Marqeta, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Marqeta provides a cloud-based card issuing and payment processing platform; it primarily earns revenue from processing customer card transactions. Unless otherwise stated, amounts below are in U.S. dollars.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $186.7 million | $122.3 million | $352.8 million | $230.2 million |
| Total processing volume (TPV) | $40.5 billion | $26.5 billion | $77.1 billion | $50.5 billion |
| Gross profit / margin | $78.0 million / 42% | $47.0 million / 38% | $152.8 million / 43% | $96.8 million / 42% |
| Operating loss | $(46.7) million | $(68.0) million | $(96.0) million | $(78.6) million |
| Net loss | $(44.7) million | $(68.6) million | $(105.3) million | $(81.4) million |
| Adjusted EBITDA (non-GAAP) | $(10.2) million | $(10.6) million | $(20.7) million | $(9.0) million |
| Adjusted EBITDA margin (non-GAAP) | (5)% | (9)% | (6)% | (4)% |
Q2 revenue and TPV each grew 53% year over year. Gross margin improved by 4 percentage points in Q2 and 1 point for the first half. Q2 net loss narrowed, while first-half net loss widened. Adjusted EBITDA losses were nearly flat in Q2 but increased for the first half.
Cash, liquidity and obligations
- At June 30, 2022, cash and cash equivalents were $1.22 billion, restricted cash was $7.8 million, and marketable securities were $444.9 million. Total cash, cash equivalents and marketable securities were approximately $1.67 billion.
- First-half operating cash flow was negative $23.9 million, versus positive $5.8 million in the prior-year period. Cash, cash equivalents and restricted cash declined $27.3 million during the first half.
- Total liabilities were $242.4 million, including $228.5 million of current liabilities. The balance sheet lists no borrowings; the filing does not disclose debt outstanding.
- Management said existing cash, cash equivalents and marketable securities should fund working capital and capital expenditure needs for more than 12 months. The company expects operating losses for the foreseeable future.
- Non-cancellable purchase commitments totaled $224.7 million, payable over five years, including $219.0 million of minimum cloud-computing commitments. Operating lease liabilities totaled $14.0 million.
Material changes and unusual items
- Block accounted for 69% of Q2 revenue and 68% of first-half revenue. It contributed $40.9 million of the Q2 year-over-year revenue increase and $72.2 million of the first-half increase. Revenue concentration eased versus 72% and 73%, respectively, in the comparable periods.
- TPV growth reflected higher volumes from financial services, Powered by Marqeta and buy-now-pay-later customers. First-half TPV from customers outside the top five grew 113% year over year, compared with 44% growth from the top five collectively.
- First-half other expense included an $11.6 million impairment of an option to acquire the remaining interests in an equity-method investee. Q2 other income benefited from higher interest income.
- Share-based compensation was $35.1 million in Q2 and $72.2 million in the first half. Unrecognized costs included $229.9 million for unvested RSUs, $76.5 million for options excluding the CEO award, and $143.8 million for the CEO long-term performance award.
- Marketable securities had $9.9 million of net unrealized losses at quarter-end; first-half other comprehensive loss was $8.0 million, primarily reflecting securities valuation changes.
- The risk-factor discussion reports that in Q3 2022 the company incurred losses related to a limited number of international transactions processed above customer-authorized amounts. The filing does not provide a clear amount.
Outlook, risks and contingencies
The filing provides no specific revenue, margin or earnings guidance. Management expects expenses and investment to continue as the company develops its platform, expands operations and hires; it cautions that interim results are not necessarily indicative of full-year results. Macroeconomic uncertainty, inflation, labor competition, geopolitical events and COVID-19 could affect customers, transaction volumes and operating results.
- Customer concentration is significant, and contracts generally do not assure continuing use or minimum volumes. The current Block agreements for Cash App and Square Card run through March 2024 and December 2024, respectively, with automatic one-year renewals thereafter.
- Sutton Bank settled 83% of Q2 TPV and 84% of first-half TPV. Disruption to this relationship or to Card Network relationships could affect processing and costs.
- Other key risks include platform outages or security incidents, fraud and settlement losses, competition, regulatory and interchange changes, and execution of international expansion.
- No material pending legal proceedings or legal contingencies were reported. The company noted it may be liable to issuing banks if customer funds are insufficient to settle transactions.
- Management concluded disclosure controls were effective at a reasonable assurance level; no material Q2 change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Block’s share of revenue and the terms, volumes and renewal prospects of its agreements change.
- Whether customer and issuing-bank concentration continues to decline, particularly reliance on Sutton Bank.
- Drivers of operating cash use, including cloud prepayments and bonus payments, and progress toward sustainable cash generation.
- The nature and financial impact of the investee-option impairment and the subsequent international transaction losses.
- Future gross-margin performance, Card Network incentives, and the extent to which operating expenses and share-based compensation affect losses and dilution.
- Timing and use of liquidity against the $224.7 million of purchase commitments, including cloud minimums.