Marqeta, Inc. — Q3 2022 Form 10-Q
Business context and period. Marqeta provides a cloud-based card-issuing and payment-processing platform. This unaudited quarterly report covers the three and nine months ended September 30, 2022; comparisons are with the same 2021 periods. Marqeta operates as one segment.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $191.6m | $131.5m | $544.4m | $361.8m |
| Total processing volume | $42.5bn | $27.6bn | $119.6bn | $78.1bn |
| Gross profit / margin | $80.1m / 42% | $59.1m / 45% | $232.9m / 43% | $155.9m / 43% |
| Operating expenses | $139.6m | $104.7m | $388.4m | $280.2m |
| Net loss | $53.2m | $45.7m | $158.5m | $127.1m |
| Adjusted EBITDA (non-GAAP) | $(13.6)m | $(4.9)m | $(34.3)m | $(13.9)m |
Q3 diluted loss per share was $0.10, compared with $0.08. Net revenue grew 46% in Q3 and 50% for the nine-month period; TPV grew 54% and 53%, respectively. Block contributed $49.0m of the Q3 revenue increase and $120.9m of the nine-month increase. Q3 gross margin fell 3 percentage points, while nine-month gross margin was unchanged.
Cash, liquidity and debt. At September 30, Marqeta held $1.205bn in cash and cash equivalents, $441.1m in marketable securities and $7.8m in restricted cash. Cash, cash equivalents and restricted cash declined $42.7m from year-end 2021. For the first nine months, operating cash flow was $(27.9)m, versus $1.4m provided in 2021; investing cash flow was $0.9m provided and financing cash flow was $(15.8)m. No borrowings or debt balance are reported. Total liabilities were $262.1m, including $13.2m of operating lease liabilities.
Material changes and unusual items
- Q3 operating expenses rose 33% year over year, led by compensation and benefits, technology, and a $7.0m increase in other operating expenses. The latter included a $5.9m indemnification cost.
- For the nine-month period, operating expenses increased 39%. Share-based compensation was $115.7m, including $39.8m for the CEO performance award.
- Nine-month other expense included an $11.6m impairment of an option associated with an equity-method investment. In October, Marqeta sold the investment for $25.7m against a $7.8m carrying amount and recorded a $17.9m gain in Q4; management said the gain will be excluded from Adjusted EBITDA.
- In September, the company began a $100m share repurchase program. It repurchased about 1.96m shares for $13.9m, at an average $7.05 per share; $86.1m remained authorized at quarter-end.
Outlook, risks and contingencies
- No specific revenue, earnings or margin guidance is provided. Management expects operating losses for the foreseeable future and says cash and marketable securities should fund operations for at least the next 12 months.
- Customer concentration is substantial: Block generated 73% of Q3 revenue and 69% of nine-month revenue. Sutton Bank settled 81% of Q3 TPV and 83% of nine-month TPV.
- Management cites risks from customer and transaction-mix changes, competition, macroeconomic uncertainty, inflation, interest rates, COVID-19, supply constraints and geopolitical events. It also identifies reliance on issuing banks and card networks, processing reliability, cybersecurity, fraud, and regulatory changes as risks.
- Marqeta reported $224.2m of non-cancellable purchase commitments payable over five years, including $219.0m of cloud-computing minimum commitments. Customer pre-funding is held at issuing banks and is not a company asset; Marqeta may bear settlement losses if a customer fails to fund transactions.
- The company reported losses on a limited number of international transactions processed above customer-authorized amounts in Q3; the filing does not provide a clear dollar value. It reported no material pending legal proceedings or material legal contingencies at quarter-end.
- CEO Jason Gardner planned to step down after a successor is found and remain Executive Chairman; the company was conducting a CEO search. The Federal Reserve adopted a debit-network routing rule on October 3 that could affect interchange revenue; the impact is not quantified.
Important facts for investors to verify
- Whether revenue and TPV growth continue while customer and issuing-bank concentration decline, particularly given Block’s contract terms and the Sutton Bank exposure.
- Whether transaction mix and network costs pressure gross margin, and whether operating expense growth and cash use moderate.
- The amount and potential recurrence of transaction-processing losses, indemnification costs, and other unusual expenses.
- Execution of the CEO transition, the remaining share-repurchase authorization, and the effect of share-based compensation and potential dilution.
- The realization and Q4 accounting of the investment-sale gain, plus the effect of the new debit-routing rule and cloud commitments.