Wolfe Research. We're kicking off, we're in the middle of now the day two of the Wolfe FinTech Forum. Really happy to have Simon with us, who's the new CEO of Marqeta, I think this is probably your first appearance on a Wall Street conference. I really appreciate you being with us today.
Thanks for having me. It is my first appearance.
Great. Well, before we get into the weeds on the story, I mean, I think, Simon, a quick overview of your background. What led you to, you know, take this role at Marqeta? Maybe just a little bit more on the company, if you wanna just give a quick one 30-second overview of the business, just to level set for anyone in the room that's a little less familiar.
Sure. Absolutely. Let me start with the company and I'll back up on my experience in the environment.
Sure, sure.
Marqeta started being the first modern card issuing platform. If you look at a lot of the cards in the fintech space, most of them are coming from Marqeta, whether it's virtual or plastic. We expanded the product set into banking and money movement, and now with an acquisition, we got into credit as well. It's debit, prepaid, banking, money movement, credit, and program management on top of that.
Right.
My background, it's my third decade. I've got three decades of experience, mainly in. I'm an entrepreneur, but also a scaled operator. Been in small companies that are just four people, funded by myself, that went public and also took scale positions at Verizon, at Yahoo, and lately at, before coming to Marqeta, at Twilio, company that's the communications API.
Yep.
I ran the comms products there, about $3.6 billion in revenue. Well, Marqeta to me was... Look, I always think of decades. Like, sometimes Silicon Valley is accused of thinking in days. I think we've seen a decade where I'd say the first era of the Internet was instant access to information. If you look at Yahoo, you could go to any library and find information, but it wasn't instant. The second decade with mobile, it's instant access to services. I think the third decade, which we're gonna see now, is instant access to money, which is, I mean, when working capital is not gonna be free, so people need instant access to money. I think Marqeta is at the core of that. Was very excited about it.
Joined as Chief Product Officer in June. I took over go-to-market, and I became CEO in about a couple of months ago.
Great. Thanks, Simon. I should also mention we have Mike Milotich, the CFO of the company here as well, as well as Stacey Finerman, the Head of IR. Thank you guys all for joining us. You know, before we get into the company in too much more detail, I think it's probably appropriate, given the noise in the financial system over the past week or so, just to start with, you know, any exposure we should keep in mind around SVB for Marqeta? Or maybe just discuss how you see this impacting or not impacting your business, your customer base now and in the future.
Well, I mean, let's start with Marqeta, and maybe we can talk about the ecosystem. We did use Silicon Valley Bank for as a primary account to pay our customers like interchange fees and also get payments out. We did have exposure to Silicon Valley Bank, but it was not that, like, half of our cash was there. At any point in time, even if the bank went into prolonged receivership, we would not have missed a beat. Also, before this all happened, we were in the process of actually moving our business to a much larger bank within an RFP in the fall timeframe. We were ready. I think by Friday, 4:00 P.M., like, from an operational perspective, we were ready.
Yep.
We're pleased with what the government has done. This is a good move, but there is no risk on Marqeta or its operations. Moving into the broader ecosystem, you know, To us, to Marqeta, this is a moment, and I always believe in moments. You gotta seize the moment. There's gonna be a flight to quality, and it's not just in the banking system. There's gonna be a flight to quality in fintech. People are gonna look for who's stable, who's operating at scale, who's well-capitalized.
Yep.
We're gonna benefit from that. The second thing is, as a team, we thought about the macroeconomic situations. When interest rates were going in one direction for the last 15 years, and all of a sudden they go in a different direction at an accelerated pace, something will break. I mean, it's human nature. Something will break. We've had a lot of products in mind that will give our customers further stability. Now, we have not shipped them because we're a platform. We don't operate in days. We operate in days and weeks. There's quite a couple of products coming out in the Q2 timeframe that will help the ecosystem achieve stability between multiple banking networks.
Okay. It sounds like business as usual.
It is business as usual.
Right.
Absolutely.
Recent trends, if we can shift gears now and just touch on, you know, first the last quarter and what you're seeing in the market, maybe you could just give us a sense of what you're excited about, what you saw last quarter that really stood out?
Sure. We're seeing something really big, which is a lot... There is a lot of excitement in fintech, and honestly, there's a lot of money. All the entrepreneurs look at fintech, and that's where the money is.
Yep.
Marqeta predominantly sold to fintech players. It was the platform for fintech. We're seeing companies whose core business is not financial services come and asking us for financial services. That's. We've seen an expansion in the market and it's not happening on, like, a single use case. It's happening in multiple use cases. I'll give you a couple of examples. We're calling that embedded finance. Let's give you a couple of illustrative examples.
Yeah.
The first one would be in payroll and wage disbursement and wage access. If you look at a company, you've got payments to suppliers, payment to employees, payment to contractors. We're seeing a big move for employees, contractors, that they want their money now. They want payroll to be streamed. We think in the next 10 years, the concept of payroll is gonna disappear. You work, you're gonna earn your wages, you're gonna get paid immediately. We're seeing demand from that, and we're very excited about it because of that's kinda the early flow of money. You're capturing money as it is being produced. The second example is marketplaces. In marketplaces, there's need on both sides. On the consumer side or on the buyer side, there's new genre co-brands.
People want a co-branded card, but they don't want a piece of plastic. They want the card to be alive and integrated into the marketplace, so it can modify consumer behavior. They have sellers on the marketplace, and the sellers want a card so that the seller can receive their proceeds immediately, and part of it will be reinvested in the marketplace.
Yeah.
At the speed of light. Third one is point-of-sale financing. A lot of retailers are looking at BNPL, which is Buy Now, Pay Later. They're thinking about that as an example to put it in all their point of sale and not just BNPL, because you're actually underwriting a transaction, you're not underwriting a human. The risk is much lower. All these three use cases, and this is an example out of 20, right? We're seeing that the demand on Marqeta broadening it out. It's very exciting because with a platform, we can move in many directions with the platform we have.
One of the things that I still think is kind of underappreciated in the market is the vertical abilities you guys have, the differentiation at a service, whether it's on-demand delivery or it's, you know, BNPL or other categories. Can you just expand on that for a minute for the room here, just 'cause I still don't think that's super well understood?
Sure. Absolutely.
You've been able to win a lot on that.
Sure. Absolutely, yes. I mean, we have a broad platform and also a global platform. I mean, I've been in tech for 30 years and plus. When you have the diversity in demand and the global nature of the demand, it's something that creates a powerful effect because you're not a single trick pony. You are actually diversified in the demand and also diversified in the supply. Absolutely. I mean, we've seen many use cases that have flourished on Marqeta. First one is neobanking. We've talked about the relationship with Cash App, which is owned by Block. We moved into the on-demand delivery. That was a big space for us. Expense management, early wage access, accelerated wage access, point-of-sale lending.
All of these, and BNPL, all of these were actually on the same platform, and that's the nice thing about us. A lot of folks that thought that we had exposure to crypto, we actually did not have.
Mm-hmm.
Exposure to crypto, which was turned out to be a good thing. Yeah, the diversity of what we can do is very exciting. Thanks for bringing that up.
Yeah, that makes a lot of sense. You know, I think you also recently discussed the reorganization in your go-to-market effort.
Sure.
There's been a shift in embedded finance trends. Since you called that out, I mean, bookings exiting fourth quarter were also pretty strong, as you guys talked about on your call. Maybe you could elaborate a little on this reorg a bit more, what it entailed, what gives you confidence that these booking trends are gonna stay strong through the year?
Sure. I mean, as I took over the go-to-market organization, it was clear to me that that's the area where Marqeta could have done a better job, to be perfectly honest. We have great product market fit. We have I'll tell you, like I spend a lot of time talking to customers, and every customer wants more of us, so which is a great position to be in. In go-to-market, we have great people doing great things, but we had actually three issues. The first one is, our product is no longer a single product. It's a suite. As you go in and you sell the first product, it's called the land then expand. You land with the first product and you expand. That motion was actually not well institutionalized.
We addressed that. The second thing is we had a business development team focused on new sales. Once they close the sale, they toss it over to a different team to actually manage the account. We brought that teams together in order to create end-to-end account ownership. The third thing, which is actually a very important nuance, the customers we were actually engaged with and partnered with are changing.
Mm-hmm.
The fintech folks are prescriptive. They know exactly what they want. Said, "Hey, Marqeta, I want, for example, a card secured against this and this." We deliver it to them. You look at the embedded finance folks, it's retailers, it's employers, they don't understand the financial market well.
Right.
They wanna come to us for solutions. We had a solutions team somewhere else as well. We put those teams together in what we call the pod, and then we focus on their productivity. As long as the pod generates, actually it is gross profit divided by their cost is higher than 1.8, then you can keep growing.
Mm.
We've done that. We delivered the focus. We've seen the results. In Q4 bookings, and our bookings are not seasonal. Our business is seasonal, but our bookings are not. Q4, we closed more deals than the last three quarters combined. It's already paying off.
Wow.
I'd say the first few weeks of this year has been strong. That's why we're confident.
On bookings.
Bookings, yes. Bookings. We actually set the goal a year in bookings 70% higher than last year.
Wow.
That's something that gives us the confidence that we're on the right path.
The, the vertical differentiation and the actual offering on embedded finance, obviously, it's resonating in terms of the bookings trends. You do have, obviously, a bunch of customers that are in certain verticals that have same-store sale challenges, right?
Sure.
That's really when we talk about bookings conversion, that's really something that's gonna play out now over the next, what, 12 months, 24 months.
Yes, it does on. I mean, there's a difference between a commercial program and a consumer program. Like a consumer credit card versus commercial credit card.
Yeah.
But on average, it takes us about, I'd say six months to get a program going from the time we sign the service agreement with the customer, and then they start ramping up, and it takes about six months. You're absolutely right. Between nine months and 12 months, we're gonna see the fruits of the bookings.
Okay. Let's shift gears. I mean, Power Finance, capital allocation is obviously an important part of the story. I know the acquisition was just recently announced with Power Finance, a modern API credit program management platform that I think complements your existing card issuer, credit issuer processing solutions. If you could just talk about why you felt the need to also offer credit versus what you've obviously been very differentiated on the debit side for a long time. If you could just talk about some of the opportunities this brings you.
Sure. Absolutely. I mean, part of what you do is listen to customers. We actually started last year engaging in credit programs, but as a processor only. The actual credit solution, what is called in program management, was coming from partners. We've had moderate success with that, and we closed a couple of customers and more. Our customers wanted more from our credit. They do not want a traditional credit card, whether commercial or consumer. They want a credit card that integrates into their application, that change consumer behavior. They wanted Marqeta to have the whole stack, so which is credit, debit, prepaid, banking and money movement, and the risk control suite around that, and us acting as a program manager. They wanted that from us.
They were very clear, delivered through our APIs. That's when we moved into Power. The great thing is that we have a pipeline. This is not we have to wait until the integration to happen, then develop the pipeline, then train our sales people. We've had a pipeline. We have dozens of deals that were waiting for a solution like this one. We felt very comfortable with us using our capital.
That's great. The opportunity for this now to turn into actual revenue and the implementation of this offering, this capability.
Absolutely. We're targeting end of June for the integrated solutions. We're actively selling the product. Yes. That also expands the ticket size. I mean, if you look at, if you look at our product at Marqeta, net revenue retention is 144%. I mean, that, I mean, I came from SaaS, that's like a huge number.
Yeah.
Right? It tells you one thing, that our customers are happy and they want more. I mean, some of that is attributed to their own success, but some of them is attributed to us selling them more product. That also reduced the cost of sale, so.
Okay. I mean, all of this obviously lends to trends, the bookings trends. I mean, that looked pretty strong. I know there were nuances in the quarter results and the outlook.
Sure.
Which incorporated things like some of the incentive changes from Visa and whatnot.
Right.
Net, net, I mean, overall, it sounds like from your perspective, the underlying demand is still very strong for both credit now, but even on the core business on the debit side.
Absolutely. I mean, there's two things, two trends. I mean, of course, like, the new sales are not gonna materialize till tail end of 2023, early 2024. There's two things I look at. Like, that's kind of the dashboard, that which is customers telling us we want more, and then the diversity and the expansion of the demand. Both of them are telling us that, look, there's something very powerful here. I'd say the embedded finance space and the diversity and the size of some of those opportunities also give us a great reason.
Confidence, yeah.
Yeah, great confidence.
Is there... Maybe shifting gears now to a question I think everyone will not let us get away without asking is about Square/ Block. When we think about the emphasis on delivering profitable growth that Square has now taken on, right? Obviously, it brings about questions on whether or not they're gonna try to push anyone they have working with them in terms of costs and pricing and whatever they can. First, I guess just what gives you the confidence that a renewal should be doable even, you know, over, hopefully over the course of this year? I think there's three different pieces of it up for next year, if I remember correctly.
Sure. Sure. Yeah. I mean, first, every company should be thinking about operational efficiency. I mean, I think over the last, what, 15 years, there's a lot of executives that weren't thinking about that. I'm glad that Block came out and talked about that. I don't see that being different for us. I'd say that the success, the phenomenal success of Cash App and Square is not just a random event. There's very smart people that know what they're good at, and they know how to leverage platform like ours. We work with them. I just want to paint a picture that like a renewal is not like three people sitting on a chair and then three people sitting on a chair on a every year then negotiating.
It's not like a peace agreement, right? We have daily engagements and weekly engagement with the folks there, adding things, thinking of product. I'd say, since my arrival at the company, we've had, I mean, I'm throwing a number like eight, 10 things like change orders or new products we're adding to this.
Specifically for Cash App.
That's right. That's right. Square or Afterpay.
Right.
Right.
Right.
It's a very symbiotic in relationship. That kinda gives me the confidence. Now, of course, they, I mean, they're a good chunk of our revenue, and it is a priority for us to get that done as soon as we can.
Yeah. Look, I mean, I think at the end of the day, it's a focus because of the magnitude and the concentration of it. Our understanding is that you guys really do work in lockstep, right?
Sure.
In terms of the implementation of the offerings. Is it fair to assume that, and Jason and I have spoken about this before, but, is it fair to assume that over time you'd end up... whatever you finalize, and it'll probably be something that's hopefully a longer-term contract that could put investors' minds at ease and, you know, obviously pricing will be a part of the discussion too but-
We're working on that. We're working on that.
Okay. Let's shift to profitability for you guys now, not at Block, obviously. When thinking about... On your most recent call, you obviously discussed that the company should be able to innovate, grow, and focus on economies of, you know, scale and efficiencies. How do you think this plays out? I mean, what makes this possible?
Absolutely. I mean, that's part of my job. That's what scaled operators do. Like, you don't change the culture, you don't change the strategy. You just change the operations to make it more efficient. It comes down to actually four basic things. I mean, the first one is being completely obsessed with sustainable growth, but at the same time being efficient. I mean, translating that into numbers, you gotta grow 30% year-over-year on a gross profit, and you gotta pump 20% EBITDA. That's the first thing you do. The second thing is a clear organizational design. You don't organize around people, you organize around the job that needs to happen. Third thing is repeatable processes. Third thing is you don't fall victim to incrementalism.
You actually continue to innovate, but your cost to innovate is lower. You reach leverage in your cost structure. I mean, all these things, now coupled with a phenomenal market, an expanding market, and I'd say strong customer base, leads us to believe that we will get to the stage. Now, we do have the plan we're looking at, but if we share that with you, the first thing you're gonna ask, what have you guys assumed for Block?
Right.
Right? That's why we need to, we need to get that wrapped up so we can share, we can share that. We're confident. I mean, as a management team, I'm not the only scaled executive. You've got Mike here, who's years at PayPal and Visa. You've got Randy, years of experience, thousands of employees at Salesforce and Microsoft. Todd, years of experience at Google running scaled organization. We know how to do this. Like, and the nice thing is like Marqeta has all the ingredients to get that done. That's something that will happen.
Yeah. To put it in perspective, I mean, I know on the earnings call, we talked about hopefully hearing more about this this year, right, at some point, right? Whether it's Block and profitability. I mean, I know we can't put a pinpoint on the timing, but.
Absolutely, we're gonna hear about that this year.
Okay. Competition is something. In fact, we had a panel here yesterday with a couple of issuer-processors smaller than Marqeta, but nonetheless, trying to make a difference and evolve the industry. At the same time, you also hear more about Stripe and Adyen and others trying to get into the industry. Seems a little bit slower on their side from what we can see. However, they're making still quite a bit of noise around it. What do you see from the competitive landscape in terms of the neo-issuer-processors helping the more modern needs? Maybe a quick word on some of the incumbents and the legacy processors-
Sure, sure.
that are already doing the banks.
Sure, sure. Yeah. First, I always think competition is healthy. It keeps everybody innovating. Like the way we think about ourself, we went very deep in our stack. Other went wide. I'll give you an example. We have now credit, debit, prepaid, banking and money movement, risk control, and program management on top of.
Yep.
On top of that. All packaged in an API modern stack in the cloud. That's who we are. Now, you have some competition who think they're modern, but they're not modern. That is one dimension. You have folks that are newer, but they don't have the scale we have. As large embedded finance players look at that and say, "No, no, this thing has got to scale." Like, you're not gonna get a card not work at a retail store. That's a problem. We look really good there. You have folks that went very, very wide. I mean, they almost do everything in finance, but they don't do it well. We look good there as well.
You have folks that do not do credit, so they only do debit, and they don't do it on a global basis.
Right.
I think we feel very good from a competitive perspective. I think that we've demonstrated that we can operate at scale. We've demonstrated we can operate globally. We demonstrate we that we have been able to innovate despite reaching the scale we have reached. I think we're looking good there.
You know, it's interesting. Yesterday's panel with these issuer-processor said that, you know, they're just happy to get the call to be at the RFP. You guys always get the call, so you have that advantage. From your perspective, I mean, do you still do you see any of these newer, younger, smaller companies? You guys are pretty, you know, relatively new and young, but not compared to some of the ones that have just founded in the last couple of years. Do you see any of their capabilities starting to mirror yours, or are you still further ahead of the pack?
Well, we're still I mean, look, I'm an entrepreneur at heart, and I always want more people coming to the space. It keeps us all honest. I'd say that this is an industry in which you cannot take risks. Like it's very simple.
Right.
Especially when you enter the Fortune 50, the Fortune 100, they cannot take risks on something that's not their core business, right? They want an established player that has the scale, the demonstrated scale, and that can innovate and solution with them. I think we're at a good place because we're still young enough that we can innovate, but we're now big enough that we become a safe bet. That's kinda the play that I think we're gonna play the next couple of years.
Right. I mean, I think you still have a lot of the companies you're working with that people say it's basically more of like, you know, job risk to switch issuer-processors with someone that's not yet proven out.
That's right.
I think you guys have obviously been able to prove yourselves out. What about the large banks? I mean, we talked about this, you know, even pre-IPO as whether Marqeta would one day be the issuer-processor. Is that even need necessary, or is there enough wood to chop without that, or is that something you do wanna go after?
There's no question we wanna go after that. The question is when. Then when do you seize the opportunity, and because those are long sales cycles, and some of them have contracts that do not expire for a few years. We're getting invited to the dance a lot more than not. But I would say that, we're not expecting a lot of revenue over the next two years to come from the large financial institutions. Here's, but as we grow everywhere, our size will start becoming something they cannot ignore. They see the innovation. They see the consumer engagement. They see the loyalty that these new cards are driving to the brand, and that's something they cannot ignore. I think there's many ways for us to work with a large financial institution.
Yeah.
Not just be their issuer. That will probably happen before. Yes, that's the space, but I don't expect a lot of revenue next year.
Not near term, right. All right. Well, I'm gonna wrap up with one more, and then we'll take maybe one from the audience.
Sure.
Look, as you progress in your new position, if you could just help investors understand some of your expectations for the next few years. What do you hope to accomplish as the CEO now?
Sure. Yeah, I mean, I'd say that at our stage, you have two paths. Either you become bigger or you become bigger and better. I am intend to do the latter, which is focus on sustained growth, 30% and more gross profit year-over-year, and then 20% EBITDA, and continuously innovate. This is a platform. I've done it before. The team we have have done it before. Few years down the road, we're gonna look at this company and say, "This is a phenomenal company that followed a clear disclosed runbook and executed." This is an execution game. We don't have a market game. We don't have a product game. This is about execution, and we know how to execute. I'm very happy with the team we have.
We have all the ingredients. Honestly, you've got a huge shift in the market that we're going to take advantage of.
Right. Excellent. Guys, I think we have time for maybe one or two quick questions if anyone has. I don't know if there's a mic, but we'll repeat the question. Well.
My question here is kind of going back to capital allocation priorities. Thank you. you know, we've seen you guys do buybacks at this point. We've seen you guys do M&A. Despite these initiatives, you know, you guys still have about $1.2 billion of net cash on the balance sheet. Could you maybe just help us understand how you're thinking about capital allocation, and, you know, what are some of your main priorities to driving shareholder value?
Sure. Sure. The first priority here is. This is our first integration.
Mm-hmm.
I've done 22 in my careers, right? You can't mess up the first one. Our first order of business, get the first acquisition integrated. We're well down our way, but that's the first one. The second thing is, after we do that, we will look at what any holes we have, and we'll be opportunistic in terms of M&A. In terms of stock buyback, we've done, we've got the authorization for $100 million that we actually wrapped up beginning of 2023, and that's something we might consider in the future.
Any other questions, guys? Okay. Well, then, let's wrap it up there. Thank you so much.