyalty. So they're focused on those things because interchange is much lower.
So they have to find other avenues of value to make the card product worthwhile for them and have a high ROI. So we think that's indicative of where embedded finance is headed in the U.S., right? When we talk to a lot of embedded finance players, of course, they want some monetization. But what they're really after is engagement. They already have platforms with millions or tens of millions of users. And they're looking to engage those users more fully and leverage the economics they already have in their existing business in order to do that. So we see it as a little bit ahead of where the U.S. market is at this point.
What is also interesting about that is when you're focused on when monetization is not your primary goal and you're more focused on engagement, then the kind of capabilities that our platform has stand out even more, right? So because there's a lot of things that we can do, we can offer flexibility or control or configuration just that most platforms cannot. And that makes us an even more attractive partner as people leave the U.S. The last thing I would say is that as the winners in fintech have been crowned, I guess is the way I would say it. And they're becoming very big businesses. And also, if you look at embedded finance customers, many of them are already very large businesses that are in many markets.
So when they're looking for potential partners, the ability to work with a single platform in 40-plus markets is hugely attractive. And so that's something we have a lot of fintechs that maybe grew up in the U.S. who are now looking to kind of spread their wings and head to new markets. Just as there might be European customers who want to come to the U.S. as probably the most attractive card market in the world, the ability to do that seamlessly is something that is very attractive when we talk to new customers. And that's also a big reason why up until this point, we have not offered program management services in Europe. We've only done processing. But over the last several months, we've been rolling out program management capabilities.
That's something that we do think will be part of our growth in 2025, which will allow us to offer a more seamless experience for our customers, where the service we can provide is much more consistent in Europe as it is in Canada and the U.S. today, which just makes it that much easier for our customers and allows us also to add more value.
All right. Mike, thank you for that on international and the program management capabilities and some of the benefits of working with some of those larger kind of multinational type of customers. In the little bit of time that we have left, why don't we try and hit these two together? Because I think there's some little bit of overlap here, but we were going to talk a little bit about the competitive environment, so there are some other modern competitors out there, right, and you might not want to go into them too much by name, but Galileo, Lithic, Highnote, Stripe Issuing, Adyen Issuing. Maybe just talk a little bit about how you see your offering as differentiated relative to the broader competitive landscape with an undertone of that sub-bullet being around consumer versus commercial programs as well, which is the other topic we wanted to touch on.
Yeah, so let me just, I guess, deal with maybe consumer versus commercial first. I think the biggest difference between the two is the amount of regulatory oversight and investment that's required. So in the consumer space, because of laws geared towards consumer protection, there's just a lot more regulatory work that has to be done. And so it's just much more difficult. It requires a lot more investment. That's been an area we've been investing in. I would say several of our competitors are not really focused on consumer for that reason. It's just more difficult to do. And so we have less competitors in the consumer space than we have in the commercial space. I would say in general, the competitive environment hasn't changed for us in the last few years from where it was. We have a lot of respect for our competitors.
Those are many great companies that you mentioned, and there are others. I think where we think Marqeta is really set apart is that when you talk about the ability to do consumer and commercial credit and debit and do it in over 40 markets with a truly modern platform that has proven scale, that's a unique combination of an offering that just we don't think any of our competitors can really match that, and so that's particularly attractive when we're talking to multinationals who are embedded finance or large fintechs who are looking to offer services in many more countries. I think the other thing where it's coming into play from a competitive standpoint is a lot of the embedded finance companies that we're talking to are either platform businesses or marketplace businesses that service a variety of customers.
They have consumers that they service, but they also have SMB suppliers that are also on their platform. And they're looking for card solutions for both sides of their ecosystem. So they might be looking for a card that's geared toward the consumers who use their platform for engagement purposes. But then they're also looking to extend working capital benefits to the SMB suppliers on their platform who are very important to making their platform attractive to those same consumers. And the fact that they could partner with Marqeta and do both of those things in a very seamless way and have the flexibility to do debit or credit and do it in many markets is something that does set us apart from our competitors.
Thank you, Mike. Again, on behalf of everyone at UBS, I want to thank you for making the trip. I want to thank Maria. I also want to thank Stacey Finerman, who couldn't make it here to this conference today. But thank you to the Marqeta team for being here. It's really a pleasure hosting you.
Yeah. Thanks, Tim. Thanks for having us.