Marqeta, Inc.

Ladies and gentlemen, welcome to the Marketa third quarter 2025 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Maria Greiser, Investor Relations. Please go ahead.

Thanks, operator. Good afternoon, everyone, and welcome to Marketa's third quarter 2025 earnings call. Hosting today's call is Mike Miletic, Marquetta's CEO and CFO. 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, 2024, 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. With that, I'd like to turn the call over to Mike to begin.

Thank you, Maria, and thank you for joining us for Marketo's third quarter 2025 earnings call. To start, I'll briefly highlight our Q3 results, followed by an update on our progress growing the business across the full spectrum of debit and credit products, consumer and commercial offerings, and a wide variety of use cases and geographies with both new and existing customers. I'll conclude with details about our Q3 financial results and our expectations for the remainder of the year. Our great third quarter financial performance continues to demonstrate tremendous growth, resulting in our ability to deliver higher adjusted EBITDA through both efficiency and scale. Total processing volume or TPV was 98 billion in the third quarter, a 33% increase compared to the same quarter of 2024, and an acceleration of over three points from last quarter. Since this is the second consecutive quarter with accelerating TPV growth, despite our increasingly larger base to grow over. To put this performance in perspective, this is our highest TPV growth rate since Q1 2024, despite the base we are growing over this quarter being almost 50% larger than the base we grew over in Q1 2024. Q3 net revenue of 163 million grew 28% year-over-year due to robust growth across a broad spectrum of use cases we enable. Gross profit was 115 million, a 27% increase year-over-year, largely in line with the net revenue growth. Adjusted EBITDA was 30 million in the quarter, a 19% margin fueled by both exceptional gross profit growth and continued expense discipline while we make strategic investments in new capabilities and scale to fuel future business growth. This is another all-time high for adjusted EBITDA dollars as we progress on our path to profitability. This year, we remain focused on expanding and deepening our customer relationships by enabling innovative programs and seamless geographic expansion, while also increasing our bank supply. One factor driving our performance is a remarkable growth in our lending use cases, including buy now, pay later. The growth is a testament to our ability to support customers in many markets, including North America, Europe, and Australia, but also to the innovation at scale that we enable. Once again, we are adding unique value to our customers in support of this use case. While BNPL started with Marketta enabling virtual cards for seamless payment experiences without costly backend integrations, the category continues to evolve. We have been on the forefront of enabling the new wave of growth in the space with what we call Pay Anywhere Cards, that allow end users to pay anywhere that cards are accepted with the flexibility to split a purchase over time. We were also the first to support the Visa flexible credential in the US, which gave us a significant lead as it has been rapidly adopted over the past year and now includes Klarna's recent expansion into Europe. The newer solutions enable our customers to deliver a better value proposition to their consumers with more flexibility to expand the availability of credit. Our unique combination of capabilities, geographic reach, and scale has helped broaden the category significantly, with TPV and lending, including buy now, pay later, use cases growing much faster than the overall company TPV growth. Another area where we have continued to see increased growth and demand is in commercial programs, particularly platforms that enable SMBs to reach bigger markets with money movement and access to working capital. In Q3, we signed a Fortune 500 customer to enable electronic supplier payments for the small and medium-sized businesses they serve. Our customer's global platform has a comprehensive suite of financial and business management applications serving millions of users. They were looking for a partner who would allow them to stay at the forefront of the needs of their end users with easier and more modern payment options. They saw Marketo as a leader and enabler of innovation in expense management use cases, and selected Marketa for both our flexibility and ability to execute at scale. In Q4, this program will be the first to launch with one of our new U.S. bank partners. At the start of the year, we talked about our desire to expand our bank supply with partners who prioritize new capabilities and technology, maintain a strong focus on regulatory compliance, and can support our full range of offerings across debit and credit. In the U.S., Cross River Bank is now live, and we are in the process of technically integrating Coastal Community Bank to support programs starting in 2026. We are excited to grow with both banks going forward. With the addition of Transact Bay enabling us to provide program management in the UK and the EU, we are also adding bank partners in Europe. Griffin Bank in the UK is now live in support of a new program currently in testing, which will launch broadly in Q1 2026. We also plan to add a new bank partner for the EU in the first half of 2026. In order to seamlessly interface with multiple banks, this year we built our business integration platform with the flexibility to rapidly onboard additional partners around the world. It serves as the orchestration layer that connects our internal money movement systems with external banking and payment partners through secure APIs and webhooks, ensuring every transaction remains synchronized end to end. This approach makes our platform bank agnostic and reduces the time for bank integration by more than 50%, enabling us to scale new products and geographies without heavy engineering work or custom integrations. Centralizing business logic and routing across banks also reduces operational complexity, improves resiliency, and creates leverage in our cost structure as we expand with more bank and payment partners globally. Europe continues to deliver strong results with momentum across a diverse set of use cases, driving TPV growth to remain over 100% year over year. This quarter, we completed the acquisition of TransacPay on July 31st. This transaction has driven significant customer interest and increased referrals from the payment ecosystem, including our network partners, as well as increasing our TAN to pursue more enterprise customers looking for a single provider for processing, program management, and EMI license in both the UK and the EU. This enables us to deliver a complete offering comparable to what we offer in North America so customers don't have to navigate the complexity of working with multiple partners. In Q3, we signed one of our top five expense management customers we have supported in North America for many years to expand into Europe. The acquisition of TransactPay was the catalyst as they can now deliver their offering in Europe at parity with North America through the Marketo platform without a lot of incremental work. We also continue to gain steady traction as we seek out the right partners for our innovative credit solutions. We are having productive conversations with prospects who are looking to differentiate their offering and work with a single modern provider who can support multiple use cases. This quarter, we were selected to power a credit solution for a company's loyalty programs they enable for small and mid-sized companies. This customer has millions of monthly active users and the underlying data to help companies capitalize on trends through analytics, and a credit product to drive incremental loyalty benefits, both in stores and through their app. They chose Marketo because they were looking for a modern partner who could grow and scale with them, given their significant embedded customer base. This customer plans to utilize several services in addition to processing, including tokenization, disputes, and our real-time decisioning risk product. To wrap up before moving to the details of our financial results, The business continues to have strong momentum as we head into the last quarter of the year, both in terms of our actual performance and the level of engagement from prospects on future opportunities. What continues to become clear for current and prospective customers is Marketta has a unique combination of modern capabilities, scale, geographic reach, expertise, and flexibility to enable their innovations without the need to make trade-offs. We provide our customers with a level of agility and control in issuing payment credentials that maximizes their ability to deliver value to their users, whether it's through creating new revenue streams, deepening engagement, or improving access to capital. This will continue to serve us well as we further diversify the business outside of debit and beyond the US to deliver future growth. Now let me transition to our Q3 financial results. Q3 was a very strong quarter. with performance significantly outpacing our expectations. Q3 TBV growth of 33% accelerated by over three points from Q2, after increasing by three points in Q2 versus Q1. This accelerating volume growth, combined with slightly higher net revenue and gross profit take rates versus Q2, drove the P&L outperformance. Additionally, our adjusted operating expense growth was on the lower end of our expectations, which resulted in adjusted EBITDA of 30 million. For the second quarter in a row, the business outperformance and disciplined investment brought us close to gap net income, showcasing how the business can scale and demonstrating the tangible progress we are making on our path to profitability. Q3 TPV was $98 billion, an increase of 33% year over year. The Q3 TPV growth acceleration versus Q2 was broad-based, including both block and non-block growth, as well as each of our four major use cases. Non-block TPV is now growing two and a half times faster than block TPV, helped by Europe TPV continuing to grow over 100%. Growth within financial services continue to be a little slower than the overall company. Our non-block customers are growing over three times faster than block within these use cases. Consistent with prior quarters, expense management growth continues to be a little faster than the overall company, driven by our customers continuing to acquire new end users as their modern platforms gain share. On-demand delivery growth accelerated into the double digits in Q3, growing about twice as fast as last quarter, primarily fueled by both the merchant category and geographic expansion of our customers. Lending, including buy now, pay later, TBD growth, accelerated 10 points versus Q2 with a year-over-year growth rate that is about double the rate of the overall company. Six of our top 10 customers within this use case had their growth rate accelerate from Q2 to Q3, with three customers growing over 100%, while two customers were growing slower than 20%. This remarkable growth is driven by a combination of trends that accelerated from last quarter, with the two most significant being increased adoption of pay anywhere card solutions, including growth in flexible network credential usage, and geographic expansion and growth on our platform. The TBV growth acceleration in Q3 is another demonstration of our ability to grow at scale, processing over $1 billion in volume on about two-thirds of the days in the quarter. Q3 net revenue growth was $163 million, growing 28% year-over-year. Our Q3 net revenue growth acceleration of 8 points versus Q2 and the outperformance versus expectations was driven by strong TBV growth in all of our major use cases and our net revenue take rate of 17 basis points being slightly higher than last quarter. The addition of the Transact Pay acquisition for two months after closing on July 31st contributed two points to growth. Block net revenue concentration of 44% in Q3 decreased by about two points from Q2. While both block and non-block net revenue growth accelerated from last quarter, non-block growth was over 10 points higher than block growth, driven by the strong TPV and the inclusion of TransactPay. Q3 gross profit was 115 million, growing 27% year-over-year, fueled by strong TBB growth and a gross profit take rate of nearly 12 basis points, slightly higher than last quarter. The addition of TransactPay added 2.5 points to growth. Gross profit growth was 10 points higher than the top of the expected range we shared with you last quarter, so obviously there were a few positive surprises in the quarter. I would classify the outperformance in four categories. By far, the most significant factor driving our outperformance is the underlying business growth. Accelerating TPV growth combined with favorable business mix supporting our gross profit take rate accounted for approximately six points of the outperformance. On our earnings call in August, you might remember we spoke about our Q2 TPV growth accelerating three points versus Q1, which was a little unexpected. So we wanted to see elevated growth trajectory endure for longer than a couple months before adjusting our forecast from the remainder of the year, especially considering the macroeconomic uncertainty. As I just walked through, Q3 TDV further accelerated by more than three points versus Q2, driven by a broad cross-section of our customers and use cases. About two-thirds of this underlying business outperformance was driven by lending including buy now, pay later, and on-demand deliveries. The growth in these two use cases meaningfully accelerated in Q3 versus Q2 as we continue to support our customers' business expansion. Second, approximately two and a half points of the outperformance was driven by unusual items that were unexpected. The large majority of this impact was driven by recovering fees from smaller customers who previously terminated their card programs. We have worked diligently to recover contractually obligated fees and and it just so happens that several of the larger efforts were resolved during Q3. Third, approximately one point of the outperformance resulted from earning a network rebate from one of our network partners that we did not anticipate. Based on the Q3 results, we expect this will continue to be a benefit going forward. The final component of our outperformance was the strength of the TransactPay business, which contributed approximately one point more to our gross profit growth than expected. The Transact Bay business is on a better trajectory in 2025 than we had expected, and our visibility was limited until we started to consolidate results following the July 31st closing. As a reminder, we revised our accounting policy for estimating and recognizing card network incentives starting in Q2 of this year. We are now accruing incentives each quarter based on the forecasted annual contract year we expect to achieve, as opposed to booking the incentives each quarter as they are earned and move through the progressive tiers. As a result, Q3 gross profit growth had a headwind of 1.4 points due to the difference in methodologies for the year-over-year comparison. Q3 adjusted operating expenses were 84 million, growing 4% year-over-year, which was on the lower end of our expectations. This was a timing shift of marketing initiatives from Q3 to Q4, which lowered Q3 growth by approximately two points. The addition of Transact Bay contributed approximately three points to our year-over-year growth. Q3 adjusted EBITDA was $30 million, reaching another all-time high in dollars for the second quarter in a row. This resulted in a margin of 19% as we continue to make significant progress on our path to profitability. Adjusted EBITDA margin based on gross profit, which was 26%, is the metric we look at internally to illustrate the profitability potential of our business. The Q3 gap net loss was $3.6 million, which included $8 million of interest income and a non-recurring litigation-related expense of $4.3 million. We ended the quarter with a little over $830 million of cash and short-term investments driven by strong operating cash flows. With the addition of TransacFay this quarter, one thing to note on our balance sheet is the $235 million of restricted cash and the offsetting liability. Transacti must comply with the regulatory safeguarding requirements associated with the EMI licenses, so we account for the customer funds they hold differently than our approach in other geographies, such as the U.S., where our program funding arrangements are structured more optimally. Our share repurchase activity remains ongoing as we continue to believe the current valuation does not fairly represent the company's value or the market opportunity ahead of us. In Q3, we repurchased 3.2 million shares at an average price of $6.12. For the year-to-date period ending September 30, 2025, we've repurchased 64.6 million shares at an average price of $4.53, which is a reduction of nearly 13% of the total issued and outstanding shares as of 2024 year-end. As of September 30th, we had 88 million remaining on our buyback authorization. Now let's transition to our expectations for the fourth quarter of 2025. Based on our Q3 results, we are raising our expectations for Q4 and the full year. We now expect Q4 2025 net revenue and gross profit growth to be at least five points higher than what we had shared last quarter and adjusted EBITDA margin to be two points higher. Therefore, we now expect net revenue to grow between 22 and 24% in Q4 and approximately 22% for the full year 2025. Gross profit growth is expected to be between 17 and 19% in Q4 and approximately 23% for the full year 2025. The expected slowdown in gross profit growth from Q3 to Q4 of approximately nine points is primarily driven by three factors. First, Q3 growth benefited by approximately two and a half points from unusual items, mostly the recovery of contractually obligated fees. Second, The impact of our revised accounting policy for network incentives on the year-over-year comparison will be the most significant in Q4. We expect a drag of about five and a half points on gross profit growth in Q4, which is approximately four points more drag than Q3. Third, as we've discussed all year, we are actively engaged in renewal discussions with two large customers. We expect one of those renewals to be in effect in Q4, resulting in a headwind of approximately two points. We expect Q4 adjusted operating expenses to grow in the mid-single digits in line with what we shared last quarter, despite the timing shift of some marketing expenses from Q3 to Q4. Adjusted EBITDA margin is expected to be between 15% and 16% in Q4 and approximately 17% for the full year 2025. This equates to a little over $100 million in adjusted EBITDA in 2025, which is more than three times higher than last year, and nearly double what we anticipated at the start of 2025. In conclusion, our incredible Q3 financial results not only led us to raise our full year 2025 expectations for net revenue, gross profit, and adjusted EBITDA, but they also reflect the deepening of our customer relationships and expansion of our platform capabilities. The combination of strong gross profit growth, efficiency increases, and scale benefits are rapidly improving our profitability and foreshadowing the future earnings potential of the business. We expect to finish the year strong as we position the business for sustainable long-term success through multiple growth factors and increasing scale. I will now turn it over to the operator for questions.