Q2 2021 Marqeta Inc Earnings Call

August 11, 2021

[music].

Good afternoon, ladies and gentlemen, thank you for standing by welcome to the Mark at the second quarter 2021 earnings conference call. At this time all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, we will open the lines for your questions.

As a reminder, this conference call is being recorded.

Now I'd like to turn the conference over to Stacy Feit, Vice President of Investor Relations to begin.

Thanks, operator, before we begin I would like to remind everyone that today's call may contain forward looking statements. These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations web site, including our prospectus dated journey.

2021, and our subsequent periodic filings with the SEC such as our quarterly report on Form 10-Q for the quarter ended June 30th 2021.

Actual results may differ materially from any forward looking statements we make today.

These forward looking statements speak only as of the time of this call and the company does not assume any obligation or intent to update them, except as required by law.

In addition, todays call may include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our Investor relations.

Website.

During today's call are Jason Gardner, Marquette is founder and CEO and Europe say, Mark Hurd as Chief Financial Officer.

With that I'd like to turn the call over to Jason to begin.

Thanks, Stacey. Thank you everyone for joining us for Mark hit his first earnings call as a public company, it's great to be connecting with you all.

<unk> had a very successful IPO, we raised a lot of capital and we're off to a great start trip and I are excited to share market second quarter results as well as an overview of our business.

Wanted to cover a couple of financial highlights about which trip will provide additional detail next I will talk about three key themes for the quarter and lastly for those on the call who are less familiar with us I will provide some focused on <unk> with that let's begin.

Our second quarter results demonstrate our solid product market fit and execution in this rapidly evolving digital payments landscape.

$7 billion in total processing volume or GBP, 76% increase compared to the same quarter of 2020.

$122 million in net revenue, a 76% increase compared to the same quarter of 2020.

There are three key themes that I want to highlight from the second quarter first we continued to land winners Google chose Mark Hey, that's the power of the launch of a digital card for Hugo paid balance users, allowing them to instantly use their balance to a virtual card <unk> and Google pay second.

Second we continue to expand and grow rapidly with our current customers.

Spaniard our relationship with square square now square banking services during the quarter and we are proud to power the square checking products and third we continue to build long term relationships with our customers during the quarter, we extended our agreement with a firm until 2024. This is a confirmation of her endure.

And the value of our platform and our partnership.

Triple will provide more details on our second quarter performance a few minutes still this is our first earnings call I'd like to spend some time, providing you a brief overview of marchetta the industry <unk> is driving our growth and a few of our strategic initiatives.

<unk> created modern card issuing which is at the heart of today's digital economy. When you think of the card in your wallet. These do very little and have seen little innovation in decades, now imagine a car that could take any form factor you wanted to call.

Significant payment problems at scale and disrupt entire industries from authorizing transactions based on dozens of dynamic criteria to allow you to pay in installments to creating a brand new consumer or commercial experience. These cards can be physical virtual or token eyes into mobile wallets.

They can be credit debit or prepaid built by developers in days using cutting edge tools instead of months. This.

This is a modern card issuing when you order food using door dash, our groceries using the card modern card issuing works in the background as money moves from the App to delivery drivers quarter, when you buy a big screen TV and pay for it and installment affirmed.

Affirm our Florida modern card issuing helps move money payment card used to pay the merchant seamlessly.

Some of the most disruptive companies of last decade, such as square into the cart Uber and Clara use Mark head of technology at the heart of their product.

Our first modern card issuing platform built from the ground up by developers for developers in the cloud with open Apis and best in class developer tools. We believe we are the first to market with multiple issuing and processing innovation, including the first open API for building bespoke payment card <unk>.

<unk>.

Just in time, or just funding and token inflation as a service.

These innovations put the control of designing outstanding payment experiences in the hands of customers to enable them to launch unique payment card product and a fraction of the time they could on legacy platforms.

We believe that market is now that the facto modern card issuing platform and that our continuous innovation further cement and expands our market leading position.

We are deeply integrated with our customers in three ways technical experience and partnership.

<unk> technology underpins, our customers' core business our supports their core business. Our people are their trusted partners as our solutions drive their key processes.

Our deep experience, serving the most innovative commerce disruptors technology giant and financial institutions brings valuable issuing expertise to build and scale innovative programs. Additionally.

Additionally, we partnered with our customers for long term success, our usage based business model provides a win win for our customers and market. It as their businesses thrive on our platform. Our net revenue growth. Moreover, our customers are incentivized to bring new volume and launching new card programs on our platform.

As they benefit from volume based discounts via tiered pricing.

As a result, we have long term contracts that promote and maintain alignment custom.

Customer success is at the core of everything we do and connect the customer is a core company value, we build technologies for people, who serve people the strength and durability of our customer relationships are evidenced by our second quarter year over year net revenue growth of 76%.

We managed to support massive innovation for these customers at a considerable scale. Our platform operates at 99, 995% uptime of volume through the <unk> platform has increased 30 <unk> in the last four years.

We operate in 36 countries and growing we believe the opportunity within payments and modern card issuing is tremendous.

74 trillion dollar global body movement market of which 30 trillion international card issuing.

And we're kind of platform processed $60 billion last year, a small fraction of the total card issuing opportunity.

With the accelerating shift to digital payments the market continues to expand we believe market or has that modern technology.

Deep experience and momentum to capture a growing share of this market. We believe this tam the vast ocean of opportunity ahead of us as everything moves to digital electronic transaction changing the entire landscape of how the world is moving money into future market is well positioned to capture this large opera.

<unk> in three ways first.

The shift to digital payments is accelerating more and more transactions are moving online and when they are in person people worldwide are increasingly choosing not to pay with cash they are choosing to pay with a card.

With contactless payments.

<unk> has only accelerated during the pandemic.

Second payments are not only becoming more digital they are also integrated more frequently and to consumer and business applications.

Think about the last time, you use online food delivery, a messaging app, where digital marketplace payments as deeply embedded as part of the experience software companies continually Parker with payments company to provide simple.

Scalable and Configurable payment services to meet their end users' needs.

Third consumers trust and new payment technology is growing consumers are increasingly more confident about the use of online shopping and digital payments for safety and convenience. While the pandemic may have encouraged the use of services such as in the car or contactless payments as a matter of safety.

Once consumers experienced these conveniences, we believe they are unlikely to change back because of these three tailwind.

As well as our 11 plus years of experience we are confident in our ability to further expand our leadership position in modern card issuing.

The work, we have achieved to date and our goal to be a generational business going forward is dependent on creating an atmosphere, where mark <unk> can do the best work of their lives to do this we have recently added two new leaders to the executive team and Darin Malory.

Our new Chief revenue Officer, and Randy <unk>, our new Chief Technology Officer.

Both Darren and Randy have tremendous and don't experience in scaling large enterprise businesses.

Darren comes to <unk> from leading AWS through EMEA, a business unparalleled for the innovation that has powered at scale in a same laser focus on customer success as mark had it.

Randy has spent almost three decades at engineering nearly all of it at Microsoft and Salesforce building, the technical infrastructure to support substantial high availability businesses.

Excited to see their impact on the company and have a strong belief that these are the right people to have on our executive team as we focus on capturing the vast market opportunity in front of us.

This quarter marks the first step in our life as a public company.

We believe we are barely scratching the surface when it comes to modern body booth that youre excited about the opportunity in front of us and we look forward to our successful track record with that I will turn it over to truck Bay market as Chief Financial Officer to discuss our second quarter financial results. Thank you.

Thanks, Jason.

Good afternoon, everyone I'm excited to talk to you today about our strong Q2 financial results and provide guidance for Q3.

Given this is our first earnings call as a public company.

I will talk briefly about our business model and some of the key points of our story.

We're a usage based business a transaction based business and interchange based business.

We believe that total processing volume or TPB, which increased 76% compared to Q2 of 2020 is a key indicator of market adoption of our platform growth of our business our ability to scale with our customers.

Our customers continued usage of the platform.

PPV drive the majority of our revenue as we earn interchange fees from card transactions.

We share those interchange fees with our customers so that our customers' interests are aligned with those of Marquette us.

Our customers are incentivized to bring new volume and launched new card programs on our platform as they benefit from volume based discounts via tiered pricing.

This results in long term contracts that promote and maintain our alignment.

The amount we generate after our revenue share with our customers is recorded as our net revenue line item on our income statement.

We also generate revenue from other sources processing fees monthly platform access fees ATM fees card fulfillment and <unk>.

Cost of revenue consists of card network fees issuing bank fees card fulfillment costs and a control line item of network incentives.

When looking at costs, it's important to know that through our strategic partnerships with the card networks. We receive incentives that are earned based on achieving certain volume milestones over the year.

Again. These network incentives are recorded as contra cost of revenue and therefore reduce our cost of revenue.

Incentives can be earned in the quarter or on an annual basis.

For certain incentive arrangements with an annual measurement period. The one year period may not align with our fiscal year. This can result in variation in our cost of revenue between quarters.

<unk>, netting our cost of network fees issuing bank fees card fulfillment costs and are contra cost of revenue.

Network incentives gets us to <unk> gross profit line item.

With that I wanted to turn to our results for the three months period ending June 32021.

And then discuss some of our non-GAAP results.

Total net revenue increased by 76% to $122 million in Q2 of 2021 from $69 million in Q2 of 2020.

This was a strong result that exceeded our expectations. The increase was primarily driven by a 76% growth in TPP.

Our revenue share payments increased by 78% from the second quarter of 2020.

As a reminder, revenue share payments, our incentives to customers to increase processing volume on our platform.

As a result, net interchange fees increased 68% to $95 million.

Processing and other fees increased 121% to $23 million in the quarter, primarily due to higher ATM processing volume along with monthly fees and <unk> as a service.

Let me delve into TPB for the quarter, which was 27 billion an increase of 76% compared to the second quarter of 2020.

This increase reflects outperformance from both our digital banking and buy now pay later or be NPL customers mitigated by tougher comparable from our on demand delivery customers.

First.

And our digital banking vertical it's important to note that in addition to the strong adoption of these products. We also benefited from the tax season filing deadlines shifting further into Q2.

From April 15th to May 17th.

We believe the effect of that filing delay resulted in more spending shifting into the second quarter as people receive their refunds later.

Second our NPL customers experienced 350% growth in net revenue compared to the same quarter of 2020.

Demonstrating both the growth enabled via product market fit on our platform and the adoption of this method of payment worldwide.

Third quarter also represented the first time, we encountered tougher comparable and on demand delivery as a result of the pandemic.

Although growth for this vertical was down compared to previous quarters absolute volume levels remain high. This is a testament to the enduring nature of our changing consumer behaviors strength of on demand delivery services and secular tailwind in our industry.

Gross profit increased 70% year over year to 47 million compared to $28 million from the second quarter of 2020.

Gross margin decreased slightly from 40% in the second quarter of 2020% to 38% in the second quarter of 2021, primarily due to card network fee growth, which was driven by a 76% increase in PPV and a 77% increase in the number of transactions offset by lower growth in our issuing.

Bank fees.

I wanted to spend a little time on gross margin. Firstly, we remain committed to our long term gross margin target of between 40% and 45%.

We had a higher gross margin in Q1.2021 due to an annual recurring incentive payment from the networks. This lowered our cost of revenue and increased our gross margin by a few points in Q2, we had higher network fee growth network fees can vary significantly by merchant MCC code transaction type Cardinal.

Pregnant and alike.

While we will not be providing specific gross margin guidance going forward, because we are usage based business and our margins can vary quarter to quarter, we do not expect 38% gross margin as a run rate going forward and are very comfortable with our long term target for gross margin between 40% and 45%.

Overall.

Our GAAP net loss was $69 million driven by our continued investment in people and technology and included $56 million and share based compensation of which $23 million was recorded for restricted stock units upon the consummation of our IPO.

In addition, we recorded stock based compensation of $5.8 million for secondary stock sales, which should be considered nonrecurring.

On a non-GAAP basis, adjusted EBITDA for the quarter was negative $10.6 million compared to a loss of $3 million in the comparable quarter of 2020 the.

The growth was largely driven by compensation related cost to invest back into the business to support future growth.

As a note we do view adjusted EBITDA as a useful measure for our operating profitability.

We ended the quarter with over $1.7 billion in available liquidity in cash and marketable securities of approximately one 3 billion of that liquidity was the result of the capital we raised in our initial public offering.

As Jason mentioned in his opening remarks.

Just scratching the surface of a large addressable market. Therefore, we believe the best way to capitalize on that opportunity is to invest in our products, our technology and our people.

I'll now move on to guidance as we mentioned in our press release, we are providing the following guidance for the third quarter of 2021 based on our current assumptions.

Net revenue for the quarter is expected to be in the range of $114 million to $119 million at the midpoint. This would represent growth of 38% on a year over year basis.

Our range for adjusted EBITDA is negative $16 million to negative $13 million.

Q2 was a strong quarter that exceeded our expectations Q3 guidance reflects ongoing strength from our digital banking and <unk> verticals. We believe Q2 net revenue included a one time benefit from the delayed tax season as I mentioned earlier, if we normalize Q2 for this onetime benefit our <unk>.

<unk> for Q3.2021 net revenue would have represented a sequential increase quarter over quarter.

The midpoint for our Q3 net revenue guidance is 38% year over year growth as we will be one year removed from the Q3 stimulus of 2020, we.

We remain very pleased with the growth we're seeing from both our largest customers and from our emerging customers. Both in the near term and our forecast for the long run in.

In addition, our adjusted EBITDA guidance takes into account increased head count investment as we look to add additional talent, primarily in our product and technology teams.

We're not giving guidance for Q4, we did want to provide additional color.

Historically, we have seen a positive bump in Q4, driven by increased consumer spending which has traditionally manifest itself and our digital banking and buy now pay later verticals given the Q4 holiday season in past years. We've also seen an increase in our expense management vertical due to travel however, we re.

Thoughtful and prudent as we're all grappling with the changing dynamics of the Covid pandemic.

In summary, we had a very strong Q2 overall and are very optimistic about the quarters ahead, our customers and the opportunity ahead of us and modern card issuing.

I'd now like to turn the call over to the operator to open up the line for Q&A operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Your first question comes from Tien Tsin Huang with Jpmorgan.

Thanks, so much thanks, good afternoon, and congrats on the first public call here and the great growth I wanted to.

To ask of our results were comfortably ahead of our estimates and I know there are a lot of puts and takes that you just went through but I wanted to ask simply on the revenue side that was handily.

Sequentially.

While gross profit was slightly down sequentially what would explain.

The difference there if you were to summarize it.

Thanks, Tien tsin for the question and good to hear from you I would say on the top line outperformance was was driven by three factors number one was.

<unk> strength and our digital banking vertical.

The second is a.

The BNP L, which saw 350% year over year growth and the third was expense management, where we saw a 100% growth year over year.

<unk>.

Does that answer your first question happy to go onto the gross margin.

Yes, no for sure and then on the gross profit side, yes.

From a gross profit perspective, I'll first start off by saying that we believe our performance in Q3 will be in line with our target of 40% to 45% we.

We did have a higher gross margin in Q1.

Due to an annual recurring incentive payment from the networks, which increased our gross margin by a couple of points.

In Q2, we had higher network fee growth network fees can vary significantly by merchant by MCC code transaction type card not present and alike. I will point out that we did have higher ATM volume this quarter.

But I think the most important message here is we believe that our performance in Q3 will be in line with our long term target of 40% to 45%.

Got it so you move away from some of the some of the nuances you just called out it's very clear. So maybe if you don't mind one more quick follow up maybe for Jason I'm sure and Ive heard that amazing stat on buy now pay later than that.

You have 350% I have to read that a couple of times to make sure I saw that right. So.

For you, Jason you've seen a lot of use cases take off Im sure right and.

Love to hear your thoughts on buying up here later in general and and of course, what the square after pay combination means for Mark if you could opine on that.

Yes.

Yes, so as you pointed two we've seen this popularity on our platform as far as buy now pay later as net revenue for the vertical has increased 350% from the comparable quarter of 2020, So if we point to the work.

At square and after pay went out to both founder led companies both build beautiful customer experiences.

It just demonstrates that a buy now pay later is an immensely popular method.

The payment that we believe is here to stay so.

As a reminder.

I believe you know klara affirm and settle our also.

Customers of Marquette and I think this deal just simply illustrates every part of the financial services value chain can be disruptive.

Which plays into our strengths as a modern card issuing leader we saw really buy now pay later that started in Europe with Florida.

We saw obviously that come to the United States with a firm we've seen after pay who we support in the U S with.

Sport in Australia, and New Zealand.

Continued to grow so both of these market to customers both after pay and square coming together is pretty significant and we believe we'll see continued growth in the buy now pay later vertical.

Okay.

Thank you.

Next question, Josh Beck with Keybanc. Please go ahead.

Thank you so much for taking the question and my congratulations as well on.

Our life as a new public company.

I wanted to go to the Google announcement, obviously, that's a very high profile win they have really.

Incredible internal resources I'm sure there were lots of other companies that were bidding for this.

So maybe just help us understand what you felt like really helps differentiate you and really create a win win for both companies are choosing you.

Yes, Thanks, Josh I would start their belief in modern card issuing to use the best tools in the market. The partnership the technology and the experience is Paramount and Youre right, Google talks to everybody across the world that issues and processing cards, but the belief in <unk>.

Mark header in our technology, and where we're headed was paramount for them. Our platform is simply designed.

To be able to help the world's most innovative companies execute game changing products at scale and Google chose Marquette up for that product.

That we built with them as we are powering a new virtual Google pay balanced card. It allows users to easily spend their Google pay balance through virtual card token eyes into the mobile wallet, the Google pay wallet and you use that accepting merchants, which we today, there's a lot of merchants, especially here within the U S that except that card.

For Duke.

Google pay balances, there's very very limited into how they can use their funds. So it really opens up an entire.

Ecosystem.

The tailwind is and why we both believe in the product as contactless payments and mobile wallet usage has really surge towards.

During the COVID-19 shutdown and consumers have significantly moved away from cash and physical cards to T. Mobile wallets like my mom uses Google pay all the time now which is a great example, she said she is a bellwether for accepting technology.

Marketing was one of the first companies to enable companies to instantly provision took a nice cards is the mobile wallet and we've already done this at scale with with companies like Jpmorgan square at square and others. So very honored to be working with Google in launching this product to market.

Well, congratulations and a follow up maybe for trip you, obviously, you've given us some very helpful context.

The verticals that were particularly strong within the quarter.

You had some comments also about on demand delivery. So maybe just at a high level as you build out the forecast for the second half of the year.

In Q3, just anything that we should be aware of with respect to the different verticals and some of the cross currents there.

Absolutely our Q3 guidance reflects ongoing strength from from digital banking and BNP.

Verticals.

We have our midpoint of our net revenue guidance of 38% year over year.

We also mentioned that while we're not giving guidance for Q4.

We did want to provide additional color historically, we've seen a positive bump in Q4, driven by increased consumer spending which has traditionally manifests itself in the digital banking and BNP all verticals given the holiday season, you asked very specifically about on demand delivery and we have seen some.

Softness in on demand delivery, but I also want to highlight that we see continued elevated levels on the platform and so that in our mind is a testament to the services that they are providing VR platform.

Congrats again, thanks, Tim.

Thank you.

Next question Ramsey El <unk> with Barclays. Please go ahead.

Hi, Thanks, so much for taking my question this evening.

There's a lot of moving parts in the Q3 guide lapping stimulus timing of taxes et cetera can you just review for US again sort of as there's moving parts and also comment on.

The visibility you feel you have now to Q3 I mean, maybe.

Compared to sort of in a more normalized year do you feel like you have that same type of revenue ability visibility now that you had historically in the business.

Thanks, Randy Ramsey, that's a multipart question. So let me let me attack it from various ways I'll say.

We believe we benefited from the tax season filing deadlines shifting further into Q2 from April 15th to May 17th.

We believe the effect of that filing delay resulted in more spend shifting into the second quarter and when we normalize Q2 without this benefit we believe net revenue growth would have been in low <unk> to mid <unk> in Q2.

Comparing this to our midpoint guide of $116 five on a pro forma basis would be increasing sequentially quarter over quarter.

You talked a little bit about visibility to Q3.

I think everyone's kind of dealing with the lapping of Av.

Stimulus payments from Q3 of 2020, but we feel very good about our midpoint guide of 38% year over year growth again, that's supported by.

By our digital banking and strength in our <unk> vertical.

Okay.

One quick follow up there's been a lot of chatter recently about the durability of the small bank carve out and the Durbin amendment and the ability of Fintech.

Like Mark had to kind of issue Judy small banks and earn the unregulated interchange.

Do you see any changes on the horizon I guess more importantly, if there were any changes.

How would you navigate those changes.

Hello, Larry.

We don't see.

Yeah, I can I can jump in here.

Yes, so Josh we don't see anything changing in regards to Europe and amendments.

In the near term.

We keep our eye on it it's been in place and it was meant to protect.

<unk> community banks and was meant to protect consumers.

Changes like that would be pretty significant.

To the industry, but again, we keep an eye on that stuff, we keep an eye on a number of regulations like red II and other things going on in the industry.

That being said, we have a healthy and growing business outside of the U S.

Which is not driven off of interchange purely we have another business model that we've been successful in.

In building. This is both in Europe. This is in Australia. This is in New Zealand so.

If things begin to change around Durbin.

Several years out will be very very thoughtful in regards to how we change our business model. So we can maintain our growth.

Super helpful comments. Thank you.

Okay.

Next question Darrin Peller with Wolfe research.

Hey, guys congrats on first quarter out of the gate.

Being strong on the revenue side when we look at the thank you.

Great Hey, when we look at the growth rate of your your story and we're looking at your 10-Q and I think it showed square was up somewhere in the low seventies your revenue growth obviously overall.

Is outperforming that large customer or selling I think what you talked about what happened is the diversification of the business expanding from other kinds of offerings.

Clearly buy now pay later one of those neo banks digital banks in general. So can you just touch for a minute again on really the differentiation on the buy now pay later spaces or maybe just moving beyond some of what you had as your core.

Contributors to revenues.

Tech differentiation since I know market has really been known well for things like that on demand delivery buy now pay later and if you could just go through how you're winning so well there.

Yeah.

I mean, if you look at the companies that are on platform firm Clauda after pay.

Cecil.

They really drive experience and they don't build one product they build multiple products on our platform I think that's number one.

Second is through multiple geographies, so we know how to operate.

Inside of not only different regulatory environments, but different technology environments different operational environments.

This is very very complex and experience is key we have over 11 years of experience doing this and just like we had built out in the beginning we talked about this on the road show when we think about commerce Disruptors buy now pay later or be NPL is right there.

And our goal has always been to dominate a vertical go in land.

Our land and expand winners get the experience and know how to operate these businesses at scale. So we do see tremendous growth the 350%.

Both year over year is tremendous and we expect to see more growth within that space, but they simply choose Marquette.

We do smart deals or customers do smart deals.

So im connecting the customer leading innovation and delivering results associated with our with our platform.

Got it alright.

Alright, so it seems like that can persist when we and then just an add on question would be around the expansion from what you've been doing I know you touched on pretty much.

Started premium into credit card I think it was really the last couple of quarters.

And there has also been more progress.

Incremental partnerships with banks.

Underway can you just touch on the opportunity there, mainly the credit card side and where the progress has been.

Hi, guys.

Yes, and we've talked about this publicly we've announced our relationship with preserved.

We have customer already using the platform and test and obviously, we look to grow that pretty significantly.

50% of consumers in the U S use credit.

No credit is going to be growing outside the U S. Both in Europe, and one of the largest credit card markets in the world is going to be Asia in the coming years.

We know consumers want more credit so we thought very differently, how we wanted to go and build.

One of the better experience for consumers and businesses, we wanted them to be able to create just like the promise of Apis and when we started our businesses to create cards that either can disrupt entire industries.

Or solve large problems at scale.

Could do that with with cards that were just looked like everyone else's cards delivered by buybacks. So we thought the same way with credit what does the credit card of the future look like.

And how can they go and build that so we have a fairly large team here Mark head focused on that product, we believe that product in the coming quarters will expand we'll have more to announce there, but certainly excited about credit and then theres a number of other areas.

In regards to not only issuing and processing, but card products and the.

Associated <unk>.

Processing that goes around that a lot of the tools and things certainly around.

<unk>.

Program management so.

Lots to talk about in the future of lots of run written chapters and certainly more to come.

Great and we're looking forward.

Thanks Kurt.

Welcome. Thank you.

Your next question Ashwin <unk> with Citi.

Yeah.

Hey, guys.

Congratulations good start.

Life as a public company.

Thank you.

I wanted to ask about about square.

Any new work and you do.

Would that necessarily I guess.

Falling into one of the existing contract and if so sort of.

Benefit.

Oh from Samsung.

You know on any benefit from the high.

Higher cash outs on any hint.

And obviously.

I understand planned confidentially answer the second part of the question a genetic cancer.

The decline if you can do that just conceptually understand I understand that.

Sure. So we we have a number of product with where we've talked about square is absolutely. The Shining example of modern card issuing.

Truly understand within their DNA in regards to how to build beautiful outcomes for their customers starting.

Starting with the cash card.

And second is with square card, which is on the merchant side. So we see it we talked about and announced.

At the square banking services represents sort of a much more fulsome offering high yield savings lending and square checking and we're powering multiple parts Repowering square checking we've talked about the square debit card accounts.

And routing numbers and FDIC insurance.

Companies use our API to solve financial problems at scale.

Obviously, we welcome that we welcome our customers building more products.

On our platform it creates a nice horizontal approach, which is really a part of how we connect the customer and how we go to market.

And we want them to continue growing so yes, we will hit volume tiers.

Based on their success certainly square success is our success and we want them to continue doing that.

Got it.

Understood.

And then as I.

Sorry to belabor this but the sort of the TQ whole queue.

Commentary was not.

With regards to <unk>.

The the fallen off.

So so to speak.

And you're thinking of the next couple of quarters is it primarily caution I mean I get the tax piece.

Is there anything beyond the tax piece, let's caution in.

And are you actually seeing.

As you look at looking at current results the impact of Pennsylvania and things like that.

Yes.

We have shared we.

I'll kick it off tripling and I'll just hand over to you.

I mean, everything we've talked about we've factored into our guidance.

We believe we're only scratching the surface here, we have $60 billion in processing volume and there are six trillion in the U S alone.

And volume on card so.

I will start with that and then I will turn it over to Europe.

Ashwin, our Q3 guidance.

<unk> reflects again strength from digital banking and the NPL verticals.

We have expressed that we have seen some softness in our ODT, but they continue to be at very elevated levels on our platform.

38% year over year growth of net revenue.

It is the midpoint of our guidance and we are lapping Q3 stimulus from 2020.

We continue to be thoughtful we continue to be prudent.

As a new public company.

Understood got it thank you.

Next question from Nicole <unk> with William Blair.

Thank you good afternoon.

Let me add my congratulations to a successful IPO in the first quarter call and strong numbers.

The gate Thank you Paul.

Jason.

Now that you have.

Yeah, I mean, I think as you pointed out I mean, a massive opportunity internationally.

Only in the U S, but also internationally, which is a.

Right now or last year was a small part of your business.

I think maybe 2% of the business you have a number of international.

Customers.

So just some thoughts around that.

The growth of international timing for growth what does it take to.

To make that a much bigger part.

If your business I know you just hired as a senior executive from AWS.

In APAC, our EMEA and.

Maybe that's part of the strategy.

Yes, I mean part of the strategy and hiring Darrin is his experience at AWS for over 10 years in building that into a formidable business throughout EMEA, especially obviously international is incredibly important so I would start with this.

Monarch card issuing is certainly a global phenomenon.

<unk> cities countries continents, the ability for customers to accept payment cards, whether online or offline.

Is continuing to grow around the world and we see absolutely no change in that in fact, we're going to see it increase.

Because we are seeing obviously massive reductions in cash. This is international is specifically a huge opportunity for <unk> in the future.

Our business has been global for a long time, we've been transacting in basically every country that you can transact in the world.

The secular trends we've been discussing apply every major market not just in the us.

Moving from cash to card as I mentioned and then from card to mobile is really a worldwide phenomenon. So.

We'll enter a new market when it makes sense.

It's a fit with our long term strategy is supportive of existing customers and their expansion plans compelling conditions to build a strong local business higher strong talent to achieve these outcomes.

And then our international plans are partially driven by our customers' door dash and Australia into the Carton, Canada Clara in Australia after pay in the U S Canada.

Canada, and Europe, and Uber in the EU so.

We had talked about in the road show only 2%.

Our.

Our revenue actually comes from outside the U S. But there is a 30 trillion dollar.

Global card issuing opportunity and we also believe that.

A lot of the current volume is moving off of legacy platforms to more modern platforms. So we see.

Both outside the Internet in the international market to be tremendous so part of your question was.

What does it take.

Every country is different.

Every country has different networks different rules both on how money is moved but also how you manage.

Consumers data there are <unk> either personally identifiable information so as we go enter a country. We're very thoughtful we're very prudent on how we do that and obviously, we look to build both.

A great business, there and being able to support our customers as they move around the world.

Thank you I appreciate it and then just in the bank space.

Welcome to Jpmorgan Goldman Marcus maybe.

I think and obviously the neo banks.

Pretty good with square.

I mean, there's a lot of other neo banks out there some of which you have but a lot of which you don't currently are now what is the and there's a lot of new startups in that space.

Just some thoughts on the large bank space and then maybe the opportunities and the neo banks outside of square and is there anything in your contract with square that prohibit you from working with certain other EMEA. Thanks.

Or is there another bank side no. There is nothing in our contracts that preclude us from growing our business.

Yes.

Space the digital banking space is a big space for Mercado.

Something that we're very hyper focused on.

Digital banking.

Or neo banking or whatever label you want to apply to it is massively disruptive and we've seen both.

Jamie Diamond and talk about the disruption coming from neo banks or digital banks.

Also here and key growth from companies like square and the cash App into card that we have built and the other products that they built on top of our platform.

So we have been very purposeful as.

As a business we started in commerce Disruptors, we move to digital banks moved to large Tech Giants and as you mentioned JP Morgan Chase.

And Marcus by Goldman Sachs is how we're breaking into <unk> or large financial institutions, we like to refer to them internally.

Those large financial institutions is where a majority of the volume today exist and they are looking to modernize they're looking to move from on Prem to the cloud so one premise managing hardware into the cloud.

It is.

Our core to our business and that's how we think about the future. We know everything is moving to the cloud. We also know that the large financial institutions.

One a build on new platform that allows them to not only reduce total cost of ownership.

But allows them to build and iterate much faster and bring new products to market much faster, but for us. So.

I'm breaking it down into four different areas, which is commerce disruptors digital banks large tech Giants, which we also believe a lot of large tech giants want to become financial institutions in one way shape or form.

And then the large <unk>.

Financial institutions are existing financial institutions, and we have very clear precise strategies on how to not only grow our existing business, but with more business within those.

Specific landscapes.

Thank you very helpful.

Ladies and gentlemen, as we come to the end of the Q&A session. Please limit yourself to one question. Your next question comes from Craig Maurer with.

Please go ahead.

Yeah, Hi, Thanks for taking my question I'll keep it brief with just a quick one the acquisition of Astra Paypal Square does this trigger any material adverse change clause in your contracts with either by push.

A more aggressive renegotiation schedule.

Thanks, Rick No both square and after pay they use multiple parts of our platform to power their businesses.

Also of notice after pay is not a top five customer in terms of volume on our platform. Therefore, we don't see this combination of moving.

<unk> significantly trigger renegotiations or the like.

And I would also add both companies also have long term agreements with mark out of into 2024.

Yeah.

Alright, that's very helpful. Thanks.

Youre welcome.

Next question, Dan <unk> with Mizuho.

Hey, guys. Thanks for taking my question. So it was nice to see I think the yield improved by about a point.

Quarter over quarter, but.

The key controversy has always been like what's going on with square versus non square yields obviously they declined dramatically.

In 2020, so can you maybe help us understand a little better.

What is going on what are the dynamics.

That's driven that.

Parse out.

More exactly what is going on I appreciate it. Thank you.

I'm happy to take that one I want to clarify a few points.

That we've heard around non square portfolio as there has been probably some misinformation.

Number one the portfolio is very diverse it includes on demand delivery buy now pay later expense management E Commerce enablement.

<unk> others number two volume from these verticals can vary quarter to quarter, we are usage based business.

Three of the services that we provide to our customers can be different and the cogs structure can be different consumer versus commercial.

Certain non square programs underwent exponential PPV growth.

I think we highlight in the queue.

That the non top five grew 265%.

And that's wonderful and it's a testament to.

To our platform.

We absolutely look to grow gross profit dollar growth and why it's because the marginal cost of processing that incremental dollar volume or transaction is de minimis.

So I hope that I hope that clarifies.

A little bit around those portfolios.

Yes, no. It does I mean, I was looking for some real specific data, but I.

I understand.

Kind of where you I.

I appreciate it.

Thank you.

Next question, Andrew Jeffrey with Truest.

I appreciate you taking the question.

I look forward to getting to know you better Jason and trip.

One of the things that.

Mark has highlighted as network connectivity.

A key point of distinction.

Can you talk a little bit about discover in particular as it relates to BNP Allen and some recent transactions that have taken place in the space and whether that's.

On the other network you you'd like to add just generally if you think you have globally Apple network connectivity to drive global growth ambitions.

Yes, so I'll start I mean visa and Mastercard have blanketed the globe.

If you're a merchant and you want to accept payment cards, whether online or offline Europe, we're working with visa and Mastercard.

That being said I mean, we have actually worked with discover for years discover was our first network.

They were the first network, we got up and running with they were the first network that we built not only our Marquette a card with when we first got started.

But our first customers, including the Facebook card if anyone remembers that back in the day in 2012 that was actually on the discover network. So to your question in regards to coverage around the world we have it.

We don't we're not.

Authorized to operate in every single country, there's a lot of work that.

That you need to do to get supported both through visa and Mastercard, but with the banks to operate within specific countries. We have a plan to do that work.

Six countries today and growing.

But with regard to discover I mean, we've had a long term relationship with them.

But theyre not necessary for us to not only grow our business, but blanket the globe.

I appreciate it thank you.

Jordan.

I will now turn the floor over to Jason Gardner for closing remarks.

Yeah.

Well, thank you everybody.

Joining us on this call and for your interest in <unk>.

Have a great rest of the summer stay healthy and trip and I look forward to speaking with you all next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Okay.

[music].

Good afternoon, ladies and gentlemen, thank you for standing by welcome to the Mark kept the second quarter 2021 earnings conference call. At this time all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, we will open the lines for your questions.

As a reminder, this conference call is being recorded.

I'd now like to turn the conference over to Stacy Feit, Vice President of Investor Relations to begin.

21, and our subsequent periodic filings with the SEC such as our quarterly report on Form 10-Q for the quarter ended June 30th 2021.

Actual results may differ materially from any forward looking statements we make today.

These forward looking statements speak only as of the time of this call and the company does not assume any obligation or intent to update them, except as required by law.

Website.

During today's call are Jason Gardner Marquette, its founder and CEO and Europe say, Mark Harris, Chief Financial Officer.

With that I'd like to turn the call over to Jason to begin.

Thanks, Stacey. Thank you everyone for joining us for Merck had its first earnings call as a public company, it's great to be connecting with you all.

<unk> had a very successful IPO, we raised a lot of capital and we're off to a great start trip and I are excited to share market at second quarter results as well as an overview of our business.

Wanted to cover a couple of financial highlights about which trip will provide additional detail next I will talk about three key themes for the quarter.

Lastly for those on the call who are less familiar with that I'll provide some focused on <unk> with that let's begin.

Our second quarter results demonstrate our solid product market fit and execution in this rapidly evolving digital payments landscape.

$7 billion in total processing volume or TPB at 76% increase compared to the same quarter of 2020.

$122 million of net revenue, a 76% increase compared to the same quarter of 2020.

There are three key themes that I want to highlight from the second quarter first we continued to land winners.

It shows the power of the launch of a digital card for Eagle paid balanced users, allowing them to instantly use their balance great virtual card token I think Google pay second.

Second we continued to expand and grow rapidly with our current customers. We expanded our relationship with square square announced square banking services during the quarter and we are proud to power to square checking product and third we continue to build long term relationships with our customers during the quarter, we extended our agreed.

With a firm until 2024. This is a confirmation of our enduring value of our platform and our partnership.

Again Triple will provide more details on our second quarter performance a few minutes.

<unk>. This is our first earnings call I'd like to spend some time, providing you a brief overview of our data the industry <unk> is driving our growth and a few of our strategic initiatives.

Our credit created modern card issuing which is at the heart of today's digital economy. When you think of the card in your wallet. These do very little and have seen little innovation in decades, now imagine a car that can take any form factor you wanted to solve significant payment problems that scale and disrupt the entire industry.

From authorizing transactions based on dozens of dynamic criteria to allow you to pay in installments to creating a brand new consumer or commercial experience. These.

These cards can be physical virtual or token eyes into mobile wallet. They can be credit debit or prepaid built by developers in days using cutting edge tools instead of months.

This is a modern card issuing when you order food using door dash, our groceries using the card modern card issuing works in the background as money moves from the App to delivery drivers court when you buy a big screen TV and pay for it and installment affirmed.

Affirm our Florida modern card issuing helps move money payment card you used to pay that merchant seamlessly.

Some of the most disruptive companies that last decade, such as square against the cart Uber and Clara use Mark head of technology at the heart of their product.

Our first modern card issuing platform built from the ground up by developers for developers in the cloud with open API and best in class developer tools. We believe we are the first to market with multiple issuing and processing innovation, including the first open API for building bespoke payment card <unk>.

<unk>.

Just in time or jet funding and token inflation as a service.

These innovation put the control of designing outstanding payment experience is in the hands of customers to enable them to launch unique payment card product and a fraction of the time it could on legacy platforms.

We believe that market is now that the facto modern card issuing platform and that our continuous innovation further cement and expand our market leading position.

We are deeply integrated with our customers in three ways technical experience and partnership.

<unk> technology underpins, our customers' core business our supports their core business. Our people are their trusted partners as our solutions drive their key processes.

Our deep experience, serving the most innovative commerce disruptors technology giant and financial institutions brings in valuable issuing expertise to build and scale innovative programs. Additionally.

Additionally, a partner with our customers for long term success, our usage based business model provides a win win for our customers and markets as their businesses thrive on our platform. Our net revenue grows. Moreover, our customers are incentivized to bring new volume and launching new car programs on our platform.

As they benefit from volume based discount via tiered pricing.

As a result, we have long term contracts that promote and maintain alignment customer success is at the core of everything we do and connect the customer is a core company value, we built technologies for people who serve people.

Strength and durability of our customer relationships are evidenced by our second quarter year over year net revenue growth of 76%.

We managed to support massive innovation for these customers added considerable scale. Our platform operates at 99, 995% uptime of volume through the <unk> platform has increased 30 ex in the last four years.

We operate in 36 countries and growing we believe the opportunity within payment and modern card issuing is tremendous.

74 trillion dollar global body movement market, which <unk> 30 trillion <unk>.

International card issuing.

The Mercato platform processed $60 billion last year, a small fraction of the total card issuing opportunity.

With the accelerating shift to digital payments market continues to expand we believe market or has that modern technology.

<unk> in three ways first.

The shift to digital payments is accelerating more and more transactions are moving online and when they are in person people worldwide are increasingly choosing not to pay with cash.

To pay with a card.

Or with contactless payments.

This has only accelerated during the pandemic.

Second payments are not only becoming more digital they are.

We're also integrated more frequently and to consumer and business applications.

Think about the last time, you use online food delivery, a messaging app or a digital marketplace payments as deeply embedded as part of the experience software companies continually Parker with payments company to provide simple.

Scalable and Configurable payment service to meet their end users' needs.

Third consumers Trust, a new payment technology is growing consumers are increasingly more confident about the use of online shopping and digital payments for safety and convenience. While the pandemic may have encouraged the use of services such against the car or contactless payments as a matter of safety.

Once consumers experience these conveniences we.

We believe they are unlikely to change back because of these three tailwind.

As well as our 11 plus years of experience we are confident in our ability to further expand our leadership position in modern card issuance.

The work, we have achieved to date and our goal to be a generational business going forward is dependent on creating an atmosphere, where mark Curtin and do the best work of their lives to do this we have recently added two new meters to the executive team and Darin Valerie our new Chief revenue Officer and Randy.

<unk>, our new Chief Technology Officer.

Darren and Randy have tremendous and don't experience in scaling large enterprise businesses.

Darren comes to Marquette out from leading AWS through EMEA, a business unparalleled for the innovation that has powered at scale in a same laser focus on customer success as Mark had out.

Randy has spent almost three decades at engineering nearly all of it at Microsoft and Salesforce.

Building, the technical infrastructure to support substantial high availability businesses.

Excited to see their impact on the company and I have a strong belief that these are the right people to have on our executive team as we focus on capturing the vast market opportunity in front of us.

This quarter marks the first step in our life as a public company.

We believe we are barely scratching the surface when it comes to modern body movement. We are excited about the opportunity in front of us and we look forward to our successful track record with that I will turn it over to truck market as Chief financial officer to discuss our second quarter financial results. Thank you.

Thanks, Jason.

Good afternoon, everyone I'm excited to talk to you today about our strong Q2 financial results and provide guidance for Q3.

Given this is our first earnings call as a public company.

I will talk briefly about our business model and some of the key points of our story.

Or a usage based business a transaction based business and interchange based business.

<unk>.

TBD drive the majority of our revenue as we earn interchange fees from card transactions.

We share those interchange fees with our customers so that our customers' interests are aligned with those of Mark headers.

Our customers are incentivized to bring new volume and launched new card programs on our platform as they benefit from volume based discounts via tiered pricing.

This results in long term contracts that promote and maintain our alignment.

The amount we generate after our revenue share with our customers is recorded as our net revenue line item on our income statement.

We also generate revenue from other sources processing fees monthly platform access fees ATM fees card fulfillment and took innovation.

Cost of revenue consists of card network fees issuing bank fees card fulfillment costs and a control line item of network incentives.

Again. These network incentives are recorded as contra cost of revenue and therefore reduce our cost of revenue.

Incentives can be earned in the quarter or on an annual basis.

For certain incentive arrangements with an annual measurement period. The one year period may not align with our fiscal year. This can result in variation in our cost of revenue between quarters.

Netting our cost of network fees issuing bank fees card fulfillment costs and are contra cost of revenue.

Network incentives gets us to <unk> gross profit line item.

With that I wanted to turn to our results for the three month period ending June 32021.