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Operator
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Mark Ketter Third Quarter 2022 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Stacey Fineman, Vice President of Investor Relations, to begin. Please go ahead.
spk10
Thanks, Operator. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our investor relations website, including our annual report on Form 10-K for the period ended December 31st, 2021, and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the time of this call and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable gap measures can be found in today's earnings press release or earnings release supplemental materials, which are available on our investor relations website. Hosting today's call are Jason Gardner, Marketa's founder and CEO, and Mike Miletic, Marketa's chief financial officer. With that, I'd like to turn the call over to Jason to begin.
Jason Gardner
Thank you, Stacey. Good afternoon, everyone, and thank you for joining us for Marketo's third quarter of 2022 earnings call. I'll start with a brief overview of results for the quarter. Total processing volume, or TPV, was $42 billion in the quarter, representing a 54% year-over-year increase, continuing the rate of growth we saw in the first half of this year. Our TPV for the first nine months of 2022 was $120 billion, exceeding our TPV for the entire 2021 fiscal year of $111 billion. Our net revenue of $192 million in the quarter represents a 46 percent increase from the previous year. Growth was strong across multiple verticals and both are managed by and powered by Marketa customers. particularly in digital banking and expense management. Block accounted for 72.5% of our net revenue, up from 69% in the second quarter, as the Cash App card continues to grow active users and drive engagement on the platform. Specifically, the Cash App users that also have a Cash App card was 35% in the quarter, up from 31% at the end of the year. and a direct deposit inflows for $2 billion in September, up 65% year-over-year, which helps fuel card spending. These are both products that Marketo provides to cash out. As we look ahead at the many opportunities for Marketo, the trend toward embedded finance is undoubtedly one of the biggest. According to Bain Capital, the value of embedded finance transactions is expected to reach $7 trillion by 2026. Our leading cloud native, highly configurable API first platform is well positioned to power this trend. We enable our customers to create seamless and customized digital experiences for their users without the limitations and compromises that legacy financial platforms have imposed on innovators in the past. We can serve a wide range of companies looking to expand into financial services and existing financial institutions looking to increase customer engagement through innovation. Marketo has momentum, and we succeed by our ability to rapidly expand our platform's functionality to fuel continued growth. A testament to our strength in providing a flexible infrastructure for companies that look to offer embedded finance, is our recent partnership with One, the independent fintech startup backed by Walmart and Rivet Capital. One has chosen Marketta to enable the delivery of products that help customers get paid, spend, save, and grow their money. Specifically, we will start by powering their OneCard, and Marketta will look to support them as they expand to other products and services. Connecting payments with investing is an excellent use of embedded finance. We are doing exactly this as part of our work with Stash. Stash is focused on helping Americans invest, including small dollar amounts, to build long-term wealth. Marketta is supporting the company with their Stash Stock Back Debit MasterCard, enabling their customers to earn stock on almost every swipe of their debit card. The Stock Back Debit MasterCard built on the recently launched Stash Core is a proprietary infrastructure platform of which Marketa is a key piece, which enables Stash to unlock innovation in financial technology, including banking, and in the future, new capabilities in credit, savings, lending, and more. This launch will help Stash more easily welcome new customers and serve millions of everyday Americans who want to build long-term wealth. We also power the embedded finance evolution by enabling well-established financial institutions to offer their current customer base digitally enabled services to more effectively compete with new bank offerings. This quarter, we began our partnership with Raiffeisen Central Bank, a leading banking network operating throughout Europe, to help power their digital banking brand, Raiffeisen Digital Bank. The company's customers want a simple digital solution, so they turned to Marketa's global modern issuing card platform to enable Raiffeisen Digital Bank's customers to access their accounts across devices. We will initially roll out the solution in two countries, Poland and Romania. With our single-stack solution, Raiffeisen will enable to expand that rollout across Europe over time. We are pleased with our forward momentum to power new embedded finance customers and we have been offering many of these capabilities for quite some time. Our expertise and scale means our customers place significant trust in our platform to power their business. We expect these relationships to last many years into the future. In fact, this quarter, we renewed many key customers across different verticals, including Lydia in financial services and Klarna in the buy now, pay later, our BNPL space. We continue to build upon our market-leading position and our track record of innovating in the BNPL space, one of the earliest examples of embedded finance. We recently signed a deal with ScalaPay, Italy's first unicorn. The company is a leading BNPL provider in Southern Europe and sought Marketa's expertise to modernize and simplify their offering. Whereas previously, merchants had to be trained on how to use ScalaPay and customers had to set up a new profile on the spot. Marketa's solution will allow ScalaPay to seamlessly expand their network and allow customers to pay using a single-use virtual card. We also recently signed a Canadian expansion deal with Affirm, one of our long-standing customers. To maximize the opportunities in vetted finance, we've expanded our key banking services that our customers can use modularly. Marketa for Banking, a portfolio of banking products that represents a significant expansion of our platform capabilities. Marketa for Banking is a natural evolution from our modern card issuing platform as our customers and prospects look to provide a comprehensive package of innovative digital banking features and card offerings. Marketa for Banking provides our customers with a suite of bank account and money movement features offered through Marketa's bank partners, including demand deposit accounts, direct deposit with early pay, ACH cash loads, and fee-free ATMs, bill pay, and instant funding capabilities. These offerings are modular, meaning customers can choose the features that best support their businesses and easily fit those building blocks into their product offerings. Because our innovative products come built into our minor card issuing platform, they create a seamless user experience on our modern platform that operates at a significant scale. We will continue to release additional Marketo for Banking features and products in the future. Our MarioCard issuing products allow for fine-tuned control by enabling individual customer or transaction level decisions. We brought the same level of control to the early pay feature, which can give account holders access to certain payments up to two days earlier than the ACH settlement date. Marketas early pay feature provides our customers with a new level of control by deciding on a transaction by transaction basis on which deposits qualify for this benefit. The ability to leverage best-in-class modern card issuing and banking capabilities side-by-side is an attractive proposition for our customers looking to offer embedded finance. Using our modern card issuing platform alongside Marketo for Banking, our customer Coinbase, for example, can achieve a level of engagement that benefits every part of their business. By adding a card to the Coinbase platform, they can increase engagement. By adding a deposit account to their customer can easily fund, they can create a more comprehensive customer experience. International expansion is another big opportunity for Merketa, and we have experienced significant momentum in Europe in recent quarters. Many potential European customers have specific preferences concerning how data is handled. So we now offer data residency for our European customers, but restore the most sensitive elements of our customers' data on European data services. We can now meet the high data residency standards adopted by many European businesses. For example, this was key to our opportunity with Raiffeisen Bank. This ability also bodes well for future business prospects, creating a playbook for offering data residency in new geographies. We believe we are very well positioned to capitalize on embedded finance, We have been leaders in the embedded finance space for many years. We have numerous strong customer relationships in BNPL, Neobank, and expense management verticals. In addition, our Marketa for Banking launch gives us enhanced capabilities to support our customers looking to provide embedded finance. Therefore, investors should expect to hear more about this trend from Marketa in future announcements. With that, I will turn the call over to Mike for a deeper dive into our financials.
Stacey
Thank you, Jason. Good afternoon, everybody. Marketa continued to deliver very strong performance in Q3, with TPV growth of 54% and net revenue growth of 46%. TPV's eight-point growth premium versus net revenue was almost entirely driven by our Powered by Marketa customers. whose TPV continues to grow over 200 percent. The strong net revenue growth was broad-based, with 20 of our top 30 customers growing at least 40 percent in the quarter, but led by Cash App in particular, fueled by their strong active user growth. Our gross profit margin was 42 percent, while adjusted EBITDA margin was negative 7 percent. Our adjusted expenses included an unusually large charge tied to an international processing indemnification cost that negatively impacted our adjusted EBITDA margin by three percentage points. Net revenue was more than $10 million higher than we expected, mostly due to cash app outperformance, favorable mix within the on-demand delivery vertical, and stronger than anticipated powered by Marketo TPV. Gross profit was over $80 million and was about $2 million higher than we expected, fueled by the revenue upside. However, a change in our expected business mix resulted in our gross profit margin being more than one point lower than we expected, as the revenue outperformance did not translate proportionally to gross profit. Although Block drove 72.5% of our net revenue in the quarter, their share of our gross profit is more than 15 points lower than their share of net revenue. Adjusted EBITDA was also about 2 million better than we expected, driven by the gross profit upside. which combined with the stronger net revenue resulted in the adjusted EBITDA margin being more than one point better than expected. Q3 TPV was over $42 billion, growing 54%, which is in line with our growth rate in the first two quarters of the year. This consistent growth is a testament to our ability to grow at scale, as the year-over-year growth in TPV dollars has increased by about $1 billion each quarter this year, as we grow over a sequentially increasing base. In fact, In Q3, we had over 30 days where we processed over $500 million in volume compared to less than 20 days in Q2. Let me share a few TPV performance highlights by verticals. Growth in the financial services vertical accelerated more than 10 points from Q2, but it still grew a little slower than the overall company. Within this vertical, spend growth in less discretionary categories continued to significantly outpace growth in all other categories. On-demand delivery growth was similar to last quarter due to continued increases in consumer demand and our customers' expansion into new merchant categories. Lending, including buy now, pay later, grew strongly, although Q3 growth was a little slower than our overall TPV. Growth in this vertical slowed versus Q2 due to customers tightening their credit requirements, increasingly tougher comps from the previous year, and one customer migrating a portion of their volume within one of their programs. Expense management TPV nearly tripled year-over-year. The year-over-year increase in dollars was greater in Q3 than it was in Q2, but the rising comps last year did slow the growth rate in Q3 versus the prior quarter. Spending continued to be helped by the rebound in travel. Non-discretionary spend categories, such as supermarkets, drugstores, fuel and utilities, remained approximately one-third of TPV this quarter. More discretionary categories such as retail, travel, entertainment, and home improvement remained approximately one-sixth of our Q3 TPV and continued to grow more than 10 points faster than other categories. Net revenue was 192 million, growing 46% this quarter. Our net revenue take rate was one BIP lower than last quarter and three BIPs lower than Q3 2021, mostly due to the growth of our Powered by Marketo business, whose share of our total TPV increased two points versus last quarter, and has doubled since Q3 last year. As a reminder, in our Powered by Marketo business, we primarily have a processing relationship with our customer. Therefore, the net revenue take rate is lower than in our Managed by Marketo business, where we serve as the card program manager. Although the net revenue take rate is lower, the gross profit take rate is similar to several verticals in our Managed by Marketo business. Q3 gross profit was over $80 million, growing 36%. In Q3 last year, we finalized a key network contract, which resulted in a catch-up incentive payment. Without that payment, our gross profit growth would have been over four points higher this quarter. Gross margin was 42% on par with the Q2 margin and lower than the comparable quarter last year due to the timing of incentive payments and less favorable business mix. Q3 adjusted operating expenses were $94 million, growing 46%. As I noted earlier, this includes an unusually large item tied to international processing indemnification costs. This item contributed nine points to the growth of our Q3 adjusted operating expenses. Our expense growth has steadily slowed each quarter this year as we identify efficiencies and the incremental year-over-year investment required to fuel our growth shrinks as the base of resources within Marketa expands. We expect this to continue even as we invest in future growth opportunities. Excluding the unusually large item, roughly three-quarters of the adjusted expense growth continues to be directed toward technology and product resources and investment, focused on broadening our capabilities and increasing our platform's resiliency, reliability, and scalability. Q3 adjusted EBITDA was negative 14 million, resulting in an adjusted EBITDA margin of negative 7 percent. The indemnification cost included in adjusted EBITDA negatively impacted our margin by three points. Interest income was $7 million, triple the Q2 amount, driven by rising interest rates. The Q3 gap net loss was $53.5 million. Late in the quarter, on September 14th, our board of directors authorized a share repurchase program of up to $100 million. In Q3, we repurchased 1.96 million shares for $13.9 million at an average price of $7.05 per share. Now let's shift to our perspective on the fourth quarter. At the time we provided second half guidance back in August, we expected that the tailwinds that drove our first half upside would continue, albeit with tougher comparables, especially in the fourth quarter. We also surfaced our concerns that customers signed since mid-2021, as well as crypto customers, might ramp their businesses more slowly as they cut back on marketing dollars and investments and growth. For the most part, these expectations have proven true. However, in August we also highlighted that given that many of our customers are leaders within their verticals, it was possible our larger customers might thrive in this environment. For the most part, in Q3 that proved to be the case across each of our four major verticals, particularly financial services. Based on our performance in Q3 and October, we are increasing our expectations for Q4. We now expect Q4 net revenue growth to be between 29 and 31 percent. Remember last year there was a surge in holiday spending, particularly in BNPL, and the expense management vertical was ramping rapidly, which makes for a tough comp and not something we expect to repeat itself this year given the current macroeconomic environment. Q4 gross profit margin is expected to be 42 to 43 percent as our business mix shifts toward large customers who have better economics with us and the outsized growth of our financial services vertical, which carries a lower margin than other verticals. This is a several million dollar increase in our Q4 gross profit expectation since August. Year-over-year expense growth will continue to slow. Therefore, we now expect Q4 adjusted EBITDA margin to be negative 5 to 6%. The improvement in adjusted EBITDA expectations since August is driven by higher gross profit, as well as lower expenses due to realized efficiencies and targeted hiring. Our expectations for the full year 2022 have improved significantly as a result of our outperformance in Q3 and our raised expectations in Q4. We now expect 2022 net revenue growth to be 44 to 45, 44 and a half percent, Gross profit margin to be 42.5 to 43 percent, and adjusted EBITDA margin is expected to be negative 6 to 6.5 percent. The opportunities for Marketo to power the embedded finance evolution for both disruptors and incumbents in the U.S., Europe, and beyond are immense. As we move into the last quarter of 2022, Marketo is on a great trajectory as we continue to diversify and scale the business. TPV in the first nine months of the year has already surpassed our total volume in 2021, growing over 50% each quarter in 22. Our net revenue and take rate remains steady this year as we continue to add value for our customers with highly configurable platform with expanded capabilities and robust program management solutions. Gross profit margins remain right in the middle of our stated long-term range of 40 to 45%, reflecting our operating leverage as we expand. We continue to invest thoughtfully and with discipline in new capabilities and resiliency while finding efficiencies as the business scales, which reflects our commitment to improving our adjusted EBITDA margin as we grow and ultimately achieve our long-term target of over 20%. I will now turn it back over to the operator for questions.
Operator
Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we request you to restrict to one question per participant. One moment, please, while we poll for questions. Our first question comes from the line of Tian Singh Hung from J.P. Morgan. Please go ahead.
DeNova
Thank you so much. Thanks for going through all the detail. I actually wanted to ask on Marketa for banking, if you don't mind, Jason. Just curious how ready that is. for commercial applications? Are you primarily going to pursue de novo opportunities, or is there an opportunity to work with existing players there? Just trying to get a better sense of how quickly that can ramp up.
Jason Gardner
Hey, Tenjin. Thanks for the question. So, it's both. Marchetti for Banking really just simply represents a natural expansion of modern card issuing, and we believe companies to some degree will be financial services companies. I've said that many times in the past, and that's actually what embedded finance is. And these are large companies such as retail tech companies, and they'll want one integrated platform with card issuing as a way to monetize as well as other services to provide stickiness and engagement. And so we approach these products and features in a very market away, which is modular nature. Customers get to pick and choose the building blocks, what they need for their business, And again, this is an extension of our modern card issuing platform. So whether it's ACH or DDAs to facilitate spending on a card, that basically drives funding onto the card. And then we obviously generate interchange as part of those cards being used. So you take modern card issuing, you marry that with banking as a service, allows for this sort of fine-tuned control at a transaction level. And then we've added extra features in there like early pay, which give account holders access to their payroll up to two days earlier. And all of this can be designed on a transaction by transaction basis, which deposits qualify for this benefit. And a lot of times you see these programs where it's just at a program level. So now we can get down to specifically the user. So we're far from done in the additional list of features and functions we plan to provide. Like we're continually building, so you're going to hear a lot more about this. And then we would also look to acquire potentially a banking as a service functionality if we find it the right fit both, you know, opportunistic and strategic. But I can turn it over to Mikey. Is there anything to add?
Stacey
Yeah, I think just from a financial perspective, you know, right now these capabilities are really done with the aim to increase card spend and support our customers. We look at this as really a great incremental business to our current business. So, you know, the goal is really to increase our win rate with customers by providing this holistic solution from us rather than our customer having to use multiple providers. But that said, even the small amounts that we may make today that will be growing over time as more customers adopt this, that will be highly accretive with these capabilities once they're built. So just a little bit more revenue on the same transaction or the same volume with a very low marginal cost. So as it does expand over time, we expect it to be very helpful financially.
DeNova
If you don't mind me just clarifying with a quick follow-up, with one, which is a nice win, on the card side, I suppose there could be opportunity then to promote inflows and other types of cash movement, there could be an opportunity to expand that and obviously generate better outcomes for the one card. Is that one way to think about it as an example?
Jason Gardner
Yeah, that's definitely a way to think about it. So the way our customers work, obviously, if they're DeNova products, they get them up and running, they learn about their customer base and the features and functions that they need because they're already integrated into the platform. We talk a lot about how you integrate once into Marketo, you can launch in every geography that we're operating in, and then you can actually create the features they will add those features over time so that they can better not only drive engagement for their customers or their users, but obviously drive revenue for their business.
DeNova
Great. Thank you so much.
Operator
Thank you. Our next question comes from the line of Darren Pellow from Wolf Research. Please go ahead.
Darren Pellow
Hey, guys. It's great to see these results. Can we just touch on, you know, outside of Block, the other verticals, seems like you have pretty good strength continuing in areas like expense management and certainly in areas like on-demand delivery even still, despite the size and the comps. And so maybe just touch on a little more of what you're seeing there, and we can get into a little more detail. You guys have done a great job being vertical-centric and really differentiating on an industry basis to the wind business. Are you seeing anything change on that front competitively in that or anything else?
Stacey
Thanks, guys. Yeah, thanks, Darren. No, we're not seeing anything change. I mean, things are actually, you know, very stable. You know, like an on-demand delivery, I'll start there. You know, that is our most mature vertical. The growth was very consistent with last quarter. And as I mentioned in my remarks, what we're really seeing fueling the growth is our customers expanding into new areas. So, yeah. It's almost like they're increasing their acceptance, if you will, particularly in drugstores, convenience stores, retail, which has really helped improve engagement. And then on top of that, from a revenue perspective, it outperformed because we had a favorable business mix that improved the interchange relative to the customer revenue share. If you think about all the different factors that can influence interchange, You know, the way the mix of spending happened this quarter, it was sort of accretive to our revenue versus the volume growth. You know, on the expense management side, it's, you know, that area of the business is just growing incredibly, incredibly fast. So it's now, you know, in the mid-teens of our TPV. As I mentioned, it's double the share from last year. And we have six customers who have TPV over 100 million. So it's just an area that's growing very fast as businesses look to get more efficient, and they want their employees also to have a little bit of a more user-friendly and flexible experience. And that's really what's fueling our success there.
Darren Pellow
Okay. No signs of change, it sounds like? No. That's great to hear.
Stacey
In fact, like, so as I mentioned to Dan, just to reiterate our expense management growth in dollars, our TPV growth in dollars was actually even more than it was in Q2. So the it's accelerating in terms of the spend on a year over year basis, but because the, you know, the year over year comparison is also, you know, growing really fast, the growth is coming down, but it's still, you know, again, almost tripled versus last year.
Darren Pellow
Yeah, it's really great.
Stacey
Thanks, Mike.
Operator
Thank you. Our next question comes from the line of Timothy Chiodo from Credit Suisse. Please go ahead.
Timothy Chiodo
Great. Thank you for taking the question. You sort of alluded to this a little bit earlier, Mike, but I want to dig into it. If we could get maybe just a range. I know it'll be hard to put an absolute number on it. It's early stages, and there'll be sort of a range of products. But generally speaking, it sounds like market upper banking will be a higher gross margin in terms of gross profit as a percentage of revenue. it'll be a higher gross margin business for you. Could you just put some directional numbers around that compared to current total company gross margins, how much higher this could be, or maybe even just talk about it sort of as a percentage of volume and how it might compare to the current core business, which is clearly much more tied to interchange?
Stacey
Yeah, so you're right. We expect it to be significantly higher margin than our current business. A lot of these services might be charged on a per user basis or a per transaction basis. So it really is just incremental revenue and potentially cost of revenue for the existing transactions and volume we're getting already. And so we do expect this to be, and even in the cases where we provide it today, we have some customers using some of these services. it is a much higher gross margin. So it won't necessarily be a huge revenue growth driver directly. As I sort of reiterated earlier, I think it's much more about making our overall value proposition much more compelling and improving our win rate. But in terms of within that incremental revenue we get, it does come at a much higher margin, and therefore it's very beneficial for us on the bottom line.
Timothy Chiodo
Excellent. Thank you, Mike. And then the brief follow-up also on Mark Editor for Banking. Safe to say that the closest competitor to this offering would be along the lines of services that are offered by Galileo. It would be similar to some of the offerings within Fiserv and FIS or maybe just others that you could just mention that could maybe just contextualize what this looks like and if those are reasonable competitors to think about amongst others.
Jason Gardner
Yeah, those are reasonable competitors. If you think about, I mean, we're all in... the business of global money movement, and global money movement for Marketo began with modern card issuing, and obviously we consider ourselves certainly the leader in that. We created that category and have obviously done really well in it over time. What we find is that our customers want to move money in many different ways, and we create it in a very Marketo way, which is the native APIs are created. We obviously added credit to that. We've talked about that a lot lately. And a number of different companies have created this, like the ones that you've mentioned. There's probably more out there as well. But we look at it from a position of how Marketo works with our customers. You know, the ability to natively integrate with these APIs into the platform once, launch in many geographies, many other ways to move money sort of certainly outside of the United States will be coming. So our strategy and how we approach the market, whether prospects, or making our customers even more successful is how we differentiate ourselves from other competitors.
Timothy Chiodo
Thank you, Jason and Mike. Appreciate both of those. You're welcome.
Operator
Thank you. Our next question comes from the line of Ramsey Elasil from Barclays. Please go ahead.
Ramsey Elasil
Hi. Thanks for taking my question this evening. I wanted to actually follow up on Tim's question. And just again on Marketa for banking, ask how the sales pipeline is developing and more specifically, if you could comment on the cross-sell opportunities and whether the genesis of the offering was sort of meeting a demand that you're seeing in your existing customer base or more sort of a product suite that you think might meet an unmet need in the sort of external marketplace.
Jason Gardner
Yeah, so we have a number of announcements to make in the coming quarters. We recently announced, certainly today, was the deals with One. We've also talked about Uber and the card there. We have addition recent renewals like Lydia. We've talked about Klarna. There's more to come on that front. Exciting deals in the pipeline for credit, especially in international. We talked about our growth within the EU. And we also talked, we haven't mentioned, was discussions with large FIs. Obviously, those sales cycles take long, but as we talked about with the Raiffeisen Bank, we're getting to many other parts of that. So if we think about embedded finance, it's exciting because we believe many companies are going to become financial services companies, and that financial services that are in those companies is essentially embedded finance, or what we call marketer for banking. So again, our strategy has always been platform-centric. And then the modularity of that, the ability to add lots of different features and functions that a customer can pull off the shelf, integrate quickly, and obviously create a better experience for their customers. So we believe in this and have believed it for a long time. We think embedded finance was something we've certainly been around or have worked in for some time. You know, whether we're supporting someone's core business with a card or we are their core business for the card. And again, this is just expanding our features and functions around global money movement to make sure that we're capturing many opportunities to move money around the world and specifically move money into cars where our customer generates revenue from interchange. And obviously we've talked about in the past year, which is their success is our success. So we're just excited about how do we create a great strategy around the stickiness of our platform and their ability to succeed.
Stacey
Yeah, I think, Ramsey, one thing we want to try to get in front of is if a customer says, look, we have a very differentiated card issuing capability, but I really would rather use one platform, so maybe I'm willing to sacrifice a little functionality on the card side because I want some of these other banking-like services. And so what we really want to do is take that off the table and say, well, we can provide a holistic solution for you And while we're building those, we are building things that are very Marketo-like in terms of their flexibility and configurability, but also then you can get our world-class card processing capabilities in a bundle.
Ramsey Elasil
Got it. Thanks so much. Appreciate it.
Operator
Thank you. Our next question comes from the line of James Fawcett from Morgan Stanley. Please go ahead.
James Fawcett
Thank you very much. I wanted to follow up a little bit on the competition question, but, you know, clearly you have your biggest customer that you'd like to renew when you can. I'm just wondering if you can get an update on that and kind of what you're seeing from the internal efforts, both from them as well as other customers and potential customers, thinking about those as potential competitors. And if anything is changing in the landscape or what you need to do versus internally developed solutions.
Jason Gardner
Yeah, so we'll start with Block. And as we talked about in the past, you know, we have 18 months, I think at this point, still left on the agreement. We'll share something as soon as possible. When Block decides they want to go build something new, they build it with us. We obviously enjoy that. We invest an incredible amount into our platform, both in tech and product, that our customers like Block benefit. So when there's more to share with that, we'll definitely share it. And then around the competition piece, you know, our strategy has been working really well. And I think as we've seen as of late where the economy is beginning to change, Being the market leader, as Mike had mentioned, part of our strategy is to not only land and expand within verticals, but really target the top companies in that space. And we've done really well with that strategy, which is in the past, we've talked about starting with commerce disruptors, moving into digital banks, moving into tech giants, and then moving into large financial institutions. We see different types of, obviously, competitors. We see one's know like the thesis of the world that operate with large financial institutions we see smaller players that maybe upstarts from the last two to three years that are really just starting to get traction but we feel like our strategy has worked really well we continue to execute against that we can either land and expand not only uh large opportunities like one because we built the trust within the market but then again whether it's embedded finance or market for banking We're finding that our customers don't want to go to other vendors to get technology. They want to stick with us and use the other pieces that we have, like the DDA accounts or the ACH feature. So, obviously, we continue to renew our customers. We continue to land new customers, and we will continue that strategy as time goes on.
James Fawcett
Thanks, Patrick.
Operator
Thank you. Our next question comes from the line of Ashwin from Citi. Please go ahead.
Marketo
Thank you and congratulations on the good quarter. I was hoping you could kind of go back to the sort of the region outlook and kind of walk through the factors, maybe, is it possible to size or rank order them?
Stacey
Sorry, Ashwin, can you size and rank order what about our outlook?
Marketo
The factors that led to the change in the outlook. Oh, yeah, sure.
Stacey
Yeah, so yeah, there's a few things. So one is that Last quarter, one of the key things we said, we thought newer customers of ours who were ramping, and then particularly everything that's going on in the crypto space, that those customers just may not invest behind those programs nearly as aggressively as they may have planned to do in the beginning of 2022. And that largely did play out. But what we also speculated was it could be that the bigger players who have scale already would then step in and capitalize on the fact that there maybe wasn't as much competition in the market as they had grown accustomed to over the last 12, 18 months. And so a lot of it was just performance, strong performance by our largest customers. Block being, of course, doing incredibly well. But just generally speaking, that's what we're seeing. And so as we looked at that performance in Q3, we're really then thinking, just translating that to Q4, the only difference from a growth perspective is just the incredible holiday season that we had last year. If you look at the kind of growth that we saw just across the economy and retail spending, and particularly in BNPL, that's just not something we feel will replicate again. And so the growth rate is coming down, but that's not necessarily representative of the kind of performance that we expect to see, just because we are kind of a, you know, lapping, you know, at least once in a decade, like, you know, holiday season that we had last year.
Marketo
Got it. So largely, you're just basically taking the factors that help the queue into full queue, and that's really what it seems like, right? That's right. Yeah, the second question was the, you know, if we have a downturn, Would you expect vastly different trends in sort of powered by versus managed by? Is there a macro preference element to how clients view those options?
Jason Gardner
Well, so we power a wide range of business models across both consumer and commercial. And as we've talked about, our net revenue isn't overly indexed into discretionary spending. Roughly a sixth of the volume on our platform is for highly discretionary items. These are things like large electronics, our travel home improvement. But people still need to spend money on things like groceries, gas, and other essentials. So our volume growth is largely driven by customers displacing other forms of payment. And in some cases, changes to the way people pay was accelerated by the pandemic. It may decelerate because of the potential recension or some say we're in a recession now. But, you know, there's expense management and corporate cards. There's neobanks and consumers. There's buy now, pay later versus other forms of revolving credit. So we don't know what to expect, but we feel like we're not kind of overly indexed on one versus the other.
Stacey
And I think specifically, Ashwin, in terms of the power buy versus managed buy dynamics, you know, we add incredible sort of turnkey solutions that are managed by offering for customers that they value. And because we're doing it at scale, I think a lot of customers, you know, just look at and say that the cost, the amount of investment I would need to make to have those capabilities at the level of service that Marketo provides, you know, that's actually a good price, right? It would be more expensive for me to do that investment. So just because the, you know, the economy may be shifting, we don't necessarily think that, you know, gets customers thinking more about a powered by. structure because that would require significant investment and know-how for them to put in place versus the solution we can deliver at scale.
Marketo
Thank you.
Operator
Thank you. Our next question comes from the line of Reyna Kumar from UBS. Please go ahead.
Reyna Kumar
Good afternoon. Thanks for all of the helpful details on your call. Just any thoughts on when we can hear an update on your contract with Block, and could you discuss how your conversations are progressing at this point? Thank you.
Jason Gardner
Yeah, I mean, thanks, Raina. So we talk to Block every day. We obviously power a lot of products across the portfolio, both in Cash App, Square Card, on the merchant side. So, there's a lot of conversations we have on a regular basis, and they certainly have adopted a lot of our platform, not only across card issuing and processing, but also across embedded banking and market for banking. So, as I mentioned, it's about 18 months from the renewal, about April 2024, I believe, is the time the contract is up. And again, I'm not going to comment on the discussions regarding the renewal. And as soon as we have an update, we will absolutely be talking about it.
Stacey
We won't hold out on you, we promise. Yep, we promise.
Reyna Kumar
Got it. Thank you. Appreciate all the details.
Stacey
Yep.
Operator
Thank you. Our next question comes from the line of Josh Beck from KeyBank. Please go ahead.
Josh Beck
Thanks for taking the question. I wanted to ask just about the level of visibility that you have at this point looking forward into next year. Obviously, a lot of your growth, I believe, in any given year is from existing customers, and it seems like you've dialed in, certainly, the growth rates within some of the verticals, and obviously, you have a pretty good handle on expansion plans at a customer level. Curious on how you would characterize just the visibility. Obviously, the macros is an uncertainty for everybody. And then just with respect to the kind of embedded Q4 OpEx levels, how we should think about that as a jumping point for investment plans in future years would be super helpful.
Stacey
Devin, I think in terms of your first question, I think we're in very regular dialogue with our customers about what they're thinking because for many of them, we really are the goal aspect of the service they're providing or how they monetize their service. And so we're in quite regular dialogue with them about how are they thinking about things, how are they managing their own business, and what are the implications for us. I would say we have fairly good visibility in that sense. However, as you know, right now in this environment, it's very unclear, right, about what things might be like in three to six months. So we can get their perspective on how they're doing their business planning, but they, you know, pretty consistently say, you know, we'll see, right, and we're going to try to remain as nimble as possible. So, you know, we certainly are aligned with our customers, but, you know, that doesn't mean, you know, we have a crystal ball. In terms of, you know, the OPEX or the expense levels for Q4 and what that means for next year, you know, there's a couple of things that impact our expenses in Q4. So one is, you know, just, I guess, two weeks ago now, we were at Money 2020. That's a big event for us that, you know, drives a lot of pipeline conversations, gets us engaged with a lot of new prospects. And so You know, that's a, you know, we all spend a ton on, on marketing, but that's, you know, one of our major items. And so that's something that happened in Q4. We also, you know, as our volumes go up just seasonally with the holiday season, you know, we do have a number of expenses that go up just related to our, you know, our, you know, cloud costs and some of our other kind of data and platform tools that are more variable in nature. So as the transaction, uh you know crowns pick up then you know we will have some additional costs and and then we still are hiring um you know in particularly in very selective ways for our key growth areas and so you know we are going to have um you know a decent jumping off point for for next year and you know our plan is to be fairly cautious as we proceed from an investment front into 2023 at least initially because of the level of uncertainty, and then we'll try to make adjustments as we go through the year once it's a little more clear what might happen from an economic perspective.
Josh Beck
Very helpful context. Thanks, Mike.
Operator
Thank you. Our next question comes from the line of Mike Ink from Goldman Sachs. Please go ahead.
Mike Ink
Hey, good afternoon. Thank you for the question. I just have two. First, I was just wondering if you could give us a little bit of color around TPV performance in the quarter by any top customer cohorts, whether that's top 5, 10, or 20. And then second, just on the fourth quarter TPV outlook, is there anything you could talk about as it relates to industry vertical performance you know, what may be accelerating or decelerating and, you know, perhaps you can remind us if there are any notable tough comps or anything like that that we should be aware of. Thank you very much.
Stacey
Yeah, sure. So in terms of performance, I would say, you know, by cohort, I would say our top five customers, our non-top five customers are still growing at a premium. um to our top five customers although it's maybe the gap isn't quite as big as it's been in quarters past as i said what we're seeing is you know some smaller customers are maybe investing a little less and some of the larger customers are capitalizing on that so that gap has has closed a little bit but our non-top five customers are still growing faster Um, another way to look at it is another way we look at it as our new customers and how they're ramping. And if we, you know, look at our customers that, uh, you know, we signed in 2019 or later, so we've only been on the platform a couple of years. They are growing about four times faster than customers who have been on the platform for longer. Um, and that growth is well over a hundred percent. So we still have a lot of, uh, newer customers on the platform growing quite quite quickly, and that's obviously helping to sustain our growth, even as I mentioned on the call, even though our base keeps getting bigger and bigger, we've been able to sustain that TPV growth. In terms of on a vertical basis for Q4, there are really two areas, or three actually, of our verticals that have a significant lapping. I would say the one that really doesn't is the on-demand delivery. That has been a more mature business for us in this time. know not huge differences in growth expected um but bmpl certainly uh has a very tough comp i mean the i think we you know we've said last year our q4 bmpl volume was bigger than our whole first half of 2021 volume so the the pickup was incredible and and so that has a very tough comp the another one is just because of the strong holiday season you know, some of our customers and financial services who support more everyday spending also saw a big acceleration in their growth. And so, again, our point of view, I guess, is that, you know, this is unlikely to be as strong as the holiday season we had last year. And so if you just even look at, you know, consumer confidence and sentiment, and so, you know, that also will have a tough comp. And then finally, on expense management, that was a relatively new vertical for us in 2021. And so the the growth was incredible and it was growing, you know, literally several hundred percentage points. And so, you know, that growth is also coming down. But as I said, even in Q3, it's still growing, you know, the business still like tripled you over a year. So the growth is still going to be very healthy, but not, you know, not four or five X like we've seen in previous quarters.
Mike Ink
Excellent. Thank you for all that detail. That's very helpful.
Stacey
Yep.
Operator
Thank you. Our next question comes from the line of Andrew Balch from SMBC, Nikko Securities. Please go ahead.
Andrew Balch
Thanks for the time. I wanted to touch upon the adjusted EBITDA margin performance in the quarter. Mike, you called out some targeted hiring and various efficiencies. Just trying to get a sense of some of the headlines we've seen around Silicon Valley is presenting a more favorable you know, hiring environment for you today than perhaps you were, you're operating in just say, you know, six to nine months ago and how that can kind of translate.
Stacey
Yeah, there's no doubt that that's something we, you know, we think will be beneficial to us. I think if you, we, I think we've talked about this before, you know, one of the, I think big advantages we've had this year is actually back in kind of late, late February, early March, We adjusted our plan. So even only a couple of months in to the year, we changed our plans because you could see some of the macro warning signs at that time. And we decided to proceed with caution. And so I think maybe where we've benefited is we dialed things back, our plans already early in the year. And there may be other tech and fintech companies that you're hearing now doing layoffs that maybe kind of kept their foot on the gas. for the first half of the year and then are now realizing that maybe was a mistake. So we did get in front of it and we are hiring. I would say, you're right, certainly the level of competition for key talent is on the decline. And with some of the layoffs that are getting announced, it seems like there's a few a week now for major tech companies. That is something that we're hoping to, to take advantage and capitalize on that by being able to bring in some, you know, super talented people that maybe were, would have been very difficult to get just, you know, six to 12 months ago.
Andrew Balch
Yeah, I mean, at the minimum, you know, throw a governor on compensation growth in the near to medium term.
Stacey
Agree. And I think also, you know, what we would expect to see is, which is quite helpful, is a lower attrition. You know, we, Obviously, a lot of people like to hire. We've got a lot of very talented people here who have been a big part of the innovation that we've achieved over the last few years. And so there's a lot of competitors who would like that know-how and that experience. And so that's also something we expect to be a huge benefit. If we can better retain our key talent, that will certainly help us in 2023.
Andrew Balch
That's great. Appreciate the additional color.
Operator
Thank you. Our next question comes from the line of Bob Napoli from William Blair. Please go ahead.
Bob Napoli
Great. Thank you. Good afternoon, Jason, Mike, team. Nice numbers. Jason, I was wondering if you could give an update on your search, I guess, for permanent CEO. It seems like you're pretty engaged still at this point. And then just any thoughts on your credit platform, is that an area we're likely to see an acquisition? Thank you.
Jason Gardner
Yeah, thank you. I am very engaged on a day-by-day business. I love this company. I've been running it for over 12 years. And in regards to the CEO search, so we've met a lot of different candidates over the past few months. I've certainly been working close with the board and the executive team to meet a broad base of candidates from lots of different backgrounds. and you know i'm really searching again for someone to the next ceo to lead the company from one to infinity you know i've led it from zero to one and and i certainly understand like the market wants me to move quickly but we want to hire the best person and we will do that at uh at some point so regarding the search i'll have something to share uh when we have it um regarding credit so so absolutely um we are looking at a number of different companies in the credit space. We think this is definitely the future of Merketa as we've been investing it pretty significantly. We started the journey in credit about four years ago. We now see customers up and running and using it like green light. We're excited about that partnership and their ability to succeed. We see this more and more. And there's been a lot of companies that have been started really over the last probably four to five years. So we have been looking at a lot of different businesses in regards to, you know, What's the best talent? What's the best platform? How does it fit within our values and how we build software and technology and making sure that's a good DNA fit with our value and our quality and our people? So more to announce, but I think we have a lot of different options right now in the market that we're taking a look at. And as soon as we have something that we want to zero in on and if we can find a successful path forward, we'll certainly announce it.
Bob Napoli
Thank you, Jason.
Operator
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the conference to Jason Gardner, founder and CEO, for closing comments.
Jason Gardner
Well, thank you, everyone, for joining us for Marketa's third quarter of 2022 earnings call. Have a great rest of the year. Happy holidays and look forward to speaking with you all in 2023. Take care. Thank you.
Operator
Thank you. The conference of Marketa Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
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