Happy to kick off the day with Marqeta. Simon Khalaf is here, CEO. We have a lot to talk about. I've taken a lot of questions from the investment community. I'll go through that through the fireside chat, but we'll take questions as well and through the portal. Simon, welcome. Thank you for being here.
Thanks for having me. Appreciate it.
I'm excited for the, for the conversation. Yeah. Start out with the obligatory sort of question or statement around, you know, you taking over the seat for just over a quarter now, I believe, right? Talk to us about the transition and maybe rehash some of your priorities as you've taken over the seat.
Sure. It does actually help that I was an insider. I didn't just join as CEO.
Yep.
I came in to look after product then took over go-to-market, it was kinda like try before you buy. I did actually get a good perspective on where the company is, and very pleased with a phenomenal product market fit, great customer base, and immediately identified go-to-market as an area where we need to be much better at. In terms of priorities, I'd say the first one is strategic. To be able to expand Marqeta's customer base and market from fintech into a broader market, which is embedded finance, and probably we can talk about that later. Then the others are operational. First one is go-to-market, which is the ability to reorganize in terms of pods, which I've done that in my career.
To give end-to-end control to smaller teams that have autonomy, and they can work much closer with their customers. We did the Power acquisition. Focus on bringing credit in to compete our solutions because in embedded finance, you wanna provide a full solutions versus a point solution, which was the case in the pure fintech. Last but not least, I say operational efficiency. That's code name for you gotta be profitable. That's the name of the game. It should have been the name of the game the last 15 years, but I think we opted not to do that, not as a company, as an industry. I think we're back into the good fundamentals, so putting the company on a path to profitability is, I'd say, the fourth priority.
Good. I know a lot of new CEOs come in. We've seen a lot of new CEOs come into the sector over the last three years or so. They, you know, like to make change for the sake of change. I'd say it's probably too early to ask you that, but I'm curious, sort of your stamp on the company, Marqeta, or your legacy to preview that. I know you're still trying to organize your thoughts, but what do you think that might be?
Yeah. I mean, I'd say I always think of brand affinity-
Yeah
... which is what are you known for? Like, I mean, when you think of Google, no matter what Google does, it's a search company. You think of Oracle , it's a database company. Like, the brand affinity of Marqeta has to become the operating system of embedded finance. That clarifies everything you do because there is a playbook for operating system. Example, when I think the new CEO of Uber took over, he said, "I'm gonna be your operating system of your daily life." People did not understand what he meant, but it's actually a playbook. It's not that he's gonna ship an OS to compete with Apple and Microsoft, it's more the playbook, which is you go win the large accounts, you improve your solution, you go to the mid-market, then you go after developers, and you win.
You basically build the long tail. That's kind of the, I think the stamp that I like to put on the, on the company.
Okay. No, good. I like it. We've seen and learned a lot in the last couple of years. We heard from Jamie Dimon. He sort of went through the last two, three years, and it was fun to hear it in his way. You know, with fintech valuations coming in, now there's a lot of stress in the banking system. You're talking a lot about embedded finance, right? You just mentioned it, Simon. Tell us what does that mean exactly, and why is now the right time to bet on embedded finance?
Sure. Yes, there is. I mean, when, I guess, the fiscal policies or interest rates are going in one direction for 15 years, you stop, and you go on 180 degrees at the same speed, something will break. I mean, it's its natural course of physics, actually. There is a lot of stress on fintech. I'd say independent of that, fintech will actually do very well. I mean, it's showing to everybody the art of possible. To us, and it's something that as a human, as a person, I've been thinking about for the last decade, which is taking everything the financial services firms have done really well and embed them into daily workflows.
I mean, as a kid, I mean, I can tell from my accent, I didn't grow up in the States. We had, I mean, we lived for a while in Paris. The local grocery store was my first lender.
Mm.
You go, you go to the local grocery store, they know you. I mean, you'd pick up like chocolate bars and whatever, and then he has this tiny notebook he writes down, and then my dad would come on a weekly basis and settle with him. That's my first BNPL basically, buy now, pay later. It was embedded. It's local knowledge. They know you. They know who you are. You're not going and getting cash. You take that concept, and you look at it for thousands of years, right? Finance was actually embedded. The concept of going to the bank is kinda new-ish. The bank comes to you has always happened. That's. We define embedded finance as organizations that move a lot of money, a lot of money, but they're not financial institutions.
We're getting a lot of traction in that. I'd say, I mean, I'll give a couple of examples.
Mm-hmm
... to simply anchor this. You look at our US GDP. US GDP is $23 trillion, I think, this year. 46% of that is wages and compensation, so that's $10 trillion. Out of which $3.7 trillion is shift and gig work. We have a phenomenal Accelerated Wage Access that is unique. $3.7 trillion is not a small number. You move into marketplaces, is another example we're getting traction. So much money is moving between supply and demand, between buyers and sellers. Just the three online marketplaces move $3.25 trillion of float between buyers and sellers. People think it's just Amazon or Etsy and whatever. There's a lot more-
Mm-hmm.
-in B2B marketplaces. A lot of that money can stay in the marketplace. We can actually do marketplace financing, seller financing, co-brands. That's like a second market we're focused on in embedded finance. The third one, I'm gonna call them Neo ERP systems. I mean, you're rebuilding the entire corporate stack, whether it's Rippling or Ramp or many of these companies. I mean, they've vertically integrated the operations, the analytics, the human workflow, company workflow, all the way down to the banking layer. That's another segment that we're focused on.
Okay. Good. No, look, we agree. I think we've been talking about this concept that everyone wants to bank their users, right?
That's right.
Whether it's a consumer platform or a merchant platform.
That's right.
the opportunity to provide banking services there. It feels like Marqeta is squarely gonna benefit from that. I like the way you described that. Maybe just to rank it for all of us here, I like to think Marqeta helped invent a lot of the backends around On-Demand Delivery. You've mentioned buy now, pay later now in embedded finance.
Mm-hmm.
How would this rank in terms of some of the other, let's say, segments or verticals that have come out of Marqeta?
Yeah. I mean, Again, I think fintech has demonstrated the art of possible. Venture funded, very smart people, they understand the banking system, they understand payments, with a lot of people say it's complicated. It's actually not that complicated, but it's fine. They build phenomenal technologies that should be, in some cases, embedded into other workflows. The way we think about it, fintech is almost like ISVs or resellers of Marqeta solutions that go into large companies and deliver something really good. Example, in our, well, relationship with Uber, there's a great partner called Branch, who build actually the Uber card that the Uber drivers can get instant payment on those cards. That's powered by Marqeta. In terms of priorities, I'd say.
Since we're a platform, our solution is very diverse, we gotta focus. Go into a segment, do a great job, move to the second one. I'd say, Accelerated Wage Access is something we're seeing great traction on, we've made a couple of announcements around that. I mean, Walmart being one of them. We made another, a couple of other smaller marketplaces. We will do more of that. The traditional, I'd say, retail marketplaces through co-branding, point-of-sale funding, as well as seller financing, is an area where we expect to see a lot of traction in.
Okay, good. I know the bookings have been quite strong. You've had some good success there right out the gate. What's driving that? I know you've made some changes in the sales motion and the sales board. Can you know, walk through that? Is there more to do?
Sure, yeah. There's always more to do in sales, yes.
Yeah.
If I look at the... My early view on Marqeta is a great product-market fit. I love the product, and you talk to our customers, they love the product. 144% net retention rate is dollar-based. That's a really good metric. I mean, usually 125 and higher is solid. I'm like, "Why don't we have more customers?" We reorganized the sales organizations around pods. That's something I've done at my previous in my career. Google does that, Salesforce. We created those pods, and we put together account managers and account executives and solutions engineers together, and they roll up to a segment leader. We created the...
Then, let's say, leverage compensation plan, that actually rewards, when, let's say, a partnership is established, but also leaves some of the reward to when the programs launch.
Mm.
From there, it's kind of rinse and repeat. We moved from a hunter-based approach that delivers to a farmer approach to one team that's doing the land and expand. Start small and expand with a customer. That has worked. I'd say, this is two quarters of very solid bookings. We exceeded our numbers, but at the same time, the leading indicators did not drop. The pipeline grew 80% in the US since Q4. It's 40% in the EU since Q4. We've taken 20 days out of the sales cycle. That's 32% in six months. I think I'm happy where things are. There's always room for more to improve.
We are definitely looking at many ways where we can add more talent, like kind of your traditional SaaS sales that maybe did not come from the industry, but can pick up the industry fast.
All right. Good. Sam, I know you're close to the numbers. You just went through some of that.
Sure.
-of these new deals, two-thirds of them are expansion of existing. You know, this land and expand. Just maybe you can elaborate on that. We get a lot of questions around ARPU or how much more product or, you know, where can you attach to existing clients? How do you generally think about that potential?
Sure, yeah. I mean, I always say, your best next customer is the one you already have. There's no question that the land and expand strategy has worked across all the industries. Why try something new? I always look at it, you find the formula that works, whether you're making potato chips or computer chips or chips on cards. If the model works, you follow it. In terms of growing the wallet size, I think, we have customers, I'd say, three of our top five has expanded geographically with us. We have many others that have added our risks products and banking and money movement products. I'd say most of our thinking right now is around solution selling, which is we don't think product lines anymore.
I do believe that companies in stages. As a startup, you're selling your technology. As a mature, I'd say, CDSD company, you're selling products, and when you are truly scaled, you start selling solutions. I think we're making that transition quite successfully at this stage.
All right. Good. Let's transition a little bit. I know you monetize through spend on a lot of your portfolio. We heard some updates from some of the companies, including Block, yesterday. May trends were a little bit better than April.
Sure.
Can you generally talk about what kind of behavior you're seeing on the spend side across your base?
Yeah, I mean, we started seeing kind of a shift in spend in the Q4 timeframe, in which, I hate to say, the majority of the paycheck is going to nondiscretionary or low-discretionary items.
Okay.
There is a little bit of contraction in the high-discretionary items. I mean, it is kind of obvious, but the data is starting to show it. Honestly, it's not as bad as I thought it was going to be. I mean, I thought kind of retail, I mean, you hear all the scare, retail is going to come to a grinding halt, the debt stack is going to increase. It's not that bad. We've seen, I think, some in the March-April timeframe, we've seen a reduction in the ATV, which means more money is being spent on nondiscretionary items. The May, early May trends are actually better. We don't know if this is seasonal or if people they're doing revenge travel. It's what it's called now, and they're basically keeping all their money because they want to spend it on vacation.
Yes, we did see that trend.
Okay. Yeah, no, look, That's what we've been hearing. That sounds-
Sure.
consistent, and we'll learn a little bit more as the months play out here. Would you say that Marqeta is more weighted towards discretionary versus nondiscretionary? You mentioned it. I know there's Buy Now, Pay Later, there's On-Demand Delivery.
Yeah.
I'm curious how you thought about it.
It's a mix. I mean, one of the things that I was actually surprised by when we announced the Power acquisition is the demand in commercial credit. I expected the demand to come from consumer credit, and that is there, but commercial credit is an area I was not expecting. You think about it does make sense because working capital is now very expensive-
Mm-hmm.
Not as abundant as it used to be. Commercial credit in which you can be surgical in how you offer lending, kinda like BNPL for a business, you're underwriting a transaction versus an entity. That's growing for us, and that balances, I'd say, the between consumer and commercial. Within the consumer, I think we have a mixture of, I'd say, the everyday spend that you see in some consumer program, but also BNPL is more travel and retail, and ODD is food delivery, I guess, restaurants and services.
Perfect. Let's go into the results a little bit. I think, you know, the quarter itself ahead of your outlook on a lot of KPIs, but I know the gross profit outlook, and how that landed was a sticking point to the quarter. Tell us what's driving some of the surprise or the slowdown there?
Sure. yeah, Q2, I mean, from our plan, we knew Q2 was gonna be tough.
Yeah.
I mean, there's many factors there. The first one is how the incentives work. They kind of reset. I think they reset in April. You have to build your way up in order to get the incentives from the network. Then sorry. In Q3, we would lapse the loss of one of our large customers' volume or partial volume, which is Klarna.
Right.
The third. Those were things that we expected. The third thing is renewals. We have done a lot of renewals, in what I would call for overnight sensations, in which like when we closed those deals, they were, let's say, they're doing, you know, tens of millions. Now they're doing hundreds of millions, if not billions of TPV. Of course, because when they jumped, the renewals have put them in terms of different take rate on us. Those are pretty much done. The thing that actually change as we started the year is that ATV, the reduction in the ATV, although the consumer is spending more.
Mm-hmm
Our costs are a little bit higher. Give you an example. If, let's say, last year you wanted to go fill your car with gas, you do a one-time and you spend $60, full tank of gas. This time it's like, "Oh, I can't afford to put all the $60." You do it $40, and then two weeks later, you do another $20. You spend $60, but you do two transactions, the cost of Marqeta is higher. That takes some of our gross profit. The good thing is we do believe, and we're comfortable that Q3 is gonna be in the mid-teens, and then Q4 is gonna be back to the low 20s%. That's kind of what gives us comfort about the balance of the year.
Okay. Good. I know, Simon, there's always this question with these renewals and the fear that on, you know, subsequent renewals that you'll see another markdown or surprise on the gross profit margin. What's your reaction to that?
I'd say that will continue in the overnight sensations.
Okay.
This is kind of the nature of the business. As your customers grow and grow and grow, as a cohort, they're going to drive gross profit pressure. You fill with the mid-market that is not that, I'd say, sensitive to gross profit because of the volume they drive. They don't have, I'd say, collaborative negotiating power when they come as a cohort. We negotiate with all of them. I'd say that the for the overnight sensations, and we're extremely happy. When your customers do well, we're happy, and we're happy with that with that gross profit contraction. Sorry, the reduction. I wouldn't say it's the norm.
I mean, we've had, like, the folks that, like a Ramp, like an Affirm, like a Klarna, and many others, they grew so fast, and they did demand a reduction in then, and they deserve it because that's the tier they've hit. I don't expect that. I'd say the renewals we did in Q1 did not take any of the gross profit down.
It's the nature of scale economies. You have to share some of the.
Yep
...the scale back. The good news is you're able to support all that growth.
That's right.
...with all that volume coming on. We shouldn't take that for granted. We'll take questions here after this one. Power Finance. You closed that. That's the first deal since, you know, we've been tracking the name, getting into credit. What's the thesis? What's the vision around Power and any surprises so far?
like I'll start with the thesis.
Thesis.
Marqeta was actually in credit. We simply were not the program managers. We had a nice pipeline, but we have to go to partners to become the program manager on credit. Marqeta was just the processor. You've introduced another player to the sales process, which works in some segments, it doesn't work in others. All the embedded finance players want Marqeta to be the program manager across debit, prepaid, banking, and money movement, as well as credit. That actually helped a lot round out the solution for us. In terms of surprises, I think I mentioned, I did not expect commercial credit to be that big.
Mm-hmm.
I mean, mathematically, it makes sense. Working capital is at 15%, and companies, when they go get working capital, they have covenants, they take the money, and rather than going to their payables, they go to Google and Facebook and buy more ads. Once you look at how we are implementing commercial credit is it allows an entity, let's say, you're the marketplace, you got sellers, and you want your sellers to keep building inventory 'cause that's how you fill up your shelves. You can issue credit, and then instead of doing legal covenants, you do technology covenants. You go and say, "No spending on Facebook and Google, MCC.
Mm-hmm.
put all whatever I've given you the money for, build inventory, pay your people, so on and so forth. That's the part that I thought was a very happy surprise because it expanded. It strengthened what we have in terms of target market and target customers.
I'm curious, is there pent-up demand on the credit side?
There is.
You have such a nice book of business as it is on the debit front, many of which don't have a credit product. Can we characterize that as pent-up demand?
Yeah. Absolutely. On the consumer side, we shouldn't think of credit as your traditional revolver.
Right.
There is a lot of demand for credit-builder products. That's something that we're heavily working on. We'll hopefully announce a couple of very strong customers. Yes, there is pent-up demand on the consumer side, and as I mentioned, the demand we did not anticipate was on the commercial side.
Got it. Understood. Happy to take questions if we have any. If you don't mind-
Name?
you can repeat the question, but the mic would be great. I'm sorry. I should have warned you we were coming to the questions. Thank you.
A question for Simon. How much of your business is international, and in particular, the largest international markets, Germany and Japan?
Actually, in terms of revenue, our EU revenue is still relatively small. I wanna say it's below 15%. A little bit less than, actually less than that. We are in the EU, we actually can process in over 40 countries, which is fast. We can boot up a country in two weeks, but we have boots on the ground in the EU. Now the bookings are actually strong in EU, and we expect that to increase.
What about Japan?
We're not in Japan. We Right, we're doing the EU, we're doing it right.
Great presentation, Simon. Just on the concentration risk, how much your business is dependent on Square? Because last time it was in 60s and 70% of the revenue-
Yeah.
-was with Square, and it's a great partnership. How do you foresee... Is it a concentration risk from business point of view? What's your view on that?
There's no question concentration is risky, it's also an opportunity. Let me start with that. In terms of Block is about 75% of our revenue. It's about 20 points less on the gross profit perspective. It's kinda like half of our gross profit comes from Block. We actually work with Block on three of their ecosystems, on Afterpay, on Cash App, and on Square. We have engagement across all these ecosystems. While I think the majority of the revenue comes from Cash App, there's a lot of very interesting things we're doing with Afterpay and Square itself. It is something that we're working on strengthening the relationship. We have insane amount of engagements with all their product groups.
We do expect to... I mean, everybody's asking us, I'll ask it because, like, when is the big renewal happening? It's not actually a date. We have tons of engagements, many products in the works. The one line item will be renewed. We expect to get some... We have to give some concessions given the size. I mean, they've grown, I wanna say, like, 50%, 60% on an annual basis, almost like, doing whatever, 50% or more since. We expect to give some concessions on that. That will give us some, a hit to gross profit. That's why we have not, despite the expense controls that we've done, we have not guided yet to a timeline for profitability.
Once we get that done, we're comfortable we will get to a clear path to profitability.
Thank you.
Anyone else? I think we have in the back.
Yes. Couple in the back.
If anyone took the over under on 20 minutes.
Yeah.
on Block, you win.
Thanks, Simon. Some of the, I'll just call them the legacy issuing platforms, have talked about the investments they've made and some of the key ones they've had there. Can you just help us understand the points of differentiation from Marqeta, vis-à-vis some of those other players in the space?
Sure. I mean, we can tell from the numbers, I mean, they're doing okay. I mean, the growth between 2% and 7%, that's traditionally what has happened. Look, it's a very different business. It's very different. You don't. If you have a system, you don't stick an API in front of it and call it modern. Give you an example. When we look at point-of-sale financing, and you have to make an underwriting decision in milliseconds, when you look at, I'd say, Accelerated Wage Access and instantly receive an API from a labor marketplace after a person has done a shift, take it in, and then update the ledger, that is done in milliseconds. This is not something their systems are doing.
The dynamic nature of, when you talk milliseconds, there is no way these players can play. I think we are very well-positioned, extremely well-positioned with a huge moat around against the incumbents. As we pick up more steam, as we go beyond neobanks or neocredit unions or neo whatever you wanna call them, the large financial institutions are eventually gonna think about upgrading their infrastructure. There will be more competition with the incumbents. The way I'm seeing it, I think it's gonna happen on the commercial cards first before it goes to the consumer card first, given the nature of our credit solution. I think I don't expect us to bump into those players until the 2025 timeframe.
Thank you for the question. Anyone else? Simon, people ask me this all the time also. How do all these well-known names, these sensations, as you called it earlier, how do they find Marqeta, right? I mean, we hear that Marqeta is very developer-friendly, and so as a result of that, a lot of developers end up building on Marqeta. Have you observed that? Has that changed?
It has not changed. I mean, if kinda like I look at if you wanna put it real, like what's the brand behind the brand?
Mm-hmm.
You look at folks like Max Levchin.
Yeah.
you look at Brian Grassadonia, you look at Ryan Breslow, you got all these folks that are highly innovative, and why are they coming to you, right? It's actually an honor to work with these people. It's not the first time I build a developer-friendly. They come to you because you're one of them, because you think like them, we work like them. I'll tell you when I hate to say it, but when the weekend where Silicon Valley Bank was collapsing. I mean, I got up at like, on a Saturday, 5:00 A.M. in the morning, went to the office. I'm like, "You know what? Who's gonna be in pain, and how can we help them?" Like Todd, our CRO and our solutions engineers like woke up and like, "Hang on.
Let's get a list of our customers and whoever is funding us from Silicon Valley Bank, how can we start writing code to enable multiple accounts in order to fund the program? There is massive chaos in Silicon Valley, like people calling each other, especially venture-funded, that have working capital from Silicon Valley Bank. We were on calls, like engineers were cutting code, salespeople on calls, "How can we help you?" I think it's that attitude that attracts that behavior. We were on like, their side. We were like, "What can we do for you?" Marqeta had a little bit of exposure. Some of our money was in Silicon Valley Bank, but the vast majority of our money was not there. We were thinking about them, and I think that makes a huge difference.
For sure. For sure. Anyone else? Thinking around operating expenses then, you know, with that mentality, you targeted breakeven on the EBITDA front. Can you achieve that kind of culture and spirit at the same time delivering on the, you know, on the profitability targets, as you said?
Yes. I mean, you don't need to sometimes overspend to hit a target. The stronger a company is, and by strengths, I mean a company is profitable, as in it's going, growing 30% on gross profit on an annual basis and then pumping about 20% EBITDA. That's the goal that I'd like to achieve. I've done that many times before while innovating, while being developer-friendly, while putting great wins on the board. It's actually it's something that a lot of executives feel. It gives them a passion. It gives them something. It's a calling. I think that I'll call up on everybody to go in that direction. I mean, growth for the sake of growth is great, but it comes to an end. The market does not give you.
I mean, we got 15 years of, "It's okay, you can do this." At the end of the day, look at what happened. Everybody held the executives down to what I call a sound business. I think that's something we can achieve. In terms of the culture, It takes a lot of time to change the culture. The good news is, there's nothing to be done on Marqeta. The culture is great, the product is great, the developer affinity is great. You have dollar-based net expansion at 144, and NPS is high. I think we're good there. We just need more of what we've done, and that's something that we're focused on.
Yep. No, I get it. It's the race to more.
Yes.
You know, I know the stock has been weighed by the renewal question. You do have a $200 million buyback, quite a bit of cash on hand, you know, around $1 billion. What's the thinking there in terms of how you wanna deploy that, including on the buyback relative to, you know, the renewal that's coming?
Sure. I mean, we're not gonna be a programmatic buyer, as in like do this on an annual basis. We thought this is very opportunistic. I mean, we've done the math six ways from Sunday, and it looks like the analysts have taken one of the assets to zero. If I look at the business we get from Block, the business we don't get from Block, and then you have cash. Cash is cash, right? It's an easy equation. The second one, you look at the medians and the multiples, and looks like the analysts have either zeroed either the cash business or the non-cash business. That. We looked at it does not make sense.
That's why we felt that buying our equity is the right thing to do for our shareholders, our customers, and our employees. In terms of the renewal, when it will happen, We've done many scenarios, and we cannot know which zip code we're gonna land in. We've done scenarios that we feel comfortable that when the renewal happens, we'll be able to provide guidelines towards the time where we will be profitable.
Wonderful. We should end it there. Simon, I enjoyed the conversation. It's all very thoughtful, and I appreciate your rigor.
Great. Thank you so much. Really appreciate the time. Thank you.