Q2 2022 Marqeta Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by.

Welcome to the market the second 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.

Now I'd like to turn the conference call over to Stacy <unk>, Vice President of Investor Relations to begin.

Please go ahead ma'am.

Thanks, operator.

While we began 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 period 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 at 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 a substitute for GAAP financial measures.

Patients 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 todays call are Jason Gardner Marquette is founder and CEO and Mike military or Cabot's Chief Financial Officer.

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

Thank you Stacy and good afternoon, everyone and thank you for joining us for Marquette is second quarter of 2022 earnings call.

I'll start with an overview of our results for the quarter and then I'll discuss an update on our three strategic priorities.

Total processing volume or <unk> was $40 billion in the quarter.

Presenting a 40, 53% increase.

In alignment with the rise we posted in the first quarter. The scale of our platform continues to increase dramatically our TCE for the three months ending June of 2022 exceeds our TCE for the 12 months ending June of 2020.

Our net revenue of $187 million in the quarter represents a 53% increase from the previous year.

The main drivers of growth throughout 2021 and into the start of 2020 to continue to propel our business payment habits that gained traction during the pandemic are still popular with consumers and driving our topline growth, including digital banking buy now pay later and on demand delivery.

<unk> management continues to scale as businesses look for efficiencies and business travel returns.

Block accounted for 69% of our net revenue up from 66% in the first quarter with after pay included in the entire quarter and cash app volumes continuing to grow meaningfully post tax season. This percentage represents a decline in concentration from 72 per.

A sense of net revenues in the second quarter of 2021.

TPB from customers outside our top five grew at three times the pace of our top five customers the revenue associated with customers outside the top five more than doubled compared with the comparable quarter of 2021. This continues to be a testament to the impact of the market of platform.

And enabling business growth for our customers.

We have again made significant progress on our three critical growth pillars in the quarter fueling our customer success broadening the ways, we support our customers increasing our global platform is resiliency reliability and scalability first and foremost we want our customers to <unk>.

Seed, we are always looking to support our customers' businesses as they grow and diversify revenue diversify their revenue streams and.

In June we announced our partnership with Western Union, a global leader in cross border Cross currency money movement and payments in Europe , demonstrating again, the appeal of our offering for established market leaders looking to innovate at scale.

<unk> modern card issuing platform will allow funds held by western Union's digital banking customers to be available via a physical or virtual debit card. This will enable western union to extend its relationship with its customers with additional flexibility to rollout new features and deliver a wide.

<unk> of digital banking services.

We look forward to growing our partnership with Western Union, we see at scale and commitment to digital banking innovation as a strong match from our ketchup.

We continue to leverage an innovative ecosystem of partners to unlock value for our customers businesses last October we announced the partnership with our customer branch to power faster payouts for Uber freight carriers, serving as a connection between our customers to help powered net new payments innovation after.

This successful launch we've shown the potential for what we can build together and are excited to work alongside branch to support the launch of the Uber probe card for drivers we see the combination of market is monitored card issuing platform and branches digital wallet as a natural fit to bring faster payments and flexible rewards two of our drivers.

Yeah.

Enabling brands to unlock this innovation is another excellent example of how mark how to add value for a customer of Uber scope as they launched new car programs with us across the breadth of their business.

Providing customer support our second focus area means expanding the market a platform to support our customers with new products services and geographies Marchetta initially prioritize debit and prepaid innovation to help commerce disruptors bring new offerings to the market ushering in a wave of innovation for these car types.

Credit, which represents the other half of total card spend and the market has not yet experienced the same amount of monetization.

Given the massive opportunity to modernize credit this was a logical step for our product roadmap. Our goal is to enable our customers, leading fintech consumer brands and banks to offer their end consumer experiences that are currently unavailable. We initially launched our credit platform in 2021, allowing us to.

To support any car types through our modern card issuing platform and we recently launched more than 40, new credit Apis, which will power innovations in credit and enabled our customers to more quickly design test and launch new card experiences.

Our flexible rewards engine allows our customers to create programs that re imagine hyper customize rewards based on merchant category spend and various cardholder behaviors. For example, our customers can offer instant gratification to their end users by supporting the ability to provide rewards as soon as the transaction.

<unk> has cleared rather than at the end of a billing period.

Our customers can now provide their users with an instant credit decision. The Marquette is API connection to <unk> Decisioning engine in other words when a user applies for a card they will get a decision instantly rather than waiting days for the bank to access their credit history. This encourages users to apply and start using there.

Card immediately helping card programs cement covenant top of wallet status with their customers, we have deepen the capabilities of our credit platform and that in turn has deepened the experiences that our customers can create.

We are also broaden the verticals, we support by expanding into transit for the first time recently, the new South Wales government in Australia announced its commitment to upgrade its transit card system. Our credit was named a payment processor of choice for <unk> plus the new transit program for transport for New South Wales and partnership.

With Mastercard.

The result will be a mobility as a service app, allowing subscribers to plan book and pay for a tailored commuter experienced directly from their mobile devices. This deal is another example of our platform's adaptability to service an ever broadening array of use cases, our third focus area, increasing our <unk>.

Global platforms resiliency reliability and scalability is critical given the increased demand in place on our platform in Europe to year with exponential growth.

Significant area of investment we want our platform to keep pace with our growing customers to also provide strength and support for our customers' future business goals and innovations.

Our resiliency at scale is a key differentiating factor when customers choose the Marquette a platform.

Uptime and latency are of the utmost importance in our business. We have delivered at least 40 <unk> across all of market as customers weekly. This year. This is even more impressive given that our volume increased 50% year over year.

We also worked diligently in the first half of 2022 to bring faster API connections to our customers and partners to improve their platform experience further.

As a result of scalability and resiliency improvements made in May we saw our API latency improve up to 60% across all endpoints in the <unk> platform in the following months in conclusion, our Q2 results demonstrate the increased breadth and depth of the <unk> platform, we continue to.

To enable this digital disruption and modern muddied movement with a base of customers who work on the cutting edge of payments. We believe we are the go to choice for payments innovation at scale when paired with our solid financial footing, we are very well positioned to capitalize on the market opportunity in modern money movement.

In the coming years.

I will now turn the call over to Mike. Thank.

Thank you, Jason and good afternoon, everyone.

We had a great Q2, with TBD and net revenue growth of 53%, which is in line with last quarter.

The strong net revenue growth was broad based with 20 of our top 30 customers growing at least 40% and the customers outside the top 30 as a group growing much faster.

Gross profit and adjusted EBITDA margins were above our expectations as a result at 42% and negative five 5% respectively.

The net revenue and gross profit outperformance was primarily driven by three factors where results exceeded our expectations for the quarter first hire TBD across customers of all sizes.

Higher net revenue take rate due to favorable volume mix, both in terms of merchant mix as well as pin versus signature debit mix.

And third more robust usage of additional services not directly tied to TPB such as card fulfillment.

Favorable volume mix and additional services also lifted the gross profit margin since they don't drive a corresponding increase in our cost of revenue.

Adjusted EBITDA also benefited from timing delays and.

And hiring and investments, which will push a few million dollars of expenses into Q3.

Let me provide more color on the items that drove our quarterly results.

Q2, <unk> was 40 billion growing consistently with last quarter at 53%.

Growth accelerated in expense management and on demand delivery offset by tough year over year comparisons in financial services and the NPL that were helped by the U S government stimulus in March of 2021.

Although TBD growth was similar to Q1 overall.

Did defer on a category basis.

In categories that are less discretionary such as supermarkets, drugstores fuel and utilities, which make up roughly one third of our Q2 TBD growth accelerated meaningfully versus Q1 and.

And more discretionary categories, such as retail travel entertainment and home improvement, which make up roughly one sixth of our Q2 TBD growth decelerated significantly from Q1.

While Q2, TBD growth and highly discretionary categories did decelerate it is still growing more than 15 points faster than medium and low discretionary categories.

Let me also highlight TBD performance in our top verticals.

The financial services vertical continued to grow strongly.

Slowing only a few points from Q1, despite tough comps due to stimulus and delays in the tax season last year.

Spending and less discretionary categories grew more than twice as fast as medium and high discretionary categories in this vertical.

On demand delivery accelerated by almost 10 points due to increasing consumer demand and our customers expansion into new merchant categories.

Lending, including buy now pay later is still growing very fast but growth did fall below 100% for the first time this quarter as we begin to lap the incredible ramp and be NPL spending last year.

The robust growth is driven by both consumer and merchant adoption and usage.

Actual TPB this quarter exceeded Q4, 2021, which obviously benefited significantly from holiday spending.

Expense expense management TPB more than tripled year over year again, this quarter with eight of our top 10 customers growing over 100% spec.

Spending growth is highest and more discretionary categories fueled by the rebound in travel.

Net revenue was $187 million and grew 53% in the quarter in line with TPG growth.

Our net revenue take rate was in line with last year, but improved one bps versus last quarter on.

On a sequential basis, the improvement was driven by favorable business mix and strong growth and additional revenue streams not directly tied to every dollar of TPB such as card fulfillment <unk> services dispute handling and cross border premiums.

These benefits were partially offset by the impact of powered by Mark had a TBD growing faster than the rest of the business.

As a reminder, in our powered by Mark header business, we primarily have a processing relationship with our customer and therefore, the take rate is typically lower than in our managed by Markel business.

Gross profit grew 66% 13 points faster than revenue due to a combination of factors.

In Q2 last year, we had unusually high network fees, creating an easier comp.

Contract amendments in Q3, 2021 reflected our increased scale, therefore fees to our bank partners are growing significantly slower than TBD and network incentives are growing a little faster than GDP.

We will start to lap these benefits next quarter.

While powered by Marc <unk>.

Creasing its share of CTV negatively impacts the revenue take rate it.

It does not have the same impact on gross profit because the powered by Mark had a gross profit take rate is similar to many of the verticals and are managed by market or business.

Lastly, the favorable volume mix and stronger usage of additional services also contributed.

Our Q2 gross profit margin was 42%.

As a reminder, Q2 is typically our lowest gross profit margin quarter due to the timing of our network incentive contracts.

Q2, adjusted operating expenses were $88 million growing 53% roughly.

Roughly two thirds of the growth comes from increased technology and product investment focused on broadening our capabilities and increasing our platform's resiliency reliability and scalability.

About 45% of the growth is driven by technology and product head count.

And about 20% is cloud and software tool related expenses.

Go to market head count both business development and customer support drove approximately 10% of the adjusted expense growth.

Costs associated with becoming a public company such as insurance and audit fees also drove approximately 10% of the growth.

This should not be a driver of future expense growth as we will be lapping these costs going forward.

The remaining 15% to 20% of expense growth is mostly driven by all other head count related increases and support functions.

Because so much of our adjusted operating expenses are head count driven or tied to business growth VR cloud costs, we consider only a very small portion of our expenses to be discretionary.

Therefore, we tried to be both thoughtful and thorough in our investment planning.

Adjusted EBITDA for the quarter was negative $10 million, resulting in an adjusted EBITDA margin of negative five 5%.

We had positive free cash flow this quarter, both in actual terms as well as when you consider the amortization of expense for significant annual cash payments that may occur in other quarters during the year.

Q2, GAAP net loss was $45 million.

Now, let me share our perspective on the full year.

Our business has significantly outperformed in the first half of the year.

Many of our top customers expanded their business into new areas with us and are defying the tough comps driven by government stimulus early last year.

Smaller customers across several industry verticals and geographies are utilizing our capabilities with great success to expand their businesses rapidly.

While our top 10 customer CTV grew about 40% in the first half which is excellent given their size are remaining customers grew nearly four times faster.

We are also getting more traction with additional services, we offer such as card fulfillment authentication and dispute management. All of these factors are helping to diversify our business.

As we look ahead to the second half of the year given the current macroeconomic uncertainty as well as fintech specific challenges with significant declines in valuation and increasing difficulties in raising capital. We feel it is prudent to be cautious about the next several months, many fintech or being less aggressive about their investments and expansion.

Therefore, our expectations for the second half of the year remains unchanged from when we last spoke in May.

Many of the tailwind that drove our first half upside should continue.

However, we also believe that many of the customers signed in the last 12 plus months as well as crypto customers will ramp their businesses more slowly than we expected a few months ago.

Because these are newer customers ramping up the impact of less investment by our customers and their programs is more significant in Q3 and Q4 than it was in the first half.

Our Q3 quarter to date performance is consistent with this perspective.

As such we expect Q3 net revenue growth to be between 36% and 38%.

In addition to lower contribution from new customers. The growth is lower than the first half due to much tougher comps, particularly in <unk> and expense management, where those verticals, we're ramping significantly last year.

Q3 gross profit margin is expected to be in the 43% to 44% range consistent with the first half.

Q3, adjusted EBITDA margin is expected to be negative 8%, 9%.

This should be our most negative margin quarter.

The expense growth will be driven by planned investments shifting from Q2 to Q3 continued hiring particularly in our technology product and go to market teams as well as a charge tied to international processing.

We reduced our hiring plans back in February when the macroeconomic warning signs were already evident and we intend to continue with that revised plan.

Our expectations for the full year 2022 have improved a little as a result of our outperformance in Q2.

Since we are more than halfway through the year. We can also be more definitive about our expectations.

2022, net revenue growth is expected to be 39% to 40%.

<unk> stepped down in Q4, as we lap the incredible formats in Q4 of 2021 when year over year growth in dollars was almost $15 million higher.

$15 million higher than the average of the first three quarters fueled by robust holiday season and be NPL growth.

Full year gross profit margin is expected to be 43% to 44% consistent with the first half and Q3.

2022, adjusted EBITDA margin is expected to be negative, 7% to 8% as adjusted expense growth steps down from Q2 to Q3 and again more significantly from Q3 to Q4.

In the future we remain confident in.

The business will operate at a 20% plus adjusted EBITDA margin once we have captured more of the market opportunity.

To wrap up Marchetta had an excellent Q2 to cap off a strong first half of 2022 as we continue to have success scaling the business. We had almost 20 days in Q2, where we process over $500 million in CTV.

We continue to diversify the business with new products services geographies and use case verticals, while maintaining our net revenue take rate and gross profit margins.

Although we are cautious about the coming months, given the level of macro economic uncertainty and the implications for our customers. We are investing prudently in the growth to ensure we capture the modern money movement opportunities ahead of us.

I will now turn the call back over to Jason.

Thanks, Mike My highest aspiration from our Canada just to fill it fulfill our vision to finding empowering the future of money movement for the world's leading innovators wildlife succeeded in leading Marquette us to its present state as the founder and CEO to maximize the next stage of growth as we diversify the business and the <unk>.

Capabilities, we offer in the geographies, we serve we wanted to be very proactive and begin our succession planning process by looking for the next CEO to lead Marchetta I always knew this time would come when we went public in 2021 I promised to hand leadership to the best person at the appropriate time after it.

Thoughtful consideration of what the next phase of growth for require have concluded that now is the time to begin to search for this person we will search for a CEO with deep experience scaling an innovative high growth business I have led market up from zero to one and soon it will be time to pass the baton to the best person to lead it from.

One to infinity.

I'm sharing this with you because I've always valued thoughtful transparency and because this transparency will allow me and the board to attract select and hire the best CEO to drive even higher levels of success for our customers.

<unk> and shareholders. Once we hire the next CEO I will become executive Chairman as executive Chairman I plan to spend my time in the three areas I can contribute the most our people our products and our customers I am entirely committed to mark header and our overall success forever.

Along with the CEO succession plan <unk> Peters, our Chief operating officer is leaving the company with video has contributed greatly to the company over the past three years and we wish her only the best in her future pursuits, Simon class, our newest executive and our Chief product officer will assume videos.

Go to market responsibilities on an interim basis, and we will begin a search for a chief revenue officer, Simon joined Markel from Twilio for he led their core communication products, including the messaging sales organization focused on strategic accounts I'm as excited as ever about the massive opportunities.

<unk> heard from our cut up and very confident we're on a path to sustainable profitable growth.

Firmly believe that these changes will help maximize customer employee and shareholder value with that I will turn it over to the operator to start Q&A.

Thank you Sir.

At this time, we conducting a question and answer session.

Please note participants are limited to one question.

If you would like to ask a question. Please press Star then one now.

Formation tone will indicate your line is in the question queue.

You May press Star and then two if you would like to move your question from the queue.

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

The first question, we have is from Timothy Guang from J P. Morgan.

Thank you. So thank you so much Jason I appreciate your commentary on the succession sound quite at peace with that.

<unk> you for that so I just wanted to say that upfront.

If you don't mind.

I wanted to ask about we got a little bit of a scare from Fas when they talked about working with.

With the cash card.

Block.

On the network side, So would you mind, just commenting on if there's any implications to Mark Canada, and if theres any update on the relationship in general and the timing of the renewal et cetera, given what's given the scale that we can thanks.

Yes.

Thanks, Tien Tsin, there is no implication for a market that was just an unfortunate thing that was said and it doesn't affect the cash card or our relationship specifically with block.

Issuing processing is an incredibly complex industry, you know that and we work very closely with blocks to provide a wide variety of services and support to fuel their growth and just as a reminder, we have multiple contracts with block and after pay that go throughout 2024. Our relationship has only grown since we started working with cash App, we have provide a wealth of.

Services to block across our platform so to.

So at some point those out specifically within cash App, it's direct deposit.

Cash App card and teen card and then a seller card is cards in the U S and Canada and Bank account services and obviously, we power after pay.

So we're very uniquely positioned to power this business, while legacy processors are not mark that it was built for developers we're built for innovation, our cloud base with a single platform. So you integrate once you can launch everywhere and everything is in one place. So we're very very flexible with regards to how we can support not only block but.

All of our customers.

Can you also asked about the renewals. So we understand that the market is eagerly awaiting a renewal and we'll share updates when we have them.

As everyone knows this is a critical relationship for both block and Mark header and our two companies worked closely together in service to our important relationship.

Perfect I appreciate that you have the floor. Thanks.

You're welcome.

The next question, we have is from Reena Kumar from UBS.

Hi, Thanks for taking my question.

You mentioned that you have some investments that moved from Q2 to Q3 could you specify what types of investments those are it's your top priority.

And for 2002.

Thank you Sir.

It's really just the timing of some technology related investments as well as the timing of hiring. So we we have a lot of pending starts.

So they're just people who.

Then hitting the P&L in the second quarter, but are about to start and so it really is as simple as that the focus of our investments. This year are really I would say three primary things and most of it is almost all geared around product and technology. So one is just the increasing the reliability and risk.

William C that Jason touched on in his remarks.

Second is continuing to expand our credit capabilities.

<unk> launching with more and more customers, which again, Jason also highlighted and then the third area is expanding our banking as a service like capabilities. So more cash in cash out money and move money out type capabilities.

In support of our customers is we're just finding more and more of our customers and potential customers.

Our.

Have some aspect of a neo bank like.

Aspirations in their business, where they're taking deposits of multiple forms and then want to offer their customers flexibility to use those in different ways and so those are really the three primary focus areas of our investments. We're also investing in addition, additional go to market resources.

Both <unk> sales in North America, as well as Europe .

But I would say the bulk of it is mostly geared at product and technology.

Very helpful and just touching on your credit platform announcements you mentioned.

<unk> new credit API do you expect that to help Mike had a gain traction with more traditional financial institutions and any key milestones we should watch out for.

Yes, so thanks for that so given the massive opportunity to modernize credit versus a consistent investment in our product roadmap and Youre right. As we recently launched more than 40, new credit API is it really enables our customers to more easily design test and launch new card programs and then two obviously the aspects of the <unk>.

<unk> was really the flexible rewards engine, the newly announced instant credit Decisioning.

We also recently announced the Greenlight family card, which is an expansion our F&B O relationship. So let's say we're still in the early days of our credit journey, but it's important for us to build.

Trust within that within the space and then when it comes to large <unk> progress.

They want similar capabilities to the Disruptors and making them really a great potential partners from our kind of our level of engagement there has increased.

Larger <unk> typically have long standing partnerships that will take time for our established ourselves our goal with these programs to get our foot in the door and expand over time and if we can help them in areas that we want to where they want to be more innovative. So currently revenue is not a big driver of our growth I mean really the platform puts us in a great position.

As <unk> looked at build for the future and we can do this faster.

We can do this with a with a shorter time to market for our for our large EFI, adding most importantly, lower total cost of ownership to our to our highly configurable.

Cloud based platform, so while making inroads will take time and these sales cycles with the large <unk>. We're encouraged by the fact that these conversations have increased greatly over the last year and many of them specifically around credit and other issuing processing capabilities of Mercado.

Alright, thank you.

Welcome.

The next question, we have to Darrin Peller from Wolfe research.

Hey, guys. Thanks.

When we look at the actual results this quarter they were very strong across volume.

Gross profit really it underscores the trends you are having with your core customers.

As you mentioned, but what's interesting is when we hear your guidance. It really does imply an element of conservatism that doesn't seem to be showing up in the data from the past quarter.

First of all are you seeing anything in the current trends themselves in terms of a change in behavior from your current customers or are you just trying to be conservative given.

What you're hearing and what we're all hearing about it in the market about different end markets you service.

And then more importantly, if you could just give us a sense of what are the top couple of verticals that you are really most excited about having sustainability with expense management has been one obviously.

I mean theres been a handful of really great New places you've got so if you could just give us some color. Thanks.

Yes sure.

That's still where we are not being I guess conservative, which assume that where maybe sort of being.

A little bit biased I would say, we really feel like we're being cautious.

And sort of.

Really assessing what's happening in the market and and sort of pausing for now to see how it plays out so it's not anything specifically in our numbers it's more of that.

Our.

Hearing from some customers. So we really have two types of customers. If I step back there are customers, where our card value proposition is sort of integral to their core business and then we have customers where they are using the card program more four and increase engagement and maybe an additional monetization play.

And what we're hearing from some customers as where it's core to their business.

There were areas, where they were maybe going to launch.

Another product with us or expand to another geography.

And they're saying I'm going to I'm going to pause and wait a little bit and see what happens and then customers where it's more of a monetization play.

And maybe not central to their business. They are saying well, we're scaling back on some investment and a lot of that is going to be directed at the core business and not some of the additional new things, we're going to try to do so it's not broad based yet, but we have heard it from a few customers and so we really just want to be cautious right now and then certainly we did <unk>.

<unk>.

A decent amount of growth from these newer customers as I mentioned, so people that have signed in the last 12 months or so as well as some of the new crypto customers. If you went back a few months, we were really expecting.

A nice ramp on those customers similar to what we've seen in the past.

What we now feel is going to happen is it's going to move a little bit more slowly as people are not going to invest quite as much in the launch of their programs because the launch of a new card program typically requires a good amount of upfront investment to drive that usage and so that's really what we're cautious about is to see how it plays out over the next cup.

Months and.

Hopefully that the pausing that where may be hearing from some people will pass.

We will get back to performing as we have.

Earlier in the year.

Only other thing I would point out about Q3 Darrin is just that.

If you just have some very tough comps as well and Thats. The reason for the lower growth so be NPL. If you look back at last year.

Q4.

Revenue was higher than all of the first half so higher than Q1 and Q2 overall last year. So that's a tough comp and expense management divvy flip their business to us from a competitor and that started in late 2021 and sort of scale through the first half. So it was sort of a whole block if you will by the second half and so.

Those are just some of the factors that are informing our guidance.

That's really helpful. Jason just one quick follow up I mean from all the deals you've been winning it does seem like you guys are pulling ahead of even even the issuer processor competitors out there that we wish we would hear more about a year ago, Let's say I mean are you seeing any real changes from a competitive standpoint, where it's you've pulled ahead of the pack in some ways or any other nuances. Thanks guys.

Yes, so we have a proven scaled platform and are in a very strong financial position to continue to invest so in regards to kind of a small folks that you referred to I mean, we have significantly more experience and scale. These competitors arent, even close to the same proven track record that we.

To win large volumes, we need to be able to show both I mean, we've had 20 days.

20% of the days in Q2 of 'twenty, two we processed over $500 million in PPD.

It's an average of more than once a week market is taking companies from startup to enterprise. We have involved early with household names like jordache instant card block multiple BNP Bell players when customers are choosing critical platform slash partner experience and expertise will matter, so running their core operations or <unk>.

Revenue generating businesses on our platform, we have first mover advantage in modern card issuing but also say specifically within issuing and processing.

Smaller competitors may need to start preserving cash to extend runway, we have $1 7 billion in liquidity or cash flow positive in this quarter, we can invest in our platform and maintain our financial position. So we are hiring we're going to hire the same amount of people. We did in 2021, we're investing in products.

We're investing in technology are spreading our wings, even further and allows us basically because our scale our size our expertise in liquidity really make us the preferred partner for companies seeking modern card issuing.

Great Alright, thanks, guys.

Yes. Thank you.

The next question.

Angie <unk> from Barclays.

Hi.

Hi.

Elaborate a little bit on your rationale.

Kind of transitioning right now.

Out of out of the room.

I'm just.

Curious as to sort of what is that.

Maybe.

Hey, Ramsey, it's real difficult.

So we're trying to hear you.

You talked about transition out of.

Let me, let me traditionally is that any better.

Much better alright, my apologies.

I wanted to ask Jason to elaborate a little bit on the his reasoning for transitioning out of the CEO role at this point and maybe any commentary on what the future future plans might be.

Just curious sort of the timing and the reasoning.

Yes.

Basically came down to when I ticked off the succession planning process I recognize that will be a better CEO to lead <unk> at this upcoming stage of growth I mean, really I am not the best person to execute at this upcoming stage of growth.

I am just getting way ahead of this and really this is what is best for Mark Hurd and being proactive in the decision, making looking at the future growth and how the business will become more complex as we diversify.

And Ramsey to be clear.

And starting our succession planning not leaving the CEO job for several months at least and then still be very active as executive chairman.

I would say too is that in.

Tireless support Mark Hurd as executive Chairman once we hired the CEO .

It also looks like in the past few years I've come to realize that I'm a pretty good entrepreneur.

Our gold Medallists, a professional athlete when it comes to building our business and in the time since we've gone public. We have also become to realize that I am not the best person to execute at this stage of growth I want to hire the best person for this stage people products and customers is where I'm going to spend my time and my scale on.

On behalf of Marquette, our customers and our investors are entirely committed to this company's success. This is where I will be the best from our Canada and will benefit from our focus.

As an entrepreneur Mark Hurd as my Baby my youngest child care deeply for it I am its founder and largest shareholder. So it's my duty as the founder chairman and CEO and largest shareholder to make the best most prudent decisions and service to Mark header, our people, our customers and our and our shareholders.

I appreciate that that's a great and honest response.

Maybe I can maybe I can ask a quick follow up then which is on the additional services, meaning the service is not tied to <unk> can you give us a little more sense of the opportunity to kind of expand that part of your business for that to become kind of a bigger long term driver when we think about how.

Revenues will trend over time.

Yes sure so the.

Where we're seeing the benefits there Ramsey is is just the deep expertise and the scale with which we can do things on behalf of our customers, particularly if they are newer to the space.

It's just they would much rather.

By those services from us where not only can we pass on some of our scale to them, but we can just we're already experts at it so when it comes to.

If you're launching a new consumer program and you need to handle disputes if you will.

Wanted to do you now.

Know your customer or know your business type checks right you would need to order cards for your program like these are things that arent necessarily going to be core to.

Innovators business and we just have rich rich experience and expertise there that they can leverage and so what we're finding over time as we keep growing into.

New verticals and expanding our customer base that more and more people are taking it up taking us up on it to say it would be nice if you would just handle that aspect of it and.

It's relatively small in terms of the overall size of our revenue, but it is it is growing faster than and because it doesn't come with the same cost of revenue dynamics then it's <unk>.

Helpful to the gross gross margin.

Great very helpful. I appreciate it.

Yes.

Ladies and gentlemen, just as a reminder, participants are limited to one question at a time.

The next question, we have is from Sanjay zucchini from <unk>.

Thank you a couple of follow up.

That's question number one.

Mike just to follow up.

Okay.

Given all the Fintech.

Caution how do you think.

Outgrowth that you were expecting in the second half before out of the equation and then how does it cycle into next year and then maybe just a follow up question for Jason what exact attributes are we looking from this new program that might come in.

The company in the direction you intended.

Yes so.

To answer your first question Sanjay so.

What we're doing is.

This is mostly the impact of of much newer customers, who would be very small revenue in the last couple of quarters, but we were expecting to ramp significantly. So if you think about the way our business works right. Once we sign a deal it might take a customer.

Six months two to connect to the platform and then.

Anywhere from one to three quarters to really ramp their business to scale before it gets it starts to hit a nice run rate and what we're really saying is for those newer customers. We don't think it's going to be a one to three quarters it might take longer because they are not going to invest behind it like they have in.

The past and so it could have some implications for 'twenty three but right now I would say minor unless we really go into recession and things.

That investment not doesn't become a pause but becomes more of a permanent decision, but right now what we're hearing from customers is that everybody is a little bit in a wait and see mode, or they're saying well I'm going to invest but less than I was originally planning and so I might ramp over a longer period of time at this point, we don't think it has.

<unk> implications for 'twenty, three but obviously, we will see what happens over the next couple of months and that will be a bigger determining factor.

Yeah, it's Sanjay so.

Being transparent as is a core tenet I was actually one of the core tenants when I started the business.

I felt really strongly about.

Telling what our plan is today because they felt it just it will allow us really to attract select and hire the best CEO possible. So the next stage is really as we begin to diversify our business, we head into more geographies, we add more products and features and functions.

To start the succession process now and get sort of way ahead, which is even more complexity in the business in the coming years I thought was really the right thing to do right thing to do for the business and I felt as I mentioned, it's kind of like my duty as the founder and CEO to make sure that we're setting ourselves up for success in the future and I want to.

That.

As the chairman founder and largest shareholder in the business. So as I think about what's next in regards to the.

The attributes of this person.

It's really experience experience running.

A large public company or being involved in the executive team of a large public company.

Understanding the complexities of running a business like payments.

We're really seeing around corners, and whats next and for me too is I love our people I love, our products and I love our customers I can be far more effective.

By focusing on those three things and not focusing on the day to day.

Duties of running a public company, if I can work with somebody and full support of them to go really built for the future with those attributes with that expertise of running that type of business at scale like Marchetta, then we'll all be successful in that in that in that process. So that's really comes down to as far as the attributes.

But I thought the transparency was really important because that really allow us to have really open conversations with a whole host of people out there and I think theres a lot of great people out there who would be very interested in being the CEO of an amazing business like Mark had and I'm really looking forward to having a lot of those conversations in the coming weeks and months.

Thanks I appreciate it.

Some of them.

Yeah.

The next question, we have is from Ashwin <unk>.

Thank you.

Thank you.

Hey, Mike.

Jason Hey, Jason Happy for you that you have the choice to do what Youre doing.

That's great.

Thanks.

Hey, so.

<unk>.

Because you mentioned sort of.

The pacing of client decisions.

And making them and things like that but I just want to get more color on a couple of different lines. One is.

Would you expect sort of more traction, we'd say powered by or managed by.

In terms of you said offerings and then the second thing I wanted to ask is.

Maybe younger smaller fintech.

Being more about cash flow and stretching out their ramps, but you do have a <unk>.

Large component.

Clients, such as block Jpmorgan Goldman.

That don't necessarily worry about that.

I wanted to kind of clarify.

How widespread the concern or caution is.

From your perspective.

And so maybe I'll go first and then.

Jason might have something that I think ashwin youre hitting on.

A great point the caution we're seeing is from.

Newer customers, mostly in the Fintech space, who.

Our again, our are saying I'm going to I'm going to wait and see give me a month or two to see how this plays out.

And but we actually believe just like Jason touched on in this environment. It gives us an advantage as a potential partner.

We have the scale already and the sophistication and we have the liquidity to continue to invest I think the same opportunity exists with our customers. We have several large customers as you mentioned who are already at scale whether it's.

Someone like cash app or in the NPL space or expense management.

And they may find that this is a time for them to get a little more aggressive and maybe take some share as some of the smaller upstart who would have been investing heavily may not be to the same degree so.

It's very possible that that's how this plays out.

And again just all of this is so new we just in the last month or two that's why we just want to keep reiterating we sort of are trying to be cautious here based on what we're hearing but how it will play out as.

I guess remains to be seen over the next couple of months.

Yes, I would I would echo Mike.

Depending on who you talk to the myriad of experts out there they cant tell us whether in a recession not in a recession, obviously in the startup landscape.

A lot of the VC money has dried up and its dried up in dramatic fashion. So a lot of these companies are just focused on their core products at that core product of the card.

Bet on market that we have a very strong financial position massive scale. We operate in 39 countries. So as companies are thinking about right now about the card they're going to build whether it supports their core business or is their core business.

We believe it's going to be with Mark and then two as we power a wide range of business models.

Across both consumer and commercial businesses I mean, that's been our go to market strategy since day, one which is commerce disruption digital banks large tech Giants and then large financial institutions I mean interesting stat. We found was that roughly one sixth of the volume on our platform.

As for highly discretionary items.

Electronics travel home improvement entertainment.

Consumers are still spend money on things like grocery gas and other other essentials. So.

We believe we are the go to platform. We invented this category cause modern card issuing we believe now is the time for really to invest and hire into the into our business and allow our customers to really spread our wings, but again.

I just don't know what's going to be happening. We're just taking a cautious approach like our customers are but we're in a lot of healthy conversations with them and where they want to invest and where they want to go and we believe we are obviously very well positioned to grab their business in the future as things change and there is more clarity in regards to the broader the broader macroeconomic market.

Got it.

Quick clarification square, 69%.

If you remove after pay.

To comment.

And sort of apples to apples.

We can use to me.

With and without <unk> I don't know if you are.

Yes.

Yes ashwin.

This much as usual so yes. After pay is the factor it was only in two months four last quarter and its and for the full quarter. So that is one of the one of the factors.

The factor is just really strong cash app engagement and you heard them talk a little bit about this last week, but.

They're seeing strong engagement in part due to more inflows from tax refunds. So it really is about the strength of AV block and not that are all other customers are slowing because that's not really the factor here and as we've always said when it comes to this concentration. We obviously think it will go down.

Over time, but we don't want it to go down because block flows right. We want it to go down because.

We're very successful diversifying our business.

Our customers outside of our top five <unk> this quarter grew more than four times faster than our top five so we are growing quickly.

And diversifying by it.

Block.

Not only acquired a company that we already had a strong relationship with but they're just really executing well and thats, causing the percentage.

To increase on our on our side in terms of a revenue concentration.

Yes.

Got it thank you.

The next question, we have is from Timothy <unk>.

Thats it.

Excellent. Thanks, a lot. So I think we've covered a lot of the main topics pretty well. So I want to go to something thats more of a product topic, which is around secured credit cards. So chime a large neo bank has had a lot of success with a secured credit card and I wanted to see if you could maybe talk around your capabilities there either an offering you might either have or could offer.

Or to either your existing neo bank customers or potentially bring on new Neo bank customers and then the sub component to that is maybe you could just talk about the complexity associated with the secured credit card relative to a regular credit card in other words would you be able to do the program management right upfront for <unk>.

Secured credit cards, maybe slightly more similar to debit.

Maybe not so.

Yes.

We'll sort of so a secured credit card allows the consumer.

Humor to actually build credit with that card.

Were making assumption they don't have credit to actually go build that credit so they.

It's basically a two pronged approach to help a consumer which is a secured credit card as they put say $500 or a $1000 upfront and then build credit by spending that money over time, it's a fairly.

Straightforward way of people, who have no credit to basically go and build that credit.

That is a.

A line item I would say on our product roadmap.

Like any great technology company, we'd love to go Chase all the opportunities out there in China has done an amazing job and then Chris is a great leader and they built a tremendous business for now our customers are not asking for this.

And we see it in regards to future is yes, it's something that we think is important it's something that we may invest in as I mentioned, it's a line item on our roadmap, but for right now it's something that's not strategic in.

In the present to all the things you wanted to do especially within credit.

And then focusing on the companies whether it's.

Disruptors.

Digital banks Tech Giants and large large financial institution. So I liked the product, it's just not something that we've thought about investing in today.

Okay excellent. Thank you for that all of that context I appreciate it.

Youre welcome.

Sure.

Thank you. The next question, we have determined Bob Napoli from William Blair.

Thank you and good afternoon, Jason always knew is a serial entrepreneur good metal.

Gold medal winner for sure.

It should be.

Good luck to you.

Thank you.

One thing we haven't touched on is a key focus for you is international.

And I was just wondering if you could give an update there on an international and you do have a large war chest.

Some of these fintech from a lot of some of them are international.

We are hitting the wall a little bit from a liquidity perspective, maybe.

Is that a mark.

<unk> will use its balance sheet too.

Add to its portfolio if you would.

Yes, so I think there is.

Yes.

There's two questions. There I think one is it's about international so so we definitely see.

A very strong appetite for Mark Hurd as modern card issuing platform globally, we talked about a couple of things in our prepared remarks, our partnership with Western Union Western Union is a very large established money movement company leveraging our innovative platform in Europe .

After years of strong traction and growth in Europe , we have great momentum and a growing reputation in the market get a meaningful size operation on the ground in Europe as well and then also we've talked about is partnering with Mastercard in Australia at the power of the launch of <unk> plus for transport, New South Wales.

This is a very innovative use cases on our platform.

Transport vertical and this is this is this partnership is one of market of first in the trends of vertical showing the flexibility of our modern platform and the ability to support new use cases. So we are actively laying the groundwork to launching many new markets. Our approach to those new markets will mirror approach in building our U S business. So.

And our customers do we have a lot of customers in the U S that when we go internationally a true benefit of our platform as you integrate once and you can launch anywhere and we think that's really important as our customers decide to.

Focus around the world so.

Going to like investment strategy I.

I think number one is and I said this a couple of times is like we are hiring.

We are investing more in the platform, we're looking to build out more features and functions based on where we think the world is going and where our customers are telling us that we want to go and then we also see great opportunity within the M&A space, So because of where we're at today and the sort of the.

Environment and companies are.

And a lot of companies in Fintech I mean, this has been published over the last couple of years do you mean, the amount of investment flowing into.

Fintech as head spinning.

And they are broken down a lot of different pieces theres a lot of great companies out there that are relatively small that could be very strategic to mark. So we have been actively as a corp. Dev department doing looking at re scoping out like what is out there and how can we not only increase our roadmap, but add new features and functions to our <unk>.

That form that allow us to grow expand and build even deeper most intolerable walls around our technologies. So we're pretty excited about what we're seeing out there and obviously more to talk about here in the coming quarters as we begin to execute on that plan.

Great. Thank you appreciate it.

Youre welcome.

Thank you. The last question, we had Andrew Jeffrey from <unk> Securities.

Hi, Good afternoon I appreciate you squeezing me in.

I appreciate all the color also on the vertical performance, Jason you highlight western Union as a new customer I Wonder if you could comment more broadly on.

Cross border aspirations thinking about some of the Treasury management or.

Cross border.

Capital providers companies like <unk>, just generally is that an area that you think offers fertile growth from our Caddo overtime.

Well, specifically day local as an acquirer mostly out of.

South America, I mean, we don't necessarily focus on the acquiring side of payments ecosystem.

Thousands of companies that we've talked about in that space. There is a few hundred within issuing and processing is just orders of magnitude more complex and then as customers like <unk> and others, especially in the expense management space began to spread their wings globally. This is as I pointed out several times as a real value proposition of what we provide.

And this is a core tenant of how we go and build products, which is we want you to be able to integrate once and then launched anywhere versus the legacy providers. They might have a dozen different systems that you need to integrate with in different parts of the world. So on the international.

Strategy when we go out and we talk to companies, especially scaled companies that are looking to grow internationally. This is something that we really really talk about I mean, we've announced that we're in 39 countries today.

We operate businesses all over the world customers are building in Australia coming to the United States, United States to Australia, Australia to Europe .

This is really core to our platform and our customers are just increasingly relying on our global functionality of our platform and we see international markets is really a driver of our long term growth. So we'll continue to invest in those areas as these companies want to.

Build more in our platform and I think we don't talk about this enough, which is just simply lowering total cost of ownership.

To go integrate with a dozen different platforms.

As a provider is very very expensive. So when you do it once that total cost of ownership or that soft dollar cost impact to your business is significantly less with marchetta than anybody else.

If I would add just one thing Andrew I think that as we look to continue to expand our money movement capabilities. So.

Even today, obviously, we do more than just card issuing we support a lot of more banking as a service and money movement capabilities and as we continue to expand those.

Certainly some of those opportunities will be in cross border and that is something I would say that we're seeing we definitely are thinking about in the coming years.

I appreciate it thank you.

Thank you, Sir ladies and gentlemen, we have reached the end of our question and answer session I would like to turn the call back to Jason Gardner for closing remarks.

Thank you everybody as always I appreciate everyone's time, especially joining us for this call very much looking forward for the updates in our next quarterly call everyone stay safe and have a great rest of the day. Thank you.

Okay.

Yes.

Thank you, Sir ladies and gentlemen that then concludes today's conference. Thank you for joining US you may now disconnect your lines.

[music].

[music].

[music].

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the market the second 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.

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

Go ahead ma'am.

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.

K for the period ended December 31, 2021, and our subsequent periodic filings with the FTC actual results may differ materially from any forward looking statements. We make today. These forward looking statements speak only at the time of this call and the company does not assume any obligation or intent.

Updating 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 a 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 todays call are Jason Gardner Marquette, its founder and CEO and Mike Mel attached or Cabot's 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> second quarter of 2022 earnings call.

I'll start with an overview of our results for the quarter and then I will discuss an update on our three strategic priorities.

Total processing volume or <unk> was $40 billion in the quarter.

Representing a 40% 53% increase.

In alignment with the rise we posted in the first quarter. The scale of our platform continues to increase dramatically our PPV for the three months ending June of 2022 exceeds our TCE for the 12 months ending June of 2020.

Our net revenue of $187 million in the quarter represents a 53% increase from the previous year.

The main drivers of growth throughout 2021 and into the start of 2020 to continue to propel our business payment habits that gained traction during the pandemic are still popular with consumers and driving our topline growth, including digital banking buy now pay later and on demand delivery.

Expense management continues to scale as businesses look for efficiencies and business travel returns.

Block accounted for 69% of our net revenue up from 66% in the first quarter with after pay included in the entire quarter and cash app volumes continuing to grow meaningfully post tax season. This percentage represents a decline in concentration from 72.

Percent of net revenues in the second quarter of 2021.

PPV from customers outside our top five grew at three times the pace of our top five customers the revenue associated with customers outside the top five more than doubled compared with the comparable quarter of 2021. This continues to be a testament to the impact of the market of platform.

And enabling business growth for our customers.

We have again made significant progress on our three critical growth pillars in the quarter fueling our customer success broadening the ways, we support our customers increasing our global platform is resiliency reliability and scalability first and foremost we won our customers too.

Succeed we are always looking to support our customers' businesses as they grow and diversify revenue.

<unk> their revenue streams.

In June we announced our partnership with Western Union, a global leader in cross border Cross currency money movement and payments in Europe , demonstrating again, the appeal of our offering for established market leaders looking to innovate at scale.

<unk> monitoring card issuing platform will allow funds held by western Union's digital banking customers to be available via a physical or virtual debit card. This will enable western union to extend its relationship with its customers with additional flexibility to rollout new features and deliver a wide.

<unk> of digital banking services.

We look forward to growing our partnership with Western Union, we see at scale and commitment to digital banking innovation as a strong match from our cutoff.

We continue to leverage an innovative ecosystem of partners to unlock value for our customers businesses last October we announced the partnership with our customer branch to power faster payouts for Uber freight carriers, serving as a connection between our customers to help powered net new payments innovation after.

<unk> successful launch we have shown the potential for what we can build together and are excited to work alongside branch to support the launch of the <unk>.

Probe card for drivers, we see the combination of market as monarch card issuing platform and branches digital wallet as a natural fit to bring faster payments and flexible rewards to yogurt drivers.

Enabling brands to unlock this innovation is another excellent example of how Mark had a added value for a customer of Uber scope as they launched new car programs with us across the breadth of their business.

Providing customer support our second focus area means expanding the market a platform to support our customers with new products services and geographies Marchetta initially prioritized debit and prepaid innovation to help commerce disruptors bring new offerings to the market ushering in a wave of innovation for these car types.

Credit, which represents the other half of total card spend and the market has not yet experienced the same amount of monetization.

Given the massive opportunity to modernize credit this was a logical step for our product roadmap.

Our goal is to enable our customers, leading fintech consumer brands and banks to offer their end consumer experiences that are currently unavailable. We initially launched our credit platform in 2021, allowing us to support any car types through our modern card issuing platform and we recently launched more than 40.

New credit Apis, which will power innovation and credit and enable our customers to more quickly design test and launch new card experiences.

Our flexible rewards engine allows our customers to create programs that re imagine hyper customize reward based on merchant category spend and various cardholder behaviors. For example, our customers can offer instant gratification to their end users by supporting the ability to provide rewards as soon as the transaction.

Action is cleared rather than at the end of a billing period.

Our customers can now provide their users with an instant credit decision via Marquette is API connection to <unk> Decisioning engine in other words when a user applies for a card they will get a decision instantly rather than waiting days for the bank to access their credit history. This encourages users to apply and start using their card.

Immediately helping card programs cement covenant top of wallet status with their customers, we have deepen the capabilities of our credit platform and that in turn has deepened the experiences that our customers can create.

We are also broaden the verticals, we support by expanding into transit for the first time recently, the new South Wales government in Australia announced its commitment to upgrade its transit card system. Our <unk> was named a payment processor of choice for <unk> plus the new transit program for transport for New South Wales and partnership.

With Mastercard.

The result will be a mobility as a service app, allowing subscribers to plan book and pay for a tailored community experience directly from their mobile devices. This deal is another example of our platform's adaptability to service an ever broadening array of use cases are.

Our third focus area, increasing our global platforms resiliency reliability and scalability is critical given the increased demand and placed on our platform year over year with exponential growth.

Significant area of investment we want our platform to keep pace with our growing customers to also provide strength and support for our customers' future business goals and innovations.

Our resiliency at scale is a key differentiating factor when customers choose the Marquette a platform uptime and latency are of the utmost importance in our business. We have delivered at least for <unk> across all of Mark Hurd as customers weekly. This year. This is even more impressive given that our.

Volume increased 50% year over year.

We also worked diligently in the first half of 2022 to bring faster API connections to our customers and partners to improve their platform experienced further.

As a result of scalability and resiliency improvements made in May we saw our API latency improve up to 60% across all endpoints and the Marquette a platform in the following months in conclusion, our Q2 results demonstrate the increased breadth and depth of the Marquette platform, we continue to.

To enable this digital disruption and modern muddied movement with a base of customers who work on the cutting edge of payments. We believe we are the go to choice for payments innovation at scale when paired with our solid financial footing, we are very well positioned to capitalize on the market opportunity in modern money movement.

In the coming years.

I will now turn the call over to Mike. Thank.

Thank you, Jason and good afternoon, everyone.

We had a great Q2, with TBD and net revenue growth of 53%, which is in line with last quarter.

The strong net revenue growth was broad based with 20 of our top 30 customers growing at least 40% and the customers outside the top 30 as a group growing much faster.

Gross profit and adjusted EBITDA margins were above our expectations as a result at 42% and negative five 5% respectively.

The net revenue and gross profit outperformance was primarily driven by three factors, where our results exceeded our expectations for the quarter first hire TBD across customers of all sizes.

Higher net revenue take rate due to favorable volume mix, both in terms of merchant mix as well as pin versus signature debit mix.

And third more robust usage of additional services not directly tied to TPB such as card fulfillment.

Favorable volume mix and additional services also lifted the gross profit margin since they don't drive a corresponding increase in our cost of revenue.

Adjusted EBITDA also benefited from timing delays and.

And hiring and investments, which will push a few million dollars of expenses into Q3.

Let me provide more color on the items that drove our quarterly results.

Q2, <unk> was 40 billion growing consistently with last quarter at 53%.

Growth accelerated in expense management and on demand delivery offset by tough year over year comparisons in financial services and the NPL that were helped by the U S government stimulus in March of 2021.

Although TPB growth was similar to Q1 overall it did differ on a category basis.

In categories that are less discretionary such as supermarkets, drugstores fuel and utilities, which make up roughly one third of our Q2 TBD growth accelerated meaningfully versus Q1 and.

And more discretionary categories, such as retail travel entertainment and home improvement, which make up roughly one sixth of our Q2 TBD growth decelerated significantly from Q1.

While Q2, <unk> growth and highly discretionary categories did decelerate it is still growing more than 15 points faster than medium and low discretionary categories.

Let me also highlight <unk> performance in our top verticals.

The financial services vertical continued to grow strongly.

Slowing only a few points from Q1, despite tough comps due to stimulus and delays in the tax season last year.

Spending and less discretionary categories grew more than twice as fast as medium and high discretionary categories in this vertical.

On demand delivery accelerated by almost 10 points due to increasing consumer demand and our customers expansion into new merchant categories.

Lending, including buy now pay later is still growing very fast but growth did fall below 100% for the first time this quarter as we begin to lap the incredible ramp and be NPL spending last year.

The robust growth is driven by both consumer and merchant adoption and usage.

Actual TPB this quarter exceeded Q4, 2021, which obviously benefited significantly from holiday spending.

<unk> expense management TPB more than tripled year over year again, this quarter with eight of our top 10 customers growing over 100% spur.

Spending growth is highest and more discretionary categories fueled by the rebound in travel.

Net revenue was 187 million and grew 53% in the quarter in line with TPG growth.

Our net revenue take rate was in line with last year, but improved one bit versus last quarter on.

On a sequential basis, the improvement was driven by favorable business mix and strong growth and additional revenue streams not directly tied to every dollar of TPB such as card fulfillment <unk> services dispute handling and cross border premiums.

These benefits were partially offset by the impact of powered by marchetta TBD growing faster than the rest of the business.

As a reminder, in our powered by Mark header business, we primarily have a processing relationship with our customers. Therefore, the take rate is typically lower than in our managed by Markel business.

Gross profit grew 66% 13 points faster than revenue due to a combination of factors.

In Q2 last year, we had unusually high network fees, creating an easier comp.

Contract amendments in Q3, 2021 reflected our increased scale, therefore fees to our bank partners are growing significantly slower than TBD and network incentives are growing a little faster than GDP.

We will start to lap these benefits next quarter.

While powered by marchetta, increasing its share of PPV negatively impacts the revenue take rate it.

It does not have the same impact on gross profit because the powered by marchetta gross profit take rate is similar to many of the verticals and are managed by market a business loss.

Lastly, the favorable volume mix and stronger usage of additional services also contributed.

Our Q2 gross profit margin was 42%.

As a reminder, Q2 is typically our lowest gross profit margin quarter due to the timing of our network incentive contracts.

Q2, adjusted operating expenses were $88 million growing 53% roughly.

Roughly two thirds of the growth comes from increased technology and product investment focused on broadening our capabilities and increasing our platform's resiliency reliability and scalability.

About 45% of the growth is driven by technology and product head count.

And about 20% is cloud and software tool related expenses.

Go to market head count both business development and customer support drove approximately 10% of the adjusted expense growth.

Costs associated with becoming a public company such as insurance and audit fees also drove approximately 10% of the growth.

This should not be a driver of future expense growth as we will be lapping these costs going forward.

The remaining 15% to 20% of expense growth is mostly driven by all other head count related increases and support functions.

Because so much of our adjusted operating expenses are head count driven or tied to business growth VR cloud costs, we consider only a very small portion of our expenses to be discretionary.

Therefore, we tried to be both thoughtful and thorough in our investment planning.

Adjusted EBITDA for the quarter was negative $10 million, resulting in an adjusted EBITDA margin of negative five 5%.

We had positive free cash flow this quarter, both in actual terms as well as when you consider the amortization of expense for a significant annual cash payments that may occur in other quarters during the year.

Q2, GAAP net loss was $45 million.

Now, let me share our perspective on the full year.

Our business has significantly outperformed in the first half of the year.

Many of our top customers expanded their business into new areas with us and are defying the tough comps driven by government stimulus early last year.

Smaller customers across several industry verticals and geographies are utilizing our capabilities with great success to expand their businesses rapidly.

While our top 10 customer CTV grew about 40% in the first half which is excellent given our size our remaining customers grew nearly four times faster.

We are also getting more traction with additional services, we offer such as card fulfillment authentication and dispute management. All of these factors are helping to diversify our business.

As we look ahead to the second half of the year given the current macroeconomic uncertainty as well as fintech specific challenges with significant declines in valuation and increasing difficulties in raising capital. We feel it is prudent to be cautious about the next several months, many fintech or being less aggressive about their investments and expansion.

Therefore, our expectations for the second half of the year remains unchanged from when we last spoke in May.

Many of the tailwind that drove our first half upside should continue.

However, we also believe that many of the customers signed in the last 12 plus months as well as crypto customers will ramp their businesses more slowly than we expected a few months ago.

Because these are newer customers ramping up the impact of less investment by our customers and their programs is more significant in Q3 and Q4 than it was in the first half.

Our Q3 quarter to date performance is consistent with this perspective.

As such we expect Q3 net revenue growth to be between 36% and 38%.

In addition to lower contribution from new customers the growth is lower than the first half due to much tougher comps, particularly in the NPL and expense management, where those verticals, we're ramping significantly last year.

Q3 gross profit margin is expected to be in the 43% to 44% range consistent with the first half.

Q3, adjusted EBITDA margin is expected to be negative 8% to 9%.

This should be our most negative margin quarter.

The expense growth will be driven by planned investments shifting from Q2 to Q3 continued hiring particularly in our technology product and go to market teams as well as a charge tied to international processing.

We reduced our hiring plans back in February when the macroeconomic warning signs were already evident and we intend to continue with that revised plan.

Our expectations for the full year 2022 have improved a little as a result of our outperformance in Q2.

Since we are more than halfway through the year. We can also be more definitive about our expectations.

2022, net revenue growth is expected to be 39% to 40%.

<unk> stepped down in Q4, as we lap the incredible formats in Q4 of 2021 when year over year growth in dollars was almost $15 million higher.

$15 million higher than the average of the first three quarters fueled by robust holiday season, and the NPL growth.

Full year gross profit margin is expected to be 43% to 44% consistent with the first half and Q3.

2022, adjusted EBITDA margin is expected to be negative, 7% to 8% as adjusted expense growth steps down from Q2 to Q3 and again more significantly from Q3 to Q4.

In the future we remain confident.

The business will operate at a 20% plus adjusted EBITDA margin once we have captured more of the market opportunity.

To wrap up Marchetta had an excellent Q2 to cap off a strong first half of 2022 as we continue to have success scaling the business. We had almost 20 days in Q2, where we process over $500 million in CTV.

We continue to diversify the business with new products services geographies and use case verticals, while maintaining our net revenue take rate and gross profit margins. Although we are cautious about the coming months given the level of macro economic uncertainty and the implications for our customers. We are investing prudently in the growth to ensure we capture the modern money movement.

Opportunities ahead of us.

I'll now turn the call back over to Jason.

Thanks, Mike My highest aspiration from our Canada is to fill it fulfill our vision to finding empowering the future of money movement for the world's leading innovators.

Wildlife succeeded in leading <unk> to its present state as the founder and CEO to maximize the next stage of growth as we diversify the business and the capabilities, we offer and the geographies. We serve we wanted to be very proactive and begin our succession planning process by looking for the next CEO to lead Mark.

Hi.

I always knew this time would come when we went public in 2021 I promised to hand leadership to the best person at the appropriate time after thoughtful consideration of what the next phase of growth for require have concluded that now is the time to begin to search for this person.

We will search for a CEO with deep experienced scaling an innovative high growth business.

Led market up from zero to one and soon it will be time to pass the baton to the best person to lead it from one to infinity.

I'm sharing this with you because I've always valued thoughtful transparency and because this transparency will allow me and the board to attract.

Left and hire the best CEO to drive even higher levels of success for our customers.

<unk> and shareholders. Once we hire the next CEO I will become executive Chairman as executive Chairman I plan to spend my time in the three areas I can contribute the most our people our products and our customers I am entirely committed to mark header and our overall success forever.

Along with the CEO succession plan <unk> Peters, our Chief operating officer is leaving the company with video has contributed greatly to the company over the past three years and we wish her only the best in her future pursuits, Simon class, our newest executive and our Chief product officer will assume videos.

Go to market responsibilities on an interim basis, and we will begin a search for a chief revenue officer, Simon joined Markel from Twilio for he led their core communication products, including the messaging sales organization focused on strategic accounts I'm as excited as ever about the massive opportunities.

<unk> heard from our cut at and very confident we're on a path to sustainable profitable growth.

Firmly believe that these changes will help maximize customer employee and shareholder value with that I will turn it over to the operator to start Q&A.

Thank you Sir.

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

Please note participants are limited to one question.

If you would like to ask a question. Please press Star then one now.

Formation tone will indicate your line is in the question queue.

You May press Star and then two if you would like to move your question from the queue.

For participants using speaker equipment, it may be necessary to pick up Johan before pressing the star teams.

The first question, we have is from Tianjin Guang.

<unk> from J P. Morgan.

Thank you. So thank you so much Jason I appreciate your comments there on the succession sound quite at peace with that and I admire you for that so I just wanted to say that upfront.

If you don't mind.

I wanted to ask about we got a little bit of a scare from Fas when they talked about working with.

With the cash card.

Block.

On the network side, So would you mind, just commenting on if there's any implications to Mark Canada, and if theres any update on the relationship in general and the timing of the renewal et cetera, given what's given the scale that we can.

Yes.

Thanks Sanjay.

No implication for a market that was just.

An unfortunate thing that was said and it doesn't affect the cash card or our relationship specifically with block.

Issuing processing is an incredibly complex industry, you know that and we work very closely with block to provide a wide variety of services and support to fuel their growth and just as a reminder, we have multiple contracts with block and after pay that go throughout 2024. Our relationship has only grown since we started working with cash App, we have provide a wealth of.

Services to block across our platform so to so to point those out specifically within cash App, it's direct deposit ATM cash App card <unk> card and on a seller card.

Is <unk> in the U S and Canada and Bank account services and obviously, we power after base. So we're very uniquely positioned to power. This business. While legacy processors are not market. It was built for developers we're built for innovation our cloud base.

Single platform. So you integrate once you can launch everywhere and everything is in one place. So we're very very flexible with regards to how we can support not only block, but really all of our customers.

You also asked about the renewals so we understand that the market is eagerly waiting a renewal and we'll share updates when we have them.

As everyone knows this is a critical relationship for both block and Mark <unk> and our two companies worked closely together in service to our important relationship.

Perfect I appreciate that you have the floor.

The next question, we have is from Marina Kumar from UBS.

Hi, Thanks for taking my question.

You mentioned that you have some investments than we from Q2 to Q3 could you specify what types of investments. Those are if you are a top priority of investment for 2002.

Thank you Sir.

So it's really just the timing of some technology related investments as well as the timing of hiring. So we we have a lot of pending starts.

So they're just people who.

Then hitting the P&L in the second quarter, but are about to start and so it really is as simple as that the focus of our investments. This year are really I would say three primary things and most of it is almost all geared around product and technology. So one is just the increasing the reliability and.

AMC that Jason touched on in his remarks.

<unk> is continuing to expand our credit capabilities and launching with more and more customers, which again, Jason also highlighted and then the third area is expanding our banking as a service like capabilities. So more cash in cash out money and move money out type capabilities.

In support of our customers is we're just finding more and more of our customers and potential customers.

Our.

Some aspect of a neo bank like.

Aspirations in their business, where they're taking deposits of multiple forms and then want to offer their customers flexibility to use those in different ways and so those are really the three primary focus areas of our investments. We're also investing in addition, additional go to market resources.

<unk> sales in North America, as well as Europe , but.

But I would say the bulk of it is mostly geared at product and technology.

Very helpful.

Just touching on your credit platform announcements you mentioned.

<unk> new credit API do you expect that to help Mark had a gain traction with more traditional financial institutions and any key milestones we should watch out for.

Yeah. Thanks, Ryan so given the massive opportunity to modernize credit versus a consistent investment in our in our product roadmap and you are right as we recently launched more than 40, new credit API really enables our customers to more easily design test and launched new card programs and then two obviously the aspects of the <unk>.

Pat I was really the flexible rewards engine and the newly announced instant credit Decisioning.

Also recently announced the Greenlight family card, which is an expansion in our F&B <unk> relationship. So let's say we're still in the early days of our credit journey, but it's important for us to build.

Trust within that within the space and then when it comes to large <unk> progress.

They want similar capabilities to the Disruptors and making them really a great potential partners from R.

Our level of engagement there has increased.

<unk> typically have long standing partnerships that will take time for our established ourselves our goal with these programs to get our foot in the door and expand over time and then we can help them in areas that we want to where they want to be more innovative. So currently revenue is not a big driver of our growth I mean really the platform puts us in a great position.

<unk> looked at builds for the future and we can do this faster.

We can do this with a shorter time to market for our for our large Fi anything most importantly, lower total cost of ownership to our to our highly configurable.

<unk> based platform, so while making inroads will take time and these sales cycles with the large <unk>. We're encouraged by the fact that these conversations have increased greatly over the last year and many of them specifically around credit and other issuing processing capabilities and mercado.

Alright, thank you.

Welcome.

The next question, we have is from Darrin Peller from Wolfe research.

Hey, guys. Thanks.

When we look at the actual results this quarter they were very strong across volume.

Gross profit really it underscores the trends you are having with your core customers.

As you mentioned, but what's interesting is when we hear your guidance. It really does imply an element of conservatism that doesn't seem to be showing up in the data from the past quarter.

I guess first of all are you seeing anything in the current trends themselves in terms of a change in behavior from your current customers or are you just trying to be conservative given what you're hearing and what we're all hearing about it in the market about different end markets you service.

And then more importantly, if you could just give us a sense of what are the top couple of verticals that you are really most excited about having sustainability.

<unk> management has been one obviously.

I mean theres been a handful of really great New places you've got so if you could just give us some color. Thanks.

Yes sure Dan.

Yes, it's still where we are.

Not being I guess, conservative, which assume that where maybe sort of being.

A little bit biased I would say, we really feel like we're being cautious and sort of.

Really assessing what's happening in the market and sort of pausing for now to see how it plays out so it's not anything specifically in our numbers it's more of that.

We are.

Hearing from some customers. So we really have two types of customers. If I step back there are customers, where our card value proposition is sort of integral to their core business and then we have customers where they are using the card program more four and increase engagement and maybe an additional monetization play.

And what we're hearing from some customers as where it's core to their business there were areas, where they were maybe going to launch another.

Another product with us or expand to another geography, and they're saying I'm going to I'm going to pause and wait a little bit and see what happens and then customers where it's more of a monetization play.

And maybe not central to their business. They are saying well, we're scaling back on some investment and a lot of that is going to be directed at the core business and not some of the additional new things, we're going to try to do so it's not broad based yet, but we have heard it from a few customers and so we really just want to be cautious right now and then certainly we.

Did expect.

A decent amount of growth from these newer customers as I mentioned, so people that have signed in the last 12 months or so as well as some of the new crypto customers. If you went back a few months, we were really expecting.

Nice ramp on those customers similar to what we've seen in the past.

What we now feel is going to happen is it's going to move a little bit more slowly as people are not going to invest quite as much in the launch of their programs because the lunch.

New card program typically requires a good amount of upfront investment to drive that usage and so that's really what we're cautious about is to see how it plays out over the next couple of months and.

Hopefully the the pausing that where may be hearing from some people will pass and and.

We will get back to performing as we have earlier.

Earlier in the year.

Only other thing I would point out about Q3 Darrin is just that.

If you we just have some very tough comps as well and Thats. The reason for the lower growth so be NPL. If you look back at last year.

Q4.

Revenue was higher than all of the first half so higher than Q1 and Q2 overall last year. So that's a tough comp and expense management divvy flip their business to us from a competitor and that started in late 2021 and sort of scale through the first half. So it was sort of full blast. If you will by the second half and so.

Those are just some of the factors that are informing our guidance.

That's really helpful. Jason just one quick follow up I mean from all the deals you've been winning it does seem like you guys are pulling ahead of even even the issuer processor competitors out there that we wish we would hear more about a year ago, Let's say I mean are you seeing any real changes from a competitive standpoint, where it's you've pulled ahead of the pack in some ways or any other nuances. Thanks guys.

Yes, so we have a proven scaled platform and are in a very strong financial position to continue to invest so in regards to kind of a small folks that you referred to I mean, we have significantly more experience and scale. These competitors arent, even close to the same proven track record that we have.

To win large volumes, we need to be able to show both I mean, we've had 20 days.

20% of the days in Q2 of 'twenty, two we processed over $500 million in PPD.

It's an average of more than once a week market is taking companies from startup to enterprise. We have involved early with household names like door Dash is the card block multiple BNP bell players when customers are choosing critical platforms flash partner experience and expertise will matter, so running their core operations or <unk>.

Canoe generating businesses on our platform, we have first mover advantage in modern card issuing but also say specifically within issuing and processing.

<unk> competitors may need to start preserving cash to extend runway, we have $1 7 billion in liquidity or cash flow positive in this quarter, we can invest in our platform and maintain our financial position. So we are hiring we're going to hire the same amount of people. We did in 2021, we're investing in product.

We're investing in technology are spreading our wings, even further and allows us basically because our scale our size our expertise in liquidity really make us the preferred partner for companies seeking modern card issuing.

Great Alright, thanks, guys.

Yes. Thank you.

The next question.

Angie <unk> from Barclays.

Hi.

Okay.

Yeah.

Elaborate a little bit on on your rationale.

Hi.

Kind of transitioning right now.

Out of out of the room.

I'm just.

Curious as to sort of what is that.

Maybe.

Hey, Ramsey.

Real difficulty trying to hear you.

You talked about transition out of let me, let me traditionally is that any better.

Much kind of harsh better sorry, my apologies.

Wanted to ask Jason to elaborate a little bit on the reasoning for transitioning out of the CEO role at this point and maybe any commentary on what the future future plans might be.

Just curious sort of the timing and the reasoning.

Yeah.

Yes basically.

Basically came down to when I kicked off a succession planning process I recognize that will be a better CEO to lead <unk> at this upcoming stage of growth I mean, really I am not the best person to execute active upcoming stage of growth.

I am just getting way ahead of this and really this is what is best for Mark Hurd and being proactive in the decision, making looking at the future growth and how the business will become more complex as we diversify.

And Ramsey to be clear.

And starting our succession planning not leaving the CEO job for several months at least and then still be very active as executive chairman.

I would say too is that in.

Entirely support Mark Hurd as executive Chairman once we hired the CEO and all.

So that's like in the past few years I've come to realize that I'm a pretty good entrepreneur.

Gold medalist a professional athlete when it comes to building our business and in the time since we've gone public. We have also become to realize that I am not the best person to execute at this stage of growth I want to hire the best person for this stage people products and customers is where I am going to spend my time and my scale on that.

Half of Marquette, our customers and our investors.

<unk> committed to this company's success. This is where I will be the best from our Canada and we'll benefit from the focus is on.

Entrepreneur Mark Hurd as my Baby my youngest child care deeply for it its founder and largest shareholder.

So it's my duty as the founder chairman and CEO and largest shareholder to make the best most prudent decisions and service to Mark Hurd, our people, our customers and our and our shareholders.

I appreciate that that's a great and honest response.

Thank you maybe I can maybe I can ask a quick follow up then which is on the additional services, meaning the service is not tied to PPV can you give us a little more sense of the opportunity to kind of expand that part of your business and for that to become kind of a bigger long term driver when we think about how.

Revenues will trend over time.

Yes, sure so the where.

Where we're seeing the benefits there Ramsey is is just the deep expertise and the scale with which we can do things on behalf of our customers, particularly if they are newer to the space.

It's just.

Would much rather buy those services from us where not only can we pass on some of our scale to them, but we can just we're already experts at it so when it comes to.

If you're launching a new consumer program and you need to handle disputes if you will.

I want to do you now know your customer.

Customer I know your business type checks right you would need to order cards for your program like these are things that arent necessarily going to be core to.

Innovators business and we just have rich rich experience and expertise there that they can leverage and so what we're finding over time as we keep growing into.

New verticals and expanding our customer base that more and more people are taking it up taking us up on it to say it would be nice if you would just handle that aspect of it and.

It's relatively small in terms of the overall size of our revenue, but it is it is growing faster than and because it doesn't come with the same cost of revenue dynamics then it's <unk>.

Helpful to the gross gross margin.

Great very helpful. I appreciate it.

Ladies and gentlemen, just as a reminder, participants are limited to one question at a time.

The next question, we have is from Sanjay zucchini from K B W.

Thank you a couple of follow up wanted to ask a question.

One.

Mike just to follow up.

Okay.

Given all the Fintech.

Caution have you taken out the growth that you were expecting in the second half before out of the equation and how does it cycle into next year and then maybe just a follow up question for Jason what exact attributes are we looking from this new person that might come in.

The company in the direction you intended.

Yes so.

To answer your first question Sanjay So what we're doing is this.

This is mostly the impact of of much newer customers, who would be very small revenue in the last couple of quarters, but we were expecting to ramp significantly. So if you think about the way our business works right. Once we sign a deal that might take a customer.

Six months two to connect to the platform and then.

Anywhere from one to three quarters to really ramp their business to scale before it gets it starts to hit a nice run rate and what we're really saying is for those newer customers. We don't think it's going to be a one to three quarters it might take longer because they are not going to invest behind it like they have in the.

Past and so.

It could have some implications for 'twenty, three but right now I would say minor and less.

We really go into recession and things.

That investment not doesn't become a pause but becomes more of a permanent decision, but right now what we're hearing from customers is that everybody is a little bit in a wait and see mode, or they're saying well I'm going to invest but less than I was originally planning and so I might ramp over a longer period of time at this point, we don't think it has.

<unk> implications for 'twenty, three but obviously, we will see what happens over the next couple of months and that will be a bigger determining factor.

Yeah, it's Sanjay so.

Being transparent as is a core tenet I was actually one of the core tenants when I started the business in and I felt really strongly about.

Telling what our plan is today because they felt it just it will allow us really to attract select and hire the best CEO possible. So the next stage is really as we begin to diversify our business, we head into more geographies.

We add more products and features and functions.

To start the succession process now and get sort of way ahead, which is even more complexity in the business in the coming years I thought was really the right thing to do.

The right thing to do for the business and I felt as I mentioned, it's kind of like my duty as the founder and CEO to make sure that we're setting ourselves up for success in the future and I want that.

As the chairman founder and largest shareholder in the business. So as I think about what's next in regards to the.

Attributes of this person.

Really experience experience running.

A large public company or being involved wondering executive team of a large public company.

Understanding the complexities of running a business like payments.

So really seeing around corners, and whats next and for me too is I love our people I love, our products and I love our customers I can be far more effective.

By focusing on those three things and not focusing on the day to day.

Duties of running a public company, if I can work with somebody and full support of them to go really built for the future with those attributes with that expertise of running that type of business at scale like Mercado then we'll all be successful in that in that in that process. So that's really comes down to as far as the attributes.

But I thought the transparency was really important because that really allow us to have really open conversations with a whole host of people out there and I think theres a lot of great people out there who would be very interested in being the CEO of an amazing business like Mark had and I'm really looking forward to having a lot of those conversations in the coming weeks and months.

Thanks I appreciate it.

Hello.

Yes.

The next question, we have is from Ashwin <unk>.

Thank you.

Okay.

Thank you.

Hey, Jason Hey, Mike.

Confessional, Jason Hey, Jason Happy for you that you have the choice to do what Youre doing.

That's great.

Okay.

Hey, so.

Because.

You mentioned sort of.

The pacing of client decisions.

Decision, making and ramps and things like that but I just want to get more.

And on a couple of different lines one is.

Would you expect sort of more traction, we'd say powered by or managed by.

In terms if it offerings and then the second thing I wanted to ask is.

Yes.

Maybe younger smaller phanteks and learning more about their cash flow and stretching out their ramps, but you do have a.

Large component.

<unk>.

Clients, such as block JP Morgan Goldman.

That don't necessarily anybody about that I wanted to kind of clarify.

Yes.

How widespread.

The concern or caution is.

From your perspective.

And so maybe I'll go first and then J.

And how that might have something there.

Ashwin youre hitting on.

A great point.

<unk>, we're seeing is from.

Newer customers, mostly in the Fintech space, who.

Our again, our are saying I'm going to I'm going to wait and see give me a month or two to see how this plays out.

And but we actually believe just like Jason touched on in this environment. It gives us an advantage as a potential partner.

<unk>, we have the scale already and the sophistication and we have the liquidity to continue to invest I think.

The same opportunity exists with our customers we have several large customers as you mentioned who are already at scale whether it's.

Someone like cash app or in the NPL space or expense management.

And they may find that this is a time for them to get a little more aggressive and maybe take some share as some of the smaller upstart two would've been investing heavily may not be to the same degree so.

It's very possible that that's how this plays out.

And again just all of this is so new we just in the last month or two that's why we just want to keep reiterating we sort of are trying to be cautious here based on what we're hearing about how it will play out as.

I guess remains to be seen over the next couple of months.

Yes, I would I would echo Mike.

Depending on who you talk to the.

The myriad of experts out there they cant tell us whether in a recession not in a recession, obviously in the startup landscape a lot of the VC money has dried up and its dried up in dramatic fashion. So a lot of these companies are just focused on their core products if that core product of the card.

They bet on market that we have a very strong financial position massive scale. We operate in 39 countries. So as companies are thinking about right now about the card they're going to build whether it supports their core business or is their core business.

We believe it's going to be with Mark and then two as we power a wide range of business models.

Both consumer and commercial businesses I mean, that's been our go to market strategy since day, one which is commerce disruption digital banks large tech Giants and then large financial institutions I mean interesting stat. We found was that roughly one sixth of the volume on our platform.

As for highly discretionary items.

Large electronics travel home improvement entertainment.

Consumers are still spend money on things like grocery gas and other other essentials. So.

We believe we are the go to platform. We invented this category cause modern card issuing we believe now is the time for really to invest and hire into the into our business and allow our customers to really spread our wings, but again.

A lot of us don't know what's going to be happening. We're just taking a cautious approach like our customers are but we're in a lot of healthy conversations with them and where they want to invest and where they want to go and we believe we are obviously very well positioned to grab their business in the future as things change and there is more clarity in regards to the broader.

Macroeconomic market.

Got it.

Clarification square, 69%.

Ooh.

If you remove.

Have to pay.

Comment.

And sort of apples to apples.

How we can use to me.

With and without <unk> I don't know if you are.

Yes.

Yes ashwin.

Mismatch as usual so yes. After pay is the factor it was only in two months four last quarter and it's been for the full quarter. So that is one of the one of the factors. The other factor is just really strong cash app engagement and you heard them talk a little bit about this last week, but.

They're seeing strong engagement in part due to more inflows from tax refunds.

It really is about the strength of AV block and not that are all other customers are slowing because that's not really the factor here and as we've always said when it comes to this concentration we obviously.

I think it will go down overtime, but we don't want it to go down because block flows right. We want it to go down because.

We're very successful diversifying our business.

Our customers outside of our top five <unk> this quarter grew more than four times faster than our top five so we are growing quickly.

Diversifying by.

Block.

Not only acquired a company that we already had had a strong relationship with but they're just really executing well and thats, causing the percentage.

To increase on our on our side in terms of a revenue concentration.

Got it thank you.

The next question, we have issued Timothy Tid.

Credit Suisse.

Excellent. Thanks, a lot. So I think we've covered a lot of the main topics pretty well so I want to go to something thats more of a.

On a topic, which is around secured credit cards. So chime a large neo bank has had a lot of success with a secured credit card and I wanted to see if you could maybe talk around your capabilities there either an offering you might either have or could offer to either your existing neo bank customers or potentially bring on new Neo bank customers and then.

Sub component to that is maybe you could just talk about the complexity associated with the secured credit card relative to a regular credit card in other words would you be able to do the program management right upfront for secured credit cards, maybe it's slightly more similar to debit.

Maybe so.

We'll sort of so a secured credit card allows the consumer to actually build credit with that card.

Assumption they don't have credit to actually go build that credit so they.

Basically a two pronged approach to the ultimate consumer which is a <unk>.

Secured credit card as they put say $500 or $1000 upfront and then build credit by spending that money over time, it's a fairly.

Straightforward way of people, who have no credit to basically go and build that credit.

It's something that is a.

A line item I would say on our product roadmap.

I mean like any great technology company, we'd love to go Chase all the opportunities out there in China has done an amazing job and then Chris is a great leader and they built a tremendous business for now our customers are not asking for this.

And we see it in regards to the future is yes, it's something that we think is important it's something that we may invest in as I mentioned it is a line item on our roadmap, but for right now it's something that's not strategic.

In the present to all the things you wanted to do especially within credit.

And then focusing on the companies whether it's.

Disruptors.

Digital banks Tech Giants and large large financial institution, so I like the product, it's just not something that we've thought about investing in today.

Okay excellent. Thank you for that all of that context I appreciate it.

Youre welcome.

Thank you. The next question we have is from Bob Napoli from William Blair.

Thank you and good afternoon, Jason I always knew is a serial entrepreneur good metal.

Gold medal winner for sure.

It should be.

Good luck to you.

Thank you.

One thing we haven't touched on is your key focus for you is international.

And I was just wondering if you could give an update there on an international and you do have a large war chest.

Some of these fintech for a lot of some of them are international maybe are hitting the wall a little bit from a liquidity perspective, maybe.

Marc Cadieux would use its balance sheet too.

Add to its portfolio if you would.

Yes, so I think there is.

Yes.

There's two questions. There I think one is about international so so we definitely see.

A very strong appetite for market as moderate card issuing platform globally, we talked about a couple of things in our prepared remarks, our partnership with Western Union Western Union is a very large established money movement company leveraging our innovative platform in Europe .

After years of strong traction and growth in Europe , we have great momentum and a growing reputation in the market yet a meaningful size operation on the ground in Europe as well and then also we talked about is partnering with Mastercard in Australia at the power of the launch of <unk> plus for transport in New South Wales. This is a very innovative use cases on our platform.

In transport vertical and this is this partnership is what a market is first in the transit vertical showing the flexibility of our modern platform and the ability to support new use cases. So we are actively laying the groundwork to launching many new markets. Our approach to those new markets will mirror approach in building our U S.

So our and our customers do we have a lot of customers in the U S that when we go internationally a true benefit of our platform as you integrate once and you can launch anywhere and we think thats really important as our customers decide to.

Focus around the world so.

Going through like investment strategy I.

I think number one is and I said this a couple of times is like we are hiring.

We are investing more in the platform, we're looking to build out more features and functions based on where we think the world is going and where our customers are telling us that we want to go and then we also see great opportunity within the M&A space, So because of where we're at today and the sort of the.

Vic environment companies are.

And a lot of companies in Fintech I mean, this has been published over the last couple of years do you mean, the amount of investment flowing into.

Fintech as head spinning.

And they are broken down a lot of different pieces theres a lot of great companies out there that are relatively small that could be very strategic to mark. So we have been actively as a corp. Dev department doing looking at re scoping out like what is out there and how can we not only increase our roadmap, but add new features and functions to our Pla.

That form that allow us to grow expand and build even deeper most intolerable walls around our technologies. So we're pretty excited about what we're seeing out there and obviously more to talk about here in the coming quarters as we begin to execute on that plan.

Great. Thank you appreciate it.

Youre welcome.

Thank you and last question, we had Andrew Jeffrey from trading Securities.

Hi, Good afternoon I appreciate you squeezing me in.

I appreciate all the color also on the vertical performance, Jason you highlight western Union as a new customer I Wonder if you could comment more broadly on.

Cross border aspirations thinking about some of the Treasury management or.

Cross border.

Capital providers companies like <unk>, just generally is that an area that you think offers fertile growth from our Caddo overtime.

Well, specifically local as an acquirer mostly out of.

South America, I mean, we don't necessarily focus on the acquiring side of the payments ecosystem.

There are thousands of companies that we talked about in that space. There is a few hundred with issuing and processing is just <unk>.

Orders of magnitude more complex and then as customers like <unk> and others, especially in the expense management space began to spread their wings globally. This is as I pointed out several times as the real value proposition of what we provide and this is a core tenant of how we go and build products, which is we want you to be able to integrate them.

<unk>.

And then launched anywhere versus the legacy providers they might have a dozen different systems that you need to integrate with in different parts of the world. So on the international strategy. When we go out and we've talked to companies, especially scaled companies that are looking to grow internationally. This is something that we really really talk about I mean, we've announced.

That were in 39 countries today.

We operate businesses all over the world customers are building in Australia coming to the United States, United States to Australia, Australia to Europe . I mean, this is really core to our platform and our customers are just increasingly relying on the global functionality of our platform and we see international markets is really a.

Driver of our long term growth. So we'll continue to invest in those areas as these companies want to.

Build more in our platform and I think we don't talk about this enough, which is just simply lowering total cost of ownership. They have to go integrate with a dozen different platforms.

As a provider is very very expensive. So when you do it once that total cost of ownership or that soft dollar cost impact to your business is significantly less with marchetta than anybody else.

And just if I could add just one thing Andrew I think that as we look to continue to expand our money movement capabilities. So.

Even today, obviously, we do more than just card issuing we support a lot of more banking as a service and money moving capabilities and as we continue to expand those.

Certainly some of those opportunities will be in cross border and that is something I would say that we're seeing.

We definitely are thinking about in the coming years.

I appreciate it thank you.

Thank you, Sir ladies and gentlemen, we have reached the end of our question and answer session I would like to turn the call back to Jason Gardner for closing remarks.

Thank you everybody as always I appreciate everyone's time, especially is joining us for this call very much looking forward for the updates in our next quarterly call everyone stay safe and have a great rest of the day. Thank you.

Okay.

Sure.

Thank you, Sir ladies and gentlemen that then concludes today's conference. Thank you for joining US you may now disconnect your lines.