Marqeta, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The unaudited filing was signed November 10, 2021. Marqeta provides a cloud-based card issuing and payment processing platform; it earns most revenue from processing customer card transactions.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $131.5 million | $84.3 million | $361.8 million | $202.1 million |
| Gross profit | $59.1 million | $35.3 million | $155.9 million | $81.5 million |
| Gross margin | 45% | 42% | 43% | 40% |
| Operating loss | $45.6 million | $12.2 million | $124.3 million | $34.0 million |
| Net loss | $45.7 million | $12.3 million | $127.1 million | $33.9 million |
| Adjusted EBITDA (non-GAAP) | $(4.9) million | $0.7 million | $(13.9) million | $(12.8) million |
| Total processing volume | $27.6 billion | $17.3 billion | $78.1 billion | $41.3 billion |
- Margins and expenses: Revenue grew faster than costs of revenue, lifting gross margin. Operating expenses increased substantially, especially compensation and benefits, including share-based compensation; total operating expenses were $104.7 million in Q3 and $280.2 million for the nine-month period.
- Cash flow: Operating cash flow was $1.4 million for the first nine months, versus $28.6 million a year earlier. Investing activities used $262.7 million; financing provided $1.301 billion, primarily from the IPO. Cash, cash equivalents, and restricted cash increased by $1.040 billion.
- Liquidity and debt: At September 30, cash and cash equivalents were $1.260 billion and marketable securities were $409.0 million, totaling about $1.669 billion; restricted cash was $7.8 million. Current assets were $1.760 billion and current liabilities $188.5 million. The filing reports no borrowings or financial debt; it reports operating lease liabilities of $16.2 million.
Material changes and notable items
- Q3 net revenue rose 56% year over year and processing volume rose 60%; for the nine months, revenue increased 79% and processing volume 89%. Growth was principally attributed to higher volume, especially from digital banking and buy-now-pay-later customers.
- Square generated 68% of Q3 revenue and 71% of nine-month revenue. The filing identifies Square as the largest customer and notes that its contract terms do not eliminate the risk of reduced or discontinued volume.
- Sutton Bank settled 89% of Q3 processing volume and 92% of nine-month volume. This remains a significant bank-partner concentration, though both proportions were below the prior-year comparable periods.
- The June 2021 IPO raised $1.3 billion net of underwriting discounts and offering costs. The company converted its preferred stock into Class B common stock. Class B shares carry ten votes per share, versus one vote per Class A share.
- Q3 share-based compensation was $39.0 million, including $13.4 million related to the CEO long-term performance award. The award’s vesting depends on service and specified stock-price hurdles; $183.6 million of related compensation cost remained unrecognized at quarter-end.
Outlook, risks, and contingencies
- Management expects operating losses to continue for the foreseeable future, while stating that cash, cash equivalents, and marketable securities should fund operations for at least twelve months from issuance of the financial statements. No numerical revenue, earnings, or margin guidance is provided.
- Management cites continued investment in product development, platform infrastructure, hiring, and geographic expansion. It says COVID-19 effects, customer transaction volumes, stimulus payments, reopening trends, and interchange-rate changes make future results uncertain.
- The company reported that disclosure controls were ineffective because of an outstanding material weakness involving timely reconciliation of certain customer-related settlement bank accounts. Remediation efforts were underway, but management said sufficient remediation requires controls to operate effectively for a period of time.
- No material pending legal proceedings or material legal contingencies were reported. The company had not accrued potential state and local indirect taxes in jurisdictions where applicability was unclear; it estimated possible exposure of $6.0 million if adverse information is received and it does not appeal.
- Other key risks include customer and issuing-bank concentration, competition, platform availability and security, regulatory and interchange changes, and the possibility of continued losses. The company had $9.1 million of non-cancellable purchase commitments payable over five years.
Important facts for investors to verify
- Whether revenue and processing growth can persist, and whether customer concentration—particularly Square—declines over time.
- Whether gross-margin improvement is sustainable apart from network incentives and processing-volume mix.
- How operating costs and share-based compensation affect the path to profitability and cash generation.
- Whether the settlement-account reconciliation material weakness is remediated and disclosure controls become effective.
- Whether Sutton Bank concentration, card-network relationships, interchange changes, and potential tax exposure change materially.