Marqeta, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; year-over-year comparisons are to the corresponding 2022 periods. Marqeta provides a digital card-issuing and payment-processing platform. It primarily earns revenue from processing customer card transactions.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $231.1 million | $186.7 million | $448.5 million | $352.8 million |
| Total processing volume (TPV) | $53.6 billion | $40.5 billion | $103.6 billion | $77.1 billion |
| Gross profit | $84.6 million | $78.0 million | $173.8 million | $152.8 million |
| Gross margin | 37% | 42% | 39% | 43% |
| Operating loss | $69.4 million | $46.7 million | $156.9 million | $96.0 million |
| Net loss | $58.8 million | $44.7 million | $127.6 million | $105.3 million |
| Adjusted EBITDA (non-GAAP) | $0.8 million | $(10.2) million | $(3.5) million | $(20.7) million |
Q2 revenue grew 24% and TPV grew 33%; for the first half, revenue grew 27% and TPV 34%. Revenue growth was driven mainly by higher processing volume, while unfavorable program mix and higher network fees constrained gross profit and margins. Operating expenses rose 23% in Q2 and 33% for the first half, with compensation and benefits the largest expense category. Higher interest income contributed to other income of $10.8 million in Q2 and $22.4 million for the first half.
Cash, liquidity and obligations
- At June 30, cash and cash equivalents were $950.2 million, short-term investments were $432.4 million, and restricted cash was $9.4 million. Cash plus short-term investments totaled approximately $1.38 billion.
- Cash, cash equivalents and restricted cash declined by $232.1 million in the first half. Operating cash use was $36.5 million, investing cash use was $122.5 million, and financing cash use was $73.1 million. The investing outflow included the Power Finance acquisition; financing outflow primarily reflected share repurchases.
- The balance sheet reports no borrowings or other debt. Current liabilities were $318.3 million; total liabilities were $331.5 million. Management said available cash and investments should fund operations for more than 12 months.
- Non-cancellable purchase commitments totaled $213.0 million over five years, including $197.7 million in cloud-service minimum commitments. The filing does not provide a formal financial outlook or numerical guidance.
Material developments, outlook and risks
- Block/Cash App agreement: An August 4, 2023 amendment, effective July 1, reduced pricing and shifted responsibility for managing the primary card-network relationship to Block. Marqeta expects the changes to reduce reported net revenue and gross profit but increase gross margin percentage. Revenue presentation will also change because related network and issuing-bank fees will be netted against Cash App consideration. Block represented 78% of Q2 revenue and 77% of first-half revenue.
- Power Finance acquisition: Acquired February 3 for a base cash price of $221.9 million. Preliminary accounting included $123.4 million of goodwill and $41.0 million of developed technology. A $52.7 million performance-based payment was made in July after targets were achieved. Separate post-combination cash compensation of $85.6 million is payable over two years, subject to service conditions.
- Restructuring: A workforce-reduction plan resulted in a reported net charge of approximately $8.4 million; completion was expected by the end of Q3 2023. The company cited expense reduction and improved profitability as objectives, but cautioned benefits may not be realized.
- Customer and partner concentration: Sutton Bank settled 77% of Q2 TPV and 78% of first-half TPV. Reliance on Block and Sutton Bank exposes results to customer volume, contract terms and partner continuity.
- Controls: Disclosure controls were not effective due to a material weakness in controls over acquisition accounting, including purchase-price allocation review and oversight of third-party specialists. Management corrected the identified accounting error and began remediation; the weakness was not yet fully remediated.
- Other risks: The company expects continued operating losses and cited macroeconomic uncertainty, competition, payment-network and regulatory changes, transaction-processing and cybersecurity risks, and possible customer or counterparty losses. It reported no material pending legal proceeding and no legal contingency expected to materially affect its financial position, results or cash flows.
Important facts for investors to verify
- How the Block amendment affects reported revenue, gross profit, margins and the underlying economics of the Cash App relationship in subsequent quarters.
- Whether Marqeta reduces Block concentration and Sutton Bank settlement reliance, and how customer and TPV growth develop outside its largest accounts.
- Whether restructuring produces sustained expense control without impairing execution, service or retention.
- Progress in remediating the acquisition-accounting material weakness and any updates to Power Finance purchase accounting or integration costs.
- Cash use, share repurchases, acquisition-related payments and capacity to meet the $213.0 million of purchase commitments while funding ongoing losses.