Marqeta, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022. Amounts are in U.S. dollars. Marqeta provides a cloud-based card-issuing and payment-processing platform. It earns most revenue from processing card transactions and also offers card program management and related services.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $217.3 million | $166.1 million | +31% |
| Total processing volume (TPV) | $50.0 billion | $36.6 billion | +37% |
| Gross profit | $89.2 million | $74.7 million | +19% |
| Gross margin | 41% | 45% | Down 4 percentage points |
| Operating expenses | $176.6 million | $124.0 million | +42% |
| Operating loss | $(87.4) million | $(49.3) million | Loss widened |
| Net loss | $(68.8) million | $(60.6) million | Loss widened |
| Net loss per share, basic and diluted | $(0.13) | $(0.11) | — |
| Adjusted EBITDA (non-GAAP) | $(4.3) million | $(10.5) million | Improved |
| Adjusted EBITDA margin (non-GAAP) | (2)% | (6)% | Improved |
Platform services revenue was $210.3 million, up 31%; other services revenue was $7.0 million, up 37%. Revenue growth was driven by higher TPV, but management said unfavorable card-program mix, particularly growth in the Powered By Marqeta offering, partly offset the benefit. Card Network fees rose 47%, faster than TPV, and costs of revenue increased 40%, contributing to margin compression. Transactions increased 45% year over year.
Compensation and benefits increased 47% to $147.8 million, including $32.4 million of non-cash post-combination compensation related to the Power Finance acquisition and higher share-based compensation. Other income was $11.7 million versus expense of $11.7 million a year earlier, mainly reflecting higher interest income and the prior-year impairment of an investment. The Q1 2023 income tax benefit of $7.0 million primarily reflected a partial valuation-allowance release associated with the acquisition.
Liquidity, cash flow, and debt
At March 31, 2023, cash and cash equivalents were $1.05 billion, restricted cash was $7.8 million, and marketable securities were $408.7 million. Cash, cash equivalents, and marketable securities totaled approximately $1.46 billion. Current assets were $1.59 billion and current liabilities were $326.3 million. Total liabilities were $340.5 million; the filing does not report borrowings or other financial debt.
Operating cash use was $10.5 million, compared with $46.8 million in Q1 2022. Investing cash use was $98.3 million, including $131.9 million of net cash paid for Power Finance, partly offset by net maturities of marketable securities. Financing cash use was $24.6 million, including $21.8 million for share repurchases. Cash, cash equivalents, and restricted cash declined by $133.4 million during the quarter. Management said available cash and marketable securities were sufficient to fund operations for at least the next 12 months.
The company had $220.0 million of non-cancellable purchase commitments payable over five years, including $204.1 million of cloud-computing minimum commitments. It also reported a $53.1 million contingent-consideration liability related to Power Finance.
Material changes and significant events
- Customer concentration: Block generated 76% of Q1 2023 revenue, up from 66% a year earlier. The filing attributes $54.7 million of the $51.2 million year-over-year revenue increase to Block, while noting that a customer program migration to a competitor had affected comparisons. Sutton Bank settled 80% of TPV, down from 86%.
- Power Finance acquisition: Acquired on February 3, 2023, for a base cash purchase price of $221.9 million. The preliminary allocation included $41.0 million of developed technology and $123.4 million of goodwill. A $53.1 million earn-out is tied to performance goals; $85.6 million of employee consideration is subject to continued employment over two years. The acquisition is intended to expand credit-program capabilities.
- Share repurchases: Marqeta repurchased 3.2 million shares for $21.0 million during the quarter, at an average $6.46 per share, substantially using the prior $100 million authorization. On May 8, 2023, the board approved a new authorization of up to $200 million.
- Subsequent restructuring: Announced May 9, 2023, the plan is expected to affect approximately 15% of the workforce, generate $40–$45 million in annual expense savings, and incur $9–$11 million in non-recurring charges, primarily severance and benefits. The company expected implementation and related payments to be substantially complete by the end of Q2 2023.
Outlook, risks, and unusual items
The filing provides no specific revenue, margin, or earnings guidance. Management expects operating losses to continue for the foreseeable future and cautions that interim results are not necessarily indicative of full-year results. It cites uncertain economic conditions, inflation and interest rates, banking-sector instability, and potential effects on customer spending and processing volumes.
A material weakness in internal control over financial reporting related to Power Finance purchase accounting made disclosure controls and procedures ineffective as of March 31, 2023. Management said it corrected the accounting error in the current filing, which did not cause a material misstatement in the reported financial statements, and is enhancing acquisition-accounting review controls. Remediation was not yet complete.
Other key risks include dependence on Block and other large customers, reliance on Sutton Bank and card networks, competition and customer program migration, transaction-mix and network-fee variability, platform outages and cybersecurity, regulation, and the ability to integrate Power Finance. The company reported no material pending legal proceedings and no legal contingency expected to materially affect its financial position or results. It also stated that it had access to and control over its cash, cash equivalents, and marketable securities, except restricted cash, despite adverse developments affecting financial institutions.
Important facts for investors to verify
- Whether revenue and TPV growth can continue, and whether customer and program mix will stabilize or further pressure gross margin.
- Block’s contract terms, renewal outlook, revenue contribution, and the pace of customer diversification; also monitor dependence on Sutton Bank.
- Power Finance integration, final purchase-price allocation, contingent earn-out outcomes, and the employee-related cash commitments.
- Progress and costs of the workforce restructuring, and whether the projected annual savings are achieved without impairing growth or execution.
- Remediation of the material weakness and whether acquisition-accounting controls operate effectively in future reporting periods.
- Cash consumption, purchase commitments, share repurchases, and whether liquidity remains adequate as operating losses continue.
- Share-based compensation and potential dilution: unvested RSUs and options, along with the executive chairman performance award, carry substantial unrecognized compensation costs.