Marqeta, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Marketer 4th Quarter 2023 Earnings Conference Call. At this time, lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Stacey Feinerman, Vice President of Investor Relations. Thank you, and you may begin.

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 31, 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 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 Simon Kulof, Marketas CEO, and Mike Miletic, Marketas Chief Financial Officer. With that, I'd like to turn over the call to Simon to begin.

Thank you, Stacey and everyone. for joining us for Marketa's fourth quarter 2023 earnings call. Last fiscal year was a transformative year for Marketa, and I'm excited about the foundation laid for the future of our company. I'll briefly touch on our results for the fourth quarter and full year 23 before sharing exciting developments at Marketa. The last time we spoke was after we released our investor day materials, which detailed the changes we made throughout 2023 and the opportunity ahead of us in 2024 and beyond. This most recent quarter demonstrates the focused effort made during 2023 is starting to pay off and has set Marketa on a new trajectory. This path will lead to sustainable growth, profitability, innovation, and a great ability to capitalize on the fast-growing embedded finance market. Total processing volume, or TPT, in the quarter was $62 billion, an increase of 33% compared to the same quarter of 2022. Our net revenue of $119 million in the quarter contracted 42% year-over-year, which included a decrease of 59 percentage points from the revenue presentation change related to our cash app contract renewal. Our gross profit of 83 million contracted by 4% versus Q4 2022, primarily due to the cash app renewal pricing. Our gross margin for the fourth quarter was 70%. Our non-GAAP adjusted operating expenses were 80 million, a 16% decrease versus Q4 2022 due to our restructuring, operational efficiencies, and delayed investments, resulting in a positive adjusted EBITDA of $3 million in the quarter. On a full year basis, TPV was $222 billion, an increase of 34% compared to the previous year. The full year net revenue was $676 million, representing a 10% contraction from the previous year. This includes a 31 percentage point decline related to the revenue presentation change resulting from the Cash App renewal. Gross profit for the full year was $330 million, a 3% increase compared to 2022. Gross profit was negatively impacted primarily by several renewals, particularly Cash App, and changes in our Visa incentives at the start of the year. I'm thrilled with these financial results and thankful to all Marketans who have made this possible. Outside our pure financial performance, we've delivered on product innovation, sales growth, and operational efficiencies. In 2023, we greatly enhanced our credit platform. We added credit program management capabilities with the acquisition of power and quickly executed the integration to launch a unified modern credit offering. The two commercial deals we recently signed are characterized by their ability to bring an embedded experience to their end customers, made possible by Marketas flexible platform. The first deal we signed was with International Travel Solutions or ITS, ITS is a successful travel management company with a substantial customer base. ITS plans to use the Marketa credit platform to build an unsecured credit card for its end users. ITS chose us because of our established reputation in modern card issuing, not to mention our ability to offer solutions with a significant amount of customization and control, which is critical to travel management. With our partnership, ITS can launch and innovate faster to meet the ever-changing demands of its travel partners. Additionally, ITS can personalize its offering to its partners, allowing them to run their business more effectively by providing more robust controls over their travel expenses. For example, ITS expects to enable carbon impact tracking to help partners make conscious decisions and provide dynamic rewards to enable more customized incentives. We also signed another commercial credit deal, albeit for a very different use case. AffiniPay, a leader in online payment and software solutions for professionals, will partner with Marketo to launch its planned LawPay Visa credit card embedded within the MyCase platform. the first comprehensive solution in the industry that helps law firms pay, track, and manage firm and client expenses. AffiniPay selected us because of our trusted platform for building card program management at scale that are dynamic, flexible, and tailored to customer needs. By partnering with Marketo, my case smart spend users will have a comprehensive, easy-to-use platform that gives them access to real-time card issuing, transaction data, and spend controls to their credit card offering. This helps cardholders stay on top of business expenses and access capital easily, all from a single dashboard. Smart spend will be rolled out to other Affinity Pay products, KSphere and LawPay, in the end of 2024 and beginning 2025. Let me talk about the progress we made in our go-to-market approach. As we've previously discussed, we have overhauled our go-to-market operations to better capitalize on the embedded finance opportunities. These changes included reorganizing the sales force, realigning our compensation structure, and shifting the focus of the sales organization more towards full solution selling such as accelerated wage access, SMB credit, as well as co-brands. These changes resulted in bookings growth of over 50% in 2023 compared to 2022. Specifically, in the fourth quarter, we capture another solid slate of bookings, generally in line with the makeup of what we saw during the year. Expansion deals with existing customers came in at approximately 60% of total bookings. Although most bookings came from North America, 20% of the deals came from Europe and predominantly from net new customers, which bodes well for the future of that geography for Marketo. Like previous quarters, we also won multiple deals through flipping volumes from our competitors as customers sought out Marketas' proven scale, flexibility, and expertise in modern card issuing, which was lacking through their current provider. In addition to growing our bookings, we also made great strides in accelerating the time to launch for new programs signed to convert these bookings into revenue and gross profits faster. On average, the time between close and launch in Q4 of this year was about 100 days better than the previous year. This was achieved without adding significant resources by focusing on solutions architecture and using pre-configured card constructs. In other words, while we design innovative solutions for our customers, we also rely on our expertise to create a plan that will be approved by other members of the payment ecosystem, such as banks and networks. Moving back to product, another area where we invested in 2023 was our reliability and continued ability to scale. The results from this investment can be seen in our transaction success rate metrics for the 2023 holiday season, which increased by three basis points. This is remarkable when one considers that on our peak day in 2023, our platform saw over 40 million authorizations, up 66% compared to the peak day in 2022. This improvement occurred simultaneously with efficiency initiatives that right-sized our technology spending, but also increased investment on multi-region authorization projects. demonstrating that we are focusing on the right efforts when considering the reliability of our platform. In summary, in 2023, we focused on building the solid foundation for a growing and profitable business in the long run. We went broad, building out our platform and reorienting our sales teams to our proven and winning solutions. In 2024, We plan to accelerate what we started and return to strong revenue and gross profit growth as we bring to life new and exciting solutions with our FinTech customers and prospective embedded finance customers. Our ability to offer credit, debit, banking, and risk solutions at scale positions us well to unlock the massive embedded finance opportunity that's ahead of us. we've only just begun to execute over the strong foundation we have built. With that, I'll turn it over to Mike for a more detailed look at our results for the quarter, the full year, and financial outlook for 2024.

Thank you, Simon, and good afternoon, everyone. As expected and consistent with last quarter, net revenue and gross profit contracted due to the cash-out renewal, with the majority of the renewal impact on revenue resulting from the revenue presentation change. Q4 was a strong finish to the year with TPV growth of 33 percent and better than expected results for net revenue, gross profit, and expense, driving positive adjusted EBITDA. Net revenue and gross profit outperformed due to stronger than expected TPV growth, particularly in BNPL, on-demand delivery, and accelerated wage access, as well as higher network incentives. Continued execution of efficiency initiatives, such as streamlining technology spend as well as delays in planned investments, coupled with higher gross profit, led to $3 million of adjusted EBITDA on the quarter. I will share the Q4 highlights before spending more time detailing our expectations for 2024. Q4 TPV was $62 billion, growing 33% for the third straight quarter. Non-block TPV grew approximately 10 points faster than block growth. The financial services vertical continues to grow a little faster than the overall company, helped by the rapid ramping of accelerated wage access TPV, which now contributes about 3% of total company TPV. Lending, including buy now, pay later, grew several points faster than the overall company due to a strong holiday season and the continued adoption of our BNPL customers pay anywhere card solutions. On-demand delivery continues to grow in the double digits due to consumer adoption of new services and merchant segments, as well as geographic expansion. Expense management growth re-accelerated this quarter, but is growing a little slower than the overall company as this vertical matures. Q4 net revenue was $119 million, a contraction of 42% year-over-year. The key drivers of our net revenue growth are as follows. The most significant impact was the 59-point growth headwind related solely to the revenue presentation change resulting from the Cash App renewal. As we've described previously, this change in revenue presentation is related to the cost associated with Cash App's primary payment network volume. Previously, the bank and network fees associated with the primary network volume were included in net revenue and cost of revenue. Starting in Q3 2023, these costs are netted against revenue. There is an additional 10 percentage point decline in net revenue growth due to the Cash App renewal pricing. Non-block revenue growth accelerated by more than five points as we begin to lap prior year renewals and newer, faster growing solutions such as BNPL, Pay Anywhere cards, and accelerated wage access increase in their contribution. Block net revenue concentration was 51% in Q4, increasing one point from Q3 due to seasonality. Our net revenue take rate remains unchanged from last quarter at 19 bps. Excluding Cash App, the net revenue take rate has remained consistent over the last three quarters, despite the lower take rate powered by Marketo TPV growing faster than managed by, as we continue to move beyond the period of heavy renewal activity. Q4 gross profit was 83 million, contracting 4%. Similar to net revenue, gross profit growth, excluding block, also accelerated by more than five points. Three factors continue to weigh on gross profit growth. First, the Cash App renewal lowered growth by mid-20 percentage points. As a reminder, the Cash App revenue presentation change does not impact gross profit. Second, non-block renewals between Q2 2022 and Q1 2023 lowered growth by low to mid single digits. These customers represented approximately 50% of our non-block TPV, and the effects of these renewals will be fully lapped in Q2 2024. Lastly, we lost full VISA incentives for two of our customers at the start of 2023, lowering growth by low to mid single digits each quarter until we lapped this impact in Q1 of 24. Our gross profit take rate was 13 bps, consistent with last quarter. The gross profit take rate outside of Cash App increased one point from last quarter due to higher network incentives. As expected, the gross profit margin was 70%. Q4 adjusted operating expenses were 80 million, a decrease of 16% year over year, due to realized savings from our restructuring in late May, as well as efficiency initiatives in our technology and professional service expenses. These savings were achieved without sacrificing innovation, compliance, or platform resiliency. On a sequential basis, expenses grew 7% quarter over quarter, largely due to an increase in professional services, which tend to increase in Q4 due to the timing of audit fees, as well as product and security assessments. Q4 adjusted operating expenses were over 3 million lower than we expected, mostly due to investment timing delays, particularly hiring, as we just recently established an office location in Poland, which we intend to utilize for a significant portion of our headcount growth. Q4 adjusted EBITDA was positive 3 million, a margin of 3%. Interest income was $15 million, driven by elevated interest rates. The Q4 gap net loss was $40 million, including a $10 million non-cash post-combination expense related to the power acquisition. During Q2, we announced a buyback of $200 million. As of the Q4 quarter end, we purchased 31.3 million shares for an average price of $5.36 for $168 million. We ended the quarter with $1.25 billion of cash and short-term investments. The full year 2023 net revenue decrease of 10% and gross profit growth of 3% did not necessarily reflect the strength of our underlying business due to the change in the Cash App revenue presentation and heavy renewal activity. 2023 was a transformative year for Marketo. putting the company on a path to sustainable growth, profitability, and innovation. TPV grew 34% and our adjusted EBITDA was negative 2 million as we restructured our cost base and focused on efficiency while securing over 80% of our TPV in renewals over the past seven quarters. We were free cash flow positive for the year. Now let's transition to our expectations for 2024. Let me quickly provide the full year 2024 expectations before diving into more details on the first and second halves. I will also call out any changes to the 2024 financial targets we shared at Investor Day a few months ago. Full year 2024 net revenue is expected to contract 20% to 24% as the change in cash tap revenue presentation weighs on growth in the first half. 2024 gross profit growth is expected to grow 6% to 9%, which equates to a gross profit margin in the high 60s. Adjusted operating expenses are expected to grow in the mid to high single digits as we continue to operate with a strong investment discipline and focus on achieving economies of scale. Therefore, we expect full year 2024 adjusted EBITDA to be around break even, or said differently, an adjusted EBITDA margin of around 0%. Because of the details I'll describe in a minute, we expect to be adjusted EBITDA positive in three out of the four quarters in 2024. This expectation is a little better than what we shared at our investor day in November as a result of efficiency initiatives. Before I get into the more granular detail, let me first start by providing important context for 2024. We have assumed the overall macroeconomic environment remains consistent with recent trends. We have yet to see meaningful changes in the spend patterns on our consumer and commercial cards in the past several months. Therefore, we assume the current trajectory persists. financial performance will be meaningfully different in the first and second half of 2024 primarily for two reasons first the lapping of the effects of the cash up renewal will dissipate at the start of q3 second the revitalization and strength of our sales bookings since q4 of 2022 should lead to a fair amount of new business launching and ramping on our platform throughout the year the contribution of these bookings to net revenue and gross profit will increase each quarter further accentuating the difference in our first and second half growth rates. Adjusted expense growth will also be meaningfully different in the first and second halves of 2024 due to our restructuring executed at the end of May 2023. Our expense base was meaningfully different in the first five months of 2023 than it was in the last seven months. The difference was further exacerbated by the fact that we did not reinvest some of the savings in new initiatives and focus areas as quickly as we intended, as referred to in my Q4 2023 comments. Therefore, our second half 2023 adjusted expenses are unusually low. Now let's turn to the first half of 2024. For Q1 2024, we expect net revenue to contract between 45 and 48 percent, including a 65 to 70 percentage point negative impact of the cash up renewal, mostly due to the revenue presentation change consistent with what we have seen in the last two quarters. We expect Q2 net revenue to contract in the same range. As expected, this is a few points lower than the second half of 2023 due to the unfavorable business mix and slower growth from a few of our customers without much contribution from new program launches at this point. Q1 gross profit is expected to contract between 8% and 10% with a gross profit margin in the high 60s. We expect gross profit to contract in the same range same range in Q2. However, the Q2 gross margin will be approximately seven points lower than Q1 as our network incentive tiers reset in April with our two largest network partners. The first half gross profit contraction is now expected to be a little worse than what we shared at our November investor day due to unfavorable business mix and revised expectations for the timing of when some key customers will achieve certain price tiers based on their TPV trajectory. Q1 adjusted operating expenses are expected to shrink in the mid-teens, similar to Q4 23, but with some ramp in hiring results from the delays I discussed earlier. In contrast, we expect Q2 adjusted operating expenses to grow in the mid-single digits, and Q2 will begin to lap our restructuring from last May, and we will incur additional costs from our reinvestment in hiring, as well as investments in platform resiliency to support our scaled customers. Therefore, Q1 adjusted operating, sorry, therefore Q1 adjusted EBITDA margin is expected to be in the 0 to positive 2% range. This is better than what we shared at Investor Day due to our investment delays and increased efficiencies we realized in Q4-23. We expect Q2 to be our only negative adjusted EBITDA quarter with a margin in the negative 79% range due to a combination of the resetting of our network incentives weighing on gross profit and additional investment needed to support our growth. In the second half of 24, our business performance metrics are expected to improve significantly after lapping almost all of the major renewal activity, particularly Cash App. We expect net revenue growth in the second half of 2024 to reaccelerate to 23 to 26%, primarily driven by three factors. First, lapping the Cash App revenue presentation change, Second, realizing existing customers' growth as we lap all the elevated renewal activity. And third, benefiting from the ramping new programs as we progress through the year. Second half 2024 gross profit growth is also expected to be in the 23% to 26% range, consistent with net revenue. This second half gross profit growth is expected to be a little higher than what we shared with you at Investor Day due to positive business mix and expected shifts in a couple of existing program constructs where we currently incur excessive network fees. Second half 2024 adjusted operating expenses are expected to grow in the high teens as we continue to invest in growth initiatives and resiliency, combined with the fact that we grow over the unusually low expenses in 2020 as our post-restructuring reinvestment was delayed. Therefore, we expect second half 2024 adjusted EBITDA to be positive 1 to 3 percent margin, little higher than what we shared at investor day due to higher gross profit in conclusion we are exiting 2023 with great business momentum and a solid foundation to deliver sustainable growth profitability and innovation in 2024 and beyond our excitement and confidence is primarily driven by three factors first by renewing over 80 percent of our tpv in the last seven quarters most of which are in contracts of at least four years we have secured our attractive customer base and opened up potential cross-selling opportunities as we continue to expand our platform capabilities. This was short-term pain for long-term gain. Second, we are starting to get contributions from ramping new use cases such as BNPL Pay Anywhere cards and accelerated wage access. As we move through 2024, this will be combined with ramping new cohorts that result from our improved sales performance that delivered over 50% bookings growth in 2023. Third, we are getting early customer traction with our new credit capabilities, signing our first two customers to leverage our fully modern scaled issuer credit platform for innovators. Although this won't meaningfully contribute much to the 2024 P&L, credit will be a meaningful driver of future growth. Fourth, Marquette's differentiated platform in terms of both breadth and depth of our capabilities gives us an outsized market opportunity as many fintechs continue to thrive combined with the continued emergence of embedded finance use cases. Lastly, we have achieved a more efficient cost structure while maintaining compliance, security, and innovation that will power profitable growth for years to come. Starting in the second half of 2024, our business and financial metrics are expected to reflect this momentum as we return to growth. We are excited to share our progress with you in the coming quarters. I'll now turn it back over to the operator for questions.

Thank you very much.

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 and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the questioning queue. You may press star and then 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 star keys. We do request that you limit to one question and then rejoin the queue. Our first question is from Timothy Chiodo of UBS. Please go ahead.

Great. Thank you for taking the question. I wanted to touch on accelerated wage access a little bit. So you had the two large customers to start with, the Uber and also the OneApp. OneApp, with it becoming the default for all Walmart employees, as new employees have come on and others have rolled off or left the company. Can you just talk a little bit about the traction that you're seeing with the offering with that one large customer? And related, you had mentioned that there were others coming down the pike in terms of your pipeline for accelerated wage access. Could you just give a brief update on what that looks like now a few months later?

Hey, Tim. Simon here. Thanks for the question. We are indeed extremely excited about accelerated wage access. So the trend is extremely healthy, and accelerated wage access is now about 3% of our processing volume. up from an insignificant number in 2022. So, I mean, to put that in perspective, you're looking at about an annualized $7 billion of pay that is running through the Marketo pipes. That's a massive achievement. We can't comment specifically on individual customers, but the trend is extremely healthy, and so is our pipeline. I mean, at the end of the day, look, I mean, our solution is kind of a win-win-win. Our approach actually benefits. the actual employer that has a contingent workforce because they can retain the working capital, but at the same time give accelerated wage access to their contingent. And of course, the associates or the contingent workforce gets paid instantaneously. And we save the employer money. So they actually make money. So you're taking effectively an expense line and moving it into a revenue potential that could be returned to the contingency in terms of rewards and discounts. So, I mean, that win-win-win gives us, ironically, an accelerator.

And we're extremely excited about it. Thank you very much.

The next question is from Ramzi Alassal of Barclays. Please go ahead.

Hi, thanks for taking my question this afternoon. It was great to hear you signing some credit deals. Can you comment on the credit pipeline and just signals you're picking up in the marketplace in general about the demand environment for credit? And maybe even to put a little nuance on it in the context of a sort of embedded finance use case that It seems like you're winning.

Yeah, thanks, Ramzi, for the question. The pipeline is extremely healthy. As we stated many times, we actually did expect the consumer credit demand to be high. What we were positively surprised by is the SMB credit demand. and especially from, I'd say, aggregators or platforms that have established relationship with SMBs and have great purview and visibility into the performance of these SMBs and can help with getting them credit because they know what their revenues are going to be, so they can diminish the risk. So I would say across the board, our credit pipeline is extremely healthy. And I would say that the vast majority is in the embedded finance, whether it is commercial or consumer. I mean, that's the space we're playing in. So there could be bias because that's what we're actually chasing. But also from a demand perspective, I would say between SMB credit and new markets, modern-day co-brand, I think there's plenty of innovations to simply drive user engagement and change online commerce and not just payments.

So we're very excited about that.

Thank you. The next question is from Tianxin Huang of JP Morgan.

Please go ahead.

Thank you so much. Really, really strong bookings with a 50% I believe. I'm just curious, does that include any wins with the potential for clients to become maybe top 10 down the road? Just a little bit more context on the type of stuff that you're adding and also just your confidence and your ability to replenish that pipeline and backlog. Are there large deals out there to win versus 90 days ago? Thanks.

Hey, Tingen, Simon here. Thanks for the question. I mean, let me start with your last. Our ability to replenish the pipeline is actually very strong. We haven't drained the pipeline or artificially accelerated any deals. Quite the contrary. Our pipeline is actually growing very efficiently. In terms of the customers, we have closed absolutely. I mean, all of them could be big. It takes time. I mean, you understand this industry. It takes time to ramp, but all of them have great potential and transformative potential. I mean, not each one of them, but there's definitely quite a few that we're very excited about. And ability to capitalize on the pipeline, we do have an aggressive plan, but we feel comfortable about it.

Thank you.

Next question is from Darren Peller of Wolf Research. Please go ahead.

Guys, hey, thanks. You know, a couple of things. Just number one, it looks like when we see the – all the adjustments that would sort of normalize for gross profit, a bridge to normalize gross profit growth, we're coming out to the, you know, well into the high 20s percent growth. And I know there's obviously some element of cadence as the year progresses as your, you know, second quarter starts off with incentive rebuild, et cetera. But maybe just talk about that nuance and make sure we're in the right ballpark first. And second of all, you know, you talked about the second half being a little bit better, Mike. So any more color on what's gone well there would be great.

Yeah, so the first question, I would say it's probably more closer to mid-20s. We were negative 4% on an adjusted basis, as you mentioned. We were negative 4% in our reported results. The cash app is mid-20s, and then Visa incentives and renewals are both kind of low to mid. So it kind of puts you low to mid single digits, that is. So it's a total impact of, say – around 30%, plus or minus, which puts you kind of on an adjusted basis in the mid-20s percent growth, which is now what we're sort of saying we expect the second half to be, is in that 23% to 26% gross profit growth range in the second half of 2024, once we've lapped most of these things. The biggest, I guess, benefit we're getting compared to what we knew a few months ago when we had Investor Day is some of it is a little bit of business mix. As you know, in our and our business between all the different use cases and is it physical or virtual card and is it powered by, managed by, like we have lots of different gross profit take rates on our volume and there's a little bit of positive mix there. But I would say that the bigger factor is that we have a couple of programs right now where we feel we incur sort of excessive network costs and we're always working with our customers to try to optimize how their program is operating both for their benefit and of course ours as well. And this can take the form of how they're looking at declines, and are they really optimized based on the way their program is set up? Are they incurring sort of unnecessary costs? Or the same thing can happen in cross-border. How exactly is their program set up for cross-border? And as you know, those come with much higher fees associated with them, and so are there changes that can be made? And we've identified some changes for a couple of our programs that are in flight right now that we expect to be fully in place for our benefit in the second half. These kinds of things are always opportunities you're hunting for, but you don't really count on them. They're a lot like how flips, I would say, how we think about flips. We're always, of course, going after flip volume, but you don't count on flip volume when you're projecting business into the future. So that's really what's driving the upside in the second half, and that's a great win because it's really a structural benefit for those programs and therefore our P&L.

Thank you. The next question is from Brian Keene of Deutsche Bank.

Please go ahead.

Hey, guys. I just want to ask about the bookings ramp. It sounds like, Simon, you've closed some of the time to ramp. Can you talk about that as the bookings, the 50% growth in bookings kind of unfold in 2024? And do we still expect kind of the $20 million in revenue in 2024, $50 million in 2025, and $150 million in 2026 from these bookings? Just trying to get the cadence down correctly in the ramp times. Thanks.

Yeah. Hi, Brian. Thanks for the question. Yeah, it's about right. I'd say we are on track. to deliver the number that we kind of pegged at Investor Day, so the 2050 and 150. So, I mean, we're always working to accelerate those, but I think that's the right range. So we're very comfortable with these numbers.

Thank you. The next question then is from James Fawcett of Morgan Stanley.

Please go ahead.

Great. Thank you so much. I just wanted to ask quickly on the long-term FI opportunity. There's some opportunity to win some of the Novo from the top 10 banks. How long do you think it will take for those techs to catch up such that adoption of Marketo becomes easier? Just trying to think about ongoing penetration into more of that broader market.

James, yeah, thanks for the question, Simon here. So we're still on the same timeline. There is definitely a lot of conversations with large FIs, but I do believe we're still on the same trajectory. The majority of the growth we will witness over the next two years will be from fintechs and embedded finance customers. But as I'd say those players take share, either de novo or take spending share. It's going to be extremely hard for the financial institutions not to look and say, hey, what's going on here? And we expect that trend to start materializing exactly where we've got it in the 25, 26 timeframe.

And I guess just to add one thing, James, to that, I think that we fully expect that the initial opportunities are likely to come on the commercial side as well. Because if you look at what's happening with some of the more modern sort of expense management and corporate card issuing platforms, several of those companies have gotten to be quite big and starting to capture larger and larger accounts. And so we believe that there's a little more activity within large banks on the commercial side you know, sort of counteract the impacts that might be seen from those companies. There's less of that so far on the consumer side. You know, we hope to, I guess, propagate that in the future with people coming on board and doing some modern co-brands with our new credit capabilities. But we would expect, you know, the initial traction is much more likely to be in commercial than it is in consumer with large FIs.

Thank you.

The next question is from Andrew Boat of Wells Fargo. Please go ahead.

Hey, thank you for taking the question. I know you don't guide to it per se, but we want to get a sense on how we should be thinking about TPV growth and kind of the take rate dynamics here in the 24. I know you've mentioned in the past that because of your enhanced data capabilities that your ability to forecast TPV is significantly better than it has been in the past. So any thoughts around there would be helpful.

Sure, Andrew. So our TPV growth, we expect it to be about 30% throughout 2024, and it'll be relatively consistent each quarter. So just to give you a little sense, we grew in Q4 33%. It was relatively consistent each month. October was a little lighter, November a little stronger. But in January, our TPV growth was very similar to the December growth rate. It was only one point lower. And February, through the first three weeks, is looking very similar to January. And of course, we'll get the benefit of leap year at the end of the month. So I'd say the trajectory of TPV growth is sort of in that low 30s range so far. And we expect about 30% growth for the year. So it'll all be kind of in that same area of around 30%, plus or minus. From a take rate perspective, I think we're starting to see stability. As we've said, we have over 80% of our TPV we've renewed recently. And so as I sort of called out, if you exclude Cash App, which of course we're still lapping, our take rate on revenue has been consistent, excluding Cash App for three straight quarters. On the gross profit side, it's actually ticked up in Q4 compared to Q3 when you exclude cash out, which just has to do with a lot more incentives happening in the fourth quarter compared to Q3. So we expect take rate stability for the most part. There'll always be a little bit of renewal activity, but we'll also have new customers ramping who aren't nearly as deep into their pricing tiers as our existing customers. So we expect relative stability on that 30% TPV growth.

Thank you. The next question is from Dan Durlip of Mazuho. Please go ahead.

Oh, hey, guys. Great results. Thank you for taking my question. I think, Simon, you mentioned that you flipped volumes from your competitors and your prepared remarks. Like, you know, without naming specific names, can you give us a flavor of sort of the types of competitors that you're winning share from? Thank you.

Sure. Thanks for the question. Yes. I mean, I say there's two flavors. One flavor is taking share from legacy. The others is, I'd say, the flight to quality. There's folks who have probably chosen an alternate processor because they were cheaper than Marketo, but then as they scaled up and they realized our stability, our multiple nines, and as their business scaled, they're looking for a partner that can take them to the next stage. So I'd say it's a mix. a healthy mix of like taking incumbents out and also taking kind of less stable processors.

And just to add a little bit to that, Dan, I would say the in Q4 of our bookings, about 10% were flips. And that's actually on the low side for each quarter of the year. So each quarter in 2023, at least 10% of our bookings were flips. So I think there's a A good amount of activity of, as Simon was saying, you know, people who maybe a couple years ago made a different choice. You know, we were a contender for the business and we didn't get it, and now they're sort of realizing some of the benefits in terms of our expertise to help them scale and grow their platform, also the reliability we provide. And so I think that's really what's helping us.

Thank you. The next question is from Craig Maurer of FT Partners.

Please go ahead.

Yeah, hi. Thanks for taking the question. Wanted to come back to Buy Now, Pay Later for a second. Do you expect that Block's new cash app strategy to drive more adoption using Buy Now, Pay Later will cause any inflection in volume?

We do expect, I mean, there's no question that the buy now, pay later market is here to stay. And we're seeing two types of distribution for buy now, pay later solutions. One is integration with merchants. And the other one is integration with the payment vehicle. And we're seeing... I would say higher engagement, consumer engagement, with integrating buy now, pay later into a payment vehicle or a card. So across the Marketo platform, and that's where Marketo has a higher moat. So in terms of Cash App specifically, of course, I mean, Cash App is widely distributed. It's a highly engaging product. So having buy now, pay later in it which is also powered by Marketa, is definitely a solution we're excited about. It makes sense for the consumers. It makes sense for the distribution of buy now, pay later. And it's a segment that Cash App is well penetrated in.

Yeah, I mean, if you think about, Craig, that there's over 23 million active Cash App card users every month. So, you know, although Afterpay has been successful for them and for our business, you know, that's an incredible install base. So, you know, what they talked about on their call last week, you know, makes a lot of sense to us.

Thank you. The next question is from Chris Kennedy of Widenplay.

Please go ahead. Good afternoon. Thanks for taking the question. Can you provide an update on the regulatory environment for banking as a service and embedded finance and kind of how you view that operating environment? Thank you.

Thanks, Chris. I would say there's no changes.

There is not much that we can talk about, either positive or negative. I'd say that the environment remains healthy. I mean, the great news about a lot of what's going on in embedded finance is solutions that are catering to the unbanked and the underbanked. There's no question that Buy Now, Pay Later has opened the credit box and provided what is effectively lending without the 29% APR. So that's definitely helping the community. And same thing with SMBs. They're kind of like the forgotten entity. So there's a lot of goodness that is happening with these solutions today. So we're comfortable with the regulatory environment. The second thing I'd say is as a company, we have invested in program management and we've invested in compliance. We've invested in a lot of these services because, number one, we take it very seriously. And the second thing is that when we target the brands, especially in embedded finance, the last thing we want is bring them regulatory trouble. So I think we've taken this very seriously as a platform.

And I think as you maybe referred to Chris, I mean, some of the announcements out there about bass platforms and some of the banks to do business with the more of those announcements, um, you know, there's definitely a component of a flight to quality, which we think we are the beneficiaries of just given our, our scale and the level of investment. And we were one of the first movers in this space. So, um, you know, we, we think that, um, although it's on, you know, it's, it's unfortunate, you know, um, that there's some disruption in the marketplace like that. I think generally speaking, we're definitely more of a beneficiary than something that hurts us.

Thank you. The next question is from Cassie Chan of Bank of America.

Please go ahead. Hi, guys. Just two quick questions for me. So first I wanted to ask about the competitive landscape. There's obviously been some headlines around corner and block with audiences. Are you guys seeing the competitive landscape evolving or intensifying among existing clients? And then just a quick clarifying question. Did you guys disclose the impact or was there any from Reg AI in the quarter? And if there's anything assumed in the one quarter in the first quarter or the 2024 guide? Thank you.

Thank you for the question. I'll take the first one and I'll toss the second one to Mike. In terms of the competitive landscape, I'd say it is more favorable than it used to be because the majority of the growth we are seeing is in the areas that Marketa has a much higher moat. So in the one time, I'd say the one time virtual commercial card space. Yes, there is competition, but most of our customers buy from us or partner with us on more than that. So the growth is coming from areas where our moat is higher. So I think we're comfortable there in terms of the competitive landscape. Now, that doesn't mean we're not mindful of competition on the country. We respect it. It keeps everybody honest and it keeps us innovating.

And on your second question on Reg AI, nothing really of note to point out. I think last quarter we did have something because we were a little surprised by the changes that went into effect and the degree to which the mix of volume changed, which is very relevant for us in Cash App now based on the way the accounting changed and the renewal. So that was something where we just didn't expect as much shift as we saw, and that impacted our economics a little bit in Q3. But with that knowledge now, Q4 was largely as expected, and there's nothing we see or have assumed in 24 that's noteworthy.

Thank you.

The next question is from Andrew Jeffrey of Truist Securities. Please go ahead.

Hi. Good evening. Thank you for taking the question. I wanted to ask about expansion deals or expansion of existing relationships. Sounds like that was a call out growth driver as well last year. Can you talk a little bit, I guess you said perhaps 60% of total bookings for expansion deals. Can you talk a little bit about additional capabilities and how you're monetizing existing customers at an improving rate the way you are?

Yeah, absolutely, Andrew. Thanks for the question. There's many angles to this. I mean, what we've done over the last year is focus on solution selling. Like, if you look at the trajectory of Marketo, I would say there was neobanking, then buy now, pay later, then expense management, then on-demand delivery. And we started working on accelerated wage access, SMB credit, and co-brands. So, and all of them, processing is kind of the least common denominator. And just in time, processing is the least common denominator. Everybody uses it. And then as we started rolling out, like banking as a service product, program management, such as disputes and chargebacks, risk solutions, those were kind of like good add-ons. But I'd say what also has happened is is a lot of our customers started launching multiple programs with us. Like, as an example, the Buy Now, Pay Later community, most of them started with a solution that integrates with merchants. And all of them are now moving, I'd say a good majority of them, actually either integrating into a payment card or having a payment card, like a super card, So they launch more programs with us. So I'd say it is either more programs launched with us or value-added services that we are adding. The third angle is international expansion. So we've taken the strategy that we're going to basically go where our customers go, I mean, with reason. and efficiency. So a lot of them, a lot of the multinationals, they want to code once and deploy everywhere. And Marketa gave them that ability. So that's the third dimension of expansion. So in summary, I'd say first one is Launching more programs the second one more value-added services third one is international now looking forward Credit is a phenomenal opportunity to a lot of the debit partners we have so we are in deep conversations with a lot of our customers that use us for a debit and they want to they want to use us for for a credit as well and another example that I would just add to what Simon just said is that you know, they might look at credit or maybe they have something that's customer facing and

And now maybe we're engaged on something that's more employee facing on accelerated wage access. So as we add to the use cases and the breadth of our platform, there's lots of different opportunities that we can discuss with our customers. And that's one of the, as we go into embedded finance, that's one of the really compelling things about our platform is most of these customers or prospects are going to start somewhere, but many of them are already big companies in their own right and are thinking a little bit bigger and they have that opportunity to do that with one partner on the Marketa platform that might be difficult to achieve with some of our competitors.

Thank you.

The next question is from Moshe Kater of Web Push Securities. Please go ahead.

Hey, thanks for taking my question. Can we talk a bit about the center that you're opening in Poland? and how that could potentially bring down some of your technology or development costs on the road?

Absolutely. Thanks, Moshe.

Yeah, I mean, we all come from backgrounds in which we scaled organizations, and there's multiple reasons to do this. One is the talent in Poland is really good. and especially as some folks in our industry, whether it's networks or, I'd say, accounting, have back-end services done in Poland. The second one is strong back-end engineering, risk operations, AI, machine learning, so on and so forth. The labor market is still favorable compared to the United States in terms of availability and in terms of cost. So the areas where we are investing in Poland will help us on the risk operations, program management, as well as engineering services. And we expect also to invest on what I call the back office sales organization as well. I mean, throughout my career, I've had tremendous success in Poland.

So I think we're looking good there.

Thank you very much.

Our final question is from Jamie Friedman of Susquehanna.

Please go ahead. Hi. Thank you. Mike, I think you said in your prepared remarks that the non-block renewals lowered gross profit growth low to mid-single digits. If I heard you wrong, I apologize. If so, that's the case. I was wondering how we might, if you could unpack that a little about the inputs and how we might be thinking about that. in 2024 would be helpful. Thank you.

Yeah, you got it exactly right, Jamie. It was low to mid single digits from deals that we did between Q2 of 22 and Q1 of 2023. So in that four-quarter period, we renewed about 50% of our non-block TPV. And so the last couple of quarters, I've been calling this out. So this will lap in Q2 of 24. Now, what's not in there, it's not all renewals that are non-block. It's just within that window of time when there was just a lot of activity. And so we really just have one more quarter, Q1 of 24, before we start lapping. But you got it right. It was low to mid-single digit of gross profit growth drag in Q4 as a result of those.

Thank you very much, ladies and gentlemen. That then concludes today's event.

Thank you for attending, and you may now disconnect your lines. Thank you. Thank you. Music Playing Thank you. Thank you.

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Marketer 4th Quarter 2023 Earnings Conference Call. At this time, lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will open the lines for your questions. 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. Thank you, and you may begin.

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 31, 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 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 Simon Kuloff, Marketas CEO, and Mike Miletic, Marketas Chief Financial Officer. With that, I'd like to turn over the call to Simon to begin.

Thank you, Stacey and everyone. for joining us for Marketo's fourth quarter 2023 earnings call. Last fiscal year was a transformative year for Marketo, and I'm excited about the foundation laid for the future of our company. I'll briefly touch on our results for the fourth quarter and full year 23 before sharing exciting developments at Marketo. The last time we spoke was after we released our investor day materials, which detailed the changes we made throughout 2023 and the opportunity ahead of us in 2024 and beyond. This most recent quarter demonstrates the focused effort made during 2023 is starting to pay off and has set Marketa on a new trajectory. This path will lead to sustainable growth, profitability, innovation, and a great ability to capitalize on the fast-growing embedded finance market. Total processing volume, or TPD, in the quarter was $62 billion, an increase of 33% compared to the same quarter of 2022. Our net revenue of $119 million in the quarter contracted 42% year over year, which included a decrease of 59 percentage points from the revenue presentation change related to our Cash App contract renewal. Our gross profit of $83 million contracted by 4% versus Q4 2022, primarily due to the Cash App renewal pricing. Our gross margin for the fourth quarter was 70%. Our non-GAAP adjusted operating expenses were $80 million, a 16% decrease versus Q4 2022 due to our restructuring, operational efficiencies, and delayed investments, resulting in a positive adjusted EBITDA of $3 million in the quarter. On a full year basis, TPV was $222 billion, an increase of 34% compared to the previous year. The full year net revenue was $676 million, representing a 10% contraction from the previous year. This includes a 31 percentage point decline related to the revenue presentation change resulting from the Cash App renewal. Gross profit for the full year was $330 million, a 3% increase compared to 2022. Gross profit was negatively impacted primarily by several renewals, particularly Cash App, and changes in our Visa incentives at the start of the year. I'm thrilled with these financial results and thankful to all Marketans who have made this possible. Outside our pure financial performance, we've delivered on product innovation, sales growth, and operational efficiencies. In 2023, we greatly enhanced our credit platform. We added credit program management capabilities with the acquisition of power and quickly executed the integration to launch a unified modern credit offering. The two commercial deals we recently signed are characterized by their ability to bring an embedded experience to their end customers, made possible by Marketas flexible platform. The first deal we signed was with International Travel Solutions or ITS. ITS is a successful travel management company with a substantial customer base. ITS plans to use the Marketa credit platform to build an unsecured credit card for its end users. ITS chose us because of our established reputation in modern card issuing, not to mention our ability to offer solutions with a significant amount of customization and control, which is critical to travel management. With our partnership, ITS can launch and innovate faster to meet the ever-changing demands of its travel partners. Additionally, ITS can personalize its offering to its partners, allowing them to run their business more effectively by providing more robust controls over their travel expenses. For example, ITS expects to enable carbon impact tracking to help partners make conscious decisions and provide dynamic rewards to enable more customized incentives. We also signed another commercial credit deal, albeit for a very different use case. AffiniPay, a leader in online payment and software solutions for professionals, will partner with Marketo to launch its planned LawPay Visa credit card embedded within the MyCase platform. the first comprehensive solution in the industry that helps law firms pay, track, and manage firm and client expenses. AffiniPay selected us because of our trusted platform for building card program management at scale that are dynamic, flexible, and tailored to customer needs. By partnering with Marketo, my case smart spend users will have a comprehensive, easy-to-use platform that gives them access to real-time card issuing, transaction data, and spend controls to their credit card offering. This helps cardholders stay on top of business expenses and access capital easily, all from a single dashboard. Smart spend will be rolled out to other Affinity Pay products, KSphere and LawPay, in the end of 2024 and beginning 2025. Let me talk about the progress we made in our go-to-market approach. As we've previously discussed, we have overhauled our go-to-market operations to better capitalize on the embedded finance opportunities. These changes included reorganizing the sales force, realigning our compensation structure, and shifting the focus of the sales organization more towards full solution selling such as accelerated wage access, SMB credit, as well as co-brands. These changes resulted in bookings growth of over 50% in 2023 compared to 2022. Specifically, in the fourth quarter, we capture another solid slate of bookings, generally in line with the makeup of what we saw during the year. Expansion deals with existing customers came in at approximately 60% of total bookings. Although most bookings came from North America, 20% of the deals came from Europe and predominantly from net new customers, which bodes well for the future of that geography for Marketo. Like previous quarters, we also won multiple deals through flipping volumes from our competitors as customers sought out Marketas' proven scale, flexibility, and expertise in modern card issuing, which was lacking through their current provider. In addition to growing our bookings, we also made great strides in accelerating the time to launch for new programs signed to convert these bookings into revenue and gross profits faster. On average, the time between close and launch in Q4 of this year was about 100 days better than the previous year. This was achieved without adding significant resources by focusing on solutions architecture and using pre-configured card constructs. In other words, while we design innovative solutions for our customers, we also rely on our expertise to create a plan that will be approved by other members of the payment ecosystem, such as banks and networks. Moving back to product, another area where we invested in 2023 was our reliability and continued ability to scale. The results from this investment can be seen in our transaction success rate metrics for the 2023 holiday season, which increased by three basis points. This is remarkable when one considers that on our peak day in 2023, our platform saw over 40 million authorizations, up 66% compared to the peak day in 2022. This improvement occurred simultaneously with efficiency initiatives that right-sized our technology spending, but also increased investment on multi-region authorization projects. demonstrating that we are focusing on the right efforts when considering the reliability of our platform. In summary, in 2023, we focused on building the solid foundation for a growing and profitable business in the long run. We went broad, building out our platform and reorienting our sales teams to our proven and winning solutions. In 2024, We plan to accelerate what we started and return to strong revenue and gross profit growth as we bring to life new and exciting solutions with our FinTech customers and prospective embedded finance customers. Our ability to offer credit, debit, banking, and risk solutions at scale positions us well to unlock the massive embedded finance opportunity that's ahead of us. We've only just begun to execute over the strong foundation we have built. With that, I'll turn it over to Mike for a more detailed look at our results for the quarter, the full year, and financial outlook for 2024.

Thank you, Simon, and good afternoon, everyone. As expected and consistent with last quarter, net revenue and gross profit contracted due to the cash-out renewal, with the majority of the renewal impact on revenue resulting from the revenue presentation change. Q4 was a strong finish to the year with TPV growth of 33 percent and better than expected results for net revenue, gross profit, and expense, driving positive adjusted EBITDA. Net revenue and gross profit outperformed due to stronger than expected TPV growth, particularly in BNPL, on-demand delivery, and accelerated wage access, as well as higher network incentives. Continued execution of efficiency initiatives, such as streamlining technology spend as well as delays in planned investments, coupled with higher gross profit, led to $3 million of adjusted EBITDA on the quarter. I will share the Q4 highlights before spending more time detailing our expectations for 2024. Q4 TPV was $62 billion, growing 33% for the third straight quarter. Non-block TPV grew approximately 10 points faster than block growth. The financial services vertical continues to grow a little faster than the overall company, helped by the rapid ramping of accelerated wage access TPV, which now contributes about 3% of total company TPV. Lending, including buy now, pay later, grew several points faster than the overall company due to a strong holiday season and the continued adoption of our BNPL customers pay anywhere card solutions. On-demand delivery continues to grow in the double digits due to consumer adoption of new services and merchant segments, as well as geographic expansion. Expense management growth re-accelerated this quarter, but is growing a little slower than the overall company as this vertical matures. Q4 net revenue was $119 million, a contraction of 42% year over year. The key drivers of our net revenue growth are as follows. The most significant impact was the 59-point growth headwind related solely to the revenue presentation change resulting from the Cash App renewal. As we've described previously, this change in revenue presentation is related to the cost associated with Cash App's primary payment network volume. Previously, the bank and network fees associated with the primary network volume were included in net revenue and cost of revenue. Starting in Q3 2023, these costs are netted against revenue. There is an additional 10 percentage point decline in net revenue growth due to the cash app renewal pricing. Non-block revenue growth accelerated by more than five points as we begin to lap prior year renewals and newer, faster growing solutions such as BNPL, Pay Anywhere cards, and accelerated wage access increase in their contribution. Block net revenue concentration was 51% in Q4, increasing one point from Q3 due to seasonality. Our net revenue take rate remains unchanged from last quarter at 19 bps. Excluding Cash App, the net revenue take rate has remained consistent over the last three quarters, despite the lower take rate powered by Marketo TPV growing faster than managed by, as we continue to move beyond the period of heavy renewal activity. Q4 gross profit was 83 million, contracting 4%. Similar to net revenue, gross profit growth, excluding block, also accelerated by more than five points. Three factors continue to weigh on gross profit growth. First, the Cash App renewal lowered growth by mid-20 percentage points. As a reminder, the Cash App revenue presentation change does not impact gross profit. Second, non-block renewals between Q2 2022 and Q1 2023 lowered growth by low to mid single digits. These customers represented approximately 50% of our non-block TPV, and the effects of these renewals will be fully lapped in Q2 2024. Lastly, we lost full VISA incentives for two of our customers at the start of 2023, lowering growth by low to mid single digits each quarter until we lapped this impact in Q1 of 24. Our gross profit take rate was 13 bps, consistent with last quarter. The gross profit take rate outside of Cash App increased one point from last quarter due to higher network incentives. As expected, the gross profit margin was 70%. Q4 adjusted operating expenses were $80 million, a decrease of 16% year-over-year due to realized savings from our restructuring in late May, as well as efficiency initiatives in our technology and professional service expenses. These savings were achieved without sacrificing innovation, compliance, or platform resiliency. On a sequential basis, expenses grew 7% quarter over quarter, largely due to an increase in professional services, which tend to increase in Q4 due to the timing of audit fees as well as product and security assessments. Q4 adjusted operating expenses were over $3 million lower than we expected, mostly due to investment timing delays, particularly hiring, as we just recently established an office location in Poland, which we intend to utilize for a significant portion of our headcount growth. Q4 adjusted EBITDA was positive $3 million, a margin of 3%. Interest income was $15 million, driven by elevated interest rates. The Q4 gap net loss was $40 million, including a $10 million non-cash post-combination expense related to the power acquisition. During Q2, we announced a buyback of $200 million. As of the Q4 quarter end, we purchased 31.3 million shares for an average price of $5.36 for $168 million. We ended the quarter with 1.25 billion of cash and short-term investments. The full year 2023 net revenue decrease of 10% and gross profit growth of 3% did not necessarily reflect the strength of our underlying business due to the change in the Cash App revenue presentation and heavy renewal activity. 2023 was a transformative year for Marketta, putting the company on a path to sustainable growth, profitability, and innovation. TPV grew 34%, and our adjusted EBITDA was negative $2 million as we restructured our cost base and focused on efficiency, while securing over 80% of our TPV in renewals over the past seven quarters. We were free cash flow positive for the year. Now let's transition to our expectations for 2024. Let me quickly provide the full year 2024 expectations before diving into more details on the first and second halves. I will also call out any changes to the 2024 financial targets we shared at Investor Day a few months ago. Full year 2024 net revenue is expected to contract 20 to 24% as the change in cash tap revenue presentation weighs on growth in the first half. 2024 gross profit growth is expected to grow six to 9% which equates to a gross profit margin in the high 60s. Adjusted operating expenses are expected to grow in the mid to high single digits as we continue to operate with a strong investment discipline and focus on achieving economies of scale. Therefore, we expect full year 2024 adjusted EBITDA to be around break even, or said differently, an adjusted EBITDA margin of around 0%. Because of the details I'll describe in a minute, we expect to be adjusted EBITDA positive in three out of the four quarters in 2024. This expectation is a little better than what we shared at our investor day in November as a result of efficiency initiatives. Before I get into the more granular detail, let me first start by providing important context for 2024. We have assumed the overall macroeconomic environment remains consistent with recent trends. We have yet to see meaningful changes in the spend patterns on our consumer and commercial cards in the past several months. Therefore, we assume the current trajectory persists. Our financial performance will be meaningfully different in the first and second half of 2024, primarily for two reasons. First, the lapping of the effects of the cash-up renewal will dissipate at the start of Q3. Second, the revitalization and strength of our sales bookings since Q4 of 2022 should lead to a fair amount of new business launching and ramping on our platform throughout the year. The contribution of these bookings to net revenue and gross profit will increase each quarter, further accentuating the difference in our first and second half growth rates. Adjusted expense growth will also be meaningfully different in the first and second halves of 2024 due to our restructuring executed at the end of May 2023. Our expense base was meaningfully different in the first five months of 2023 than it was in the last seven months. The difference was further exacerbated by the fact that we did not reinvest some of the savings in new initiatives and focus areas as quickly as we intended, as I referred to in my Q4 2023 comments. Therefore, our second half 2023 adjusted expenses are unusually low. Now let's turn to the first half of 2024. For Q1 2024, we expect net revenue to contract between 45 and 48 percent including a 65 to 70 percentage point negative impact of the cash app renewal, mostly due to the revenue presentation change consistent with what we have seen in the last two quarters. We expect Q2 net revenue to contract in the same range. As expected, this is a few points lower than the second half of 2023 due to the unfavorable business mix and slower growth from a few of our customers without much contribution from new program launches at this point. Q1 gross profit is expected to contract between 8% and 10% with a gross profit margin in the high 60s. We expect gross profit to contract in the same range in Q2. However, the Q2 gross margin will be approximately seven points lower than Q1 as our network incentive tiers reset in April with our two largest network partners. The first half gross profit contraction is now expected to be a little worse than what we shared at our November investor day due to unfavorable business mix and revised expectations for the timing of when some key customers will achieve certain price tiers based on their TPV trajectory. Q1 adjusted operating expenses are expected to shrink in the mid-teens, similar to Q4 23, but with some ramp in hiring results from the delays I discussed earlier. In contrast, we expect Q2 adjusted operating expenses to grow in the mid-single digits, and Q2 will begin to lap our restructuring from last May, and we will incur additional costs from our reinvestment in hiring, as well as investments in platform resiliency to support our scaled customers. Therefore, Q1 adjusted operating, sorry, therefore Q1 adjusted EBITDA margin is expected to be in the zero to positive 2% range. This is better than what we shared at Investor Day due to our investment delays and increased efficiencies we realized in Q4 23. We expect Q2 to be our only negative adjusted EBITDA quarter with a margin in the negative 79% range due to a combination of the resetting of our network incentives weighing on gross profit and additional investment needed to support our growth. In the second half of 24, our business performance metrics are expected to improve significantly. after lapping almost all of the major renewal activity, particularly Cash App. We expect net revenue growth in the second half of 2024 to re-accelerate to 23% to 26%, primarily driven by three factors. First, lapping the Cash App revenue presentation change. Second, realizing existing customers' growth as we lap all the elevated renewal activity. And third, benefiting from the ramping new programs as we progress through the year. Second half 2024 gross profit growth is also expected to be in the 23 to 26 percent range, consistent with net revenue. This second half gross profit growth is expected to be a little higher than what we shared with you at Investor Day due to positive business mix and expected shifts in a couple of existing program constructs where we currently incur excessive network fees. Second half 2024 adjusted operating expenses are expected to grow in the high teens, we continue to invest in growth initiatives and resiliency combined with the fact that we grow over the unusually low expenses in 2023 as our post restructuring reinvestment was delayed therefore we expect second half 2024 just to be positive one to three percent margin a little higher than what we shared at investor day due to higher gross profit in conclusion We are exiting 2023 with great business momentum and a solid foundation to deliver sustainable growth, profitability, and innovation in 2024 and beyond. Our excitement and confidence is primarily driven by three factors. First, by renewing over 80% of our TPV in the last seven quarters, most of which are in contracts of at least four years, we have secured our attractive customer base and opened up potential cross-selling opportunities as we continue to expand our platform capabilities. This was short-term pain for long-term gain. Second, we are starting to get contributions from ramping new use cases such as BNPL Pay Anywhere cards and accelerated wage access. As we move through 2024, this will be combined with ramping new cohorts that result from our improved sales performance that delivered over 50% bookings growth in 2023. Third, we are getting early customer traction with our new credit capabilities, signing our first two customers to leverage our fully modern scaled issuer credit platform for innovators. Although this won't meaningfully contribute much to the 2024 P&L, credit will be a meaningful driver of future growth. Fourth, Marquette's differentiated platform, in terms of both breadth and depth of our capabilities, gives us an outsized market opportunity as many fintechs continue to thrive, combined with the continued emergence of embedded finance use cases. Lastly, we have achieved a more efficient cost structure while maintaining compliance, security, and innovation that will power profitable growth for years to come. Starting in the second half of 2024, our business and financial metrics are expected to reflect this momentum as we return to growth. We are excited to share our progress with you in the coming quarters. I'll now turn it back over to the operator for questions.

Thank you very much.

Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the questioning queue. You may press star and then two 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 star keys. We do request that you limit to one question and then rejoin the queue. Our first question is from Timothy Giodo of UBS. Please go ahead.

Great. Thank you for taking the question. I wanted to touch on accelerated wage access a little bit. So you had the two large customers to start with, the Uber and also the OneApp. OneApp, with it becoming the default for all Walmart employees, as new employees have come on and others have rolled off or left the company. Can you just talk a little bit about the traction that you're seeing with the offering with that one large customer? And related, you had mentioned that there were others coming down the pike in terms of your pipeline for accelerated wage access. Could you just give a brief update on what that looks like now a few months later?

Hey, Tim. Simon here. Thanks for the question. We are indeed extremely excited about accelerated wage access. So the trend is extremely healthy, and accelerated wage access is now about 3% of our processing volume. up from an insignificant number in 2022. So, I mean, to put that in perspective, you're looking at about an annualized $7 billion of pay that is running through the Marketo pipes. That's a massive achievement. We can't comment specifically on individual customers, but the trend is extremely healthy, and so is our pipeline. I mean, at the end of the day, look, I mean, our solution is kind of a win-win-win. Our approach actually benefits the actual employer that has a contingent workforce and because they can retain the working capital, but at the same time give accelerated wage access to their contingent. And, of course, the associates or the contingent workforce gets paid instantaneously, and we save the employer money. So they actually make money. So you're taking effectively an expense line and moving it into a revenue potential that could be returned to the contingency in terms of rewards and discounts. So, I mean, that win-win-win gives us, ironically, an accelerator, and we're extremely excited about it.

Thank you very much.

The next question is from Ramzi Alassal of Barclays. Please go ahead.

Hi, thanks for taking my question this afternoon. It was great to hear you signing some credit deals Can you comment on the credit pipeline and just signals you're picking up in the marketplace in general about the demand environment for credit? And maybe even to put a little nuance on it in the context of a sort of embedded finance use case that it seems like you're winning.

Yeah, thanks, Ramsey, for the question. The pipeline is extremely healthy. As we stated many times, we actually did expect the consumer credit demand to be high. What we were positively surprised by is the SMB credit demand, and especially from, I'd say, aggregators or platforms that have established relationship with SMBs. and have great purview and visibility into the performance of these SMBs and can help with getting them credit because they know what their revenues are going to be. So they can diminish the risk. So I would say across the board, our credit pipeline is extremely healthy. And I would say that the vast majority is in the embedded finance, whether it is commercial or consumer. I mean, that's the space we're playing in. So there could be bias because that's what we're actually chasing. But also from a demand perspective, I would say between SMB credit and new modern-day co-brands, I think there's plenty of innovations to simply drive user engagement and change online commerce and not just payments.

So we're very excited about that.

Thank you. The next question is from Tianxin Huang of JP Morgan. Please go ahead.

Thank you so much. Really strong bookings with 50%, I believe. I'm just curious, is that include any wins with the potential for clients to become maybe top 10 down the road? Just a little bit more context on the type of stuff that you're adding and also just your confidence and your ability to replenish that pipeline and backlog. Are there large deals out there to win versus 90 days ago? Thanks.

Hey, Tingen, Simon here. Thanks for the question. I mean, let me start with your last. Our ability to replenish the pipeline is actually very strong. We haven't drained the pipeline or artificially accelerated any deals. Quite the contrary. Our pipeline is actually growing very efficiently. In terms of the customers, we have closed absolutely. I mean, all of them could be big. It takes time. I mean, you understand this industry. It takes time to ramp, but all of them have great potential and transformative potential. I mean, not each one of them, but there's definitely quite a few that we're very excited about. And in ability to capitalize on the pipeline, we do have an aggressive plan, but we feel comfortable about it.

Thank you.

Next question is from Darren Peller of Wolf Research. Please go ahead.

Guys, hey, thanks. You know, a couple of things. Just number one, it looks like when we see the – all the adjustments that would sort of normalize for gross profit, a bridge to normalize gross profit growth, we're coming out to the, you know, well into the high 20s percent growth. And I know there's obviously some element of cadence as the year progresses, as your, you know, second quarter starts off with incentive rebuild, et cetera. But maybe just talk about that nuance and make sure we're in the right ballpark first. And second of all, you know, you talked about the second half being a little bit better, Mike. So any more color on what's gone well there would be great.

Yeah, so the first question, I would say it's probably more closer to mid-20s. We were negative 4% on an adjusted basis, as you mentioned. We were negative 4% in our reported results. The cash app is mid-20s, and then Visa incentives and renewals are both kind of low to mid. So it kind of puts you low to mid single digits, that is. So it's a total impact of, say, around 30% plus or minus, which puts you kind of on an adjusted basis in the mid-20s percent growth, which is now what we're sort of saying we expect the second half to be, is in that 23% to 26% gross profit growth range in the second half of 2024, once we've lapped most of these things. The biggest, I guess, benefit we're getting compared to what we knew a few months ago when we had Investor Day is some of it is a little bit of business mix, as you know, in our business between all the different use cases. And is it physical or virtual card? And is it powered by, managed by? We have lots of different gross profit take rates on our volume. And there's a little bit of positive mix there. But I would say that the bigger factor is that we have a couple of programs right now where we feel we incur sort of excessive network costs. And we're always working with our customers to try to optimize how their program is operating, both for their benefit and, of course, ours as well. And this can take the form of, you know, how they're looking at declines and, you know, are they really optimized based on the way their program is set up? Are they incurring sort of unnecessary costs? Or the same thing can happen in cross-border. How exactly is their program set up for cross-border? And as you know, those come with much higher fees associated with them, and so are there changes that can be made? And we've identified some changes for a couple of our programs that are in flight right now that we expect to be fully in place for our benefit in the second half. These kinds of things are always opportunities you're hunting for, but you don't really count on them. They're a lot like how flips, I would say how we think about flips. We're always, of course, going after flip volume, but you don't count on flip volume when you're projecting business into the future. So that's really what's driving the upside in the second half, and that's a great win because it's really a structural benefit for those programs and therefore our P&L.

Thank you. The next question is from Brian Keene of Deutsche Bank.

Please go ahead.

Hey, guys. I just want to ask about the bookings ramp. It sounds like, Simon, you've closed some of the time to ramp. Can you talk about that as the bookings, the 50% growth in bookings kind of unfold in 2024? And do we still expect kind of the $20 million in revenue in 2024, $50 million in 2025, and $150 million in 2026 from these bookings? Just trying to get the cadence down correctly in the ramp times. Thanks.

Yeah. Hi, Brian. Thanks for the question. Yeah, it's about right. I'd say we are on track. to deliver the number that we kind of pegged at Investor Day, so the 2050 and 150. So, I mean, we're always working to accelerate those, but I think that's the right range. So we're very comfortable with these numbers.

Thank you. The next question then is from James Fawcett of Morgan Stanley.

Please go ahead.

Great. Thank you so much. I just wanted to ask quickly on the long-term FI opportunity. You said there's some opportunity to win some of the Novo from the top 10 banks. How long do you think it will take for those techs to catch up such that adoption of Marketo becomes easier? Just trying to think about ongoing penetration into more of that broader market.

James, yeah, thanks for the question, Simon here. So we're still on the same timeline. There is definitely a lot of conversations with large FIs, but I do believe we're still on the same trajectory. The majority of the growth we will witness over the next two years will be from FinTechs and embedded finance customers. But as I'd say those players take share, either de novo or take spending share. It is going to be extremely hard for the financial institutions not to look and say, hey, what's going on here? And we expect that trend to start materializing exactly what we've got in the 25-26 timeframe.

And I guess just to add one thing, James, to that, I think that we fully expect that the initial opportunities are likely to come on the commercial side as well. Because if you look at what's happening with some of the more modern sort of expense management and corporate card issuing platforms, several of those companies have gotten to be quite big and starting to capture larger and larger accounts. And so we believe that there's a little more activity within large banks on the commercial side you know, sort of counteract the impacts that might be seen from those companies. There's less of that so far on the consumer side. You know, we hope to, I guess, propagate that in the future with people coming on board and doing some modern co-brands with our new credit capabilities. But we would expect, you know, the initial traction is much more likely to be in commercial than it is in consumer with large FIs.

Thank you.

The next question is from Andrew Boat of Wells Fargo. Please go ahead.

Hey, thank you for taking the question. I know you don't guide to it per se, but we want to get a sense on how we should be thinking about TPV growth and kind of the take rate dynamics here in the 24. I know you've mentioned in the past that because of your enhanced data capabilities that your ability to forecast TPV is significantly better than it has been in the past. So any thoughts around there would be helpful.

Sure, Andrew. So our TPV growth, we expect it to be about 30% throughout 2024. And it'll be relatively consistent each quarter. So just to give you a little sense, like we grew in Q4 33%. It was relatively consistent each month. You know, October was a little lighter, November a little stronger. But in January, our TPV growth was very similar to the December growth rate. It was only one point lower. And February, through the first three weeks, is looking very similar to January. And of course, we'll get the benefit of leap year at the end of the month. So I'd say the trajectory of TPV growth is sort of in that low 30s range so far. And we expect about 30% growth for the year. So it'll all be kind of in that same area of around 30%, plus or minus. From a take rate perspective, I think we're starting to see stability, right? We, as we've said, we have 80% of our, over 80% of our TBD we've renewed recently. And so, as I sort of called out, you know, if you exclude Cash App, which of course we're still lapping, you know, our take rate on revenue has been consistent, excluding Cash App for three straight quarters. On the gross profit side, it's actually ticked up in Q4 compared to Q3 when you exclude cash out, which just has to do with a lot more incentives happening in the fourth quarter compared to Q3. So we expect take rate stability for the most part. There'll always be a little bit of renewal activity, but we'll also have new customers ramping who aren't nearly as deep into their pricing tiers as our existing customers. So we expect relative stability on that 30% TPV growth.

Thank you. The next question is from Dan Durlip of Muziho.

Please go ahead.

Oh, hey, guys. Great results. Thank you for taking my question. I think, Simon, you mentioned that you flipped volumes from your competitors and your prepared remarks. Without naming specific names, can you give us a flavor of the types of competitors that you're winning share from? Thank you.

Sure. Thanks for the question. Yes. I mean, I say there's two flavors. One flavor is taking share from legacy. The others is, I'd say, the flight to quality. There's folks who have probably chosen an alternate processor because they were cheaper than Marketo. But then as they scaled up and they realized our stability, our multiple nines, and as their business scaled, they're looking for a partner that can take them to the next stage. So I'd say it's a mix, a healthy mix of taking incumbents out and also taking kind of less stable processors.

And just to add a little bit to that, Dan, I would say the in Q4 of our bookings, about 10% were flips. And that's actually on the low side for each quarter of the year. So each quarter in 2023, at least 10% of our bookings were flips. So I think there's a good amount of activity of, as Simon was saying, you know, people who maybe a couple of years ago made a different choice. You know, we were a contender for the business and we didn't get it. And now they're sort of realizing some of the the benefits in terms of our expertise to help them scale and grow their platform, also the reliability we provide. And so I think that's really what's helping us.

Thank you. The next question is from Craig Maurer of FT Partners.

Please go ahead.

Yeah, hi. Thanks for taking the question. Wanted to come back to Buy Now, Pay Later for a second. Do you expect that Block's new cash app strategy to drive more adoption using Buy Now, Pay Later will cause any inflection in volume?

We do expect, I mean, there's no question that the Buy Now, Pay Later market is here to stay. and we're seeing two types of distribution for buy now, pay later solutions. One is integration with merchants, and the other one is integration with a payment vehicle. And we're seeing, I would say, higher engagement, consumer engagement, with integrating buy now, pay later into a payment vehicle or a card. So across the Marketo platform, and that's where Marketo has a higher moat. So in terms of Cash App specifically, of course, I mean, Cash App is widely distributed. It's a highly engaging product. So having buy now, pay later in it which is also powered by Marketa, is definitely a solution we're excited about. It makes sense for the consumers. It makes sense for the distribution of buy now, pay later. And it's a segment that Cash App is well penetrated in.

Yeah, I mean, if you think about, Craig, that there's over 23 million active Cash App card users So, you know, although Afterpay has been successful for them and for our business, you know, that's an incredible install base. So, you know, what they talked about on their call last week, you know, makes a lot of sense to us.

Thank you. The next question is from Chris Kennedy of Widenplay.

Please go ahead. Good afternoon. Thanks for taking the question. Can you provide an update on the regulatory environment for banking as a service and embedded finance and kind of how you view that operating environment? Thank you.

Thanks, Chris. I would say there's no changes.

There is not much that we can talk about, either positive or negative. I'd say that the environment remains healthy. I mean, the great news about a lot of what's going on in embedded finance is solutions that are tailoring to the unbanked and the underbanked. There's no question that Buy Now, Pay Later has opened the credit box and provided what is effectively lending without the 29% APR. So that's definitely helping the community. And same thing with SMBs. They're kind of like the forgotten entity. So there's a lot of goodness that is happening there. with these solutions. So we're comfortable with the regulatory environment. The second thing I'd say is as a company, we have invested in program management and we've invested in compliance. We've invested in a lot of these services because, number one, we take it very seriously. And the second thing is that when we target the brands, especially in embedded finance, the last thing we want is bring them regulatory trouble. So I think we've taken this very seriously as a platform.

And I think as you maybe referred to, Chris, I mean, some of the announcements out there about BAS platforms and some of the banks to do business with, the more of those announcements, you know, there's definitely a component of a flight to quality, which we think we are the beneficiaries of, just given our scale and the level of investment. And we were one of the first movers in this space. So, you know, we think that although it's unfortunate, you know, that there's some disruption in the marketplace like that. I think generally speaking, we're definitely more of a beneficiary than something that hurts us.

Thank you. The next question is from Cassie Chan of Bank of America.

Please go ahead. Hi, guys. Just two quick questions for me. So first I wanted to ask about the competitive landscape. There's obviously been some headlines around corner and block with audiences. are you guys seeing the competitive landscape evolving or intensifying among existing clients? And then just a quick clarifying question, did you guys disclose the impact or was there any from Reg. I.I. in the quarter and if there's anything assumed in the first quarter or the 2024 guide? Thank you.

Kathy, thank you for the question. I'll take the first one and I'll toss the second one to Mike. In terms of the competitive landscape, I'd say it is more favorable than it used to be because the majority of the growth we are seeing is in the areas that Marketa has a much higher moat. So in the one-time, I'd say the one-time virtual commercial card space, yes, there is competition, but Most of our customers buy from us or partner with us on more than that. So the growth is coming from areas where our moat is higher. So I think we're comfortable there in terms of the competitive landscape. Now, that doesn't mean we're not mindful of competition on the country. We respect it. It keeps everybody honest, and it keeps us innovating.

And on your second question on Reg AI, nothing really of note to point out. I think last quarter we did have something because we were a little surprised by the changes that went into effect and the degree to which the mix of volume changed, which is very relevant for us in Cash App now based on the way the accounting changed and the renewal. So that was something where we just didn't expect as much shift as we saw, and that impacted our economics a little bit in Q3. But with that knowledge now, Q4 was largely as expected, and there's nothing we see or have assumed in 24 that's noteworthy.

Thank you.

The next question is from Andrew Jeffrey of Truist Securities. He's going to hit.

Hi. Good evening. Thank you for taking the question. I wanted to ask about expansion deals, or expansion of existing relationships. Sounds like that was a call-out growth driver as well last year. Can you talk a little bit, I guess you said perhaps 60% of total bookings for expansion deals. Can you talk a little bit about additional capabilities and how you're monetizing existing customers at an improving rate the way you are?

Yeah, absolutely, Andrew. Thanks for the question. There's many angles to this. I mean, what we've done over the last year is focus on solution selling. Like, if you look at the trajectory of Marketo, I would say there was neobanking, then buy now, pay later, then expense management, then on-demand delivery. And we started working on accelerated wage access, SMB credit, and co-brands. so and all of them processing is kind of the least common denominator and just in time processing is the least common denominator everybody uses it and then as we started rolling out like banking as a service product program management such as disputes and chargebacks uh uh risk solutions those were kind of like good add-ons but i'd say what what also has happened is a lot of our customers started launching multiple programs with us. Like, as an example, the Buy Now, Pay Later community, most of them started with a solution that integrates with merchants. And all of them are now moving, I'd say a good majority of them, actually either integrating into a payment card or having a payment card, like a super card, So they launch more programs with us. So I'd say it is either more programs launched with us or value-added services that we are adding. The third angle is international expansion. So we've taken the strategy that we're going to basically go where our customers go, I mean, with reason, basically. and efficiency. So a lot of them, a lot of the multinationals, they want to code once and deploy everywhere. And Marketa gave them that ability. So that's the third dimension of expansion. So in summary, I'd say First one is launching more programs. The second one, more value-added services. Third one is international. Now, looking forward, credit is a phenomenal opportunity to a lot of the debit partners we have. So we are in deep conversations with a lot of our customers that use us for debit, and they want to use us for credit as well.

And another example that I would just add to what Simon just said is They might look at credit, or maybe they have something that's customer-facing, and now maybe we're engaged on something that's more employee-facing on accelerated wage access. As we add to the use cases and the breadth of our platform, there's lots of different opportunities that we can discuss with our customers. As we go into embedded finance, that's one of the really compelling things about our platform is you know, most of these customers are going to, or prospects are going to start somewhere, but many of them are already big companies in their own right and are thinking a little bit bigger, and they have that opportunity to do that with one partner on the Marketo platform that, you know, might be difficult to achieve with some of our competitors.

Thank you.

The next question is from Moshe Kater of Web Push Securities. Please go ahead.

Hey, thanks for taking my question. Can we talk a bit about the center that you're opening in Poland and how that could potentially bring down some of your technology or development costs on the road?

Absolutely. Thanks, Moshe.

Yeah, I mean, we all come from backgrounds in which we scaled organizations, and there's multiple reasons to do this. One is the talent in Poland is really good. And especially as some folks in our industry, whether it's networks or I'd say accounting, have back-end services done in Poland. The second one is strong back-end engineering, risk operations, AI, machine learning, so on and so forth. The labor market is still favorable compared to the United States in terms of availability and in terms of cost. So the areas where we are investing in in Poland will help us on the risk operations, program management, as well as engineering services. And we expect also to invest on what I call the back office sales organization as well. I mean, throughout my career, I've had tremendous success in Poland.

So I think we're looking good there.

Thank you very much. Our final question is from Jamie Friedman of Susquehanna.

Please go ahead.

Hi. Thank you. Mike, I think you said in your prepared remarks that the non-block renewals lower gross profit growth low to mid-single digits. If I heard you wrong, I apologize. If so, that's the case. I was wondering how we might, if you could unpack that a little about the inputs and how we might be thinking about that in 2024 would be helpful. Thank you.

Yeah, you got it exactly right, Jamie. This is, it was low to mid single digits from deals that we did between Q2 of 22 and Q1 of 2023. So in that four quarter period, we renewed about 50% of our non-block TPV. And so the last couple of quarters I've been calling this out. So this will lap in Q2 of 24. Um, now what's not in there, it's not all, all renewals that are non-block. It's just within that window of time when there was just a lot of activity. And, um, and so we really just have one more quarter, uh, Q1 of 24 before we start lapping. Uh, but you got it right. It was low to mid single digit of, uh, gross profit growth drag in Q4 as a result of those.

Thank you very much, uh, Ladies and gentlemen, that then concludes today's event.

Thank you for attending and you may now disconnect your lines.