Marqeta, Inc. (MQ) Earnings Call Transcript & Summary

Okay. Sorry, a little bit late. My name is Tien-Tsin Huang. I'm the payments and IT services analyst at JPMorgan. So this is the Marqeta fireside chat. Michael Milotich is nice enough to join us here again. He's the interim CEO and CFO of Marqeta. Thank you for being here, Mike.

Thank you for having me. .

Yes. So we have a lot to talk about, a long list of questions. If it's okay, we'll take questions from the field and in the portal as well. But I thought we'd just kick it off for those that haven't studied it as closely as maybe others have, just with the state of the union, I know '25, we wrote here that it's a little different start to the year than where we were a year ago. So what's changed in the last year? And have you reordered some of your priorities, Mike? It sounds a little bit different, but certainly much cleaner and some good things to talk about here.

Yes. No, thank you. I think in '25, we're starting to hit our stride a little bit. A few years ago, we were in hyper-growth mode coming out of the fintech boom. And now we're a more mature company operating EBITDA positive with a lot of different irons in the fire, if you will. We've really diversified the business well. Compared to a year ago, I would say there's a few things that we highlighted on our call that I think are representative of the evolution of the business. So one is that we are starting to migrate portfolios from other platforms onto our modern platform, which is an exciting development as you look out into the future of the business. The second thing is that we are in the process of building a white-label app to help customers get to market more quickly. So we're hearing more and more frequently that customers, even with an embedded finance, want help with the user experience, at least initially. And then if they get traction, they may embed the service later. And then finally, we've started offering program management in Europe. So a year ago, our offering was different and less comprehensive than it is today. And although three of those things are good developments. And -- so I'd say our priorities are mostly focused on execution, really doing the fundamental things well while we also innovate. And so, so far, so good for 2025.

Yes. It does feel like you're in a good rhythm overall. So you mentioned the portfolio migrations. You announced a couple of them. It triggers that age-old question of does this mean it opens up a lot of opportunities to serve more traditional portfolios, that kind of thing. So what does it open up in your mind? How quickly can that happen? And -- or is this more let's see and wait and watch before it translates?

Well, I think you definitely need to build your muscles and get some reference customers who can speak highly of how seamless the execution was. So we want to get as many reps as possible so that down the road, however many years that may be that if a much larger customer wanted to execute a migration, we -- both sides would feel very confident in their ability to do that. I think we migrated a large portfolio for Klarna in Europe, millions of cards in Q4. That was a debit program. We moved Bitpanda debit program to our platform in Q1, and we're in the process of migrating a U.S. consumer credit value proposition for Perpay. So we are starting to get multiple bites at the apple, if you will, and executing well. I think if you step back, we built this capability last year because of how we see the market evolving over time. We believe that there would be a wave of modernization that's going to take place on the issuing side. If you went back 10 or 15 years, the acquiring was a side of the ecosystem is where modernization started first and it got some momentum with e-commerce and then with the explosion of omnicommerce, I would say, is when the modernization really accelerated. The issuing side is more complicated, and so it's a little behind the acquiring side, probably by 5 to 7 years. I would say the inflection point for us was more in the pandemic when a lot of more flexible engaging user experiences for the card user start to become more prevalent. And our view is -- so all the programs that have launched in the last 3 to 5 years, as those continue to get bigger and bigger and become a larger share of the market, the people who have programs that were predate that are going to want to offer the same kind of experiences to be competitive. And in order to do that, they're likely going to have to move on to a modern platform. And when that happens, we want to be ready to support them and be able to execute smoothly.

Is that what explains your comment around the more motivated pipeline? Is it as simple as that, Mike, that this modernization shift is here and to compete effectively on the card front, you've got to modernize on the issuing front. Is it as simple as that, that's driving that? Is there something else?

I would say it's that. And then I would say there's two other things that are happening. One is that our existing customers are becoming -- many of them are sort of the winners coming out of the fintech boom, and they are starting to expand into a lot more businesses and geographies. So they are broadening their offerings, and we make that fairly seamless for them to do. Just to put it in perspective, if you look at our top 10 customers by gross profit, 8 of them have more than one program with us. So we have an existing customer base that is expanding and knows what it takes to launch a new program and execute, and so they're able to move a little faster. The second thing is that the other change in our business is we're also talking a lot more enterprise customers. If you look at our pipeline, it has a lot more bigger companies with embedded finance ambitions. And what we're seeing as we engage with them is that the sales process is actually a little longer. So to get to contract signature is a little bit more time-consuming because these are bigger companies with more complex decision-making, hierarchies, right? There's more priorities to balance as opposed to in fintech when they were -- you were often dealing -- we were dealing directly with C-suite individuals. So they take a little time -- more time in the sales process. But once they've signed, they also tend to be much more planful. So they have a plan, and they're much less likely to deviate from that plan once you're in the onboarding process, which is typically what leads to slowdowns. I always use the analogy, it's just like if any of you have ever done home construction, the first thing your contractor says is it's change request that cost you time and money. And our onboarding is very similar. If you have a good plan and you don't deviate from it, you can actually execute very quickly. We've stood up programs in a matter of a month or 2 if there are no changes if everyone is focused and working hard.

Yes. No, the change orders matter. Okay. No, that's good to hear it. So before we drill in on some of the more specifics, I do have to ask you around the macro front. We've been hearing that macro is stable. You called out macro is stable on your call as well and the consumer being healthy. I think that was a pleasant surprise given that your largest customer block saw some pressure, and we did talk to the team a couple of hours earlier. But how would you explain sort of that? It seemed like the lesson is you can grow and diversify away from your largest customer, but how cyclical is the business overall in your mind, Mike?

Well, we're in the business of, I guess, facilitating people to spend money. So obviously, we have some macroeconomic exposure. But I would say compared to most payment companies, ours is a little less, only because if you look at the use cases on our platform, they tend to skew a little bit more toward the underserved and not the affluent. So if you -- we -- when we analyze our spend, one of the ways we do it is by looking at it by merchant category, where the spend is taking place between highly discretionary areas, sort of everyday spending that you'd consider very low discretionary and then you sort of have a middle in between bucket. And our business, less than 1/4 of the spend on our platform is in the high discretionary. And I would say that, that's probably different than several of our kind of payment peers because it's the affluent who spend a lot more on a card. The only way they do that is they have more discretionary spending. And so we are a little bit maybe less exposed than some, but there's no doubt we have macroeconomic exposure as well. But so far, we're not seeing any change. The mix of spend between that everyday spending and high discretionary has remained stable for several quarters, not just at the total level, but even within some of the use cases that we track more closely. And even in April, our TPV growth accelerated a little bit from March, and most of that was fueled by actually discretionary spending. Some of that can be Easter timing and other factors, but at least it's clear at least there isn't a slowdown in discretionary spending at this point. But we have a large diverse business. So even though Block is obviously a big part of our business at 45% of our revenue, that still means we have a large non-Block business that covers a variety of use cases across geographies. So it is a little bit of a broader view maybe than what they shared for their Cash App business.

So the non-Block business, I think, grew 2x that of Block itself. So we have to -- you have to track same-store sales, new sales, of course, product launches across the entire base. I'm just curious around that visibility and the sustainability of that growth from that group of non-Block customers.

We think it's pretty sustainable. I think a lot of the -- again, the winners of fintech are becoming big businesses. And you cover many of them. And so they -- even though they're quite large, they can still grow at a pretty healthy clip is what we're saying. We said even our customers outside of our top 5, their TPV grew twice as fast as the company. And those are not necessarily a bunch of small businesses. Our customers, 6 to 10, those are all customers who do well over $1 billion in the quarter of spending, and they -- many of them are still growing at a very fast clip. And so we just try to remain flexible and offer a variety of use cases for them. So that's part of our strategy. They can move into new use cases. They could start doing credit with us. They could expand geographically. And because we're a single-stack platform, unlike some of our other competitors, that would be a lot of work for our customer to move in some of those new directions versus on our platform, it's relatively seamless. And so that is something that we really pride ourselves in. Also, the addition of program management in Europe, a big part of that is also to serve multinationals so that the offering is more consistent on a global basis. And so those are all things that are helping us drive our non-Block growth.

Yes. So you mentioned Europe, so I'll dig in on that. Just with Europe TPV doubling there. I know in the past sessions here when we interviewed Marqeta, there's always this ambition, right, to grow international. And it does feel like it's here. What -- is that really, like you said, more multinationals expanding into Europe? Are you doing de novo deals there? I know there's some local competitors as well. Tell us how competitive you are and what you see out of that segment or that region?

So our Europe TPV has been growing over 100% now for several quarters. We're getting a lot of growth. And just to put it in perspective, our -- I guess, our non-U.S. TPV as a share is about in the mid-teens. So it's less than 20% of the business, and the bulk of that is Europe. And I would say the use cases we offer are -- is very similar to the U.S. and the way we support our customers is similar. I think there's two components that I would say are important. One is it's not customers who maybe want to go multinational right away, but they definitely are people who have that in mind. So some of this is U.S. or Canadian-based customers going to Europe. And sometimes it's a European business, but that has their sights set on coming to North America, and they know that they can do that seamlessly on our platform. So that's one component of it. The second thing is just as we've been successful in the U.S., we have a highly flexible, highly capable platform that operates at scale. So we have proven that we can support very large businesses, and that means a lot to prospective customers. And that is something that is really resonating in the European market in addition to the U.S. So we think the growth that we have there is sustainable, particularly with the addition of our program management capabilities and which is why initially, we started by partnering with TransactPay, and we then moved to acquire the business, and we believe we will be able to close before the end of Q3 and that allows us to be a member of Visa and Mastercard and have control of the bins with through an EMI licenses, 2 different EMI licenses. And that will only enhance our offering there and help us be -- continue the success that we've had to date.

So is this a playbook that you can apply to other regions, Mike?

Mostly, mostly. I'd say what's different about Europe is it's a little more homogeneous. So once you move into Asia, Middle East, Africa or even Latin America, each country is different. So what does make Europe unique is you have sort of an EU infrastructure that allows you to cover a lot of countries. There's still some nuances within those countries, but it's relatively minor compared to Latin America or Asia, where as you move from country to country, there could be meaningful differences. So we pick our spots, right? We've gone into a few countries in Latin America. We are in a few countries in Asia. But for the most part, we are mostly focused on U.S., Canada and Europe for now.

So I know a few quarters ago, growth was impacted because of some regulatory and onboarding challenges. I figured we should ask that now before we open it up. Just I know some things have changed. I think it came up on the call again, but update us what's changed? Is there a different pacing of regulatory impacts? And how that's impacting the onboarding process?

We haven't seen any impact to the onboarding process at this time. I think the only change is that everyone has adjusted to sort of the new bar that's been set. So we've adjusted, our banks have adjusted and even how we work together and partner, we have adjusted to speed up the process. And I would say there's even more recognition among customers. They're more aware of the fact of -- and we're doing a better job educating them about the implications of making certain changes and how that can impact time to market. And so we're not seeing a big impact in that regard. And then we talked about last quarter that some of the backlog we had from delays has largely been evaporated at this point. For us, our view is that the change in the regulatory climate more has an opportunity to unlock innovation that there were people, particularly in embedded finance, where you have a core business and a brand that you're looking to preserve. The last thing you want to do is start dipping your toes in some hot water, right, where you might get under a lot of scrutiny. I think in this new environment, there are more people who are willing to lean in. And if that happens, we think that's to our benefit as one of the handful of players where sort of innovators and disruptors would go to do something different in the card space, in particular. We think that plays to our benefit.

Yes. So maybe building on that. I know in the past, we've talked about some safety with Marqeta having been in the market for so long, invented modern card issuing, that kind of good stuff. But competitively, we've seen a lot of changes, Mike, right, with Visa. We'll have Ryan speak tomorrow. I'll ask him about Pismo. So they'll have issuing in some core built in. We just had Global Payments right before you and they're spinning out or divesting their TSYS asset. Stripe Sessions talked a lot about issuing and some of the changes they've made. Competitively, have you observed some shift? Is there a potential for maybe the larger incumbents that are maybe a little bit late in the game, but can bring a lot in terms of safety and security versus Marqeta? How do you see that?

We're not seeing a shift in the competitive market, at least at this point. I think what makes us a little bit unique in that regard is we really support a wide range of use cases. So we tend to see, depending on what the opportunity is, we'll see a common set of competitors for that use case, but then the next opportunity that might be a different use case, we would see different types of people. Like in the past, I know Stripe just announced they're going to start to do consumer. But in the past, right, we might see Stripe when we're in a commercial opportunity. But then when we start talking to something in consumer, we don't see them. I would say also among the more established players, we also don't really see them. They mostly focus on the bank and the business, and we almost exclusively target businesses that's coming from nonbanks. And so we don't tend to see them at this time. Now that may happen in the future. And we -- that's the direction we are headed. But at least for now, we don't run into each other that often.

And are most of these deals -- as a follow-up, are most of these deals RFP? Is it more sole source versus 6, 12 months ago?

I wouldn't say there's any change in that. Many people run RFPs. It also depends on the nature of what they're trying to do if it's a little bit different. We get a lot of referrals from the networks and other customers where they might not run a process. They might go to the network as their first stop and say this is what we're trying to do. And oftentimes, the networks will say, well, if that's something you're interested, Marqeta is definitely a company you should talk to. We also have other customers that will refer people to us. So there are obviously many RFPs, but there are also just as many instances where we get a referral from someone within the ecosystem. .

Okay. Any questions before I keep going? Happy to take some questions if there are any. Otherwise, I'll keep going. So just to fire off a few, Mike, before we get into some of the numbers and put your CFO hat on, just on stablecoin. It's been a popular subject in a lot of different settings, including here. Just stable link cards. I would say you were pretty early. Marqeta is pretty early on that. Is the friend-foe, risk-opportunity question, I suppose. How would you answer it?

We think it's opportunity. Yes, we were early in this space with like the coin-based card and then the Bitpanda business that we just onboarded in Q1 in Europe is very similar to their crypto platform in Europe. So we were very early in that use case of allowing the consumer to transact in fiat for the merchant and the rest of the ecosystem and then the conversion is more done just like FX by the platform like a Coinbase or Bitpanda. And we think that is directly translatable and scales very quickly. I think the mistake that people often make in payments is that things tend to evolve fairly slowly because it's a very complex ecosystem with lots of different people involved. And so our view is that stablecoin getting sort of merchant acceptance and getting a proliferation of wallets that would allow you to transact in those, like that will take time. Usually, that kind of change in the payment ecosystem tends to evolve over many years. And so we may get there. But in the meantime, we have built a very nice bridge to that end point that's proven and established. And so from our perspective, it should -- we should be in a great position to help people if they want to pursue a product like that.

Okay. I also wanted to ask about Flex credential. I know there's a product drop from Visa recently. They expanded on it a little bit, but the themes are the same. Same thing, Marqeta is early as a partner and you have Affirm as a customer there. Do you see demand there? How long will this take before we start to see it in force?

We are seeing good demand. So people are very interested in it. I think the BNPL use case is the first one and is quite logical. I think it's -- and it's happening on two fronts. So what's initially happening, Affirm being first, but others coming is the BNPL providers offering what we've always termed a Pay Anywhere card, where they'll offer you a card that delivers buy now, pay later wherever Visa, Mastercard is accepted. And so certainly, Affirm debit is on the forefront of that. That's one use case. But also one of the opportunities that we see that we have been pursuing is using -- because of the unique position we have with our BNPL customers is actually bring BNPL to other debit cards that are issued on the Marqeta platform. So where we essentially give the buy now, pay later customers of ours distribution on -- from our other customers who -- that would be a very differentiating capability if they could come out with a debit card that has BNPL functionality, but yet they don't have to have all the underwriting expertise and everything that people like Affirm and Klarna have built. So we think both of those use cases are -- have a lot of demand, and I think you're -- you'll see -- and it's just -- these decisions take some time and then the rollout also takes time. So what you're seeing in the market now are the people who were in the no, maybe before it was public, right, when we were working on this buying the scenes. So it's going to take a year or 2 for, I think, you do see it more broadly in the market, but there's definitely a demand and a lot of interest.

How about agentic commerce and everything going on there? I think Visa, Stripe and others have made some announcements around enabling commerce through agents and tokens playing a big role. Of course, Marqeta has got a big token play there. How much of that is on your radar, Mike, as you're thinking about investing and push for the future as a card issuer processor?

It's definitely on our radar. We are having conversations with a lot of AI-focused companies. The good news for us is that we don't believe there's a lot of additional work to do because we already are quite sophisticated and at scale with our token capabilities and then also our virtual card capabilities. So the way a lot of this is going to -- we think is going to work is when you have a machine going and doing this purchase for you, the way it might get executed is with actual virtual card. Maybe a card on file, but it could also be a single-use virtual card. And our platform, if you think about what we already do in the BNPL space, right? I mean we -- our platform is getting pinged in very high volume in rapid succession, and we're able to manage that quite well. So we think we're positioned well to support this, and we are definitely talking with companies who are doing their homework.

Okay. Good. No, it seems like it's something that's interesting, early, but has some interesting use cases down the road. Any other questions from the field before I go into the finance stuff? No. Happy to keep going. So let's -- I don't want to geek out on the number stuff. But -- so let's think about the next few quarters. There's a lot going on with incentives and then renewals. You've got the acquisition piece that will come in. So maybe starting with this renegotiated platform partner agreement. I know it drives some confusion in numbers, but it's not that complicated underneath it all, but walk us through that first.

Sure. So we have -- within our cost of revenue is where we pay partners who help us execute our service. So that's where our bank -- the cost related to our bank partners, all our network costs and incentives are there. And that's just not just like the major networks that would also include PIN networks and ATM networks and other partners like that, that we utilize as well as card fulfillment providers. And we are constantly leveraging our scale to renegotiate and get better deals. And we recently executed an amended agreement with one of those providers. As part of the Cash App renewal, one of the things that we agreed to, we thought it was quite reasonable on their ask was what they asked for was, look, when you go and get a better deal and part of that you got that you achieved with our -- the volume that we're contributing to your platform, we would like the proportional savings to accrue to us. So the way it works is when we generate that savings for our non-Block business, that's value for us that we keep on our gross profit. But if it's tied to Cash App volume, essentially, we pass that benefit on to them. So the way that works mechanically from an accounting perspective is our price actually goes down to Cash App with a corresponding decrease in our cost of revenue. So it's neutral to gross profit, but it lowers our revenue related to the Cash App business.

Okay. So thanks for going through that. So renewals. You've been through that with Cash App and Block. Thankfully, you don't have to talk about that. But you've been going through this renewal process. As these customers get bigger, I know we're accustomed to sharing economics back to the users in payments. You know that very well coming from the Visa side. But impact on take rate, is there going to be more step function changes in take rate in your mind? Or can we see things be a little bit more smooth as you go through the renewal process the next time around?

Yes. We think we're in a much different position because we have reset our economics with most of our providers. So we think it's definitely much smoother. But we -- typically, we'll do in a renewal is assuming the customers had success, which is often the case, we'll add some additional tiers but you do it in a way that is always accretive to you. So you're giving them a better price, but it's still -- that additional volume is still accretive. And those are sort of marginal step down. So it can be managed. We do have 2 renewals that we've called out with top 10 customers this year that are sort of our last 2 where we expect a more significant reset of the economics. But those, we think after those are past us, then we -- it will be much smoother and much more small increments on the renewal. I would say the other thing that we're doing a much better job of, we have another renewal we're working on right now with the top 10 customer whose -- their economics that were already redone several years ago and their contract is up. And so we are -- that's the playbook we're using. We're giving them a couple of additional tiers. They'll get some reduction of sort of our core pricing. But then they are going to buy an additional 2 or 3 services from us. And so our overall take rate is -- we're probably going to be able to maintain roughly stable with just lower core pricing, but more services being offered. So that's one of the things that as we have matured as a business, and we've kind of come out of the that phase of having to support incredible volume growth from a rate perspective, we now have a much bigger portfolio of value-added services to offer our customers. And because of our scale, we can deliver it usually for a fair price, we can do it well, and they don't want to contract with multiple parties. And so we are getting more and more services -- customers to buy additional services from us, and that should help balance some of the take rate pressure that we've had. I would say we also, as our newer customers start to ramp more and contribute more, we're also going to have a little bit more balance in our business. The last few years, again, as the fintech winners were crowned, those existing customers have been growing really fast in our platform, and some of those largest ones have good pricing. So as a mix, it's been pulling down our take rate a little bit. But as the newer customers grow and ramp, then we're going to have a little bit more of a balance in terms of the sources of our growth in terms of level of take rate.

Okay. Cool. So we're about 2 minutes left. So I'll get you out of here with one last question, Mike. Just thinking about these renewals and you talked about some of the partner agreements, you got acquisitions. But when you clean all of that out, I mean, do you think of it as still just an underlying 20% grower? You've got a lot of fast-growth clients. We talked about non-Block growing at 2x the block rate. Is the final output 20%? How do you get to that final number when it's all cleaned?

Yes. We still believe that we can get to that kind of growth trajectory and sustain it. And it's really driven by a few factors and most of which we've touched on. So one is that we are growing our non-U.S. business really quickly. So as we diversify geographically, we think there's still a lot of room for growth and particularly with the inclusion of now program management in Europe, even how we will -- our take rates in Europe as we onboard this business will be better than it was in the past when we were only delivering processing. So that's one factor that will absolutely benefit us. Also, the addition of all these additional services. In the past, we didn't really have those because we are focused on the core platform and scaling with the incredible growth that our customers were experiencing and delivering for them. But with -- having focused on that and established that, that's not going to be a challenge, we've been able to add a lot more value-added services. And that is an additional way of growing that we haven't had before. And I think there's some misconception among some investors that as our customers get large, they want less from us. That's not true. That's not what we're seeing. Like we had a very specific instance a couple of quarters ago where we called it out and we talked specifically that these were very specific situations. I would say, in general, even our largest customer Block, we are required to disclose our contracts with them, and they're heavily redacted. But you can see just in the last 2 quarters, there's been activity, additional services that we can even offer them. So I do think that, that is going to be an additional tailwind for our growth that we haven't had in the past.

Okay. Good. I'll add one more quick one. Mike, any update on the CEO search? And I think we've said we'd love to see you drop the interim title, but I'm curious, any update there, timing, that kind of thing?

No, thank you for saying that. There is no update. The search process is underway. The Board has selected a firm and it's ongoing. But they are going to take their time. They feel comfortable that with myself in the interim role and the rest of the executive team in place that the business can thrive in that environment and so that they don't need to feel like they have to rush. They can run the search they want to run. And -- so no updates now. And I'm not sure necessarily there'll be updates in the near future. I think they're going to take their time.

Okay. No, they're very fortunate that they can take their time. All right. Thank you for the update, Mike.

Thank you for having me, Tieng-Tsin.