Q1 2022 Marqeta Inc Earnings Call

Good afternoon.

<unk> and gentlemen, thank you for standing by.

Welcome to the market at all first quarter 2022 earnings conference call.

At this time lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, we will open the line for your questions. As a reminder, this conference call.

Is being recorded.

I would now like to turn the call over to Stacey Feynman, 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 annual report on Form 10-K for the year ended December 31, 2021, and our subsequent periodic filings with the.

The SEC.

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

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, today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not as substitute for GAAP financial measures reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials.

Which are available on our Investor Relations website.

Hosting today's call today are Jason Gardner, <unk>, founder and CEO , and Mike Miletich, Marchetti, Chief Financial officer with that I'd like to turn the call over to Jason to begin.

Thank you Stacy good afternoon, everyone and thank you for joining us for <unk> first quarter of 2022 earnings call.

Start with a brief overview of our results for the quarter and then I'll dive into a few of our key focus areas as we diversify and grow our business.

Total processing volume for TPB was 37.

Billion dollars in the quarter.

Representing a 53% year over year increase yes.

This growth rate is notable given that the first quarter of 2021 benefited from stimulus payments.

53% growth rate also represents an 11% growth on a sequential basis from the fourth quarter of 2021, an exceptionally strong quarter.

Our growth is being driven by a more diverse set of customers as the number of customers with over $500 million and TPB doubled from the first quarter of 2021.

Our net revenue of $166 million in the quarter represents a 54% increase from the previous year.

Main drivers of growth. We saw throughout 2021 are still impact consumers continue to trust neo banks to manage more and more aspects of their financial lives as evidenced by the increased tax refunds, we saw but positive in cash app.

We also witnessed continued strength in buy now pay later, despite Q1 being a seasonally weaker quarter for retail sales.

Expense management also continues to show momentum as corporate travel begins to bounce back and companies look for more innovative and efficient ways of handling their operating expenses.

Newark customers signed in 2019 contributed to more than 20% of our growth in the quarter. These.

These customers are growing over five times as fast as customers signed prior to 2019 as a result, these newer customers now account for about 20% of our total TPB, which is double the comparable quarter of 2021.

Block accounted for 66% of our net revenue, which includes two months of after pay volume based on the timing of the deal closing a decline from 73% in the first quarter of 2021. This is slightly up from 63% in the fourth quarter of 2021, primarily due to incur.

Increased tax refund deposits driving growth in cash up spending and strong buy now pay later volume in the fourth quarter.

Yes.

The strong first quarter reflect our continued success in diversifying and growing our business by focusing on three critical factors, one fueling our customer success to <unk>.

<unk> the ways, we support our customers and three increasing our global platforms resiliency reliability and scalability first and foremost we want our customers to thrive.

Our success is our customer success, we are always looking for fuel customers growth on our platform by giving them the tools they need to diversify and broaden their businesses. This is enabled by Mark has single stack platform, which our customers can easily configure.

Best in class platform allows our customers to code, one and quickly deploy programs across multiple markets. We have spoken many times about our U S based customers expanding abroad. Our European business also represents the tremendous value our single stack provides.

Across Europe , we have a growing number of customers that use the Marquette a platform to launch in other countries quickly, including the U S.

Hey, Hock Bulgaria's first startup to achieve Unicorn status has been lives on our platform for the past two years. The Marquette platform enables pay Hawk and expense management company to expand throughout Europe quickly and they plan to launch in the United States. Shortly our first market outside of Europe capital ones.

<unk>, which provides a small business credit card and spend management platform to over 100000 small businesses in the U K recently used <unk> platform to launch their product in the US These are just two examples of more than half of our top 10 and more than <unk>.

One third of our top 20 customers that use mark Hurd and multiple geographies.

Another customer that is leverage our platform to drive tremendous growth is upgrade card upgrade card offers a disruptive version of credit cards, turning monthly balances into low cost installment plans and offering unique reward their partnership with <unk> and our ability as a.

Modern card issuer to leverage multiple API and configurations facilitate the launch of new product and rewards as a result.

Upgrade has launched.

Sure reward card program broadening its total addressable market to cover a larger target audiences.

From millennials looking for crypto rewards to Sabres looking for cashback.

Upgrade card was recently named the fastest growing U S credit card in 2021 by Nelson and the only Fintech featured a nielson top myths.

Of the top 50 U S credit card issuers, our second focus area, providing broad support for our customers.

As evidenced by our program management capabilities, which we offer as managed by Markel <unk> solution.

These capabilities serve as a core competitive advantage for Marquette at our managed by customers rely on us to manage the complexity of card network rules obtained bank sponsorship and navigate the legal and regulatory landscape, while allowing for innovation.

This enables our customers to leverage our deep payment expertise, reducing the burden of running a card program. Hence they are free to focus the precious engineering resources. This makes it significantly easier for customers to bring entirely new and distinct program.

As to market. For example, we recently helped one of our buy now pay later customers launch a new type of virtual card that can be used for multiple purchases of different merchants market. It was able to handle the complexities and nuances of this card program in a relatively short amount of time with our expertise in may.

<unk> capabilities.

We also offer value added services.

Such is the management fee.

Our know your customer.

The card per car.

Hard to filament to broaden the many ways, we support our managed by customers.

I'll be sharing example.

Card issuers have to balance risk and growth effectively airing too conservative or aggressive can derail a new car program. Therefore to help our customers grow and your risk aware way. We recently launched risk control. This comprehensive product suite gives our customer.

<unk> end to end control of our risk management to solve significant pain points.

One of the products within the suite real time, Decisioning lets our customers fine tuned controls, which transactions are approved you built this product from the ground up and it was created exclusively for card issuers, while the networks and other issuer processors offer similar products, we believe our real time decisioning.

<unk> is more comprehensive using the most relevant data from the issuing point of view rather than be acquiring point of view by enhancing the card networks risk scores with their own industry and customer data points, we can run multiple rule simultaneously and our customers can change these rules on a slide.

Our solutions other solutions typically have a review process for creating new rules.

Which are not helpful. When theres, a new Florida attack our solution allows our customers to implement risk rules based on a card holder spending history.

A strong fit for verticals like expense management.

Our third area of focus increasing the resiliency reliability and scalability of our global platform that builds redundancy and scale for the future. We recently added another bank partner to our platform evolve Bank and trust, who will support the full range of market is program management.

Abilities with evolve we have four different bank partners in the U S that can provide this service, which allows us to find the best match for our customers. For example, evolve dedicated open banking division offers innovative banking as a service payments and technology solutions to a large diverse portfolio of.

Syntax.

This combined with our focus on financial services makes it Bob a great partner for Us and us a great partner for evolve in closing our Q1 results demonstrate a continuation of solid performance in 2021, our business delivered very strong growth against the backdrop of global and economic.

Uncertainty and a tough year over year comparisons.

Looking out at the remainder of 2022 I'm thrilled by the many exciting customer develops in our pipeline and the additional money movement tools. We're building for our customers I will now turn the call over to Mike.

Thank you Jason.

Mckenna delivered another great quarter with revenue growth of 54% fueled by a 53% increase in TBD.

Our topline growth reflects our ability to support our customers' growth at scale with 14 of our top 20 customers growing their TPB at least in the triple digits in Q1.

Our net revenue and gross profit margin were higher than we expected largely due to outperformance by customers outside of our top 10.

This outperformance was very broad based driven by a stronger growth from several dozen customers. This outcome demonstrates our continued success in diversifying our business in terms of the number of customers.

The industry verticals, where we have achieved scale and the geographies we serve.

Also contributing to the better results with a newer customer, placing a large card fulfillment order one of the many services, we provide which is a positive signal for the growth to come for that program.

Our net revenue and gross profit upside translated into a better adjusted EBITDA margin.

Q1, <unk> was 37 billion, an increase of 53% despite tough year over year comparisons driven by the government stimulus payments in Q1 2021.

Financial services vertical grew over 10 slower than overall company growth is one of the biggest beneficiaries of the stimulus last year for.

For block specifically the tough stimulus comp was partially offset by a large increase in the tax refund direct deposit, which helped cash app card spending.

On demand delivery continues to be our slowest growing vertical however, it did grow double digits in Q1 accelerating two points from last quarter due to two factors.

Rise of the Omicron variance lifted volume in January in both the U S and Canada.

And one of our large customers is successfully expanding into drug stores retail and grocery driving a meaningful step up in growth versus last quarter.

Lending TPB, including buy now pay later more than doubled versus Q1 2021.

This payment option continues to proliferate and we now have five customers, who had over 1 million transactions in the quarter.

Expense management more than tripled year over year with seven customers growing over 100%.

We now have four customers with PPD greater than $100 million in Q1 twice as many as we had at this time last year.

Strong performance by customers, who are newer to our platform are driving increased diversification of our revenue as I mentioned earlier as the driver of our Q1 upside.

Customers, who joined our platform since 2019 are now about 20% of our TPB and are growing more than five times faster than customers, who joined the platform prior to 2019.

While our top five customers continue to drive the majority of our TBD and grew 39% in Q1, the <unk> of our remaining customers grew more than five times more than four times that rate.

Net revenue was 166 million and grew 54% in the quarter.

System with our <unk> growth of 53%.

Therefore, our net revenue take rate was in line with last year and remained stable in each of our top four verticals.

Compared to last quarter. The Q1 net revenue take rate was two bps slower due to the reduced contribution of higher yielding verticals that benefited from holiday shopping.

Our powered by Mark header revenue, where we purely have a processing relationship with our customer has grown to well over 100% for many quarters.

Although the revenue take rate is lower the gross profit take rate is similar to many of the verticals and are managed by Markel <unk> business.

The powered by market, our customers are gaining share of TBD.

But much of those share gains are coming from other low take rate verticals, which is resulting in a stable overall take rate. Despite these changes in our business mix.

These powered barracuda customers serve a variety of verticals.

Many operate outside the U S and now drive more than 10% of our GTD versus being a low single digit percentage one year ago.

Gross profit grew 50% for slower than revenue due to a network incentive catch up benefit we received in Q1 last year. After we hit a new volumes here in our contract.

As a reminder, our incentives operate on a contract year that runs from April through March and in this contract year, we hit the higher volume tier one quarter earlier, given the incredible growth of our business as you likely remember from last quarters results. If you normalize for the catch up incentive of $3 million in Q1 2021, our gross profit grew 60%.

<unk> this quarter.

Our network fees are growing in line with volumes, but there are two factors driving the normalized gross profit growth to be above revenue growth.

One feeds to our bank partners are growing materially slower than TPB and to our network incentives are growing a little faster than TBD on normalized basis.

Both of these factors demonstrate the strategic relationships, we have with our bank and network partners as well as the powerful operating leverage that can be achieved in our business as we scale.

As a result, the Q1 gross profit margin was 45%.

The Q1, GAAP net loss was $61 million, which includes a $12 million noncash nonrecurring impairment of an option to purchase a private company, we invested in last year.

On a non-GAAP basis, adjusted EBITDA for the quarter was negative $10 million driven by investment in resources and technology that are fueling the growth of the business and the scaling of our platform.

The adjusted EBITDA margin was negative, 6%, which was a few points better than we expected due to the higher gross profit as well as some operating efficiencies.

Now, let's shift to our expectations for Q2 and the rest of 2022.

We expect Q2 net revenue growth to be between 46% and 48%.

This is higher than we expected a couple of months ago as many of the drivers of our outperformance in Q1 should continue.

This is also consistent with the trends we've seen so far in April .

This expected growth rate is a little lower than Q1, as we grow over a larger base.

The year over year revenue increase in dollars in Q2 is expected to be similar to Q1.

Q2, gross profit margin should be in the $40 to 41% range as.

As we discussed last quarter Q2 is our lowest gross profit margin quarter as our network incentive contracts run April to March.

Therefore volume tiers reset in Q2 of each year, resulting in lower network incentives, which then rise with growing cumulative volumes as the year progresses.

However, this step down in the gross profit margin in Q2 is expected to be less significant than it was last year given the increased scale of our business. Therefore, we expect gross profit to grow several points faster than net revenue growth.

We expect the Q2 adjusted EBITDA margin to be negative, 10% to 11% our lowest margin quarter due to gross the gross profit dynamics I just described.

Our adjusted operating expense growth in Q2 should slow at least 10 points from Q1.

As we grow over the ramp of our investment throughout 2021.

Our expectations for the full year 2022 are as follows.

Net revenue growth is expected to be in the high <unk>.

Based on the trajectory of the business year to date and our expectations for new business contributing later in the year.

As I shared last quarter gross should step down in Q3, as we grow over the rapid scaling of the business that occurred last year.

Q4 growth will then step down more meaningfully as we lap the incredible format. The incredible performance in Q4 2021.

Given the current economic uncertainty.

Back half of the year is challenging to project, but we will share more with you as we progress through the year Q4 is particularly tough to forecast since last year was the first time, we saw meaningful impact from holiday spending on our volume.

Our expectations for gross profit margin remained unchanged and should be in the low to mid 40% consistent with our long term guidance of 40% to 45% on an annual basis.

We hope to share a tighter range with you next quarter once we pass the midpoint of the year, but right now we expect Q3 and Q4 gross profit margins to be a little lower than Q1.

Adjusted EBITDA margin is expected to be negative high single digits as we continue to invest in fueling our customer success broadening the ways, we support our customers and increasing the resiliency reliability and scalability of our global platform.

Adjusted expense growth should step down 10% to 15 point each quarter as we progressed through the year and the EBITDA margin in Q3, and Q4 should be roughly in line with the full year expectations.

To wrap up Marquette had another great quarter that highlighted the many ways. We are diversifying our business as we continue to scale.

Each of our top 20 customers had around $100 million of TPB are more in the quarter.

Our net revenue take rates remained steady as we continue to find ways to add value for our customers with our program management solutions.

Gross profit margins remained steady due to great Bank and network partners and the powerful operating leverage of our business as we scale, both our managed by Mark EDA and powered by Mark Hurd businesses.

We continue to invest in new capabilities, and resiliency, but as the business scales. The incremental investment required becomes less significant compared to the incremental revenue that can be captured.

In the long run we remain confident the business will operate at a 20% plus adjusted EBITDA margin. Once we have captured more of the incredible opportunities in front of us.

I'll now turn it back over to the operator for questions.

Thank you.

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Yeah.

Our first question is from Timothy <unk> with Credit Suisse. Please go ahead.

Great. Thank you and good afternoon, everybody I want to focus on an opportunity that we think might be a little bit misunderstood or maybe less appreciated and thats your broader banking as a service opportunity. So software type services things that are not tied to interchange correctly, we thought that youre Plaid ECH transfer partnership was sort of a.

Not in this direction, but if you could talk a little bit about the ability to support customers in terms of our banking core or ledger systems or other sort of banctec type ancillary services I think that would be helpful for investors.

Sure. Thanks, Tim.

So youre right and customers primarily care about global money movement as I talked about in my prepared remarks, it's really three factors that's fueling our customer success broadening the ways, we support our customers and that increasing global platform resiliency reliability and scalability. So today, we actually currently offered.

Begging service capabilities to our customers such as direct deposit accounts.

<unk> ATM withdrawals.

They can use specific tools that Saba <unk> need.

Unlock value so banking as a service part of what we do in the issuing processing space is just one dynamic.

We're the leaders in that and monitor Cardiff should we pioneered this space and we're always looking to add additional banking as a service capabilities based on customer needs. So our target customer base does not need every aspect of banking as a service.

Builds.

We're building, what we think matters to our customers number one additional money into money out capabilities are absolutely on our roadmap for this year and then we'd look to partner in certain areas like with as you mentioned flat simplify <unk> cancers. We also have eight partnerships.

The banking as a service space with companies such as <unk> and <unk>. So we will seek to always add banking as a service offerings, where we think it makes sense for our customers, we very much like hit the pocket.

I want our customers to where they want to have where they want to go we partnered with a lot of companies based on the leaders in this space and what our customers want but ultimately banking as a service is something that we are absolutely focused on in fact, we think we handled the big part of that which is issuing and processing and then we'll always add additional capabilities when needed.

Excellent. Thank you for that context, Jason is it fair to assume that some of those more software type services, meaning the banking core ledger type of offerings could come at a slightly higher gross margin for mark.

I don't know if thats necessarily true, it's really a different type of model usually you're you're type you are charging a lot like on a per user basis, rather than on a transaction or volume based business. So I think it really depends on how.

Active the customers are so I wouldn't say that's necessarily.

The case, Tim, but it Couldnt go either way, depending on the level of engagement of those customers and the other types of capabilities that we're providing.

Excellent alright. Thank you Jason Thank you Mike I appreciate the answers.

Thank you. Our next question is from James Faucette with Morgan Stanley . Please go ahead.

Great. Thank you very much I wanted to just touch on kind of the way that you're formulating the outlook both for the current quarter and for the rest of the year.

It sounds like the volumes that Youre seeing right now kind of across the different groups sound pretty good but I'm wondering if you can give a little bit more color as to where you're seeing particular strength currently in and.

And maybe compare and contrast, the different segments and then as you look at the rest of the year you mentioned that you want to be a little bit conservative given the economic uncertainty can you just give a little more idea of the things that you're watching where you think there could be some variance from what youre seeing right now.

Sure. Thanks, James I think.

I would say the two areas of particular strength right now are.

The buy now pay later vertical as I said grew more than 100% for us in the quarter, So very strong performance.

Management grew over 200%. So those are two parts of the business that are growing quite quickly and scaling very rapidly across multiple customers.

So it's really broad.

Broad base, where we're providing a lot of different capabilities like those are.

Relatively large verticals within that there'll be customers, who have a particular target or niche within that and we serve all of those which is allowing us to scale quite quite quickly and of course that also allows us to add a lot of value with our range of capabilities that they can expand into so I would say those are the two that are growing the <unk>.

Assets the financial.

Services vertical is still given the size of it.

It's still growing quite quickly, but a little bit slower than our overall customer base and then the lowest the slowest growing as on demand delivery, which of course had an incredible explosion of growth during the pandemic and is now.

The growth is now kind of slowing on that are significantly larger base. So.

Those are the areas, where we're we're seeing a lot of growth.

The last thing I would say about this as I mentioned in my remarks.

As we diversify to more and more customers. There are a lot of newer verticals, where we're just starting and and customers who are relatively new and so are our really ramping quickly and have explosive growth and so it's those newer customers that we have as I mentioned that our growing five times faster than customers who are on the <unk>.

Platform prior to 2019, and so and those are coming across a whole swath of use cases.

So that's how we're thinking about it in terms of as we look out into the out years, I mean, I think our out the out quarters.

Yes, the one of the things we're just watching it is watching is the is the spend behavior and the level of activity.

Are we seeing obviously inflation has been here for quite a while we don't see for example, big changes in our ticket sizes and we're also not seeing big changes in the spend behavior in terms of like transactions per active card for example, so.

Those are the things we're trying to watch for to see if there's any slowdown in the types of either consumer or business use cases that we support.

And right now everything looks good but that's something that we're going to continue to monitor as we go forward.

Yes that makes a lot of sense and then just quickly on capital allocation, obviously valuations have come down a lot you guys have a very strong cash position, especially relative to your market capitalization right. Now you are on.

On a non-GAAP basis at least in cash burn you're not really spent on burning a lot of cash. So how do you think about capital allocation, whether it be for your own shares or maybe looking at potential acquisitions of those valuations of other companies come down just wondering how youre thinking about that right now.

Yes, Thanks, James I mean, our first priority is definitely for M&A and the fact that valuations are coming down is obviously.

To our benefit.

We want to continue to maintain our first mover advantage.

And so we're looking at product expansion capabilities that could really leapfrog. Our current roadmap. So we can bring additional capabilities to market sooner for for our customers in a broader range of customers. So that is definitely the first priority for us and the fact that valuations are coming down.

Really be be helpful for us that really is the.

The area that we're focused on for the use of our cash and as you mentioned.

Even not even on an adjusted EBITDA basis, even if you just look at our overall operating cash flow if you exclude too.

Items this quarter that we're very timing specific in terms of one is the payout of bonuses that were accrued last year in the P&L and one is the paying an upfront amount too.

Paying upfront cash to a large.

Partner of ours, or a large vendor of ours to get a reduction in the cost.

If you remove those two our operating cash flow for the quarter was actually positive. So we're actually not really burning cash, but we are we do plan to mostly deploy our cash for M&A purposes.

As time goes by if we don't find that we need that much or.

With valuations coming down we have some leftover then we might consider share buybacks, but for now our primary focus is eminent.

Yes, James I'll add to that the.

<unk> services.

Verticals and technologies is huge for market and therefore really investing more to take advantage of the massive opportunity ahead of us.

Is the plan and we'll always look to M&A to fill gaps or help us accelerate our product roadmap.

I appreciate that Mike Thanks, Jason.

Yes.

Thank you next question is from Darrin Peller with Wolfe Research. Please go ahead.

Hey, Thanks, guys listen when we look at the verticals that you are doing well.

And then maybe just explaining a little more on the incremental verticals that are growing that five times the rate of what was pre 19 or more than that even.

If you could just give us a sense of what the key capabilities are that's been resonating with those vertical so much better than your competitors out there and how thats parlaying into new verticals and what some of those verticals are and then just one quick follow up on that on the vertical discussion would be we're getting a lot of questions over the NPL exposure of the company and maybe <unk> given some of the volatility we're seeing in those <unk>.

And so just thinking about what's been factored into your outlook and maybe you can give us some color on how big the NPL may be for you guys. Thanks again.

Sure. Thanks, Eric.

So our and as we've talked about as our investments are always focused on the long term growth of the company and we thought about our our strategy from the beginning we started with commerce disruptors.

It really was a DNA match was building out a platform and delivering API, so that engineers and product people.

Dream up the product they want to go build or solve a pretty significant issue that they couldnt do with sort of a vanilla acquired that was delivered to them from a bank card would basically do one thing and they had to figure out how to shoehorn. It in their business. So we started with one demand delivery, which was the driver.

It goes to the restaurant to pick up food.

The card fees.

<unk> is an example of the drivers using a card.

That isn't a terminal state and now turns to one based on the GPS coordinates of their phone and they have a door dash Apple in there. They swipe the card we repackage the ISO message that's being delivered from the point of sale, we deliver that to door dash.

That message upon the drivers they have Jason at the right restaurant picking up the right food for the right order for the right amount yes.

Authorized the transaction ARTEL marketed authorized the transaction. We then repackage that message send it to the point of sale and the driver can go on and on their way.

<unk> reduced fraud downs in euro and allowed them to go to scale. So we start with on demand delivery. We then went to expense management and e-commerce and buying out paid later.

And all sorts of different verticals, where part of our strategy is go into to the vertical and we land some of the largest customers and then we expand throughout the vertical and bring very sort of specialized capability for them. We then went to digital bank. So block is a great example, here in the U S.

<unk> III product cash App team card square card and then moving into Europe with that with companies like like Lydia.

And then large financial institutions. So we always think about like where do we think the world is going to go and our belief and leadership for where the payment world is headed.

Always be about first mover advantage that we add that functionality that our customers are looking for and the platform can easily accommodate scale of our growing customer base, new verticals, new geographies and use cases product.

And then obviously more to come we'll be talking about in the future are core verticals that we are heading into a more customers across the spectrum.

Within payment.

We're describing the surface, we're less than 1% of the credit volume either the U S alone. So the opportunity for us to grow is just tremendous.

And then maybe for your second question.

And well.

Just one other thing with that I guess just to add on and then I'll answer your second question.

One of the reasons are having success also darrin is just because our platform is so flexible customers can do a single use virtual card a virtual card that might be valid for a period of time or a physical card. All those things are are very easily leveraged which allows also our customers to expand which I think is the.

Part of what makes us successful in terms of our exposure to <unk>.

The NPL.

Is more than 10% of our PPD as a segment, but it did declined two percentage points from last quarter. So a lot of that is seasonality because of just Q4 tends to be very retail oriented.

But.

We are.

So it's a meaningful part, but it's a little smaller than it was last quarter.

We're trying to diversify our product set within the NPL as I mentioned like the different whether it's a virtual card physical card. We are getting interest from established card issuers, providing the NPL. So I would say, we still think that this payment capability is attractive to consumers.

And we have established financial institutions, who are looking to get into this market, where we can provide them again purpose built solutions as Jason just described.

And so we can help some of these new entrants.

Already have a card programs offer this as a payment capability and it's also these types of fluctuations in the market. That's why we're trying to diversify into new verticals. So.

<unk> mentioned expense management for example.

Is also double digit percentage of our TPB and growing incredibly fast we're moving into more of a e-commerce.

Vertical with and travel related capabilities.

We are building our presence in credit. So these are all ways that we are diversifying our business so that it.

If things were to slow down a little bit on the NPL hopefully that has minimal impact on our performance.

That's really helpful guys alright.

Alright, I, just looking too so I will turn it back to the deal that others ask questions. So thank you.

Alright, thanks very helpful.

Thank you next.

Next question is from Tien Tsin Huang with JP.

J P. Morgan. Please go ahead.

Thank you very much.

Jason and Mike I like your comments on the 2019 vintage and how well it's done I'm just curious.

If you're looking at the pipeline of new customers now.

Based on what you see what's.

What's the quality of that looks like is there a lot of potential for that to be another strong vintage I'm just curious given all the questions here about new products use cases.

You generally being in front of that how do you feel about the pipeline.

So we have a number of announcements to make.

For the rest of the year, both on products geographies and customers credit is something we've really focused on exciting deals in the pipeline for credit.

New products were well known fit in Texas as well as Disruptors, we're not we don't want to talk about the new things that we're going to be coming out within the coming quarters here, but really look forward to sharing announcements.

Latest year about a lot of exciting deals that we're working on.

Specifically around the pipeline the pipeline to grow in different ways. The growth based on current verticals. We're in current customers adopting new products that we're building.

Our existing product sort of scale their business and grow their addressable market.

Geographies, so we talked about how a lot of our customers around the world on our platform and we focused on a lot but that user experience is primary for us and I have talked about in the past, where if you are a customer that was using us out of Australia, then using us out of the.

The U S and then using us out of the U K.

We want that experience to be much. The same in every country has different types of payment networks in payment technology, and regulatory and compliance and we look to build more and more at our company. The company for our customers really focus on a global basis and move around the world. So we're excited about the growth in the future.

Sure.

A long term vision here investments playing out really well over the year and really looking to enter the new verticals new products and a lot more two to announce here in the coming quarters.

Alright.

My quick follow up maybe for Mike just I hear loud and clear the tighter distribution I'm just curious if we want to translate that.

In terms of revenue per customers the distribution a lot tighter for clients, let's say six to 'twenty or 'twenty through 'twenty.

You pick it but I'm just I'm, just curious if youre seeing a little bit more.

Titan tightness there from our claims group.

Yes, so I would say that.

Yes, we obviously.

We have block.

We are I guess quite.

Quite upfront about the contribution to our business that they represent and then I'd say the neck.

Three to four customers are sort of have one one group and then then you're right then you get into.

I don't know, maybe 6% to 15% or 20 are probably are of similar size and then you get the.

Outside of the top 20 then.

And then you have a very large number of customers serving all kinds of different verticals that are in very.

Very much hyper growth stage, which is.

What's exciting you don't like almost a year Youre question earlier, sometimes you don't necessarily know which of those customers three years from now it could be a household name in the quite big right. So, but theyre all growing really fast and that also makes it a little bit hard to project because they are relatively small and it's hard to hard to estimate what that.

Curve is going to look like as they ramp up.

How I would think about it there's block then theres a few that are similar and then there is probably the next 10 to 15 and then there is a.

And then a large swath of customers that are all relatively small, but very high growth.

Yes sure.

Thanks for the great quarter.

Thanks, Ed.

Thank you next question is from Ramsey.

With Barclays. Please go ahead.

Hi, Thanks for taking my question this evening.

I wanted to ask you to comment.

On the international opportunity and sort of more broadly on what your strategy is there is it more kind of an opportunistic approach, where you move into new markets as well opportunities present themselves.

Are you thinking you mentioned it quite a few times on the call today or can you accelerate that pushed with M&A such that international becomes kind of a growth driver that we need to pay closer attention to.

Thanks, Ramsey, yes, and yet so so monitoring card issuing is a global phenomenon.

<unk> thing about that network.

Interconnected all of the merchants in the world, whether online or offline that wants to accept part. So that's that's an enormous opportunity for us.

And we have built modern card issuing to solve a lot of our product capabilities for our customers and we've talked about more than half of the top 10 and more than one third of our top 20 customers use market. It in multiple geographies as they begin to spread their wings.

Build more addressable market build new product, we really help them with our managed by capability to enter those markets compliance and regulatory and different countries are pretty heavy duty stuff. So we really help them figure out how they want to go get this done so we're seeing lots of encouraging signs from our customer base not only adopting new products.

But moving internationally. So the platform is built so that the total <unk> and.

And employ across multiple markets that saves them a lot of time a lot of money.

In regards to building within a specific market.

Servicing a constituency there. So we operate in 39 countries today that is absolutely growing at four to announce this year again multiple customers who started in the U S.

With us in the U S are now international customers, who start up in Europe , or Australia or now in the U S.

And the platform is absolutely purpose built and is very much resonating globally in the countries that we're operating in.

We will look to absolutely grow with an additional country new products to help those companies gain a foothold and build a strong business addressing a very specific.

Constituency and to help us with that we are absolutely looking at M&A and that's strategically first but simply because.

The broader market and the conditions that we're seeing today there'll be lots of opportunity for us where we'll be opportunistic if we see something that can really.

Enhance our roadmap to speed up our roadmap, there's lots of lots and lots of.

Great companies out there lots of new companies.

The venture capital World and others are investing in that space for many years now.

So we're excited about it but yes, and yes, absolutely building internationally and what he'd be used M&A to opportunistically speed up our roadmap and take advantage of product, we see in market that our customers want.

Great great.

Let me sneak one quick one.

It's about the crypto vertical and I'm, just curious whether volatility with crypto asset prices translates into either.

Volatility in your crypto volumes are also any type of like slow down in the Decisioning in terms of the pipeline of new crypto clients just given everything that's gone on in the with asset prices in that space I was just curious.

Well so our platform is the biggest.

Step back with regards to what we do so our platform back to the gateway between Fiat in crypto currencies for partners like claim base backed bold shake pay and we're seeing a lot of incoming interest in this fifth capabilities using market a platform the crypto innovators that use us.

Enable their customers to make purchases at the point of sales in the crypto wallet. So.

When we see fluctuations in the market consumers want to go and spend they want to be able to suspend those assets at that point of sale, we make it incredibly easy.

For us for them to do that.

I believe it was Darren that asked the question about our products and our capabilities in building and verticals. This is one vertical we identified a long time ago and approach customers that say, we can create a really good experience for your customers you would spend correct of the point of sale and we've done that so.

We are continuing to invest in crypto, we have a pipeline around this the companies within crypto, who are looking to adopt our technologies to bring more value.

To their consumers and again, we're seeing lots of traction revenue customers is now a $1 billion.

Last year, it was almost non existent and so much like we did for on demand delivery buy now pay later.

We use our jet or just in time funding technology and open API to create a purpose built solution.

For this the emerging vertical it's attracted a lot of companies in the space.

And again volatility really helps at the point of sale and obviously the movement.

And these assets gaining more.

<unk> helps as well so.

Again, we're looking to invest more and more in this space and there's lots of opportunity for us.

Okay. Thanks, so much for taking my question.

Thank you.

Question is from Andrew <unk> with <unk>.

<unk> Nikko Securities. Please go ahead.

Hey team nice set of results here.

With the full year guide I mean, you beat nicely in the first quarter second quarter comes in.

Above our model and consensus so I'm trying to gauge the amount of conservatism that you're kind of embedding in the back half of the year offset by these new programs you have coming on and how should we should be thinking about that given the momentum you should add exiting the second quarter.

Yes, so I think that.

I would say, we definitely are not purposely being conservative we're looking at the trajectory of the business and what we see right now and projecting that forward and not assuming a lot of a lot of disruption so.

Yes, Q1, and Q2 are stronger than we expected and we did.

I guess I did I did sort of raised up our expectations a little bit to the high <unk> for the full year, so because of that.

No.

So I would say we don't we're not purposely being conservative is the only thing I would flag, which I did say in my prepared remarks.

Q4 of 2021 was really the first year that we saw meaningful holiday spending.

Within our customers on our platform. So we didnt typically have that kind of seasonality that the broader card market has in terms of a big lifting and retail spending and so that.

That is something that makes it a little bit more challenging for us to project. The Q4 number because it is hard to know sort of.

We don't really have a long trend to base our projections on.

But.

Right now what we see is our Q4 last year was really really strong and so that will be a tough comparison, but otherwise we're looking at trajectory. We have we have new customers coming on and we're definitely not purposely being conservative.

As we see more of the performance and we'll continue to update you if there is.

Any changes.

Got it that's helpful.

And then coming up on the one year anniversary of the IPO.

You guys reiterated your long term expectations for growth in the 20% plus EBITDA margins.

Over one year.

In the future here the world's a lot different so how should we be thinking about your views around the path to profitability with the rising competition for talent wages.

Price increases and just one little housekeeping pointed to the $12 million impairment.

I'd assume that was included in your original guidance correct.

So let me answer that second one first.

The 12 million impairment is adjusted out of our so it is not in our non-GAAP numbers. So it wasn't.

Factored into the guide, but I'd say.

Noncash nonrecurring.

Impairment so it doesn't impact our adjusted results and therefore wasn't factored into our guidance.

So.

That's what I would I guess answer that one sorry. Your question before that was one.

As you're thinking about this business one year from the IPO.

And how.

The wage and cost dynamics kind of fit into that that long term.

Yes, yes, sorry.

Thank you for reminding me so yes.

Yes, I mean, there is no doubt there's some pressure there there is a war for talent then.

Need good engineers good product people.

Two.

To achieve the kind of.

Growth math that we we believe we can be on so.

It does increase our cost a little bit, but I would say, we're we're very disciplined about how we deploy investment and how we prioritize those investments. So I think it's more a matter of.

Alright, changing or looking at that priority list and deciding what's what's really important and what's going to really move the needle what is.

Which of those investments really have.

Most revenue and you have to balance have a balanced portfolio of investments for things that will move the needle one to two years from now versus things that are.

A little further out three to five years out for example.

So we just tried to be very disciplined about that and be very kind of ROI oriented.

That we think we are successfully balancing the level of investment with our path to profitability.

The one benefit that we have is that our unit economics are very attractive right. So we have a very low marginal operating costs once we reach a certain level of scale.

And our investments are typically going to need to be made two to three years prior to meaningful revenue. So we're balancing those things, making sure we target the right growth areas, but.

Then our our.

Buying economics are quite strong and that's where we think we'll be on a on a path to cap on a path to profitability.

We will share more about in the coming quarters as we.

I don't finalize our multiyear plan.

Got it helpful. Thank you.

Thank you.

Next question is from Dan Donlan with Mizuho. Please go ahead.

Hey, guys. Thanks for.

For letting me ask the question I appreciate it.

Mike can you maybe give us.

Parse out a little bit what's macro.

Estimates are big.

And to your.

Baked into your top line guidance kind of from a volume versus take rate perspective, there would be helpful. And then I have a quick follow up thanks.

Yes, so I would say what we are assuming right now Dan is that theres not a huge disruption.

In the trajectory that we see today right. So.

And again, even within our business as I think I mentioned, a little bit earlier, we're not seeing a big change in ticket sizes. For example, even though inflation is quite quite significant in the market. So we're planning we're assuming four.

Less disruption over the next.

Eight months.

And then we haven't commented.

Comment on anything further out but that's that's what we're assuming at this point.

Got it. Thank you and then I have a quick follow up on the credit side I know that's been a big big.

Big success historically for you guys I mean, we've seen your I mean, the most established competitor in the market.

Having a really bad quarter in the first quarter kind of like probably negative organic growth.

There and Youre doing extremely well like what can you update what kind of an update can you give us an successes there.

Thank you.

Specifically in the credit space.

Yes.

Yes.

Well our success is based on our early entry into the market.

So when we thought about building credit as a product we just wanted a much much much better consumer experience. So.

Credit cards that I have.

Experiences pretty much the same.

And we really look to partner with companies to want to build a brand new experience something as simply adds.

Having logos for specific merchants, having a 10 on a map. So you know the transaction happened, giving people lots of information and context around the specific transactions being able to pay off that transaction because it might be at a higher interest rate than other transactions and their ability to go and do that so we're absolutely in the early innings.

Our success has been partnering with companies that either want to rebuild the user experience.

Or have a new product altogether, so and if we look at across the basically the verticals that we operate in all the areas, whether it's commerce disruptors.

Digital banks or financial services Tech Giants, and large financial institutions, they're all looking to lower total cost of ownership and.

And we give the ability to do that this is not a.

And on premises solution, we build really good technology that they can leverage via API lots of tools and features that they can use to significantly shorten time to market.

And create a much better consumer experience. So again, we're in the early innings and it really our success is because we were out of the gate with a brand new product and a new view.

We've got a solid pipeline there is more to announce this year, both in feature functionality and customers and <unk>.

Our success is really about where the new <unk>.

Player in the market.

New technology, but obviously a great.

And growing customer base across 39 countries and more to come but I appreciate your focus on product.

Yes, thank you and I'm sorry.

Okay.

And I realize I didn't answer your take rate question.

So let me just jump in and answer that one so I think the take rate. So far that we're seeing is very stable as I mentioned.

The four top verticals to take the take rates are stable, it's really going to be what happens going forward is it really about the different kind of mix within our business, though is that a managed by customer or more of a powered by customer. We're only we're only providing processing what are the number of additional services.

That we provide our customer in terms of the uses and certain verticals are going to.

Tend to correlate with more services, if theres more complexity to that vertical whether it's a consumer versus commercial programs single use versus physical card. Those are just a few of the factors right that are going to impact our take rate.

But what's also important is that not all take rates are created equal.

So when you think about how we structure different parts of our business.

How much of that take rate falls to the gross profit line, which we call our gross profit take rate.

It can be quite different and so there are like in our powered by <unk> solutions will have a much lower take rate.

But almost all of that take rate goes falls to gross profit and so.

It's really the mix between all of those components that.

I guess, an important factor that we have to look at to project, what we think will happen going forward.

Super helpful. Thanks, Mike.

Thank you. Our next question is from Sanjay <unk> with.

<unk>. Please go ahead.

Many of my questions have been.

So maybe I could just follow up on the macro question. When we think about discretionary fund being in positive as part of a cyclical slowdown how much of your business is exposed to not be NPL sort of comes to mind first and foremost, but where does the neo banking and food delivery fitting in.

I know Mike you are working on the multi year plan and how incremental businesses, but to the extent that we do see a slowdown on the top line.

Do you think you have some flexibility on the country.

Yes, so I would say the.

You are right. So certainly the NPL would.

We'd be more discretionary I would say its new banking has.

<unk> to mature more and more people are using that is there.

One of their primary account right, which is what you see from.

Direct deposits for example.

As per square cash so I would say.

That will have obviously, some discretionary purchases, but it also has lots of other types of purchases in there on demand delivery I would say.

A lot of that is food and grocery so that maybe the Vod wanted to take out a little less but generally I would say is not as exposed in.

<unk> expense management is more about.

<unk> spend and optimization I would say generally speaking we don't.

Have huge exposure.

Changes in consumer spending, but obviously, we would we would have some impact.

In terms of the.

Multi year view, sorry, what was your question related to multi year.

No no I know youre working on your plan, but just in terms of the expense trend line over the short run its own C and.

And impact.

How should we think about expenses, yes, yes, I mean, I think that most of our I mean look the big bulk of our expenses come in the form of people and so there is some technology related expenses, but the bulk of it is people and so it is something that we could slow down our hiring ramp if we if we felt we really needed to do.

Do that but we're constantly balancing as I've mentioned earlier like what are our priorities one to two years from now versus three plus years.

We're going to be watching boat, but ultimately, yes that that growth in the head count is something that we could flex it.

If the macroeconomic picture were to change significantly then that is something we could slow down our our increase in investment that we're making.

Okay. Thank you.

Thank you our.

Next question is from Bob Napoli with William Blair. Please go ahead.

Thank you and good afternoon solid solid results.

Since management space has been pretty dynamic for you growing radically theres been a lot of new companies that have come into that space. How do you feel about the sustainability of the growth.

In that area.

There are a lot of volatility and what are the opportunities.

Expense management, not just in the U S but.

Internationally.

Yes, so expense management has been a very fast growing vertical for us.

The past few years companies like expensive by ramp.

<unk>, which is now part of Bill Dot com.

We're actually seeing because corporate travel is coming back people are moving back into offices.

Companies like Marquette out it'd be announced.

Very flexible schedule for people that can either come in the office working hub, we partnered with a company around the world that has 6000 offices.

Mark.

You can go to new cities and work with other Mark headed there.

Theres, obviously see corporate expenses as part of that.

So we partnered with expense management company than what we believe is that there is still a lot to go with this vertical across all the areas that we focus on whether it's Congress disruptors, whether it's digital banks.

Square card with block, which is a product that's been in market for some time. You then have the large financial institutions and the large tech Giants like Google and Hoover looking at.

Companies like branch, who we partner with merchants.

We're continuing to focus on this vertical we like the commercial side of the card business.

Growing very quickly for us so, we'll invest more and more into that space, but ultimately expense management is something we've been operating in for many years.

Ton of experience in this space and we.

Talk to our customers on a regular basis and sharing not only our protocol product roadmap of features and where we're headed.

Some of the things that they want to do and that they are bringing to us and we're obviously looking to build that.

That long term vision to offer them.

Thank you and then just a follow up on your new fraud product and your strategy around.

Payments fraud.

How significant is the new product I know fraud prevention is key.

Value add.

Core Mark had up but just any thoughts around the product pipeline or the growth strategy around payments fraud products.

Yes, it's interesting.

<unk> is one of the top three things that our customers talk about and ask for it.

Why we decided to actually build the risk control from the ground up.

One of the ability for them to act very quickly.

Fraud can happen pretty fast and furiously in specific areas of the world.

It can also be people grouping together.

When they see that in the scores tell them what they should be doing this should be able to act really really quickly. So address is really one of the most common things that customer app, which is tools to help them scale programs and our risk aware way and risk control.

Is it certain example of how our managed by customers add that significant value. So at the end to end solution that has everything from signing up the cardholders in Ky C, which is now your customer protecting.

Protecting them at the point of sale with <unk>, our real time Decisioning and afterwards.

It's really an end to end solution for them.

We just launched it there is a lot more going to be adding to it but we feel like it'll become one of the market leading cloud solutions in the coming years for our customers.

Okay. Thank you appreciate it.

Alright, excellent ladies and gentlemen.

Yes go ahead.

We have reached the end of the question and answer session and I would like to turn the call back to Jason Gardner for closing remarks.

Thank you and thank you everyone for joining our Q1 of 'twenty two earnings call.

Look forward to updating the company here after our second quarter, we got lots to come out in the coming months in regards to both new customers and new products.

Stay safe, it's pretty rough out there.

It's economic uncertainty or the continuing war in Europe .

We have a lot of faith that we're going to get through this.

Not only as a country in a nation, but globally and we just look forward to making sure that everyone's safe and we look forward to updating everybody after our second quarter take care and thank you.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Yes.

[music].

[music].

[music].

Good afternoon ladies.

Ladies and gentlemen, thank you for standing by.

Welcome to the market off first quarter 2022 earnings conference call.

At this time lines have been placed on mute to prevent any background noise. After.

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

As a reminder, this conference call.

Is being recorded.

I would now like to turn the call over to Stacey find them and 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 annual report on Form 10-K for the year ended December 31, 2021, and our subsequent periodic filings with the.

SEC.

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, today's call includes non-GAAP financial measures.

These measures should be considered as a supplement to and not as substitute for GAAP financial measures reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which are available on our investor Relations website.

Hosting today's call today are Jason Gardner, <unk>, founder and CEO , and Mike Miletich, Marchetti, Chief Financial officer with that I'd like to turn the call over to Jason to begin.

Thank you Stacy good afternoon, everyone and thank you for joining us for <unk> first quarter of 2022 earnings call.

Start with a brief overview of our results for the quarter and then I'll dive into a few of our key focus areas as we diversify and grow our business.

It'll processing volume or <unk> was 37 one.

$1 billion in the quarter, representing a 53% year over year increase.

This growth rate is notable given that the first quarter of 2021 benefited from stimulus payments.

Our 53% growth rate also represents an 11% growth on a sequential basis from the fourth quarter of 2021, an exceptionally strong quarter.

Our growth is being driven by a more diverse set of customers as the number of customers with over $500 million and TPB doubled from the first quarter of 2021.

Our net revenue of $166 million in the quarter represents a 54% increase from the previous year.

Main drivers of growth. We saw throughout 2021 are still intact consumers continue to trust neo banks to manage more and more aspects of their financial lives as evidenced by the increased tax refunds, we saw that positive in cash app.

We also witnessed continued strength in buy now pay later, despite Q1 being a seasonally weaker quarter for retail sales.

Expense management also continues to show momentum as corporate travel begins to bounce back and companies look for more innovative and efficient ways of handling their operating expenses.

Newark customers signed in 2019 contributed to more than 20% of our growth in the quarter. These.

These customers are growing over five times as fast with customers signed prior to 2019 as a result, these newer customers now account for about 20% of our total TPB, which is double the comparable quarter of 2021.

Block accounted for 66% of our net revenue which include two months of after paint volume based on the timing of the deal closing a decline from 73% in the first quarter of 2021.

Slightly up from 63% in the fourth quarter of 2021, primarily due to increased tax refund deposits driving growth in cash up spending and strong buy now pay later volume in the FERC fourth quarter.

Okay.

The strong first quarter reflect our continued success in diversifying and growing our business by focusing on three critical factors one fueling our customer success.

<unk>.

Hardening the ways, we support our customers and three increasing our global platforms resiliency reliability and scalability first and foremost we want our customers to thrive.

Our success is our customer success, we are always looking for fewer customers growth on our platform by giving them the tools they need to diversify and broaden their businesses. This is enabled by Marquez single stack platform, which our customers can easily configure.

<unk> has best in class platform allows our customers to code one and quickly deploy programs across multiple markets. We have spoken many times about our U S based customers expanding abroad. Our European business also represents the tremendous value our single stack provides.

Across Europe , we have a growing number of customers that use the Marquette a platform to launch in other countries quickly, including the U S.

Hey, Hawk Bulgaria's first startup to achieve Unicorn status has been live on our platform for the past two years. The Macchiato platform enables pay Hawk and expense management company to expand throughout Europe quickly and they plan to launch in the United States. Shortly our first market outside of Europe capital.

SAP, which provide the small business credit card spend management platform to over 100000 small businesses in the U K recently used <unk> platform to launch their product in the US These are just two examples of more than half of our top 10 and more than <unk>.

One third of our top 20 customers that use mark Hurd and multiple geographies.

Another customer that is leverage our platform survive to drive tremendous growth is upgrade card upgrade card offers a disruptive version of credit cards, turning monthly balances at two low cost installment plans and offering unique reward their partnership with <unk> and our ability as a.

Modern card issuer to leverage multiple API and configurations facilitate the launch of new products and rewards as a result.

Upgrade has launch.

Or reward card program broadening its total addressable market that cover a larger target audience.

From millennials looking for crypto rewards to Sabres looking for cashback.

Upgrade card was recently named the fastest growing U S credit card in 2021 by Nelson and the only Fintech feature to Nielsen.

Of the top 50 U S credit card issuers, our second focus area, providing broad support for our customers.

As evidenced by our program management capabilities, which we offer as managed by Markel <unk> solution.

These capabilities serve as a core competitive advantage for Marquette at our managed by customers rely on us to manage the complexity of card network rules obtain bank sponsorship and navigate the legal and regulatory landscape, while allowing for innovation.

This enables our customers to leverage our deep payment expertise, reducing the burden of running a card program. Hence they are free to focus their precious engineering resources. This makes it significantly easier for our customers to bring entirely new and distinct program.

As the market for example, we recently helped one of our buy now pay later customers launch a new type of virtual card that could be used for multiple purchases.

Merchants market it was able to timber complexities and nuances of this car program in a relatively short amount of time with our expertise and managed by capabilities.

We also offer value added services.

Such as management.

See our know your customer.

And card from the card fulfillment to broaden the many ways we support our managed by customers. Let me share an example, carr.

Card issuers have to balance risk and growth effectively airing too conservative or aggressive can derail a new car program. Therefore to help our customers grow and your risk aware way. We recently launched risk control. This comprehensive product suite gives our customer.

<unk> end to end control of our risk management to solve significant pain points.

One of the products within the suite real time, Decisioning lets our customers fine tuned controls, which transactions are approved you built this product from the ground up and it was created exclusively for card issuers, while the networks and other issuer processors offer similar products, we believe our real time decisioning.

<unk> is more comprehensive using the most relevant data from the issuing point of view rather than the acquiring point of view.

By enhancing the card networks risk scores with our own industry and customer data points, we can run multiple rule simultaneously and our customers can change these rules on a slide.

Our solution other solutions typically have a review process, we're creating new rules.

Which are not helpful. When theres, a new Florida attack our solution allows our customers to implement risk rules based on a card holder spending history.

Looking at a strong fit for verticals like expense management.

Our third area of focus increasing the resiliency reliability and scalability of our global platform that builds redundancy and scale for the future. We recently added another bank partner to our platform evolve Bank and trust, who will support the full range of market is program management.

Abilities with evolve we have four different bank partners in the U S that can provide this service, which allows us to find the best match for our customers. For example, evolve dedicated open banking division offers innovative banking as a service payments and technology solutions to a large diverse portfolio of.

Fintech.

This combined with our focus on financial services makes it bought a great partner for us and us a great partner for evolve in <unk>.

Closing, our Q1 results demonstrate a continuation of solid performance in 2021, our business delivered very strong growth against the backdrop of global and economic uncertainty and a tough year over year comparisons.

Looking at the remainder of 2022 I'm thrilled by the many exciting customer develops and our pipeline.

And the additional money movement tools, we're building for our customers I'll now turn the call over to Mike.

Thank you Jason.

<unk> delivered another great quarter with revenue growth of 54% fueled by a 53% increase in TBD.

Our top line growth reflects our ability to support our customers' growth at scale with 14 of our top 20 customers growing their TPB at least in the triple digits in Q1.

Our net revenue and gross profit margin were higher than we expected largely due to outperformance by customers outside of our top 10.

This outperformance was very broad based driven by stronger growth from several dozen customers. This outcome demonstrates our continued success in diversifying our business in terms of the number of customers.

The industry verticals, where we have achieved scale and the geographies we serve.

Also contributing to the better results with a newer customer, placing a large card fulfillment order one of the many services, we provide which is a positive signal for the growth to come for that program.

Our net revenue and gross profit upside translated into a better adjusted EBITDA margin.

Q1, <unk> was 37 billion, an increase of 53% despite tough year over year comparisons driven by the government stimulus payments in Q1 2021.

Financial services vertical grew over 10 points slower than overall company growth is one of the biggest beneficiaries of the stimulus last year for.

For block specifically the tough stimulus comp was partially offset by a large increase in the tax refund direct deposit, which helped cash app card spending.

On demand delivery continues to be our slowest growing vertical however, it did grow double digits in Q1 accelerating two points from last quarter due to two factors.

<unk> of the Omicron variance lifted volume in January in both the U S and Canada.

And one of our large customers is successfully expanding into drug stores retail and grocery driving a meaningful step up in growth versus last quarter.

Lending TPB, including buy now pay later more than doubled versus Q1 2021.

This payment option continues to proliferate and we now have five customers, who had over 1 million transactions in the quarter.

Expense management more than tripled year over year with seven customers growing over 100%.

We now have four customers with TPB greater than $100 million in Q1 twice as many as we had at this time last year.

Strong performance by customers, who are newer to our platform are driving increased diversification of our revenue as I mentioned earlier as the driver of our Q1 upside.

Customers, who joined our platform since 2019 are now about 20% of our TPB and are growing more than five times faster than customers, who joined the platform prior to 2019.

While our top five customers continue to drive the majority of our TBD and grew 39% in Q1, the <unk> of our remaining customers grew more than five times more than four times that rate.

Net revenue was 166 million and grew 54% in the quarter.

With our TBD growth of 53%.

Therefore, our net revenue take rate was in line with last year and remained stable in each of our top four verticals.

Compared to last quarter. The Q1 net revenue take rate was two bps slower due to the reduced contribution of higher yielding verticals that benefited from holiday shopping.

Our powered by Mark header revenue, where we purely have a processing relationship with our customer has grown to well over 100% for many quarters.

Although the revenue take rate is lower the gross profit take rate is similar to many of the verticals and are managed by Markel business.

The powered by market, our customers are gaining share of TBD.

But much of those share gains are coming from other low take rate verticals, which is resulting in a stable overall take rate. Despite these changes in our business mix.

These powered marchetta customers serve a variety of verticals.

Many operate outside the U S and now drive more than 10% of our GTD versus being a low single digit percentage one year ago.

Gross profit grew 50% for slower than revenue due to a network incentive catch up benefit we received in Q1 last year. After we hit a new volume tier in our contract.

As a reminder, our incentives operate on a contract year that runs from April through March and in this contract year, we hit the higher volume tier one quarter earlier, given the incredible growth of our business as you likely remember from last quarter's results.

If you normalize for the catch up incentive of $3 million in Q1 2021, our gross profit grew 60% this quarter.

Our network fees are growing in line with volumes, but there are two factors driving the normalized gross profit growth to be above revenue growth.

One feeds to our bank partners are growing materially slower than TPB and to our network incentives are growing a little faster than TBD on normalized basis.

Both of these factors demonstrate the strategic relationships, we have with our bank and network partners as well as the powerful operating leverage that can be achieved in our business as we scale.

As a result, the Q1 gross profit margin was 45%.

The Q1, GAAP net loss was $61 million, which includes a $12 million noncash nonrecurring impairment of an option to purchase a private company, we invested in last year.

On a non-GAAP basis, adjusted EBITDA for the quarter was negative $10 million driven by investment in resources and technology that are fueling the growth of the business and the scaling of our platform.

The adjusted EBITDA margin was negative, 6%, which was a few points better than we expected due to the higher gross profit as well as some operating efficiencies.

Now, let's shift to our expectations for Q2 and the rest of 2022.

We expect Q2 net revenue growth to be between 46% and 48%.

This is higher than we expected a couple of months ago as many of the drivers of our outperformance in Q1 should continue.

This is also consistent with the trends we have seen so far in April .

This expected growth rate is a little lower than Q1, as we grow over a larger base.

The year over year revenue increase in dollars in Q2 is expected to be similar to Q1.

Q2, gross profit margin should be in the 40% to 41% range as.

As we discussed last quarter Q2 is our lowest gross profit margin quarter as our network incentive contracts run April to March.

Therefore volume tiers reset in Q2 of each year, resulting in lower network incentives, which then rise with growing cumulative volumes as the year progresses.

However, this step down in the gross profit margin in Q2 is expected to be less significant than it was last year given the increased scale of our business. Therefore, we expect gross profit to grow several points faster than net revenue growth.

We expect the Q2 adjusted EBITDA margin to be negative, 10% to 11% our lowest margin quarter due to gross the gross profit dynamics I just described.

Our adjusted operating expense growth in Q2 should slow at least 10 points from Q1.

As we grow over the ramping of our investment throughout 2021.

Our expectations for the full year 2022 are as follows.

Net revenue growth is expected to be in the high <unk>.

Based on the trajectory of the business year to date and our expectations for new business contributing later in the year.

As I shared last quarter grocery stepped down in Q3 as we grow over the rapid scaling of the business that occurred last year.

Q4 growth will then step down more meaningfully as we lap the incredible format. The incredible performance in Q4 2021.

Given the current economic uncertainty.

Back half of the year is challenging to project, but we will share more with you as we progress through the year Q4 is particularly tough to forecast since last year was the first time, we saw a meaningful impact from holiday spending on our volume.

Our expectations for gross profit margin remained unchanged and should be in the low to mid 40% consistent with our long term guidance of 40% to 45% on an annual basis.

We hope to share a tighter range with you next quarter once we pass the midpoint of the year, but right now we expect Q3 and Q4 gross profit margins to be a little lower than Q1.

Adjusted EBITDA margin is expected to be negative high single digits as we continue to invest in fueling our customer success broadening the ways, we support our customers and increasing the resiliency reliability and scalability of our global platform.

Adjusted expense growth should step down 10% to 15 points each quarter as we progressed through the year.

And the EBITA margin in Q3, and Q4 should be roughly in line with the full year expectation.

To wrap up Marquette had another great quarter that highlighted the many ways. We are diversifying our business as we continue to scale.

Each of our top 20 customers had around $100 million of TPB are more in the quarter.

Our net revenue take rates remain steady as we continue to find ways to add value for our customers with our program management solutions.

Gross profit margins remained steady due to great Bank and network partners and the powerful operating leverage of our business as we scale, both our managed by Mark EDA and powered by Mark Hurd businesses.

We continue to invest in new capabilities, and resiliency, but as the business scales. The incremental investment required becomes less significant compared to the incremental revenue that can be captured.

In the long run we remain confident the business will operate at a 20% plus adjusted EBITDA margin. Once we have captured more of the incredible opportunities in front of us.

I will now turn it back over to the operator for questions.

Thank you.

At this time, there will be conducting a question and answer session.

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Yeah.

Our first question is from Timothy <unk> with Credit Suisse. Please go ahead.

Great. Thank you good afternoon, everybody I want to focus on an opportunity that we think might be a little bit misunderstood or maybe less appreciated and thats your broader banking as a service opportunity. So software type services things that are not tied to interchange correctly, we thought that youre applaud ACTH transfer partnership with sort of a.

Not in this direction, but if you could talk a little bit about the ability to support customers in terms of our banking core or ledger systems or other sort of banctec type ancillary services I think that would be helpful for investors.

Sure. Thanks, Tim.

So youre right in your customers, primarily care about global money movement as I talked about in my prepared remarks, it's really three factors that's fueling our customer success broadening the ways, we support our customers and then increasing global platform resiliency reliability and scalability. So today, we actually currently offer.

Begging of service capabilities to our customers such as direct deposit accounts.

H transferred serves ATM withdrawals.

They can use specific tools to solve a business need.

To unlock value so banking as a service part of what we do in the issuing processing space is just one dynamic.

We're the leaders in that and monitor Cartier should we pioneered this space and we're always looking to add additional banking as a service capabilities based on customer needs. So our target customer base does not need every aspect of banking as a service.

Builds.

We're building, what we think matters to our customers number one additional money in and money out capabilities are absolutely on our roadmap for this year and then we'd look to partner in certain areas like with as you mentioned plan to simplify <unk> cancers. We also have eight partnerships.

The banking as a service space with companies such as <unk> and <unk>. So we will seek to always add banking as a service offerings, where we think it makes sense for our customers. We very much like hit the pocket point, our customers to where they want to have where they want to go we partner with a lot of companies based on the leaders in this space and what our customers want.

But ultimately banking as a service is something that we are absolutely focused on the fact, we think we handle the big part of that which is issuing and processing and then we'll always add additional capabilities we need it.

Excellent. Thank you for that context, Jason is it fair to assume that some of those more software type services, meaning the banking core ledger type of offerings could come at a slightly higher gross margin for Marco.

I don't know if thats necessarily true, it's really a different type of model usually you're you're type you are charging a lot like on a per user basis, rather than on a transaction or volume based business. So I think it really depends on how.

Active the customers are so I wouldn't say that's necessarily I'd say.

Kate Tim, but it Couldnt go either way, depending on the level of engagement of those customers and the other types of capabilities that we're providing.

Excellent alright. Thank you Jason Thank you Mike I appreciate the answers.

Thank you. Our next question is from James Faucette with Morgan Stanley . Please go ahead.

Okay.

Great. Thank you very much I wanted to just touch on kind of the way that you're formulating the outlook both for the current quarter and for the rest of the year.

It sounds like.

The volumes that Youre seeing right now kind of across the different groups sound pretty good but I'm wondering if you can give a little bit more color as to where you're seeing particular strength currently in and.

And maybe compare and contrast, the different segments and then as you look at the rest of the year you mentioned that you want to be a little bit conservative given the economic uncertainty can you just give a little more idea of the things that you're watching where you think there could be some variance from what youre seeing right now.

Sure. Thanks, James I think I would.

The two areas of particular strength right now are.

The buy now pay later vertical as I said grew more than 100% for us in the quarter, So very strong performance.

Since management grew over 200%. So those are two parts of the business that are growing quite quickly and scaling very rapidly that's across multiple customers.

So.

It's really broad base, where we're providing a lot of different capabilities like those are.

Yes, relatively large verticals within that there'll be customers, who have a particular target or niche within that and we serve all of those which is allowing us to scale quite quite quickly and of course that also allows us to add a lot of value with our range of capabilities that they can expand into so I would say those are the two that are growing.

<unk> the.

The financial services vertical its still given the size of it.

It's still growing quite quickly, but a little bit slower than our overall customer base and then the lowest the slowest growing as on demand delivery, which of course had an incredible explosion of growth during the pandemic and is now.

The growth is now kind of slowing on that are significantly larger base. So.

Those are the areas, where we're we're seeing a lot of growth.

The last thing I would say about this as I mentioned in my remarks.

As we diversify to more and more customers. There are a lot of newer verticals, where we're just starting and and customers who are relatively new and so are our really ramping quickly and have explosive growth and so it's those newer customers that we have as I mentioned that our growing five times faster than customers who are on the.

Platform prior to 2019, and so and those are coming across a whole swath of use cases.

So that's how we're thinking about it in terms of as we look out into the out years I mean, I think are the out quarters.

Yes, the one of the things we're just watching it is watching is the is the spend behavior and the level of activity.

Are we seeing obviously inflation has been here for quite a while we don't see for example, big changes in our ticket sizes and we're also not seeing big changes in the spend behavior. So in terms of like transactions per active card for example, so.

Those are the things we're trying to watch for to see if there's any slowdown in the types of either consumer or business use cases that we support.

And right now everything looks good but that's something that we're going to continue to monitor as we go forward.

Yes that makes a lot of sense and then just quickly on capital allocation, obviously valuations have come down a lot you guys have a very strong cash position, especially relative to your market capitalization right. Now you are on a on a non-GAAP basis at least in cash burn you're not really spent on burning a lot of cash. So how do you think about.

Capital allocation, whether it be for your own shares or maybe looking at potential acquisitions of those valuations of other companies come down just wondering how youre thinking about that right now.

Yes, Thanks, James I mean, our first priority is definitely for M&A and the fact that valuations are coming down is obviously.

To our benefit.

We want to continue to maintain our first mover advantage.

And so we're looking at product expansion capabilities that could really leapfrog. Our current roadmap. So we can bring additional capabilities to market sooner for for our customers in a broader range of customers. So that is definitely the first priority for us and the fact that valuations are coming down.

B be helpful for us that really is.

The area that we're focused on for the use of our cash and as you mentioned.

Even not even on an adjusted EBITDA basis, even if you just look at our overall operating cash flow if you exclude too.

Items this quarter that we're very timing specific in terms of one is the paying out of bonuses that were accrued last year in the P&L and one is the paying an upfront amount too.

Paying upfront cash to a large.

Partner of ours, or a large vendor of ours to get a reduction in the cost.

If you remove those two our operating cash flow for the quarter was actually positive. So we're actually not really burning cash, but we are we do plan to mostly deploy our cash for M&A purposes.

As time goes by if we don't find that we need that much or with valuations coming down we have some leftover then we might consider share buybacks, but for now our primary focus is eminent.

Yes, Jason I'll add to that the opportunity for these services.

Verticals and technologies is huge for market and therefore really investing more to take advantage of the massive opportunity ahead of us.

Is the plan and we will always look to M&A to fill gaps or help us accelerate our product roadmap.

I appreciate that Mike Thanks, Jason.

Yes.

Thank you next question is from Darrin Peller.

Please go ahead. Please go ahead.

Hey, Thanks, guys listen when we look at the verticals that you are doing well.

And then maybe just explaining a little more on the incremental verticals that are growing that five times the rate of what was <unk> 19 or more than that even.

If you could just give us a sense of what the key capabilities are that's been resonating with those vertical so much better than your competitors out there and how thats parlaying into new verticals and what some of those verticals are and then just one quick follow up on that on the vertical discussion would be we're getting a lot of questions over the NPL exposure at the company and maybe <unk> given some of the volatility we're seeing in those and.

And so just thinking about what's been factored into your outlook and maybe you can give us some color on how big the NPL may be for you guys. Thanks again.

Sure. Thanks, Eric.

So our and as we've talked about as our investments are always focused on the long term growth of the company and we thought about our our strategy from the beginning we start with Commerce Disruptors.

Really what the DNA match was building out a platform to delivering API, so that engineers and product people.

Dream up the product they want to go build or solve a pretty significant issue that they couldnt do with sort of a vanilla acquired that was delivered to them from a bank card would basically do one thing and they had to figure out how to shoehorn. It in their business. So we started with one demand delivery, which was the driver.

Goes to the restaurant to pick up food.

The card that you saw.

<unk> is an example of the drivers using a card.

As in a terminal state and now turns to one based on the GPS coordinates of their phone and they have a door dash Apple in there.

A swipe the card we repackage the ISO message that's being delivered from the point of sale, we deliver that to door dash. They parsed that message to find the drivers. They are Jason at the right restaurant picking up the right food for the right order for the right amount if yes will authorize the transaction our telemark headed authorized the transaction we do.

Then repackage that message sent it to the point of sale and the driver can go on and on their way.

Significantly reduce fraud downs in euro and allowed them to go to scale. So we start with on demand delivery. We then went into expense management e-commerce and buying out pay later.

All sorts of different verticals, where part of our strategy is go into to the vertical and we land some of the largest customers and then we expand throughout the vertical and bring very specialized capability. So that we don't want the digital bank. So block is a great example, here in the U S.

<unk> III product cash App Teen card square card and then moving into Europe with that with companies like like Lydia.

And then large financial institutions. So we always think about like where do we think the world is going to go and our belief and leaderships to where the payment world is headed.

Always be about first mover advantage that we add that functionality that our customers are looking for and the platform can easily accommodate scale of our growing customer base, new verticals geographies and use cases product.

And then obviously more to come we'll be talking about in the future are core verticals that we are heading into with more customers across the spectrum.

Within payment.

We're just scratching the surface, we're less than 1% of the credit volume either the U S alone. So the opportunity for us to grow is just tremendous.

And then maybe for your second question.

And Paul.

It's one of the thing without I guess just to add on and then I'll answer your second question.

One of the reasons are having success also Darren has just because our platform is so flexible customers can do a single use virtual card a virtual card that might be valid for a period of time or a physical card. All those things are are very easily leveraged which allows also our customers to expand which I think is the.

Part of what makes us successful in terms of our exposure to <unk>.

The NPL.

<unk> is more than 10% of our CTV as a segment, but it did declined two percentage points from last quarter. So a lot of that is seasonality because of just Q4 tends to be very retail oriented.

But.

We are.

So it's a meaningful part, but it's a little smaller than it was last quarter.

We're trying to diversify our product set within the NPL as I mentioned like the different whether it's a virtual card physical card. We are getting interest from established card issuers, providing the NPL. So I would say we still think this this payment capability is attractive to consumers.

And we have established financial institutions, who are looking to get into this market, where we can provide them again purpose built solutions as Jason described.

And so we can help some of these new entrants.

Already have a card programs offered as a payment capability and it's also these types of fluctuations in the market. That's why we're trying to diversify into new verticals.

Mentioned expense management for example.

Is also double digit percentage of our TPB and growing incredibly fast.

Moving into more of a e-commerce.

Vertical with and travel related capabilities.

We are building our presence in credit, but these are all ways that we are diversifying our business so that it.

If things were to slow down a little bit on the NPL hopefully that has minimal impact on our performance.

That's really helpful guys alright.

Alright, I snuck into so I'll turn it back to the here, let others ask questions. So thank you.

Alright, thanks very helpful.

Thank you next.

Next question is from Tien Tsin Huang JP.

J P. Morgan. Please go ahead.

Thank you very much.

Jason and Mike I like your comments on the 2019 vintage and how well it's done I'm just curious.

If you're looking at the pipeline of new customers now.

Based on what you see what's.

What's the quality of that looks like is there a lot of potential for that to be another strong vintage I'm just curious given all the questions here about new products you use cases.

Generally being in front of that how do you feel about the pipeline.

So we have a number of announcements to make.

For the rest of the year, both on products geographies and customers credit is something we've really focused on exciting deals in the pipeline for credit.

New products were well known fit in Texas as well as Disruptors.

Don't want to talk about the new things that we're going to be coming out within the coming quarters here, but really look forward to sharing announcements.

Latest year about a lot of exciting deals that we're working on.

Specifically around the pipeline the pipeline can grow in different ways. The growth based on current verticals. We're in current customers adopting new products that we're building.

Our existing product sort of scale their business and grow their addressable market.

Geographies, so we talked about how a lot of our customers around the world on our platform and we focused on a lot of that user experience is primary for us and I've talked about in the past, where if you are a customer that was using us out of Australia, then using us out of.

The U S and then using us out of the U K.

We want that experience to be much the same.

Every country has different types of payment networks in payment technology, and regulatory and compliance and we look to build more and more at our company. The company for our customers really focus on a global basis and move around the world. So we're excited about the growth in the future.

A long term vision here investments playing out really well over the years and really looking to enter new verticals, new products and a lot more two to announce here in the coming quarters.

Alright.

A quick follow up maybe for Mike just I hear loud and clear the distribution I'm just curious if we want to translate that.

In terms of revenue per customers the distributional at tighter for clients, let's say six to 'twenty or 'twenty.

You pick it but I'm just I'm, just curious if youre seeing a little bit more.

Titan tightness there from a claim.

Quiet group.

Yes, so I would say that yes.

Yes, we obviously have.

<unk> block.

We are I guess quite.

Quite upfront about the contribution to our business that they represent and then I'd say the neck.

Three to four customers are sort of half one one group and then then you're right then you get into.

I don't know, maybe six to 15 or 20 or probably of similar size and then you get the.

Outside of the top 20 than.

And then you have a very large number of customers serving all kinds of different verticals that are in very.

Very much hyper growth stage, which is.

What's exciting you don't like almost a year. Your question earlier, sometimes you don't necessarily know which of those customers three years from now could be a household name and be quite big right. So, but theyre all growing really fast and that also makes it a little bit hard to project because they are relatively small and it's hard to hard to estimate what that is.

Curve is going to look like as they ramp up.

How I would think about it there's block then theres a few that are similar and then there is probably the next 10 to 15 and then there is a and then a large swath of customers that are all relatively small, but very high growth.

Sure.

Incubating, thanks for the great quarter.

Thanks, Adam.

Thank you next question is from Ramsey.

With Barclays. Please go ahead.

Hi, Thanks for taking my question this evening.

I wanted to ask you to comment.

On the international opportunity and sort of more broadly on what your strategy is there is it more kind of an opportunistic approach, where you move into new markets as well opportunities present themselves.

Thinking of you mentioned it quite a few times on the call today or can you accelerate that pushed with M&A, especially as international becomes kind of a growth driver that we need to pay closer attention to.

Thanks, Ramsey, yes, and yet so so monitored card issuing is a global phenomenon.

The thing about the network to say interconnected all of the merchants in the world whether online or offline that wants to accept card. So that's that's an enormous opportunity for us.

And we have built modern card issuing to solve a lot of our product capabilities for our customers and we've talked about more than half of the top 10 and more than one third of our top 20 customers use market in multiple geographies as they begin to spread their wings.

Build more addressable market build new product, we really help them with our managed by capability to enter those markets compliance and regulatory and different countries are pretty heavy duty stuff. So we really help them figure out how they want to go to get this done. So we're seeing lots of encouraging signs from our customer base not only adopting new products.

But moving internationally. So the platform is built so that they total <unk>.

And they employ across multiple markets that saves them a lot of time a lot of money.

In regards to building within a specific market.

Servicing a constituency there. So we operate in 39 countries today that is absolutely growing at four to announce this year again multiple customers who started in the U S.

With us in the U S are now international customers, who start up in Europe , or Australia or now in the U S.

And the platform is absolutely purpose built and is very much resonating globally in the countries that we're operating in so we'll look to absolutely grow with an additional countries new products to help those companies gain a foothold and build a strong business addressing a very.

Perfect.

It's just you would see it.

Help us with that we are absolutely looking at M&A, and that's strategically first but simply because of.

The broader market and the conditions that we're seeing today there'll be lots of opportunity for us where we'll be opportunistic if we see something that can really.

Enhance our roadmap beat upper a roadmap, there's lots of lots and lots of.

Great companies out there lots of new companies.

The venture capital World and others are investing in this space for many years now.

So we're excited about it but yes, and yes, absolutely building internationally and looking to use M&A to opportunistically speed up our roadmap and take advantage of product, we see in market that our customers want.

Great great.

Let me sneak one quick one.

It's about crypto vertical and I'm, just curious whether volatility with crypto asset prices translates into either.

Volatility in your crypto volumes are also any type of like slowdown in the Decisioning in terms of the pipeline of new crypto clients just given everything that's gone on in the with asset prices in that space I was just curious.

Well so our platform is the biggest.

Step back with regards to what we do so our platform acts as the gateway between Fiat in crypto currencies for partners like claim base backed bold shake pay and we're seeing a lot of incoming interest in that capability using market a platform the crypto innovators that use that.

Enable their customers to make the purchases at the point of sale in the crypto wallet. So.

When we see fluctuations in the market consumers want to go and spend they want to be able to suspend those assets at the point of sale and make it incredibly easy.

For us for them to do that.

I believe it was there that asked the question about our products and our capabilities in building and vertical. This is one vertical we identified a long time ago and approach customers that say, we can create a really good experience for your customers you want to spend the point of sale and we've done that so.

We are continuing to invest in crypto, we have pipeline around this the companies within crypto, who are looking to adopt our technologies to bring more value.

So they are consumers and again, we're seeing lots of traction revenue customers is now a $1 billion.

Last year, it was almost non existent and so much like we did for on demand delivery buy now pay later.

We use our jet or just in time funding technology and open API to create a purpose built solution.

For this the emerging vertical it's attracted a lot of companies in the space.

And again volatility really helps at the point of sale and obviously the movement.

These assets gaining more.

Value helps as well so.

Again, we're looking to invest more and more in this space and there's lots and lots of opportunity for us.

Okay. Thanks, so much for taking my question.

Thank you.

Question is from Andrew <unk>.

<unk> Nikko Securities. Please go ahead.

Hey team nice set of results here.

<unk> with the full year guide I mean, you beat nicely in the first quarter second quarter comes in.

Above our model and consensus so I'm trying to gauge the amount of conservatism that you're kind of embedding in the back half of the year.

Offset by these new programs you have coming on and how should we should be thinking about that given the momentum you should have exiting the second quarter.

Yes, so I think that.

I would say, we definitely are not purposely being conservative we're looking at the trajectory of the business and what we see right now in <unk>.

And projecting that forward and not assuming a lot of a lot of disruption so.

Yes, Q1, and Q2 are stronger than we expected and we did down I guess I did I did sort of raised up our expectations a little bit to the high <unk> for the full year, so because of that.

So.

So I would say, we don't we're not purposely being conservative the only thing I would flag, which I did say in my prepared remarks.

Q4 of 2021 was really the first year that we saw meaningful holiday spending on our within our customers on our platform. So we didnt typically have that kind of seasonality that the broader card market has in terms of a big lifting and retail spending and so.

That is something that makes it a little bit more challenging for us to project. The Q4 number because it's hard to know sort of.

We don't really have a long trend to base our projections on.

But.

Right now what we see is our Q4 last year was really really strong and so that will be a tough comparison, but otherwise we're looking at trajectory. We have we have new customers coming on and we're definitely not purposely being conservative.

We see more of the performance and we'll continue to update you if there is.

Any changes.

Got it that's helpful and then coming up on the one year anniversary of the IPO.

You guys reiterated your long term expectations for growth in the 20% plus EBITDA margins. However, one year.

In the future here the world's a lot different so how should we be thinking about your views around the path to profitability with the rising competition for talent wages.

Price increases and just one little housekeeping pointed to the $12 million impairment.

I'd assume that was included in your original guidance correct.

Okay.

So let me answer that second one first.

The 12 million impairment is adjusted out of our so it's not in our non-GAAP numbers. So it wasn't.

Factored into the guide, but it's a.

Noncash nonrecurring.

Impairment so it doesn't impact our adjusted results and therefore wasn't factored into our guidance.

So.

That's what I would I guess answer that one sorry your question before that was what.

She is thinking about this business one year from the IPO.

And how.

The wage and cost dynamics kind of fit into that that long term.

Yes, yes.

Alright, Thank you for reminding me so yes.

Yes, I mean, there's no doubt there's some pressure there there is a war for talent then.

Need good engineers good product people.

Two.

To achieve that kind of.

Growth math that we we believe we can be on so.

It does increase our cost a little bit, but I would say, we're we're very disciplined about how we deploy investment and how we prioritize those investments. So I think it's more a matter of.

Alright, changing or looking at that priority list and deciding what's what's really important and what's going to really move the needle what is.

Which of those investments really have.

Most revenue and you have to balance have a balanced portfolio of investments for things that will move the needle one to two years from now versus things that are.

A little further out three to five years out for example.

So we just tried to be very disciplined about that and be very kind of ROI oriented.

We think we are successfully balancing the level of investment with our path to profitability.

The one benefit that we have is that our unit economics are very attractive right. So we have a very low marginal operating costs once we reach a certain level of scale.

And our investments are typically going to need to be made two to three years prior to meaningful revenue. So.

We're balancing those things, making sure we target the right growth areas.

But then our.

Our underlying economics are quite strong and that's where we think we'll be on a on a path to pass on a path to profitability.

We will share more about in the coming quarters as we.

I don't finalize our multiyear plan.

Got it helpful. Thank you.

Thank you.

Our next question is from Dan Donlan with Mizuho. Please go ahead.

Hey, guys. Thanks for.

Letting me ask a question I appreciate it.

Mike can you maybe give us.

Parse out a little bit what macro.

Estimates are baked into your.

Baked into your top line guidance kind of from a volume versus take rate perspective, there would be helpful. And then I have a quick follow up thanks.

Yes, so I would say what we are assuming right now Dan is that theres not a huge disruption in the trajectory that we see today.

Right so.

And again, even within our business because I think I mentioned, a little bit earlier, we're not seeing a big change in ticket sizes. For example, even though inflation is quite quite significant in the market.

We're planning for we're assuming four.

Less disruption over the next.

Eight months in.

And then we haven't I guess.

Comment on anything further out, but that's what we're assuming at this point.

Got it. Thank you and then I have a quick follow up on the credit side I know that's been a big big.

Big success historically for you guys I mean, we've seen your I mean, the most established competitor in the market.

Having a really bad quarter in the first quarter kind of like probably negative organic growth.

There and Youre doing extremely well like what can you update what kind of an update can you give us on successes there.

Thank you.

Specifically in the credit space.

Yes.

Yes.

Our success is based on our early entry into the market.

So when we thought about building credit as a product we just wanted a much much much better consumer experience. So.

The credit cards that I have.

Experience is pretty much the same.

And we really look to partner with companies, who want to build a brand new experience something it's simply add.

Having logos for specific merchants, having a piano to map the transaction happened, giving people lots of information and context around the specific transaction being able to pay off that transaction because there might be at a higher interest rate than other transactions and their ability to go and do that so we're absolutely in the early inning.

Our success has been partnering with companies that either want to rebuild the user experience.

Or have a new product altogether, so and if we look at across the basically the verticals that we operate in or the areas, whether it's commerce disruptors.

Digital banks or financial services Tech Giants, and large financial institution Theyre, all looking to lower total cost of ownership and we give the ability to do that this is not a.

And on premises solution, we build really good technology that they can leverage via API tools and features that they can use to significantly shorten time to market.

And create a much better consumer experience. So again, we're in the early innings in our really our success is because we are out of the gate with a brand new product and a new view.

We have a solid pipeline there is more to announce this year both in feature functionality and customers.

And yes our.

Our success is really about where the <unk> player in the market with.

New technology, but obviously a great.

And growing customer base across 39 countries.

More to come but I appreciate your focus on credit.

Yes, thank you and I'm sorry.

Okay.

Sorry, Dan I realize I didn't answer your take rate question.

So let me just jump in and answer that one so I think the take rate. So far that we're seeing is very stable as I mentioned.

The four top verticals to take the take rates are stable, it's really going to be what happens going forward is it really about the different kind of mix within our business, though is that a managed by customer or more of a powered by customer. We're only we're only providing processing what are the number of additional services.

That we provide our customer in terms of the uses and certain verticals are going to.

Tend to correlate with more services, if theres more complexity to that vertical whether it's a consumer versus commercial program single use versus physical card. Those are just a few of the factors right that are going to impact our take rate.

But what's also important is that not all take rates are created equal.

So when you think about how we structure different parts of our business how much of that take rate falls to the gross profit line, which we call our gross profit take rate can.

Can be quite different and so there are like in our powered by <unk> solutions will have a much lower take rate.

But almost all of that take rate goes falls to gross profit and so.

It's really the mix between all of those components that.

I guess, an important factor that we have to look at to project, what we think will happen going forward.

Super helpful. Thanks, Mike.

Thank you. Our next question is from Sanjay <unk>.

<unk>. Please go ahead.

Many of my questions have been.

Asked and answered.

Maybe I could just follow up on the macro question. When we think about discretionary fund being in positive as part of a cyclical slowdown how much of your business is exposed to that I know <unk> sort of comes to mind first and foremost, but where does neo banking and food delivery in and I know Mike you are working on the multiyear.

Plan and how incremental businesses, but can you sense that we do see a slowdown on the top line.

Do you think you have some flexibility on expenses. Thanks.

Yes, so I would say the.

You are right. So certainly the NPL would we'd be more discretionary I would say its new banking has.

<unk> to mature more and more people are using that is there.

One of their primary account right, which is what you see from.

Direct deposits for example.

It's for square cash so I would say.

That will have obviously, some discretionary purchases, but it also has lots of other types of purchases in there on demand delivery I would say.

A lot of that is food and grocery so that maybe the body, we're going to get take out a little less but generally I would say is not as exposed.

<unk> management is.

More about <unk>.

<unk> spend and optimization, so I would say generally speaking we don't.

Have huge exposure.

Changes in consumer spending, but obviously, we would we would have some impact.

In terms of the.

I guess multi year view, sorry, what was your question related to multi year.

No no I know youre working on your plan, but just in terms of the expense trend line over the short run.

<unk> and.

And impact.

How should we think about expenses, yes, yes, I mean, I think that most of our I mean look the big bulk of our expenses come in the form of people and so there is some technology related expenses, but the bulk of it is people and so it is something that we could slow down our hiring ramp if we if we felt we really needed to do.

Do that but we're constantly balancing as I've mentioned earlier like what are our priority is one to two years from now versus three plus years.

So we're going to be watching boat, but ultimately, yes that growth in the head count is something that we could flex it.

If the macroeconomic picture were to change significantly then that is something we could slow down our our increase in investment that we're making.

Okay. Thank you.

Thank you our next.

Next question is from Bob Napoli with William Blair. Please go ahead.

Thank you and good afternoon.

Solid results.

Since management space has been pretty dynamic for you growing radically theres been a lot of new companies that have come into that space. How do you feel about the sustainability of the growth.

In that area.

There are a lot of volatility and what are the opportunities.

<unk> management not just in the U S.

But <unk>.

Internationally.

Yes, so expense management has been a very fast growing vertical for us.

Over the past few years companies like expensive by brand.

<unk>, which is now part of Bill Dot com.

We're actually seeing.

Corporate travel is coming back people are moving back into offices company.

Companies like Marquette out it'd be announced.

Very flexible schedule for people that can either come in the office working hub, we partnered with a company around the world that has 6000 offices.

Mark.

You can go to new cities and work with other Marquette is.

There is obviously a key corporate expenses as part of that so we've partnered with expense management companies and what we believe is that there is still a lot to go with this vertical across all the areas that we focus on whether it's commerce disruptors, whether it's digital banks like.

Like square card with block, which is a product that's been in market for some time. You then have the large financial institutions and the large tech Giants like Google and Hoover looking at.

Companies like branch, who we partner with so we're continuing to focus on this vertical we like the commercial side of the card business.

Growing very quickly for us so, we'll invest more and more into that space, but ultimately expense management is something we've been operating in for many years.

Ton of experience in this space.

<unk> talked to our customers on a regular basis and sharing not only our protocol layer product roadmap of features and where we're headed.

Some of the things that they want to do and that they are bringing to us and we're obviously looking to build that.

That long term vision out for them.

Thank you and then just a follow up on your new fraud product and your strategy around.

Payments fraud.

How significant is the new product I know fraud prevention is key.

Value add.

<unk>, Canada, but just any thoughts around the product pipeline or the growth strategy around payments cloud products.

Yes, it's interesting.

<unk> is one of the top three things that our customers talk about and ask for it.

Why we decided to actually build the risk control from the ground up.

One of the ability for them to act very quickly.

Fraud can happen pretty fast and furiously in specific areas of the world. It.

It can also be people grouping together and when they see that in the stores.

They should be doing this should be able to act really really quickly. So addressing is really one of the most common things that customer app, which is towards the help them scale programs and our risk aware way and risk control.

Is it certain example of how our managed by customers and that significant value. So at the end to end solution that helps everything from signing up the cardholders and <unk>, which is now your customer.

Protecting them at the point of sale with <unk>, our real time Decisioning.

And afterwards.

It's really an end to end solution for them.

Just launched it there is a lot more going to be adding to it but we feel like it will become one of the market leading fraud solutions in the coming years for our customers.

Okay. Thank you appreciate it.

Alright excellent.

And gentlemen.

Yes go ahead.

Yeah.

We have reached the end of the question and answer session and I would like to turn the call back to Jason Gardner for closing remarks.

Thank you and thank you everyone for joining our Q1 of 'twenty two earnings call.

Look forward to updating the company here after our second quarter, we got lots to come out in the coming months in regards to both new customers and new products.

These days, it's pretty rough out there.

Whether it's economic uncertainty or the continuing war in Europe .

We have a lot of faith that we're going to get through this.

Not only as a country in a nation, but globally and we just look forward to making sure that everyone's safe and.

We look forward to updating everybody after our second quarter take care and thank you.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.