Marqeta, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Marqeta provides a cloud-based card-issuing and payment-processing platform, earning most revenue from processing customer card transactions. Figures below are unaudited; dollar amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $166.1 million | $108.0 million | +54% |
| Total processing volume (TPV) | $36.626 billion | $23.998 billion | +53% |
| Gross profit / margin | $74.7 million / 45% | $49.9 million / 46% | +50% profit; margin down 1 percentage point |
| Operating loss | $49.3 million | $10.7 million | Loss increased |
| Net loss / net loss margin | $60.6 million / 36% | $12.8 million / 12% | Loss increased |
| Adjusted EBITDA / margin | $(10.5) million / (6)% | $1.6 million / 2% | Decreased |
| Operating cash flow | $(46.8) million | $17.9 million | Changed to cash use |
At March 31, 2022, cash and cash equivalents were $1.197 billion, restricted cash was $7.8 million, and marketable securities were $447.0 million. Cash, cash equivalents, and marketable securities totaled approximately $1.644 billion, versus approximately $1.700 billion at year-end 2021. Current assets were $1.760 billion and current liabilities $233.9 million. The balance sheet reports no borrowings or other debt; lease liabilities were $14.7 million in total. Management said available cash and marketable securities should fund operations for more than 12 months.
Material changes and notable items
- Revenue growth was primarily volume-driven and included $31.3 million of increased revenue attributable to Block. Platform services revenue rose 51%; other services revenue rose 234% from a smaller base.
- Revenue from Block, the largest customer, was 66% of net revenue, down from 73% in Q1 2021. Processing volume from Marqeta’s five largest customers grew 39%, while volume from all other customers grew 168%.
- Costs of revenue rose 57%, faster than revenue; gross margin edged down to 45%. Card Network fees increased with transaction volume, with period comparisons also affected by incentive arrangements and a $3.0 million cumulative network-incentive adjustment in Q1 2021.
- Operating expenses more than doubled, led by compensation and benefits, which increased 114% to $100.3 million. Share-based compensation was $37.0 million, including $13.1 million for the CEO’s long-term performance award, compared with $11.4 million total share-based compensation in Q1 2021.
- Other expense included an $11.6 million impairment of an option to acquire the remaining interest in an equity-method investee. Marketable securities had $8.0 million of unrealized losses at quarter-end, recorded in other comprehensive loss; the company said it did not intend or expect to need to sell the securities before recovery.
Outlook, risks, and contingencies
The filing gives no specific quarterly or annual revenue or earnings guidance. Management expects operating losses to continue for the foreseeable future and expenses to rise as it invests in products, infrastructure, hiring, and international expansion. It cited inflation and competition for talent as pressures on compensation. Management also noted uncertainty around COVID-19, economic recovery, supply constraints, and the effects of Russia’s military action against Ukraine.
- Customer and partner concentration remain substantial: Block generated 66% of revenue, and Sutton Bank settled 86% of TPV, versus 94% a year earlier. Loss or disruption of either relationship could materially affect results.
- Non-cancellable purchase commitments totaled $227.6 million over five years, including $219.0 million of cloud-computing minimum commitments. Customer settlement shortfalls could also expose Marqeta to losses if amounts are not recoverable.
- The company disclosed no material pending legal proceedings and no legal contingency it believed would materially affect its financial position, results, or cash flows. It noted ordinary-course indemnification and service-level commitments.
- Key risks include continued losses, operating-cost growth, customer retention and concentration, competition, dependence on issuing banks and card networks, platform availability and cybersecurity, regulation, and execution of international expansion. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether TPV and revenue growth can continue, and how much depends on Block and other concentrated customers.
- Whether gross margin stabilizes as network fees, revenue sharing, and incentive arrangements change.
- The drivers and persistence of rising compensation, share-based compensation, and operating expenses, and the path toward positive cash flow.
- Potential effects of the $227.6 million purchase commitments, cloud minimums, and customer settlement exposures.
- Whether Marqeta can diversify processing-bank relationships and manage platform, cybersecurity, regulatory, and international-expansion risks.