Marqeta, Inc.

are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacey Feinerman, 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, included those set forth in our filings with the SEC, which are available on our investor relations website, including our annual report on Form 10-K for the period ended December 31st, 2023, and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make here 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 is Mike Miletic, Marketta's interim CEO and CFO. With that, I'd like to turn the call over to Mike to begin.

Thank you, Stacey. And thank you for joining us for Marketta's fourth quarter 2024 earnings call. Before I get into our quarterly results, first, I'd like to speak about the company's leadership transition. Earlier today, we announced that Simon Koloff has stepped down as Marketta's CEO and as a director. I have been appointed to serve as interim CEO as our board of directors conducts a comprehensive search process to identify Marketa's next CEO. On behalf of our board, the management team, and our entire employee base, I'd like to thank Simon for his leadership and dedication to Marketa. We are appreciative of his contributions to our company, and we wish him well in his next endeavor. As many of you know, I joined Marketa three years ago after witnessing firsthand how the company's innovative platform was enabling new commerce experience that leveraged the existing payment ecosystem while reducing risk and increasing user engagement. Today, those opportunities are more compelling and widespread than ever, and I'm confident in our ability to capture them. I'm honored to be taking on this expanded role during such an important time for Marketta and look forward to a seamless transition for our employees, partners, and customers as we execute on our clear strategy to drive profitable growth and value creation. Now let me turn to our quarterly performance. To start, I'll briefly highlight our Q4 results, followed by an update on accomplishments for the quarter, and outline our key priorities for 2025. Then I'll conclude the call by going over the quarter's financial results and our 2025 guidance in additional detail. Our fourth quarter results once again demonstrate our ability to grow at scale while improving our adjusted EBITDA margin and continuing on our path to profitability. Total process volume, or TPV, was $80 billion in the fourth quarter, a 29% increase compared to the same quarter of 2023. Our Q4 net revenue of $136 million grew 14% year over year. Q4 gross profit was $98 million, an 18% increase versus Q4 of 2023, resulting in a gross margin of 72%. Our adjusted EBITDA was $13 million in the quarter, translating into a 9% margin. In addition to our results, I'm excited to share our recent achievements. First, let me highlight the significant strides we've made in streamlining our program launch timelines by comprehensively enhancing our bank partnerships and the customer experience. We are making progress in adding additional banks while also streamlining our operations and program onboarding with existing bank partners with the introduction of a more structured approach for our customers, emphasizing pre-approved frameworks that align with bank standards and compliance guidelines. We've partnered with our customers to adopt to this new approach while also implementing additional fees for mid-process changes to align interests and maintain this efficiency. As a result of the previously delayed programs discussed in our last call, three remain pending launch. However, for these three, the delays are a result of customer decisions rather than capacity constraints on our part or from our bank partners. While this outcome represents great progress, we remain focused on continuously optimizing our launch timelines while enhancing the overall customer experience. In addition to these operational improvements, we had several great wins in the fourth quarter that underscore our competitive advantages from product innovation, global reach, and scale. First, we secured a consumer co-brand credit partnership with a well-established airline located outside the US that wants to capitalize on its already strong US customer base. While airline's cards have existed for many decades, the value proposition and user experience have remained relatively stagnant, which is a view that we share with our customer. Rather than implementing a traditional mileage program, this airline sought a partner that could deliver a dynamic loyalty solution integrated throughout the customer journey to drive true customer engagement. They selected Marketa for our payment innovation and our comprehensive program management capabilities. This includes dedicated support, built-in risk management and compliance frameworks, allowing our customer to focus on their core business and passenger experience. This partnership is representative of a shift from loyalty programs that are more traditional to a daily engagement model. Our European business continues to gain momentum with Q4 TPV growth well over 100%. In Q4, we had two notable wins that will contribute to this momentum in the future. We've secured a deal to provide both commercial card processing and program management to one of Europe's fastest growing technology companies, which has a strong presence in Central and Eastern Europe. This win is the result of our focus on elevating our European program management services to align with our US offering, combined with our proven track record with innovative tech companies and our scalability. Although eight of our top 10 customers utilize our platform in more than one region, And by region, I mean US, Canada, and Europe. Typically, they launch in one region first and expand over time. So although our global platform might be one of the key reasons they select Marketa, they typically don't utilize it globally from the start. We have said we expect this gradual expansion approach to change as we engage with more well-established multinational companies with embedded finance ambitions. And in Q4, we signed our first multinational solution sale. A US-based B2B payments company has chosen to entrust Marketa with a portion of their US volume and their European operations in one highly coordinated global effort. As we look forward, we are building upon many of our previous year's accomplishments to make significant strides toward an even more transformative 2025. We aim to establish Marketa as a preferred partner for embedded finance and fintech innovations through three key strategic pillars. deepening our platform breadth, expanding the solutions we offer, and strengthening our leadership in payments innovation. Less than two months into 2025, we are already making meaningful progress on all of these fronts. For platform breadth, let me highlight two focus areas. We are excited to welcome the American Express Network as a new option for credit and debit card programs for our customers starting later in 2025. With their unique brand, assets, and expertise, offering American Express will further widen the choices on our platform to differentiate and provide even more options to FinTech and embedded finance partners and prospects. We have signed an agreement and are working together to make an American Express network available to our customers later this year, leveraging the American Express Agile Partnership Platform, which enables FinTechs and other partners to launch cards on the American Express network. We will share more details when we get closer to launch. With this addition completed in 2025, the breadth of our capabilities, combined with the ability to leverage all the major card networks, will further differentiate Marketo. Platform breadth also means having product parity no matter where our customer chooses to operate or expand their business. As I referenced earlier, program management is becoming another key lever to enhance our offering in Europe, especially for companies seeking to offer embedded finance. However, unlike the US, in the UK and Europe, an EMI license is required for companies to issue and manage electronic money, including digital wallets or prepaid cards, and provide payment services such as online transactions, money transfers, virtual cards, and the ability to store customer funds electronically. Previously, we partnered with TransacPay to meet licensing needs. Customer feedback consistently highlighted the desire to avoid the complexity associated with contracting multiple partners. Rather than building our licensing infrastructure, which would take several years, and given the substantial European opportunity we see in our pipeline, we decided to acquire TransacPay to integrate our offering. The close is subject to regulatory approvals, which could take up to six months from now. I will share the financial impact of the acquisition later when we discuss our expectations for 2025. Next, let me touch on expanding solutions. In 2025, we will continue to deepen our offering and harness our expertise and scale to solve specific customer pain points, specifically around risk, compliance, and business insights. Our real-time decisioning risk product exemplifies the success of this approach with revenue more than doubling from 2023 to 2024 and now serving over 20 global customers. This revenue stream carries significantly higher gross margins due to limited transaction costs. Over the course of 2025, we plan to offer additional services that will enable business insights into program performance and improve visibility into key compliance activities. As a result, we believe this will give more customers the opportunity to use the Marketo platform in a more holistic way. Lastly, we will continue to be a first mover on payments innovations to help our customers deliver unique value propositions. Nowhere has this been more evident than with BNPL. Early on, Marketo helped ease the burden of merchant adoption with instant issuance virtual cards. Then we were the first to help providers deliver the BNPL value proposition via a card that they issue, making BNPL available anywhere a card is accepted. Recently, we were the first processor to work on Visa flexible credentials in the U.S. which have launched and are already showing traction for multiple customers across multiple wallet solutions. We are excited to partner with MasterCard on their recent announcement of MasterCard One and deliver flexible card credentials to many more of our customers. We are also making progress on Marketaflex with the goal of enhancing how BNPL payment options can be delivered inside payment apps and wallets, servicing them when needed within the existing payment flow. From an operational perspective, Q4 demonstrated our ability to navigate challenges, prioritize customer needs, and maintain a strong focus on scale. Looking ahead, we are focused on leading in FinTech and embedded finance by strengthening our platform, accelerating payment innovations, while prioritizing compliance. However, we are equally focused on driving profitable growth with a trajectory that is sustainable and diversified. With that, I'm now going to transition over to discussing our Q4 financial results and 2025 guidance in more detail. Our financial results for Q4 reflect a stronger than expected finish to the year. Q4 TPV growth of 29% remains strong and steady, coupled with outperformance across net revenue, gross profit, and expense, delivering an improved adjusted EBITDA margin of 9%. Net revenue and gross profit growth outperformed by three to four points, primarily due to a favorable business mix, new programs performing a little better than expected in the holiday season, and the achievement of a performance incentive with a partner. The business outperformance, combined with the continued execution of efficiency initiatives, moderating expense growth, delivered a much higher adjusted EBITDA of $13 million in the quarter. Let me quickly share the Q4 highlights before spending more time discussing expectations for 2025. Q4 TPV was $80 billion, growing 29% year-over-year, one point slower than last quarter. TPV growth has been steady for some time now, growing between 29% and 33% in each of the last seven quarters, resulting in Marketta achieving new levels of scale. To put our growth at scale in perspective, in Q1 of 2024, we had our first day of over $1 billion of TPV. And in Q4, there were 17 days where we crossed $1 billion. Non-block TPV grew roughly twice as fast as block, fueled by customers big and small across several use cases. Consistent with the last several quarters, financial services, lending including buy now, pay later, and expense management all grew at roughly the same rate in Q4, slightly faster than the overall company. Growth within our financial services vertical continues to be fueled by block success as well as the rapid expansion of our non-block neobanking customers. whose TPV grew roughly 100% year-over-year. Lending, including Buy Now, Pay Later, growth remained strong due to several drivers, including the adoption of our BNPL customers' Pay Anywhere card solutions, our customers' increased distribution through wallets, strong user growth among SMB lending solutions, and Klarna's migration to our platform in Europe in October, which we discussed on our last call. Expense management growth accelerated a bit this quarter due to our customers sustaining strong end user acquisition as AP automation and modern corporate card platforms continue to gain share. On-demand delivery growth remained in the single digits due to the maturity of this use case as well as three distinct instances of customers reducing card usage by connecting their platforms directly to an individual merchant as we discussed last quarter. Q4 net revenue was $136 million, growing 14% year-over-year. Our growth slowed four points versus last quarter, primarily due to tougher year-over-year comparisons, as well as a greater percentage of volume coming from powered by customers, which have a lower net revenue take rate due to minimal cost of revenue. This mixed shift was partially offset by our powered by Marketta take rate improving by more than one point due to favorable mix, as consumer use cases are growing much faster than single-use commercial virtual card. Block net revenue concentration was 46 percent in Q4, decreasing one point from Q3 of 24 and down five points from Q4 of 2023. Non-block revenue growth accelerated a bit versus last quarter, helped by the ramping of new programs. Our net revenue take rate of 17 basis points remains unchanged from last quarter. Q4 gross profit was 98 million, growth of 18 percent year over year, resulting in a 72 percent gross profit margin. This is approximately four points higher than we expected at the end of last quarter, primarily driven by three factors. First, the growth contribution from new program launches was approximately two points better than we anticipated, mostly due to stronger holiday season TPV among these programs. But also, the program launch delays that we discussed extensively last quarter were a little less impactful than we expected. The other two factors were unforeseen benefits. We earned a performance incentive that contributed one point of growth after achieving an unexpected milestone. In addition, favorable customer mix also contributed one point of growth upside as several of our higher yielding use cases and customers outperformed our expectations. Non-block gross profit growth was consistent with last quarter growing many points faster than the overall company. Our gross profit take rate was 12 basis points, consistent with last quarter. Q4 adjusted operating expenses were 86 million, growing 7% year over year, which was a little better than expected. We continue to be focused on our hiring, utilizing multiple geographic locations to find the best talent, in part to rely less on professional services. We are also benefiting from increased scale as our platform-related costs grow slower, than our process transactions and our gross profit. Q4 adjusted EBITDA was positive $13 million, a margin of over 9%, which are both new all-time highs for the company, as we continue on our path to profitability. The Q4 gap net loss was $27 million, including a $10 million post-combination expense related to the power acquisition, offset by interest income of $11 million. We ended the quarter with $1.1 billion of cash and short-term investments. To briefly summarize our full year 2024 performance, TPV growth was 31%, the net revenue contracted 25%, and gross profit grew 7%, which does not reflect the strength of the underlying business due to the cash app renewal and the change in the revenue presentation that impacted our year-over-year comparison in the first half of the year. The second half of 2024 clearly demonstrates we are on a path to sustainable, profitable growth. Adjusted EBITDA was $29 million for the year, which is a 6% margin on revenue or an 8% margin on gross profit. This is a milestone for the company as we leave our negative adjusted EBITDA days behind us and drive toward gap profitability exiting 2026. Before I transition to our expectations for 2025, let me spend a minute discussing share buybacks. We currently have $80 million remaining on the Q2 2024 authorization. There was very little buyback activity in Q4 as the prior 10b-5-1 plan expired shortly after our November earnings release. At that time, the company was not in a position to trade or enter into a new 10b-5-1 plan because of legal restrictions. However, we expect to restart our share purchase activity in the coming days as we do not believe the current valuation fairly represents the company's value or the market opportunity in front of us. To that end, our board has approved an additional $300 million share buyback authorization, bringing our total authorization to $380 million. We intend to capitalize on this opportunity to return capital to shareholders at prices well below what we believe is fair market value. Now let's transition to our expectations for 2025. Let me first start with our full year 2025 expectations before diving into more details on the quarterly cadence. Full year 2025 net revenue growth is expected to be between 16 and 18 percent, which is relatively consistent with our second half performance in 2024. This is fueled by our expectation of TPV growth in the mid to high 20s, which assumes a stable macro economic environment consistent with the past several quarters. The TPV growth is partially offset by a lower net revenue take rate, mostly driven by two factors. First, stronger growth among our Powered by Marketta customers, where our take rate is lower. It is important to note that this factor is much more impactful to net revenue growth than to gross profit growth, because a big component of the lower revenue take rate is the minimal cost of revenue, which is not relevant for gross profit. And second, lower pricing as a result of expected contract renewal activity. New programs sold since the revitalization of our sales motion late in 2022 and launched since the start of 2024 are expected to contribute over $40 million net revenue. The contribution to 2025 net revenue growth will be roughly 5% based on our 2024 performance of less than $20 million. Unfortunately, this is behind our $60 million goal we shared previously due to fewer new programs launching and ramping in 2024 as well as launch delays, which we believe is partly due to heightened regulatory environment from our bank partners, which we discussed in detail last quarter. While we did not make great progress in launching delayed programs in 2020, while we did make great progress in launching delayed programs in 2024, we are still not back to our 2023 time-to-value run rate. 2025 gross profit is expected to grow between 14% and 16%, which equates to a gross profit margin in the high 60s. Gross profit growth is expected to be slightly lower than net revenue growth, mostly due to the contract renewals we expect to execute this year, where our pricing changes, but our cost of revenue remains unchanged. There is always some renewal activity in any given year, but 2025 will be a little more significant than what we should typically see going forward. We have previously discussed renewing over 80% of our TPV over roughly 18 months in 2022 and 2023, following the fintech boom. The last couple of significant remaining contracts are up for renewal in 2025. 2025 adjusted operating expenses are expected to grow in the mid to high single digits as we continue to focus on efficiency, operating with a strong investment discipline, and achieving economies of scale. Therefore, we expect full year 2025 adjusted EBITDA margin to be in the range of 9% to 10%. This equates to adjusted EBITDA of well over $50 million. One note on EBITDA margin. We feel looking at adjusted EBITDA margin on the basis of gross profit, which is expected to be in the mid-teens, better reflects the nature of our business and profitability. As I mentioned earlier, we reached an agreement to acquire TransacPay to enhance our program management offering in Europe. For financial planning purposes, we are assuming we close at the start of Q3 2025 which is dependent on when we receive regulatory approval associated with the EMI licenses. The purchase price was 45 million euros with an additional 5 million euros tied to performance incentives. Based on consistent feedback from customers and prospects, we believe the TransacPay and Marketa offerings together will drive value in three ways. One, more European customers will adopt our program management services. Two, We will attract additional customers looking for a single provider of processing, program management, and the EMI license. And three, geographic expansion on our platform will be even more seamless, as there will be significantly more parity in our product offerings in the US, Canada, and Europe. Therefore, we believe the value of the acquisition will mostly be visible in new sales, which typically take more than one year to meaningfully contribute to the P&L. Our 2025 expectations include two quarters of the current TransactPay business included in our P&L, which should contribute approximately one point to full year growth rate of both net revenue and gross profit, and be neutral to adjusted EBITDA. Before I share the quarterly cadence of our 2025 expectations, I want to highlight a change to how incentives will be recorded starting in Q2 2025, which will be the largest driver of quarterly gross profit growth fluctuations. As a quick reminder, our two most significant incentive contracts both have contract years that run April to March. When our accounting was finalized prior to the IPO, we didn't have enough history to demonstrate an ability to forecast incentives. Therefore, it was determined we would record the benefits as they were earned. This meant our incentives increased significantly throughout the year as we reached additional tiers. which resulted in our gross product growth being lower in Q2 in particular. Now that we are approaching the four-year anniversary of our IPO and have an established track record, starting in Q2 2025, we anticipate that we will accrue incentives each quarter based on the forecasted annual contract tier we expect to achieve. As a result, we expect that there will be much less variation in the quarterly incentives recorded in the P&L even though this does not impact what we earn in any given contract year. Therefore, in 2025, as we implement this change, the quarterly gross profit growth rate will be impacted due to the differences in the year over year comparison. We will provide the impact each quarter so it is clear what our true growth trajectory is on an apples to apples basis. With that, let me turn to the quarterly cadence. In Q1 2025, we expect net revenue to grow between 14% and 16% a little faster than we exited 2024 as we lap the renegotiated platform partner agreement that has weighed on revenue growth since Q1 2024 as a result of the new Cash App revenue presentation. We expect net revenue growth to accelerate by approximately one point each quarter as we progress through the year, bolstered by contributions from new programs launching and ramping, as well as the customers adopting new solutions as we continue to expand the services we offer. For quarterly gross profit, let me first share the growth trajectory on an apples-to-apples basis without the change to accrued incentives or the inclusion of transact pay, which is the best reflection of the underlying business performance. Q1 gross profit growth is expected to be 11% to 13%, which will be our lowest quarter before the revenue growth starts accelerating. This is six points lower than our Q4 2024 exit for two reasons. First, Q4 2024 benefited by a combined two points of growth from a partner incentive tied to an annual performance and favorable customer mix during the holiday season. Second, there's an additional four points of drag on Q1 growth due to the timing of an incentive, which was booked in Q1 2024 for the previous contract year but was earned in Q4 2024 in the most recent contract year, creating an unfavorable year-over-year comparison in Q1. Q2 growth will be the highest quarter, roughly four points faster than Q1, in the mid to high teens as new programs ramp and new services are adopted, but we don't yet have headwinds from renewals, so we have the easiest year-over-year comparison. Q3 and Q4 growth should be similar, roughly two points slower than Q2 in the mid-teens as expected renewals begin to offset the benefits of accelerating new programs and services. Let me share quarterly gross profit growth expectations on a reported basis, including the noise from the change in accrued incentives and the inclusion of TransactPay. Q1 gross profit growth is expected to grow between 11% and 13%. Q2 gross profit growth is expected to accelerate into the mid-20s, including an approximately eight-point lift from the incentive accounting change. Q3 gross profit growth is expected to be in the mid-teens on a reported basis, approximately two points higher than Q1 due to the inclusion of TransactPay. The incentive accounting change will contribute one to two points of growth drag, which is offset by better business performance. Q4 gross profit growth is expected to slow by three points versus Q3 into the low double digits due to the larger impact from the incentive accounting change. Our 2025 investments are primarily focused on platform capabilities and innovation, additional go-to-market resources to meet growing demand, and maintaining high standards of compliance. Q1 adjusted operating expenses are expected to grow in the mid to high single digits, roughly in line with Q4 2024 growth. We expect Q2 growth to be roughly two to three points lower than Q1 in the mid-single digits due to an easier year-over-year comparison. Q3 and Q4 are expected to be approximately two to three points higher than Q1 in the high single to low double digits due to the expected inclusion of TransactPay. Q1 adjusted EBITDA margin is expected to be 10% to 11%, slightly better than Q4 2024. We expect the remaining quarters of 2025 to be one point lower at 9% to 10%. In conclusion, we are exiting 2024 with a solid foundation and with many impactful business enhancements coming in 2025 that will enable us to deliver sustainable, profitable growth for years to come. Our excitement and confidence is primarily driven by four factors. First, our sales pipeline suggests embedded finance is getting close to breaking out. offering card issuing solutions to drive engagement and enhance the monetization of their already existing user bases. Our 2025 technology roadmap will deliver significant expansion of the platform services we provide and strengthen our payment innovation leadership. This not only increases the value we can offer our customers, but also strengthens our ties with the customer. Our Europe business continues to grow very fast and we are enhancing our program management capabilities to make our value proposition as comprehensive as what we offer in the U.S. And finally, our platform continues to reach new levels of economies of scale to drive higher profit margins as we strive to accelerate growth in 2026 and beyond. The combination of strong gross profit growth and rapid adjusted EBITDA margin expansion will fuel value creation well beyond our 2026 exit with GAAP profitability. I will now turn it back over to the operator for questions.