Marqeta, Inc.

Ladies and gentlemen, greetings and welcome to the Marketa Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacey Fineman, Vice President of Investor Relations. Please go ahead.

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, 2023, and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the time of this call, and the company does not assume any obligation or intent to update them, except as required by law. In addition, Today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which are available on our investor relations website. Hosting today's call are Simon Koloff, Marketis CEO, and Mike Miletic, Marketas CFO. With that, I'd like to turn the call over to Simon to begin.

Thank you, Stacey, and thank you for joining us for Marketas' third quarter 2024 earnings call. I will first briefly discuss our Q3 results at a high level, followed by the progress we're making in our business to help transform payments, and last, address the Q4 reduction in growth expectations. Marketa's business is on solid ground, and our fundamentals are strong. We have lapped the cash app renewal, and as a result, the third quarter's net revenue, gross profit, and adjusted EBITDA now give a more accurate view of our business trajectory as they demonstrated positive year-over-year gains. Total processing volume, or TPV, was $74 billion in the third quarter, a 30% increase compared to the same quarter of 2023. Our net revenue of $128 million in the quarter increased 18% year over year. Gross profit was $90 million in the quarter, a growth of 24% versus the comparable quarter of 2023. Our non-GAAP adjusted operating expenses were 81 million, representing a 9% increase year over year, significantly below our gross profit growth rate. This resulted in an adjusted EBITDA of 9 million in the quarter. Now let me shift to talk about where we are in the transformation of payments. The modernization of payments started more than a decade ago on the acquiring side, but has gained momentum on the more complex issuer processing side in the last five years. Despite the great progress we made, this transformation is still in its early stages. And Marketa currently accounts for only about 2% of the issuer processing volume in the markets we operate. There's a long-term secular shift in financial services. The days are numbered for the status quo as consumer and businesses want modern financial products. We're driving the shift and have the scale and track record as a trusted ally to innovators. But there's more we can do to accelerate this transition and reduce the overall time to value. We recently launched Portfolio Migration, a new product that simplifies upgrading existing card programs onto our platform, reducing complexity and minimizing disruption during the transition. This lift and shift solution allows companies to migrate portfolios from competitor processors to Marketa's modern platform, allowing customers the best of both worlds. A smooth transition combined with the ability to benefit from the increased capabilities our platform enables. This capability includes two main components, an automated migration tool that transforms and aligns card program data from the previous system to Marketas platform, as well as operational processes to ensure a smooth transition. We believe this capability can accelerate the shift to our platform and reduce time to value. In fact, we recently completed the successful migration of millions of Klarna cards across Sweden, Germany, and the UK in October. after starting the project earlier this year. The transition provided Klarna with greater resilience and stability, meeting Klarna's needs ahead of the holiday season. Millions of Klarna users now have the best technology powering their cards and enjoy rich functionality. This success serves as a strong proof point when offering similar migration services to other customers, showcasing a modern and seamless solution. We're also delivering ways to accelerate the launch of new card programs, as exemplified by the release of our UX toolkit. This capability allows customers to create branded front-end experiences using a comprehensive set of pre-built UI components optimized for Markera's APIs. It enabled customers to build market-powered debit and credit program with fewer development resources. This is particularly valuable in new banking, where customers want a straightforward way to manage their money, and in better finance, where customers want payments to blend into their existing experiences and drive further engagement. We already have four customers adopting the UX toolkit, Integrating the features into their own existing products and the feedback has been extremely positive. Also, in keeping with the current regulatory climate, the toolkit was done in a compliance-forwarded manner, as these templates have been vetted by banks with specific regulations in mind. We're also enabling the shift to modern card issuing by leveraging our unique scale and expertise, especially in Buy Now, Pay Later, or BNPL. Last week, we announced Marketaflex, a new solution that revolutionizes how BNPL payment options can be delivered inside payment apps and wallets, surfacing them when needed within the payment flow. Many years ago, Marketa expanded the addressable market for BNPL with the use of single-use virtual cards, eliminating the need for providers to directly connect with merchants in order to bring BNPL to the point of sale. With Marketa Flex, we plan to expand BNPL's distribution even further by giving consumers access to personalized BNPL options inside of their payment apps of choice. We're excited about the participation of Klarna, Affirm, and Branch in the next innovation in the BNPL landscape. Together, these relationships are helping us create an experience that expands BNPL distribution and enhances the overall payment experience. We plan to roll out Marketaflex in mid 2025. In the meantime, we will gather additional participation from customers and partners to participate in this new approach to scaling BMPL. With all this great progress, why is our guidance for Q4 softer than expected? Well, last year, the regulatory environment changed amongst the smaller banks that support many of our customers' programs. As a company, we anticipated this change and invested in program management in general and compliance services in particular. We believe that these investments have positioned us well in the medium and long term and increased the moat around our platform, especially in embedded finance. However, We underestimated the increased operational burden these changes made on both Marketas and the banks onboarding and compliance teams. The incremental scrutiny and rigor translated into delays in launching new programs. These delays have also been aggravated by the increased demand from new bookings in 2023 and the first half of 2024. On average, the time to launch new programs grew 30% to 40% from 2023, and we expect that increase to remain for at least two additional quarters as we and our bank partners become more agile in launching programs in this new environment. Given the standard ramp time for programs in our industry, these delays will cause volume and gross profit to be pushed out a few months. Now, with a more complete understanding of the implications, we're taking a more holistic approach to ramping the programs we have already signed. We are also signing up new banks to add capacity and open up new choices for our customers while making our processes standardized across all banks we support. we are confident these changes will give us the agility we need. However, it will take a few months to completely solve the problem and drain the backlog that has been built up. We view the headwinds from the more challenging bank environment as short-term, merely slowing down our progress rather than a change in the trajectory of our business, nor impacting our path to profitability. In fact, we remain confident in our strategy, business trajectory, and execution. We've been a large contributor to transformation in the payments industry and a trusted ally to our customers who seek an engaging and a compliant customer experience. We've done it with an eye on the horizon and a nose to the ground. Although the current banking environments have shifted the curve out, The fundamentals of our business are strong. Our pipeline continues to grow, and we are confident in our ability to demonstrate strong, long-term, profitable growth. With that, I'll pass it on to Mike.