Marqeta, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Marketa third quarter 2023 earnings conference call. At this time, lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I'd now like to turn the call over to Stacey Feinerman, Vice President of Investor Relations. Thank you. You may begin.

Thanks, Operator. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements, including statements regarding anticipated future financial and operating results and future changes in or developments regarding accounting treatment, among others. These forward-looking statements are subject to numerous risks and uncertainties, including the risk that our accounting treatment may be subject to further changes or developments, as well as 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, 2022, 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 GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which are available on our investor relations website. A reconciliation of forward-looking non-GAAP guidance is not available without reasonable effort due to the challenges and impracticality with estimating some of the items, such as share-based compensation expense, depreciation and amortization expense, and payroll tax expense, the effect of which could be significant. Hosting today's call are Simon Kalaf, Marketa's CEO, and Mike Miletic, Marketa's Chief Financial Officer. With that, I'd like to turn the call over to Simon to begin.

Thank you, Stacey. And thank you, everyone, for joining our third quarter 2023 earnings call. We had a strong quarter. Our third quarter net revenue, gross profit, and operating expenses were all better than our expectations, resulting in an adjusted EBITDA of negative 2 million. Our results over the past few quarters have shown that we can scale the company while maintaining expense discipline. We're continuing to innovate and expand our solutions with the recent launch of our credit platform, as well as deepening our relationship with our customers and capturing new ones. This morning, we announced another expansion of our partnership with Block. And as we will discuss, we saw our business continue to build momentum, signing new embedded finance customers and expanding with our current customer base. Let me start with our financial performance. Total processing volume, or TPV, was $57 billion, an increase of 33% compared to the same quarter of 2022. This was the third consecutive quarter where our TPV exceeded $50 billion. Our net revenue of $109 million in the quarter contracted 43% year over year, including negative 60 percentage points from the accounting change related to Cash App. And our gross profit of $73 million contracted 9% versus Q3 2022, primarily due to the Cash App renewal pricing. Mike will discuss this in more detail later on the call. Our non-GAAP adjusted operating expenses were $75 million, a 20% decrease versus Q3 2022 due to our restructuring and cost-cutting initiative, resulting in a negative $2 million in adjusted EBITDA for the quarter. As we've done in the last few quarters, we continue to grow our business and enhance our platform while increasing efficiency. At the Money 2020 conference, we unveiled our new credit platform, which, much like our debit and prepaid offerings, offers a full-stack solution with issuer processing and program management. We believe that this puts us in a highly advantageous position, allowing us to offer a more modern credit product than legacy competitors and one with greater product breadth and scale than many modern competitors. There are multiple benefits to this type of end-to-end solution. Launching a credit card has historically been a complicated and cumbersome process. And our new platform means that our customers have a one-stop shop from design to launch and scale and can work directly with us rather than several different providers. This reduces complexity for our customers and speeds up the time to market significantly. Further, with our offering, customers can own and customize the experience and embed the card within their brand. Our ability to offer configurable and flexible solutions enables our customer to build highly differentiated programs with truly personalized rewards and spend controls. Instead of offering the same cookie cutter reward for every consumer, our customers can now personalize rewards to reflect individual needs. This helps them build credit cards that reimagine customer loyalty and engagement. Best of all, because the offering is truly embedded, the cardholder only interacts with a card program rather than being sent to a bank experience they're simply not familiar with. The initial interest in this product has been very promising, and we're deeply engaged with several prospects. While many equate credit with consumer co-brand offerings, which is undoubtedly a large portion of credit, we also see strong demand for commercial use cases. Commercial use cases can drive loyalty, customer engagement, and enable businesses to run more efficiently. Customers building commercial card programs can choose from flexible funding models for their cardholders, such as net 30 charge cards receivable purchase, and revolving credit to allow them to take control of their business financial health and access capital more efficiently. Following our renewal news last quarter, we continue to deepen our relationship across Block's ecosystem and are pleased to announce multiple updates to our long-standing relationship. First, we renewed our agreement for the Square Debit Card for five years to run through June 2028. Second, in parallel, we extended our deal with Cash App so that that deal also extends through June 2028. Finally, we agreed with Block that Marketa will be the default provider of issuing, processing, and related services in current or future markets outside of the U.S., where Block may decide to enter, and Marketo is able to provide issuing and processing services. We believe this extension demonstrates the value that Block sees in our platform, especially our ability to support dynamic use cases for both consumer and commercial card programs globally. In addition to these meaningful announcements, we continue to execute day in and day out, supporting new and existing customers with our ability to offer payment expertise, flexibility, control, and scale, which creates a meaningful differentiation between ourselves and others in the space. Last quarter, we highlighted how we were converting prospective customers that were starting to reach scale with other providers. In many instances, These were customers where we initially bid for their business, but they opted to work with another provider. This trend continued into the third quarter. One win we are excited about is an expense management platform focused on the marketing industry that initially looked at us two years ago before choosing another modern platform. They started to see product market fit and strong traction, and as a result, needed more service, which they were promised, but have yet to materialize. They also felt the spend controls in analytics were pretty basic, which did not work for a company whose business depended on providing their end customers with actionable analytics and insights. As a result, they reengaged with Marketa. In addition to access to better analytics and customer service, they found our solutions easier to utilize. As we will discuss during our investor day at the end of this week, the breadth and depth of our platform resonates with customers who are looking to provide multiple solutions rather than just point products. This is especially true when it comes to our program management offering. During the quarter, we signed a deal with a marketplace offering financial management tools. The customer approached Marketa about launching a demand deposit account tied to their debit card for their user base, offering cash back to help repay student debt. Marketa was the provider of choice given our money movement offering, our experience in modern card issuing, our superior service and the quality of our APIs. While the customer was initially interested in a powered by Marketa construct, they realized the benefits of using a managed by Marketa solution to ensure a successful program launch. As a result, the customer ultimately decided to use our program management capabilities and signed on for additional services such as dispute management and interactive voice response. another topic we will discuss at length during our investor day is the embedded finance opportunity and how the platform is uniquely positioned to benefit two examples of embedded finance deals we signed at the quarter are companies looking to use embedded finance to create a better customer experience and keep funds within the ecosystem one example is a logistics company that will have the ability to offer a Marketo virtual card with instant refund disbursement to encourage re-spending at their e-commerce partner's website when items are returned. Another e-commerce example is a company that provides software for contractors to manage supply, offering their vendors to be paid via a virtual card so that the payment comes in faster than checks or ACH. In addition to these new, exciting customers with differentiated use cases, we continue to innovate with our existing customer base. Marketa's early innovations in solutions, such as instant issuance, allowed us to be an early beneficiary in buy now, pay later, as our solution enabled significant merchant acceptance growth in the space. However, as offerings proliferated, major BNPL providers added new products to keep up with the changing needs of consumers and merchants alike. While our initial BNPL solution required a virtual card at the point of sale, providers wanted to extend their relationship with their end customers across all purchasing behaviors. As a result, many BNPL providers introduce pay-anywhere solutions for use across multiple merchants, giving consumers the option of paying in installment rather than a revolving balance. This new use case has shown tremendous growth, and the multiple programs we have that use this construct accounted for approximately 10% of our buy now, pay later volume. This is particularly remarkable as many of these programs have only been live for just a few quarters. Not only are these programs growing in popularity, but they also have better take rates than commercial virtual cards. This shift comes at a critical time from a competitive basis for Marketo. with instance issuance commoditizing as competitors are catching up to the technology we offered years ago. However, the shift to these new BMPL programs require the ability to offer a consumer card, which Markera is uniquely positioned to do as consumer offerings are increasingly more complex than commercial. As a result, we have maintained an advantage, or moat, in BNPL given the breadth of our platform. In summary, the addition of credits and our long-term relationship with Block positions us well as we reset the company in 2023 and look to build from a new strong baseline. In addition to these considerable accomplishments, we continue executing for our existing and new customers combined we expect these efforts will enable marketa to reignite steady growth in 2024 after we have lapped the cash app renewal i will pause there as we plan to discuss the opportunity ahead of us in great detail in just a few days at our investor day with that I'll turn it over to Mike for his prepared remarks.