UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(Mark One) | | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20212023
OR | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission File Number: 001-40465 Marqeta, Inc.
(Exact name of registrant as specified in its charter) | | | | | |
| Delaware | 27-4306690 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| |
| 180 Grand Avenue, 6th Floor, Oakland, California | 94612 |
| (Address of principal executive offices) | (Zip Code) |
(888) 462-7738(877) 962-7738
(Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Class A common stock, $0.0001 par value per share | | MQ | | The Nasdaq Stock Market LLC |
| | | | (Nasdaq Global Select Market) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933 (“Securities Act”). Yes ☐☒ No ☒☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”). Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☐☒ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☒☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☒☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its report. ☒
If securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s Class A common stock held by non-affiliates of the registrant on June 30, 2021,2023, the last business day of its most recently completed second fiscal quarter, was $1.9$2.3 billion based on the closing sales price of the registrant’s Class A common stock on that date. Solely for purposes of this disclosure, shares of Class A common stock held by executive officers and directors of the registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any other purposes.
As of March 4, 2022,February 23, 2024, there were 425,786,396461,562,862 shares of the registrant's Class A common stock, par value $0.0001 per share, outstanding and 117,017,56352,248,249 shares of the registrant's Class B common stock, par value $0.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 20222024 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2021.2023.
MARQETA, INC.
FORM 10-K
TABLE OF CONTENTS
Note About Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:
•the effect of uncertainties related to the global COVID-19 pandemic on U.S. and global economies and the effect on our business, results of operations, and financial condition, demand for our Platform, sales cycles and Customer retention;condition;
•our future financial performance, including our net revenue, costs of revenue, gross profit, and operating expenses and our ability to achieve future profitability;
•the anticipated accounting treatment of our customer agreements and the risk that such accounting treatment may be subject to further changes or developments;
•our ability to scale new products and services, such as our credit card platform;
•our ability to effectively manage or sustain our growth and to effectively expand our operations;
•our ability to enhance our Platformplatform and services and develop and expand itsour capabilities;
•our ability to further attract, retain, diversify, and expand our Customercustomer base;
•our expectations as to live events in 2022;
•our ability to maintain our relationships with our Issuing Banks and Card Networks;
•our strategies, plans, objectives, and goals;
•our plans to expand internationally;
•our ability to compete with existing and new competitors in existing and new markets and offerings;
•our estimated market opportunity;
•economic and industry trends, projected growth, or trend analysis;
•the impact of political, social, and/or economic instability or military conflict;
•our ability to develop and protect our brand;
•our ability to comply with laws and regulations;
•our ability to successfully defend litigation brought against us;
•our ability to attract and retain qualified employees and key personnel;
•our ability to repurchase shares under authorized share repurchase programs and receive expected financial benefits; and
•our ability to maintain effective disclosure controls and internal controls over financial reporting; andreporting, including our ability to remediate the material weaknesses in our internal control over financial reporting.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, results of operations, financial condition, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. Unless otherwise indicated or unless the context requires otherwise, all references in this document to “Marqeta”, the “Company”, the “Registrant,” “we”, “us”, “our”, or similar references are to Marqeta, Inc. Capitalized terms used and not defined above are defined elsewhere within this Annual Report on Form 10-K, including in “Select Defined Terms.”10-K.
Select Defined Terms
Acquirer Processor. An Acquirer Processor provides the technology that facilitates the flow of card payment information through Card Networks to the Issuing Bank.
Acquiring Bank. An Acquiring Bank is the financial institution that merchants use to hold funds and manage their business. The Acquiring Bank may work with an Acquirer Processor to provide access to the Card Networks.
API. Refers to application programming interface.
Card issuer. A card issuer is a business that issues customized card products to its end users.
Card Network. A Card Network provides the infrastructure for settlement and card payment information that flows between the Issuer Processor and the Acquirer Processor.
Customer. A Customer is a current contracted customer of Marqeta.
Dollar-based net revenue retention. Dollar-based net revenue retention measures our ability to increase net revenue across our existing Customer base through expansion of processing volume offset by any reduced net revenue and loss of Customers in a given period. Dollar-based net revenue retention is calculated as net revenue derived during a given period from Customers existing at the beginning of the period, divided by net revenue from these same Customers in the prior period. This metric reflects any attrition of net revenue and loss of Customers during the current period.
Interchange Fees. Interchange Fees are transaction-based and volume-based fees set by a Card Network and paid by an Acquiring Bank to the Issuing Bank that issued the payment card used to purchase goods or services from a merchant. Our agreements with Issuing Banks provide that we receive 100% of the Interchange Fees for processing our Customer’s card transactions.
Issuer Processor. An Issuer Processor provides a technology platform, ledger, and infrastructure to support a card issuer and connects with a Card Network to facilitate payment transactions.
Issuing Bank. An Issuing Bank is the financial institution that issues a payment card (credit, debit, or prepaid) either on its own behalf or on behalf of a card issuer.
Just-In-Time Funding or JIT Funding. A feature of the Marqeta Platform that allows Customers to programmatically authorize and fund individual transactions while participating in the approval decision in real time.
Marqeta Platform or Platform. Refers to our modern card issuing platform.
Modern card issuing. Modern card issuing is secure card issuing and processing delivered via an open API platform that enables card issuers to create customized payment card products that leverage a just-in-time funding feature, authorizing their end users’ transactions in real-time.
Processing volume. Processing volume refers to the dollar amount of payments processed through the Marqeta Platform, net of returns and chargebacks, that contribute to our TPV.
Revenue Share. Revenue Share refers to provisions in our Customer contracts under which we share a portion of Interchange Fees with our Customers.
Tokenization as a Service or TaaS. A Marqeta product that allows a card issuer to provision a token to a digital wallet (e.g., Apple Pay, Google Pay, Samsung Pay), allowing an end user to securely store card information in the digital wallet. Customers that use our Tokenization as a Service benefit from our Platform, tokenization expertise, and built-in certifications with digital wallets and the Card Networks.
Total processing volume or TPV. TPV is the total dollar amount of payments processed through the Marqeta Platform, net of returns and chargebacks.
Transactions on our Platform. Refers to the number of transactions we process on our Platform.
PART I
ITEM 1. BUSINESS
Our Business
Marqeta created modern card issuing,Marqeta’s mission is modernizing financial services by making the entire payment experience native and we believe modern card issuing is at the heart of today’s digital economy.
When you order food using DoorDash or groceries using Instacart, modern card issuing works in the background as money moves from the app to the delivery driver or shopper’s payment card, allowing the driver or shopper to pay for exactly what you ordered, and nothing else.
When you buy a big screen TV and pay for it in installments using Affirm or Klarna, modern card issuing helps move money to the payment card that Affirm or Klarna uses to seamlessly pay the merchant.
When you receive money from your friend through Block’s Cash App, modern card issuing helps move the funds to your debit card, making it instantly available to you to make purchases.
delightful. Marqeta’s modern card issuing platform empowers our Customers - which include businesses like Affirm, Block (formerly known as Square), DoorDash, Instacart, and Klarna -customers to create customized payment cards that provideand innovative payment experiences for theircard programs, giving them configurability and flexibility. When our customers shoppers,come to us to build a payments solution, they are not just building a card, they are building a payments experience.
Our platform encompasses debit, prepaid, and end users. Beforecredit programs, and provides banking and money movement, risk management, and rewards products. We deliver a scaled solution to our customers to maximize the rise of modern card issuing, creating cards was slow, complex, and subject to mistakes. Marqeta helps solve these problems. Our Platform, powered by open APIs, enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases that are either the core of, or in supportbenefit of their core business.
Our modern architecture allows for flexibility, a high degree of configurability,card programs while also providing the tech layer that bridges the bank and accelerated product development, democratizing access to card issuing technology.the customer. Marqeta’s open APIs provide instant access to oura highly scalable, cloud-based and configurable payment infrastructure that enables ourcustomers to embed the payments experience into apps or websites for a personalized user experience. Customers tocan launch and manage their own card programs, issue cards, to their customers or end users, and authorize and settle payments transactions.payment transactions quickly using our platform.
We also deliver robust card program management, allowing our customers to embed Marqeta is the first company to offer a Platform for modern card issuing and transaction processing and we believe also the first to market with multiple issuing and processing innovations, including the first open APIs, JIT Funding, and Tokenization as a Service. Marqeta’s modern card issuing Platform supports prepaid, debit, and credit products. Modern card issuing is secure card issuing and processing delivered via an open API platform that enables card issuers to create customized payment card products that leverage a just-in-time funding feature, authorizingin their end users’ transactions in real-time. Integrated with major global and local Card Networks, modern card issuing enables card issuersoffering without having to build payment solutions tocertain complex elements or customer support services. Our customers can focus on their specifications and launch them globally.
We believeareas of expertise, with more control over their card programs, while we are deeply integratedmanage the complexity of running the card programs with our Customers in three ways: our technology underpins their core business or supports a core business process, our solutions drive their key processes,Issuing Bank and our people become their trusted partner. In addition, our usage-based business model provides a win/win for both our Customers and us:Card Network partners (each as their businesses thrive, our net revenue grows.defined below).
The strength and durability of our Customer relationships are evidenced by our year-over-year net revenue growth of 78% and our dollar-based net revenue retention of 175% for the year ended December 31, 2021. Our dollar-based net revenue retention was over 200% for each of the years ended December 31, 2020, and 2019. In the years ended December 31, 2023, 2022, and 2021, 2020 and 2019,total processing volume (“TPV”) on the Marqeta Platform processed TPV of $111.1was $222.3 billion, $60.1$166.3 billion, and $21.7$111.1 billion, respectively, which reflected year-over-year growth of 85%34% and 177%50%, respectively.
Our products meet TPV is the card issuingtotal dollar amount of payments processed through the Marqeta platform, net of returns and transaction processing needschargebacks. See “Management’s Discussion and Analysis of commerce disruptors, digital banks, tech giants,Financial Condition and large financial institutions alike. Marqeta has already emerged asResults of Operations” for a card issuing platform category leader in many disruptive verticals, including on-demand services, lending (including buy-now-pay-later, or BNPL, financing), expense management, disbursements, online marketplaces,more detailed discussion of our strategy and digital banking (including cryptocurrency), and our Platform is sought out by tech giants and large financial institutions to improve their existing offerings and stay competitive with technology-focused new market entrants.
As we expand our use cases, product offerings, and global footprint, we attract new industry innovators and help existing Customers expand into new verticals, programs, markets, and geographies. Our Customers consistently tell us that our ability to work at speed, simplify the complex, and envision their end users’ experience helps them focus on what they do best—building innovative products and serving their customers. We believe our culture of customer-centricity, innovation, teamwork, and clarity of mission is why Customers trust us with their mission critical payments needs and continue to grow and expand with us.
We have grown and scaled rapidly in recent periods. Our total net revenue was $517.2 million, $290.3 million and $143.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, an increase of 78% and 103% from the prior years, respectively. We incurred net losses of $163.9 million, $47.7 million, and $58.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.key operating metric.
The Payments Ecosystem
A complexWith every tap, swipe, or payment, a lot happens behind the scenes. The payments ecosystem of Issuing Banks, and Acquiring Banks, Acquirer Processors, Issuer Processors, and the Card Networks that facilitatefacilitates the exchange of information and funds and underpins global payment card purchase transactions.
Legacy Payments Ecosystem
•“Acquirer Processors” connect Acquiring Banks and merchants to the Card Networks, to facilitate the flow of card payment information to an Issuing Bank: The financial institution that issues the payment card (credit, debit, or prepaid) either on its own behalf or on behalf of a card issuer.Bank.
•“Acquiring Banks” are the financial institutions that merchants use to hold funds and manage their business. Acquiring Banks may work with an Acquirer Processor to provide access to the Card Networks.
•The “Card Networks” provide the infrastructure for settlement and card payment information that flows between an Issuer Processor:Processor and an Acquirer Processor.
• Provides the“Issuer Processors” provides a technology platform, ledger, and infrastructure to support a card issuer and connects with a Card Network to facilitate payment transactions.
•Card issuer: A business that issues customized card products to its end users.
•Card Networks: Provides“Issuing Banks” are the infrastructure for settlement and card payment information that flows between the Issuer Processor and the Acquirer Processor.
•Acquirer Processor: Provides the technology that facilitates the flow of card payment information through Card Networks to the Issuing Bank.
•Acquiring Bank: The financial institution that merchants use to hold fundsissue a payment card (debit, prepaid, or credit) either on its own behalf or on behalf of a business.
The legacy payments ecosystem has historically been inflexible, with Issuing Banks delivering the entire value chain: the regulated entity and manage their business. The Acquiring Bank may workbalance sheet, the product, and the customer experience. In the legacy payments ecosystem, the customer must contract with an AcquirerIssuing Bank, who leverages an Issuer Processor to provide access to theconnect with a Card Networks. The Acquiring Bank is also referred to sometimes as the merchant bank.
Modern Payments Ecosystem
Modern card issuing is secure card issuing and processing delivered via an open API platform that enables card issuers to create customized payment card products that leverage a just-in-time funding feature, authorizing their end users’ transactions in real-time. Integrated with major global and local Card Networks, modern card issuing enables card issuers to build payment solutions to their specifications and launch them globally. This modern infrastructure allows for significant innovation inAt Marqeta, we are modernizing the Issuer Processor side of the payments ecosystem. It enables a new class of card issuers to emerge by simplifying and democratizing the issuing process. It expands the issuing medium beyond physical cards to keep pace with the demands of digital commerce and mobile wallets, increasing regulatory and security requirements, and cross-border capabilities. It gives developers highly configurable controls that enable themIssuing Banks continue to provide a customized solution to their businessthe chartered banking entity, treasury, and customer needs. It operates on an extensible cloud infrastructure that works globally and enables scale and simplicity even as card issuer, merchant, and consumer demands become increasingly complex.
In other words, a modern payments ecosystem putsbalance sheet. Marqeta provides innovation, accessibility, flexibility, control, and scale into the hands of card issuers by delivering all of these benefits in one easy-to-use platform. This typeplatform, full of platform solution powersapplications and services, along with an Issuing Bank partner. The customer controls its customers’ experience, leveraging the growth of new verticals and new card issuers and enables innovation for large financial institutions who are looking to expand their products and use cases to remain competitive in an increasingly digitized world. We believe Marqeta has built such a platform.
Our Platform and Products
Marqeta provides a single, global, cloud-based, open API Platformplatform for modern card issuing and transaction processing. The Marqeta Platform provides next generation payment experiences for tech-driven, developer-led companies and is well positioned to address the payment needs of commerce disruptors, digital banks, tech giants, and large financial institutions.
Our Platform
Marqeta’s modern card issuing Platform was built by developers for developers. Our Customers are able to use our simple, data-rich, and accessible Platformplatform enables customers to build and rapidly scale their card programs with extensive control and configurability, and with the highesthigh standards of reliability and security. Our Platformplatform is designed to reduce complexity for card issuers,customers, enabling a full spectrum of consumer and commercial card issuing and transaction processing services in a single solution. We overlay robust program management expertise to help our customers design a customer-centric card program without requiring expertise in all of the nuances of managing a program themselves.
A key aspect of our modern platform is that our debit, prepaid, and credit offerings are all available in a combined offering, enabling customers to offer multiple products through Marqeta’s platform. For example, a retail company could use Marqeta to create a debit program to offer wage solutions to its hourly workers, a consumer credit program to its most loyal shoppers, and a commercial credit program to key suppliers to meet its working capital needs. These programs can all exist on Marqeta’s single, global, modern platform.
Our Platformplatform has a number of key attributes, including:
Control: Dynamic spend controls and Just-in-Time Funding (“JIT Funding”) provide customers with control over the payments flow.
Accessible:Scale We democratize key payment capabilities to enable any business to start issuing physical, virtual, or tokenized payment cards (e.g., Apple Pay, Google Pay, Samsung Pay) that are configured to its individual business needs. New Customers do not need to have deep payment expertise to issue cards and process transactions.
Simple: Our Platform makes payment transactions simple by working behind the scenes to translate the complex into intuitive and developer-friendly user experiences. We provide direct integrations with the Card Networks, including Visa, Mastercard, and PULSE, which is part of the Discover: Global Network, enabling developers to use Marqeta’s single unified platform for all of their payments integrations.
Scalable: The Marqeta Platform is highly agile and scalable, allowing our Customers to launch and grow card programs with speed and confidence. As a global platform built on a single codebasecloud-native infrastructure and a suite of APIs to support our Customerscustomers worldwide we havewith a build-once, deploy-anywhere model, offering seamless integration with global and local Card Networks.model.
Configurable:Configurable The Marqeta Platform is highly: Highly configurable and is ablecapabilities empower our customers to serve use cases previously unaddressed by legacy systems, such as BNPL financing at the point-of-sale in the lending industry. Our Platform’s configurability significantly expands the categories of businesses that can begin issuingbuild native solutions tailored to their own cards to solve complex paymentcustomer needs.
Innovative: TrustMarqeta is a hub for innovation. Instant card issuance, provisioning to digital wallets, JIT Funding, and dynamic spend controls enable our Customers to operate: We comply with unmatched speed and control.
Trusted: Our Platform is trusted by some ofapplicable obligations under the world’s largest financial institutions, tech giants, digital banks, and commerce disruptors to perform at scale. We meet the highest standards of Payment Card Industry or Data Security Standard (“PCI complianceDSS”) and provide a trusted environment for card issuing and payment processing with security, transparency, and real-time information.
Our Products
Marqeta’s innovative products are developed with deep domain expertisecustomers can issue debit, prepaid, and a customer-first mindset. At its core, our Platform offers three primary capabilities: Marqeta Issuing, Marqeta Processing, and Marqeta Applications to launch, scale, and manage card programs.
Marqeta Issuing
We enable our Customers to issue physical, virtual, and tokenized cards. With approximately 493 millioncredit cards, issued through the Marqeta Platform as of December 31, 2021, across a deep and varied Customer base, we have significant industry experience supporting card programs of multiple types and sizes. We offer fulfillment services, enabling our Customers to optimize their card programs by managing users, fulfillment, and card transactions through the Marqeta Platform. We are also at the forefront of payments innovation, with features such as theincluding instant provision of a tokenized card intoto a digital wallets like Apple Pay, Google Pay,wallet.
Debit: Customers can link card products to a primary bank account for their users to fund and Samsung Pay.
We offer a number of core card issuing services and functionalities:spend from.
CustomPrepaid: Customers can create single- or multi-use custom card functionality:experiences with dynamic spend controls and fund transactions in real time based upon business criteria.
Credit: Customers can create customized consumer and commercial credit programs with innovative rewards structures, leveraging pre-integrated partners for underwriting, mobile app design, and customer service.
VirtualOur Issuing Bank relationships and direct integrations with the Card Networks enable our: Customers to efficiently launch, manage, and grow card programscan instantly issue one-time or multi-use branded payment cards that are customizedready to their specific business needs without needing to build those complex relationships or integrations themselves. We provide industry-leading user experience while minimizing fraud.use immediately and enable faster funds disbursement with easier tracking of funds by unique virtual card numbers.
ConfigurePhysical: Customers can customize the look and feel, graphics, and messaging of physical cards to reinforce their brand. Physical cards can be magstripe, EMV-chip, and/or tap-to-pay enabled.
Tokenization & Digital Wallets: Customers can instantly issue branded payment cards that are ready to use immediately in app or in mobile wallets, which provides for continuity if the physical cards are lost or stolen.
Processing
Marqeta enables our customers to deliver innovative card experiences with enhanced control over transaction processing through dynamic spend controls and real-time decisioning via our JIT Funding feature.
Dynamic Spend Control: Dynamic spend controls create unique card experiences while reducing customer exposure to risk by limiting where users can transact and configuring exact spend limits. Customers can tailor cards with open APIs:Customers can easily define card attributes forflexibility in where, when, and how amuch the card iscan be used. These use cases and restrictions include, among others, ATM, online, or point-of-sale use; ability to restrict or accept use in certain countries or currencies; and address or postal code acceptance.
Build, test, and launch cards:Developers can simultaneously create card products and set up funding sources, cardholders, and cards through simulations available in their own private and secure Marqeta sandbox, enabling them to test and validate their programs easily and quickly before launch.
Securely embed cards into apps:Customers using our Platform have the ability to securely embed sensitive card data into mobile apps using customizable widgets or the Marqeta JavaScript library; this has the added benefit of dramatically reducing the workload necessary to comply with PCI requirements.
Customize cards:Marqeta’s Customers control the design and feel of their physical and virtual cards, which helps our Customers establish strong brand identity for their business. Customers choosing physical cards can also customize security features, including magnetic stripe, near field communication, and EMV-chip enabled.
Manage card programs:The Marqeta Platform allows Customers to manage card issuance over the entire card lifecycle. Through our dashboard, Customers can order, activate, set expiration, suspend, and terminate cards. They can also manage lost, stolen, and damaged cards via our APIs. Customers can also integrate Interactive Voice Response for card activation, personal identification number, or PIN, setting, balance inquiry,check real-time data and lost or stolen card reporting into their own card programs.
We also partner with some of the world’s largest card issuers. For example, our card-issuing technology will enable J.P. Morganevents to instantly provision commercial cards into digital wallets for commercial card customers, accelerating the issuance process and reducing the probability of fraud in each transaction.
Marqeta Processing
Our Platform can process transactions with control and speed for our Customers, leveraging certain of our core competencies:
Secure authentication:Marqeta’s modern Platform provides robust, secure authentication tools. A variety of authentication methods are available to authenticatedynamically change the card user, including PIN, address verification, card verification value, 3D Secure and EMV chip.experience as needed.
Configurable spend controls:JIT Funding Customers can reduce fraud by limiting where and how their end users can transact. Through the Marqeta Platform, our Customers can deploy fully tailored spending limits by merchant, merchant category, merchant group, amount, user, user group, frequency of use, time of use, and start/end times, among many other inputs.
Just-in-Time Funding:Using: Marqeta’s industry-first JIT Funding functionality, Customers can programmatically authorize and fund each transaction in real time. Utilizing this feature each card maintainsenables customer cards to maintain a zero-amount balance until the card is used and approved. Upon approval, Marqeta automatically moves funds from an identified funding source into the appropriate account.The following illustration reflectsaccount.
Digital Banking
Marqeta for Banking provides our customers with a suite of bank account and money movement features offered through our Issuing Bank partners, including demand deposit accounts, direct deposit with early pay, ACH, cash loads, and fee-free ATMs, bill pay, and instant funding capabilities. These services enable customers to drive additional engagement and spend by making it easy for their users to fund accounts and manage money.
RiskControl
With Marqeta’s RiskControl product, certain risk and compliance concerns are mitigated while reducing friction across the workflow once a cardholder attempts to make a payment at a merchantlifecycle.
Real-Time Decisioning: Customers can mitigate fraud using an account configured to use JIT Funding:Marqeta’s Real-Time Decisioning solution, which provides fine-tuned control over card transactions.
Dashboard
The Marqeta Dashboard is a comprehensive self-service portal that empowers our customers to access and manage all aspects of their card program, including card configuration, servicing cardholders, tracking data and insights, managing disputes, and accessing RiskControl capabilities.
UI/UX
User experience is an essential part of all Marqeta programs. Marqeta makes it easy for our customers to completely integrate the card experience into any app or website. For our credit customers, they can select a fully bank-approved UI template that's purpose-built for managing a credit card.
Marqeta’s Credit Platform
We announced our credit platform in October 2023. While Marqeta previously offered credit processing, we utilized partners for credit program management. Now our platform combines Marqeta’s modern issuing processing expertise, scale, experience, and stability, with the innovative and comprehensive program management capabilities we acquired in February 2023 to deliver a comprehensive credit platform.
With the Marqeta credit platform, our customers have the tools to design, launch, and scale , and can work directly with us rather than managing several different providers. Customers can customize the user experience and embed the card within their brands. Our ability to offer configurable and flexible solutions enables our customers to build highly differentiated programs with truly personalized rewards and spend controls.
Innovative Rewards Structures: Customers can leverage our proprietary rewards engine, keeping users engaged with innovative rewards structures using multiple data points across user spend as well as transactions, repayments, and other data points. Our platform enables customers to reward users in real time with multiple redemption options, creating opportunities to drive engagement and usage.
Our Programs
Marqeta’s innovative products are developed with deep domain expertise and a customer-first mindset to launch, scale, and manage card programs. Marqeta provides all of its customers with issuer processor services, and for most of its customers it also acts as a card program manager. Depending on a customer’s desired level of control and responsibility, Marqeta can work with companies in a range of different configurations:
Real-time notifications: Managed By MarqetaThrough our Platform, Customers can implement our unique webhooks or push notification capabilities: With Managed By Marqeta (“MxM”), Marqeta provides an Issuing Bank partner to receive real-time updatesact as transactions are processedthe Bank Identification Number (“BIN”) sponsor for the customer’s card program, manages the customer’s card program on behalf of the Issuing Bank, and provides a full range of services including configuring many of the critical resources required by a customer’s production environment. In addition to providing the customer access to the Marqeta Platform. Turning on these notifications empowersdashboard via our CustomersAPIs, Marqeta also manages a number of the primary tasks related to provide real-time, meaningful messageslaunching a card program, such as defining and managing the program with the Card Networks and Issuing Bank, operating the program and managing certain profitability components, and managing compliance with applicable regulations, the Issuing Bank, and Card Network rules. Also available to their end users. Our Platform also supports card events, dispute events, and transaction events. For example, cardholders will receive notifications on returns and refunds as they occur to help our Customers apply the right amount of credit to accounts in a timely manner.
Accelerates reconciliations:Our Platform saves our Customers both time and money. By injecting custom data fields into each transaction, Customers can optimize and accelerate reconciliations by matching the order and ledger system records automatically.
Marqeta Applications
Using the Marqeta Platform, Customers can leverage applications that cover the entire payments lifecycle, including the developer sandbox, card management, transaction monitoring, and case management. These applications help ensure their programsMxM customers are as successful as possible.
Marqeta applications allow Customers to:
Utilize developer tools: Developers have access to Marqeta’s wealth of tools, including a private sandbox, APIs, software development kits, or SDKs, widgets, and documentation to customize, test, and issue their cards and programs. With multiple API endpoints, developers can configure spend controls, simulate transaction processing, and quickly roll out new features with confidence.
Streamline program administration: Our Platform is transforming how our Customers can approach program administration. We offer tools to manage program funds, monitor cardholder balances, report lost or stolen cards, and view a multitude of white-labeled reports, all through a single application.
Reduce and mitigate fraud: We offer unique functionality to help card issuers combat fraud. Using Marqeta’s powerful authorization and decisioning engine, Customers can configure rules using a variety of inputs that approve or decline transactions based on real-time and dynamic parameters. This along with our know-your-customer, 3D Secure, andmanaged services, including dispute management, services provide a multi-layer security framework, helping our Customers detectfraud scoring, card fulfillment, and prevent unauthorized, fraudulent activities, while empowering them to create frictionless experiences for their customers.cardholder support services.
Manage casesPowered By Marqeta: With Powered By Marqeta (“PxM”), Marqeta also provides customers access to the Marqeta dashboard via our APIs, provides payment processing, and resolve disputes: Marqeta’s case management API endpoints helpassists with certain configuration elements that enable the customer to use the platform independently. Unlike under our Customers to optimizeMxM card programs, our PxM customers are responsible for other elements of the entire dispute process. This includes submitting disputes, receiving statements, participating in arbitration, all while receiving live status updates via push notifications. Our holistic solution helps to simplify case management while enabling an optimized experience forcard program, including defining and managing the end user.
Simplify complianceprogram with the Card Networks and reporting: With our Platform, Customers can monitor and review reports for potential violations and leverage data and insights for compliance reporting such as anti-money-laundering andIssuing Bank Secrecy Act, or BSA, monitoring, as well as know-your-customer requirements. Our solutions are certified as compliantmanaging compliance with Paymentapplicable regulations, the Issuing Bank, and Card Industry Data Security Standard, or PCI DSS, and 3DS, among others. Our bank-grade encryption safeguards paymentNetwork rules.
Given the modularity of the Marqeta platform, certain customers can also opt to incorporate elements of MxM into their PxM card data, including personally identifiable information.program to create a custom Powered By Plus (“PxM+”) solution.
Analyze data intelligence: We dissect and analyze transaction data. Customers can monitor balances, authorizations, and settlements over time to track every aspect of their card program. Customers can see chargebacks, declined transactions, and card activities on a regular basis, while data can be reported on a daily, weekly, or monthly cadence.
Our Business ModelCustomers
Our modern, cloud-based, open API Platform delivers card issuingMarqeta serves customers in multiple industry verticals including financial services, on-demand services, buy now, pay later (“BNPL”), expense management, and transaction processinge-commerce enablement.
We see embedded finance as a significant contributor to our next wave of growth. There are two critical components to embedded finance: native integration and non-financial services for global money movement, tailoredbusinesses. It starts with a company whose core business is not financial services, and that company offers financial services products in a manner that is natively embedded into their existing customer experience. It is seamless, and, to put it simply, you don't have to go to the needs of developers, technical product managers,bank. The bank comes to you where you already spend.
With embedded finance, enterprises across industries can offer multiple financial services to their customers to improve the user experience, enhance loyalty, and visionary entrepreneurs at innovative companies. As of December 31, 2021, there were approximately 122 million active cards on our Platform, up 115% from 57 million active cards on our Platform as of December 31, 2020, and during the year ended December 31, 2021, we processed approximately 2.7 billion transactions on our Platformadd another monetization engine to their existing business. Marqeta’s platform operates across the globe, up 70% from the 1.6 billion transactions processed on our Platform during the year ended December 31, 2020. Active cards are defined as thea number of transacting cards with one or more successful clearing events during the preceding twelve months.
We employ a usage-based model, based on processing volume, that aligns our interests with those of our Customers. We derive the majority of our revenue from Interchange Fees generated by card transactions through our Platform. Additionally, we generate revenue from other processing services, including monthly platform access, ATM fees, fraud monitoring, and tokenization services.
Interchange Fees are transaction- and volume-based fees paid by the Acquiring Bank to the Issuing Bank that issued the payment card used to purchase goods or services from the merchant. In accordance with our agreements with Issuing Banks, we receive 100% of the Interchange Fees for processing our Customers’ card transactions. Under our Customer contracts, we typically share a portion of Interchange Fees with our Customers, referred to as “Revenue Share.” As Customers increase processing volumes on our Platform, they may earn an increased percentage of Revenue Share. Sharing an increased percentage of Interchange Fees with our Customers aligns our interests with our Customers’ growth and builds deeper customer relationships.
As we strive to democratize payments and simplify card issuing and transaction processing, our strategic partnerships and direct integrations with Issuing Banks and Card Networks are important to our customer value proposition. Greater processing volume also allows us to achieve better volume pricing with our Issuing Banks and Card Networks, which we can pass along to our Customers. This, in turn, can make our product offerings more competitive.
Our Platform enables new and existing Customers to create innovative and configurable card programs and to increase their processing volumes. Additionally, as we expand our use cases, product offerings, and global footprint, we help our Customers expand into new verticals, programs, markets, and geographies. We have experienced significant success with this strategy to date. We achieved year-over-year net revenue growth of 78% and a dollar-based net revenue retention of 175% for the year ended December 31, 2021.
Our Strengths
The following strengths and advantages power our business model:
Modern Card Issuing Trailblazer: Marqeta created modern card issuing. Our modern Platform offers multiple issuing and processing innovations, including open APIs, JIT Funding, and Tokenization as a Service, and supports prepaid, debit, and credit products. We continue to innovate on our Platform, and we believe that this innovation, coupled with our deep expertise, keeps us in a market-leading position.
Continuous Innovation: As we partner with our existing Customers to support their ambitious global projects and develop cutting-edge use cases for each vertical, wecustomers to capitalize on, including consumer credit cards, point-of-sale lending, accelerated/earned wage access, expense management, on-demand delivery, and spend management. Customers can also attract new Customers seeking best-in-class solutions. The highly configurable Marqeta Platform is agile out of the box and at scale. We help our customers go to market with our developer-centric APIs, sandboxes, and SDKs, written in modern programming languages.
Enduring Customer Relationships: Our dollar-based net revenue retention was over 175% for the year ended December 31, 2021 and over 200% for each of the years ended December 31, 2020, and 2019, illustrating the strength and durability of our Customer relationships. Our Platform powers mission-critical experiences for our Customers, leading to strong relationships over time as we extend their reach both from a product and geographic perspective. We become technically integrated within their products andcombine solutions operationally integrated as Customers develop core processes around our tools and platform, and culturally integrated as our partnerships deepen over time. Indeed, our mutually beneficial contractual terms are designed to provide a win/win for both our Customers and us; as their businesses thrive, our net revenue grows.
People-centric Culture and Values:We believe our culture of customer centricity, innovation, teamwork, and clarity of mission is why Customers trust us with their mission critical payments needs. Our Customers consistently tell us that our ability to work at speed, simplify the complex, and envision their end users’ experience helps them focus on what they do best—building innovative products and serving their customers. We also believe our culture helps us hire and retain best-in-class talent, as we empower employees to do the best work of their lives.
The aggregate effect of these strengths and advantages is a strong competitive moat, predicated on our scale, Customer relationships, and the technological complexities that we have managed to simplify over time, while remaining agile, extensible, and innovative. We believe it would require a significant commitment of time and resources for a potential competitor to imitate our Platform.
We also believe that we have and continue to build significant technical know-how and card issuing and transaction processing expertise so that potential competitors cannot easily replicate our business. We believe these structural advantages, and our culture and values driven business, should enable us to extend our lead over time.
Our Growth Strategy
Our market opportunity is tremendous, and we intend to expand our addressable market and increase our revenue by pursuing the following strategies:
Adding New Customers.We intend to solidify our reach in existing categories and expand to newacross different use cases and industry verticals. Our sales teams focus on attracting an even greater number of commerce disruptors, digital banks, and tech giants. We also intend to expand our relationships with new large financial institutions to help them compete in the new digitized world through our industry-leading solutions. We intend to attract and engage new Customers through customer referrals from existing Customers, marketing campaigns, outbound sales calls, and key industry conferences and tradeshows. We will also look for opportunities to grow through strategic partnerships and acquisitions.
Expanding and Growing Our Relationships With Our Existing Customers. Our current Customers include some of today’s leading commerce disruptors, digital banks, tech giants, and large financial institutions. We participate in our Customers’ growth alongside them because as our Customers’ businesses scale and their processing volumes increase, so does our revenue.
Broadening Our Global Reach. As of December 31, 2021, we were certified by one or more of the global Card Networks to process transactions in 39 countries across North America, Europe, and Asia-Pacific and intend to accelerate our international expansion in the future. Because our Customers employ digital models that transcend borders, we are constantly extending our Platform’s reach. This allows us to offer a single global Platform to all Customers, no matter where they originate or how they expand. With Marqeta, developers only have to integrate once to gain access to a global market and to take advantage of all of the tools our Platform offers for a global reach.
Expanding Our Ecosystem, Product Offering and Partnership Network. Our closely integrated relationships with our Customers and deep insight into our Customers’ transaction data allows us to anticipate our Customers’ product needs and emerging market opportunities. Our modern card issuing Platform and best-in-class APIs allow us to rapidly develop new products, features, and use cases to serve our current and future Customers. We will continue to invest in our Platform to create increased stability, greater flexibility, and data-driven decision-making, all within increasingly shorter timeframes. We plan to build new APIs to deliver for our Customers and expand our migration to the cloud to provide enhanced scalability, paving the way for data localization options and reducing our maintenance burden. We initially targeted card issuing through a modern and disruptive lens, and we believe we can leverage our Platform to replicate our success in other areas of the payments ecosystem. A robust ecosystem of partners is also crucial to our ability to embed our technology into a greater range of use cases. We intend to continue identifying and nurturing our relationships with Issuing Banks, Card Networks, and other vendors to continue building on our existing use cases.
Culture & Values
Our mission is to be the global standard for modern card issuing, empowering builders to bring the most innovative products to the world. Great missions are achieved by great teams, and at Marqeta, everything starts with our culture. A great culture attracts and retains great people who find their purpose in serving our Customers.
Our culture is built on the foundation of seven core values:
We realized some time ago that words like “company” and “customer” are just another way to say “people.” Companies are collections of people who unite behind a common mission and then align behind values that bind them together. Each person on our team is called a Marqetan. On their first day, we share with each Marqetan our values. Key among these is “Everyone Belongs.” We respect, value, and include each other, demonstrating empathy and celebrating diversity.
As part of our onboarding process, we also ask each new employee an empowering question: “What is your superpower?” We believe everyone has a superpower. Whatever it is, we want that person to embrace it, share it, and celebrate all of our unique abilities, viewpoints, and personalities together as Marqetans. United, these superpowers allow us to be more than just the sum of the people who work at Marqeta. With 789 Marqetans as of December 31, 2021, we believe that each Marqetan brings their own unique superpower to the company. We strive to empower every Marqetan to do the best work of their lives.
Nothing is more powerful than a unified team of people focused on the results of the team over their individual success. If you want to go fast, go alone. If you want to go far, go together.
We do what’s right for all of us, not one of us. We succeed together.
Customers are the people we seek to delight every day. Our Customers tell us that our ability to work at speed, cut through complexity, and always have their end users’ experience at heart helps them focus on what they do best – building innovative products and serving their customers.
Because of our value of Lead Innovation, we believe we are the first modern Platform to market with multiple issuing and processing innovations, including the first open APIs, JIT Funding, and Tokenization as a Service. Our modern card issuing Platform supports prepaid, debit, and credit products. We love to lean into the unknown and find the path forward.
Success is measured in results. At our heart, we are developers who build for developers, and we have not forgotten our entrepreneurial roots. Customers have chosen to build and scale their businesses on our Platform because we understand that our Customers need to deliver for their customers.
We keep it simple and find a solution. We act like owners and deliver the best outcome for our Customers.
Quality is at the heart of everything we build. We are proud of the work we do and strive to improve it every day. When you provide high-quality products and do great work, people remember it and trust you.
Our purpose has never been more clear: pay it forward. We aspire to have a positive global impact by making complex payment infrastructure accessible and leveling the playing field for innovation and financial access across communities. Our celebration of diversity and community is critically important to our culture and why we are proud to be headquartered in Oakland. Our commitment to the people in the communities we serve is embodied in our value of Marqeta Cares:
We invest in corporate social responsibility. Our people, technology, and resources make a positive impact in our community, and we are responsible stewards of our environment.
We created Marqeta Cares, our social impact initiative, as our corporate giving program and to help select the charities we support. Marqeta Cares seeks to create inclusive communities and build pathways to economic prosperity. We do this by leveraging our financial and human capital to support nonprofit organizations that advance economic opportunity for under-resourced and under-served communities. We approved up to 400,000 shares of our common stock to be contributed to the Marqeta Cares program over ten years, beginning in 2020. Marqeta Cares will leverage these resources to make targeted and thoughtful donations where our equity and dollars can make a meaningful difference.
To help implement our Marqeta Cares goals, Marqeta has partnered with an experienced donor-advised fund, operated as a 501(c)(3) public charity, that will serve as the legal vehicle for implementing Marqeta Cares’ corporate philanthropic vision. In 2020 and 2021, that donor-advised fund made a number of financial grants to charities in the United States and the United Kingdom to advance economic opportunity for marginalized and underserved populations and generate positive impact for our communities, our environment, our Customers and our Company. In addition, we are partnering with Pledge 1%, an advisory non-profit organization that assists companies in donating to charitable causes. Marqeta is also proud of its emerging green initiatives, which include offering Customers the innovative choice to use recycled plastic cards and partnering with a plastic offset platform to remove ocean-bound plastic waste.
Our Customers
Our modern card issuing Platform powers mission-critical experiences for our Customers, leading to strong relationships over time as we extend their reach both from a product and geographic perspective. We had over 200 Customers and over 160 Customers as of December 31, 2021 and 2020, respectively. Currently, we provide solutions in the following verticals:
•Commerce Disruptors
◦On-Demand Services
◦Lending (e.g., BNPL financing)
◦Expense Management
◦Disbursements (e.g., insurance, incentives and rewards)
◦Online Marketplaces (e.g., travel, eCommerce)
•Digital Banks (e.g., digital banking; cryptocurrency)
•Tech Giants
•Large Financial Institutions
Agreements with Large Customers
Block
On April 19, 2016, we entered into a master services agreement with Block, Inc., formerly known as Square, Inc., subsequently amended (the “Block Agreement”), which includes agreements that provide for the commercial terms of our relationship with Block. Pursuant to the terms of the agreement,Block Agreement, we have agreed to manage Block’s Cash App, Square Debit Card, and Square Card Canada card issuing programs for Block. UnderOn January 31, 2022, Block completed its acquisition of our customer, Afterpay Limited. We have a separate agreement with Afterpay that provides for the agreementcommercial terms of our relationship; however, we now aggregate Afterpay as part of our Block business.
We executed contract amendments on August 4, 2023 (the “August 2023 Block Amendment”) and November 3, 2023 (the “November 2023 Block Amendment,” and, together with the August 2023 Block Amendment, the “2023 Block Amendments”) to manage these card programs, we agreethe Block Agreement. Pursuant to share with Block a portionthe terms of the net interchange revenue2023 Block Amendments, the term of the Cash App and the Square Debit Card programs will expire on June 30, 2028 and automatically renew thereafter for successive one-year periods, unless terminated earlier by either party.
The August 2023 Block Amendment provides that we earn fromwill continue to provide various services to Block, though Block will be responsible for defining and managing the Cash App program with respect to the primary Card Network going forward, including being responsible for managing the financial relationship between the Cash App program and the primary Card Network, choosing the card brand, determining the product type, and meeting program parameters. The August 2023 Block Amendment also includes a continuation of services for the Cash App program for a period of time in the event of a change of control of Marqeta. The November 2023 Block Amendment provides that we will be the default provider of issuing processing and related services in current or future markets outside of the volume of these programs. The Revenue Share provisions include increased rates of Revenue Share when processing volumes reach specified volume tiers. Additionally, we generate revenue from otherU.S. where Block intends to operate and Marqeta is able to provide issuing processing services, subject to certain exceptions.
Either we or Block may terminate the Block Agreement under certain specified circumstances, including upon a material breach. The Block Agreement also provides for certain other terms, including representations and warranties of the agreement. parties, intellectual property rights, data ownership and security, limitations on liability, confidentiality and indemnification rights, and other covenants.
In addition, on March 13, 2021, and as specified in our agreement withthe Block Agreement, we granted Block a warrant to purchase up to 1,100,000 shares of our common stock at an exercise price of $0.01 per share, which is exercisable upon attaining certain milestones relating to Block’s creation of a specified percentage of new cardholders on our Platformplatform each year over a three-year period. The current term of our agreement with Block for Cash App expires in March 2024, the current term of our agreements with Block for Square Card and Square Card Canada, respectively, expire in December 2024, and each agreement automatically renews thereafter for successive one-year periods, unless terminated earlier by either party. Either we or Block may terminate the master services agreement under certain specified circumstances, including upon a material breach. The agreement also provides for certain other terms, including representations and warranties of the parties, intellectual property rights, data ownership and security, limitations on liability, confidentiality and indemnification rights, and other covenants.
Our Relationships with Issuing Banks and Card Networks
Marqeta works on its customers’ behalf with Card Networks and Issuing Banks to issue cards, authorize transactions, and communicate with settlement entities. Our contractual relationships with Issuing Banks and Card Networks contribute to Marqeta’s ability to create and manage customized card programs for our Customers.customers.
We partnerRelationship and Agreements with Issuing Banks
When our customers engage us for MxM services, we provide an Issuing Bank to act as the BIN sponsor for the customer’s card program and are responsible for managing compliance with the Issuing Bank’s requirements and Card Network rules. Issuing Banks provide services to Marqetafor our MxM solutions that can include card issuance, Card Network sponsorship, establishing a line of credit and underwriting standards, and creating deposit accounts used to settle our Customers’customers’ transactions. Our contracts with Issuing Banks entitle Marqeta to all of the Interchange Fees generated from our Customers’customers’ card programs, which we then share with our MxM customers through Revenue Share payments, and obligate us to pay all Card Network fees associated with our Customers’MxM customers’ card transactions. Issuing Banks require Marqeta“Interchange Fees” are transaction-based and volume-based fees set by a Card Network and paid by an Acquiring Bank to comply with their requirements and those of the Card Networks necessary to sponsor the Customer’s card programs.
We provide all of our Customers issuer processor services, and, for most of our Customers, we also act as the program manager. As a program manager, we are responsible for ensuring compliance with the Issuing Bank’s requirementsBank that issued the payment card used to purchase goods or services from a merchant and Card Network rules and help create regulatory compliant card programs for“Revenue Share” refers to provisions in our Customers.
WhenInterchange Fees with our Customers engage us solely as an Issuer Processor, we process the authorization, settlement and reporting of transactions for these Customers but in such engagements we do not manage the relationships with the Issuing Banks and Card Networks.
We intend to expand and deepen our relationships with Issuing Banks and Card Networks and expect to see an increased demand for both our program manager and issuer processor services.
Agreements with Issuing BanksMxM customers.
While an Issuing Bank ultimately approves each card program, Marqeta is able to configureconfigures the program design, negotiatenegotiates key program terms, and selectselects the Issuing Bank. Marqeta actively “shops”works to find the most appropriate Issuing Bank partner for the potential card program to various Issuing Banks to identify the most appropriate bank based on the Customer’s needs. Marqeta payscustomer’s needs and program design. We pay volume-based and transaction-based fees to the Issuing Banks. The fees are typically structured based on volume tiers; as our processing volumes grow, these fees as a percentage of processing volume decline. These fees are reflected in our costs of revenue.
When our customers engage us for PxM services, we do not manage the customer’s relationships with the Issuing Banks and Card Networks and the customer is responsible for managing compliance with the Issuing Bank’s requirements and Card Network rules.
Certain customers engage us for PxM+ services, where they can combine different aspects of our MxM and PxM services. The involvement of our Issuing Banks in a fixed fee (either a fixed percentagespecific PxM+ program will depend on each program’s design.
Sutton Bank
On April 1, 2016, we entered into a prepaid card program manager agreement with Sutton Bank.Bank, our largest Issuing Bank partner by processing volume. Under the terms of the agreement, as amended, Sutton Bank settles payment transactions for us and provides prepaid card and other related services to us, including the issuance of cards for approved card programs. The agreement provides that we pay Sutton Bank a fee based on a percentage of the value of transactions processed. Under this agreement we are entitled to receive 100% of the Interchange Fees for processing our Customers’customers’ card transactions. Our agreement with Sutton Bank requires us to indemnify Sutton Bank for certain losses, subject to specific enumerated exceptions.
Under certain circumstances, the agreement also requires us to pay termination fees, including fees and costs to Sutton Bank, if we terminate the agreement before the end of its term or any automatic renewal term. The current term of the agreement expires in 2028, after which it automatically renews on the same terms and conditions for a two-year renewal term, unless either party provides written notice of its intent not to renew at least 180 days prior to the expiration of the then-current term. Either we or Sutton Bank may terminate the agreement under certain specified circumstances, including if the other party commits a material breach that is not cured within 30 days.
Agreements with Card Networks
The Card Networks oversee their worldwide payment networks, through which debit, credit, and prepaid card payments are authorized, processed, and settled, between an Issuing Bank and an Acquiring Bank. Card Networks also set the Interchange Fee rates that the Acquiring Bank routes through the Card Network to the Issuing Bank.rates. We currently partner with a number of Card Networks, including Visa, Mastercard, and PULSE, which is part of the Discover Global Network, and a number of PIN networks, to process our Customers’customers’ transactions on our Platform. platform.
Marqeta arranges for our CustomersMxM customers to use one or more of the available Card Networks, and we paygenerally include the standard Card Network fees in the pricing arrangements with our MxM customers, which are reflected in our costs of revenue.
Given our ability to direct MxM processing volume to specific Card Networks, directly, or indirectly through reimbursementwe are able to negotiate certain incentive rebates that effectively reduce the overall Card Network fees. With the scale of the transactions we process on behalf of our customers, we believe we can continue to negotiate favorable incentive rebates. However, if these fees upon the settlement of card transactions by the Issuing Banks. Our contracts with the Card Networks also provide us with certain monetary incentives based on the volume ofincrease, our Customers’ transactions processed through the respective Card Network. Additionally, we partner with Card Networks to develop our processing capabilities in international locations as we expand globally.
Our relationships with the Card Networks allow us to connect our Platform directly to the Card Networks, which allows for transaction authorization (or decline) messages to be sent electronically to and from our Platform. This connection provides for virtually instant notification of our Customers’ card transactions and allows for quick response to the authorization request. Once an authorization approval response has been sent by Marqeta to the Card Network (based on parameters established by the applicable Customer), the transaction is able to occur on the Card Network’s secure network.
gross margins will decrease. Mastercard
In 2020, we entered into a strategic relationship agreement with Mastercard. We have also entered into a number of subsequent arrangements with Mastercard, including certain brand agreements. Under these agreements, as amended, we have agreed to cooperate with Mastercard on a number of initiatives, including international expansion, product, marketing, and business development collaboration. The contracts provide Marqeta with tiered incentives based on the processing volume of our Customers’customers’ transactions routed through Mastercard and its affiliated networks. The current term of the strategic relationship agreement expires in 2028 or at an earlier date if Marqeta achieves a certain processing volume milestone through the Mastercard network. Either party may terminate the agreements under specified circumstances, including upon a material breach that remains uncured for a specified period of time.
Visa
In 2017, we entered into a strategic alliance framework agreement with Visa, subsequentlyVisa. The agreement has been periodically amended. We have also entered into a number of subsequent arrangements with Visa, as governed by the strategic alliance framework agreement, including a service evaluation agreement, card partner agreement, and certain brand agreements. Under these agreements, we have agreed to cooperate with Visa on a number of initiatives, including international expansion, product, marketing, and business development collaboration. The contracts provide Marqeta with tiered incentives based on the processing volume of our Customers’customers’ transactions routed through Visa and its affiliated networks. The current termAs of February 2023, the parties have entered into an extension of the card partner agreement under the strategic alliance framework agreement expires in 2022 and automatically renews annually thereafter.for a term of five years. Either party may terminate the agreements under specified circumstances, including upon a material breach that remains uncured for a specified period of time. Visa may also elect to terminate the agreements prior to the natural expiration of the then-current term due to our failure to meet certain performance requirements.
PULSE Network
In 2013, we entered into a direct processor agreement with PulsePULSE Network LLC, or Pulse,which has been subsequently amended. The contract provides Marqeta with tiered incentives based on the processing volume of our Customers’customers’ transactions routed through PulsePULSE and its affiliated networks. The current term of the contract is currently under a renewal term, whichexpires in 2028 and automatically renews annually thereafter, unless either party provides written notice of its intent not to renew. Either party may terminate the agreement under specified circumstances, including upon a material breach that remains uncured for a specified period of time.
Our Competitors
We compete in a large and evolving market. Our competitors fall into three primary categories: (1) providers with legacy technology platforms, (2) modern API-based providers, and (3) emerging providers. We compete primarily on the basis of our platform’s depth and breadth, offering a more configurable and complete solution for innovators.
We believe that the principal competitive factors in our market include:
•industry expertise;
•platform and product features and functionality;
•ability to build new technology and keep pace with innovation;
•scalability;
•extensibility;
•product pricing;
•securitymultiple program types (debit, prepaid, credit);
•multinational reach;
•complete solutions at scale;
•flexibility and configurability;
•reliability;
•compliance solutions;
•program management;
•brand recognition and reputation;
•agility; and
•speed to market.
Our competitors fall into three primary categories:
•Providers with legacy technology platforms, including Global Payments (TSYS), Fiserv,industry expertise and FIS:customer service.
We believe we offer a more agile and configurable solution that is faster to market thancompare favorably with our competitors on the traditional providers. We believe that, in general, legacy solutions are more rigid and are slower to both implement and innovate. Legacy platforms are often oriented to serve large financial institutions with standard product offerings. In contrast, the Marqeta Platform supports a rangebasis of digitally enabled use cases to serve the evolving card issuing marketplace.
•Vertical-focused providers, including Wex and Comdata:
While we also compete with providers focused on a certain vertical, we believe that our modern card issuing Platform’s depth and breadth offer a better and more complete solution for innovators. From its initial inception, our Platform was built to be horizontal, making it more configurable and extensible for a variety of emerging use cases and verticals. Furthermore, our experience in one vertical often informs similar use cases in other verticals, helping us bring new features to market faster.
•Emerging providers, including Adyen and Stripe:
Our Customers tell us that industry expertise is the number one reason for selecting an Issuer Processor. Marqeta has a track record of successful innovation. Emerging providers generally do not have the same demonstrated track record in card issuing. In addition, emerging providers that are also Acquirer Processors as their core business, are required to dedicate both time and capital to non-core parts of their business to serve the card issuing market. Overall, emerging providers generally have different go-to-market strategies and less expansive technological capabilities.
these factors. We have a deep history of card issuing expertise, enabling us to achieve technical and operating leverage that we believe potential competitors are unable to replicate. However, some of our competitors have greater financial and operating resources. Moreover, as we expand the scope of our Platform,platform, we may face additional competition. See the section titled “Risk Factors—Risks Relating to Our Business and Industry—We participate in markets that are competitive and continuously evolving, and if we do not compete effectivelysuccessfully with established companies and new market entrants, our business, results of operations, and financial condition, and future prospects could be materially and adversely affected.”affected” for additional information regarding the competitive environment in which we operate.
Intellectual Property
We believe thatseek to protect our intellectual property rights are valuable and important to our business. We relyby relying on a combination of patents, trademarks, copyrights, trade secrets, license agreements, confidentiality procedures, non-disclosure agreements, and employee disclosureconfidential information and invention assignment agreements, as well as other legal and contractual rights, to establish and protect our proprietary rights. Though we rely in part upon these legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees, the functionality and infrastructure of our Platform and our business, and frequent enhancements to and expansions of our Platform are more important contributors to our success.
We have a patent program designed to cover various aspects of our business in the United States and abroad.internationally. These patents and patent applications are intended to protect our proprietary inventions relevant to our business. We continually review our development efforts to assess the existence of new intellectual property and patentability ofour ability to patent new intellectual property.
We also have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines, and logos in the United States and internationally to the extent we determine appropriate and cost-effective. We have also have registered domain names for websites that we use in our business, such as www.marqeta.com and other similar variations.
In addition, we seek to protect our intellectual property rights by requiring our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged. In addition, the laws of various foreign countries where we operate may not protect our intellectual property rights to the same extent as laws in the United States. We expect that infringement claims may increase as the number of products and competitors in our market increase. In addition, to the extent that we gain greater visibility and market exposure as a public company, we face a higher risk of being the subject of intellectual property infringement claims from third parties. Any third-party intellectual property claims against us could significantly increase our expenses and could have a significant and negative impact on our business, results of operations and financial condition.
From time to time, we also incorporate certain intellectual property licensed from third parties, including under certain open source licenses. Even if any such third-party technology did not continue to be available to us on commercially reasonable terms, we believe that alternative technologies would be available as needed in every case.
See the section titled “Risk Factors—Risks Relating to Intellectual Property” for a more comprehensive description of risks related to our intellectual property and proprietary rights.
Sales and Marketing
Our marketing and business development teams operate under one, closely aligned go-to-market umbrella at Marqeta. Our go-to-market function is responsible for how we position ourselves within the industry, growing awareness and adoption of our Platform, accelerating Customer acquisition, onboarding Customers, and setting them up for success. We deploy a range of marketing strategies to drive brand awareness and adoption, including public relations, advertising campaigns, and generating leads and opportunities through direct marketing (online and offline). Our sales development representatives are part of our marketing team and make sure we create, influence and mature the right opportunities from our marketing activity, ranging from tailored content to high touch activities such as leading industry trade shows and events.
Our business development teams, incorporating both strategic, enterprise, and emerging sales units as well as our partnerships team, employ strategies specific to the industry, vertical, use-case and Customer, to convert interest into Customers, capture market share and drive revenue. Our thoughtful, multi-stage engagement process sets the stage for enduring enterprise partnerships with our Customers. We complement these marketing, business development, and sales activities with a focus on Customer onboarding, experience, and success.
We believe that highly responsive and effective support and education are an extension of our brand and are core to ensuring we’re reducing time to revenue when signing a new customer and building and maintaining trust. We firmly believe in the importance of partnering with our Customers, and this is made possible by close cooperation between Customers and our Customer success and delivery operations and bank partnership team. This enables us to launch new card programs as quickly as possible, reacting quickly to Customer needs and fostering collaboration on future product innovation.
Research and Development
Our research and development efforts focus on building enterprise-grade product and service capabilities for our Customers. Technical direction is derived from our understanding of the payments ecosystemcustomers and our partners, the evolving opportunity and needs of our Customer base, and the developer community. This focus enables the development of a robust, global platform to support a wide array of products, services, and use cases.their cardholders. Our design, product, engineering, and Customercustomer success teams collaborate to connectdesign, build, deploy and monitor our Customersplatform. We enable our customers to build solutions on our platform, which connects to our Issuing Banks and Card Networks. Our technical operations team also works to ensure the successful deployment and monitoring of our Platform. Software development is primarily executed by our team of professionals across design, product management, and engineering disciplines. We intend to continue to invest in our research and development capabilities to extend our Platform.platform offerings.
Government Regulation
We are subject, directly, or indirectly through our relationships with our Issuing Banks, Customers,customers, or Card Networks, to a number of U.S. federal and state and foreign laws and regulations. The regulatory environment in which we operate is rapidly evolving, and the most significant government regulations that involve matters centralimpact our business are discussed below. For more information on the risks relating to our business. These laws and regulations involve privacy, data protection, information security, intellectual property, competition, and other subjects.regulatory environment, see the section titled “Risk Factors—Risks Relating to Regulation.”
Many of the laws and regulations that we are subject to are still evolving and being tested in courts and could be interpreted in ways that could harm our business. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly evolving industry that we operate in. Further, these laws and regulations are sometimes ambiguous or inconsistent, and the extent they apply to us is at times unclear. As global laws and regulations have continued to develop and evolve rapidly, it is possible that we may not be, or may not have been, compliant with each such applicable law or regulation or that we may in the future be required to obtain licenses and registrations. Any actual or alleged failure to comply with applicable laws or regulations may result in, among other things, private litigation, regulatory investigations and enforcement actions, sanctions, civil and criminal liability and constraints on our ability to continue to operate.
As we expand our geographical reach and our offerings, we may become subject to additional regulations, in the United States and internationally.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or the Dodd-Frank Act, effected comprehensive revisions to a wide array of federal laws governing financial institutions, financial services and financial markets. Among its most notable provisions is the creation of(the “Dodd-Frank Act”) created the Consumer Financial Protection Bureau or CFPB,(the “CFPB”) which is charged with regulatingregulates consumer financial products or services and which assumes much of the rulemaking authority under federal laws affecting the extension of credit. In addition to rulemaking authority over several enumerated federal consumer financial protection laws, the CFPB is authorized to issue rules prohibiting unfair, deceptive, or abusive acts or practices by persons offering consumer financial products or services and their service providers and has authority to enforce these consumer financial protection laws and CFPB rules. The CFPB has not defined what is a consumer financial product or service but has indicated informally that, in some instances, small businesses may be covered under consumer protection.
services. Due to our relationships with Issuing Banks and Card Networks, we may be subject to direct or indirect supervision and examination by the CFPB in connection with our Platform and certain of our products and services.CFPB. CFPB rules, examinations, investigations, and enforcement actions against us or our Issuing Banks, Card Networks, or customers may require us to adjust our activities and may increase our compliance costs.
In addition, the Durbin AmendmentWe are subject to the Dodd-Frank Act provides that Interchange Fees that an Issuing Bank or Card Network receives or charges for debit transactions are regulated bySection 5 of the Federal ReserveTrade Commission Act, which prohibits unfair and must be “reasonabledeceptive acts or practices in or affecting commerce, and proportional” to the cost incurred by the card issuer in authorizing, clearing, and settling the transaction. Card Network fees may not be used directly or indirectly to compensate Issuing Banks in circumvention of the interchange transaction fee restrictions. While we only contract with Issuing Banks who are exempt from the Durbin Amendment, we remain sensitive to changes in the regulation of Interchange Fees. The implementationSection 1031 of the Dodd-Frank Act, is ongoing, and as a result, its overall impact remains unclear. Its provisions, however, are sufficiently far reaching that it is possible that we could be further directlywhich prohibits unfair, deceptive, or indirectly impacted.
Privacy, Data Protection, and Information Security Regulations
We provide services that are subject to various state, federal and foreign laws and regulations relating to privacy, data protection, and information security, including, among others, the Gramm-Leach Bliley Act, the EU General Data Protection Regulation, and the California Consumer Protection Act. Accordingly, we publish ourWe maintain privacy policies and terms of service, which describe our practices concerning the use, transmission, and disclosure of certain information. For additional information about laws and regulations relating to privacy, data protection, and information security, see the section titled “Risk Factors—Risks Relating to Regulation—Regulations and industry standards related to privacy and data protection could adversely affect our ability to effectively provide our services.”
Additionally, our Platformplatform hosts, transmits, processes, and stores payment card data and is therefore required to comply with the PCI DSS. As a result, we are subject to PCI DSS audits and must comply with related security requirements. See the section titled “Risk Factors—Risks Relating to Our Business and Industry—Our business relies on our relationships with Issuing Banks and Card Networks, and if we are unable to maintain these relationships, our business may be adversely affected. Further, any changes to the rules or practices set by Card Networks, including changes in Interchange Fees, could adversely affect our business.”
Association and Card Network Rules
Our Issuing Banks must comply with the bylaws, regulations, and requirements that are set forth by the Card Networks, including the PCI DSS and other applicable data-securitydata security program requirements. In providing services through our Platform, we are also subject to such requirements. To provide payment processing services,platform, we are certified and registered with certain Card Networks as a processor for member institutions. As such, we are subject to applicable card association, Card Network and national scheme rules that could subject us to fines or penalties for certain acts or omissions. The Card Networks routinely update and modify their requirements and we, in turn, must work to comply with such updates to continue processing transactions on their networks.
Further, we are subject to network operating rules promulgated by the National Automated Clearing House Association relating to payment transactions processed on our Platformplatform using the Automated Clearing House Network and to various federal and state laws regarding such operations.
Prepaid, Debit, and Credit Card Regulations
The Durbin Amendment to the Dodd-Frank Act directs the Federal Reserve Board to regulate debit card Interchange Fees so that they are “reasonable and proportional” to the cost incurred by the card issuer with respect to the transaction. We generally partner with Issuing Banks who are exempt from the Interchange Fee caps in the Durbin Amendment to provide MxM services for prepaid and debit card programs. We continue to monitor proposed changes to the Durbin Amendment.
The card programs that we manage for our Customerscustomers are subject to various federal and state laws and regulations, including the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 and the Federal Reserve Board’sCFPB’s Regulation E, which impose requirements on general-use prepaid cards, store gift cards, and electronic gift certificates. The CFPB also regulates prepaid accounts, including certain accounts that are capable of being loaded with funds and whose primary function is to conduct transactions with multiple, unaffiliated merchants, at ATMs, or for person-to-person transfers. These regulations include, among other things, disclosure of fees to the consumer prior to the creation of a prepaid account; liability limits and error-resolution requirements; regulation of prepaid accounts with overdraft and credit features; and the submission of prepaid account agreements to the CFPB and the publication of such agreements to the general public.
These laws and regulationsWe are evolving, unclear, and sometimes inconsistent and subject to judicialvarious federal consumer protection regimes as a result of our credit platform and regulatory challengerelationship with originating Issuing Banks, including, among others:
•the Equal Credit Opportunity Act and interpretation,Regulation B promulgated thereunder, which prohibit creditors from discriminating against credit applicants on the basis of race, color, sex, age, religion, national origin, marital status, the fact that all or part of the applicant’s income derives from any public assistance program, or the fact that the applicant has in good faith exercised any right under the Federal Consumer Credit Protection Act or any applicable state law;
•the Fair Credit Reporting Act, as amended by the Fair and thereforeAccurate Credit Transactions Act, and Regulation V promulgated thereunder, which promote the extent theseaccuracy, fairness, and privacy of information in the files of consumer reporting agencies;
•the Truth-in-Lending Act and Regulation Z promulgated thereunder, which require certain disclosures to consumers regarding the terms and conditions of loans and credit transactions;
•the Military Lending Act and similar state laws, and rules apply to, and impact, us is in flux. The extensive nature of these regulations may result in additional compliancewhich provide disclosure requirements, interest rate limitations, substantive conduct obligations, and expense for our business.prohibitions on certain behavior relating to loans made to covered borrowers, which include both servicemembers and their dependents; and
•the Servicemembers Civil Relief Act and similar state laws, which allows active duty military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties.
Anti-Money Laundering
Although we are not a “money services business” or otherwise subject to anti-money laundering (“AML”) registration requirements under U.S. federal or state law, we are subject to certain anti-money launderingAML laws and regulations in the United States, the United Kingdom, the European Union, and othervarious jurisdictions. In the United States, the Currency and Foreign Transactions Reporting Act, which is also known as the BSA,Bank Secrecy Act (the “BSA”) and which was amended by the USA PATRIOT Act of 2001, contains a variety of provisions aimed at fighting terrorism and money laundering. Among other things, the BSA and implementing regulations issued by the U.S. Treasury Department require certain financial institutions to establish anti-money launderingAML programs, to not engage in terrorist financing, to report suspicious activity, and to maintain a number of related records.
Due to our relationships with Issuing Banks that are directly regulated for anti-money launderingAML purposes, we have implemented an anti-money launderingAML program designed to prevent our Platformplatform from being used to facilitate money laundering, terrorist financing, and other illicit activity. When providing program management services, we ensure thatdesign our anti-money launderingAML program complies withto meet the requirements of our Issuing Banks. Our programs are also designed to prevent our Platformplatform from being used to facilitate activity in violation of applicable sanctions laws and regulations, including conducting business in specified countries or with designated persons or entities, including those on lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Controls and equivalent foreign authorities. Our anti-money launderingAML compliance program includes policies, procedures, reporting protocols, and internal controls to guard against money laundering, terrorist financing, and other illicit activity, including the designation of a bank secrecy actcompliance officer in the U.S.United States and the equivalent in other jurisdictions to oversee our AML compliance program, and it is designed to assist in managing risk associated with money laundering and terrorist financing.
Anti-Bribery Laws
We are subject to anti-corruption and anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended or the FCPA,(the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the U.K. Bribery Act 2010, and other anti-corruption and anti-bribery laws in countries where we conduct activities. The FCPA and other applicable anti-corruption and anti-bribery laws prohibit companies and their employees and agents from promising, authorizing, making, or offering improper payments or other benefits to government officials and others in the private sector to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business.
The FCPA includes anti-bribery and accounting provisions enforced by the Department of Justice and SEC.the Securities and Exchange Commission (the “SEC”). The statute has a broad reach, covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only those holding public office but also local citizens affiliated with foreign government-rungovernment- run or -ownedowned organizations. The statute also requires maintenance of appropriate books and records and maintenance of adequate internal controls.
Other
We are subject to examination by our Issuing Banks’ regulators and must comply with certain regulations to which our sponsorthese banks are subject, as applicable. For instance, due to our relationships with certain Issuing Banks and certain Customers,customers, we may be subject to indirect supervision and examination by the Federal Deposit Insurance Corporation (the “FDIC”), state banking regulators (such as the California Department of Financial Protection and Innovation), and the Office of the Comptroller of the Currency in connection with our Platformplatform and certain of our products and services. We are also subject to audit by certain Issuing Banks. Further, certain of our Customerscustomers are financial institutions or non-bank regulated entities and, as a result, we may be indirectly subject to examination and obligated to assist those Customerscustomers in complying with certain regulations to which they are subject or with responses to audits of such Customers.customers.
International Regulation
The conduct of our business and the use of our products and services outside the United States are subject to various foreign laws and regulations administered by government entities and agencies in the countries and territories where we operate and where our Customerscustomers and their cardholders use our products and services. For instance, we are subject to processing fee and transaction fee regulation where our cards are used and may in the future be subject to Interchange Fee regulations in other countries where our cards are used.
Security, Privacy and Data Protection
TrustThe privacy of our customers’ data and our customers’ cardholders’ data is important forto our relationship with our Customers,continued growth and success, and we take significant measures to protect the privacy and security of their data and the data of their cardholders.
Security
We devote considerable resources to our information security program, which is dedicated to ensuring the highest confidence in our custodianship of the data of our Customers. Our security program is aligned to the ISO 27000 standards and is regularly audited and assessed by third parties. In addition, our security program has achieved several internationally-recognized certifications and industry standard audited attestations.
Our security program focuses on preserving the confidentiality, integrity, and availability of the personal data and other confidential information of our Customers and our Customers’ cardholders. To this end, our team of security professionals, working in partnership with peers across our company, work to identify and mitigate risks, implement best practices, and continue to evaluate ways to improve our information security. These steps include data encryption in transit and at rest, network security, classifying and inventorying data, limiting and authorizing access controls, and multi-factor authentication for access to systems withsuch data. We also employ regular system monitoring, logging, and alerting to retain and analyze the security state of our corporate and production infrastructure. In addition, we take steps to help ensure that appropriate security measures are maintained by the third-party vendors we use, including by conducting security reviews and audits.
Privacy and Data Protection
The privacy of our Customers’ data and our Customers’ cardholders’ data is important to our continued growth and success. Privacyprotection is a shared responsibility among all our employees. We also have a privacy team that builds and executes on our privacy program, including support for data protection and privacy-related requests.
We are committed to complying with applicable privacy and data protection laws. We monitor guidance from industry and regulatory bodies and update our Platformplatform and contractual commitments accordingly.
We maintain a privacy policynotices that describesdescribe how we collect, use, and share personal information relating to our Customerscustomers and we implement appropriate contractual provisions relating to our processing of cardholders’ personal information.
Our Employees and Human Capital Resources
As of December 31, 2021,2023, we had a total of 789771 employees and 193 contractors. Wewe supplement our workforce with contractors and consultants. To our knowledge, none of our employees is represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and newprospective employees. We believe our culture helps us hire and retain best-in-class talent, as we empower employees to do the best work of their lives. Marqeta was named one of Glassdoor’s Best Places to Work in 2022. This list celebrates the employees’ choice for the top companies to work for and is determined solely based on employee feedback provided on Glassdoor. We were ranked highest for our culture and values, career opportunities available, and diversity and inclusion.
Diversity, Equity, and Inclusion
Marqeta is proud of its Oakland roots and strives to build a global team as diverse as the markets it serves. A key focus of our human capital management approach is our commitment to advancing diversity, equity, and inclusion. At Marqeta, we believe that creating a truly inclusive workplace means investing in company-wide programs, policies, and practices centered on equity. We strive to build a culture where everyone belongs and is empowered to bring their authentic selves to work every day, regardless of race, ethnicity, gender identity, age, religion, sexual orientation, physical ability, background or any other human qualifier. Of our new hires in 2021 who voluntarily disclosed their gender and race/ethnicity information, 44% identified as female and 11% identified as Black or Latinx. It is our diverse perspectives that help us collaborate, innovate, and drive success within our teams and for the customers and communities we serve.
Marqeta's Employee Resource Groups, or ERGs, along with our Diversity Council and other culture coalitions form a network of internal groups focused on elevating underrepresented voices in tech and celebrating the wide range of communities and cultures that span our employee base. We currently have twelve ERGs, with over half of our employees participating in at least one. Marqeta’s core company value that “Everyone Belongs” serves as a constant reminder of how critical this work is to our identity as a company.
Compensation, Benefits, and Wellness
We believe we offer a robust, competitive compensation and benefits package that supports our employees’ overall health and financial wellness. To ensure alignment with our short- and long-term objectives, our compensation programs include base pay, and cash and equity incentives. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of share-based compensation awards which allows us to align employees’ interests with our shareholders and to allow our employees to share in increases in the value of our equity. We also offer a wide array of in-demand benefits and perks to our global workforce, including comprehensive health and welfare benefits, flexible time-off, and various family and medical leave benefits.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees and the communities in which we operate. These include having the vast majority of our employees continue to work from home, and implementing additional safety measures for employees conducting critical on-site work. The future of work at Marqeta is flexible, with in-office, hybrid, and remote working options. We have also added additional company-wide paid days off to help employees balance their work and life responsibilities. We believe these flexible policies will help us source, connect, and hire talent in more locations, as well as retain talent that may want or need to relocate.
Corporate Information
We were incorporated in 2010 under the name Marqeta, Inc. as a Delaware corporation. We completed our initial public offering (“IPO”) in June 2021 and our Class A common stock is listed on the Nasdaq Global Select Market (“Nasdaq”), under the symbol “MQ.” Our principal executive offices are located at 180 Grand Avenue, 6th Floor, Oakland, CA 94612, and our telephone number is (888) 462-7738.(877) 962-7738.
Available Information
Our website is located at www.marqeta.com, and our investor relations website is located at www.investors.marqeta.com. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov. We use our www.investors.marqeta.com and www.marqeta.com websites, as well as our blog posts, press releases, public conference calls, webcasts, our twitterX feed (@Marqeta), our Instagram page (@lifeatmarqeta), our Facebook page, and our LinkedIn page, as a means of disclosing material nonpublic information and for complying with our disclosure obligations under Regulation FD. The contents of our websites are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
Item 1A. Risk Factors
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K and our consolidated financial statementsConsolidated Financial Statements and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before making a decision to invest in our Class A common stock. Our business, results of operations, financial condition, and prospects could also be harmed by risks and uncertainties not currently known to us or that we do not currently believe to be material. If any of the risks actually occur, our business, results of operations, financial condition, and prospects could be adversely affected. In that event, the trading price of our Class A common stock could decline, and you could lose part or all of your investment.
Risk Factors Summary
Our business is subject to numerous risks and uncertainties that you should consider before investing in our company. The following is a summary of some of these risks and uncertainties. This summary should be read together with the more detailed description of each risk factor below.
•We have experienced rapid net revenue growth in recent periods and our recent net revenuepast growth rates may not be indicative of our future net revenue growth.
•growth rates. If we fail to manage our growth effectively, we may be unable to execute our business plan or maintain high levels of customer service and satisfaction, and our business, results of operations, and financial condition couldresults may be adversely affected.
•Future net revenue growth depends on our ability to attract new customers and retain existing Customers, drive increased TPV on our Platform, and attract new Customerscustomers in a cost-effective manner.
•We participate in markets that are competitive and continuously evolving, and, if we do not compete effectively with established companies and new market entrants,successfully, our business, results of operations, and financial condition, couldand future prospects may be adversely affected.
•We currently generate significant net revenue from a small number of customers, including our largest Customer, Block, Inc., orcustomer, Block, and the loss of any of these significant relationships or decline in net revenue from Blockthese customers, including as a result of renewals on less favorable terms, could adversely affect our business results of operations, and financial condition.
•Our recent growth, ongoing changes in our industry, and our transaction mix make it difficult to forecast our net revenue and evaluate our business and future prospects.results.
•We have a history of net losses we anticipate increasing operating expenses in the future, and we may not be able to achieve or sustain profitability.
•Our results may fluctuate significantly and may not fully reflect the underlying performance of our business, making it difficult to accurately forecast future results. If we fail to meet the expectations of financial analysts or investors, our stock price and the value of your investment could decline.
•We may experience annual or quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.
•The global COVID-19 pandemic could adversely affect our business, results of operations, and financial condition.
•Our business reliesrely on our relationships with Issuing Banks and Card Networks, and if we are unable to maintain these relationships, our business may be adversely affected. Further, any changes to the rules or practices set by Card Networks, including changes in Interchange Fees, could adversely affect our business.
•There has been a limited public market forIf our credit platform is inaccurate or does not perform as intended, our business may be adversely affected.
•Litigation, disputes, regulatory actions, and government or legal investigations could be costly and time-consuming to defend, and our business may be adversely affected by our involvement or the outcome of such litigation, disputes, actions, or investigations.
•If we fail to maintain an effective system of disclosure controls and procedures or internal control over financial reporting, or remediate our existing material weaknesses, our ability to report timely and accurate financial results or comply with applicable regulations could be impaired, and our business, operating results, and the price of our Class A common stock themay be adversely affected.
•The trading price of our Class A common stock has been and is likely to continue to be volatile, or may decline regardlesswhich could cause the value of our operating performance, and you may not be ableyour investment to resell your shares at or above the price at which you purchased such shares.decline.
•The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who hold shares of our Class B common stock, including our directors, executive officers, and their respective affiliates. This ownership limits or precludes your ability to influence corporate matters, includingAs a result of the election of directors, amendmentsdual class structure of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval, and that may depresscommon stock, the trading price of our Class A common stock.stock may be depressed.
•We cannot guarantee that our share repurchase program will enhance long-term stockholder value. Share repurchases could also affect the trading price of our stock and may reduce working capital.
Risks Relating to Our Business and Industry
We have experienced rapid net revenue growth in recent periods and our recent net revenuepast growth rates may not be indicative of future growth rates. If we fail to manage growth effectively, our future net revenue growth.business and financial results may be adversely affected.
WeWhile we have experienced rapid net revenue growth in recent periods.prior periods, our net revenue decreased in the year ended December 31, 2023. Our total net revenue was $517.2$676.2 million, $290.3$748.2 million, and $143.3$517.2 million for the years ended December 31, 2023, 2022, and 2021, 2020,respectively, a decrease of (10)% and 2019, respectively, an increase of 78% and 103%45% from the prior years, respectively. In future periods, we may not be able to sustain net revenue growth consistent with recent history, or at all. Further, because we operate in an evolving payments industry, our ability to grow and innovate is important to our success. We believe our net revenue growth depends on several factors, including, but not limited to, our ability to:
•acquire new Customerscustomers and retain existing Customers;customers on favorable terms;
•achieve widespread acceptance and use of our Platformplatform and the products and services we offer;offer, including in markets outside of the United States;
•increase the use of our Platform and our offerings, TPV, and the number of customers and transactions on our Platform;platform;
•effectively scale our operations, while maintaining high levels of serviceincluding successfully integrating acquired businesses and Customer satisfaction;technology;
•maintain and increase our net revenue and gross profit by continuing to innovate and expandingexpand our product and service offerings;
•diversify our Customercustomer base;
•maintain and grow our network of vendors and partners, including Issuing Banks and Card Networks, and other vendors and partners;
•hire and retain talented employees at all levels of our business;Networks;
•maintain the security and reliability of our Platform;platform;
•adjust for the impact of the anticipated accounting treatment of our customer agreements and the risk that such accounting treatment may be subject to further changes or developments;
•adapt to changes in laws and regulations applicable to our business;
•adapt to changing macroeconomic conditions and evolving conditions in the payments industry;
•introduce and grow widespread adoption of our Platform in new markets outside of the United States; and
•successfully compete against established companies and new market entrants, including legacy issuing platforms and modern payments technology companies.entrants.
If we are unable to accomplish these objectives, our net revenue growth may be adversely affected.
We also expect our operating expenses to increase in future periods, and if our net revenue growth does not increase to offset these anticipated increases in our operating expenses, our business, results of operations, and financial condition will be adversely affected, and we may not be able to achieve profitability. We have also encounteredhistorically experienced significant growth in the past,number of customers using our platform, the number of card programs and expect to encounter insolutions we manage for our customers, and TPV on our platform. Our TPV was $222.3 billion, $166.3 billion, and $111.1 billion for the years ended December 31, 2023, 2022, and 2021, respectively, an increase of 34% and 50% from the prior years, respectively.
Net revenue and TPV for any prior period should not be relied on as an indication of our future risks and uncertainties frequently experienced by growing companies in evolving industries as further detailed in these “Risk Factors.”performance. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our growth rates may slow and our business would suffer. In the near term, we expect our TPV and net revenue growth rates decline or continue to be variable as a result of the COVID-19 pandemic, including the continued spread and evolution of COVID-19, and we are unable to predict the duration, degree, or volatility of future growth with any certainty.
If we fail to manage our growth effectively,decline, we may be unable to executenot achieve profitability as expected, and our business, plan or maintain high levels of Customer service and satisfaction, and our business,financial condition, results of operations, and financial condition couldthe price of our Class A common stock would be adversely affected.
We have experienced, and expect to continue to experience, rapidOur growth which has placed, and may continue to place, significant demands on our management and our operational and financial resources. For example, our workforce has grown to 789 employees as of December 31, 2021 from 509 employees as of December 31, 2020. We have offices in the United Kingdom, or U.K., and Australia, and a presence in Singapore, and we plan to continue to expand our international presence and operations into other countries in the future. We have also historically experienced significant growth in the number of Customers using our Platform, the number of card programs and solutions we manage for our Customers, and TPV on our Platform.
To manage operations and personnel growth, we will need to continue to grow and improve our operational, financial, and managementinformation technology controls, and our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to expand our systems and infrastructure beforeinfrastructure. If we fail to manage our net revenue increases without any assurances that our net revenue will increase. We also believe that our corporate culture has been and will continue to be a valuable component of our success. As we expandgrowth effectively, our business and mature as a public company, wefinancial results may find it difficult to maintain our corporate culture while managing this growth as our employees and other service providers increasingly work from geographic areas across the globe. Failure to manage our anticipated growth and organizational changes in a manner that preserves the key aspects of our culture could reduce our ability to recruit and retain personnel, innovate, operate effectively, and execute on our business strategy, potentially adversely affecting our business, results of operations, and financial condition. Additionally, as a result of the COVID-19 pandemic, our global workforce has been working remotely or in hybrid settings, with expected future phased office re-openings potentially limiting our employees’ ability to perform certain job functions and, over time, negatively impacting corporate culture.
Further, as more of our employees are located in new jurisdictions, we will be required to invest resources and to monitor continually changing local regulations and requirements, and we may experience a resulting increase in our expenses, decrease in employee productivity, and changes in our corporate culture.
In addition, as we expand our business, it is important that we continue to maintain a high level of Customer service and satisfaction. As our Customer base continues to grow, we will need to expand our account management and Customer service teams and continue to scale our Platform. If we are not able to continue to provide high levels of Customer service, our reputation, as well as our business, results of operations, and financial condition, could be adversely affected.
Future net revenue growth depends on our ability to attract new customers and retain existing Customers, drive increased TPV on our Platform, and attract new Customerscustomers in a cost-effective manner.
Our net revenue growth substantially dependsIf we are unable to attract new customers, retain existing customers on our ability to maintainfavorable terms, and grow and develop those relationships to drive increased processing volumes, our relationships with existing Customersbusiness, results of operations, financial condition, and increasefuture prospects would be adversely affected.
If we fail to attract new customers, including customers in new use cases, industry verticals, and geographies, and to expand our platform in a way that serves the volumeneeds of transactions processed on our Platform. If our prospective Customers dothese customers, and to onboard them quickly, then we may not recognize, or our existing Customers do notbe able to continue to recognize, the need for and benefits of our Platform and our products, they may decide to adopt alternative products and services to satisfy their business needs. To grow our business and extend our market position, we intend to focus on educating potential Customers about the benefitsnet revenue.
Some of our Customer contracts provide for a termination clause that allows our Customers to terminate their contract at any time following a limited notice period. In addition, our CustomersOur customers generally are not subject to any minimum volume commitments under their contracts and have no obligation to continue using our Platform,platform, products, or services. We cannot assure you that Customers will continueAccordingly, these customers may have, or may enter into in the future, similar agreements with our competitors, which could adversely affect our ability to use our Platform ordrive the processing volume and revenue growth that we will be ableseek to continue processing transactions on our Platform at the same rate as we have in the past. Customers may terminate or reduce their useachieve. Some of our Platformcustomer contracts provide for a termination clause that allows our customers to terminate their contract at any number of reasons, including their level of satisfaction with our products and services, the effectiveness of our support services, our pricing and the pricing and quality of competing products or services, or the effects of global economic conditions.
time following a limited notice period. The loss of Customerscustomers or reductions in their processing volumes, particularly any loss of or reductions by Block, may adversely affect our business, results of operations, and financial condition. Our growth may decline in the future if Customers are not satisfied with our Platform or our ability to meet our Customers’ needs and expectations. Further, the complexity and costs associated with switching processing volume to our competitors may not ultimately prevent a Customer from switching to another provider. To achieve continued growth, we must not only maintain our relationships with our existing Customers,customers, but also encourage them to renew their contracts with us and to increase adoption and usage of our products. For example, Customerscustomers can have multiple card programs on our Platformplatform across different use cases and geographies. If Customers do not renew their contracts or broaden their use of our services, our growth may slow or stop and our business, results of operations, and financial condition may be materially and adversely affected.
In addition to capitalizing on the potential net revenue embedded within our existing Customer base,However, we mustcannot assure you that customers will continue to attract new Customers to promote growth. Our growth depends on developing new use cases and industry verticals across new geographies. We may face additional challenges that are unique to the markets we target and we may not be able to acquire new Customers in a cost-effective manner. To reach new Customers, we may need to spend significantly more on sales and marketing to generate awareness of our Platform and educate potential Customers on the value of our Platform. We may also need to adapt our existing technology and offeringsplatform or develop new or innovative capabilities to meet the particular needs of Customers in these new use cases or new markets, and there can be no assurance that we will be successful in these efforts. We may not have adequate financial or technological resources to develop effective and secure products and services that will satisfy the demands of Customers in these new markets. When a new Customer launches with us, if we are slow to onboard them onto our Platform or are slow to expand their use cases, our net revenue from the Customer may be limited. If we fail to attract new Customers, including Customers in new use cases, industry verticals, and geographies, and to expand our Platform in a way that serves the needs of these new Customers, and to onboard them quickly, then we may not be able to continue to growprocessing transactions on our net revenue.platform at the same rate as we have in the past.
We participate in markets that are competitive and continuously evolving, and, if we do not compete effectively with established companies and new market entrants,successfully, our business, results of operations, and financial condition, couldand future prospects may be adversely affected.
We were foundedoperate in 2010, and we provide a single, global, cloud-based, open-API Platform for modern card issuing and payment processing. We provide card issuing, payment processing, risk management, data insights, and a variety of controls, customizations, and features through our Platform. Our modern card issuing Platform is situated in the evolving financial technology and payments industries that are intenselyhighly competitive and subject to rapidly evolving technology, shifting customer needs, new market entrants,dynamic industry and introductions of new products and services. We face competition along several dimensions, including providers with legacy technology platforms, such as Global Payments (TSYS), Fiserv, and Fidelity National Information Services; vertical-focused providers, such as Wex and Comdata; and emerging providers, such as Adyen and Stripe. We believe the principal competitive factors in our market include industry expertise, platform and product features and functionality, ability to build new technology and keep pace with innovation, scalability, extensibility, product pricing, security and reliability, brand recognition and reputation, agility, and speed to market. Wewe expect competition to increase in the future as established and emerging companies continue to enter the markets we serve or attempt to address the problems that our Platformplatform addresses. We face competition along several dimensions, including providers with legacy technology platforms, such as Fidelity National Information Services (FIS), Fiserv, and Global Payments (TSYS); modern API-based providers, such as Galileo, i2c, and Visa DPS; and emerging providers, such as Adyen and Stripe. We believe that the principal competitive factors in our market include: pricing; multiple program types (debit, prepaid, credit); multinational reach; complete solutions at scale; flexibility and configurability; reliability; compliance solutions; program management; brand recognition and reputation; and industry expertise and customer service. Moreover, as we expand the scope of our Platform,platform, we may face additional competition.
Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as greater brand name recognition, longer operating histories, larger sales and marketing budgets and resources, more established relationships with vendors or customers, greater customer support resources, greater resources to make acquisitions and investments, lower labor and development costs, larger and more mature intellectual property portfolios, and other substantially greater financial, technical, and other resources. Such competitors with greater financial and operating resources may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, customer requirements, or regulatory developments. In addition, there has been a recent increase in large mergerIf we are unable to successfully compete, our growth could slow or decline, which would materially and acquisition transactions in the payments industry, and future mergers and acquisitions by these companies may lead to even larger competitors with more resources.
Conditions in our markets could also change rapidly and significantly as a result of technological advancements, partnering by our competitors, or continuing market consolidation, and it is uncertain how our markets will evolve. New commerce disruptors or large financial institutions that are making significant investments in research and development may develop similar or superior products and technologies that compete with our Platform. Our existing and potential Customers also may choose to build some of the functionality our Platform provides, potentially limiting or eliminating their demand for our Platform. These competitive pressures in our markets or our failure to compete effectively may result in price reductions, fewer Customers, reduced net revenue, gross profit, and gross margins, increased net losses, loss of processing volume, and loss of market share. Any failure to meet and address these factors could adversely affect our business, results of operations, financial condition, and financial condition.
We currently generate significant net revenue from a small groupnumber of Customers,customers, including our largest Customer,customer, Block, and the loss of any of these significant relationships or decline in net revenue from these customers, particularly Block,including as a result of renewals on less favorable terms, could adversely affect our business, results of operations, financial condition, and financial condition.future prospects.
A small number of Customerscustomers account for a large percentage of our net revenue. ForAs discussed further in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for the years ended December 31, 2021, 20202023, 2022, and 2019,2021, Block accounted for 69%68%, 70%71%, and 60%69% of our net revenue, respectively.
Although we expect theThe net revenue from our largest Customer will decreaseBlock decreased over timethe second half of 2023 as a percentage of our total net revenue, as we generate moredue to the terms of the August 2023 Block Amendment. We renewed the Block Agreement in August and November 2023, and the current term for both the Cash App and Square Debit Card programs expires in June 2028. The Block Agreement automatically renews thereafter for successive one-year periods. The August 2023 Block Amendment provides that Block is responsible for defining and managing the Cash App program with respect to the primary Card Network going forward. The August 2023 Block Amendment has, and is expected to continue to, reduce reported net revenue from other Customers,period-over-period comparisons through the first half of 2024.
However, we expect that net revenue from a relatively small group of Customerscustomers, including Block, will continue to account for a significant portion of our net revenue in the near term. Additionally, consolidation within our Customers’ industries has accelerated in recent years, which has in turn increased theThe concentration of our Customers, and these trends may continue. For example, Block, our largest Customer, announced in February 2022 that it had completed its acquisition of Afterpay Limited, which is also our Customer, and may increase thea large percentage of our net revenue represented by our largest Customer. Furthermore, in the event thatwith a limited number of customers exposes us disproportionately to any of our largest Customersthose customers choosing to stop using our Platformplatform or useusing our Platformplatform in a reduced capacity, reducing their processing volume with us, or renegotiating, terminating, or failing to renew their agreements with us, or renewing their agreements with us on different terms. For example, the August 2023 Block Amendment renewed our agreement with Block for the Cash App program on different terms, which reduced reported net revenue. Should any of those events occur, our business, results of operations, and financial condition wouldmay be adversely affected.
We have a history of net losses and we may not be able to achieve or sustain profitability.
We have incurred significant net losses since our inception, including net losses of $223.0 million, $184.8 million, and $163.9 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023 and December 31, 2022, our accumulated deficit was approximately $825.2 million and $602.2 million, respectively. We expect to continue to incur net losses for the foreseeable future and we may not achieve profitability. We anticipate our operating expenses to continue to increase in the foreseeable future as we hire additional personnel, adjust compensation packages to hire new or retain existing employees, expand our operations and infrastructure, and continue to enhance and expand our platform, products, and services. These initiatives may be more costly than we expect and may not result in increased net revenue. Further as we expand our offerings to additional markets, our offerings in these markets may be less profitable than the markets in which we currently operate.
In addition, any publicity associatedas a public company, we have incurred, and we will continue to incur, additional significant legal, insurance, accounting, and other expenses that we did not incur as a private company.
From time to time, we may make decisions that may reduce our short-term operating results if we believe those decisions will improve the experiences of our customers and their end users, which we believe will improve our operating results over the long term. These decisions may not be consistent with investors’ expectations and may not produce the loss of any of these Customerslong-term benefits that we expect, and this may materially and adversely affect our reputationbusiness.
Our results may fluctuate significantly and could makemay not fully reflect the underlying performance of our business, making it more difficult to attractaccurately forecast future results. If our results fail to meet the expectations of financial analysts or investors, our stock price and retain other Customers.the value of your investment could decline.
Our Customer contracts generally doresults of operations for a given period may not contain long-term commitments from our Customers, and our Customers may be able to terminate their agreements with us prior to expiration offully reflect the contract’s term. The current termunderlying performance of our agreement with Block for Cash App expires in March 2024 and the current term of our agreement with Block for Square Card expires in December 2024, and each agreement automatically renews thereafter for successive one-year periods. Furthermore, while certain of our Customer contracts have minimum volume commitments, others do not. There can be no assurance that we will be able to continue our relationships with our Customers on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contractswith them. In addition, the processing volume from Block has in the past fluctuated from period to periodbusiness and may fluctuate or declineas a result of a number of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to the risk factors included in this section. You should not rely on our past results as an indicator of our future periods. Our net revenue andperformance. If our results of operations could suffer if, amongor other things, Block does not continue to use our products, uses feweroperating metrics fall short of the expectations of investors and financial analysts, the trading price of our products, reduces its processing volume, or renegotiates, terminates or fails to renew, or to renew on similar or favorable terms, its agreement with us.
Our recent growth, ongoing changes in our industry, and our transaction mix make it difficult to forecast our net revenue and evaluate our business and future prospects.
We launched our Platform publicly in 2014, and much of our growth has occurred in recent periods. This recent growth makes it difficult to effectively assess or forecast our future prospects, particularly in an evolving industry. Our modern card issuing Platform represents a substantial departure from the traditional card issuing methodsClass A common stock could be adversely affected and the payment processing solutions offered by traditional providers. While our business has grown rapidly, the market for our Platform, products, and services may not develop as we expect or in a manner that is favorable to our business. As a resultvalue of ongoing changes in our evolving industry, our ability to forecast our future results of operations and plan for and model future growth is limited and subject to a number of uncertainties.your investment could decline.
In particular, forecastingForecasting our future results of operations can be challenging because of such fluctuations and because our net revenue depends in part on our Customers’customers’ end users, and ourusers. Our transaction mix adds further complexity. Our transaction mix refers to the proportion of signature debit versus PIN debit transactions and consumer versus commercial transactions that make up our TPV. In general, transactions that require a signature of the cardholder generate higher percentage-based Interchange Fees, while transactions that require a PIN generate lower percentage-based Interchange Fees. Accordingly, we may be unable to prepare accurate internal financial forecasts, and our results of operations in future reporting periods may differ materially from our estimates and forecasts or the expectations of investors or financial analysts, causing our business to suffer and our Class A common stock trading price to decline.
We have a history of net losses, we anticipate increasing operating expenses in the future, and we may not be able to achieve profitability.
We have incurred significant net losses since our inception, including net losses of $163.9 million, $47.7 million and $122.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. We expect to continue to incur net losses for the foreseeable future and we may not achieve profitability in the future. Because the market for our Platform, products, and services is evolving, it is difficult for us to predict our results of operations or our market opportunity. We expect our operating expenses to significantly increase over the next several years as we hire additional personnel, adjust compensation packages to hire new or retain employees in an increasingly competitive job market, expand our operations and infrastructure, both domestically and internationally, continue to enhance our Platform and develop and expand its capabilities, expand our products and services, and expand and improve our APIs. These initiatives may be more costly than we expect and may not result in increased net revenue. In addition, as a public company, we have incurred, and we will continue to incur, additional significant legal, insurance, accounting, and other expenses that we did not incur as a private company. Any failure to increase our net revenue sufficiently to keep pace with the increases in expenses resulting from these initiatives, investments, and other activities could prevent us from achieving or maintaining profitability or positive cash flow on a consistent basis in future periods. If we fail to achieve profitability, our business, results of operations, and financial condition could be adversely affected. We cannot assure you that we will ever achieve or sustain profitability and may continue to incur significant losses going forward. Any failure by us to achieve or sustain profitability on a consistent basis could cause the value of our Class A common stock to decline.
From time to time, we may make decisions that may reduce our short-term operating results if we believe those decisions will improve the experiences of our Customers, end users, and other users of our products and services, which we believe will improve our operating results over the long term. These decisions may not be consistent with investors’ expectations and may not produce the long-term benefits that we expect, and this may materially and adversely affect our business.
We may experience annual or quarterly fluctuations in our results of operations due to a number of factors that make our future results difficult to predict and could cause our results of operations to fall below analyst or investor expectations.
Our annual or quarterly results of operations may fluctuate as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including, but not limited to:
•demand for our Platform, products, and services by our Customers;
•our success in engaging and retaining existing Customers and attracting new Customers;
•changes in transaction mix or volume processed on the different Card Networks used and the resultant mix of interchange and transaction fees earned;
•our success in increasing our Customers’ processing volumes;
•demand for our Customers’ products by their customers;
•the timing and success of new capabilities by us or by our competitors or any other change in the competitive landscape of our market;
•changes to the terms of and performance under our Customer contracts, including concessions, or payments to Customers resulting from our failure to meet certain service level commitments, which are generally based on our Platform uptime, API response time, and/or transaction success rate;
•reductions in pricing as a result of renegotiations with our larger Customers;
•the amount and timing of operating expenses and capital expenditures, as well as entry into operating leases, that we may incur to maintain and expand our business and operations and remain competitive;
•the timing and extent of amendments or new contracts related to our volume incentive arrangements with Card Networks, which could result in incentive payments that are recorded in a current period and based on volume processed in a prior period;
•the timing of expenses and recognition of net revenue;
•changes in Customers’ processing volumes resulting from seasonal fluctuations;
•security breaches, and technical difficulties involving our Platform or interruptions or disruptions of our Platform;
•adverse litigation judgments, other dispute-related settlement payments, or other litigation-related costs;
•regulatory fines;
•changes in, and continuing uncertainty in relation to, the legislative or regulatory environment;
•the timing and extent of changes in interchange rates set by Card Networks;
•legal and regulatory compliance costs in new and existing markets;
•the amount of compensation and timing of hiring new employees;
•the rate of expansion and productivity of our sales force;
•the timing and extent of increases of grants or vesting of equity awards to employees, directors, or consultants and the recognition of associated share-based compensation expenses and related payroll tax;
•fluctuations in foreign currency exchange rates;
•fluctuations in interest rates;
•costs and timing of expenses related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs and possible write-downs;
•the impact of tax charges as a result of non-compliance with, or changes to, federal, state, local, or other tax regulations;
•changes to generally accepted accounting standards in the United States;
•health pandemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases or viruses;
•the impact of market and economic volatility caused by the COVID-19 pandemic on our business and the businesses of our Customers;
•the impact of the COVID-19 pandemic on consumer demand and spending patterns; and
•general economic conditions in either domestic or international markets, including conditions resulting from geopolitical uncertainty and instability or war, including the significant military action against Ukraine launched by Russia.
Any one or more of the factors above may result in significant fluctuations in our results of operations. You should not rely on our past results as an indicator of our future performance.
The variability and unpredictability of our results of operations or other operating metrics could result in our failure to meet our or investors’ expectations, or those of analysts that cover us, with respect to net revenue or other key metrics for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the trading price of our Class A common stock could fall, and we could face costly lawsuits, including securities class action suits.
Systems failures and interruptions in the availability of our Platform may adversely affect our business, results of operations, and financial condition.
Our continued growth depends on the efficient operation of our Platform without interruption or degradation of performance. Our business involves processing large numbers of transactions, enabling the movement of large sums of money on an aggregate basis, and the management of large amounts of data, and a system outage or data loss could have a material adverse effect on our business, results of operations, and financial condition. We may experience service interruptions, data loss, outages, and other performance problems due to a variety of factors, including infrastructure changes or failures, introductions of new functionality, human or software errors, capacity constraints, denial-of-service attacks, ransomware attacks, or other security-related incidents, including as retaliation against financial institutions for sanctions imposed against Russia as a result of the significant military action against Ukraine launched by Russia. In some instances, we may not be able to identify the cause or causes of these performance problems immediately or in short order, and we may face difficulties remediating and otherwise responding to any such issues. We may not be able to maintain the level of service uptime and performance needed by our Customers, especially as TPV increases. We have experienced high growth in TPV over the past several years and expect such growth may continue for the coming years; however, if we are unable to maintain sufficient processing capacity, Customers could face longer processing times or even downtime. Furthermore, any efforts to further scale our Platform or increase its complexity to handle a larger number or more complicated transactions could result in performance issues, including downtime. If our Platform is unavailable or if Customers are unable to access our Platform within a reasonable amount of time, or at all, our business would be adversely affected. Our Customers rely on the full-time availability of our Platform to process payment transactions, and an outage on our Platform could impair the ability of our Customers to operate their business and generate revenue. Therefore, any system failure, outage, performance problem, or interruption in the availability of our Platform would negatively impact our brand, reputation, and Customer satisfaction, and could subject us to financial penalties and liabilities.
Moreover, we depend on services from various third-party vendors to maintain our infrastructure, including data center facilities and cloud storage platforms such as Amazon Web Services, Inc., or AWS. We conduct vendor due diligence; however, if a service provider fails to develop and maintain sufficient internal control processes or fails to provide sufficient capacity to support our Platform or otherwise experiences service outages, such failure could interrupt the operation of our Platform, potentially adversely affecting our Customers or their perception of our Platform’s reliability and adversely affecting the business of Customers using our Platform. Any disruptions in these services, including as a result of actions outside of our control, would significantly impact the continued performance of our Platform. In the future, these services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of these services could result in decreased functionality of our Platform until equivalent technology is either developed by us or, if available from another provider, is identified, obtained, and integrated into our infrastructure. If we do not accurately predict our infrastructure capacity requirements, our Customers could experience service shortfalls. We may also be unable to effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, as well as to increase efficiency.
Further, our Customer contracts typically provide for service level commitments. If we suffer extended periods of downtime of our Platform or are otherwise unable to meet these commitments, we are contractually obligated to provide service credits, which may be based on a percentage of the processing volume on the day of an incident or the revenue we earned from our Customer on the day of an incident, or based on our overall monthly transaction success rate and the incentive payments or fees from that month. We have experienced incidents requiring us to pay service level credits and other customer service concessions in the past. In addition, the performance and availability of the cloud-based solutions that provide cloud infrastructures for our Platform is outside of our control and, therefore, we are not in full control of whether we meet our service level commitments. As a result, we have experienced, and expect to continue to periodically experience, unpredictable outages of the services provided by these cloud infrastructure providers. Our business, results of operations, and financial condition has in the past been affected and could in the future be adversely affected if we suffer unscheduled downtime that exceeds the service level commitments we have made to our Customers. Any extended service outages could adversely affect our business and reputation and erode Customer trust.
Any of the above circumstances or events may harm our reputation, cause Customers to terminate their agreements with us, impair our ability to renew contracts with Customers and grow our Customer base, subject us to financial penalties and liabilities, and otherwise adversely affect our business, results of operations, and financial condition.
The global COVID-19 pandemic could adversely affect our business, results of operations, and financial condition.
In March 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global pandemic. The COVID-19 pandemic has continued to spread and evolve. The related public health measures, including orders to shelter in place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, Customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. The extent to which such measures are removed or new measures are put in place will depend upon how the pandemic and the global response evolves, including the distribution of available vaccines, the rates at which they are administered, and the emergence of new variants of the virus.
The pandemic, as well as intensified measures undertaken to contain the spread of COVID-19, has impacted our day-to-day operations. Like many other companies, the majority of our workforce is working remotely and engaging with prospects and Customers who are also generally working remotely. As public health measures in the United States continue to shift, many Customer, employee, and industry events continue to be virtual-only experiences due to the pandemic. Live event attendance and sponsorship is one of the ways we have historically connected with prospective Customers. We rely on events, such as Money20/20, for a portion of our lead generation. A contingent of our employees attended Money20/20 in person in 2021, but the possibility of future variants of COVID-19 creates continuing uncertainty around live industry events in 2022. Because our solution is technical and requires in-depth discussions around Customer use cases, it can be challenging to acquire new Customers through predominantly online outreach, such as virtual events, email, and targeted ads. We have also observed fatigue from prospective Customers around attending virtual events, making it more difficult to acquire Customers through such events. Any cancellation or postponement of live events may impair our ability to acquire new Customers and prospects and may also result in the loss of financial commitments made to such events. In addition, we may incur increased workforce costs, including costs associated with implementing additional personnel and workplace safety protocols when the majority of our employees return to an office, and workplace or labor claims and disputes related to COVID-19.
The continued spread and evolution of COVID-19 could also have an adverse impact on our vendors, partners, and Customers, therefore materially and adversely impacting our business, results of operations, and overall financial performance in future periods. For example, we have experienced, and may continue to experience, a decrease in processing volumes from certain Customers, particularly those in industries that are heavily impacted by various public health measures, such as travel; delayed sales cycles, including Customers and prospective Customers delaying contract signing or contract renewals; and delays in launching strategic partnerships and opportunities. These disruptions could continue to adversely affect our business, results of operations, and financial condition, and could have other currently unforeseen negative impacts on us.
While we have developed and continue to develop plans to help mitigate the potential negative impact of the pandemic on our business, it is possible the COVID-19 pandemic, particularly in light of new variant strains of the virus, could further impact our operations and the operations of our Customers, partners, and vendors as a result of quarantines, illnesses, and travel and logistics restrictions. Supply chain disruption and resulting inflationary pressures, a global labor shortage, and the ebb and flow of COVID-19, including in specific geographies, are currently impacting the pace of our and our Customers’, partners’, and vendors’ recovery and our business outlook. Our efforts to mitigate the potential negative impact of the pandemic on our business may not be effective and a protracted economic downturn will likely limit the effectiveness of our mitigation efforts. It is not possible for us to predict the duration or magnitude of the adverse results of the COVID-19 pandemic and its effects on our business, results of operations, or financial condition at this time. The extent to which the COVID-19 pandemic may impact our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, increases in infection rates and hospitalizations, the resulting impact on the businesses of our Customers, partners, and vendors, the remedial actions and stimulus measures adopted by federal, state, and local governments, and the extent that normal economic and operating conditions are impacted. To the extent the COVID-19 pandemic adversely affects our business, results of operations, and financial condition, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. For more information on the effect of COVID-19 and potential risks to us, please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19.”
Our business relies on our relationships with Issuing Banks and Card Networks, and if we are unable to maintain these relationships, our business may be adversely affected. Further, any changes to the rules or practices set by Card Networks, including changes in Interchange Fees, could adversely affect our business.
We rely on our relationships with financial institutions, including Issuing Banks and Card Networks thatto provide certain services that are an important partfor our platform, products, and services. We have in the past and may in the future pay certain amounts in association with these relationships, regardless of our product offering. Wewhether we were compelled to under law or contract. In addition, we have in the past and may in the future have disagreements with these financial institutions. If we are unable to maintain the quality of these relationships or fail to comply with our contractual requirements with these financial institutions, our business would be adversely affected. We partner with Issuing Banks, who issue payment cards to our Customers and settle payment transactions on such cards.
A significant portion of our payment transactions are settled through onea small number of Issuing Bank, Sutton Bank.Banks. For the years ended December 31, 2023, 2022, and 2021, 202076%, 82%, and 2019, 90%, 96% and 97%, respectively, of TPV was settled through one Issuing Bank, Sutton Bank. If Sutton Bank terminates our agreement with them or is unable or unwilling to settle our transactions for any reason, we may be required to switch some or all of our processing volume to one or more other Issuing Banks, including to any of the three other U.S. Issuing Banks that we currently contract with. Switching a significant portion or all of our processing volume to another Issuing Bank including contracting with additional Issuing Banks, would take time and could result in additional costs, including increased operating expenses, and termination fees underwhich may adversely affect our agreement with Sutton Bank if unilaterally terminated by us without Sutton Bank's consent. We could also lose Customers if we do not have another Issuing Bank who is willing to support such Customers. Diversifying our contractual relationships and operations with Issuing Banks may increase the complexity of our operations and may also lead to increased costs.
We also have agreements directly with Card Networks such as Visa, Mastercard, and PULSE, which is part of the Discover Global Network, that, among other things, provide us certain monetary incentives based on the processing volume of our Customers’customers’ transactions routed through the respective Card Network. For certainThe timing and extent of amendments or new contracts related to our volume incentive arrangements with an annual measurementCard Networks could result in incentive payments that are recorded in a current period the one-year period may not align with our fiscal year. Unusual fluctuationsand based on volume processed in networka prior period. We currently include Card Network fees can occur in the quarter in which volume thresholds are achieved as higher incentive rates are applied to volumes overpricing arrangements with the entire measurement periods, which can span 6 or 12 months, which can affectmajority of our financial results for a given quarter or fiscal year.MxM customers. If weour customers were to losemanage the relationship with the Card Networks directly, our certificationreported net revenue may decrease. For example, the August 2023 Block Amendment provides that Block will be responsible for defining and managing the Cash App program with arespect to the primary Card Network we could lose Customers if they neededgoing forward which has the effect of reducing reported net revenue.
We intend to switchexpand and deepen our relationships with Issuing Banks and Card Networks, and diversifying these contractual relationships and operations may increase the complexity of our operations and may also lead to a different Card Network, for which we did not have a certification.increased costs. The Issuing Banks and Card Networks we work with may fail to process transactions, breach their agreements with us, or refuse to renew or renegotiate our agreements with them on terms that are favorable, commercially reasonable, or at all. They might also take actions that could degrade the functionality of our services,platform, impose additional costs or requirements on us, or give preferential treatment to competitive services, including their own services.own. If we are unsuccessful in establishing, renegotiating, or maintaining relationships with Issuing Banks and Card Networks, our business may be adversely affected.
Our agreements with Issuing BanksPerformance issues, systems failures, and Card Networks require us to comply with Card Network operating rules. The Card Networks set these network rules and have discretion to interpret the rules and change them at any time. For additional information about regulations relating to network rules, see the section titled “Risk Factors—Risks Relating to Regulation—Our business is subject to extensive regulation and oversight in a variety of areas, directly and indirectly through our relationships with Issuing Banks and Card Networks, which regulations are subject to change and to uncertain interpretation.” While changesinterruptions in the network rules usually relate to pricing, other typesavailability of changes could require us to take certain steps to comply or adapt. For example, we began to issue cards with chips built in when a network rule changed to enable chip and PIN transactions. The termination of the card association registrations held by us or any of the Issuing Banks or any changes to these network rules or how they are interpreted could have a significant impact on our business and financial condition. Any changes to or interpretations of the network rules that are inconsistent with the way we or our Issuing Banks currently operateplatform may require us to make changes to our business that could be costly or difficult to implement. If we fail to make such changes or otherwise resolve the issue with the Card Networks, the Card Networks could fine us or prohibit us from processing payment cards. In addition, violations of the network rules or any failure to maintain good relationships with the Card Networks could impact our ability to receive incentives from them, increase our costs, or otherwise adversely affect our business.
Unfavorable conditions in our industry or the global economy could adversely affect our business, results of operations, and financial condition.
Our performance is subject to economic conditions and their impact on levels of spending by businesses and their customers. Our net revenue is dependentcontinued growth depends on the usageefficient operation of our Platform, whichplatform. Any significant disruption, outage, data loss, or errors in turn is influenced by the volume of businessservice on our Customers conduct. To the extent that weak economic conditions result inplatform, including events beyond our control, such as infrastructure changes or failures, or human or software errors could have a reduced volume of business for our Customersmaterial and prospective Customers, demand for, and use of, our Platform, products, and services may decline. If spending by their customers declines, our Customers could process fewer payments with us or, if our Customers cease to operate, they could stop using our Platform and our products and services altogether. Furthermore, weak economic conditions may make it more difficult to collectadverse effect on outstanding accounts receivable. If, as a result of a weak economy, our Customers reduce their use of our Platform, or prospective Customers delay adoption or elect not to adopt our Platform, our business, results of operations, and financial condition could be adversely affected.
Performance issues in our Platform or our Platform’s transaction processing could diminish demand for our Platform or products, adversely affect our business and results of operations,financial condition. We have experienced such performance incidents in the past and subject usexpect that we will continue to liabilities.periodically experience such performance issues in the future.
Our Platformplatform is designed to process a high number of transactions and deliver reports and other information related to those transactions at high processing speeds. Our Customers use our Platform for important aspects of their businesses. Our Issuing Banks use reportsWe have in the past and information from our Platformmay in part to settle card transactions with the Card Networks. Any performance issues, includingfuture experience errors, defects,inaccuracies, or disruptionsomissions in our Platformprocessing, reconciling, or our Platform’s transaction processing, could damage our Customers’ businesses and, in turn, hurt our brand and reputation and erode Customer trust.reporting of transactions. The risk of performance issues has increased in recent periods due to the significant increase in our TPV. This risk of performance issuesTPV and increases further increases with new product launches and geographical expansion. We release regular updates to our Platform,platform, which have in the past contained, and may in the future contain, undetected errors, failures, vulnerabilities, and bugs. Additionally, we may experience errors, inaccuracies, or omissions in our processing, reconciling or reporting of transactions. Further, we may be unableAny platform performance issues could lead to replenish the supply of payment cards issued to our Customers before it is depleted, such that our Customers could run out of cards for a short period of time. Real or perceived errors, failures, or bugs in our Platform or our Platform’s transaction processing could result in negative publicity, loss of or delay in market acceptance of our Platform or our products, loss of competitive position, lower Customer retention, claims by Customers,customers, Card Networks, Issuing Banks, or other partners or vendors, for losses sustained by them, or other claims, regulatory fines, or proceedings. In such an event,It could also damage ours and our customers’ businesses and, in turn, hurt our brand and reputation.
The performance and availability of the data centers and cloud-based solutions that provide computing and storage infrastructure for our platform is outside of our control. If any of these infrastructure providers fail to provide sufficient capacity to support our platform or otherwise experience service outages, we may experience interruptions in our ability to operate our platform and our business could be required,adversely affected. We have experienced, and expect to continue to periodically experience, outages of the services provided by these providers.
If we are not able to maintain the level of service uptime and performance needed by our customers, they could face longer processing times or may choose, for Customer relationsdowntime as a result. If customers are unable to access our platform within a reasonable amount of time, or other reasons, to expend additional resources to help correct the problem. In addition,at all, we may not carrybe able to meet the service level commitments typically provided for in our customer contracts and we would be contractually obligated to provide service level credits. We have experienced incidents, including incidents outside our control, and expect we may experience incidents in the future requiring us to pay service level credits and other customer service concessions.
In addition, our insurance sufficient topolicies may not adequately compensate us for any losses that we may result from claims arising from defects or disruptions in our Platform or operations. Asincur as a result of damage or interruption. Further, we are continuing to refine our reputationenterprise resilience functions such as business continuity, crisis management, and disaster recovery. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. Therefore, any performance issue, systems failure, outage, or interruption in the availability of our brand could be harmed, andplatform would adversely affect our business, results of operations, and could subject us to financial condition may be adversely affected.penalties and liabilities.
We, our Customers, our vendors, and others who use or interact with our Platform obtain and process a large amount of sensitive data. Any real or perceived improper or unauthorized use of, disclosure of, or access to suchour or our customers’ and partners’ confidential, proprietary, or sensitive data, including by cyberattacks, security breaches or incidents, or employee or other misconduct, could expose us to liability and damage our reputation.
Our operations depend on receiving, storing, processing,transmitting, and transmittingotherwise processing sensitive information pertaining to our business, employees, Customers,customers, and customers’ end users. The confidentiality, security,integrity, and integrityavailability of such sensitive business information residing on or processed using our systems is important to our business. Any unauthorized access, intrusion, infiltration, network disruption, denialWhile we have an internal security program, the success of service,such program will be impacted by new and existing vulnerabilities, human error, resource constraints, the efficiency of our processes and procedures, and management of gaps in controls. The integrity of our internal security program is also subject to changing standards or interpretations of standards as new frameworks are introduced and existing frameworks evolve.
We use vendors to perform certain services for us, in some cases involving management or other processing of sensitive data, and these vendors face similar incident could disruptsecurity threats to the integrity, continuity,confidentiality, security, and trustintegrity of ourtheir systems orand the data or the systems or data of our Customers or vendors. These incidents are often difficult to detect and are constantly evolving, and we or our Customers or vendors may face difficulties or delays in identifying or otherwise responding to any incident.
they process for us. Unauthorized parties have attempted and maywill continue to attempt to gain access to our Platform,platform, systems, or facilities, and those of our Customers,customers, partners, and vendors through various meansusing a variety of methods such as denial-of-service attacks, phishing attacks and with increasing sophistication. Currently, there is a threatother forms of attacks against U.S. financial institutions as retaliation against financial institutions for sanctions imposed against Russia as asocial engineering, and ransomware and other malicious code.
Any attempted, perceived or actual breach or incident could disrupt our systems and other aspects of our operations, result in unauthorized or unlawful access to or loss, modification, unavailability, misuse, or other unauthorized processing of the significant military action against Ukraine launched by Russia. These events could create costly claimsour and litigation, significant financial liability, regulatory investigations or proceedings, increased regulatory scrutiny, financial sanctions, a loss of confidence in our ability to serve Customers and cause current or potential Customers to choose another service provider, all of which couldcustomers’ data, have a material adversesignificant impact on our business. In addition, we expectreputation as a trusted brand, and expose us to continue to invest significant resources to maintainlegal risk and enhance our information securitypotential liability, and controls and to investigate and remediate any security vulnerabilities.
Although we believe that we maintain a robust data security program, including a responsible disclosure program, and that none of the incidents that we have encountered to date have materially impacted us, we cannot be certain that the security measures and procedures we have in place to detect security incidents and protect sensitive data, including protection against unauthorized access and use by our employees, will be successful or sufficient to counter all current and emerging technological risks and threats. The impact of a material event involving our systems and data, or those of our Customers or vendors, could have a material adverse effect on our business, results of operations, and financial condition.
Under Card Network rules and our contractscosts associated with our Issuing Banks,remediation. Further, if there is a breach of payment card information that we store, process, or transmit or that is stored, processed, or transmitted by our Customerscustomers or other third parties that we do business with, we could be liable to the Issuing Banks or our customers for certain of their costs and expenses. Additionally, ifexpenses, in addition to the potential for fines, penalties, and other liabilities.
While we believe that none of the incidents that we have identified to date have materially impacted us, we cannot be certain that the security measures we have in place to detect and address security breaches, incidents, and other disruptions and protect sensitive data will be sufficient to counter the risks and threats facing us, our own confidential business information were improperly disclosed,customers, and our business couldvendors. We and our vendors may be materially and adversely affected. The reliability andunable to anticipate, react to, remediate, or otherwise address any actual or attempted security breach or other security incident in a timely manner, or implement adequate preventative measures. Any security breach or incident involving our systems or data, or those of our Platform is a core component of our business. Any perceivedcustomers or actual breach of security, regardless of how it occurs or the extent of the breach,vendors, could have a significant impactmaterial adverse effect on our business, results of operations, and financial condition. Even the perception of inadequate security may damage our reputation asand negatively impact our ability to gain new customers and retain existing customers. We expect to invest significant resources to maintain and enhance our information security program and controls in compliance with industry standards and applicable laws and regulations; however, if we experience resourcing constraints, our investments and the result of such investments may be delayed.
We have adopted a trusted brand, causeflexible-first work environment, and expect to continue to be subject to challenges and risks associated with having a remote workforce. For example, our employees are accessing our servers remotely through home or other networks to perform their job responsibilities. Such security systems may be less secure than those used in our offices, which may subject us to lose existing Customers, prevent us from obtaining new Customers, require us to expend significant funds to remedy problems caused by breaches and to implement measures to prevent further breaches,increased security risks, and expose us to legal riskrisks of data or financial loss and potential liability, including those resulting from governmental or regulatory investigations, class action litigation,associated disruptions to our business operations. In addition, any inability to track and costs associated with remediation, such as fraud monitoring, card reissuance,manage hardware and forensics. Any actual or perceivedsoftware assets across our remote workforce could lead to loss of intellectual property, a security breach at a vendor providing servicesor incident, and unauthorized access to us or our Customers could have similar effects.systems and applications, potentially adversely affecting our business and financial condition.
While we maintain cybersecurity insurance, subject to applicable deductibles and policy limitations, our insurance may be insufficient to cover all liabilities incurred by such attacks.a cybersecurity breach or incident. We cannot be certain that our insurance coverage will be adequate for privacy, data security, and data protection liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceedIf a claim exceeds available insurance coverage or if the occurrenceconditions of changes in our insurance policies premiums, or deductibles could have a material adverse effect onchange, our business results of operations, andor financial condition.condition could be adversely affected.
Our business depends on a strong and trusted brand, and any failure to maintain, protect, enhance, and market our brand would hurt our business.
Negative publicity about us or our industry could adversely affect our business, results of operations, financial condition, and future prospects. We have developed a strong and trusted brand that has contributed significantly to the success of our business. We believe that maintaining and promoting our brand in a cost-effective manner is important to achievingwidespread acceptancethe continued growth of our Platform and the products and services we offer, expanding our base of Customers and end users, and increasing our TPV. Our brand is predicated on the ideabusiness.
Any failure to maintain high quality customer support, or a market perception that we offer modern payment solutions to our Customers and our Platform helps enable them to successfully operate their businesses. We are dedicated to building and maintaining a Platform our Customers can trust and creating solutions for our Customers who choose to build and grow their businesses with our card programs and other services. Maintaining and promoting our brand will depend largely on our ability to continue to provide a useful, reliable, secure, and innovative Platform, as well as our ability to maintain trust and be a payments processing innovator and leader. We may, from time to time, introduce, or make changes to, our Platform, products, services, privacy practices, or other practices or terms of service that Customers do not like, which may materiallymaintain high quality customer support, could erode customer trust and adversely affect our brand. Brand promotion activities may not generate Customer awareness or increase net revenue,reputation, business, results of operations, and even if they do, any increase in net revenue may not offset the expenses we incur in building our brand. In addition, due to the COVID-19 pandemic and the restrictions on travel, we have not been able to organize certain marketing and promotional events and in-person meetings to facilitate Customer adoption and generate leads with potential Customers.financial condition. If we faildo not devote sufficient resources or are otherwise unsuccessful in assisting our customers effectively, it could adversely affect our ability to successfully promoteretain existing customers and maintaincould prevent prospective customers from adopting our brand or if we incur excessive expense in this effort, our business could be materially and adversely affected.platform.
Harm to our brand can arise from many other sources as well, including failure by us or our partners and vendors to satisfy expectations of service and quality, inadequate protection or misuse of sensitive information, compliance failures, and claims, litigation, and other claims, and misconduct by our vendorsemployees, contractors, or other counterparties.vendors. We may also be the target of incomplete, inaccurate, and misleading or false statements about our company and our business that could damage our brand and deter Customerscustomers from adopting our services.
Any negative publicity about our company, our industry, the quality and reliability of our Platform, our risk management processes, changes to our products and services, our ability to effectively manage and resolve Customer complaints, our privacy, data protection, and information security practices, litigation, regulatory activity, policy positions, or the experience of our Customers with our Platform, products, and services could adversely affect our reputation and the confidence in and use of our Platform, products, and services. If we do not successfully maintain As a strong and trusted brand,result, our business, couldresults of operations, financial condition, and future prospects would be materially and adversely affected.
Our new products and technologies have a limited performance history, and any failure to execute on our related strategy could have an adverse impact on our business and financial condition.
We acquired Power Finance in the first quarter of 2023 and released our credit card issuing platform publicly in October 2023. Net revenue growth attributed to credit card issuing is dependent on increasing the number of existing customers or new customers who use our credit card issuing capabilities. We have limited experience administering our credit card issuing platform, and failure to scale the platform due to our limited experience or a competitive market could adversely affect our business and financial results.
If we failOur failure to offer high-quality Customer support,accurately predict the demand or growth of new products and technologies could have a material and adverse effect on our business, results of operations, financial condition, and reputation will suffer.future prospects. New products and technologies are inherently risky, due to, among other things, risks associated with: the product or technology not working, or not working as expected; customer acceptance; technological outages or failures; increased regulatory scrutiny; and the failure to meet customer expectations. As a result of these risks, we could experience increased claims, reputational damage, or other adverse effects, which could be material. In addition, our investment in new products and technologies and making changes or updates to our platform may either be insufficient or result in expenses that exceed the revenue actually generated from these new products.
ManyIf our credit platform is inaccurate or does not perform as intended, our business may be adversely affected.
The success of our Customers dependcredit platform depends on our Customer support teamability to assist them in launchingeffectively manage related risks for us and deploying our Issuing Banks. While the Issuing Banks we work with bear the credit risk, they rely on our credit decisioning engine and managed services to underwrite and service credit card programs effectively, help them resolve issues quickly, and provide ongoing support. Our direct, ongoing interactionsin accordance with our Customers help us tailor offerings to them at scale and in the contexttheir credit policies. Numerous factors, many of their usage. Our Customer support team also helps increase awareness and usagewhich are outside of our Platform while helping Customers address inquiriescontrol, can adversely affect the evaluation of credit risk. The information we use in our credit platform may be inaccurate or incomplete as a result of error or fraud, both of which may be difficult to detect and issues.avoid. If a fraudulent applicant is approved based on our credit risk model, we do not devote sufficient resources or are otherwise unsuccessful in assisting our Customers effectively, itmay be liable for the losses incurred by the Issuing Bank, which could adversely affect our business and results of operations.
There may be risks that exist, or that develop in the future, including market risks, interest rate risks, economic risks, and other external events, that we have not appropriately anticipated, identified, or mitigated that would impact our Issuing Bank partners or our ability to retain existing Customersoffer credit products. If our credit risk tools do not effectively and could prevent prospective Customers from adoptingaccurately model the credit risk of potential cards issued by our Platform. WeIssuing Banks, greater than expected losses may result on such card programs and, as a result, our customers may stop marketing their card programs, potential customers may be unableless likely to respond quickly enoughinitiate card programs, and Issuing Banks may stop using our platform for credit card issuing. Further, if our credit platform does not operate as intended or is inaccurate, it may be alleged that we and/or our bank partners have failed to accommodate short-term increases in demand for Customer support. Increased demand for Customer support, without corresponding net revenue,comply with applicable laws and regulations, we and/or our bank partners may be subject to litigation or regulatory investigations or other proceedings, we and/or our bank partner may have to pay fines and penalties or become subject to civil or criminal liability or have additional obligations or restrictions imposed upon our respective businesses, and our customer relationships and reputation may be adversely affected, which could increase costs and adversely affecthave a material adverse effect on our business, results of operations, and financial condition. Our sales
The Issuing Banks face the risk that our customers’ cardholders will default on their payment obligations, creating the risk of potential charge-offs. While we are highly dependent onnot contractually obligated to pay for any credit-related delinquencies or charge-offs, we have in the past and may in the future make payments to our business reputationIssuing Banks in association with our relationship with them, regardless of whether we were compelled to under law or contract. Incremental charge-offs may also affect the Issuing Bank’s future credit decisioning which could impact the volume of transactions processed and on positive recommendations from Customers. Any failure to maintain high quality Customer support, or a market perception that we do not maintain high quality Customer support, could erode Customer trust andthe number of cards issued. This may adversely affect our reputation, business results of operations, and financial condition.
In addition, as we continue to grow our operations and reach a larger and increasingly global Customer base, we need to be able to provide efficient Customer support that meets the needs of Customers on our Platform globally and at scale. The number of Customers and end users using our Platform, TPV, the products and services we offer, and usage of our Platform by Customers have all grown significantly and this has put additional pressure on our support organization. If we are unable to provide efficient Customer support globally and at scale, our ability to grow our operations may be adversely affected and we may need to hire additional support personnel, potentially adversely affecting our results of operations.
If we fail to anticipate, adapt to, rapid technological changesor keep pace with new technologies and develop enhancementsnew services and new capabilities for our Platform,platform, our ability to remain competitivebusiness and future growth could be impaired.harmed.
We compete in an industry that is characterized by rapid technological changes, frequent introductions of new products and services, and evolving industry standards and regulatory requirements. Our ability to attract new Customerscustomers and increase net revenue from Customers will depend in significant part on our ability to adapt to industry standards, anticipate trends, and continue to enhance our Platformplatform and introduce new products and capabilities on a timely and secure basis to keep pace with technological developments and Customercustomer expectations. For example, it is important for us to implement tools to support the operational efficiency of our Platform. If we are unable to provide enhancements and new products on our Platform, develop new capabilities that achieve market acceptance, innovate quickly enough to keep pace with rapid technological developments, or experience unintended consequences with enhancements we provide, our business could be adversely affected. For example, our Customers may not adopt enhancements and new products or may not use them as intended. We must also keep pace with changing legal and regulatory regimes that affect our Platform,platform, products, services, and business.
It is also important for us to implement tools to support the operational efficiency of our platform. For example, in the past year generative artificial intelligence (“AI”) solutions have emerged as an opportunity for us, our customers, our partners, and our vendors to innovate more quickly and efficiently and better serve our customers. Rapid adoption and novel uses of generative AI may, however, introduce unique and unpredictable security risks to our systems and platform, products, and services.
Our business practices. We maycould be adversely affected if we are not be successful in developing modifications, enhancements, and improvements, in bringing them to market quickly or cost-effectively, in response to market demands, or at modifying our Platformplatform to remain compliant with applicable legal and regulatory requirements.
In addition, because our Platform is designed to operate directly Our business could also be harmed if we experience unintended consequences with the Card Networks, Issuing Banks,enhancements we provide or use.
We may continue to expand operations internationally where we have limited operating experience and general payments ecosystem, we needmay be subject to continuously modifyincreased business, economic, and enhanceregulatory risks that could adversely impact our Platform to keep pace with changesoperations and financial results.
We have offices in technologies, while maintaining compatibilitythe United States and United Kingdom (“U.K.”), and legal entities in various other global jurisdictions, and regulatory compliance. Any failure of our Platform to continue to operate effectively with third-party infrastructures and technologies could reduce the demand for our Platform, products, or services, result in the dissatisfaction of our Customers, and materially and adversely affect our business.
Our future success depends in part on our ability to expand internationally and drive the adoption of our Platform and products bywe may pursue further international Customers. Expanding our business internationally, however, could subject us to new challenges and risks.
During the year ended December 31, 2021, we derived 2% of our net revenue from Customers located outside the United States. The future successexpansion of our business will depend, in part, on our ability to offer our Platform and services internationally and expand ournew international Customer base. Whilemarkets where we have been expanding our Platform, products, services and sales efforts internationally, ourlimited or no experience in marketing, selling, employing personnel, and deploying our Platform,platform, products, and services outside of the United States is early.services. Managing international operations requires us to comply with new regulatory frameworks, additional regulatory hurdles, and implement additional resources and controls. Our process for identifying countries to expand into may not be successful and may take a considerable amount of time, effort, and expense, and we may not realize benefits from expansion into a particular market. Additionally, the spread of COVID-19 may complicate efforts to expand our business internationally by restricting our ability to travel and engage in certain market diligence, sales and marketing activities abroad. Furthermore, our business model may not be successful or have the same traction outside the United States and we may face additional regulatory hurdles. As a result, our investment in marketing our Platform to these potential Customers may not be successful. If we are unable to increase the net revenue that we derive from international Customers, then our business, results of operations, and financial condition may be adversely affected.
In addition,States. International expansion whether in our existing or new international markets, will require additional resources and controls, and offering our Platform in new geographic regions often requires substantial expenditures and takes considerable time. We may not be successful enough in these new geographies to recoup our investments in a timely manner or at all. Such expansion could also subjectsubjects our business to substantialadditional risks, including:
•difficulty in attracting a sufficient number of Customers in a given international market;
•failure to anticipate competitive conditions and competition with market-playersmarket players that have greater experience and brand recognition in the local markets than we do;do or that have pre-existing relationships with potential customers and investors in those markets;
•conformityconforming our platform with applicable business customs including translation into foreign languages and associated expenses;languages;
•increased costs and difficulty in protecting intellectual property and sensitive data;
•Increasedincreased costs from local Card Networks, Bank Identification Number, or BIN sponsors, vendors, and other local providers locally;providers;
•potential changes to the way we doour established business or price our products and services as compared with our current operations or a lack of acceptance of our Platform or certain products and services;pricing models;
•the ability to support and integrate with local BIN sponsors and third-party vendors;other service providers;
•difficulties in staffing and managing foreign operations in an environment of diverse culture, laws, and customs, and other challenges caused by distance;operations;
•language and cultural differences, and the increased travel, infrastructure, and legal and compliance costs associated with global operations;costs;
•difficulties in recruiting and retaining qualified employees and maintaining our company culture;personnel;
•difficultydifficulties in gaining acceptance from industry self-regulatory bodies;
•risks related to government regulations in and related to foreign jurisdictions, including compliance with multiple, potentially conflicting, and changing governmental laws and regulations, including with respect to payment processing, data privacy, data protection, and information security;regulations;
•compliance with U.S. andInterchange Fee regulation in foreign anti-corruption, anti-bribery, and anti-money laundering laws;
•potential tariffs, sanctions, fines, or other trade restrictions, including any political or economic responses and counter-responses or otherwise by various global actors to the significant military action against Ukraine launched by Russia;jurisdictions;
•exchange rate risk and Interchange Fee regulation in foreign countries;global market volatility;
•compliance with complex and potentially conflicting and changing lawspotential restrictions on repatriation of taxing jurisdictions where we conduct business and applicable U.S. tax laws; andearnings;
•regionalmanagement of tax consequences; and
•political, social, and/or economic and political instability or war, including the significant military action against Ukraine launched by Russia.conflict.
As a result of these risks, our efforts to expand our global operationswe may not be successful potentially limitingin managing our ability to growexisting international operations or expanding our business.
In addition, we do not currently haveinternational operations, in Russia or plans to expand there, and based on the actions taken by certain Card Networks, to our knowledge no Marqeta-powered card could currently operate in Russia. It is unclear, however, whether the significant military action against Ukraine launched by Russia will have any broader implications that may impact our business and results of operations.financial condition could be adversely affected.
We may incur losses relating to the settlement of payment transactions and the fraudulent useon our platform.
We settle funds on behalf of payment cards issued through our Platform.
customers on a daily basis for a variety of transaction types. We are and will continue to be subject to the risk of losses relating to the day-to-day settlement of payment transactions, that is inherent in our business model, including with respect to pre-funding and chargeback requests. Customersrequests as well as human or processing error. If transactions or settlement reconciliations are not performed timely or are inaccurate due to human or processing error, we could incur losses.
While customers deposit a certain amount of pre-funding into their Customer accountbank accounts at our Issuing Banks. However,Banks, depending on the model of the card program and the timing of funding and transactions, some transactions may be authorized in an amount that exceedexceeds the amount of pre-funding in the Customer’s account are still authorized. customer’s account.
Customers are ultimately responsible for fulfilling their obligations to fund transactions. However, when a Customercustomer does not have sufficient funds to settle a transaction, we aremay be liable to the Issuing Bank to settle the transaction, including fraudulent or disputed transactions, and may incur losses as a result of claims from the Issuing Bank. We would seek to recover such losses from the Customer,customer, but we may not fully recover them if the Customercustomer is unwilling or unable to pay due to their financial condition. Because we are liable to the Issuing Banks, we may also bear the riskpay.
Additionally, when a chargeback request is approved, the purchase price of the transaction is refunded to the Customer’scustomer’s end user’s account through our Platform.platform. If we do not properly process the chargeback, the Customercustomer may request that we fund the refunded amount to their end user. We have in the past, and may in the future, incur costs relating to the improper processing of chargeback requests. The costs we incur related to our settlement obligations may adversely affect our business and financial condition.
Additionally, criminals are using increasingly sophisticated methodsWe may incur losses relating to engageillegal and fraudulent activity on our platform.
Our resources, technologies, and fraud prevention tools may be insufficient to accurately detect and prevent fraud on our platform. We have programs to vet and monitor our potential customers and the transactions we process for them, but such programs may not be effective in detecting and preventing fraud or illegitimate transactions. Illegitimate transactions or illegal activities such as money laundering or terrorist funding can expose us to governmental and regulatory enforcement actions and potentially prevent us from satisfying our contractual obligations to our third-party partners, which they may usecause us to target us, includingbe in breach of our obligations.
The techniques used to perpetrate fraud on our customers and our platform are continually evolving, and we expend considerable resources to continue to monitor and combat them. Criminals may commit fraud using techniques such as stolen identities and bank accounts, compromised business email accounts, employee or insider fraud, account takeover, false applications, check fraud, “skimming,” counterfeit payment cards, and identity theft. A single, significant incidentstolen cards or a series of incidents of fraudcard account numbers. Fraud or theft involving cards issued through our Platformplatform or as a result of actions by our employees or contractors could result in financial losses, civil or criminal liability, reputational damage, harm to us, potentially reducing the use and acceptance of our Platformbusiness, or leadincreasing costs related to greater regulation that would increase ourremediation or more rigorous compliance costs.obligations. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines. The foregoingfines, or other operating losses, all of which could have a material adverse effect on our business, results of operations, and financial condition. We are also subject to risk from fraudulent acts of employees or contractors.
We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inabilityFailure to attract and retain key personnel, including senior management and other highly skilled employees, could adversely affect our business.
Our future success depends largely upon the continued services ofon our executive officers and other key employees. There have been changes in the past, recent changes, and there may be changes in the future,ability to our executive management team resulting from the hiring or departure of executives, which could disrupt our business. For example, we recently appointed a new Chief Financial Officer effective February 22, 2022. Additionally, from time to time we may reorganize the Company’s departments in an effort to increase efficiencies or better serve our Customers, including consolidating groups under existing or new executives. For example, we recently consolidated the marketing team, including our sales development representatives, and business development team, including strategic, enterprise, and emerging sales units as well as our partnerships teams, into one go-to-market function under our Chief Operating Officer, Vidya Peters. Any employment agreements we have with our executive officers or other key personnel do not require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. Additionally, we do not maintain any key person insurance policies. The loss of one or more of our executive officers, especially our Chief Executive Officer, or other key employees could adversely affect our business. Changes in our executive management team may also cause disruptions in, and adverse impacts to, our business.
In addition, to maintain and grow our business, we must attractidentify, hire, develop, motivate, and retain highly qualified personnel.personnel for all areas of our organization. Competition for highly qualified personnel is intense across the markets we target, especially for highly skilled employees is intense as these employees are in high demand and experienced sales professionals.may be in short supply. We have from time to time experienced, are currently experiencing, and we expect to continue to experience difficulty in hiring and retaining employees with appropriate qualifications, at a speed that is consistent with our business needs, and at an appropriate cost, whichcost. Our labor expenses may be compoundedincrease as a result of a shortage in the COVID-19 pandemic. Any changes to U.S. immigration policies that restrain the flowsupply of technical and professional talent may inhibit our ability to recruit and retain highly qualified employees. We must also effectively manage employee skills, competency requirements, and development plans to retain qualified employees once hired. Many of the companies we compete with for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached certain legal obligations, resulting in a diversion of time and resources, and potential liability for us or our employees.personnel.
In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the value of our equity awards declines, it may impair our ability to recruit and retain highly skilled employees. If we are not able to add and retain employees effectively, our ability to achieve our strategic objectives will be adversely affected, and our business and growth prospects will be adversely affected. Further, additions of executive-level management and large numbers of employees could significantly and adversely impact our culture.
The volatility in or lack of appreciation of the trading pricemajority of our Class A common stockemployees operate in a remote capacity, and we expect to continue to be subject to challenges and risks associated with having a remote workforce. For example, operating our business with both remote and in-person workers across different geographies and time zones could have a negative impact on our corporate culture, decrease the ability of our workforce to collaborate and communicate effectively, decrease innovation and productivity, or negatively affect workforce morale.
Changes in our executive management team may also affectdisrupt our abilitybusiness. Any employment agreements we have with our executive officers or other key personnel do not require them to attractcontinue to work for us for any specified period and, retain our key employees. Many of our senior personneltherefore, they could terminate their employment with us at any time. We have in the past, and may in the future, experience high attrition and turnover rates across the Company, including executive officers and other key personnel. The loss of these employees have become, or will become, vestedmay lead to a decrease in a substantial amount of restricted stock units, or RSUs, or stock options. Employeesinstitutional knowledge which may be more likely to leave us if the shares they own or the shares underlying their vested options or RSUs have significantly appreciated in value relative to the original purchase price of the shares or the exercise price of the options, or conversely, if the exercise prices of the options that they hold are significantly above the market price ofadversely affect our Class A common stock. Ifbusiness. Additionally, we do not maintain and continue to develop our corporate culture as we grow and evolve, including our diversity and inclusion efforts, it could impair our ability to foster the innovation, teamwork, curiosity, and diversity that we believe is necessary to support our growth.
Exposure to political developments in the United Kingdom, including the United Kingdom’s decision to leave the European Union, could adversely affect us.
On June 23, 2016, a referendum was held on the U.K.’s membership in the European Union, or the EU, resulting in a vote in favor of leaving the European Union. Effective as of January 31, 2020, the U.K. formally withdrew its membership from the European Union. The U.K.’s decision to leave the European Union has created an uncertain political and economic environment in the U.K. and across other European Union member states. The political and economic instability created by the U.K.’s decision to leave the European Union has caused and may continue to cause volatility in global financial markets and the value of the British Pound or other currencies, including the Euro. In addition, this uncertainty may cause some of our Customers or potential Customers to curtail or delay spending or adoption of our Platform. Depending on the market and regulatory effects of the U.K.’s exit from the European Union, it is possible that there may be adverse practical or operational implications on our business. For example, the U.K. Data Protection Act, which implemented the EU’s General Data Protection Regulation, or the GDPR, was amended January 1, 2021 to reflect the U.K.’s status outside the European Union. It remains unclear, however, how U.K. data protection laws or regulations will develop and be interpreted in the medium to longer term, how data transfers to and from the U.K. will be regulated, and how those regulations may differ from those in the European Union. While we have taken measures to preemptively address the impact of the U.K.’s departure from the European Union by including contingency clauses in our European Union master service agreements, for example, these may not adequately protect us from adverse implications on our business. Further, the U.K.’s exit from the European Union may create increased compliance costs and an uncertain regulatory landscape for offering equity-based incentives to our employees in the U.K. If we are unable to maintain equity-based incentive programs for our employees in the U.K. due to the departure of the U.K. from the European Union, our business in the U.K. may suffer and we may face legal claims from employees in the U.K. to whom we previously offered equity-based incentive programs.any key person insurance policies.
These and other factors related to the departure of the U.K. from the European Union may adversely affect our business, financial condition, and results of operations.
We may face exposure to foreign currency exchange rate fluctuations, and such fluctuations could adversely affect our business, results of operations, and financial condition.
As we continue to expand our global operations, we become more exposed to the effects of fluctuations in currency exchange rates. Our Customer contracts are denominated primarily in U.S. dollars, and therefore the majority of our net revenue is not subject to foreign currency risk. We expect, however, to significantly expand the number of transactions with Customers that are denominated in foreign currencies in the future as we continue to expand our business internationally. We also incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency for such locations. Fluctuations in the exchange rates between the U.S. dollar and other currencies could result in an increase to the U.S. dollar equivalent of such expenses and, as a result, adversely affect our business, results of operations, and financial condition.
We do not currently maintain a program to hedge exposures in foreign currencies. In the future, however, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
If our estimates or judgments relating to our accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates in part on historical experience, market observable inputs, if available, and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of net revenue and expenses that are not readily apparent from other sources. Assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition and accounting for share-based compensation. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock.
We may require additional capital to support our business, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business and may require additional funds. In particular, we may seek additional funds to develop new products and enhance our Platformplatform and existing products, expand our operations, including our sales and marketing organizations and our presence outside of the United States, improve our infrastructure, or acquire complementary businesses, technologies, services, products, and other assets. In addition, we are using a portion of our cash to satisfy tax withholding and remittance obligations related to the vesting of RSUs. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and any
Any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock and Class B common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, potentially making it more difficult for us to obtain additional capital and to pursue business opportunities. We may not be able to obtain additional financing on terms favorable to us, if at all. Disruptions in the credit markets or other factors, such as inflation or rising interest rates, could adversely affect the availability, diversity, cost, and terms of funding arrangements.
In addition, actual events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, transactional counterparties, or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. The ultimate outcome of these events cannot be predicted, but these events could have a material adverse effect on our business. The FDIC only insures up to $250,000 per depositor per insured bank, and we currently have cash deposited in certain financial institutions in excess of FDIC insured levels. If any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over $250,000. Further, certain banks may be under regulatory orders and may not be able to support us due to regulatory challenges. The loss of our deposits at such banks may have a material adverse effect on our business, financial condition, and liquidity.
We have in the past and may in the future make investments in investment-grade securities. If such investments are not diversified or are concentrated at an “at-risk” institution, we may experience losses and may not be able to liquidate such investments.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth, scale our infrastructure, develop product enhancements, and respond to business challenges could be significantly impaired, and our business, results of operations, and financial condition may be adversely affected.
Acquisitions, strategicStrategic transactions, including acquisitions, investments, partnerships, or alliancesand collaborations, could be difficultfail to identify,achieve strategic objectives, divert the attention of key management, personnel, disrupt our business,ongoing operations, dilute stockholder value, and may adversely affect our results of operationsbusiness and financial condition.results. We may be unable to successfully integrate any acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions.technology.
We have in the past and may seek toin the future acquire or invest in businesses, products, or technologies that we believe could complement our Platform,platform, products, and services, or expand the breadth of our Platform, enhance our products and capabilities, expand our geographic reach or Customercustomer base, or otherwise offer growth opportunities. For example, we acquired Power Finance Inc. in February 2023. The identification, pursuit, evaluation, and negotiation of potential investments or acquisitionsstrategic transactions may divert the attention of management and cause us to incurentail various expenses, in identifying, investigating, and pursuing suitable opportunities, whether or not theysuch transactions are ultimately consummated. Any acquisition, investment, or business relationship may result in unforeseen operating difficulties and expenditures. In addition,expenditures or require us to make adjustments to our or the acquired company's business models. There can be no assurance that we have limited experiencewill be successful in investing inidentifying, negotiating, and acquiring other businesses. If we acquire additional businesses, we may not be able toconsummating favorable transaction opportunities or successfully integrateintegrating the acquired personnel, operations, and technologies, or effectively managescaling and managing the combined business following the acquisition.
Specifically, we may not successfully evaluate or utilize the acquired technology or personnel orfrom an acquired business and we may be unable to retain key personnel after a transaction, including personnel who are critical to the success of the ongoing business. We may not accurately forecast the financial impact of an acquisition transaction, including accounting charges.transaction. Moreover, the anticipated benefits, growth, or synergies of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown risks or liabilities.
We may not be able to find and identify desirable acquisition targets or If we may not be successful in entering into an agreement with any one target. We may be required to issue equity or debt securities to acquire businesses which could dilute our shareholders or adversely affect our results of operations. In addition, if an acquired business fails to meet our expectations, our business, results of operations, and financial condition may suffer.
We have made, and may in the future seek to make, strategic investments in early stage companies developing products or technologies that we believe could complement our Platform or expand its breadth, enhance our technical capabilities, or otherwise offer growth opportunities. These investments may be in early stage private companies for restricted stock. Such investments are generally illiquid and may never generate value. Further, we may invest in companies that do not succeed, and our investments may lose all or some of their value, which could result in us recording impairment charges reflected in ofour results of operations.
WeLitigation, disputes, regulatory actions, and government or legal investigations could be costly and time-consuming to defend, and our business may be subject toadversely affected by our involvement or the outcome of such litigation, for a variety of claims, which could harm our reputation and adversely affect our business, results of operations, and financial condition.disputes, actions, or investigations.
In the ordinary course of business, we have been, are currently, and in the future may be, involved in litigation or disputes. We have also received and subjectmay in the future receive, inquiries, warrants, subpoenas, and other requests for information in connection with government investigations. Such claims, disputes, lawsuits, proceedings, and investigations could involve matters relating to litigation for a variety of claims or disputes and receive regulatory inquiries. These claims, lawsuits, and proceedings could include labor and employment, wage and hour, commercial, antitrust, alleged securities, law violationsthe duties of officers or other investor claims,directors, regulatory compliance, and other matters. The number and significance of these potential claimslitigation, regulatory, and government or legal investigation matters and disputes may increase as our business expands. We also had in the past, have currently, and may have in the future indemnification obligations as a result of our contracts with customers and partners that may require us to reimburse or pay for damages, fees, or other expenses associated with claims, lawsuits, proceedings, and investigations such customers and partners face.
Further, our general liability insurance may not cover all potential claims made against us or third parties or be sufficient to indemnifycover us for all liability that may be imposed. AnyA claim brought against us regardlessor third parties that is uninsured or under-insured could result in unanticipated costs. The costs associated with litigation, disputes, regulatory actions, and government or legal investigations can also be unpredictable depending on the complexity of its merit, could be costly,the matter, the resources needed to manage it, and length of time devoted to it. These matters may also divert management’s attention and operational resources, andcould harm our reputation. As litigation is inherently unpredictable, wereputation regardless of the outcome, and might seriously harm our business, overall financial condition, and operating results. We cannot assure you that any actual or potential litigation, claims, disputes, investigations, or disputesproceedings will not have a material adverse effect on our business, results of operations, and financial condition.
We rely on third parties to provide certain products and services, and their failure to perform those services or comply with legal or regulatory requirements could adversely affect our business and financial results.
We depend on services from various third-party vendors to provide our products and services. Any disruptions in these services, including as a result of actions outside of our control, would significantly impact the continued performance of our platform.
We conduct vendor due diligence and manage such vendors using a risk-based approach intended to determine if relevant vendors have the ability to implement and maintain appropriate security measures, consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report to us any suspected breach of their security measures that may affect our business. If we are unable to timely and accurately identify at-risk vendors or if a service provider fails to properly safeguard our data or intellectual property, fails to meet contractual requirements (including compliance with applicable laws and regulations), suffers a cyberattack, security breach or incident, or other system outage or interruption, or terminates its contract with us, we could be subject to claims from customers and other third parties or regulatory enforcement actions, and such incidents may also put information we process at risk which could in turn adversely affect our business, reputation, financial condition, or results of operations.
In some cases, vendors are the sole source, or one of a limited number of sources, of the services they provide to us. In the future, these services may not be available to us on commercially reasonable terms, or at all. Any loss of any of these services could adversely affect our business and we may incur additional costs to resolve the issue.
Indemnity provisions in various agreements potentially expose us to substantial liability and risk of loss.
Our agreements with Issuing Bank partners and customers include indemnification provisions under which we agree to indemnify them for losses or expenses suffered or incurred in certain circumstances, including, for example, in relation to claims arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. Some of these agreements provide for uncapped liability for indemnification claims and some indemnity provisions survive termination or expiration of the applicable agreement. In some cases, we have in the past and could continue to be exposed to liability or indemnification claims from our customers or partners in connection with the services we provide. Large payments to partners or customers could harm our business, results of operations, and financial condition. Any dispute with a partner or customer with respect to these obligations could have adverse effects on our relationship with that partner or customer and other existing or prospective partners and customers, and harm our business and results of operations. Further, although we carry insurance, our liability insurance may not cover all potential claims made against us or be sufficient to cover us for all liability that may be imposed, and any such coverage may not continue to be available to us on acceptable terms or at all.
If our estimates or judgments relating to our accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. We base our estimates in part on historical experience, market observable inputs, if available, and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of net revenue and expenses that are not readily apparent from other sources. Assumptions and estimates used in preparing our Consolidated Financial Statements include those related to revenue recognition, accounting for business combinations and share-based compensation. If we make incorrect assumptions or estimates, our reported financial results may be over- or understated, which could materially and adversely affect our business, financial condition and results of operations. Our results of operations may also be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A common stock.
Risks Relating to Regulation
Our business is subject to extensive regulation and oversight in a variety of areas, directly and indirectly through our relationships with Issuing Banks and Card Networks, which regulations are subject to change and to uncertain interpretation. Compliance with such laws and regulations could result in additional costs and any failure to comply could materially harm our business and financial condition.
We, our vendors, our partners, and our Customerscustomers are subject to a wide variety of state, federal, and international laws, regulations, and industry standards, inincluding supervision and examination with respect to the United Statesforegoing by multiple authorities and governing bodies and in othermultiple countries, where we operate both directly and indirectly through our relationships with Issuing Banks and Card Networks. These laws, regulations, industry standards, and ruleswhich govern numerous areas important to our business. While we currently operate our business in an effort to ensure our business itself is not subject to extensivethe same level of regulation as the Issuing Banks and Card Networks that we partner with, Issuing Banks and Card Networks operate in a highly regulated landscape,environment, and there is a risk that those regulations could become applicable to us. We are directly subject to regulation in areas including privacy, data security, data protection, and anti-bribery, and our contractual relationships with Issuing Banks and Card Networks subject us to additional regulations including those relating to payments services (such as payment processing and settlement services), consumer protection, anti-money laundering, anti-bribery, escheatment, international sanctions regimes, data privacy and security, intellectual property, and compliance with the PCI DSS, a data security standard obligating companies that process, store, or transmit payment card information to maintain security measures designed to protect cardholder data.impact us.
The laws, rules, regulations, and standards applicable to our business are enforced by multiple authorities and governing bodies in the United States, including federal agencies, self-regulatory organizations, and numerous state agencies. Outside of the United States, we may be subject to additional regulators. As we expand into new jurisdictions, or expand our Platform and product offerings in existing jurisdictions, the number of foreign regulations and regulators governing our business will expand as well.
In addition, as our business and Platform continue to develop and expand, we may become subject to additional rules, regulations, and industry standards. We may not always accurately predict the scope or applicability of certain regulations to our business, particularly as we expand into new areas of operations, which could have a significant negative effect on our existing business and our ability to pursue future plans.
In addition to laws and regulations that apply directly to us, we are contractually subject to certain laws and regulations through our relationships with Issuing Banks and Card Networks, which operate in a highly regulated industry. Additionally, as a program manager, we are responsible for ensuringaligning compliance with Issuing Banks’Bank requirements and Card Network rules, and we help create regulatory compliant card programs for our Customers.customers. In some cases, our inabilitywe have in the past and could continue to ensure such compliance could expose usbe exposed to liability or indemnification claims from our Customerscustomers or partners. Furthermore, legislativepartners in connection with the services we provide.
We are directly, and regulatory changesindirectly through our contractual relationships with customers, Issuing Banks, and Card Networks, subject to regulation in areas which may include privacy, data protection and information security, global sanctions regimes and export controls, and anti-bribery, and those relating to payments services (such as payment processing and settlement services), AI, consumer protection, AML, escheatment, and compliance with PCI DSS.
As our business and platform continue to develop and expand, we may become subject to additional laws, rules, regulations, and industry standards, including possible additional examination and supervision, in the United States and internationally. New or changing laws or regulations could require us to incur significant expenses and devote significant management attention to ensure compliance and could also prompt our Issuing Banks to alter the extent or the terms of their dealings with us in ways that may have adverse consequences for our business. For example, due
We may not be able to respond quickly or effectively to, or accurately predict the scope or applicability of, regulatory, legislative, or other developments, which may in turn impair our relationships with certain Issuing Banksability to offer our existing or planned features, products, and Card Networks,services and/or increase our cost of doing business. In addition, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, or criminal or civil sanctions, all of which may have an adverse effect on our reputation, business, results of operations, and financial condition.
As a result of our business relationships, we may also be subject to direct or indirect supervision and examination by thevarious authorities. The CFPB, for example, has indicated it has dormant authority to examine certain companies whose services may pose risk to consumers, which is engaged in rulemaking and regulation of the payments industry, including, among other things, the regulation of prepaid cards, buy now, pay later financing programs, and the enforcement ofmay include our company. The CFPB has also published guidance on third party risk management, which places additional vendor compliance oversight expectations for certain protections under applicable regulations. While reformcompanies operating in the payment industry, such as the formation of the CFPB, has focused on individual consumer protection, legislatures continue to consider whether to include business customers, especially smaller business customers, within the scope of these regulations.financial services industry. As a result, newprogram manager, we may be viewed as overseeing third party relationships on behalf of our Issuing Banks and, as such, it is possible that regulators could hold us responsible for actual or perceived deficiencies in our oversight and control of third party relationships. New or expanded regulation focusing on business customers or changes in interpretation or enforcement of existing regulations may have an adverse effect on our business, results of operations, and financial condition due to increased compliance costs and new restrictions affecting the terms we offeroffering of our Platform or ourplatform, products and services under.
A majority of our net revenue is derived from Interchange Fees and we expect Interchange Fees to continue to represent a significant percentage of our net revenue in the near term. The amount of Interchange Fees we earn is highly dependent on the interchange rates that the Card Networks set and adjust. From time to time, Card Networks change the Interchange Fees and assessments they charge for transactions processed using their networks. Interchange Fees or assessments are also subject to change from time to time due to government regulation. Interchange Fees are the subject of intense legal and regulatory scrutiny and competitive pressures in the electronic payments industry. For example, the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which limits Interchange Fees, may restrict or otherwise impact the way we do business or limit our ability to charge certain fees to Customers. Issuing Banks that are exempt from the Durbin Amendment are able to access higher interchange rates. As a result, to maximize our Interchange Fees, we currently only contract with Issuing Banks that are exempt from the Durbin Amendment when we provide program management services. Changes in regulation or additional rulemaking may adversely affect the way we conduct our business or result in additional compliance obligations and expense for our business and limitations on net revenue. For example, the Board of Governors of the Federal Reserve System recently proposed a change to the regulations implemented pursuant to the Electronic Fund Transfer Act to clarify that e-commerce transactions can be routed over secondary, unaffiliated debit card networks that generally set lower Interchange Fees. If implemented, we may experience a reduction in net revenue derived from Interchange Fees. Interchange Fee regulation also exists in other countries where our Customers use payment cards and such regulation could adversely affect our business in other foreign regions. Any changes in the Interchange Fees associated with our Customers’ card transactions could adversely affect our business, results of operations, and financial condition.
Many of these laws and regulations are evolving, unclear, and inconsistent across jurisdictions, and ensuring compliance with them is difficult and costly. With increasing frequency, federal and state regulators are holding businesses in the payments industry to higher standards of training, monitoring, and compliance, including monitoring for possible violations of laws by our Customers and people who do business with our Customers while using our Platform or products. If we fail to comply with laws and regulations applicable to our business in a timely and appropriate manner, we may be subject to litigation or regulatory proceedings, we may have to pay fines and penalties, and our client relationships and reputation may be adversely affected, which could have a material adverse effect on our business, results of operations, and financial condition.
Further, while we do not handle or interact with cryptocurrency and we only process transactions on our Platformplatform in fiat currencies, certain cryptocurrency businesses use our Platformplatform to provide card products to their customers and end users. The regulation of cryptocurrency is rapidly evolving and varies significantly among international, federal, state, and local jurisdictions and is subject to substantial uncertainty. Various legislative and executive bodies in the U.S. and other countries may adopt laws, regulations, or guidance, or take other actions, which may impact our Issuing Banks and restrain the growth of cryptocurrency businesses and in turn impact the net revenue associated with our cryptocurrency business Customers.
RegulationsWhile we have developed policies and procedures designed to assist in compliance with laws and regulations, no assurance can be given that our compliance policies and procedures will be effective. If we fail to comply or are alleged or perceived to have failed to comply with applicable laws and regulations, we may be subject to litigation or regulatory investigations or other proceedings, we may have to pay fines and penalties or become subject to civil or criminal liability or have additional obligations or restrictions imposed upon our business, and our customer relationships and reputation may be adversely affected, which could have a material adverse effect on our business, results of operations, and financial condition. In some cases, regardless of fault, it may be less time-consuming or costly to settle these matters, which may require us to implement certain changes to our business practices, provide remediation to certain individuals, or make a settlement payment to a given party or regulatory body.
Laws, regulations, and industry standards related to privacy and data protection, and our actual or perceived failure to comply with such obligations, could adversely affect our ability to effectively provide our services.business and financial results.
Governmental bodies and industry organizations in the United States and abroad have adopted, or are considering adopting, laws and regulations restrictinggoverning the use of, and requiring safeguarding of, personal information. We also are and may become subject to contractual obligations relating to privacy, data protection, and information security.
For example, in the United States, all financial institutions must undertake certain stepswe are subject to ensure the privacy and security of consumer financial information. Further, the California Consumer Privacy Act became effective on January 1, 2020(“CCPA”), as amended and supplemented by the California Privacy Rights Act, which imposes additionalsignificant restrictions on the collection, processing, and disclosure of personal information, including imposing increased penalties onrelated to data privacy incidents. Additionally, a new privacy law, the California Privacy Rights Act, or the CPRA, creates additional obligations relating to personal information that take effect on January 1, 2023 (with certain provisions having retroactive effect to January 1, 2022). The CPRA’s implementing regulations are expected on or before July 1, 2022, and enforcement is scheduled to begin July 1, 2023. We will continue to monitor developments related to the CPRA and anticipate additional costs and expenses associated with CPRA compliance. Other U.S. states have also passed or are considering privacy legislation, including omnibus privacy legislation similar to the CCPA, and industry organizations regularly adopt and advocate for new standards in these areas. Many obligations under these other laws and legislative proposals remain uncertain, and
In Europe, we cannot fully predict their impact on our business. If we fail to comply with any of these laws or standards, we may beare subject to investigations, enforcement actions, civil litigation, fines and other penalties, all ofthe General Data Protection Regulation (“GDPR”) which may generate negative publicity and have a negative impact on our business.
In the European Economic Area, the GDPR, which became effective in 2018, extends the scope of European UnionE.U. data protection law to all companies processing personal data of European Union residents,individuals within the E.U., regardless of the company’s location, and requires companies to meet stringent requirements regarding the handling of personal data. The U.K. has also adopted a law substantially implementing the GDPR also imposes some limitations on international transfersas part of personal data.its local data protection law, referred to as the U.K. GDPR. The GDPR imposes substantial obligations and risk upon our business and provides for significant penalties in the event of any non-compliance. Administrative fines underThe GDPR and other laws and regulations in the GDPR can amount up to 20 million Euros or four percent of a company group’s annual global turnover, whichever is higher. Further, following the exit of the U.K. from the European Union, it remains unclear how the U.K. Data Protection Act, which implemented the GDPR inE.U., the U.K., and elsewhere also impose limitations on international transfers of personal data. We continue to monitor and assess evolving regulatory guidance and other U.K.developments related to our data protection laws or regulations will developin the mediumtransfer mechanisms, and it is possible that our ability to longer term and howtransfer personal data transfers to and from the U.K. will be regulated. Weimpacted or challenged as such requirements evolve. Any inability to transfer personal data in compliance with these requirements may require us to modify our policies and practices and may otherwise adversely affect our business.
Current or future laws, regulations, contractual obligations, and industry standards or other frameworks may impose, or be asserted to impose, requirements that are inconsistent with our data management and processing practices or the operation of our products and services. While we have incurred and expect to continue to incur substantial expense in complying with new and evolving privacy and data protection legallaws and frameworks, and we may not be successful in our efforts to achieve compliance. If we fail or are alleged to have failed to comply with these laws, regulations, frameworks, or other actual or asserted obligations, we may be subject to regulatory investigations, enforcement actions, and other proceedings, civil litigation, claims, and demands, and fines and other penalties, all of which may result in additional cost and liability to us, damage our reputation, and adversely affect our business.
We may also be required to make additional, significant changes in our policies and business operations, all of which may adversely affect our net revenuesuch as modifying products and our business overall. Additionally, because these new regimes lack a substantial enforcement history, we are unable to predict how emerging standards may be applied to us.
Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States. On July 16, 2020, the Court of Justice of the European Union invalidated the EU-U.S. Privacy Shield, eliminating one of the mechanisms we had relied on to legitimize EU-U.S. data transfers. The court, however, approved an alternative transfer mechanism that we rely on known as the standard contractual clauses provided additional safeguards are in place. We are in the process of assessing this decision and its impact on our data transfer mechanisms. It is possible that the decision will restrict the ability to transfer personal data from the European Union to the United States. We (and many other companies) may need to implement different or additional measures to establish or maintain legitimate means for the transfer and receipt of personal data from the European Union to the United States, and we may, in addition to other impacts, experience additional costs associated with increased compliance burdens, and we and our Customers face the potential for regulators to apply different standards to the transfer of personal data from the European Union and Switzerland to the United States, and to block, or require ad hoc verification of measures taken with respect to, certain personal data transfers from the European Union and Switzerland to the United States. Any inability to transfer personal data from the European Union to the United States in compliance with data protection laws or otherwise comply with requirements in this rapidly changing environment may impede our ability to attract and retain Customers unless and until we build out an EU-compliant data processing center. These restrictions may adversely affect our business and financial position.
Some countries are also considering or have passed legislation requiring local storage and processing of data, or similar requirements, potentially increasing the cost and complexity of our operations.
In connection with providing services, to our Customers, we are required by certain self-regulatory frameworks and contractual arrangements with Card Networks and Issuing Banks to provide assurances regarding the confidentiality and security of non-public consumer information, including the PCI DSS. Further, certain Customers increasingly expect us to comply with more stringent privacy, data protection and information security requirements than those imposed by laws, regulations or self-regulatory requirements, and we may be obligated contractually to comply with additional or different standards relating to our handling or protection of data on or by our offerings. The compliance standards relate to our infrastructure, components, and operational procedures designed to safeguard the confidentiality and security of non-public consumer personal information received from our Customers in the course of providing services. Our ability to maintain compliance with these standards and meet our Customers’ requirements may affect our ability to attract and maintain business in the future.
If we fail to comply with these standards or Customer requirements, or are alleged to have done so, we could be exposed to suits for breach of contract, potentially in addition to governmental proceedings. In addition, our Customer relationships and reputation could be adversely affected, and we could be inhibited in our ability to obtain new Customers. If more restrictive or burdensome laws, rules, or regulations related to privacy, data protection, or information security are adopted by authorities in the future on the federal or state level or internationally, or if existing laws, rules, or regulations become subject to new or differing interpretations or enforcement, or if we become bound by additional obligations to our Customers relating to privacy, data protection, or information security, including any additional compliance standards relating to non-public consumer personal information, our compliance and operational costs may increase, our opportunities for growth may be curtailed by our compliance capabilities or reputational harm, we may find it necessary or appropriate to modify our data processing practices or policies, or otherwise restrictrestricting our operations, which we may be unable to complete on a commercially reasonable basis or at all, and our potential liability in connection with breaches or incidents relating to privacy, data protection,non-compliance with laws, regulations, contractual obligations, and information securityframeworks may increase, all of which could have a material adverse effect on our business, results of operations, and financial condition.
There may continue to be changes in interpretations of existing laws and regulations, or new proposed laws, regulations, industry standards, and other obligations concerning privacy, data protection and information security, which could impair our or our Customers’ ability to collect, use or disclose information relating to consumers, which could decrease demand for our offerings, increase our costs and impair our ability to maintain and grow our Customer base and increase our net revenue. Because the interpretation and application of many existing and emerging laws and regulations relating to privacy, data protection and information security, along with industry standards, are uncertain, it is possible that these laws and regulations may be interpreted and applied in new ways that are, or are alleged to be, inconsistent with our data management practices or the features of our products, and we could face fines, lawsuits, regulatory investigations and other claims and penalties, and we could be required to fundamentally change our products or our business practices, any of which could have an adverse effect on our business. Any inability to adequately address privacy, data protection and information security concerns, even if unfounded, or any actual or perceived failure to comply with applicable privacy, data protection or information security laws, regulations, standards and other obligations, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, standards and policies that are applicable to the businesses of our Customers may limit the use and adoption of, and reduce the overall demand for, our Platform and our products and services.
Additionally, if third parties we work with, such as our partners or vendors, violate applicable laws or our policies, such violations may also put information we process at risk and could in turn adversely affect our business, reputation, financial condition, or results of operations.
A portion of our net revenue is derived from Interchange Fees and changes in Interchange Fees or Interchange Fee regulation could adversely affect our business, results of operations, and financial condition.
A portion of our net revenue is derived from Interchange Fees and the amount of Interchange Fees we earn is highly dependent on the interchange rates that the Card Networks set and adjust. Interchange Fees and assessments are subject to change from time to time by the Card Networks and due to government regulation. Interchange Fees are the subject of intense legal and regulatory scrutiny and competitive pressures in the electronic payments industry. For example, the Durbin Amendment may restrict or otherwise impact the way we do business or limit our ability to charge certain fees to customers. Issuing Banks that are exempt from the Interchange Fee restrictions in the Durbin Amendment are able to access higher interchange rates. As a result, to maximize our Interchange Fees, we generally only contract with Issuing Banks that are subject to this exemption from the Durbin Amendment when we provide MxM services for debit and prepaid card programs. Interchange Fee regulation also exists in other countries where our customers use payment cards and such regulation could adversely affect our business in other foreign regions. Any changes in the Interchange Fees associated with our customers’ card transactions could adversely affect our business, results of operations, and financial condition.
Changes to the rules or practices set by Card Networks or our failure to comply with their rules and practices could adversely affect our business.
We are required to comply with the rules set by the Card Networks. The termination of the card association registrations held by us or any of our Issuing Banks or any changes to these Card Network rules or their interpretation could have a significant impact on our business and financial condition. If we fail to make required changes or otherwise resolve an issue with the Card Networks, the Card Networks could charge us additional fees. We have been charged such additional fees in the past, and expect to continue to be charged such fees in the future as Card Network rules change. These additional fees are considered costs of revenue. We could also be fined and our registrations or certifications could be suspended or terminated which could limit our ability to process transactions and could have a material adverse effect on our business and results of operations.
We are subject to anti-corruption,anti-money laundering, anti-bribery and corruption (“AB&C”), sanctions, and similar laws, and non-compliance with such laws and regulations can subject us to criminal penalties or significant fines, and adversely affect our business and reputation.reputation, or have other adverse consequences for us.
We are subject to anti-corruption and anti-bribery and similar laws, such as the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act 2010, and other anti-corruption, anti-bribery, and anti-money laundering laws in countries where we conduct activities. Anti-corruption and anti-bribery laws have been interpreted broadly and enforced aggressively in recent years, and prohibit companies and their employees and agents from promising, authorizing, making, or offering improper payments or other benefits to government officials and others in the private sector to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business. As we increase our international sales and business, our risks under these laws may increase.
In addition, in the future we may use third parties to conduct business on our behalf abroad. We or such future third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities, and we can be held liable under AML, AB&C, sanctions, and similar laws for the corrupt or other illegal activities of such futureour third-party intermediaries and our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. WeWhile we have implemented an anti-corruption compliance program butprograms and controls designed to comply with applicable AML, AB&C, and sanctions laws and regulations, we cannot assure you that all our programs and controls will be effective in ensuring compliance and that none of our third-party intermediaries or employees, representatives, contractors, partners, and agents as well as those companies we outsource certain of our business operations to, will not take actions in violation of our policiesthose controls and applicable law, for which we may be ultimately held responsible.
Any violation of the FCPA, other applicable anti-corruptionlaws. Ours or these third parties’ failure to comply with these laws or anti-money laundering lawsand regulations could result in whistleblower complaints, adverse media coverage, investigations, prosecutions, loss of export privileges, suspension a breach and/or debarment from U.S. government contracts, substantial diversion of management’s attention, significant legal fees and fines, settlements, damages, severe criminal or civil sanctions, penalties or injunctions against us, our officers or our employees, disgorgement of profits, and other sanctions, enforcement actions and remedial measures, and prohibitions on the conducttermination of our business, any ofagreements with Issuing Banks and customers and/or fines or penalties by governmental agencies, which couldwould have a materiallymaterial adverse effect on our reputation, business, trading price, results of operations, and financial condition and prospects.condition.
We may be subject to governmental export controls and economic sanctions regulations that could impair our ability to compete in international markets and could subject us to liability if we are not in compliance with applicable laws.fail to comply.
Certain of our products and services may be subject to export control and economic sanctions regulations, including the U.S. Export Administration Regulations, and various economic and trade sanctions regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. Exports of our products and the provision of our services must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including:including the possible loss of export privileges;privileges, fines imposed on us and responsible employees, or managers; and, in extreme cases, the incarceration of responsible employees or managers.employees.
Changes in applicable export or economic sanctions regulations, may create delays in the introduction and deployment of our Platform, products, and services in international markets, or, in some cases, prevent the use of our Platform and products or provision of our services in certain countries or with certain end users. Any change in export or economic sanctions regulations, shiftshifts in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations could also resultmay create delays in decreasedthe introduction and deployment of our platform and existing or future products and services in international markets, or, in some cases, prevent or decrease the use of our Platform, products,platform and services or in our decreased ability to provide our products and services to existing or prospective Customersfuture products or provision of existing or future services in certain countries or with international operations.certain end users. Any decreased use of our Platform,platform, products, or services or limitation on our ability to provide our Platform,platform, products, or services could adversely affect our business, results of operations, and financial condition.
Further, we incorporate encryption technology into certain of our products. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our Customers’customers’ ability to use our products in those countries if our products are subject to such laws and regulations. While we believe our encryption products meet certain exceptions that reduce the scope of export control restrictions applicable to such products, these exceptions may be determined not to apply to our encryption products and our products and underlying technology may become subject to export control restrictions.
Governmental regulation of encryption technology and regulation of exports of encryption products, or our failure to obtain required approval for our products, when applicable, could adversely affect our international sales and net revenue. If we were required to comply with regulatory requirements regarding the export of our Platform and products and provision of our services, including with respect to new releases of our products and services, we may experience delays introducing our Platform in international markets, our Customers with international operations may experience difficulty deploying our Platform and products and using our services, or, in some cases, we may be prevented from exporting our Platform or products or providing our services to some countries altogether.
If we fail to maintain an effective system of disclosure controls and procedures or internal control over financial reporting, or remediate our existing material weaknesses, our ability to producereport timely and accurate financial statementsresults or comply with applicable regulations could be impaired.impaired, and our business, operating results, and the price of our Class A common stock may be adversely affected.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective disclosure controls and procedures and to report any material weakness in our internal controlcontrols over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in
In the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. For example, we have worked to improve the controls around our key accounting processes and our quarterly close process, we have implemented a number of new systems to supplement our core enterprise resource planning system as part of our control environment, and we have hired additional accounting and finance personnel to help us implement these processes and controls.
Furthermore, in 2019,period ended March 31, 2023, we identified a material weakness in our internal control over financial reporting relatingrelated to the reconciliationaccounting for our acquisition of certain customer-related settlement bank accounts. While management deems thisPower Finance, and, for the period ended December 31, 2023, we identified a material weakness remediated asrelated to information technology general controls. See Part II, Item 9A “Controls and Procedures” for additional information about these material weaknesses.
The process of the date of the filing of this Form 10-K,designing and no further material weaknesses in ourimplementing effective internal controls and disclosure controls or controls over financial reporting were identified in 2021, we could identify additional material weaknesses in the future.
is a continuous effort. To maintain and improve the effectiveness of our disclosure controls and procedures and remediate the material weaknesses in our internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including technology- and accounting-related costs and significant management oversight. If any of these new or improvedour controls and systems do not perform as expected, we may experience additional material weaknesses in our controls.
Our current controls and any new controls thator we develop may become inadequate because of changes in conditions in our business. Further, additional deficiencies in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could adversely affect our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
We are in the early stages of the costly and challenging process of compiling the system and documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. During the evaluation and testing process, if we identify material weaknesses in our internal control over financial reporting, we will be unable to assertremediate the existing material weaknesses. In addition, testing and maintaining internal controls and disclosure controls may divert management’s attention from other matters that are important to our internal control over financial reporting is effective.business.
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness ofcause us to fail to meet our internal control over financial reporting that we will eventually be required to includeobligations on a timely basis, result in material misstatements in our periodic reports that will be filed with the SEC. Ineffectivedisclosure controlsconsolidated financial statements, have an adverse effect on our business and proceduresoperating results, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information,us, all of which would likely havecould cause a negative effect ondecline in the trading price of our Class A common stock. In addition, if we are unableWe could also become subject to continue to meet these requirements,investigations by Nasdaq, the SEC, or other regulatory authorities, which could require additional financial and management resources, and we may not be able to remain listed on the Nasdaq Global Select Market, or Nasdaq. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. In addition, as an emerging growth company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following the filing of this Annual Report on Form 10-K or the date we are no longer an emerging growth company. If our internal control over financial reporting is not effective, our independent registered public accounting firm may issue an adverse report. As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K.
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our results of operations.
A change in accounting standards or practices may have a significant effect on our results of operations or financial condition and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or practices may adversely affect our reported results of operations or the way we conduct our business.
Adoption of these types of accounting standards and any difficulties in implementation of changes in accounting principles, including the ability to modify our accounting systems, could cause us to fail to meet our financial reporting obligations, potentially resulting in regulatory discipline and weakening investors’ confidence in us.
We could be required to collect additional sales, value added or similar taxes or be subject to other tax liabilities that may increase the costs our Customers would have to pay for our solutions and adversely affect our results of operations.
We have not collected sales, value added or similar indirect taxes in most jurisdictions in which we have sales. One or more jurisdictions may seek to impose incremental or new sales, value added or other indirect tax collection obligations on us. Additionally, the Supreme Court of the United States ruled in South Dakota v. Wayfair, Inc. et al, or Wayfair, that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state.
In response to Wayfair, or otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect and remit taxes on sales in their jurisdictions. A successful assertion by one or more states, or foreign jurisdictions, requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The requirement to collect sales, value added or similar indirect taxes by foreign, state or local governments for sellers that do not have a physical presence in the jurisdiction could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could have a material adverse effect on our business and results of operations.
Changes in tax laws or regulations could have a material adverse effect on our business, results of operations, and financial conditions.
The rules dealing withaddressing taxation are constantly under review by persons involved in the legislative process and bylegislature, the Internal Revenue Service, the U.S. Department of the Treasury, and state, local, and non-U.S. tax authorities. For example, beginning on January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures in the current administrationperiod and requires taxpayers to capitalize and amortize these expenses. However, recently proposed tax legislation, if enacted, would restore the ability to deduct currently domestic research and development expenditures through 2025 and would retroactively restore this benefit for 2022 and 2023. While this change, has not currently had a material impact on us, if such provision is not deferred or repealed, we expect to have taxable income in periods earlier than we would have had in the absence of this change, which could adversely impact our financial condition, operating results, and cash flows. On August 16, 2022, the Inflation Reduction Act of 2022 created an excise tax of 1% on stock repurchases from publicly traded US corporations, among other changes, which has resulted and is expected to continue to result in increased tax liabilities for us. In addition, the Organization for Economic Cooperation and Development (the “OECD”) has proposed numerous modifications to key provisions of the existing U.S. corporate income tax regime, including increased corporate tax rates (which may have retroactive application), promotion ofenacting a global minimum tax rate of at least 15% for multinationals with global revenue exceeding certain thresholds, known as “Pillar Two,” and other changes that address taxes on profits from intangible assets and activities of foreign subsidiaries. Further, the Organization for Economic Co-operation and Development has proposed, and over 130many countries have agreedadopted or intended to back, a new global minimumadopt these proposals. We are currently evaluating the impact on our 2024 annual effective tax rate that would apply regardless ofas we wait for additional guidance from the location of a company’s headquarters. Although it is uncertain if someOECD and for additional countries to enact the Pillar Two legislation.
Any changes in tax legislation, regulations, policies, or all of these proposals will be enactedpractices in the jurisdictions in which we operate could increase our effective tax rate and applicable to us, they could materially increase the amount of taxes we owe, thereby negatively impacting our results ofoperations as well as our cash flows from operations. A successful assertion by one or more states, or foreign jurisdictions, requiring us to collect sales, value added, or similar indirect taxes where we presently do not do so, or to collect more of such indirect taxes in a jurisdiction in which we currently do collect some indirect taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest.
Furthermore, our implementation of new practices and processes designed to complycompliance with changing tax laws and regulations could require us to make substantial changes to our business practices, allocate additional resources, and increase our costs, potentially negatively affecting our business, results of operations, and financial condition. As we grow internationally, we may also be subject to taxation and review by taxation authorities in severaladditional jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. Theuncertain, and which could increase the amount of taxes we pay, in these jurisdictions could increase substantially as a result of changes in the applicable tax rules, including increased tax rates, new tax laws, or revised interpretations of existing tax laws and precedents, potentially adversely affecting our liquidity and results of operations. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest, and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could adversely affect us and our results of operations.
We may have exposure to greater-than-anticipated tax liabilities, which may materially and adversely affect our business, results of operations, and financial condition.
The determination of our worldwide provision for income taxes, value-added taxes, and other tax liabilities requires estimation and significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign tax jurisdictions. Our determination of our tax liabilities is always subject to audit and review by applicable domestic and foreign tax authorities. Any adverse outcome of any such audit or review could have a negative effect on our business and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our results of operations and financial condition in the periods for which such determination is made. While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves may prove to be insufficient.
In addition, our future income taxes could be adversely affected by earnings being lower than anticipated, or by the incurrence of losses, in jurisdictions thatinsufficient, which may have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates; by changes in the valuation of our deferred tax assets and liabilities, as a result of gainsan adverse effect on our foreign exchange risk management program; or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.
Various levels of government, such as U.S. federal and state legislatures, and international organizations, such as the Organization for Economic Co-operation and Development, are increasingly focused on tax reform and other legislative or regulatory action to increase tax revenue. Any such tax reform or other legislative or regulatory actions could increase our effective tax rate, which may materially and adversely affect our business, financial condition, and results of operations.
operations, and financial condition. Our ability to use our net operating losses and other tax attributes to offset future taxable income may be subject to certain limitations.
We have incurred substantial net operating losses or NOLs,(“NOLs”) and other tax attributes, including research & development (“R&D”) credits, during our history. In general, under Section 382 of the Internal Revenue Code of 1986, as amended or the Code,(the “Code”), a corporation that undergoes an “ownership change” (generally defined as a greater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on a company’s ability to utilize its NOLs and other tax attributes to offset taxable income. We do nothave experienced ownership changes since inception and believe that our existing NOLs areand other tax attributes, including R&D credit carryforward, will be subject to limitation; however, if we have undergone previous ownership changes, or if we undergo an ownership change in the future, our ability to utilize NOLs could be limited by Section 382 of the Code and/or analogous provisions of applicable state tax law in states where we have incurred NOLs for state income tax purposes. Future changes in our stock ownership, some of which may be outside of our control, could result in an ownership change under these rules.such limitation.
In addition, the amount of NOLs arising in taxable years beginning after December 31, 2017and other tax attributes that we are permitted to deduct in a taxable year beginning after December 31, 2020 is limited to 80% of our taxable income in each such year to which the NOLs are applied, where taxable income for such year is determined without regard to the NOL deduction itself, and such NOLs may be carried forward indefinitely. NOLs generated in taxable years beginning on or prior to December 31, 2017, however, may be carried forward for only 20 years, but are not subject to the 80% limitation.limitations and our NOLs and other tax attributes may expire before they are fully utilized. Our NOLs and other tax attributes may also be subject to limitations under state law. For example, California recently enacted legislation suspending the use of NOLs for taxable years 2020, 2021 and 2022 for many taxpayers. There is a risk that due to legislative or regulatory changes, or other unforeseen reasons, our existing NOLs and other tax attributes could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.
Furthermore, our ability to utilize our NOLs is conditioned upon our becoming profitable in the future and generating U.S. federal taxable income. Since we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our remaining NOLs, the portion of our NOLs that was generated in taxable years beginning on or prior to December 31, 2017 could expire unused.
Risks Relating to Intellectual Property
If we fail to adequately protect our proprietaryintellectual property rights, our competitive positionbusiness could be impairedadversely affected and we may lose valuable assets, generate reduced net revenue, andcould incur costly litigationadditional expenses to protect our rights.
Our success depends, in part, upon protecting our proprietary information and technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our intellectual property and proprietary rights.rights, which are critical to our success. The steps we take to protect our intellectual property, however, may be inadequate. inadequate, and various events outside of our control may pose a threat to our intellectual property rights.
We cannot assure you that any patents or trademarks will be issued with respect to our currently pending patent and trademark applications in a manner that gives us adequate defensive protection or competitive advantages, if at all, or that any patents or trademarks issued to us will not be challenged, invalidated, or circumvented.applications. Our currently issued patents and trademarks and any patents or trademarks that may be issued in the future with respect to pendingcontested, circumvented, or future applicationsfound unenforceable or invalid, and we may not provide sufficiently broad protection, or they may not prove to be enforceable in actions against alleged infringers. We will not be able to protectprevent third parties from infringing, diluting, or otherwise violating them. There can be no guarantee that others will not independently develop similar products, duplicate any of our products, or design around our patents. As the development, adoption, and use of generative AI technologies grows, our intellectual property if we are unable to enforce our rights or if we do not detect unauthorizedmay inadvertently be exposed through the use of our intellectual property.
Despite our precautions, it may be possible for unauthorized third parties to copy our Platform, or certain aspects of our Platform, and use information that we regard as proprietary to create products that compete with our Platform. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our Platform, or certain aspects of our Platform, may be unenforceable under the laws of certain jurisdictions and foreign countries.
such technologies. Further, the laws of some foreign countries domay not protect proprietaryour intellectual property rights to the same extent as the laws of the United States, and mechanisms for enforcement ofeffective intellectual property rightsprotection and mechanisms may not be available in some foreign countries may be inadequate. To the extent we continue to expand our international activities, our exposure to unauthorized copying and use of our Platform, or certain aspects of our Platform, and proprietary information may increase. Further, competitors, foreign governments, foreign government-backed actors, criminals, or other third parties may gain unauthorized access to our proprietary information and technology. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property.those jurisdictions.
We also rely in part on trade secrets, proprietary know-how,technology, and other confidential information to maintain our competitive position. Although we enter into confidentiality and invention assignment agreements with our employees, consultants,service providers, and contractors and enter into confidentiality agreements with the parties with whom we haveother actual or potential strategic relationships and business alliances, no assurance can be given thatpartners, these agreements willmay not be effective in controlling access to and distribution of our Platform,platform, or certain other aspects of our Platform,trade secrets, proprietary technology, and proprietaryother confidential information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our Platform.
To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights, in the U.S. and internationally, and we may not be able to detect infringement by third parties. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our Platform, impair the functionality of our Platform, delay introductions of new capabilities, result in our substituting inferior or more costly technologies into our Platform, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new capabilities, and we cannot assure you that we could license that technology on commercially reasonable terms or at all, and our inability to license such technology could impair our ability to compete.
Our use of open source software could negativelyadversely affect our ability to sell our products and subject us to possible litigation.products.
Our Platformplatform incorporates open source software, and we expect to continue to incorporate open source software in our products and Platformplatform in the future. FewThere have been claims challenging the use of the licenses applicable to open source software against companies that incorporate it into their products. If it is alleged that we have been interpreted by courts, and there is a risk that these licensesnot complied with an open source license, we could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products and Platform. incur significant legal expenses defending against such allegation.
If we fail to comply with an open source licenses,license, we may be subjectrequired to certain requirements, including requirements that we offer our products that incorporate the open source software for no cost, that we make available the source code for modifications or derivative works we create based upon, incorporating, or using the open source software, and that we license such modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from generating net revenue from Customers using products that contained the open source software, and required to comply with onerous conditions or restrictions on these products. In any of these events, we and our Customers couldsoftware. We may also be required to seek licenses from third parties to continue offering our products and operating our Platform and to re-engineer our products or Platformplatform or to discontinue offering our products to Customers in the event re-engineering cannot be accomplished on a timely basis. Any of the foregoing could require us to devote additional research and development resources to re-engineer our products or Platform, could result in Customer dissatisfaction, andproducts. These events may adversely affect our business, results of operations, and financial condition.
In addition to risks related to license requirements, open source licensors generally do not provide warranties or other contractual protections regarding infringement, misappropriation, or other violations, the quality or security of code, or the origin of the software. Many of the risks associated with the use of open source software cannot be eliminated and could adversely affect our business, results of operations, and financial condition. For instance, open source software developers operate outside of our control and open source software may have security vulnerabilities, defects, or errors of which we are not aware. It may take a significant amount of time to address such vulnerabilities, defects, or errors once we are aware of them, which could negatively impact our products and services and result in liability to us, our vendors and service providers.
We may be accused of infringing the intellectual property rights of third parties.
We have in the past and may in the future be accused of infringing, misappropriating, or otherwise violating the intellectual property or other proprietary rights of third parties, including their copyrights, trademarks, or patents, or improperly using or disclosing their trade secrets, or otherwiseparties. Although we seek to comply with the statutory, regulatory, and judicial frameworks and the terms and conditions of statutory licenses, we cannot assure you that we are not infringing or violating their proprietary rights. any third-party intellectual property rights, or that we will not do so in the future.
The costs of supporting any litigation or disputes related to such claims can be considerable, and we cannot assure you that we will achieve a favorable outcome of any such claim. Although we carry insurance, our insurance may not cover potential claims of this type or may not be adequate to cover us for all liability that may be imposed. If any such claim is valid, we may be compelledrequired to cease our use ofstop using such intellectual property or other proprietary rights and pay damages, potentiallywhich could adversely affectingaffect our business. Even if such claims were not valid, defending them could be expensive and distract our management team, adversely affecting our results of operations.
Although we require our employees to not use the proprietary information or know-how of others in their work for us and we are not currently subject to any claims that they have done so, we may in the future become subject to claims that these employees have divulged, or we have used, proprietary information of these employees’ former employers. Litigation may be necessary to defend against these claims. If we are unable to successfully defend any such claims, we may be required to pay monetary damages and to discontinue our commercialization of certain solutions. In addition, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper our ability to develop new solutions and features for ourexisting solutions, which could severely weaken our business. Even if we are successful in defending against these claims, litigation efforts are costly, time-consuming and a significant distraction to management.team.
We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify, and hold harmless certain of our Customerscustomers and other partners from damages and costs arising from the infringement or claimed infringement by our solutionsproducts of third-party patents or other intellectual property rights, which may include patents, copyrights, trademarks, or trade secrets.rights. The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees. Our insurance may not cover all intellectual property infringement claims. A claim that one of our solutions infringes a third party’s intellectual property rights, even if untrue, could damage our relationships with our Customers, may deter future Customers from purchasing our solutions, and could expose us to costly litigation and settlement expenses.varies. Even if we are not a party to any litigation between a Customercustomer and a third party relating to infringement by our solutions,products, an adverse outcome in any such litigation could make it more difficult for us to defend our solutions against intellectual property infringement claims in any subsequent litigation where we are a named party. Any of these results could harm our brand and adversely affect our results of operations.
Risks Relating to Ownership of Our Class A Common Stock
The trading price of our Class A common stock has been and is likely to continue to be volatile, or may decline regardlesswhich could cause the value of our operating performance, and you may not be ableyour investment to resell your shares at or above the price at which you purchased such shares.decline.
The market prices of the securities of other newly public companies have historically been highly volatile and markets in general have been highly volatile in light of the COVID-19 pandemic. The trading price of our Class A common stock has been and may continue to fluctuate significantly in responsebe highly volatile and could be subject to numerous factors, many of which are beyond our control, including:
•overall performancewide fluctuations. This volatility, as well as general economic, market, industry, and political conditions, and the occurrence of the equity markets and/or publicly-listed technology and fintech companies;
•actual or anticipated fluctuationsrisks discussed in our net revenue or other operating metrics;
•our actual or anticipated operating performance andthis risk factor section, could reduce the operating performancemarket price of our competitors;
•the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
•failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors;
•the economy as a whole and market conditions in our industry;
•changes to monetary policy, including the federal funds rate, set by the U.S. Federal Open Market Committee;
•rumors and market speculation involving us or other companies in our industry;
•announcements by us or our competitors of significant innovations, new products, services, or capabilities, acquisitions, strategic partnerships or investments, joint ventures, or capital commitments;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business, including those related to data privacy and cybersecurity in the United States or globally;
•lawsuits threatened or filed against us;
•actual or perceived privacy or data security incidents;
•developments or disputes concerning our intellectual property or other proprietary rights;
•announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors;
•changes in accounting standards, policies, guidelines, interpretations, or principles;
•changes in our board of directors, management, or key personnel;
•other events or factors, including those resulting from war (including the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or general effect on the global economy), incidents of terrorism, pandemics (including the COVID-19 pandemic), or elections, or responses to these events; and
•sales of additional shares of our Class A common stock by us ordespite our stockholders.operating performance.
In addition, stock markets in general, and the market for technology and fintech companies in particular, have from time to time experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Often, trading prices of many companies have fluctuated in ways unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filedoften instituted securities class action litigation against a company following periods of overall market volatility. If we were to become involvedvolatility and volatility in securitiesthe market price of that company’s securities. Securities litigation it could subject us tocan result in substantial costs and divert resources and the attention of management from our business, and adversely affect our business, resultsmanagement. See Part I, Item 3 of operations, and financial condition.
Moreover, because of these fluctuations, comparing our results of operationsthis Annual Report on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investorsForm 10-K for any period. If our net revenue or results of operations fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the trading price of our Class A common stock could decline substantially. Such a trading price decline could occur even when we have met any previously publicly stated net revenue or earnings forecasts that we may provide.
more information about litigation proceedings. The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who hold shares of our Class B common stock, including our directors, executive officers, and their respective affiliates. This ownership limits or precludes your ability to influence corporate matters, includingAs a result of the election of directors, amendmentsdual class structure of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval, and that may depresscommon stock, the trading price of our Class A common stock.stock may be depressed.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. Our directors, executive officers, and their affiliates, beneficially own in the aggregate 68.0%52.4% of the voting power of our capital stock as of December 31, 2021. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the2023. The holders of our Class B common stock collectively continue to control a majority of the combined voting power of our common stock and therefore control all matters submitted to our stockholders for approval and may continue to control such matters until the tenth anniversary of our initial public offering, when all outstanding shares of Class A common stock and Class B common stock will convert automatically into shares of a single class of common stock.
This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this concentrated control may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may believe are in your best interest as one of our stockholders.a stockholder.
Future transfersTransfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. Theconversion of Class B common stockwhich has had and will continue to Class A common stock will have the effect over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. As a result, it is possible that one or more of the persons or entities holding our Class B common stock could gain significant voting control as other holders of Class B common stock sell or otherwise convert their shares into Class A common stock.
We cannot predict the effect our Our dual class structure may have onalso depress the trading price of our Class A common stock.
We cannot predict whether our dual class structure will result in a lower or more volatile trading price of our Class A common stock adverse publicity, ordue to negative perceptions by market participants and other adverse consequences. For example, certainstakeholders. Certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices. In July 2017, FTSE RussellSimilarly, several stockholder advisory firms have announced that it would require new constituentstheir opposition to the use of itsmultiple-class structures. Any exclusion from indices to have greater than 5% of the company’s voting rights in the hands of public stockholders, and S&P Dow Jones announced that it would no longer admit companies with multiple-class share structures to certain of its indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Under such announced policies, the dual class structureor criticism of our common stock would make us ineligible for inclusioncorporate governance practices by stockholder advisory firms could result in certain indices and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices may not invest in our Class A common stock. These policies are relatively new and it is unclear what effect, if any, they will have or continue to have on the valuations of publicly traded companies excluded from such indices, but it is possible that they may depress valuations, as compared to similar companies that are included. Because of the dual class structure of our common stock, we will likely be excluded from certain indices and we cannot assure you that other stock indices will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the trading price of our Class A common stock could be adversely affected.
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including:
•not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes Oxley Act;
•reduced disclosure obligations regarding executive compensation in our periodic reports and Annual Report on Form 10-K; and
•exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We could be an emerging growth company for up to five years following the completion of our IPO. Our status as an emerging growth company will end as soon as any of the following takes place:
•the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;
•the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;
•the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or
•the last day of the fiscal year ending after the fifth anniversary of the completion of our IPO.
We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on the exemptions afforded emerging growth companies. If some investors find our Class A common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our Class A common stock.
Our issuance of additional capital stock may dilute your ownership and adversely affect the tradingmarket price of our Class A common stock may be more volatile.stock.
Under the Jumpstart our Business Startups Act, or JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards applyWe expect to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period providedissue additional capital stock in the JOBS Act. As afuture that will result our financial statements may not be comparablein dilution to companies that comply with new or revised accounting pronouncements as of public company effective dates.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the trading priceall other stockholders. For example, we could issue shares of our Class A common stock and trading volume could be adversely affected.
The trading market for our Class A common stock will depend in part on the research and reports thator securities or industry analysts publish about us or our business. If few securities analysts cover us, or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgradeconvertible into our Class A common stock or publish inaccuratedebt or unfavorable research aboutother securities in connection with acquisitions or other strategic transactions or in an attempt to obtain financing or to further increase our business, our Class A common stock trading price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us on a regular basis, demand for our Class A common stock could decrease, potentially causing our Class A common stock trading price and trading volume to decline.capital resources.
Sales of substantial amounts ofAdditionally, we expect to grant equity awards to employees and directors under our Class A common stock incentive plan. We have granted equity awards to employees and directors under our stock incentive plans in the public markets, orpast, and such grants may dilute your ownership as the perception that sales might occur, could causeequity vests and the trading price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock intoRSUs are released and the public market, particularly sales by our directors, executive officers, and principal stockholders, or the perception that these sales might occur, could cause the trading price of our Class A common stock to decline. While shares held by directors, executive officers, and other affiliatesoptions are subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements, we are unable to predict the timing of or the effect that such sales may have on the prevailing market price of our common stock.
exercised. In addition, as of December 31, 2021,2023, we had 44,185,48836,670,638 option shares outstanding that, if fully vested and exercised, would result in the issuance of an equal number of shares of Class B common stockA or Class AB common stock, as well as 9,001,94938,177,072 total shares of Class BA or Class AB common stock subject to RSU awards. All of
We have also granted the shares of Class B common stock issuable upon the exercise of stock options, and the shares reserved for future issuance under our equity incentive plans are registered for public resale under the Securities Act following conversion to shares of Class A common stock. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to volume limitations under Rule 144 for our executive officers and directors and applicable vesting requirements.
Certain holders of our Class B common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the trading price of our Class A common stock to decline or be volatile.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders and could negatively affect our results of operations.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants under our stock incentive plan. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline. Any additional grants of equity awards under our stock incentive plans will also increase share-based compensation expense and negatively affect our results of operations.
As of December 31, 2021, unrecognized compensation costs related to unvested RSUs and unvested outstanding stock options, excluding the CEOExecutive Chairman Long-Term Performance Award were $136.1 millionto our Executive Chairman and $90.4 million, respectively. These costs are expected to be recognized over a weighted-average period of 3.0 years and 2.5 years, respectively.
In April and May 2021, our board of directors granted ourformer Chief Executive Officer, equity incentive awards in the form of performance-based stock options covering 19,740,923 and 47,267 shares of our Class B common stock with an exercise price of $21.49 and $23.40 per share, respectively, or, collectively, the CEO Long-Term Performance Award. The CEO Long-Term Performance Awardwhich vests upon the satisfaction of a service condition and the achievement of certain stock price goals.
As of December 31, 2021, If the
aggregate unrecognized compensation cost related to the CEOExecutive Chairman Long-Term Performance Award
was $170.2 million, whichvests and is
expected exercised, your ownership will be diluted. See Note 11 “Stock Incentive Plans” to be recognized overour Consolidated Financial Statements for more information about the remaining derived service periodExecutive Chairman Long-Term Performance Award.Any Class A common stock or securities convertible into shares of 4.1 years.
our Class A common stock or securities convertible into our Class A common stock or debt or other securities may dilute your economic and voting rights and would likely reduce the market price of our Class A common stock both upon issuance and conversion, in the case of securities convertible into our Class A common stock. We do not intend to pay dividends on our Class A common stock in the foreseeable future and, consequently, the ability of Class A common stockholders to achieve a return on investment will depend on appreciation in the trading price of our Class A common stock.
We have never declared or paid any cash dividends on our capital stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current board of directors, and limit the trading price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
•provide that our board of directors will be classified into three classes of directors with staggered three-year terms;
•permit our board of directors to establish the number of directors and fill any vacancies and newly-created directorships;
•require super-majority voting to amend some provisions in our amended and restated certificate of incorporation and amended and restated bylaws;
•authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
•provide that only the Chairpersonchairperson of our board of directors, our Chief Executive Officer,chief executive officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders;
•provide for a dual class common stock structure where holders of our Class B common stock are able to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;
•prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
•provide that the board of directors is expressly authorized to make, alter, or repeal our amended and restated bylaws; and
•contain advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.
Our amended and restated bylaws designate state or federal courts located within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, potentially limiting stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware is the sole and exclusive forum for any state law claims for:
•any derivative action or proceeding brought on our behalf;
•any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders;
•any action asserting a claim arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; or
•any action asserting a claim that is governed by the internal affairs doctrine or the Delaware(the “Delaware Forum Provision.Provision”).
The Delaware Forum Provision does not apply to any causes of action arising under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the District of Delaware shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act or the Federal(the “Federal Forum Provision,Provision”), as we are incorporated in the State of Delaware.
In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
The Delaware Forum Provision and the Federal Forum Provision in our amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims. Additionally, these forum selection clauses may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, or employees, potentially discouraging the filing of lawsuits against us and our directors, officers, and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court for the District of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
We cannot guarantee that our share repurchase program will enhance long-term stockholder value. Share repurchases could also affect the trading price of our stock and may reduce working capital.
In May 2023, our board of directors approved a $200 million share repurchase program for shares of our Class A common stock (the “2023 Share Repurchase Program”). The actual timing, manner, number, and value of shares repurchased under the program will depend on a number of factors, including the availability of cash, the market price of our Class A common stock, general market and economic conditions, applicable requirements, and other business considerations. The share repurchase program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our Class A common stock under the program. The share repurchase program has no set expiration date. We intend to make all repurchases in compliance with applicable regulatory guidelines and to administer the plan in accordance with applicable laws, including Rule 10b-8 of the Exchange Act. Other risks and uncertainties include, among other things, the market price of our stock prevailing from time to time, the nature of other investment opportunities presented to us, our financial performance and our cash flows from operations, and general economic conditions, which could adversely affect our results of operations and cash flows.
General Risk Factors
Unfavorable conditions in the global economy could adversely affect our business and financial results.
Our business, the industry, and our customers’ businesses are generally sensitive to macroeconomic conditions. Our net revenue is impacted, to a significant extent, by general economic conditions, their impact on levels of spending by businesses and their customers, and the financial performance of our customers. Supply chain disruption, a global labor shortage, increased inflation, and higher interest rates have adversely affected our business, results of operations, and business outlook and may continue to create uncertainty as to our and our customers’, partners’, and vendors’ financial results, operations, and business outlook. We are unable to predict the impact that these and other macroeconomic factors may have or continue to have on our business and processing volumes, and on our future results of operations.
Weak economic conditions or a significant deterioration in economic conditions could result in a reduced volume of business for our customers and prospective customers, demand for, and use of, our platform, products, and services may decline, and prospective customers could delay adoption or elect not to adopt our platform. If spending by their customers declines, our customers could process fewer payments with us or, if our customers cease to operate, they would stop using our platform, products, and services altogether. Moreover, if the financial condition of a customer deteriorates significantly or a customer becomes subject to a bankruptcy proceeding, we may not be able to recover amounts due to us from the customer.
Weak economic conditions may make it more difficult to collect on outstanding accounts receivable. The global credit and financial markets have from time to time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. The bank closures and failures in 2023 created bank-specific and broader financial institution liquidity risk and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty.
Our business is subject to the risks of earthquakes, fire, floods, pandemics, and other natural catastrophic events, and to interruption by man-made problemsissues such as power disruptions computer viruses, data security breaches,and strikes.
Our systems and operations are vulnerable to damage or terrorism.
Ourinterruption from earthquakes, fires, floods, power losses, telecommunications failures, strikes, health pandemics, such as the COVID-19 pandemic, and similar events. For example, our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity and wildfires. Awildfires, and a significant natural disaster in that area or any other location in which we have offices or facilities or employees working remotely, such as an earthquake, fire, or flood, occurring at our headquarters, at one of our other facilities, or where a vendor is located, could adversely affect our business, results of operations, and financial condition. Further, if a natural disaster or man-made problem were to affect our vendors, this could adversely affect the ability of our Customers to use our Platform. In addition, natural disasters and acts of terrorism or war (including the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or general effect on the global economy) could cause disruptions in our or our Customers’ businesses, national economies, or the world economy as a whole. Health concerns or political or governmental developments in countries where we or our Customers and vendors operate could result in economic, social, or labor instability and could have a material adverse effect on our business, results of operations financial condition, and financial condition.
We also rely on our network and third-party infrastructure and enterprise applications and internal technology systems for our engineering, sales and marketing, and operations activities. Although we maintain incident management and disaster response plans, in the event of a major disruption caused bycritical data. If a natural disaster, power outage, connectivity issue, or man-made problem, we may be unable to continueother event occurs that impacts our operations in part or in full and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of data security and loss of critical data, any of which could adversely affect our business, results of operations, and financial condition.
In addition, computer malware, viruses, computer hacking, fraudulent use attempts, and phishing attacks have become more prevalent generally and in our industry, have occurred on our Platform in the past, and may occur on our Platform in the future, including as retaliation against financial institutions for sanctions imposed against Russia as a result of the significant military action against Ukraine launched by Russia. Though it is difficult to determine fully what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, integrity, and availability of our products and technical infrastructure to the satisfaction of our Customers may harm our reputation and ouremployees’ ability to retain existing Customers and attract new Customers.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.
As a public company, we are subject to the reporting requirements of the Exchange Act, the listing standards of Nasdaq and other applicable securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources. For example, the Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect towork remotely, our business and results of operations.
As a result of the complexity involvedoperations could be adversely affected. We may not have sufficient protection or recovery plans in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, potentially adversely affecting our business, results of operations, and financial condition. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants or contractors, which will increase our operating expenses.
In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and,certain circumstances, such as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, potentially resulting in continued uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governancepractices. We intend to invest substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against ussignificant natural disaster, and our business interruption insurance may be adversely affected.
Being a public company and being subjectinsufficient to these new rules and regulations makes it more expensivecompensate us for us to obtain director and officer liability insurance, and welosses that may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.occur.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our management and could divert their attention away from the day-to-day management of our business, potentially adversely affecting our business, results of operations, and financial condition.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Our industry is subject to various cybersecurity risks that could adversely affect our business, financial condition, and results of operations. While we have not, as of the date of this Annual Report on Form 10-K, experienced a cybersecurity threat or incident that resulted in a material adverse impact to our business or operations, there can be no guarantee that we will not experience such an incident in the future. See Item 1A, “Risk Factors,” in this Annual Report on Form 10-K, including the section titled “Risk Factors—Risks Relating to Regulation” for additional information regarding the risks related to cybersecurity threats.
Our Chief Information Security Officer (“CISO”) is responsible for Marqeta’s information security posture and cybersecurity program. We believe our CISO is qualified to assess and manage our material risks from cybersecurity threats based on 15 years of cybersecurity and risk management expertise as a security and risk management leader at various public and private companies and as a cyber threat intelligence analyst for a branch of the United States military. Our CISO reports to our Chief Product and Technology Officer and oversees a team of cybersecurity professionals in areas including Governance, Risk, and Compliance, Product and Infrastructure Security, Security Operations, and Identity Security.
Our cybersecurity program is designed to align with certain industry standards and best practices, such as ISO 27001 and the National Institute of Standards and Technology Cybersecurity Framework. We have a Cyber Incident Response Plan which defines roles and responsibilities in the event of a cybersecurity incident, as well as the processes for keeping the CISO, senior management, and the board of directors informed about the prevention, detection, mitigation, and remediation of cybersecurity incidents.
Our board of directors administers its cybersecurity risk oversight function directly as a whole, as well as through the audit committee. Our CISO provides quarterly and as-needed briefings to the audit committee regarding cybersecurity risks and activities, including any recent cybersecurity incidents and related responses, cybersecurity systems testing, and activities of third party consultants. Our audit committee provides quarterly and as-needed updates to the board of directors on such reports and management provides annual and as-needed updates to the board of directors regarding our cybersecurity program.
We have policies and processes in place for assessing, identifying, and managing material cybersecurity risks, and integrate these processes into our overall risk management systems. We conduct periodic risk assessments to identify reasonably foreseeable internal and external cybersecurity risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks.
Following these risk assessments, we develop strategies, policies, standards, and action plans to minimize identified risks and reasonably address any identified gaps in existing safeguards. These steps include vulnerability management, shift-left secure product design, data encryption, endpoint security, network security, limiting and authorizing access controls, and multi-factor authentication for access to systems with data. We also employ system monitoring, logging, and alerting to retain and analyze the security state of our corporate and production infrastructure. As part of our overall risk management system, all employees are required to complete annual cybersecurity training and relevant employees are trained at least annually on applicable safeguards.
We engage consultants in connection with our risk assessment processes to help us design and implement our cybersecurity policies and procedures, as well as to monitor and test our safeguards. We manage third party service providers using a risk-based approach intended to determine if the relevant third parties have the ability to implement and maintain appropriate security measures, consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report any suspected breach of their security measures that may affect our business.
The maturation and scaling of our cybersecurity program is ongoing and despite our investments in our cybersecurity program, there will always be residual risk and the potential for control failure or bypass by a determined cyber threat actor.
Item 2. Properties
Our corporate headquarters is located in Oakland, California, where we currently lease approximately 63,284 square feet pursuant to a lease agreement that expires in 2026. We also lease and purchase service memberships toan additional facilitiesfacility in London, and Manchester, United Kingdom as well as Melbourne, Australia.
Kingdom. We believe that our facilities are suitable to meet our current needs. We intend to expand our facilities or add new facilities as we grow, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth.
Item 3. Legal Proceedings
We are not currently a party to any legal proceedings that we believe to be material to our business or financial condition. From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of business. We are currently involved in the following matter:
On August 24, 2023, a putative class action and shareholder derivative lawsuit was filed in the case captioned Stephanie Smith v. Jason Gardner, et al. (Case No. 2023-0872-MTZ) in the Court of Chancery for the State of Delaware against each of the members of our board of directors and naming Marqeta as a nominal defendant. The complaint alleges that the individual defendants breached fiduciary duties in approving the 2023 Share Repurchase Program by failing to implement measures to prevent Marqeta founder Jason Gardner from acquiring control of the Company or to ensure that unaffiliated stockholders receive a control premium. The plaintiff seeks damages and injunctive relief in the case, among other relief.
On February 24, 2024 the parties entered into a Standstill and Release Agreement (the “Standstill Agreement”) in which (i) the plaintiff agreed to file a stipulation of dismissal of the lawsuit, (ii) Mr. Gardner agreed not to take unilateral, affirmative action to increase his voting power above 49.99% of the total voting power of the Company’s outstanding stock for the period of time between and including February 24, 2024 and September 11, 2024, and (iii) the parties agreed to releases and related provisions. The stipulation of dismissal has received court approval. The summary of the Standstill Agreement is qualified in its entirety by reference to the full text, which is filed as Exhibit 99.1 to this Form 10-K and is incorporated herein by reference.
Item 4. Mine Safety
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our Class A common stock has traded on the Nasdaq Global Select Market under the symbol “MQ” since our initial public offeringIPO on June 9, 2021. Prior to that date, there was no public market for our common stock. There is no public trading market for our Class B common stock.
Stockholders
As of March 4, 2022,February 23, 2024, we had 6343 holders of record of our Class A common stock and 9357 holders of record of our Class B common stock. Because many of the shares of our Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners of our Class A common stock represented by the record holders.
Dividend Policy
We have nevernot declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, any contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant.
Stock Performance Graph
The following performance graph shall not be deemed “soliciting material” or deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any of our filings under the Exchange Act or the Securities Act.
The following stock performance graph comparesdepicts the cumulative total return on our Class A common stock relative to the cumulative total returns of the Nasdaq Composite Index and the S&P Information Technology Index during each monthly period from June 9, 2021 (the date our Class A common stock began trading on the NASDAQNasdaq Global Select Market) through December 31, 2021.2023. All values assume a $100 initial investment and reinvestment of dividends. The returns shown are based on historical results and are not intended to suggestbe indicative of future performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Company/Index (1) | | 06/09/21 | | 06/30/21 | | 07/31/21 | | 08/31/21 | | 09/30/21 | | 10/31/21 | | 11/30/21 | | 12/31/21 |
| Marqeta, Inc. | | $ | 100.00 | | | $ | 91.97 | | | $ | 87.91 | | | $ | 95.15 | | | $ | 72.48 | | | $ | 100.26 | | | $ | 64.42 | | | $ | 56.26 | |
| Nasdaq Composite Index | | $ | 100.00 | | | $ | 104.29 | | | $ | 105.53 | | | $ | 109.84 | | | $ | 104.05 | | | $ | 111.64 | | | $ | 112.01 | | | $ | 112.84 | |
| S&P Information Technology Index | | $ | 100.00 | | | $ | 105.62 | | | $ | 109.70 | | | $ | 113.61 | | | $ | 107.03 | | | $ | 115.78 | | | $ | 120.81 | | | $ | 124.90 | |
| | |
(1) Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. |
Index Data: Copyright NASDAQ OMX, Inc. Used with permission. All rights reserved. |
Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved. |
Issuer Purchase of Equity Securities by the Issuer
The following table contains information relating to the repurchases of our common stock made by us in the three months ended December 31, 2021:2023:
| | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
| October 1 - October 31, 2021 | | 3,500 | | | $ | 0.94 | | — | | — | |
| November 1 - November 30, 2021 | | 15,376 | | | $ | 1.73 | | — | | — | |
| December 1 - December 31, 2021 | | 909 | | | $ | 1.21 | | — | | — | |
| Total | | 19,785 | | | $ | 1.18 | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| October 1 - October 31, 2023 | | 3,804,287 | | | $ | 5.47 | | | 3,804,287 | | | 67,271,767 | |
| November 1 - November 30, 2023 | | 4,091,046 | | | $ | 5.72 | | | 4,091,046 | | | 43,858,299 | |
| December 1 - December 31, 2023 | | 1,779,177 | | | $ | 6.53 | | | 1,779,177 | | | 32,244,882 | |
| Total | | 9,674,510 | | | | | 9,674,510 | | | |
(1) Represents sharesOn May 8, 2023, our board of unvesteddirectors authorized a share repurchase program of up to $200 million of our Class A common stock previously issued upon early exercise of unvested stock options that were repurchasedbeginning May 11, 2023. Under the repurchase program, we are authorized to repurchase shares through open market purchases, in privately negotiated transactions or by us from former employees upon their terminationother means, in accordance with applicable federal securities laws, including through trading plans under Rule 10b5-1 of the terms of their stock option agreements. We purchased the shares from the former employees at the respective original exercise prices.Exchange Act. The share repurchase program has no set expiration date.
Use of Proceeds
On June 11, 2021, we closed our initial public offering, or the IPO, of 52,272,727 shares of our Class A common stock at an offering price of $27.00 per share, including 6,818,181 shares pursuant to the exercise of the underwriters’ option to purchase additional shares of our Class A common stock, resulting in aggregate net proceeds to us of $1.3 billion after deducting underwriting discounts and commissions of $91.6 million, and offering costs of $7.5 million. All of the shares issued and sold in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-256154), which was declared effective by the SEC on June 8, 2021. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC acted as representatives of the underwriters for the offering.
We also used $10.9 million of the net proceeds from our IPO to satisfy the tax withholding and remittance obligations related to the settlement of our outstanding restricted stock units in connection with the offering.
No payments were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities, or to our affiliates in connection with the issuance and sale of the securities registered.
There has been no material change in the planned use of the IPO proceeds as discussed in our final prospectus filed with the SEC on June 10, 2021, pursuant to Rule 424(b) of the Securities Act.
Item 6. Reserved
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. As discussed in the section titled “Note About Forward Looking Statements,” our actual results may differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” under Part I, Item 1A. You should read the following discussion and analysis of our financial condition and results of operations together with our Audited Consolidated Financial Statements and the related notes included elsewhere in this Annual Report on Form 10-K.
A discussion regarding our liquidity, financial condition, and results of operations for the fiscal year ended December 31, 20212023 compared to the fiscal year ended December 31, 20202022 is presented below. A discussion regarding our liquidity, financial condition, and results of operations for the fiscal year ended December 31, 20202022 compared to the fiscal year ended December 31, 20192021 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in in Part II, Item 7 of our Prospectus dated June 8, 2021 andAnnual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC pursuant to Rule 424(b)(4) on June 10, 2021,February 28, 2023, which is hereby incorporated by reference.
Overview
Marqeta’s mission is modernizing financial services by making the entire payment experience native and delightful. Marqeta’s modern card issuing platform or our Platform, empowers our customers or our Customers - which include businesses like Affirm, Block, DoorDash, Instacart, and Klarna - to create customized payment cards that provideand innovative payment experiences for their customers, shoppers, and end users. Before the rise of modern card issuing, creating cards was slow, complex, and subject to mistakes. Marqeta helps solve these problems. Our Platform, powered by open APIs, enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases that are either the core of, or in support of, their core business.
Our modern architecture allows for flexibility, a high degree ofprograms with configurability and accelerated product development, democratizing access to card issuing technology.flexibility. Marqeta’s open APIs provide instant access to our highly scalable, cloud-based and configurable payment infrastructure that enables ourcustomers to embed the payments experience into apps or websites for a personalized user experience. Customers tocan launch and manage their own card programs, issue cards, and authorize and settle payments transactions.payment transactions quickly using our platform. We also deliver robust card program management, allowing our customers to embed Marqeta in their offering without having to build certain complex compliance elements or customer support services.
Initial Public Offering
In June 2021, we completed our initial public offering, orSee the IPO, in which we issued and sold an aggregatesection titled “Business” under Part I, Item 1 of 52,272,727 shares of newly authorized Class A common stock, which included 6,818,181 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $27.00 per share. Our shares of Class A common stock began tradingthis Annual Report on the Nasdaq Global Select Market, or Nasdaq, on June 9, 2021. We received aggregate net proceeds of $1.3 billion from the IPO less underwriting discounts and commissions of $91.6 million, and offering costs of $7.5 million. Immediately prior to the completion of the IPO, we filed our Amended and Restated Certificate of Incorporation which authorized a total of 1,500,000,000 shares of Class A common stock, 600,000,000 shares of Class B common stock, and 100,000,000 shares of undesignated preferred stock. All shares of common stock then outstanding were reclassified as Class B common stock and all shares of redeemable convertible preferred stock then outstanding were converted into 351,844,340 shares of common stock on a one-for-one basis and then reclassified into Class B common stock. Warrants exercisableForm 10-K for 2,569,528 shares of common stock were converted to an equivalent number of shares of warrants exercisable for Class B common stock and 203,610 shares of warrants exercisable for convertible preferred stock were converted to an equivalent number of warrants exercisable for shares of Class B common stock.
Key Factors Affecting Our Performance
We believe Marqeta’s growth, future success, and performance are dependent upon a number of factors, including those listed below. While these factors present significant opportunities for us, they also represent challenges we must successfully address to grow the adoption and use of the Marqeta Platform and improve our results of operations.
Our growth is aligned with our Customers’ growth. We believe our growth, future success, and performance is closely aligned with thatfurther discussion of our Customers. We employ a usage-based model, based on processing volume,business and derive the majority of our revenue from Interchange Fees generated by card transactions through our Platform. As our Customers’ processing volumes grow, they may earn an increased percentage of Revenue Share. Sharing an increased percentage of Interchange Fees with our Customers aligns our interests with our Customers’ growth and builds deeper Customer relationships.
Revenue model. We derive the majority of our revenue from Interchange Fees generated by processing payment transactions through our Platform. Interchange Fees are established by the Card Networks and the total Interchange Fees we collect are dependent on various factors including processing volume, merchant category code, transaction size, and other transaction attributes. For Customers under certain contracts, their percentage of Revenue Share increases as their respective processing volumes increase. Our gross margin percentage may decrease as a result of this dynamic. However, we remain strategically focused on growing incremental gross profit dollars and have the ability to partially offset margin declines with better pricing that we achieve with Issuing Banks and Card Networks. Changes in transaction mix, such as the proportion of signature debit versus PIN debit transactions and consumer versus commercial debit cards that make up our TPV, and changes in TPV as a result of the COVID-19 pandemic, could result in fluctuations to our net revenue. Further, certain Customers’ processing volumes are subject to seasonal fluctuations that could cause varied net revenue results across the quarters.
Ecosystem of key vendor partners. We partner with Card Networks who oversee their global payment networks, through which debit, credit, and prepaid card payments are authorized, processed, and settled. We incur fees charged by the Card Networks to route our Customers’ transactions within the payments ecosystem. These fees are reflected in our costs of revenue. Given our ability to direct processing volume to specific Card Networks, we are able to negotiate certain incentive rebates that effectively reduce the overall network fees. With the scale of the transactions we process on behalf of our Customers, we believe we can continue to negotiate favorable incentive rebates. However, if these fees increase, our gross margins will decrease.
We partner with Issuing Banks to facilitate the issuance of payment cards to our Customers and to sponsor our Customers’ card programs on Card Networks because we do not have regulatory authority to perform these activities ourselves. We pay volume-based and transaction-based fees to the Issuing Banks. The fees are typically structured based on volume tiers; as our processing volumes grow, these fees as a percentage of processing volume decline. These fees are reflected in our costs of revenue.
Continued investment in our Platform. We make significant investments in both new product development and platform enhancements. Further, we will continue to invest in operational support to maintain service levels expected by our Customers. We believe these investments in product development and operational efficiency will lead to long-term growth and profitability.
Impact of COVID-19
The COVID-19 pandemic has had, and continues to have, a significant impact on the U.S. economy and the markets in which we operate. While the rate of vaccinations continues to improve, the emergence of, and response to new variants has shown that the COVID-19 virus continues to be a public health concern worldwide.
In response to the COVID-19 pandemic, we implemented measures to focus on employee safety and Customer support, while at the same time seeking to mitigate any negative impact on our financial position and operations. We implemented remote working capabilities for our entire company and, to date, there has been minimal disruption to our operations.Macroeconomic Factors
We believeare unable to predict the COVID-19 pandemic intensified the consumer need for virtual and contactless forms of payments, the need for greater flexibility with purchases, and for easy online financing options. Many of the providers of these services are our Customers and they are experiencing accelerated adoption of technologies that enable such payment experiences. However, we experienced a slowdown of on-demand delivery processing volume in the second half of 2021, likely due to the reopening that occurred in the United States.
Further, in March 2021, the American Rescue Plan, among other things, provided individuals affected by the COVID-19 pandemic with cash stimulus payments. While we cannot reasonably estimate the actual effect on our TPV, and net revenue, we believe these stimulus payments contributed to the increase in our TPV and net revenue for the year ended December 31, 2021 compared to the year ended December 31, 2020.
The Card Networks publish changes to interchange rates in April and October of each year. Visa and Mastercard postponed nearly all of their interchange rate updates for April and October 2020, and in March 2021 again announced further postponements in interchange rate changes through April 2022 as a result of COVID-19’s impact on the U.S. economy. The Interchange Fees we earn are affected by multiplemacroeconomic factors, including changes to the published interchange rates, the size of the individual transaction, and the mix of transactions between signature-based and PIN-based consumer card and commercial card product types, and merchant categories, and Card Network-negotiated merchant rates. Although the Card Networks have announced some expected interchange rate changes for April 2022, it is uncertain if more changes will be implemented after lifting the current postponements. Additionally, in the normal course of updating interchange rates, the Card Networks continually assess the influence of improved payments technology, industry trends, and thevarious geopolitical conflicts, ongoing need to maintain balance of the payments ecosystem. All these factors combined can affect how future changes in interchange rates will impact our net revenue.
There remains uncertainty about the pace of economic recovery, including uncertainty related to the labor market,supply chain shortages, higher inflation and fiscalinterest rates, and monetary policy responses from the federal government. Businesses continue to face difficultyuncertainty in hiring and meeting consumer demand, and certain portions of the global supply chain remain challenged by shortages and delays that first occurred due to the initial COVID-19 outbreak.
It is uncertain how the COVID-19 pandemic will evolve and what effect the lifting of pandemic-related restrictions, and the levels of infection,economic conditions will have on our processing volumes, and on our future results of operations. WhileA deterioration in macroeconomic conditions could increase the risk of lower consumer spending, consumer and merchant bankruptcy, insolvency, business failure, higher credit losses, foreign currency fluctuations, or other business interruption, which may adversely impact our business has not been adversely affected by the COVID-19 pandemic to date, webusiness. We continue to monitor the situationthese situations and may take actions that alter our operations and business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our Customers,customers, vendors, and employees.
Key Operating Metric and Non-GAAP Financial Measures
We review a number of operating and financial metrics, including the key operating metric set forth below, to help us evaluate our business and growth trends, establish budgets, evaluate the effectiveness of our investments, and assess operational efficiencies. In addition to the results determined in accordance with GAAP, the following table sets forth a key operating metric and non-GAAP financial measures that we consider useful in evaluating our operating performance.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Total Processing Volume (TPV) (in millions) | $ | 111,133 | | | $ | 60,075 | | | $ | 21,674 | |
| | | | | |
| Net revenue (in thousands) | $ | 517,175 | | | $ | 290,292 | | | $ | 143,267 | |
| Gross profit (in thousands) | $ | 231,705 | | | $ | 117,907 | | | $ | 60,453 | |
| Gross margin | 45 | % | | 41 | % | | 42 | % |
| Net loss (in thousands) | $ | (163,929) | | | $ | (47,695) | | | $ | (58,200) | |
| Net loss margin | (32) | % | | (16) | % | | (41) | % |
| | | | | |
| Adjusted EBITDA (in thousands) | $ | (12,767) | | | $ | (15,378) | | | $ | (34,026) | |
| Adjusted EBITDA margin | (2) | % | | (5) | % | | (24) | % |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Total Processing Volume (TPV) (in millions) | $ | 222,264 | | | $ | 166,260 | | | $ | 111,133 | |
| | | | | |
| Net revenue (in thousands) | $ | 676,171 | | | $ | 748,206 | | | $ | 517,175 | |
| Gross profit (in thousands) | $ | 329,514 | | | $ | 320,001 | | | $ | 231,705 | |
| Gross margin | 49 | % | | 43 | % | | 45 | % |
| Net loss (in thousands) | $ | (222,962) | | | $ | (184,780) | | | $ | (163,929) | |
| Net loss margin | (33) | % | | (25) | % | | (32) | % |
| Total operating expenses (in thousands) | $ | 612,529 | | | $ | 529,809 | | | $ | 393,711 | |
| | | | | |
| Non-GAAP Measures: | | | | | |
| Adjusted EBITDA (in thousands) | $ | (2,290) | | | $ | (41,796) | | | $ | (12,767) | |
| Adjusted EBITDA margin | (0.3) | % | | (6) | % | | (3) | % |
| Non-GAAP operating expenses (in thousands) | $ | 331,804 | | | $ | 361,797 | | | $ | 244,472 | |
Total Processing Volume (TPV)(“TPV”) - TPV represents the total dollar amount of payments processed through our Platform,platform, net of returns and chargebacks. We believe that TPV is a key operating metric and a principal indicator of the market adoption of our Platform,platform, growth of our brand, growth of our Customers'customers' businesses and scale of our business.
Adjusted EBITDA - Adjusted EBITDA is a non-GAAP financial measure that is calculated as net income (loss) adjusted to exclude depreciation and amortization; share-based compensation expense; payroll tax related to share-based compensation; legal, financial,restructuring charges; acquisition related expenses which consist of due diligence costs, transaction costs and tax due diligenceintegration costs related to potential acquisitions;or successful acquisitions and cash and non-cash postcombination compensation expenses; income tax expense (benefit); and other expense (income)income (expense) net, which consists of changes in the fair value of redeemable convertible preferred stock warrant liabilities (for periods prior to the IPO), interest income from our short-term investments, realized foreign currency gains and losses, interest income from our marketable securities,share of equity method investments’ profit or loss, impairment of equity method investments or other financial instruments, and interest expensegain from a bank loan.sale of equity method investments. We believe that adjustedAdjusted EBITDA is an important measure of operating performance because it allows management and our board of directors to evaluate and compare our core operating results, including our operating efficiencies, from period to period. Additionally, we utilize adjustedAdjusted EBITDA as a performance measure used to calculate payments underan input into our calculation of our annual employee bonus plans. See the section below titled “Use of Non-GAAP Financial Measures” for a discussion of the use of non-GAAP measures and a reconciliation of net loss to Adjusted EBITDA.
Adjusted EBITDA MargiMarginn - Adjusted EBITDA Margin is a non-GAAP financial measure that is calculated as Adjusted EBITDA divided by net revenue. This measure is used by management and our board of directors to evaluate our operating efficiency. See the section below titled “Use of Non-GAAP Financial Measures” for a discussion of the use of non-GAAP measures and a reconciliation of net loss to Adjusted EBITDA Margin.
Non-GAAP operating expenses - Non-GAAP operating expenses is a non-GAAP financial measure that is calculated as total operating expenses adjusted to exclude depreciation and amortization; share-based compensation expense; payroll tax related to share-based compensation; restructuring charges; and acquisition related expenses which consists of due diligence costs, transaction cost and integration costs related to potential or successful acquisitions, and cash and non-cash postcombination compensation expenses. We believe that non-GAAP operating expenses is an important measure of operating performance because it allows management and our board of directors to evaluate and compare our core operating results, including our operating efficiencies, from period to period. See the section below titled “Use of Non-GAAP Financial Measures” for a discussion of the use of non-GAAP measures and a reconciliation of total operation expenses to non-GAAP operating expenses.
Components of Results of Operations
Net Revenue
We have two components of net revenue: platform services revenue, net and other services revenue.
Platform services revenue, net. Platform services revenue includes Interchange Fees, net of Revenue Share and other service-level payments to Customers.customers, and Card Network and Issuing Bank costs for certain customer arrangements where the Company is an agent in the delivery of services to the customer. Platform services revenue also includes processing and other fees. Interchange Fees are earned on card transactions we process for our Customerscustomers and are based on a percentage of the transaction amount plus a fixed amount per transaction. Interchange Fees are recognized when the associated transactions are settled.
Revenue Share payments are incentives to Customersour customers to increase their processing volumes on our Platform.platform. Revenue Share is generally computed as a percentage of the Interchange Fees earned or processing volume and is paid to Customersour customers monthly. Revenue Share payments are recorded as a reduction to net revenue. As Customers'Generally, as customers' processing volumes increase, they may earn an increased percentage of Revenue Share.the rates at which we share revenue increase.
Processing and other fees include feesare priced as either a percentage of processing volume or on a fee per transaction basis and are earned when end users use payment cards are used at automated teller machines and minimumor to make cross-border purchases. Minimum processing fees, if Customers'where customers' processing volumes fall below certain thresholds.thresholds, are also included in processing and other fees.
We recognize revenue when the promised services are complete, and our performance obligations are satisfied. Platform services are considered complete when we have authorized the transaction, validated that the transaction has no errors, and accepted and posted the data to our records.
Other services revenue. Other services revenue primarily consists of revenue earned for card fulfillment services. Card fulfillment fees are generally billed to Customerscustomers upon ordering card inventory and recognized as revenue when the cards are shipped to the Customers.customers.
Costs of Revenue
Costs of revenue consist of Card Network costs,fees, Issuing Bank costs,fees, and card fulfillment costs.costs for customer arrangements where the Company is the principal in providing services to the customer and excludes depreciation and amortization, which is reported separately within the Consolidated Statements of Operations and Comprehensive Loss. Card Network costsfees are equal to a specified percentage of processing volume or a fixed amount per transaction routed through the respective Card Network. Issuing Bank costsfees compensate our Issuing Banks for issuing cards to our Customerscustomers and sponsoring our card programs with the Card Networks and are typically equal to a specified percentage of processing volume or a fixed amount per transaction. Card fulfillment costs include physical cards, packaging, and other fulfillment costs.
We have separate marketing and incentive arrangements with Card Networks that provide us with monetary incentives for establishing Customercustomer card programs with, and routing volume through, the respective Card Network. The amount of the incentives is generally determined based on a percentage of the processing volume or the number of transactiontransactions routed over the Card Network. We record these incentives as a reduction of Card Network fees included in costs of revenue.customer arrangements where the Company is the principal. Generally, as processing volumes increase, we earn a higher rate of monetary incentives from these arrangements, subject to attaining certain volume thresholds during a six-month oran annual measurement period. For certain incentive arrangements with an annual measurement period, the one-year period may not align with our fiscal year. Additionally, unusual fluctuations in Card Network fees can occur in the quarter in which volume thresholds are attained as higher incentive rates are applied to volumes over the entire measurement periods, which can span six or twelve months.
Operating Expenses
Compensation and Benefits. Compensation and benefits consist primarily of salaries, employee benefits, severance and other termination benefits, incentive compensation, contractors’ cost, and share-based compensation.
Technology. Technology consists primarily of third-party hosting fees, software licenses, and hardware purchases below our capitalization threshold, and support and maintenance costs.
Professional Services. Professional services consist primarily of consulting, legal, audit, and recruiting fees.
Occupancy. Occupancy consists primarily of rent expense, repairs, maintenance, and other building related costs.
Depreciation and Amortization. Depreciation and amortization consist primarily of depreciation of our fixed assets and amortization of capitalized Internal-use software and developed technology intangible assets.
Marketing and Advertising. Marketing and advertising consist primarily of costs of general marketing activities and promotional activities.
Other Operating Expenses. Other operating expenses consist primarily of insurance costs, indemnification costs, travel-related expenses, indirect state and local taxes, insurance costs, employee travel-related expenses, employee training, charitable donations, and other general office expenses.
We expect our operating expenses to increase in absolute dollars as our business grows. We also expect to continue to incur increased expenses to operate as a public company including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, including regarding internal control over financial reporting under Section 404 of the Sarbanes Oxley Act.
Other Income (Expense), net
Other income (expense), net consists primarily of interest income from our short-term investments and cash deposits, gain from sale of equity method investments, impairment of equity method investments or other financial instruments, equity method investment share of loss, realized foreign currency gains and losses, and changes in the fair value of the redeemable convertible preferred stock warrant liabilities (for periods prior to the IPO), realized foreign currency gains and losses, equity method investment share of loss, and interest income from our marketable securities..
Income Tax ExpenseBenefit
Income tax expense consists of U.S. federal and state income taxes, and U.K. income taxes.taxes related to certain foreign jurisdictions. We maintain a full valuation allowance against our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that we will realize our net deferred tax assets.
Results of Operations
The following table sets forth our results of operations for the periods presented:
| | Year Ended December 31, |
| | Year Ended December 31, | | | | Year Ended December 31, |
| (dollars in thousands) | (dollars in thousands) | | 2021 | | 2020 | | 2019 | (dollars in thousands) | | 2023 | | 2022 | | 2021 |
| Net revenue | Net revenue | | $ | 517,175 | | | $ | 290,292 | | | $ | 143,267 | |
| Costs of revenue | Costs of revenue | | 285,470 | | | 172,385 | | | 82,814 | |
| Gross profit | Gross profit | | 231,705 | | | 117,907 | | | 60,453 | |
| Operating expenses: | Operating expenses: | |
| Compensation and benefits | Compensation and benefits | | 318,116 | | | 129,802 | | | 88,309 | |
| Compensation and benefits | |
| Compensation and benefits | |
| Technology | |
| Professional services | Professional services | | 18,443 | | | 7,188 | | | 7,157 | |
| Technology | | 33,637 | | | 13,239 | | | 7,796 | |
| Occupancy | Occupancy | | 4,181 | | | 4,337 | | | 3,777 | |
| Depreciation and amortization | Depreciation and amortization | | 3,534 | | | 3,498 | | | 3,080 | |
| Marketing and advertising | Marketing and advertising | | 2,284 | | | 1,670 | | | 2,080 | |
| Other operating expenses | Other operating expenses | | 13,516 | | | 5,260 | | | 7,117 | |
| Total operating expenses | Total operating expenses | | 393,711 | | | 164,994 | | | 119,316 | |
| Loss from operations | Loss from operations | | (162,006) | | | (47,087) | | | (58,863) | |
| Other income (expense), net | Other income (expense), net | | (2,563) | | | (521) | | | 698 | |
| Loss before income tax expense | Loss before income tax expense | | (164,569) | | | (47,608) | | | (58,165) | |
| Income tax expense (benefit) | | (640) | | | 87 | | | 35 | |
| Income tax benefit | |
| Net loss | Net loss | | $ | (163,929) | | | $ | (47,695) | | | $ | (58,200) | |
|
Comparison of the Fiscal Years Ended December 31, 20212023 and 20202022
Net Revenue
| | | Year Ended December 31, | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| (dollars in thousands) | | | 2023 | | 2022 | | $ Change | | % Change |
| Net revenue: | |
| | | Year Ended December 31, | |
| (dollars in thousands) | | 2021 | | 2020 | | $ Change | | % Change |
| Net revenue: | | | | | | | | |
| Total platform services, net | |
| | Total platform services, net | |
| | Total platform services, net | Total platform services, net | | $ | 502,296 | | $ | 283,305 | | $ | 218,991 | | | 77 | % | | $ | 654,553 | | $ | 725,629 | | $ | (71,076) | | | (10) | | (10) | % |
| Other services | Other services | | 14,879 | | 6,987 | | 7,892 | | | 113 | % | Other services | | 21,618 | | 22,577 | | (959) | | | (4) | | (4) | % |
| Total net revenue | Total net revenue | | $ | 517,175 | | $ | 290,292 | | $ | 226,883 | | | 78 | % | Total net revenue | | $ | 676,171 | | $ | 748,206 | | $ | (72,035) | | | (10) | | (10) | % |
| | Total Processing Volume (TPV) (in millions) | Total Processing Volume (TPV) (in millions) | | $ | 111,133 | | $ | 60,075 | | $ | 51,058 | | | 85 | % |
| Total Processing Volume (TPV) (in millions) | |
| Total Processing Volume (TPV) (in millions) | | | $ | 222,264 | | $ | 166,260 | | $ | 56,004 | | | 34 | % |
Total net revenue increaseddecreased by $226.9$72.0 million, or 78%10%, for the year ended December 31, 20212023 compared to the year ended December 31, 2020,2022, of which increase $152.6$68.6 million was attributable to our largest customer, Block. The increasedecrease in net revenue was primarily driven by an 85% increasethe August 2023 Block Amendment which allowed for reduced pricing and impacted the revenue presentation for the Cash App Program as fees owed to Issuing Banks and Card Networks related to the Cash App primary Card Network volume are recorded as a reduction to the revenue earned from the Cash App program within net revenue effective as of July 1, 2023. In prior periods, these costs were included within Costs of revenue. The impact of these fees for the year ended December 31, 2023 was a $234.4 million reduction to net revenue, negatively impacting the growth rate by 31 percentage points. These decreases in net revenue were partially offset by increased TPV from Block’s programs. Revenue from other customers decreased $3.4 million, primarily driven by one customer migrating a portion of one of their programs to a competitor starting in Q3 2022, unfavorable changes in the mix of our card programs, particularly the growth of our PxM offering, and the impact of contract renewals partially offset by a decreased average interchange rate earned on transactions processed and by a 2%33% increase in Revenue Share payments attributable to increased average Revenue Share rates,TPV.
Other services revenue decreased $1.0 million, or 4%, for the year ended December 31, 2023 compared to the same periodyear ended December 31, 2022 due primarily to a decrease in 2020. Interchange rates may vary due to changes in rates published by the Card Networks as well as the mix of transaction types, average transaction size, merchant classifications, and consumer versus commercial card classifications. Revenue Share rates may vary due to customers’ earning an increased percentage of Revenue Share as they increase processing volumes on our Platform. Sharing an increased percentage of Interchange Fees with our Customers aligns our interests with our Customers’ growth and builds deeper customer relationships.fulfillment revenue.
The increase in TPV was mainly driven by increasesgrowth across all our major verticals, particularly financial services, and PxM customers. The growth in processing volume from our digital banking and BNPL Customers. TPV for our top five Customers, measuredcustomers, as determined by their individual TPV in each respective period, grew by 70%was 33% for the year ended December 31, 20212023 compared to the year ended December 31, 2020, while2022. This growth was mirrored by a 37% increase in TPV from all other Customers, as a group, grew 230%customers for the same period. Note that the top five customers may differ between the two periods.
Costs of Revenue and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| (dollars in thousands) | | 2023 | | 2022 | | $ Change | | % Change |
| Costs of revenue: | | | | | | | | |
| Card Network fees, net | | $ | 309,453 | | $ | 380,162 | | $ | (70,709) | | | (19) | % |
| Issuing Bank fees | | 21,549 | | 30,160 | | (8,611) | | | (29) | % |
| Other | | 15,655 | | 17,883 | | (2,228) | | | (12) | % |
| Total costs of revenue | | $ | 346,657 | | $ | 428,205 | | $ | (81,548) | | | (19) | % |
| | | | | | | | |
| Gross profit | | $ | 329,514 | | $ | 320,001 | | $ | 9,513 | | | 3 | % |
| Gross margin | | 49 | % | | 43 | % | | | | |
Costs of revenue decreased by $81.5 million, or 19%, for the year ended December 31, 20212023 compared to the year ended December 31, 2020.
Costs of Revenue and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| (dollars in thousands) | | 2021 | | 2020 | | $ Change | | % Change |
| Costs of revenue: | | | | | | | | |
| Card Network fees, net | | $ | 244,387 | | $ | 145,617 | | $ | 98,770 | | | 68 | % |
| Issuing Bank fees | | 27,282 | | 19,785 | | 7,497 | | | 38 | % |
| Other | | 13,801 | | 6,983 | | 6,818 | | | 98 | % |
| Total costs of revenue | | $ | 285,470 | | $ | 172,385 | | $ | 113,085 | | | 66 | % |
| | | | | | | | |
| Gross profit | | $ | 231,705 | | $ | 117,907 | | $ | 113,798 | | | 97 | % |
| Gross margin | | 45 | % | | 41 | % | | | | |
Costs of revenue increased by $113.1 million, or 66%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.2022. The increasedecrease was primarily due to increasedthe revenue presentation change for our fees owed to Issuing Banks and Card Networks related to the Cash App primary Card Network feesvolume which are now reflected within net revenue as thea result of the 85% increase in TPV and 70% increase inAugust 2023 Block Amendment. In addition, the number of corresponding transactions.
Network fees increased $98.8 million, or 68% in the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was due to a 85% increase in TPV,Company realized improved economics with Issuing Bank partners. These decreases were partially offset by the effect of $14.8 million of additional Cardincreases in Issuing Bank and Network incentives resulting from reaching specified volume tiers and other discounts during the year ended December 31, 2021. The higher volume tiers were not reached in the year ended December 31, 2020. Certain of our network incentive arrangements have 6-month or annual measurement periods that do not correspond to our fiscal year and we can earn additional rates of incentives when specified volume tiers are met. As such, additional incentives can be earned on volume processed in a prior fiscal year and multiple incentive tiers can be met in the same fiscal year.fees driven by increased TPV.
Issuing Bank feesAs a result of the decreases in costs of revenue being less than the decreases in net revenue explained above, our gross profit increased $7.5by $9.5 million, or 38%3%, for the year ended December 31, 20212023 compared to the year ended December 31, 2020, which was lower than the percentage of increase in TPV as a result of volume tiers being met at Sutton Bank, and reduced Issuing Bank fees for certain of our processing volume, as a result of amending our contract with Sutton Bank. Issuing Bank fees are typically determined based on volume tiers; as our processing volumes grow, these fees as a percentage of processing volume decline.
As a result of the increases in net revenue and costs of revenue discussed above, our gross profit increased by $113.8 million, or 97%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.2022. Our gross margin increased to 45%49% during the year ended December 31, 2021 - including the benefit of the monetary incentives mentioned above -2023 from 41%43% during the year ended December 31, 2020.2022.
Operating Expenses
| | Year Ended December 31, | |
| | Year Ended December 31, | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| (dollars in thousands) | (dollars in thousands) | | 2021 | | 2020 | | $ Change | | % Change | | 2023 | | 2022 | | $ Change | | % Change |
| Operating expenses: | Operating expenses: | | | | | | | | |
| Salaries, bonus, benefits and payroll taxes | |
| Salaries, bonus, benefits and payroll taxes | |
| Salaries, bonus, benefits and payroll taxes | Salaries, bonus, benefits and payroll taxes | | $ | 175,456 | | $ | 101,591 | | $ | 73,865 | | | 73 | % | | $ | 318,856 | | $ | 254,351 | | $ | 64,505 | | | 25 | | 25 | % |
| Share-based compensation | Share-based compensation | | 142,660 | | 28,211 | | 114,449 | | | 406 | % | Share-based compensation | | 180,739 | | 160,743 | | 19,996 | | | 12 | | 12 | % |
| Total compensation and benefits | Total compensation and benefits | | 318,116 | | 129,802 | | 188,314 | | | 145 | % | Total compensation and benefits | | 499,595 | | 415,094 | | 84,501 | | | 20 | | 20 | % |
| Percentage of net revenue | Percentage of net revenue | | 62 | % | | 45 | % | |
| Technology | |
| Technology | |
| Technology | | | 55,612 | | 52,361 | | 3,251 | | | 6 | % |
| Percentage of net revenue | |
| Professional services | |
| Professional services | |
| Professional services | Professional services | | 18,443 | | 7,188 | | 11,255 | | | 157 | % | | 21,679 | | 23,479 | | (1,800) | | | (8) | | (8) | % |
| Percentage of net revenue | Percentage of net revenue | | 4 | % | | 2 | % | |
| Technology | | 33,637 | | 13,239 | | 20,398 | | | 154 | % |
| Percentage of net revenue | | 7 | % | | 5 | % | |
| Occupancy | |
| Occupancy | |
| Occupancy | Occupancy | | 4,181 | | 4,337 | | (156) | | | (4) | % | | 4,361 | | 4,514 | | (153) | | | (3) | | (3) | % |
| Percentage of net revenue | Percentage of net revenue | | 1 | % | | 1 | % | |
| Depreciation and amortization | Depreciation and amortization | | 3,534 | | 3,498 | | 36 | | | 1 | % |
| Depreciation and amortization | |
| Depreciation and amortization | | | 10,741 | | 3,853 | | 6,888 | | | 179 | % |
| Percentage of net revenue | Percentage of net revenue | | 1 | % | | 1 | % | |
| Marketing and advertising | |
| Marketing and advertising | |
| Marketing and advertising | Marketing and advertising | | 2,284 | | 1,670 | | $ | 614 | | | 37 | % | | 2,566 | | 3,995 | | $ | (1,429) | | | (36) | | (36) | % |
| Percentage of net revenue | Percentage of net revenue | | — | % | | 1 | % | |
| Other operating expenses | Other operating expenses | | 13,516 | | 5,260 | | 8,256 | | | 157 | % |
| Other operating expenses | |
| Other operating expenses | | | 17,975 | | 26,513 | | (8,538) | | | (32) | % |
| Percentage of net revenue | Percentage of net revenue | | 3 | % | | 2 | % | |
| Total operating expenses | Total operating expenses | | $ | 393,711 | | $ | 164,994 | | $ | 228,717 | |
| | Total operating expenses | |
| Total operating expenses | |
| Percentage of net revenue | |
| Percentage of net revenue | |
| Percentage of net revenue | |
Compensation and benefits expenses increased by $188.3 million, or 145%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. Salaries, bonus, benefits, and payroll taxes increased by $73.9$64.5 million, predominately due to a $46.2 million increase in salaries due to the 47% increase in the average full time employees from 427 inor 25%, for the year ended December 31, 2020 to 629 in the year ended December 31, 2021, a $18.7 million increase in bonus expense, and a $8.9 million increase in contractors’ costs, due to the 162% increase in the average number of contractors from 27 in the year ended December 31, 2020 to 70 in the year ended December 31, 2021. Additionally, bonus expense increased $18.7 million during the year ended December 31, 20212023 compared to the year ended December 31, 20202022, primarily due to thea $74.7 million, or 38%, increase in full time employees, the broadening of our corporate bonus plan to cover more employees,employee salaries, partially offset by a $5.3 million, or 13%, decrease in employee bonuses and higher bonus payout for the year ended December 31, 2021. We expect rates of compensation toa $4.8 million, or 35%, decrease in contractor expense. The increase in employee salaries was driven by $68.9 million in postcombination compensation costs to former employees of Power Finance and $11.6 million in costs related to the future in part due the labor market shortage that is currently prevalentrestructuring announced in the U.S. economy and increases in ratessecond quarter of inflation observed in 2021.
Compensation2023, partially offset by higher salaries, bonus, and benefits expenses alsocosts capitalized for internal-use software development.
Share-based compensation increased by $20.0 million, or 12% in the year ended December 31, 20212023 compared to the year ended December 31, 20202022 mainly due to a $114.4 million increase in share-based compensation expense, mainly because of the increase in ourthe number of RSU awards granted to employees, base and the CEO Long-Term Performance Award as detailed in the table below:partially offset by higher share-based compensation capitalized for internal-use development.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| (dollars in thousands) | | 2023 | | 2022 | | $ Change | | % Change |
| Share-based compensation: | | | | | | | | |
| Restricted stock units | | $ | 99,648 | | $ | 76,094 | | $ | 23,554 | | | 31 | % |
| Stock options | | 26,323 | | 28,816 | | (2,493) | | | (9) | % |
| Executive Chairman Long-Term Performance Award | | 53,214 | | 53,214 | | — | | | — | % |
| Employee Stock Purchase Plan | | 1,554 | | 2,619 | | (1,065) | | | (41) | % |
| | | | | | | | |
| Total share-based compensation | | $ | 180,739 | | $ | 160,743 | | $ | 19,996 | | | 12 | % |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| (dollars in thousands) | | 2021 | | 2020 | | $ Change | | % Change |
| Share-based compensation | | | | | | | | |
Restricted stock units (1) | | $ | 59,652 | | $ | — | | $ | 59,652 | | | n/m |
| Stock options | | 31,231 | | 10,895 | | 20,336 | | | 187 | % |
| CEO Long-Term Performance Award | | 38,189 | | — | | 38,189 | | | n/m |
| Employee Stock Purchase Plan | | 1,946 | | — | | 1,946 | | | n/m |
| Secondary sales of common stock | | 11,642 | | 17,316 | | (5,674) | | | (33) | % |
| Total share-based compensation | | $ | 142,660 | | $ | 28,211 | | $ | 114,449 | | | 406 | % |
| n/m = not meaningful | | | | | | | | |
(1) Includes $23.1 million of expense recognized for cumulative prior service as of the IPO completion date for RSUs with both a service and liquidity vesting condition. |
Professional servicesTechnology expenses increased by $11.3$3.3 million, or 157%6%, for the year ended December 31, 20212023 compared to the year ended December 31, 2020.2022. The increase was due to higher software as a $9.5 million increase in accounting, consulting,service costs to support our continued growth and legal fees,higher software licensing costs as we implement new internal systems and atools.
Professional services expenses decreased by $1.8 million, increase in recruiting fees.
Technology expenses increased by $20.4 million, or 154%8%, for the year ended December 31, 20212023 compared to the year ended December 31, 2020.2022. The decrease was due to the decreased consulting and recruiting fees.
Occupancy expense remained relatively flat for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Depreciation and amortization increased by $6.9 million, or 179%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to a $12.7the amortization of developed technology intangible assets originating from the Power Finance acquisition.
Marketing and advertising expenses decreased by $1.4 million, increase in third-party hosting costs to support our continued growth and increase in TPV, increasingor 36%, for the resiliency of our Platform and continued migrationyear ended December 31, 2023 compared to the cloud from third-party data centers,year ended December 31, 2022 due to decreased conference and a $7.6 million increasetrade show costs incurred in software licensing costs as we continue implementing new systems and tools and increasing the number of licenses for existing systems.current year.
Occupancy expenseOther operating expenses decreased by $0.2$8.5 million, or 32%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to cost optimization initiatives and an indemnification cost of $5.9 million that was recognized in the prior year.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| (dollars in thousands) | | 2023 | | 2022 | | $ Change | | % Change |
| Other income (expense), net | | $ | 52,440 | | | $ | 24,926 | | | $ | 27,514 | | | 110 | % |
| Percentage of net revenue | | 8 | % | | 3 | % | | | | |
Other income (expense), net increased by $27.5 million, or 110%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase of $32.8 million in interest income earned on our short-term investments portfolio and cash deposit balances, offset by a gain of $17.9 million from the sale of the Company’s equity method investment in a private company paired with an impairment of $11.6 million of an option to purchase the remaining equity interests in an equity method investee incurred during the prior year.
Income Tax Benefit
Income tax benefit increased by $7.5 million for the year ended December 31, 20212023 compared to the year ended December 31, 2020 as2022 primarily attributable to a result of a lease cost credit received$8.0 million partial valuation allowance release due to the reduced use of our office space during shelter-in-place orders. As most of our employees and service providers continue to work remotely, we will continue to evaluate the need for additional office space.
Depreciation and amortization remained consistent for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Marketing and advertisingPower Finance acquisition, offset by income tax expenses increased by $0.6 million, or 37%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily related to conferences, trade shows, and brand awareness investments to further grow our Customer base.
Other operating expenses increased by $8.3 million, or 157%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 as a result of an increase in insurance costs of $4.9 million, an increase in various state and local non-income taxes of $1.3 million, and an increase in general office operating expenses of $2.1 million.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| (dollars in thousands) | | 2021 | | 2020 | | $ Change | | % Change |
| Other income (expense), net | | $ | (2,563) | | | $ | (521) | | | $ | (2,042) | | | 392 | % |
| Percentage of net revenue | | — | % | | — | % | | | | |
Other income (expense), net decreased by $2.0 million, or 392%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to a $1.0 million increase in the expense related to the change in the fair value of the redeemable convertible preferred stock warrant liabilities, a $0.7 million decrease in interest incomeresulting from our marketable securities portfolio, and $0.3 million increase in realizedprofitable foreign currency exchange loss. The redeemable convertible preferred stock warrants were exercised during 2021 and therefore we do not expect to record additional changes in the fair value of these warrants.operations.
Customer Concentration
We generated 69%68% and 70%71% of our net revenue from our largest Customer,customer, Block, during the years ended December 31, 20212023 and 2020,2022, respectively.
Quarterly Results of Operations
The following tables set forth selected unaudited consolidated quarterly statements of operations data for each of the eight fiscal quarters ended December 31, 2021. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this Annual Report on Form 10-K and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. In the fourth quarter of 2021, we reclassified contractor costs from professional services to compensation and benefits and all statements of operations below have been adjusted to conform to this new presentation. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our results of operations to be expected for any future period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| Dec 31,
2021 | | Sep 30,
2021 | | Jun 30,
2021 | | Mar 31,
2021 | | Dec 31,
2020 | | Sep 30,
2020 | | Jun 30,
2020 | | Mar 31,
2020 |
| (in thousands) |
| Net revenue | $ | 155,414 | | | $ | 131,512 | | | $ | 122,266 | | | $ | 107,983 | | | $ | 88,196 | | | $ | 84,307 | | | $ | 69,402 | | | $ | 48,389 | |
| Costs of revenue | 79,615 | | | 72,438 | | | 75,291 | | | 58,126 | | | 51,750 | | | 49,024 | | | 41,785 | | | 29,826 | |
| Gross profit | 75,799 | | | 59,074 | | | 46,975 | | | 49,857 | | | 36,446 | | | 35,283 | | | 27,617 | | | 18,563 | |
| Operating expenses: | | | | | | | | | | | | | | | |
| Compensation and benefits | 88,995 | | | 84,462 | | | 97,755 | | | 46,904 | | | 38,964 | | | 38,816 | | | 26,449 | | | 25,574 | |
| Professional services | 5,712 | | | 4,704 | | | 3,831 | | | 4,196 | | | 1,955 | | | 1,547 | | | 1,931 | | | 1,753 | |
| Technology | 11,143 | | | 9,299 | | | 7,569 | | | 5,626 | | | 4,708 | | | 3,432 | | | 2,660 | | | 2,439 | |
| Occupancy | 1,097 | | | 1,091 | | | 907 | | | 1,086 | | | 1,070 | | | 1,100 | | | 1,080 | | | 1,087 | |
| Depreciation and amortization | 967 | | | 786 | | | 874 | | | 907 | | | 890 | | | 901 | | | 850 | | | 857 | |
| Marketing and advertising | 804 | | | 490 | | | 495 | | | 495 | | | 618 | | | 371 | | | 343 | | | 338 | |
| Other operating expenses | 4,811 | | | 3,880 | | | 3,530 | | | 1,295 | | | 1,346 | | | 1,287 | | | 1,101 | | | 1,526 | |
| Total operating expenses | 113,529 | | | 104,712 | | | 114,961 | | | 60,509 | | | 49,551 | | | 47,454 | | | 34,414 | | | 33,574 | |
| Loss from operations | (37,730) | | | (45,638) | | | (67,986) | | | (10,652) | | | (13,105) | | | (12,171) | | | (6,797) | | | (15,011) | |
| Other income (expense), net | 142 | | | (57) | | | (481) | | | (2,167) | | | (638) | | | (83) | | | (295) | | | 495 | |
| Loss before income tax expense | (37,588) | | | (45,695) | | | (68,467) | | | (12,819) | | | (13,743) | | | (12,254) | | | (7,092) | | | (14,516) | |
| Income tax expense (benefit) | (781) | | | 35 | | | 87 | | | 19 | | | 17 | | | 43 | | | 15 | | | 12 | |
| Net loss | $ | (36,807) | | | $ | (45,730) | | | $ | (68,554) | | | $ | (12,838) | | | $ | (13,760) | | | $ | (12,297) | | | $ | (7,107) | | | $ | (14,528) | |
Use of Non-GAAP Financial Measures
Our non-GAAP measures have limitations as analytical tools and you should not consider them in isolation. These non-GAAP measures should not be viewed as a substitute for, or superior to, measures prepared in accordance with GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses similar to the adjustments in the presentation of our non-GAAP measures set forth under “Key Operating Metric and Non-GAAP Financial Measures”. There are a number of limitations related to the use of these non-GAAP measures versus their most directly comparable GAAP measures, including the following:
•other companies, including companies in our industry, may calculate adjusted EBITDA and non-GAAP operating expenses differently than how we calculate this measure or not at all; this reduces its usefulness as a comparative measure;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures; and
•adjusted EBITDA does not reflect the effect of income taxes that may represent a reduction in cash available to us.
We encourage investors to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures.
A reconciliation of net loss to adjusted EBITDA and GAAP operating expenses to non-GAAP operating expenses for the periods presented is as follows:
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| (dollars in thousands) | (dollars in thousands) | | | |
| Net revenue | |
| Net revenue | |
| Net revenue | |
| Net revenue | |
| Net revenue | |
| Net revenue | |
| Net revenue | |
| Net revenue | |
| Net revenue | Net revenue | $ | 517,175 | | | $ | 290,292 | | | $ | 143,267 | |
| Net loss | Net loss | $ | (163,929) | | | $ | (47,695) | | | $ | (58,200) | |
| Net loss margin | Net loss margin | (32) | % | | (16) | % | | (41) | % | Net loss margin | (33) | % | | (25) | % | | (32) | % |
| Total operating expenses | |
| | Net loss | |
| Net loss | |
| Net loss | Net loss | $ | (163,929) | | | $ | (47,695) | | | $ | (58,200) | |
| Depreciation and amortization expense | Depreciation and amortization expense | 3,534 | | | 3,498 | | | 3,080 | |
| Share-based compensation expense | Share-based compensation expense | 142,660 | | | 28,211 | | | 21,757 | |
| Payroll tax expense related to share-based compensation | Payroll tax expense related to share-based compensation | 1,956 | | | — | | | — | |
| Due diligence costs related to potential acquisitions | 1,089 | | | — | | | — | |
| Other expense (income), net | 2,563 | | | 521 | | | (698) | |
| Income tax expense (benefit) | (640) | | | 87 | | | 35 | |
Acquisition-related expenses (1) | |
| Restructuring | |
| Other (income) expense, net | |
| Income tax benefit | |
| Adjusted EBITDA | Adjusted EBITDA | $ | (12,767) | | | $ | (15,378) | | | $ | (34,026) | |
| Adjusted EBITDA Margin | Adjusted EBITDA Margin | (2) | % | | (5) | % | | (24) | % | Adjusted EBITDA Margin | (0.3) | % | | (6) | % | | (2) | % |
| | Total operating expenses | |
| Total operating expenses | |
| Total operating expenses | |
| Depreciation and amortization expense | |
| Share-based compensation expense | |
| Payroll tax expense related to share-based compensation | |
| Restructuring | |
Acquisition-related expenses (1) | |
| Non-GAAP operating expenses | |
|
_______________
(1) Acquisition-related expenses, which include transaction costs, integration costs, and cash and non-cash postcombination compensation expense, have been excluded from adjusted EBITDA as such expenses are not reflective of our ongoing core operations and are not representative of the ongoing costs necessary to operate our business; instead, these are costs specifically associated with a discrete transaction.
Liquidity and Capital Resources
Since our inception through June 30, 2021, we financed our operations primarily through sales of equity securities and payments received from our Customers.customers. In June 2021, we completed our IPO andin which we received aggregate net proceeds of $1.3 billion after deducting underwriting discounts and commissions of $91.6 million and offering costs of $7.5 million.
At December 31, 2021,2023, our principal sources of liquidity included cash, cash equivalents, and marketable securitiesshort-term investments totaling $1.7$1.2 billion, with such amounts held for working capital purposes. At December 31, 2021, ourOur cash equivalents and marketable securitiesshort-term investments were comprised primarily of bank deposits, money market funds, U.S. governmenttreasury bills, U.S. treasury securities, commercial paper,U.S. agency securities, asset-backed securities and corporate debt securities. We have generated significant operating losses as reflected in our accumulated deficit. We expect to continue to incur operating losses for the foreseeable future.
On September 14, 2022, our board of directors authorized a share repurchase program (the “2022 Share Repurchase Program”) of up to $100 million of our Class A common stock beginning September 15, 2022. Under the 2022 Share Repurchase Program, we were authorized to repurchase shares through open market purchases, in privately negotiated transactions or by other means, in accordance with applicable federal securities laws, including through trading plans under Rule 10b5-1 of the Exchange Act. The 2022 Share Repurchase Program had no set expiration date; however, the 2022 Share Repurchase Program was exhausted during the first quarter of 2023.
On May 8, 2023, our board of directors authorized a share repurchase program (the “2023 Share Repurchase Program” and together with the 2022 Share Repurchase Program, the “Share Repurchase Programs”) of up to $200 million of our Class A common stock. Under the 2023 Share Repurchase Program, we are authorized to repurchase shares through open market purchases, in privately negotiated transactions or by other means, in accordance with applicable federal securities laws, including through trading plans under Rule 10b5-1 of the Exchange Act. The 2023 Share Repurchase Program has no set expiration date. As of December 31, 2023, $32.2 million remained available for future share repurchases under the 2023 Share Repurchase Program.
On February 3, 2023, we acquired all outstanding stock of Power Finance. Upon the closure of the acquisition, we paid $135.8 million to the shareholders of Power Finance Inc, net of cash acquired. As part of the terms of the acquisition, we paid additional cash of $53.1 million for contingent consideration tied to performance-based goals that were achieved. We also entered into postcombination cash compensation arrangements with certain key acquired employees whereby we agreed to pay them $85.1 million of cash over a weighted average 2.2 year service period following the acquisition date (subject to forfeiture upon termination). As of December 31, 2023, $54.1 million of the postcombination cash compensation arrangements remained outstanding.
During the second quarter of 2023, we announced a restructuring plan intended to reduce operating expenses and improve profitability by reducing the Company’s workforce. In connection with the restructuring plan, we have paid approximately $14.6 million to impacted employees primarily related to one-time severance and benefit payments as of December 31, 2023.
We believe our existing cash and cash equivalents, and our marketable securitiesshort-term investments will be sufficient to meet our working capital and capital expenditure needs for more than the next 12 months. As of the date of filing this Annual Report on Form 10-K, we have access to and control over all our cash, cash equivalents and short-term investments, except amounts held as restricted cash. Our future capital requirements will depend on many factors, including our planned continuing investment in product development, platform infrastructure, share repurchases, and global expansion. We will use our cash for a variety of needs, including for ongoing investments in our business, potential strategic acquisitions, capital expenditures and investment in our infrastructure, including our non-cancellable purchase commitments with cloud-computing service providers and certain Issuing Banks.
At December 31, 2021,2023, we had $7.8$8.5 million in restricted cash which included a deposit held at an Issuing Bank to provide the Issuing Bank collateral in the event that our Customers'customers' funds are not deposited at the Issuing Bank in time to settle our Customers'customers' transactions with the Card Networks. Restricted cash also includes cash held at a bank to secure our payments under a lease agreement for our office space.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| (in thousands) |
| Net cash provided by (used in) operating activities | $ | 56,972 | | | $ | 50,273 | | | $ | (15,428) | |
| Net cash used in investing activities | (329,121) | | | (57,562) | | | (100,318) | |
| Net cash provided by financing activities | 1,299,297 | | | 167,378 | | | 139,049 | |
| Net increase in cash, cash equivalents, and restricted cash | $ | 1,027,148 | | | $ | 160,089 | | | $ | 23,303 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (in thousands) |
| Net cash provided by (used in) operating activities | $ | 21,104 | | | $ | (12,966) | | | $ | 56,972 | |
| Net cash provided by (used in) investing activities | 38,516 | | | 28,718 | | | (329,121) | |
| Net cash (used in) provided by financing activities | (261,794) | | | (79,487) | | | 1,299,297 | |
| (Decrease) Increase in cash, cash equivalents, and restricted cash | $ | (202,174) | | | $ | (63,735) | | | $ | 1,027,148 | |
Operating Activities
Our largest source of cash provided by our operating activities is our net revenue. Our primary uses of cash in our operating activities are for Card Network and Issuing Bank fees, and employee-related compensation. The timing of settlement of certain operating liabilities, including Revenue Share payments, and bonus payments and prepayments made to cloud-computing service providers, can affect the amounts reported as netNet cash used in or provided by operating activities on the consolidated statementConsolidated Statement of cash flows.Cash Flows.
Net cash provided by operating activities increasedwas $21.1 million for the year ended December 31, 20212023 compared to a net cash used of $13.0 million in the year ended December 31, 2020 primarily2022. The increase in net cash provided by operating activities during fiscal year 2023 was mainly due to increased non-cash expenses and the net impacttiming of increases in net revenue and related cash collections and cash paidpayments for costs of revenuesour services and operating expenses, the majority of it related to employees compensation.expenses.
Investing Activities
Net cash provided by investing activities consists primarily of maturities and sales of our investments in marketable securities.short-term investments and sale of equity method investments. Net cash used in investing activities consists primarily of purchases of marketable securities,short-term investments, purchases of property and equipment, and equity method investments.
Net cash used inprovided by investing activities increasedwas $38.5 million for the year ended December 31, 20212023 compared to $28.7 million in the same period inyear ended December 31, 20202022. The increase in net cash provided by investing activities during fiscal year 2023 was primarily due to the increasesale and maturities in purchases of marketable securities, an equity method investment, and a purchase call option to acquire the remaining interest in the equity method investee,short-term investments, partially offset by the increasepurchase of short-term investments, the Power Finance acquisition in maturities2023, the sale of marketable securities.
Financing Activities
Net cash provided by financing activities consists primarily of proceeds from the saleissuance of our equity securities. Net cash used in financing activities consists primarily of net payments related to tax withholdings for RSU settlementsthe share-based compensation activity and payments of offering costs related to the IPO.share repurchase programs.
Net cash provided byused in financing activities increasedwas $261.8 million for the year ended December 31, 20212023 compared to a net cash used of $79.5 million in the year ended December 31, 20202022. The increase in net cash used in financing activities is primarily due to payments to repurchase shares under the proceeds receivedShare Repurchase Programs, the payment of the contingent consideration from our IPO, net of underwriters’ commissionPower Finance acquisition and discounts, partially offset by the decrease in proceeds from the issuance of redeemable convertible preferred stock, and the payments made to satisfy the tax withholding and remittance obligations related to the settlement of our outstanding RSUs.share-based compensation activity.
Obligations and Other Commitments
Our principal commitments consist of obligations under our operating leases for office space and other non-cancellable purchase commitments. For additional information about our operating leases and non-cancellable purchase commitments, see Note 7 “Leases” and Note 8 “Commitments and Contingencies” to our Consolidated Financial Statements “Commitments and Contingencies — Operating Leases.”Statements. In connection with our corporate headquarters lease, we are required to provide the landlord a letter of credit in the amount of $1.5 million. We have secured this letter of credit by depositing $1.5 million with the issuing financial institution. This deposit is classified as restricted cash in the consolidated balance sheets.
As of December 31, 2021, we had non-cancellable purchase commitments with certain service providers and Issuing Banks of $263.8 million, payable over the next 5 years. These purchase obligations include $255.0 million related to minimum commitments as part of a cloud-computing service agreement. The remaining obligations are related to various service providers and Issuing Banks processing fees over the fixed, non-cancellable respective contract terms.
Critical Accounting Policies and Estimates
Our consolidated financial statementsConsolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statementsConsolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. On an ongoing basis, we evaluate our accounting estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies, including recent accounting pronouncements, are described in “Note 2- Summary of Significant Accounting Policies” in the accompanying notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. We believe that of our significant accounting policies, discussed in Note 2the following policies involve accounting estimates and assumptions which we consider to be the most critical to our financial statements. An accounting estimate or assumption is considered critical if both (a) the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (b) the impact within a reasonable range of outcomes of the estimate and assumption is material to our Consolidated Financial Statements “Summary of Significant Accounting Policies,” the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. Under the JOBS Act, “an emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an “emerging growth company” to delay the adoption of new or revised accounting standards that have different transition dates for public and private companies until those standards would otherwise apply to private companies. We meet the definition of an “emerging growth company” and have elected to use this extended transition period. As a result of this election, our timeline to comply with these standards will in many cases be delayed as compared to other public companies that are not eligible to take advantage of this election or have not made this election. Therefore, our financial statements may not be comparable to those of companies that comply with the public company effective dates for these standards.Statements.
Revenue Recognition
We adopted Accounting Standards Codification, or ASC Topic 606, Revenue from Contractsinteract with Customers, or ASC 606, effective as of January 1, 2019. We recognize revenue from contracts with Customers using the five-step method described in Note 2 to our Consolidated Financial Statements “Summary of Significant Accounting Policies.” We generate revenue from providing Platform services, which includes Interchange Fees and processing fees, and other services, which includes card fulfillment revenue, to our Customers.
Our contracts with Customers typically include two performance obligations: (i) providing access to our payment processing Platform and (ii) providing card fulfillment services. Certain Customer contracts require us to allocate the transaction price of the contract based on the relative stand-alone selling price of the performance obligations which are estimated using an analysis of our historical contract pricing and costs incurred to fulfill services.
We satisfy our performance obligation to provide platform services over time as Customers have continuous access to our Platform, and we stand ready to process Customer transactions throughout their term of access. We allocate variable consideration to the distinct month in which our Platform services are delivered. When pricing terms are not consistent throughout the entire term of the contract, we estimate variable consideration in Customers' contracts primarily using the expected value method. We develop estimates of variable consideration on the basis of both historical information and current trends and do not expect or anticipate significant reversal of revenue in the future periods.
As the Issuer Processor for our Customers, we are the principal in providing services under our contracts with Customers. To deliver the services required by our Customers, we contract with Card Networks for transaction routing, reporting, and settlement services and with Issuing Banks for card issuing, Card Network sponsorship, and regulatory compliance approval services. We control these integrated services before delivery to our Customers, we are primarily responsible for the delivery of the services to Customers, and we have discretion in vendor selection. As such, we record fees paid to thethird party Issuing Banks and Card Networks as costs of revenue.
to deliver our Platform Services to our customers. For certain revenue contracts,generated from customer arrangements that involve third parties, there is significant judgment in evaluating whether we estimate variable considerationare the principal, and material rights to record each period. This requires thatreport revenue on a gross basis, or the agent, and report revenue on a net basis. In this assessment, we estimate the expected processing volume over the termconsider if we obtain control of the contract,specified goods or services before they are transferred to the customer. The assessment of whether we are considered the principal or the agent in a transaction could impact our Net revenue and Cost of revenue recognized on the Consolidated Statements of Operations and Comprehensive Loss.
Business Combinations
When we acquire a business, the purchase price is allocated to the acquired assets, including any additional extensionseparately identifiable intangible assets, and assumed liabilities at their respective estimated fair values. Any residual purchase price is recorded as goodwill. The allocation of the term associated with a material right. Thesepurchase price requires management to make significant estimates are predominantly derived by analysis of historical trends and are updated on a quarterly basis. Changes made to these assumptions during the year ended December 31, 2021 did not have a material impact to the net revenue recorded during the year ended December 31, 2021.
Share-Based Compensation
We measure compensation expense for all share-based payment awards, including stock options and RSUs, granted to employees, directors, and other service providers, based on the estimated fair value of the awards on the date of grant. Prior to our IPO, the most significant input in determining the fair valuevalues of a stock optionassets acquired and RSUs wasliabilities assumed, especially with respect to intangible assets. These estimates can include, but are not limited to:
•future expected cash flows from acquired developed technologies;
•obsolescence curves and other useful life assumptions, such as the estimated period of time and intended use of acquired intangible assets in our product offerings;
•discount rates;
•uncertain tax positions and tax-related valuation allowances; and
•fair value of our common stock. Additionally, priorassumed equity awards.
These estimates are inherently uncertain and unpredictable, and unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. During the measurement period, which may be up to our IPO,one year from the determination of whetheracquisition date, adjustments to recognize share-based compensation expense related to secondary sales of common stock by employees or former employees required a significant judgment.
Our methods to estimate the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to our common stock andpreliminary estimates to determine share-based compensation expense related to secondary sales of common stock prior togoodwill provided that we are within the completionmeasurement period. Upon the conclusion of the IPO are discussed below.
Fair Valuemeasurement period or final determination of Common Stock: Prior to our IPO, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each meeting in which awards were approved. The factors considered included, but were not limited to: (i) contemporaneous independent third-party valuationsassets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of our common stock; (ii) observed secondary sales of our common stock; (iii) rights, preferences,Operations and privileges of our redeemable convertible preferred stock relative to those of our common stock; (iv) our actual operating and financial performance; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the company, given prevailing market conditions; and (vii) precedent transactions involving our capital stock.
Subsequent to our IPO, we use the closing share price of our Class A common stock, which is traded on Nasdaq, on the grant date to measure share-based compensation.
Secondary Sales of Common Stock.During the years ended December 31, 2021, 2020 and 2019, and in all cases, prior to our IPO, certain stockholders acquired outstanding common stock from current or former employees for a purchase price greater than our estimated fair value of our common stock at the time of the respective transaction. The determination of whether the excess of purchase price over the estimated fair value represented share-based compensation was highly judgmental. We determined whether secondary sales of common stock by then current or former employees resulted in share-based compensation expense by evaluating the extent of our involvement in secondary sale transactions, whether the purchaser of the shares was an existing or new stockholder, and the extent the sale price per share exceeded our estimated fair value per share. For such transactions, we recorded share-based compensation expense as measured as the difference between the aggregate price paid by the stockholder and our estimated aggregate fair value on the date of the transaction, and recorded $11.6 million, $17.3 million and $14.8 million during the years ended December 31, 2021, 2020 and 2019, respectively. Such amounts were recorded in compensation and benefits expense on the consolidated statements of operations.
After our IPO, we have not, and no longer expect to, record share-based compensation expense related to secondary sales of our common stock.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements “Summary of Significant Accounting Policies—Adoptions of New Accounting Standards” and “Summary of Significant Accounting Policies—New Accounting Standards Not Yet Adopted” for additional information.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We have operations within the United States the United Kingdom, Australia, and Singapore,globally, and we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations.business. Information relating to quantitative and qualitative disclosures about these market risks is described below.
Interest Rate Risk
We had cash, cash equivalents, and marketable securitiesshort-term investments totaling $1.7$1.2 billion as of December 31, 2021.2023. Such amounts included cash deposits, money market funds, U.S. governmenttreasury bills, U.S. treasury securities, U.S. agency securities, commercial paper, asset-backed securities, and corporate debt securities. The fair value of our cash, cash equivalents, and marketable securitiesshort-term investments would not be significantly affected by either an increaseincrease or decrease in interest rates due to the short-term maturities of the majority of these instruments. Because we classify our marketable securitiesshort-term investments as “available-for-sale” and have not yet adopted ASU 2016-13 (See Note 2 to our Consolidated Financial Statements “Summary of Significant Accounting Policies—New Accounting Standards Not Yet Adopted” for additional information), no gains or losses are recognized in the consolidated statementConsolidated Statement of operationsOperations and comprehensive lossComprehensive Loss due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determineddue to be other-than-temporary.credit losses. We have the ability to hold all marketable securitiesshort-term investments until their maturities. A hypothetical 100 basis point increase or decreasedecrease in interest rates would not have a material effect on our financial results.results or financial condition.
Foreign Currency Exchange Risk
Most of our sales and operating expenses are denominated in U.S. dollars, and therefore our results of operations are not currently subject to significant foreign currency risk. As of December 31, 2021,2023, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
MARQETA, INC.
FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Marqeta, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marqeta, Inc. (the Company) as of December 31, 20212023 and 2020,2022, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021,2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20212023 in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2024, expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| | | | | |
| Revenue Share, Consideration Payable to Customers |
| Description of the Matter | For the year ended December 31, 2023, the Company’s net revenue was $676.2 million, and as of December 31, 2023, the Company’s revenue share payable was $173.6 million. As described in Note 2 to the consolidated financial statements, the Company's contracts with customers typically include provisions under which the Company shares a portion of interchange fees with its customers, referred to as revenue share. Revenue share payments are incentives to customers to increase their processing volume on the Company’s platform, and is computed as a percentage of the interchange fees earned or processing volume, and is paid to customers monthly. As customers’ processing volumes increase, the customers may earn an increased percentage of revenue share. Revenue share, determined to be consideration payable to customers, is recorded as a reduction to net revenue in the consolidated statements of operations and comprehensive loss. The Company records the amount due to the customer as revenue share payable on the consolidated balance sheets. Auditing the Company’s revenue share amounts was challenging because the revenue share calculation includes a significant volume of data and multiple inputs that could be different across customers. Further, the revenue share calculation for certain customers is performed manually by the Company because of the bespoke and complex nature of certain contractual terms. |
| How We Addressed the Matter in Our Audit | We performed the following audit procedures, among others, related to revenue share amounts. We independently calculated total annual revenue share for a sample of customers based on the contractual terms of the customers’ agreements and other inputs, including processing volume, interchange fees and card network and issuing bank fees using source data and compared our independent calculations of revenue share to the Company’s recorded amounts. For this same sample of customers, we inspected the underlying customer agreements and used the revenue share rates per the contract to calculate each customer’s total annual revenue share. Additionally, we performed analytical procedures to assess the revenue share for all other customers entitled to revenue share over the fiscal year and evaluated any significant deviations from developed expectations that considered contractual revenue share rates and processing volume, among other factors. We tested the completeness and accuracy of the underlying payment transaction data used in the revenue share calculation and also compared the revenue share payable as of December 31, 2023, to amounts paid in subsequent periods.
|
| | | | | |
| Valuation of an Acquired Developed Technology Intangible Asset |
| Description of the Matter | As discussed in Note 4 to the consolidated financial statements, the Company acquired Power Finance Inc. on February 3, 2023 for a base cash purchase price of $221.9 million. The Company accounted for this acquisition as a business combination and, accordingly, the assets acquired and liabilities assumed from Power Finance Inc. were recorded at fair value as of the acquisition date.
Auditing the Company’s accounting for the acquisition of Power Finance Inc. was complex due to the estimation uncertainty in the Company’s determination of the fair value of acquired developed technology of $41.0 million, which was estimated using an income approach. The estimation uncertainty was primarily due to the determination of the underlying assumptions used in the fair value measurement of the acquired developed technology. The significant assumptions used by management included revenue and EBITDA forecasts, obsolescence rate, and discount rate. These significant assumptions are forward looking and could be affected by future economic and market conditions.
|
| How We Addressed the Matter in Our Audit | To test the fair value of the acquired developed technology, our audit procedures included, among others, inspecting the underlying business combination agreements, and involving our valuation specialists to assist in evaluating management’s selected valuation methodology and testing the significant assumptions described above. For example, we evaluated the discount rate by comparing the rate to those of the acquired business’s weighted internal rate of return, weighted-average return on assets, and venture capital rates of return. To evaluate the assumptions used to project cash flows attributable to the acquired developed technology, we compared the significant assumptions to the Company’s historical trends and market data and performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value that would result from changes in the assumptions. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Redwood City,San Mateo, California
March 11, 2022February 28, 2024
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Marqeta, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Marqeta, Inc.'s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, Marqeta, Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.
Management identified a material weakness related to the accounting for the Company’s acquisition of Power Finance, including a lack of sufficient precision in the performance of reviews supporting the purchase price allocation accounting, and a lack of timely oversight over third-party specialists and the reports they produced to support the accounting for the Power Finance acquisition.
Management identified a material weakness related to ineffective information technology general controls (“ITGCs”) in user access over certain information technology (“IT”) systems that support the Company’s revenue and related financial reporting processes. As a result, the related process-level IT dependent manual controls, certain change management controls, and automated application controls for certain key IT systems were also deemed ineffective.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated February 28, 2024, which expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Mateo, California
February 28, 2024
Marqeta, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
| | As of December 31, |
| 2021 | | 2020 |
| As of December 31, | | | As of December 31, |
| 2023 | | | 2023 | | 2022 |
| Assets | Assets | | | |
| Current assets: | Current assets: | |
| Current assets: | |
| Current assets: | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,247,581 | | | $ | 220,433 | |
| Restricted cash | Restricted cash | 7,800 | | | 7,800 | |
| Marketable securities | 452,875 | | | 149,903 | |
| Short-term investments | |
| Accounts receivable, net | Accounts receivable, net | 13,187 | | | 8,420 | |
| Settlements receivable, net | Settlements receivable, net | 11,266 | | | 12,867 | |
| Network incentives receivable | Network incentives receivable | 30,399 | | | 20,022 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 35,617 | | | 11,461 | |
| Total current assets | Total current assets | 1,798,725 | | | 430,906 | |
| Operating lease right-of-use assets, net | |
| Property and equipment, net | Property and equipment, net | 9,687 | | | 9,477 | |
| Operating lease right-of-use assets, net | 11,296 | | | 13,411 | |
| Equity method investment | 8,384 | | | — | |
| Intangible assets, net | |
| Goodwill | |
| | Other assets | |
| | Other assets | |
| | Other assets | Other assets | 2,286 | | | 3,886 | |
| Total assets | Total assets | $ | 1,830,378 | | | $ | 457,680 | |
| Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) | | | |
| Liabilities and stockholders’ equity | |
| Current liabilities: | Current liabilities: | |
| Current liabilities: | |
| Current liabilities: | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable | Accounts payable | $ | 2,693 | | | $ | 2,362 | |
| Revenue share payable | Revenue share payable | 121,179 | | | 78,191 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 114,096 | | | 60,545 | |
| Total current liabilities | Total current liabilities | 237,968 | | | 141,098 | |
| Redeemable convertible preferred stock warrant liabilities | — | | | 2,517 | |
| | Operating lease liabilities, net of current portion | |
| Operating lease liabilities, net of current portion | |
| Operating lease liabilities, net of current portion | Operating lease liabilities, net of current portion | 12,427 | | | 15,449 | |
| Other liabilities | Other liabilities | 6,557 | | | 10,452 | |
| Total liabilities | Total liabilities | 256,952 | | | 169,516 | |
| Commitments and contingencies (Note 7) | 0 | | 0 |
| Redeemable convertible preferred stock, $0.0001 par value; zero and 352,047,950 shares authorized; zero and 351,844,340 shares issued and outstanding; aggregate liquidation preference of zero and $552,868 as of December 31, 2021 and December 31, 2020, respectively | — | | | 501,881 |
| Stockholders’ equity (deficit): | |
| Preferred stock, $0.0001 par value; 100,000,000 and zero shares authorized, no shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | — | | | — | |
| Common stock, $0.0001 par value: 1,500,000,000 and zero Class A shares authorized, 421,792,153 and zero shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively. 600,000,000 and 545,000,000 Class B shares authorized, 119,591,365 and 130,312,838 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | 54 | | | 13 | |
| Commitments and contingencies (Note 10) | | Commitments and contingencies (Note 10) | | | |
| | Stockholders’ equity: | |
| Stockholders’ equity: | |
| Stockholders’ equity: | |
| Preferred stock, $0.0001 par value; 100,000,000 and 100,000,000 shares authorized, no shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively | |
| Preferred stock, $0.0001 par value; 100,000,000 and 100,000,000 shares authorized, no shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively | |
| Preferred stock, $0.0001 par value; 100,000,000 and 100,000,000 shares authorized, no shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively | |
| Common stock, $0.0001 par value: 1,500,000,000 and 1,500,000,000 Class A shares authorized, 465,985,131 and 486,530,334 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively. 600,000,000 and 600,000,000 Class B shares authorized, 54,357,844 and 54,833,765 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively | |
| Additional paid-in capital | Additional paid-in capital | 1,993,055 | | | 39,769 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (2,230) | | | 25 | |
| Accumulated deficit | Accumulated deficit | (417,453) | | | (253,524) | |
| Total stockholders’ equity (deficit) | 1,573,426 | | | (213,717) | |
| Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) | $ | 1,830,378 | | | $ | 457,680 | |
| Total stockholders’ equity | |
| Total liabilities and stockholders’ equity | |
See accompanying notes to consolidated financial statements.Consolidated Financial Statements.
Marqeta, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Net revenue | Net revenue | $ | 517,175 | | | $ | 290,292 | | | $ | 143,267 | |
| Costs of revenue | Costs of revenue | 285,470 | | | 172,385 | | | 82,814 | |
| Gross profit | Gross profit | 231,705 | | | 117,907 | | | 60,453 | |
| Operating expenses: | Operating expenses: | |
| Compensation and benefits | Compensation and benefits | 318,116 | | | 129,802 | | | 88,309 | |
| Compensation and benefits | |
| Compensation and benefits | |
| Technology | |
| Professional services | Professional services | 18,443 | | | 7,188 | | | 7,157 | |
| Technology | 33,637 | | | 13,239 | | | 7,796 | |
| Occupancy | Occupancy | 4,181 | | | 4,337 | | | 3,777 | |
| Depreciation and amortization | Depreciation and amortization | 3,534 | | | 3,498 | | | 3,080 | |
| Marketing and advertising | Marketing and advertising | 2,284 | | | 1,670 | | | 2,080 | |
| Other operating expenses | Other operating expenses | 13,516 | | | 5,260 | | | 7,117 | |
| Total operating expenses | Total operating expenses | 393,711 | | | 164,994 | | | 119,316 | |
| Loss from operations | Loss from operations | (162,006) | | | (47,087) | | | (58,863) | |
| Other income (expense), net | Other income (expense), net | (2,563) | | | (521) | | | 698 | |
| Loss before income tax expense | Loss before income tax expense | (164,569) | | | (47,608) | | | (58,165) | |
| Income tax expense (benefit) | (640) | | | 87 | | | 35 | |
| Income tax benefit | |
| Net loss | Net loss | $ | (163,929) | | | $ | (47,695) | | | $ | (58,200) | |
| Deemed dividend to redeemable convertible preferred stockholders | — | | | — | | | (64,149) | |
| | Net loss attributable to common stockholders | |
| Net loss attributable to common stockholders | |
| Net loss attributable to common stockholders | Net loss attributable to common stockholders | $ | (163,929) | | | $ | (47,695) | | | $ | (122,349) | |
| Other comprehensive income (loss), net of taxes: | Other comprehensive income (loss), net of taxes: | | | | | |
| Change in foreign currency translation adjustment | Change in foreign currency translation adjustment | $ | (14) | | | $ | (64) | | | $ | (22) | |
| Change in unrealized gain (loss) on marketable securities | (2,241) | | | 43 | | | 69 | |
| Change in foreign currency translation adjustment | |
| Change in foreign currency translation adjustment | |
| Net change in unrealized gain (loss) on short-term investments | |
| Net other comprehensive income (loss) | Net other comprehensive income (loss) | (2,255) | | | (21) | | | 47 | |
| Comprehensive loss | Comprehensive loss | $ | (166,184) | | | $ | (47,716) | | | $ | (58,153) | |
| Net loss per share attributable to common stockholders, basic and diluted | Net loss per share attributable to common stockholders, basic and diluted | $ | (0.45) | | | $ | (0.39) | | | $ | (1.07) | |
| Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted | 362,756,466 | | | 122,932,556 | | | 113,851,714 | |
|
See accompanying notes to consolidated financial statements.Consolidated Financial Statements.
Marqeta, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
(in thousands, except share amounts)
| | Redeemable Convertible Preferred Stock | | | Redeemable Convertible Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (loss) | | Accumulated
Deficit | | Total
Stockholders’
Equity (Deficit) |
| Shares | |
| | | Redeemable Convertible Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (loss) | | Accumulated
Deficit | | Total
Stockholders’
Equity (Deficit) |
| | Shares | | Amount | | Shares | | Amount | |
| Balance as of January 1, 2019 | 287,216,434 | | | $ | 114,842 | | | 121,411,803 | | | $ | 12 | | | $ | 2,870 | | | $ | (1) | | | $ | (87,788) | | | $ | (84,907) | |
| Issuance of Series E redeemable convertible preferred stock at $3.89 per share, net of issuance costs of $7,010 | 38,552,483 | | | 142,990 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Exchange of common stock for Series E redeemable convertible preferred stock | 11,074,661 | | | 13,767 | | | (11,074,661) | | | — | | | (13,767) | | | — | | | — | | | (13,767) | |
| Deemed dividend upon the exchange of Series A and Series C redeemable convertible preferred stock for Series E redeemable convertible preferred stock | — | | | 64,149 | | | — | | | — | | | (4,308) | | | — | | | (59,841) | | | (64,149) | |
| Issuance of common stock upon exercise of vested options | — | | | — | | | 7,767,038 | | | — | | | 515 | | | — | | | — | | | 515 | |
| Issuance of common stock upon early exercise of unvested options | — | | | — | | | 762,440 | | | — | | | — | | | — | | | — | |
| Repurchase of early exercised stock options | — | | | — | | | (436,589) | | | — | | | — | | | — | | | — | |
| Vesting of early exercised stock options | — | | | — | | | — | | | — | | | 298 | | | — | | | — | | | 298 | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | 21,757 | | | — | | | — | | | 21,757 | |
| Change in other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | 47 | | | — | | | 47 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (58,200) | | | (58,200) | |
| Balance as of December 31, 2019 | 336,843,578 | | | $ | 335,748 | | | 118,430,031 | | | $ | 12 | | | $ | 7,365 | | | $ | 46 | | | $ | (205,829) | | | $ | (198,406) | |
| Issuance of Series E-1 redeemable convertible preferred stock at $8.34 per share, net of issuance costs of $8,058 | 20,989,756 | | | 166,942 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Conversion of Series A and Series C redeemable convertible preferred stock to common stock | (5,988,994) | | | (809) | | | 5,988,994 | | | 1 | | | 808 | | | — | | | — | | | 809 | |
| Issuance of common stock upon exercise of vested options | — | | | — | | | 5,236,999 | | | — | | | 2,472 | | | — | | | — | | | 2,472 | |
| Issuance of common stock upon early exercise of unvested options | — | | | — | | | 847,184 | | | — | | | — | | | — | | | — | | | — | |
| Repurchase of early exercised stock options | — | | | — | | | (190,370) | | | — | | | — | | | — | | | — | | | — | |
| Vesting of early exercised stock options | — | | | — | | | — | | | — | | | 742 | | | — | | | — | | | 742 | |
| Vesting of common stock warrants | — | | | — | | | — | | | — | | | 171 | | | — | | | — | | | 171 | |
| Share-based compensation expense | — | | | — | | | — | | | — | | | 28,211 | | | — | | | — | | | 28,211 | |
| Change in other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (21) | | | — | | | (21) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (47,695) | | | (47,695) | |
| Balance as of December 31, 2020 | 351,844,340 | | | 501,881 | | | 130,312,838 | | | 13 | | | 39,769 | | | 25 | | | (253,524) | | | (213,717) | |
| | Balance as of January 1, 2021 | |
| | Balance as of January 1, 2021 | |
| | Balance as of January 1, 2021 | |
| Issuance of common stock upon initial public offering, net of issuance costs | Issuance of common stock upon initial public offering, net of issuance costs | — | | | — | | | 52,272,727 | | | 7 | | | 1,312,331 | | | — | | | — | | | 1,312,338 | |
| Conversion of redeemable convertible preferred stock to common stock upon initial public offering | Conversion of redeemable convertible preferred stock to common stock upon initial public offering | (351,844,340) | | | (501,881) | | | 351,844,340 | | | 34 | | | 501,847 | | | — | | | — | | | 501,881 | |
| Reclassification of redeemable convertible preferred stock warrant liabilities to common stock and additional paid-in capital upon initial public offering | Reclassification of redeemable convertible preferred stock warrant liabilities to common stock and additional paid-in capital upon initial public offering | — | | | — | | | — | | | — | | | 5,438 | | | — | | | — | | | 5,438 | |
| Issuance of common stock upon exercise of options | Issuance of common stock upon exercise of options | — | | | — | | | 4,277,344 | | | — | | | 4,969 | | | — | | | — | | | 4,969 | |
| Issuance of common stock under employee stock purchase plan | Issuance of common stock under employee stock purchase plan | — | | | — | | | 153,905 | | | — | | | 3,201 | | | — | | | — | | | 3,201 | |
| | Repurchase of early exercised stock options | Repurchase of early exercised stock options | — | | | — | | | (85,870) | | | — | | | — | | | — | | | — | | | — | |
| Repurchase of early exercised stock options | |
| Repurchase of early exercised stock options | |
| | Issuance of common stock upon net settlement of restricted stock units | |
| Issuance of common stock upon net settlement of restricted stock units | |
| Issuance of common stock upon net settlement of restricted stock units | Issuance of common stock upon net settlement of restricted stock units | — | | | — | | | 1,736,212 | | | — | | | (23,552) | | | — | | | — | | | (23,552) | |
| Issuance of common stock upon exercise of common stock warrants | Issuance of common stock upon exercise of common stock warrants | — | | | — | | | 872,022 | | | — | | | 60 | | | — | | | — | | | 60 | |
| Vesting of common stock warrants | Vesting of common stock warrants | — | | | — | | | — | | | — | | | 6,332 | | | — | | | — | | | 6,332 | |
| Share-based compensation expense | Share-based compensation expense | — | | | — | | | — | | | — | | | 142,660 | | | — | | | — | | | 142,660 | |
| Change in other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (2,255) | | | — | | | (2,255) | |
| Change in accumulated other comprehensive income (loss) | |
| Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (163,929) | | | (163,929) | |
| Balance as of December 31, 2021 | Balance as of December 31, 2021 | — | | | $ | — | | | 541,383,518 | | | $ | 54 | | | $ | 1,993,055 | | | $ | (2,230) | | | $ | (417,453) | | | $ | 1,573,426 | |
| Issuance of common stock upon exercise of options | |
| Repurchase of early exercised stock options | |
| Issuance of common stock under employee stock purchase plan | |
| Issuance of common stock upon net settlement of restricted stock units | |
| | Vesting of common stock warrants | |
| Vesting of common stock warrants | |
| Vesting of common stock warrants | |
| Share-based compensation expense | |
| Repurchase and retirement of common stock | |
| Change in accumulated other comprehensive income (loss) | |
| Net loss | |
| Balance as of December 31, 2022 | |
| Issuance of common stock upon exercise of options | |
| Repurchase of early exercised stock options | |
| Issuance of common stock under employee stock purchase plan | |
| Issuance of common stock upon net settlement of restricted stock units | |
| Issuance of common stock upon exercise of common stock warrants | |
| Vesting of common stock warrants | |
| Share-based compensation expense | |
| Repurchase and retirement of common stock, including excise tax | |
| Change in accumulated other comprehensive income (loss) | |
| Net loss | |
| Balance as of December 31, 2023 | |
See accompanying notes to consolidated financial statements.Consolidated Financial Statements.
Marqeta, Inc.
Consolidated Statements of Cash Flows
(in thousands)
| | | Year Ended December 31, | |
| | Year Ended December 31, |
| Year Ended December 31, | |
| | 2021 | | 2020 | | 2019 |
| Year Ended December 31, | |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | | |
| Net loss | |
| Net loss | |
| Net loss | Net loss | $ | (163,929) | | | $ | (47,695) | | | $ | (58,200) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | Adjustments to reconcile net loss to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 3,534 | | | 3,498 | | | 3,080 | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Share-based compensation expense | Share-based compensation expense | 142,660 | | | 28,211 | | | 21,757 | |
| | Non-cash operating leases expense | Non-cash operating leases expense | 2,115 | | | 2,029 | | | 1,487 | |
| Amortization of premium (accretion of discount) on marketable securities | 1,162 | | | 543 | | | (499) | |
| Provision for doubtful accounts | 173 | | | 39 | | | 370 | |
| | Non-cash operating leases expense | |
| Non-cash operating leases expense | |
| Non-cash postcombination compensation expense | |
| Amortization of premium on short-term investments | |
| Gain on sale of equity method investment | |
| Impairment of other financial instruments | |
| Other | Other | 2,937 | | | 1,890 | | | 1,000 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | |
| Accounts receivable | |
| Accounts receivable | |
| Accounts receivable | Accounts receivable | (4,940) | | | (4,485) | | | (2,812) | |
| Settlements receivable | Settlements receivable | 1,601 | | | (2,961) | | | (4,000) | |
| Network incentives receivable | Network incentives receivable | (10,377) | | | (9,400) | | | (8,248) | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | (7,742) | | | (2,481) | | | (5,363) | |
| Accounts payable | Accounts payable | 190 | | | (839) | | | 1,613 | |
| Revenue share payable | Revenue share payable | 42,988 | | | 48,442 | | | 18,631 | |
| Accrued expenses and other liabilities | Accrued expenses and other liabilities | 49,372 | | | 34,997 | | | 17,407 | |
| Operating lease liabilities | Operating lease liabilities | (2,772) | | | (1,515) | | | (1,651) | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 56,972 | | | 50,273 | | | (15,428) | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | | |
| Purchases of property and equipment | Purchases of property and equipment | (2,743) | | | (2,375) | | | (4,908) | |
| Purchases of marketable securities | (455,266) | | | (216,200) | | | (528,300) | |
| Sales of marketable securities | — | | | 71,981 | | | — | |
| Maturities of marketable securities | 148,888 | | | 89,032 | | | 433,640 | |
| Purchases of property and equipment | |
| Purchases of property and equipment | |
| Capitalization of internal-use software | |
| Business combination, net of cash acquired | |
| Purchase of patents | |
| Purchases of short-term investments | |
| Sales of short-term investments | |
| Maturities of short-term investments | |
| Realized gain/loss on investments | |
| | Purchase of equity method investment and purchase option | Purchase of equity method investment and purchase option | (20,000) | | | — | | | (750) | |
| Net cash used in investing activities | (329,121) | | | (57,562) | | | (100,318) | |
| Purchase of equity method investment and purchase option | |
| Purchase of equity method investment and purchase option | |
| Sale of equity method investment | |
| Net cash provided by (used in) investing activities | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | | |
| Proceeds from initial public offering, net of underwriters’ discounts and commissions | Proceeds from initial public offering, net of underwriters’ discounts and commissions | 1,319,809 | | | — | | | — | |
| Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs | — | | | 166,942 | | | 142,990 | |
| Payment of bank loan and related fees | — | | | — | | | (5,005) | |
| Proceeds from initial public offering, net of underwriters’ discounts and commissions | |
| Proceeds from initial public offering, net of underwriters’ discounts and commissions | |
| | Proceeds from exercise of stock options, including early exercised stock options, net of repurchase of early exercised unvested options | Proceeds from exercise of stock options, including early exercised stock options, net of repurchase of early exercised unvested options | 4,539 | | | 3,144 | | | 1,064 | |
| Proceeds from exercise of stock options, including early exercised stock options, net of repurchase of early exercised unvested options | |
| Proceeds from exercise of stock options, including early exercised stock options, net of repurchase of early exercised unvested options | |
| Payment of contingent consideration | | Payment of contingent consideration | (53,067) | | | — | | | |
| Proceeds from exercise of warrants | Proceeds from exercise of warrants | 60 | | | — | | | — | |
| Proceeds from shares issued in connection with employee stock purchase plan | Proceeds from shares issued in connection with employee stock purchase plan | 3,201 | | | — | | | — | |
| Taxes paid related to net share settlement of restricted stock units | Taxes paid related to net share settlement of restricted stock units | (23,552) | | | — | | | — | |
| Repurchase of common stock | |
| Payment of deferred offering costs | Payment of deferred offering costs | (4,760) | | | (2,708) | | | — | |
| | Net cash provided by financing activities | 1,299,297 | | | 167,378 | | | 139,049 | |
| Net increase in cash, cash equivalents, and restricted cash | 1,027,148 | | | 160,089 | | | 23,303 | |
| Cash, cash equivalents, and restricted cash- Beginning of period | 228,233 | | | 68,144 | | | 44,841 | |
| Net cash (used in) provided by financing activities | |
| (Decrease) Increase in cash, cash equivalents, and restricted cash | |
| Cash, cash equivalents, and restricted cash - Beginning of period | |
| Cash, cash equivalents, and restricted cash - End of period | Cash, cash equivalents, and restricted cash - End of period | $ | 1,255,381 | | | $ | 228,233 | | | $ | 68,144 | |
See accompanying notes to consolidated financial statements.Consolidated Financial Statements.
Marqeta, Inc.
Consolidated Statements of Cash Flows
(in thousands)
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Reconciliation of cash, cash equivalents, and restricted cash | Reconciliation of cash, cash equivalents, and restricted cash | | | | | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,247,581 | | | $ | 220,433 | | | $ | 60,344 | |
| Restricted cash | Restricted cash | 7,800 | | | 7,800 | | | 7,800 | |
| Total cash, cash equivalents, and restricted cash | Total cash, cash equivalents, and restricted cash | $ | 1,255,381 | | | $ | 228,233 | | | $ | 68,144 | |
| Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | | | | |
| Cash paid for operating lease liabilities | |
| Cash paid for operating lease liabilities | |
| Cash paid for operating lease liabilities | |
| Cash paid for interest | Cash paid for interest | $ | — | | | $ | — | | | $ | 317 | |
| Cash paid for income taxes | Cash paid for income taxes | $ | 201 | | | $ | 109 | | | $ | 1 | |
| Supplemental disclosures of non-cash investing and financing activities: | Supplemental disclosures of non-cash investing and financing activities: | | | | | |
| Purchase of property and equipment accrued and not yet paid | Purchase of property and equipment accrued and not yet paid | $ | 1,190 | | | $ | 159 | | | $ | 73 | |
| Deemed dividend upon the exchange for Series A and Series C redeemable convertible preferred stock for Series E redeemable convertible preferred stock | $ | — | | | $ | — | | | $ | 64,149 | |
| Purchase of property and equipment accrued and not yet paid | |
| Purchase of property and equipment accrued and not yet paid | |
| Share-based compensation capitalized to internal-use software | |
| Repurchase of common stock accrued and not yet paid | |
| Vesting of early exercised stock options | |
| | Deferred offering costs not yet paid | $ | — | | | $ | 426 | | | $ | — | |
| Conversion of redeemable convertible preferred stock to common stock | $ | — | | | $ | 809 | | | $ | — | |
|
See accompanying notes to consolidated financial statements.Consolidated Financial Statements.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
1. Business Overview and Basis of Presentation
Marqeta, Inc., or (“the Company,Company”) creates digital payment technology for innovation leaders. The Company's modern card issuing platform or the Platform, places control over payment transactions into the hands ofempowers its customers or Customers, enablingto create customized and innovative payment card programs, giving them the configurability and flexibility to develop modern state-of-the-art productbuild better payment experiences.
The Company provides all of its Customerscustomers issuer processor services and for most of its Customerscustomers it also acts as a card program manager. The Company primarily earns revenue from processing payment card transactions for its Customers.customers.
The Company was incorporated in the state of Delaware in 2010 and is headquartered in Oakland, California, with offices in the United States, United Kingdom, and legal entities in Australia, Brazil, Canada, Poland, and a presence in Singapore.Singapore as of December 31, 2023.
Initial Public Offering
In June 2021, the Company completed an initial public offering or the IPO,(“IPO”), in which the Company issued and sold 52,272,727 shares of its newly authorized Class A common stock, which included 6,818,181 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares at a price of $27.00 per share. The Company received aggregate net proceeds of $1.3 billion after deducting underwriting discounts and commissions of $91.6 million and offering costs of $7.5 million.
Immediately prior to the completion of the IPO, the Company filed its Amended and Restated Certificate of Incorporation authorizing 1,500,000,000 shares of Class A common stock which entitles holders to 1one vote per share, 600,000,000 shares of Class B common stock which entitles holders to 10 votes per share, and 100,000,000 shares of undesignated preferred stock. All shares of common stock then outstanding were reclassified as Class B common stock and all redeemable convertible preferred stock then outstanding were converted into 351,844,340 shares of common stock on a 1-for-oneone-for-one basis and reclassified into Class B common stock. In addition, 2,569,528 shares of common stock warrants were converted to an equivalent number of shares of Class B common stock warrants and 203,610 shares of convertible preferred stock warrants were converted to an equivalent number of shares of Class B common stock warrants.
Basis of Presentation
The accompanying consolidated financial statements,Consolidated Financial Statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP)(“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.
Certain prior period amounts reported in our consolidated financial statements and the related notes have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make various estimates and assumptions relating to reported amounts of assets and liabilities, disclosure of contingent liabilities, and reported amounts of revenue and expenses. Significant estimates and assumptions relateinclude, but are not limited to, the fair value and useful lives of assets acquired and liabilities assumed through business combinations, the estimation of contingent liabilities, the fair value of equity awards and warrants, share-based compensation, the estimation of variable consideration in contracts with Customers,customers, the reserve for contract contingencies and processing errors, the fair valueand valuation of equity method investments and a purchase call option to acquire the remaining interest in the equity method investee, the incremental borrowing rate used to determine operating lease liabilities, the useful lives of property and equipment, and the collectability of accounts receivable.income taxes. Actual results could differ materially from these estimates.
Business Risks and Uncertainties
The Company has incurred net losses since its inception. For the year ended December 31, 2023, the Company incurred a net loss of $223.0 million and had an accumulated deficit of $825.2 million as of December 31, 2023. The Company expects losses from operations to continue for the foreseeable future as it incurs costs and expenses related to creating new products for customers, acquiring new customers, developing its brand, expanding into new geographies and developing the existing platform infrastructure. The Company believes that its cash and cash equivalents of $981.0 million and short-term investments of $268.7 million as of December 31, 2023 are sufficient to fund its operations through at least the next twelve months from the issuance of these financial statements.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
2. Summary of Significant Accounting Policies
Segment Information
The Company operates as a single operating segment and reporting unit. The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, allocating resources and evaluating the Company's financial performance.
For the years ended December 31, 2023, 2022, and 2021, net revenue outside of the United States, based on the billing address of the customer, was not material.
As of December 31, 2023 and December 31, 2022, long-lived assets located outside of the United States were not material.
Business Combinations
The Company allocates the purchase consideration for acquired companies to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of Operations and Comprehensive Loss. Acquisition-related expenses and postcombination integration and employee compensation costs are recognized separately from the business combination and are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of bank deposit accounts and investments in money market funds and certain U.S. treasury bills. The Company considers all highly liquid investments and investments with original maturities of three months or less from the date of purchase to be cash equivalents.
Restricted Cash
Restricted cash consists of deposits with Issuing Banks to provide the Issuing Bank collateral in the event that customers’ funds are not deposited at the Issuing Banks in time to settle customers’ transactions with the Card Networks. Restricted cash also includes cash used to secure a letter of credit for the Company’s lease of its office headquarters in Oakland, California. Issuing Banks are financial institutions that issue payment cards (credit, debit, or prepaid) either on their own behalf or on behalf of a business. Card Networks are networks that provide the infrastructure for settlement and card payment information flows.
Short-term Investments
The Company's short-term investments include U.S. treasury securities, U.S. agency securities, commercial paper, asset-backed securities, and corporate debt securities. The Company's short-term investments are classified as available-for-sale and are recorded within current assets in the Consolidated Balance Sheets as the Company may sell these securities at any time for use in its operations, even prior to maturity.
The Company carries these short-term investments at fair value and periodically evaluates them for unrealized losses. For unrealized losses in securities that the Company intends to hold and will not more likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors.
The Company considers credit related impairments to be changes in value that are driven by a change in
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Business Risksthe creditor’s ability to meet its payment obligations, and Uncertaintiesrecords an allowance on the Consolidated Balance Sheets with a corresponding loss in Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss when the impairment is incurred.
Unrealized non-credit related losses and unrealized gains are recorded as a separate component in Accumulated other comprehensive income (loss), a component of stockholders’ equity (deficit) until realized.
The Company records any realized gains or losses on the sale of short-term investments in Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses and do not earn interest. The Company estimates an allowance for accounts receivable based on its assessment of the collectability of accounts by considering its historical accounts receivable collection experience for each customer, the age of each outstanding invoice and an evaluation of current expected risk of credit loss based on current economic conditions and reasonable and supportable forecasts of future economic conditions over the life of the receivable. The Company assesses collectability on an individual basis when it identifies specific customers with collectability issues and by reviewing accounts receivable on an aggregated basis where similar characteristics exist. As of December 31, 2023 and 2022, the allowance for accounts receivable was $0.3 million and $0.3 million, respectively.
Settlements Receivable
Settlements receivable represent Interchange Fees earned on customers’ card transactions, net of pass through Card Network fees, and are due from Issuing Banks. Interchange Fees are typically received within one or two business days of the transaction date and are due from Issuing Banks with no historical collections issue, mitigating the associated risk of collection. No allowance has been established. The Company does not generate revenue from Issuing Banks.
Lease Obligations
The Company measures lease liabilities based on the present value of the total lease payments not yet paid discounted based on the Company’s incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease.
The Company measures right-of-use assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs the Company incurs and (iii) tenant incentives under the lease. The Company begins to recognize rent expense when the lessor makes the underlying asset available to the Company.
For short-term leases, the Company records rent expense in the Consolidated Statements of Operations and Comprehensive Loss on a straight-line basis over the lease term and records variable lease payments as incurred. The Company has no finance leases.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. The Company uses the straight-line method of depreciation and amortization over the estimated useful lives of the assets; generally three to five years for computer equipment, and furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term, excluding renewal periods, or the estimated useful life of the leasehold improvement.
The Company capitalizes internal and external direct costs incurred related to obtaining or developing internal-use software. Costs incurred during the application development stage are capitalized and are amortized using the straight-line method over the estimated useful lives of the software, generally three years commencing on the first day of the month following when the software is ready for its intended use. Costs related to planning and other preliminary project activities and post-implementation activities are
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
expensed as incurred.
The depreciation and amortization of property and equipment is recorded within Depreciation and amortization expense on the Consolidated Statements of Operations and Comprehensive Loss.
Goodwill
The excess purchase price over the fair value of identifiable net assets acquired is recorded as goodwill. Goodwill amounts are not amortized.
Intangible Assets
Intangible assets with finite lives are carried at acquisition cost less accumulated amortization and are amortized over their estimated useful lives on a straight-line basis. The amortization of these assets is recorded within Depreciation and amortization expense on the Consolidated Statements of Operations and Comprehensive Loss.
Impairment
Impairment testing for goodwill is performed annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable. Such testing is performed at the reporting unit level. Management has the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount, including goodwill. If it is determined that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, a quantitative assessment is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company also has the option to bypass the qualitative assessment and perform the quantitative assessment.
The Company reviews the valuation of long-lived assets, including property and equipment and finite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the future undiscounted cash flow the asset is expected to generate.
Based on management's assessment, the Company did not recognize any material impairment losses sinceon its inception. Forgoodwill, finite-lived intangible assets or other long-lived assets during the periods presented herein.
Equity Investments and Purchase Options
The Company applies the equity method of accounting for investments in other entities when the Company exercises significant influence, but no control. Under the equity method, the Company records its share of each entity’s profit or loss in Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss on a one quarter lag when the most recent financial information of the investee becomes available. The Company periodically reviews investments accounted for under the equity method for impairment. Investments in other entities not accounted for under the equity method of accounting, including options to purchase these entities, are accounted for at cost less impairment, if applicable. Additionally, the value of these investments may be adjusted to fair value resulting from observable transactions for identical or similar investments.
In 2021, the Company acquired a preferred equity interest in a private company that is accounted for under the equity method of accounting. Concurrent with this investment, the Company also acquired an option that gave the Company the right, but not the obligation, to purchase all of the remaining equity interests of the private company.
As of December 31, 2021, the option was reflected within prepaid expenses and other current assets in the consolidated balance sheets. The Company applied the measurement alternative to measure the option at cost, less any impairment. During the year ended December 31, 2021,2022, the Company incurredrecorded an impairment of $11.6 million within Other income (expense), net on the Consolidated Statement of Operations and Comprehensive Loss related to the option based on the Company’s decision not to exercise the option.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
During the year ended December 31, 2022, the Company sold its equity method investment in a net lossprivate company. The carrying amount of $163.9 million and had an accumulated deficit of $417.5this investment was $7.8 million as of the date of sale and the purchase price was $25.7 million. As a result, the Company recorded a gain of $17.9 million in the year ended December 31, 2021. The Company expects losses from operations to continue for2022 in Other income (expense), net on the foreseeable future as it incursConsolidated Statement of Operations and Comprehensive Loss.
Deferred Offering Costs
Deferred offering costs consist primarily of accounting, legal, and expensesother fees related to creating new products for Customers, acquiring new Customers, developing its brand, expanding into new geographiesthe IPO. Upon the completion of the IPO in June 2021, the deferred offering costs were reclassified to Stockholders’ equity (deficit) and developingrecorded net against the existing Platform infrastructure. The Company believes that its cash and cash equivalents of $1.2 billion and marketable securities of $452.9 million as of December 31, 2021 are sufficient to fund its operations through at least the next twelve monthsproceeds from the issuance of these financial statements.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. Since then, the COVID-19 pandemic has continued to spread throughout the United States and the world. While the Company has not been adversely affected by the COVID-19 pandemic to date, the prolonged disruption to the economy and the long-term financial impact of the pandemic cannot be reasonably estimated. The Company continues to monitor the situation and may take actions that alter its operations and business practices as may be required by federal, state, or local authorities or that the Company determines are in the best interests of its Customers, vendors, and employees.
2. Summary of Significant Accounting PoliciesIPO.
Revenue Recognition
On January 1, 2019, the Company adopted Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers(Topic 606), using the full retrospective method.
Revenue is recognized when control of the promised goods or services is transferred to Customers,customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
Contracts with customers are evaluated on a contract-by-contract basis as contracts may include the transfer of multiple services. The Company’s contracts with Customerscustomers typically include twomultiple performance obligations: 1) providing access to the Company's payment processing Platform andplatform, 2) providing managed services or 3) providing card fulfillment services. The Company accounts for individual services as a separate performance obligation if they are distinct because the service is separately identifiable from other items in the arrangement and a customer can benefit from the good or service on its own or with other resources that are readily available to the customer. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation. Certain Customercustomer contracts require the Company to allocate the transaction price of the contract based on the relative stand-alone selling price of the performance obligations which are based on prices at which the Company separately sells each service or estimated using an analysis of the Company’s historical contract pricing and costs incurred to fulfill its services.
The Company generates revenue from providing platform services and other services as described below.
Platform Services
The Company delivers an integrated payment processing Platformplatform to its Customers.customers. The Company’s primary performance obligation is to provide Customerscustomers continuous access to the Company’s Platformplatform used to process all Customers’customers’ transactions as needed. This obligation includes authorizing, settling, clearing and reconciling all transactions andtransactions. Additionally, for certain customer arrangements, the performance obligations also include managing the interactions with Card Networks and/or the Issuing Banks and Card Networks on behalf of its Customers. All thesecustomers or other managed services, are collectively considered a single performance obligation.including dispute management, fraud scoring, and cardholder support services.
The Company’s Platformplatform services revenue is primarily derived from Interchange Fees generated by Customercustomer card transactions and other transaction fees collected from Customers.transactions. The Company accounts for these Interchange Fees as revenue earned from its customers becausefor performance obligations where the Company controls the services before delivery to the Customer.customer. The Company’s platform services revenue also includes processing and other transaction fees from transactions that are based on either a percentage of processing volume or a fee per transaction basis.
The Company’s Platformplatform services revenue primarily consists of stand-ready obligations which are satisfied over time and are accounted for as a stand-ready serviceseries of distinct transaction processing services that are substantially the same withand have the same pattern of transfer to Customers. As such,customers.
The Company recognizes revenue when the stand-ready obligation is accounted for as a singlepromised services are complete, and its performance obligation that is a series of distinctobligations are satisfied. Platform services wherebyare considered complete when the variability ofCompany has authorized the transaction, value is satisfied daily asvalidated that the performance obligation is satisfied. The Company satisfiestransaction has no errors, and accepted and posted the data to its performance obligation to provide Platform services over time as Customers have continuous access to the Company's Platform and the Company stands-ready to process Customer transactions throughout their term of access.records.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The Company recognizes revenue when the underlying transactions are complete, and its performance obligation is satisfied. Transactions are considered complete when the Company has authorized the transaction, validated that the transaction has no errors and accepted and posted the data to its records.
The Company allocates variable consideration to the distinct monthperiod in which the Platformplatform services are delivered. When pricing terms are not consistent throughout the entire term of the contract, the Company estimates variable consideration in its Customercustomer contracts primarily using the expected value method. The standard term of the Customercustomer contracts is ranges from three to five years, with automatic renewal for successive one-year periods thereafter unless either party provides written notice of its intent not to renew. The Company develops estimates of variable consideration on the basis of both historical information and current trends and does not expect or anticipate significant reversal of revenue in the future periods.
As the Issuer Processor for its Customers,For net revenue generated from customer arrangements that involve third parties, the Company determines whether it has promised to provide the specified service itself (as principal) or to arrange for the specified service to be provided by another party (as an agent).This determination depends on the facts and circumstance of each arrangement, and in some instances, involves significant judgment. In order to deliver an integrated payment processing platform to its customers, the Company works with Issuing Banks and Card Networks in various capacities. The Company is considered the principal in providingcustomer arrangements where the Company controls the services under its contracts with Customers. To deliverperformed by the services required by its Customers, the Company contracts withIssuing Banks and Card Networks for transaction routing, reporting, and settlement services and with Issuing Banks for card issuing, Card Network sponsorship, and regulatory compliance approval services. The Company controls these integrated services before delivery of the promised services to its Customers;customers, it is primarily responsible for the delivery of the services to Customers,customers, and it has discretion in vendor selection. As such, the Company records fees paid to the Issuing Banks and Card Networks as costsCosts of revenue. The Company's contracts with Customers include certain service level agreements which could requireRevenue within the Consolidated Statements of Operations and Comprehensive Loss. In instances where the Company is considered an agent in providing services to make paymentsthe customer, fees for services paid to CustomersIssuing Banks and Card Networks, if service levelsany, are not met. Any service level payment is recorded as a reduction to net revenuewithin Net Revenue such that Net Revenue in the consolidated statementsConsolidated Statements of operationsOperations and comprehensive loss.
TheComprehensive Loss reflects the net amount of consideration that the Company does not capitalize costs to acquire contracts.retains.
Revenue Share
The Company’s contracts with Customerscustomers typically include provisions under which the Company shares a portion of the Interchange Fees withas consideration payable to its Customers,customers, referred to as Revenue Share. Revenue Share payments are incentives to Customerscustomers to increase their processing volume on the Company’s Platform,platform, and is computed as a percentage of the Interchange Fees earned or processing volume and is paid to Customerscustomers monthly.
The Company records Revenue Share as a reduction to net revenue in the consolidated statementsConsolidated Statements of operationsOperations and comprehensive loss.Comprehensive Loss. The Company records the amount due to the Customercustomer as Revenue Share payable on the consolidated balance sheets.Consolidated Balance Sheets.
Other Services Revenue
The Company earns revenue from Customerscustomers through card fulfillment services. Card fulfillment fees are generally billed to Customerscustomers upon ordering card inventory and recognized as revenue when the ordered cards are shipped to the Customers.customers. The Company offers certain Customerscustomers the option to purchase physical cards at a discount. The Company has concluded that the discount does not constitute a future material right because the discount is within a range typically offered to the class of customers. Therefore, the Company accounts for the discount as a reduction to revenue when the Company delivers the ordered cards to the Customers.customers.
Contract Assets and Deferred Revenue
Contract assets, reported within Prepaid expenses and other current assets or within Other Assets in the Consolidated Balance Sheets, are primarily from upfront payments provided to certain customers and variable consideration from customer contracts where pricing terms are not consistent throughout the entire term of the contract.
Deferred revenue, reported within Accrued expenses and other current liabilities or Other liabilities in the Consolidated Balance Sheets, arises when Customers are billedcustomers pay for services in advance of the Company's revenue recognition. The Company's deferred revenue is primarily due to undelivered card fulfillment services, and variable consideration from customer contracts where pricing terms are not consistent throughout the entire term of the contract, and non-refundable upfront setup fees that are billed at contract inception, and card fulfillment services that are billed to customers in advance of the delivery of the ordered cards.
Arrangements that include rights to additional goods or services that are exercisable at a Customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the Customer and if so, they are considered performance obligations. This material right is valued by estimating the discount that will be redeemed by the Customer during the optional renewal period.inception.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. This material right is valued by estimating the discount that will be redeemed by the customer during the optional renewal period.
Reserve for Contract Contingencies and Processing Errors
Customer contracts generally contain service level agreements that can result in performance penalties payable by the Company when contractually required service levels are not met or can result in payments by the Company for processing errors. As such, the Company records a reserve for estimated performance penalties and processing errors. When providing for these reserves, the Company considers factors such as its history of incurring performance penalties and processing errors, actual contractual penalty charge rates in customer contracts, and known or estimated processing errors. These reserves are included in accruedAccrued expenses and other current liabilities on the consolidated balance sheetsConsolidated Balance Sheets and the provision for contract contingencies and processing errors is included as a reduction to netNet revenue on the consolidated statementsConsolidated Statements of operationsOperations and comprehensive loss.Comprehensive Loss.
Costs of Revenue
Costs of revenue consist of Card Network costs, Issuing Bank costs, and card fulfillment costs.costs for customer arrangements where the Company is the principal in providing services to the customer and excludes depreciation and amortization, which is reported separately within the Consolidated Statements of Operations and Comprehensive Loss. Card Network costs are generallymostly equal to a specified percentage of the processing volume or a fixed amount per transaction processed through the respective Card Network. The Company incurs Card Network costs directly from contractual arrangements with the Card Networks that are passed entirely through Issuing Banks, or directly from the Card Networks. The Company's contracts with Card Networks and Issuing Banks typically have terms ranging from three to five years which may be renewed in one-year to two-year increments as agreed by both parties. Issuing Bank costs compensate Issuing Banks for issuing cards to the Company’s Customerscustomers and sponsoring the Company’s card programs with the Card Networks and are generally equal to a specified percentage of the processing volume or a fixed amount per transaction, subject to monthly minimum amounts. Card fulfillment costs include physical cards, packaging, and other fulfillment costs.
The Company has marketing and incentive arrangements with Card Networks that provide the Company with monetary incentives based on a percentage of the volume processed over the respective Card Network. Uncollected incentives are included in networkNetwork incentives receivable on the consolidated balance sheets.Consolidated Balance Sheets. The Company records these incentives as a reduction of costsCosts of revenue on the consolidated statementsConsolidated Statements of operationsOperations and comprehensive loss.Comprehensive Loss in customer arrangements where the Company is the principal. The Company's contracts with Card Networks and Issuing Banks typically have terms ranging from three to five years which may be renewed in one-year to two-year increments as agreed by both parties.
Segment InformationAdvertising Costs
The Company operatesexpenses advertising costs as a single operating segment. The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basisthey are incurred. Advertising expenses for purposes of making operating decisions, assessing financial performance, allocating resources and evaluating the Company's financial performance.
For the years ended December 31, 2023, 2022 and 2021, 2020,were $1.5 million, $2.2 million and 2019, revenue outside$1.7 million, respectively.
Research and Development Costs
Research and development costs, which consist primarily of salaries, employees' benefits, share-based compensation, third-party hosting fees and software licenses were $148.0 million, $108.3 million, and $84.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Research and development costs are expensed as incurred and are included in Compensation and benefits, and Technology expenses in the Consolidated Statements of Operations and Comprehensive Loss.
Share-based Compensation
The primary types of share-based compensation utilized by the Company are restricted share units (“RSUs”) and stock options and the use of the United States,employee stock purchase plan (“ESPP”). The Company determines compensation expense associated with RSUs based on the billing addressestimated fair value of the Customer, was not material.
As of December 31, 2021 and December 31, 2020, long-lived assets located outside of the United States were not material.
Foreign Currency
The functional currency of the Company’s foreign subsidiary is its respective local currency. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) within the consolidated balance sheets and the consolidated statements of redeemable convertible preferredcommon stock and stockholders’ deficit. Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average exchange rate during the period, and equity balances are translated using historical exchange rates.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Cash and Cash Equivalentson the estimated grant date fair value using the Black-Scholes option pricing model. The Company generally recognizes compensation expense using a straight-line amortization method over the respective vesting period. The Company accounts for forfeitures as they occur.
Defined Contribution Plans
The Company considersmaintains defined contribution plans for eligible employees, including a 401(k) plan that covers substantially all highly liquid investments with original maturities of three months or less fromits U.S. based employees and to which the dateCompany provides a matching contribution of purchase to be cash equivalents. Cash and cash equivalents consist primarily of bank deposit accounts and investments in money market funds.
Restricted Cash
Restricted cash consists of a deposit with one50% of the Company’s Issuing Banksfirst 6% of compensation that an employee contributes. The matching contribution vests after one year of service.
Restructuring
Restructuring costs stem from employee related severance charges and include both cash and non-cash compensation. The Company generally recognizes restructuring costs upon communication of the plan to provide the Issuing Bank collateral inidentified employees or when payments are probable and amounts are estimable, depending on the event that Customers’ funds are not deposited at the Issuing Bank in time to settle Customers’ transactions with the networks that provide the infrastructure for settlement and card payment information flows, or Card Networks. Restricted cash also includes cash used to secure a letter of credit for the Company’s lease of its office headquarters in Oakland, California.
Marketable Securities
The Company's marketable securities include U.S. government securities, commercial paper, asset-backed securities, and corporate debt securities. The Company's marketable securities are accounted for as securities available-for-sale andregion an employee works. Restructuring liabilities are classified within current assets in the consolidated balance sheets as the Company may sell these securities at any time for use in its operations, even prior to maturity. The Company carries these marketable securities at fair value, and records any unrealized gain and loss, net of taxes, in accumulated other comprehensive income (loss), a component of stockholders’ equity (deficit). The Company records any realized gains or losses on the sale of marketable securities in other income (expense), net in the consolidated statements of operations and comprehensive loss.
Management regularly reviews whether marketable securities are other-than-temporarily impaired. If any impairment is considered other-than-temporary, the Company writes down the investment to its then fair value and records the corresponding charge through other income (expense), net in the consolidated statements of operations and comprehensive loss.
Equity Investments and Purchase Options
The Company applies the equity method of accounting for investments in other entities when the Company exercises significant influence, but no control. Under the equity method, the Company’s records its share of each entity’s profit or loss in other income (expense), net in the consolidated statements of operations and comprehensive loss on a one quarter lag when the most recent financial information of the investee becomes available. The Company regularly reviews investments accounted for under the equity method for impairment. Investments in other entities not accounted for under the equity method of accounting, including options to purchase these entities, are accounted for at cost less impairment, if applicable. Additionally, the value of these investments may be adjusted to fair value resulting from observable transactions for identical or similar investments.
In 2021, the Company acquired a preferred equity interest in a private company that is accounted for under the equity method of accounting. Concurrent with this investment, the Company also acquired an option that gives the Company the right, but not the obligation, to purchase all of the remaining equity interests of the private company. The carrying amounts of the equity method investment and the option at December 31, 2021 were $8.4 million and $11.6 million, respectively.
The option is reflected within PrepaidAccrued expenses and other current assetsliabilities in the consolidated balance sheets. The Company applies the measurement alternative and will continue to measure the option at cost, less any impairment. If an indicator of impairment exists or if the Company decides to not exercise its option, which expires on June 30, 2022, the Company will record an impairment charge accordingly.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Accounts Receivable
Accounts receivable are recorded at invoiced amounts and do not earn interest. The Company estimates an allowance for doubtful accounts receivable by making its best estimate of specific uncollectible accounts considering its historical accounts receivable collection experience and the information that management has about the current status of accounts receivable balances. As of December 31, 2021 and 2020, the allowance for doubtful accounts receivable was $0.2 million and $0.1 million, respectively.
Settlements Receivable
Settlements receivable represent Interchange Fees earned on Customers’ card transactions, net of pass through Card Network fees, and are due from Issuing Banks. Interchange Fees are typically received within one or two business days of the transaction date and are due from well-established Issuing Banks, mitigating the associated risk of collection. No valuation allowance has been established. The Company does not generate revenue from Issuing Banks.
Deferred Offering Costs
Deferred offering costs consist primarily of accounting, legal, and other fees related to the IPO. Upon the completion of the IPO in June 2021, the deferred offering costs were reclassified to stockholders’ equity (deficit) and recorded net against the proceeds from the IPO.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. The Company uses the straight-line method of depreciation and amortization. Estimated useful lives range from three to five years for purchased and internally developed software, computer equipment, and furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term, excluding renewal periods, or the estimated useful life of the leasehold improvement.
Gains and losses realized on the sale or disposal of property and equipment are recognized or charged to other income (expense), net in the consolidated statements of operations and comprehensive loss.
The Company evaluates the carrying value of property and equipment on an annual basis, or more frequently whenever circumstances indicate a long-lived asset may be impaired. When indicators of impairment exist, the Company estimates the future undiscounted cash flows attributable to such assets. In the event cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair value. During the years ended December 31, 2021 and 2020, the Company did not recognize any material impairment of long-lived assets.
Fair Value Measurements
Fair value is an exit price, representing the price that would be received to sell the financial asset or paid to transfer the financial liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy includes a three-level classification, which is based on whether the inputs to the valuation methodology used for measurement are observable:
•Level 1 ‑ quoted prices in active markets for identical assets as of the reporting date;
•Level 2 ‑ inputs other than Level 1 that are observable, either directly or indirectly; or
•Level 3 ‑ unobservable inputs.
When developing fair value measurements, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. In instances where the Company lacks observable inputs in the market to measure the fair value of an asset or liability, the Company may use unobservable inputs which requires greater judgment in measuring fair value. In instances where there is limited or no observable market data, fair value measurements for assets and liabilities are based primarily upon the Company’s own estimates, and the measurements reflect information and assumptions that management believes a market participant would use in pricing the asset or liability.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The Company’s financial instruments consist of cash equivalents, marketable securities, accounts receivable, unbilled Customers' receivable, settlements receivable, accounts payable, accrued liabilities, and prior to the IPO, redeemable convertible preferred stock warrant liabilities. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Marketable securities are carried at fair value. Accounts receivable, unbilled Customers' receivable, settlements receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The redeemable convertible preferred stock warrant liabilities were carried at fair value.
Advertising Costs
The Company expenses advertising costs as they are incurred. Advertising expenses for the years ended December 31, 2021, 2020 and 2019, were $1.7 million, $1.4 million and $1.1 million, respectively.
Research and Development Costs
Research and development costs, which consist primarily of salaries, employees' benefits, share-based compensation, third-party hosting fees and software licenses were $84.1 million, $34.0 million, and $25.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. Research and development costs are expensed as incurred and are included in compensation and benefits, and technology expenses in the consolidated statements of operations and comprehensive loss.Balance Sheets.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers the available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized. If the Company determines that it is able to realize its deferred tax assets in the future in excess of the net recorded amount, the Company decreases the deferred tax asset valuation allowance, which reduces the income tax expense.
Uncertain tax positions are recognized only when the Company believes it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. The Company recognizes interest and penalties, if any, related to uncertain tax positions in incomeIncome tax expense (benefit)benefit in the consolidated statementsConsolidated Statements of operationsOperations and comprehensive loss.
Lease Obligations
On January 1, 2019, the Company adopted Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), or Topic 842, using the modified retrospective method, which resulted in the recognition of operating lease right-of-use assets and lease liabilities on the Company’s consolidated balance sheets as of December 31, 2019, with no impact to its consolidated statements of operations and comprehensive loss for the year ended December 31, 2019.
The Company measures lease liabilities based on the present value of the total lease payments not yet paid discounted based on the Company’s incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The Company measures right-of-use assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs the Company incurs and (iii) tenant incentives under the lease. The Company begins to recognize rent expense when the lessor makes the underlying asset available to the Company.
For short-term leases, the Company records rent expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term and records variable lease payments as incurred. The Company has no finance leases.
In 2016, the Company entered into a lease agreement for its corporate headquarters in Oakland, California for 19,000 square feet of office space, which was subsequently amended resulting in a total of 63,000 square feet of office space being leased. The non-cancellable operating lease expires in February 2026 and includes options to extend the lease term, generally at the then-market rates. The Company excludes extension options that are not reasonably certain to be exercised from its lease terms. The Company’s lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. The Company is responsible for operating expenses that exceed the amount of base operating expenses as defined in the original lease agreement.
Loss Contingencies
The Company may be involved in various lawsuits, claims, and proceedings that arise in the ordinary course of business. The Company records a liability for these when it believes it is probable that it has incurred a loss, and the Company can reasonably estimate the loss. The Company regularly evaluates current information to determine whether it should adjust a recorded liability or record a new one. If a loss is reasonably possible and the loss or range of loss can be reasonably estimated, the Company discloses the possible loss in the accompanying notes to the consolidated financial statements. Significant judgment is required to determine both the probability and the estimated amount. See Note 7, "Commitments and Contingencies", for a full description of the Company's loss contingencies.
Share-based Compensation
Restricted Stock Units
Commencing in 2020, the Company began granting restricted stock units, or RSUs, to employees. RSUs granted prior to April 1, 2021 vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for these awards is satisfied over four years. On June 8, 2021, the Company completed its IPO and the liquidity condition for these awards was satisfied and the Company recognized a cumulative share-based compensation expense of $23.1 million associated with RSUs that had service-vested as of the IPO completion date. Subsequent to the IPO, the unamortized grant date fair value of these RSUs will be recorded as share-based compensation expense over the remaining service period.
RSUs granted on or after April 1, 2021, vest upon the satisfaction of a service condition. The service condition for these awards is satisfied over four years and the grant date fair value of these RSUs will be recorded as share-based compensation expense over the service period.
The fair value of RSUs is based on the closing price of the Company’s Class A common stock on the grant date. Prior to the IPO, the fair value of RSUs was based on the fair value of the underlying common stock on the grant date as determined by the Company’s board of directors at each meeting in which RSU awards were approved.
Stock Options
The Company grants stock option awards to certain employees and directors. The Company estimates the fair value of stock option awards using the Black-Scholes option pricing model. The model requires management to make a number of assumptions, including the expected future volatility of the Company’s Class A common stock, expected term, risk-free interest rate, and expected dividends. The Company records the resulting expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the period for which the employee or director is required to perform services to vest in the award, which is generally four years. The Company accounts for forfeitures as they occur.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
CEO Long-Term Performance Award
In April and May 2021, the Company’s board of directors granted the Company’s Chief Executive Officer equity incentive awards in the form of performance-based stock options, or collectively, the CEO Long-Term Performance Award. The CEO Long-Term Performance Award vests upon the satisfaction of a service condition and the achievement of certain stock price hurdles over a seven year performance period following the expiration of the lock-up period associated with the IPO. The stock price hurdle will be achieved if the average closing price of a share of the Company’s Class A common stock during any 90 consecutive trading day period during the performance period equals or exceeds the requisite stock price hurdle for the performance period. The grant date fair value of the CEO Long-Term Performance Award was estimated using a Monte Carlo simulation model that incorporated multiple stock price paths and probabilities that the Company stock price hurdles are met. The Company records the resulting expense in the consolidated statements of operations and comprehensive loss over the derived service period of each of the seven separate tranches using the accelerated attribution method.
Employee Stock Purchase Plan
In May 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan, or the ESPP, which became effective in connection with the IPO. The ESPP authorizes the issuance of shares of the Company’s Class A common stock pursuant to purchase rights granted to employees. The fair value of purchase rights issued under the ESPP is estimated using the Black-Scholes option pricing model. The model requires management to make a number of assumptions, including the fair value of the Company’s common stock, expected volatility, expected term, risk-free interest rate, and expected dividends. The Company records the resulting expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the six-month offering period.
Secondary Sales of Common Stock
Prior to the completion of the IPO, certain economic interest holders acquired outstanding common stock from current or former employees for a purchase price greater than the Company's estimated fair value of its common stock at the time of the transactions. For such secondary sales of common stock, the Company recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction.Comprehensive Loss.
Net Loss Per Share Attributable to Common Stockholders
The Company presents basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Prior to the completion of the IPO, all series of redeemable convertible preferred stock were considered participating securities. Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into shares of Class B common stock. The Company has not allocated net loss attributable to common stockholders to redeemable convertible preferred stock in any period presented because the holders of its redeemable convertible preferred stock were not contractually obligated to share in losses.
The Company calculates basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders gives effect to all potential shares of common stock, including common stock issuable upon conversion of redeemable convertible preferred stock and redeemable convertible preferred stock warrants, stock options, RSUs and common stock warrants to the extent these are dilutive.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
New Accounting Standards Not Yet AdoptedLoss Contingencies
As an emerging growth company,The Company may be involved in various lawsuits, claims, and proceedings that arise in the Jumpstart Our Business Startups Act, or the JOBS Act, allowsordinary course of business. The Company records a liability for these when it believes it is probable that it has incurred a loss, and the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.can reasonably estimate the loss. The Company has electedregularly evaluates current information to use this extended transition period underdetermine whether it should adjust a recorded liability or record a new one. If a loss is reasonably possible and the JOBS Act. The adoption date discussed below reflects this election.
In June 2016, the FASB issued ASU No. 2016-13, Financial instruments – Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss model with the current expected credit loss or CECL, modelrange of loss can be reasonably estimated, the Company discloses the possible loss in the accompanying notes to estimate credit lossesthe Consolidated Financial Statements. Significant judgment is required to determine both the probability and the estimated amount.
Fair Value Measurements
Fair value is an exit price, representing the price that would be received to sell the financial asset or paid to transfer the financial liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy includes a three-level classification, which is based on whether the inputs to the valuation methodology used for measurement are observable:
•Level 1 ‑ Inputs are quoted prices in active markets for identical assets as of the reporting date;
•Level 2 ‑ Inputs other than Level 1 that are observable, either directly or indirectly; or
•Level 3 ‑ Unobservable pricing inputs in the market.
When developing fair value measurements, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. In instances where the Company lacks observable inputs in the market to measure the fair value of an asset or liability, the Company may use unobservable inputs which requires greater judgment in measuring fair value. In instances where there is limited or no observable market data, fair value measurements for assets and liabilities are based primarily upon the Company’s own estimates, and the measurements reflect information and assumptions that management believes a market participant would use in pricing the asset or liability.
The Company’s financial assets measuredinstruments consist of cash equivalents, short-term investments, accounts receivable, settlements receivable, accounts payable, accrued liabilities, and prior to the IPO, redeemable convertible preferred stock warrant liabilities. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Short-term investments are carried at fair value. Accounts receivable, settlements receivable, accounts payable, and certain off-balance sheet credit exposures. It also eliminatesaccrued liabilities are stated at their carrying value, which approximates fair value due to the conceptshort time to the expected receipt or payment date. The redeemable convertible preferred stock warrant liabilities were carried at fair value.
Foreign Currency
The functional currency of other-than-temporary impairmentthe Company’s foreign subsidiaries is its respective local currency. For these foreign entities, the Company translates the financial statements into U.S. dollars using average exchange rates for the period for income statement amounts and requires creditusing end-of-period exchange rates for assets and liabilities. There translation adjustments are included in Accumulated other comprehensive income (loss) within the Consolidated Balance Sheets and the Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit). Foreign currency transaction gains and losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reductionare included in Other income (expense), net in the amortized cost basisConsolidated Statements of Operations and Comprehensive Loss.
Recent Accounting Pronouncements
In December 2023, the securities. The CECL modelFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires a companyentities to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The guidance will be effective for the Company beginning January 1, 2023, and interim periods therein. The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. The Company is still evaluating the impact this ASU will have on its consolidated financial statements.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on the consolidated financial statements and related disclosures.
3. Revenue
Disaggregation of Revenue
The following table provides information about disaggregated revenue from Customers:customers:
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Platform services revenue, net | Platform services revenue, net | $ | 502,296 | | | $ | 283,305 | | | $ | 138,106 | |
| Other services revenue | Other services revenue | 14,879 | | | 6,987 | | | 5,161 | |
| Total net revenue | Total net revenue | $ | 517,175 | | | $ | 290,292 | | | $ | 143,267 | |
Contract Balances
The following table provides information about contract assets and deferred revenue:
| | | | | | | | | | | | | | | | | | | | |
| Contract balance | | Balance sheet line reference | | December 31,
2021 | | December 31,
2020 |
| Contract assets - current | | Prepaid expenses and other current assets | | $ | 950 | | | $ | 118 | |
| Contract assets - non-current | | Other assets | | 927 | | | 294 | |
| Total contract assets | | | | $ | 1,877 | | | $ | 412 | |
| Deferred revenue - current | | Accrued expenses and other current liabilities | | $ | 19,060 | | | $ | 3,983 | |
| Deferred revenue - non-current | | Other liabilities | | 6,107 | | | 8,865 | |
| Total deferred revenue | | | | $ | 25,167 | | | $ | 12,848 | |
Contract assets related to the Company’s conditional right to consideration for the Company’s completed performance under the contract. Deferred revenue relates to payments received in advance of performance under the contract. | | | | | | | | | | | | | | | | | | | | |
| Contract balance | | Balance sheet line reference | | December 31,
2023 | | December 31,
2022 |
| Contract assets - current | | Prepaid expenses and other current assets | | $ | 1,461 | | | $ | 621 | |
| Contract assets - non-current | | Other assets | | 9,397 | | | 1,323 | |
| Total contract assets | | | | $ | 10,858 | | | $ | 1,944 | |
| Deferred revenue - current | | Accrued expenses and other current liabilities | | $ | 11,829 | | | $ | 17,048 | |
| Deferred revenue - non-current | | Other liabilities | | 4,071 | | | 4,202 | |
| Total deferred revenue | | | | $ | 15,900 | | | $ | 21,250 | |
Net revenue recognized during the years ended December 31, 20212023 and 20202022 that was included in the deferred revenue balances at the beginning of the respective periods was $4.1$12.0 million and $0.7$13.8 million, respectively.
Remaining Performance Obligations
The Company has performance obligations associated with commitments in Customercustomer contracts for future stand-ready obligations to process transactions throughout the contractual term. Remaining performance obligations include related deferred revenue currently recorded and exclude contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services as performed. The amount and timing of revenue recognition is largely driven by the Customer’s utilization of the Company’s Platform services.
As of December 31, 20212023 and 2020, $4.2 million and $4.4 million of2022, the deferred revenue balance representCompany did not have a material right included in its deferred revenue balance.
4. Business Combination
On February 3, 2023, the Company acquired all outstanding stock of Power Finance Inc. (“Power Finance”) for discounted revenue share rates provideda base cash purchase price of $221.9 million. The purchase price does not include a $53.1 million contingent consideration tied to a Customerperformance-based goals which were expected to be achieved within 12 months from the date of acquisition. The Company determined the acquisition-date fair value of the contingent consideration liability, based on the likelihood of payment related to the contingent earn-out clauses, as part of a contractual renewal option.the consideration transferred.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
4. Marketable Securities
Power Finance’s cloud-based platform offers credit card program management services for companies creating new credit card programs. The amortized cost, unrealized gain (loss),acquisition of Power Finance will accelerate the Company’s credit product capabilities and estimated fair valueallow the Company’s customers to launch a wide range of the Company's investments in securities available for sale consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized Cost | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
| Marketable securities | | | | | | | |
| U.S. government securities | $ | 420,392 | | | $ | — | | | $ | (2,107) | | | $ | 418,285 | |
| Commercial paper | 13,878 | | — | | — | | | 13,878 |
| Asset-backed securities | 2,003 | | — | | (1) | | | 2,002 |
| Corporate debt securities | 18,731 | | 3 | | (24) | | | 18,710 |
| Total marketable securities | $ | 455,004 | | | $ | 3 | | | $ | (2,132) | | | $ | 452,875 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Amortized Cost | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
| Marketable securities | | | | | | | |
| U.S. government securities | $ | 125,823 | | | $ | 47 | | | $ | (6) | | | $ | 125,864 | |
| Commercial paper | 4,991 | | — | | — | | | 4,991 |
| Asset-backed securities | 4,294 | | 21 | | — | | | 4,315 |
| Corporate debt securities | 14,683 | | 52 | | (2) | | | 14,733 |
| Total marketable securities | $ | 149,791 | | | $ | 120 | | | $ | (8) | | | $ | 149,903 | |
The Company had 19credit products and 6 separate marketable securities in unrealized loss positions as of December 31, 2021 and 2020, respectively. The Company did not identify any marketable securities that were other-than-temporarily impaired as of December 31, 2021 and 2020. The Company does not intend to sell any marketable securities that have an unrealized losses at December 31, 2021 and it is not more likely than not that the Company will be required to sell such securities before any anticipated recovery.constructs.
The following table summarizes the stated maturitiescomponents of the purchase consideration transferred (in thousands):
| | | | | |
| Base purchase price less contingent consideration | $ | 221,933 | |
| Less: postcombination cash, non-cash expense and other purchase adjustments | 118,447 | |
| Plus: cash acquired on acquisition date | 7,089 | |
| Total purchase consideration, excluding contingent consideration | 110,575 | |
| Contingent consideration | 53,067 | |
| Purchase consideration | $ | 163,642 | |
Of the $117.6 million postcombination compensation excluded from purchase consideration, approximately $32.4 million was recognized as non-cash postcombination compensation cost at closing as a result of the vesting provisions of the employee replacement awards on the acquisition date. The remaining $85.1 million is subject to continuous employment and will be recognized as postcombination cash compensation cost over a weighted-average period of 2.2 years. Postcombination expense recognized was $36.4 million for the year ended December 31, 2023 and is included within Compensation and benefits in the Consolidated Statements of Operations and Comprehensive Loss.
The assets acquired and liabilities assumed were recorded at fair value as of the acquisition date. The final $163.6 million purchase consideration was attributed to $41.0 million of developed technology intangible assets (to be amortized over an estimated useful life of 7.0 years), $8.0 million of deferred tax liabilities, and $7.1 million of net assets acquired, with the $123.5 million excess of purchase consideration over the fair value of assets acquired and liabilities assumed recorded as goodwill. The fair value of the developed technology intangible assets was estimated using the multi-period excess earnings method (“MPEEM”), a form of the income approach. The principle behind this method is that the value of the intangible asset is equal to the present value of the after-tax cash flows attributable to the intangible asset. The Company applied judgment which involved the use of certain assumptions with respect of the revenue and EBITDA forecasts, obsolescence rate, and discount rate. The goodwill recognized was primarily attributable to the expected synergies from integrating Power Finance’s technology into the Company’s marketable securities:platform. Goodwill was not considered deductible for tax purposes.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
| | | | | | | |
| Due within one year | $ | 64,914 | | | $ | 64,879 | | | $ | 149,791 | | | $ | 149,903 | |
| Due after one year through two years | 390,090 | | 387,996 | | — | | — |
| Total | $ | 455,004 | | | $ | 452,875 | | | $ | 149,791 | | | $ | 149,903 | |
During the third quarter of 2023, the Company paid out $53.1 million as the performance-based goals tied to the contingent consideration were achieved during the second quarter of 2023.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
5. Fair Value MeasurementsGoodwill and Intangible Assets
Goodwill
Goodwill consisted of the following:
| | | | | |
| Balance as of December 31, 2022 | $ | — | |
| Goodwill from acquisition of Power Finance, Inc. | 123,000 | |
| Measurement period adjustments | 523 | |
| Balance as of December 31, 2023 | $ | 123,523 | |
Intangibles Assets, net
Intangible assets consisted of the following as of the dates presented:
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Developed technology | $ | 41,000 | | | $ | — | |
| Accumulated amortization | (5,369) | | | — | |
| Intangibles, net | $ | 35,631 | | | $ | — | |
The following tables present the fair value hierarchyamortization period for developed technology intangible assets and liabilities measured at fair value on a recurring basis:is 7 years. Amortization expense for developed technology was $5.4 million for year ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
| Cash equivalents | | | | | | | |
| Money market funds | $ | 1,213,543 | | | $ | — | | | $ | — | | | $ | 1,213,543 | |
| | | | | | | |
| Marketable securities | | | | | | | |
| U.S. government securities | 418,284 | | | — | | | — | | | 418,284 | |
| Commercial paper | — | | | 13,878 | | | — | | | 13,878 | |
| Asset-backed securities | — | | | 2,002 | | | — | | | 2,002 | |
| Corporate debt securities | — | | | 18,711 | | | — | | | 18,711 | |
| Total assets | $ | 1,631,827 | | | $ | 34,591 | | | $ | — | | | $ | 1,666,418 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
| Cash equivalents | | | | | | | |
| Money market funds | $ | 203,592 | | | $ | — | | | $ | — | | | $ | 203,592 | |
| | | | | | | |
| Marketable securities | | | | | | | |
| U.S. government securities | 125,864 | | | — | | | — | | | 125,864 | |
| Commercial paper | — | | | 4,991 | | | — | | | 4,991 | |
| Asset-backed securities | — | | | 4,315 | | | — | | | 4,315 | |
| Corporate debt securities | — | | | 14,733 | | | — | | | 14,733 | |
| Total assets | $ | 329,456 | | | $ | 24,039 | | | $ | — | | | $ | 353,495 | |
| Other liabilities | | | | | | | |
| Redeemable convertible preferred stock warrants | $ | — | | | $ | — | | | $ | 2,517 | | | $ | 2,517 | |
| Total liabilities | $ | — | | | $ | — | | | $ | 2,517 | | | $ | 2,517 | |
| | | | | |
| 2024 | $ | 5,857 | |
| 2025 | 5,857 | |
| 2026 | 5,857 | |
| 2027 | 5,857 | |
| 2028 | 5,857 | |
| Thereafter | 6,345 | |
| Total expected future amortization expense for intangible assets | $ | 35,631 | |
The Company classifies money market funds, commercial paper, U.S. government securities, asset-backed securities and corporate securities within Level 1 or Level 2 of the fair value hierarchy because
6. Short-term Investments
During 2023, the Company values theserenamed the Marketable securities financial statement line item to Short-term investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company classifiesin the redeemable convertible preferred stock warrants within Level 3 because the Company determines their fair value using unobservable inputs, including the fair value ofConsolidated Balances Sheets to more accurately align with the Company’s redeemable Series B convertible stock, which the Company determined in the same manner as the fair value of its common stock prior to the IPO. The Company records the change in the fair value of redeemable convertible preferred stock warrants in other income (expense), net in the consolidated statements of operations and comprehensive loss.
Immediately prior to the completion of the IPO in June 2021, the outstanding redeemable convertible preferred stock warrants were converted to Class B common stock warrants and the fair value of the liability as of that date was reclassified into the Company’s Class B common stock and additional paid-in capital.current investment portfolio.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The amortized cost, unrealized gain (loss), and estimated fair value of the redeemable convertible preferred stock warrant liabilities was estimated usingCompany's short-term investments consisted of the following assumptions:following:
| | | | | | | | | | | |
| June 9,
2021 | | December 31,
2020 |
| Dividend yield | 0.00% | | 0.00% |
| Expected volatility | 49.93% | | 49.93% |
| Expected term (in years) | 2.34 | | 2.78 |
| Risk-free interest rate | 0.31% | | 0.17% |
| Fair value of Series B redeemable convertible preferred stock | $27.00 | | $12.66 |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized Cost | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
| Short-term Investments | | | | | | | |
| U.S. treasury securities | $ | 239,297 | | | $ | 970 | | | $ | (11) | | | $ | 240,256 | |
| U.S. agency securities | 15,000 | | | — | | | (7) | | | 14,993 | |
| | | | | | | |
| Asset-backed securities | 10,438 | | | 62 | | | — | | | 10,500 | |
| Corporate debt securities | 2,981 | | | — | | | (6) | | | 2,975 | |
| | | | | | | |
| Total short-term investments | $ | 267,716 | | | $ | 1,032 | | | $ | (24) | | | $ | 268,724 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized Cost | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
| Short-term Investments | | | | | | | |
| U.S. treasury securities | $ | 384,951 | | | $ | — | | | $ | (6,949) | | | $ | 378,002 | |
| U.S. agency securities | 29,012 | | | 47 | | | — | | | 29,059 | |
| Commercial paper | 28,815 | | | — | | | — | | | 28,815 | |
| | | | | | | |
| Corporate debt securities | 5,049 | | | — | | | (67) | | | 4,982 | |
| Total short-term investments | $ | 447,827 | | | $ | 47 | | | $ | (7,016) | | | $ | 440,858 | |
The following table sets forth a summaryCompany had four and thirteen separate short-term investments in unrealized loss positions as of December 31, 2023 and 2022, respectively. The Company does not intend to sell any short-term investments that have an unrealized losses at December 31, 2023, and it is not more likely than not that the Company will be required to sell such securities before any anticipated recovery of the changesentire amortized cost basis.
There were no material realized gains or losses from short-term investments that were reclassified out of accumulated other comprehensive income for the years ended December 31, 2023 and 2022. For short-term investments that have unrealized losses, the Company evaluated whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis and (iii) the decline in the fair value of the redeemable convertible preferred stock warrant liabilities:
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Balance, beginning of the period | $ | 2,517 | | | $ | 569 | |
| Remeasurement of redeemable convertible preferred stock warrant liabilities | 2,921 | | | 1,948 | |
| Reclassification of redeemable convertible preferred stock warrant liabilities to common stock and additional paid-in capital upon initial public offering | (5,438) | | | — | |
| Balance, end of the period | $ | — | | | $ | 2,517 | |
Thereinvestment is due to credit or non-credit related factors. Based on this evaluation, the Company determined that for its short-term investments, there were no transfersmaterial credit or non-credit related impairments as of financial instruments between the fair value hierarchy levels during the years ended December 31, 20212023 and 2020.2022.
6. Certain Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consistedThe following table summarizes the stated maturities of the following:Company’s short-term investments:
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Prepaid expenses | $ | 6,492 | | | $ | 3,166 | |
| Inventory | 3,940 | | | 781 | |
| Prepaid Insurance | 3,546 | | | 324 | |
| Prepaid hosting and data costs | 2,455 | | | 2,672 | |
| Card program deposits | 2,167 | | | 2,174 | |
| Contract assets | 950 | | | 119 | |
| Other financial instruments | 11,616 | | | — | |
| Other current assets | 4,451 | | | 2,225 | |
| Prepaid expenses and other current assets | $ | 35,617 | | | $ | 11,461 | |
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
| | | | | | | |
| Due within one year | $ | 90,438 | | | $ | 90,533 | | | $ | 447,827 | | | $ | 440,858 | |
| Due after one year through five years | 177,278 | | 178,191 | | — | | — |
| Total | $ | 267,716 | | | $ | 268,724 | | | $ | 447,827 | | | $ | 440,858 | |
Property and Equipment, net
Property and equipment consisted of the following:
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Leasehold improvements | $ | 8,110 | | | 8,110 | |
| Computer equipment | 8,581 | | | 7,634 | |
| Furniture and fixtures | 2,459 | | | 2,333 | |
| Internally developed and purchased software | 2,954 | | | 1,299 | |
| 22,104 | | | 19,376 | |
| Accumulated depreciation and amortization | (12,417) | | | (9,899) | |
| Property and equipment, net | $ | 9,687 | | | $ | 9,477 | |
Depreciation and amortization expense was $3.5 million, $3.5 million and $3.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company capitalized $1.6 million as internal-use software costs during the year ended December 31, 2021. The Company did not capitalize any internal-use software costs during the years ended December 31, 2020 and 2019, because development costs meeting capitalization criteria were not material during the respective periods.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Accrued costs of revenue | $ | 41,339 | | | $ | 24,529 | |
| Reserve for contract contingencies and processing errors | 3,386 | | | 9,537 | |
| Accrued compensation and benefits | 32,954 | | | 14,078 | |
| Deferred revenue | 19,060 | | | 3,983 | |
| Operating lease liabilities, current portion | 3,021 | | | 2,771 | |
| Accrued professional services | 2,454 | | | 867 | |
| Other accrued liabilities | 11,882 | | | 4,780 | |
| Accrued expenses and other current liabilities | $ | 114,096 | | | $ | 60,545 | |
Other Liabilities
Other liabilities consisted of the following:
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Deferred revenue, net of current portion | $ | 6,107 | | | $ | 8,865 | |
| Other long-term liabilities | 450 | | | 1,587 | |
| Other liabilities | $ | 6,557 | | | $ | 10,452 | |
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
7. CommitmentsFair Value Measurements
The following tables present the fair value hierarchy for assets and Contingenciesliabilities measured at fair value on a recurring basis:
Operating | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
| Cash equivalents | | | | | | | |
| Money market funds | $ | 627,983 | | | $ | — | | | $ | — | | | $ | 627,983 | |
| U.S. treasury bills | 230,602 | | | — | | | — | | | 230,602 | |
| Short-term investments | | | | | | | |
| U.S. treasury securities | 240,256 | | | — | | | — | | | 240,256 | |
| U.S. agency securities | — | | | 14,993 | | | — | | | 14,993 | |
| | | | | | | |
| Asset-backed securities | — | | | 10,500 | | | — | | | 10,500 | |
| Corporate debt securities | — | | | 2,975 | | | — | | | 2,975 | |
| | | | | | | |
| Total assets | $ | 1,098,841 | | | $ | 28,468 | | | $ | — | | | $ | 1,127,309 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
| Cash equivalents | | | | | | | |
| Money market funds | $ | 462,459 | | | $ | — | | | $ | — | | | $ | 462,459 | |
| | | | | | | |
| Short-term investments | | | | | | | |
| U.S. treasury securities | 378,002 | | | — | | | — | | | 378,002 | |
| U.S. agency securities | — | | | 29,059 | | | — | | | 29,059 | |
| Commercial paper | — | | | 28,815 | | | — | | | 28,815 | |
| | | | | | | |
| Corporate debt securities | — | | | 4,982 | | | — | | | 4,982 | |
| Total assets | $ | 840,461 | | | $ | 62,856 | | | $ | — | | | $ | 903,317 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company classifies money market funds, U.S. treasury bills, commercial paper, U.S. treasury securities, U.S. agency securities, asset-backed securities and corporate debt securities within Level 1 or Level 2 of the fair value hierarchy because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
There were no transfers of financial instruments between the fair value hierarchy levels during the years ended December 31, 2023 and 2022.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
8. Certain Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Prepaid expenses | $ | 6,342 | | | $ | 9,082 | |
| Inventory | 4,309 | | | 5,150 | |
| Prepaid hosting and data costs | 5,815 | | | 6,443 | |
| Accrued interest receivable | 4,457 | | | 3,983 | |
| Prepaid insurance | 2,678 | | | 3,729 | |
| Card program deposits | 128 | | | 2,128 | |
| Contract assets | 1,461 | | | 621 | |
| | | |
| Other current assets | 2,043 | | | 6,871 | |
| Prepaid expenses and other current assets | $ | 27,233 | | | $ | 38,007 | |
Property and Equipment, net
Property and equipment consisted of the following:
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Leasehold improvements | $ | 8,110 | | | 8,110 | |
| Computer equipment | 8,885 | | | 9,115 | |
| Furniture and fixtures | 2,597 | | | 2,542 | |
| Internally developed and purchased software | 19,324 | | | 3,082 | |
| 38,916 | | | 22,849 | |
| Accumulated depreciation and amortization | (20,152) | | | (15,409) | |
| Property and equipment, net | $ | 18,764 | | | $ | 7,440 | |
Depreciation and amortization expense related to property and equipment was $10.7 million, $3.9 million and $3.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The Company capitalized $16.4 million as internal-use software development costs during the year ended December 31, 2023. Internal-use software development costs during the year ended December 31, 2022 were not material.
Other Assets
Other assets consisted of the following:
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Contract assets, noncurrent | $ | 9,397 | | | $ | 1,323 | |
| Deferred tax assets | 495 | | | 1,207 | |
| Other noncurrent assets | 6,695 | | | 4,592 | |
| | | |
| Other assets | $ | 16,587 | | | $ | 7,122 | |
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Accrued costs of revenue | $ | 73,645 | | | $ | 57,191 | |
| Accrued compensation and benefits | 42,095 | | | 41,268 | |
| Deferred revenue | 11,829 | | | 17,048 | |
| Due to Issuing Banks | 7,892 | | | — | |
| Accrued tax liabilities | 4,929 | | | 4,978 | |
| Accrued professional services | 4,559 | | | 4,784 | |
| Operating lease liabilities, current portion | 3,908 | | | 3,394 | |
| Reserve for contract contingencies and processing errors | 3,754 | | | 2,494 | |
| Other accrued liabilities | 8,903 | | | 5,730 | |
| Accrued expenses and other current liabilities | $ | 161,514 | | | $ | 136,887 | |
Other Liabilities
Other liabilities consisted of the following:
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Deferred revenue, net of current portion | $ | 4,071 | | | $ | 4,202 | |
| Other long-term liabilities | 520 | | | 1,275 | |
| Other liabilities | $ | 4,591 | | | $ | 5,477 | |
9. Leases
In 2016, the Company entered into a lease agreement for its corporate headquarters in Oakland, California for 19,000 square feet of office space, which was subsequently amended resulting in a total of 63,000 square feet of office space being leased. The non-cancellable operating lease expires in February 2026 and includes options to extend the lease term, generally at the then-market rates. The Company excludes extension options that are not reasonably certain to be exercised from its lease terms. The Company’s lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. The Company is responsible for operating expenses that exceed the amount of base operating expenses as defined in the original lease agreement.
The Company's operating lease costs are as follows:
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Operating lease cost | Operating lease cost | $ | 3,424 | | | $ | 3,514 | | | $ | 3,019 | |
| Variable lease cost | Variable lease cost | 212 | | | 534 | | | 211 | |
| Short-term lease cost | Short-term lease cost | 358 | | | 271 | | | 191 | |
| Total lease cost | Total lease cost | $ | 3,994 | | | $ | 4,319 | | | $ | 3,421 | |
The Company does not have any sublease income and the Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The weighted average remaining operating lease term and the weighted average discount rate used in the calculation of the Company's lease assets and lease liabilities were as follows:
| | December 31,
2021 | | December 31,
2020 |
| December 31,
2023 | | | December 31,
2023 | | December 31,
2022 |
| Weighted average remaining operating lease term (in years) | Weighted average remaining operating lease term (in years) | 4.1 | | 5.1 | Weighted average remaining operating lease term (in years) | 2.1 | | 3.1 |
| Weighted average discount rate | Weighted average discount rate | 7.7% | | 7.7% | Weighted average discount rate | 7.7% | | 7.7% |
Maturities of operating lease liabilities by year are as follows as of December 31, 2021:2023:
| | | 2022 | | $ | 4,112 |
| 2023 | | 4,239 |
| | 2024 | |
| | 2024 | |
| | 2024 | 2024 | | 4,472 | | 4,472 |
| 2025 | 2025 | | 4,599 | 2025 | | 4,599 |
| 2026 | 2026 | | 780 | 2026 | | 780 |
| Thereafter | | — |
| | Total lease payments | |
| Total lease payments | |
| Total lease payments | Total lease payments | | $ | 18,202 | | $ | 9,851 |
| Less imputed interest | Less imputed interest | | (2,754) | Less imputed interest | | (817) |
| Total operating lease liabilities | Total operating lease liabilities | | $ | 15,448 | Total operating lease liabilities | | $ | 9,034 |
Supplemental cash flow information related to the Company's operating leases was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash paid for operating lease liabilities | $ | 4,081 | | | $ | 3,192 | | | $ | 3,185 | |
| Operating lease right-of-use assets obtained in exchange for new operating lease liabilities | $ | — | | | $ | 192 | | | $ | 2,954 | |
Letters of Credit
In connection with the lease for its corporate headquarters office space, the Company is required to provide the landlord a letter of credit in the amount of $1.5 million. The Company has secured this letter of credit by depositing $1.5 million with the issuing financial institution, which deposit is classified as restrictedRestricted cash in the consolidated balance sheets.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Balance Sheets.Purchase Obligations
As of December 31, 2021,2023, the Company had non-cancellable purchase commitments with certain service providers and Issuing Banks of $263.8$187.4 million, payable over the next 53 years. These purchase obligations generally representinclude $174.6 million related to minimum commitments foras part of a cloud-computing servicesservice agreement. The remaining obligations are related to various service providers and issuing bankIssuing Banks processing fees over the fixed, non-cancellable respective contract terms.
Defined Contribution Plans
The Company maintains defined contribution plans for eligible employees, including a 401(k) plan that covers substantially all of its U.S. based employees and to which the Company provides a matching contribution of 50% of the first 6% of compensation that an employee contributes. The matching contribution vests after one year of service. During the years ended December 31, 2021, 20202023, 2022 and 2019,2021, the Company contributed a total of $3.1$5.5 million, $1.9$5.8 million and $1.1$3.1 million to its defined contribution plans, respectively.
Legal Contingencies
From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. As of December 31, 20212023 and 2020,2022, there were no legal contingency matters, either individually or in aggregate, that would have a material adverse effect on the Company’s financial position, results of operations, or cash flows. Given the unpredictable nature of legal proceedings, the Company bases its assessment on the information available at the time. As additional information becomes available, the Company reassesses the potential liability and may revise the estimate.
Settlement of Payment Transactions
Generally, Customerscustomers deposit a certain amount of pre-funding into accounts maintained at Issuing Banks to settle their payment transactions. Such pre-funding amounts may only be used to settle Customers’customers’ payment transactions and are not considered assets of the Company. As such, the funds held in Customers’customers’ accounts at Issuing Banks are not reflected on the Company’s consolidated balance sheets.Consolidated Balance Sheets. If a Customercustomer does not have sufficient funds to settle a transaction, the Company is liable to the Issuing Bank to settle the transaction and would therefore incur losses if such amounts cannot be subsequently recovered from the Customer.customer. At December 31, 2023, we had $7.0 million in Restricted cash which included a deposit held at an Issuing Bank to provide the Issuing Bank collateral in the event that our
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
customers' funds are not deposited at the Issuing Bank in time to settle our customers' transactions with the Card Networks.
Indemnifications
In the ordinary course of business, the Company enters into agreements of varying scope and terms pursuant to which it agrees to indemnify Customers,customers, Card Networks, Issuing Banks, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. With respect to Issuing Banks, the Company indemnifieshas received requests for indemnification from time to time and may indemnify the Issuing Bank for losses the Issuing Bank may incur for non-compliance with applicable law and regulation, if those losses resulted from the Company’s failure to perform under its program agreement with the Issuing Bank.
In addition, the Company has entered into indemnification agreements with its directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements and there are no claims that the Company is aware of that could have a material effect on its consolidated balance sheets, consolidated statementsConsolidated Balance Sheets, Consolidated Statements of operationsOperations and comprehensive loss,Comprehensive Loss, or consolidated statementsConsolidated Statements of cash flows.Cash Flows.
The Company also includes service level commitments to its Customerscustomers warranting certain levels of performance and permitting those Customerscustomers to receive credits in the event the Company fails to meet those levels.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Non-income Taxes
The Company may be subject to state and local indirect taxes in various jurisdictions in the United States. In several of these jurisdictions the Company has reviewed and concluded that such indirect taxes are not applicable to the Company’s service offerings. In a few of these jurisdictions the tax regulations are less clear. While the Company believes its service offerings are not subject to tax in these jurisdictions, the Company is working with the respective state and local tax authorities to confirm the Company’s conclusions. The Company has not recorded a liability associated with these matters as of December 31, 2021 as it believes it is not probable that the indirect taxes are applicable to the Company. In the event that adverse information is received in response to the Company's state inquiries, and the Company chooses not to appeal, a potential tax liability for these tax matters would be $6.2 million as of December 31, 2021.
8.11. Stock Incentive Plans
The Company has granted share-based awards to employees, non-employee directors, and other service providers of the Company under the Amended and Restated 2011 Equity Incentive Plan (2011 Plan)(“2011 Plan”) and the 2021 Stock Option and Incentive Plan (2021 Plan), collectively,(“2021 Plan” and, together with the Plans.2011 Plan, the “Plans”). The 2011 Plan was terminated in June 2021 in connection with the IPO but continues to govern the terms of outstanding awards that were granted prior to the IPO. Additionally, the Company offers an employee stock purchase plan (ESPP),ESPP, which allows employees to purchase shares of common stock at 85% of the fair value of the Company’s Class A common stock on the first or last day of the offering period, whichever is lower. The offering periods are six months long and start in May and November of each year.
The following table presents the share-based compensation expense recognized within the following line items in the Consolidated Statement of Operations and Comprehensive Loss and Consolidated Balance Sheet in the periods presented:
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Restricted stock units | Restricted stock units | $ | 59,652 | | | $ | — | | | $ | — | |
| Stock options | Stock options | 31,231 | | | 10,895 | | | 6,964 | |
| CEO Long-Term Performance Award | 38,189 | | | — | | | — | |
| Executive Chairman Long-Term Performance Award | |
| Employee Stock Purchase Plan | Employee Stock Purchase Plan | 1,946 | | | — | | | — | |
| Secondary sales of common stock | Secondary sales of common stock | 11,642 | | | 17,316 | | | 14,793 | |
| Total | $ | 142,660 | | | $ | 28,211 | | | $ | 21,757 | |
| Share-based compensation recorded within Compensation and benefits | |
| Property and equipment (capitalized internal-use software) | |
| Total share-based compensation expense | |
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Restricted Stock Units
Restricted Stock Units
RSUs granted prior to April 1, 2021 vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for these awards is satisfied over four years. On June 8, 2021, the Company completed its IPO and the liquidity condition for the RSUs granted prior to April 1, 2021these awards was satisfied and the Company recognized a cumulative $23.1 million of share-based compensation expense of $23.1 million associated with RSUs that had service-vested as of the IPO completion date. Subsequent to the IPO, the unamortized grant date fair value of these RSUs will be recorded as share-based compensation expense over the remaining service period.
RSUs granted on or after April 1, 2021, vest upon the satisfaction of a service condition. TheIn general, the service condition for these awards is satisfied over three or four years. During
The fair value of RSUs is based on the year endedclosing price of the Company’s Class A common stock on the grant date. Prior to the IPO, the fair value of RSUs was based on the fair value of the underlying common stock on the grant date as determined by the Company’s board of directors at each meeting in which RSU awards were approved.
A summary of the Company's RSUs activity under the Plans was as follows:
| | | | | | | | | | | | | |
| Number of Restricted Stock Units | | Weighted-average grant date fair value per share | | |
| Balance as of December 31, 2021 | 9,001,949 | | | $ | 18.30 | | | |
| Granted | 36,159,090 | | | 8.91 | | | |
| Vested | (4,883,296) | | | 13.99 | | | |
| Canceled and forfeited | (6,131,197) | | | 14.07 | | | |
| Balance as of December 31, 2022 | 34,146,546 | | | $ | 9.74 | | | |
| Granted | 31,060,513 | | | 4.62 | | | |
| Vested | (14,128,901) | | | 8.47 | | | |
| Canceled and forfeited | (12,901,086) | | | 7.98 | | | |
| Balance as of December 31, 2023 | 38,177,072 | | | $ | 6.64 | | | |
As of December 31, 2021,2023, unrecognized compensation costs related to unvested RSUs was $231.4 million. These costs are expected to be recognized over a weighted-average period of 2.5 years.
Stock Options
Under the Plans, the exercise price of a stock option shall not be less than the fair market value per share of the Company’s common stock on the date of grant (and not less than 110% of the fair market value per share of common stock for grants to stockholders owning more than 10% of the total combined voting power of all classes of stock of the Company, recognized $34.3 millionor a 10% stockholder). Options are exercisable over periods not to exceed ten years from the date of share-based compensation expense relatedgrant (five years for incentive stock options granted to these RSUs.10% stockholders).
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
A summary of the Company's RSUs activity under the Plans was as follows:
| | | | | | | | | | | | | |
| Number of Restricted Stock Units | | Weighted-average grant date fair value per share | | |
| Balance as of December 31, 2019 | — | | | $ | — | | | |
| Granted | 4,571,886 | | | 4.89 | | | |
| Vested | — | | | — | | | |
| Canceled and forfeited | (141,550) | | | 3.68 | | | |
| Balance as of December 31, 2020 | 4,430,336 | | | $ | 4.93 | | | |
| Granted | 8,409,821 | | | 22.20 | | | |
| Vested | (2,641,196) | | | 10.12 | | |
| Canceled and forfeited | (1,197,012) | | | 14.23 | | | |
| Balance as of December 31, 2021 | 9,001,949 | | | $ | 18.30 | | | |
During the year ended December 31, 2021, share-based compensation expense recognized for RSUs was $59.7 million. As of December 31, 2021, unrecognized compensation costs related to unvested RSUs was $136.1 million. These costs are expected to be recognized over a weighted-average period of 3.0 years.
Stock Options
Under the 2011 Plan and the 2021 Plan, the exercise price of a stock option shall not be less than the fair market value per share of the Company’s Class A common stock on the date of grant (and not less than 110% of the fair market value per share of Class A common stock for grants to stockholders owning more than 10% of the total combined voting power of all classes of stock of the Company, or a 10% Stockholder). Options are exercisable over periods not to exceed ten years from the date of grant (five years for stock options granted to 10% Stockholders).
A summary of the Company's stock option activity under the Plans wasis as follows:
| | Number of Options | | Weighted-Average Exercise Price per Share | | Weighted-Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value(1) |
Balance as of January 1, 2019(2) | 19,628,032 | | | $ | 0.19 | | | 7.69 | | $ | 38,982 | |
| Number of Options | | | Number of Options | | Weighted-Average Exercise Price per Share | | Weighted-Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value(1) |
| Balance as of January 1, 2021 | |
| Granted | Granted | 17,008,222 | | | 1.30 | | |
| Exercised | Exercised | (8,529,478) | | | 0.13 | | |
| Exercised | |
| Exercised | |
| Canceled and forfeited | Canceled and forfeited | (2,947,365) | | | 0.54 | | |
Balance as of December 31, 2019(2) | 25,159,411 | | | $ | 0.92 | | | 8.74 | | $ | 46,594 | |
| Canceled and forfeited | |
| Canceled and forfeited | |
| Balance as of December 31, 2021 | |
| Balance as of December 31, 2021 | |
| Balance as of December 31, 2021 | |
| Granted | Granted | 6,404,800 | | | 2.31 | | |
| Exercised | Exercised | (6,084,183) | | | 0.53 | | |
| Exercised | |
| Exercised | |
| Canceled and forfeited | Canceled and forfeited | (2,058,654) | | | 1.50 | | |
Balance as of December 31, 2020(2) | 23,421,374 | | | $ | 1.35 | | | 8.33 | | $ | 248,002 | |
| Canceled and forfeited | |
| Canceled and forfeited | |
| Balance as of December 31, 2022 | |
| Balance as of December 31, 2022 | |
| Balance as of December 31, 2022 | |
| Granted | Granted | 29,113,555 | | | 20.07 | | |
| Exercised | Exercised | (4,277,344) | | | 1.18 | | |
| Exercised | |
| Exercised | |
| Canceled and forfeited | Canceled and forfeited | (4,072,097) | | | 5.58 | | |
Balance as of December 31, 2021(2) | 44,185,488 | | $ | 13.31 | | | 8.46 | | $ | 279,242 | |
| Vested as of December 31, 2021 | 10,007,419 | | $ | 1.53 | | | 6.67 | | $ | 157,032 | |
| Canceled and forfeited | |
| Canceled and forfeited | |
| Balance as of December 31, 2023 | |
| Balance as of December 31, 2023 | |
| Balance as of December 31, 2023 | |
Exercisable as of December 31, 2023(2) | |
| Vested as of December 31, 2023 | |
(1) Intrinsic value based is calculated based on the difference between the exercise price of in-the-money-stock options and the fair value of the common stock as of the respective balance sheet dates.
(2) The 2011 Plan allows for early exercise of stock options. Accordingly, options and these balances include allgranted under this plan are included as exercisable stock options regardless of vesting status.
The weighted-average grant date fair value of options granted during the years ended December 31, 2023, 2022, and 2021, was $3.52, $5.89, and $12.10, per share, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2023, 2022, and 2021, was $12.2 million, $61.6 million, and $83.0 million, respectively.
The total grant-date fair value of options vested during the years ended December 31, 2023, 2022, and 2021, was $61.8 million, $40.0 million, and $17.6 million, respectively.
As of December 31, 2023, aggregate unrecognized compensation costs related to unvested outstanding stock options, excluding the Executive Chairman Long-Term Performance Award, was $43.3 million. These costs are expected to be recognized over a weighted-average period of 2.1 years.
The fair values of stock options granted were estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Dividend yield | 0.0% | | 0.0% | | 0.0% |
| Expected volatility | 70.78% | | 61.52% | | 52.36% |
| Expected term (in years) | 6.04 | | 6.08 | | 6.14 |
| Risk-free interest rate | 3.78% | | 2.32% | | 1.00% |
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The weighted-average grant date fair value of options granted during the years ended December 31, 2021, 2020 and 2019, was $12.10, $1.81, and $1.73, per share, respectively.
The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019, was $83.0 million, $32.8 million, and $21.2 million, respectively.
The total grant-date fair value of options vested during the years ended December 31, 2021, 2020 and 2019, was $17.6 million, $10.7 million, and 5.2 million, respectively.
As of December 31, 2021, aggregate unrecognized compensation costs related to unvested outstanding stock options, excluding the CEO Long-Term Performance Award, was $90.4 million. These costs are expected to be recognized over a weighted-average period of 2.5 years.
The fair values of stock options granted were estimated using the Black-Scholes option pricing model and the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Dividend yield | 0.0% | | 0.0% | | 0.0% |
| Expected volatility | 52.36% | | 48.11% | | 43.73% |
| Expected term (in years) | 6.14 | | 6.02 | | 6.02 |
| Risk-free interest rate | 1.00% | | 0.54% | | 1.92% |
Prior to the completion of the IPO, the Company considered numerous objective and subjective factors to determine the fair value of the Company’s common stock including but not limited to (i) contemporaneous independent third-party valuations; (ii) observed secondary sales; (iii) rights, preferences, and privileges of redeemable convertible preferred stock relative to those of common stock; (iv) the Company’s actual operating and financial performance; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s capital stock.
Subsequent to the Company’s IPO, the Company uses the closing share price of its Class A common stock, which is traded on the Nasdaq Global Select Market to measure share-based compensation on the grant date.
CEOExecutive Chairman Long-Term Performance Award
In April and May 2021, the Company’s board of directors granted the Company’s ChiefExecutive Chairman and then-Chief Executive Officer equity incentive awards in the form of performance-based stock options covering 19,740,923 and 47,267 shares of ourthe Company’s Class B common stock with an exercise price of $21.49 and $23.40 per share, respectively, or collectively,(collectively, the “Executive Chairman Long-Term Performance Award,” formerly known as the CEO Long-Term Performance Award.Award). The CEOExecutive Chairman Long-Term Performance Award vests upon the satisfaction of a service condition and the achievement of certain stock price hurdles over a seven year performance period following the expiration of the lock-up period associated with the IPO.Company’s IPO in 2021. The stock price hurdle will be achieved if the average closing price of a share of ourthe Company’s Class A common stock during any 90 consecutive trading day period during the performance period equals or exceeds the Company stock price hurdle set forth in the table below.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The CEOExecutive Chairman Long-Term Performance Award is divided into seven equal tranches which vest upon the achievement of the following Company stock price hurdles:
| | | | | | | | | | | | | | |
| Tranche | | Company Stock Price Hurdle | | Number of Options Eligible to Vest |
| 1 | | $67.50 | | 2,826,884 |
| 2 | | $78.98 | | 2,826,884 |
| 3 | | $92.40 | | 2,826,884 |
| 4 | | $108.11 | | 2,826,884 |
| 5 | | $126.49 | | 2,826,884 |
| 6 | | $147.99 | | 2,826,884 |
| 7 | | $173.15 | | 2,826,884 |
| Total | | | | 19,788,188 |
The grant date fair value of the CEO Long-Term Performance Award was estimated using a Monte Carlo simulation model that incorporated multiple stock price paths and probabilities that the Company stock price hurdles are met. The weighted-average grant date fair value of the seven tranches of the CEOExecutive Chairman Long-Term Performance Award was estimated to be $10.53 per option share.
As of December 31, 2021,2023, the aggregate unrecognized compensation cost of the CEOExecutive Chairman Long-Term Performance Award was $170.2$63.8 million, which is expected to be recognized over the remaining derived service period of 4.12.1 years.
Secondary Sales of Common Stock
Prior to the completion of the IPO, certain economic interest holders acquired outstanding common stock from current or former employees for a purchase price greater than the Company's estimated fair value at the time of the transactions. During the years ended December 31, 2021, 2020 and 2019, the Company recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction of $11.6 million, $17.3 million and $14.8 million, respectively.million.
9. 12. Stockholders’ Equity Transactions
Warrants to Purchase Common Stock
In 2021 and 2020, the Company issued warrants to Customerscustomers to purchase up to 1,150,000 and 750,000 shares of the Company’s common stock, respectively. These warrants vest based on certain performance conditions that include issuing a specific percentage of new cards on the Company’s Platformplatform over a defined measurement period and reaching certain annual transaction count thresholds over the contract term, respectively. All warrants have an exercise price of $0.01 per share. These warrants are classified as equity instruments and are treated as consideration payable to a Customer.customer. The grant date fair values of these warrants are recorded as a reduction to net revenue over the term of the respective Customercustomer contract based on the expected pattern of processing volume generated by the Customercustomer and the probability of vesting conditions being met. The aggregate fair values
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in 2021Thousands, Except Share and 2020 were $26.4 million and $5.7 million respectively. Per Share Amounts, Ratios, or as Noted)
As of December 31, 2021, 300,5042023 and 2022, 1,101,262 and 695,637 warrants were vested, and therespectively. The Company recorded $5.0$5.5 million and $7.3 million as a reduction of net revenue during the year then ended, related to these warrants. As ofwarrants during the years ended December 31, 2020, 22,500 warrants were vested2023 and the Company recorded an immaterial amount as a reduction of revenue during the year then ended, related to these warrants.2022, respectively. Upon vesting, the fair value of the vested warrants are recorded into the Company’s additional paid-in capital. Timing differences caused by the pattern of processing volume generated by the Customercustomer over the term of the contract and the vesting schedules of the warrants can cause differences in the amount of grant date fair value that is credited to additional paid in capital upon vesting and the amount recorded as a reduction in net revenue during any particular reporting period.
Share Repurchase Programs
On September 14, 2022, the Company’s Board of Directors authorized a share repurchase program of up to $100 million of the Company’s Class A common stock beginning September 15, 2022 (“2022 Share Repurchase Program”). Under the repurchase program, the Company was authorized to repurchase shares through open market purchases, in privately negotiated transactions or by other means, in accordance with applicable federal securities laws, including through trading plans under Rule 10b5-1 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The number of shares repurchased and the timing of purchases are based on general business and market conditions, and other factors, including legal requirements. The 2022 Share Repurchase Program has no set expiration date; however, repurchases under the program were complete as of March 31, 2023.
During the year ended December 31, 2023, the Company repurchased and subsequently retired 3.2 million shares for $21.0 million under the 2022 Share Repurchase Program, for an average price of $6.46. During the year ended December 31, 2022, the Company repurchased and subsequently retired 11.7 million shares for $79.2 million under the 2022 Share Repurchase Program, for an average price of $6.77.
On May 8, 2023, the Company’s board of directors authorized a share repurchase program of up to $200 million of the Company’s Class A common stock (“2023 Share Repurchase Program”). Under the 2023 Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, in privately negotiated transactions or by other means, in accordance with applicable federal securities laws, including through trading plans under Rule 10b5-1 of the Exchange Act. The number of shares repurchased and the timing of purchases are based on general business and market conditions, and other factors, including legal requirements. The 2023 Share Repurchase Program has no set expiration date.
During the year ended December 31, 2023, the Company repurchased and subsequently retired 31.3 million shares for $169.4 million under the 2023 Share Repurchase Program, for an average price of $5.41. As of December 31, 2023, $32.2 million remained available for future share repurchases under the 2023 Share Repurchase Program.
The total price of the shares repurchased and related transaction costs and excise taxes are reflected as a reduction to Common stock and additional paid-in capital on the Company’s Consolidated Balance Sheets.
13. Restructuring
During the second quarter of 2023, the Company approved a restructuring plan (the “Restructuring Plan”) intended to reduce operating expenses and improve profitability by reducing the Company’s workforce. The net restructuring charges incurred in connection with the Restructuring Plan was approximately $8.7 million, which was completed as of December 31, 2023.
The Company recorded $8.7 million in restructuring charges during the year ended December 31, 2023, which consisted of $14.6 million primarily related to one-time severance and benefit payments, as well as a net reduction of stock-based compensation of $2.9 million related to the vesting of certain equity awards and the forfeiture of certain equity awards which are accounted for as occurred. Additionally, the Company reduced previously accrued bonuses for impacted employees of $2.9 million due to the terms of the Restructuring Plan. These costs were included in Compensation and benefits in the Consolidated Statements of Operations and Comprehensive Loss.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
The fair values offollowing table summarizes the warrants were estimated usingCompany’s restructuring liability that was included in Accrued expenses and other current liabilities on the Black-Scholes option pricing model and the following assumptions as of the grant date of each warrant:
| | | | | | | | | | | |
| March 31, 2021 | | September 30, 2020 |
| Dividend yield | 0.0% | | 0.0% |
| Expected volatility | 50.0% | | 50.0% |
| Contract term (in years) | 4.0 | | 5.0 |
| Risk-free interest rate | 0.6% | | 0.3% |
| | | |
| | | | | |
| Balance as of December 31, 2022 | $ | — | |
| Restructuring charges | 14,588 | |
| Cash payments | (14,588) | |
| Balance as of December 31, 2023 | $ | — | |
10.
14. Net Loss Per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders is as follows:
| | Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Numerator | |
| | | Year Ended December 31, |
| Net loss attributable to Class A and Class B common stockholders | |
| | 2021 | | 2020 | | 2019 |
| Numerator | | | | | |
| Net loss | $ | (163,929) | | | $ | (47,695) | | | $ | (58,200) | |
| Deemed dividend to redeemable convertible preferred stockholders | — | | | — | | | (64149) | |
| | Net loss attributable to Class A and Class B common stockholders | |
| | Net loss attributable to Class A and Class B common stockholders | Net loss attributable to Class A and Class B common stockholders | $ | (163,929) | | | $ | (47,695) | | | $ | (122,349) | |
| Denominator | Denominator | | | | | |
| Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted | Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted | 362,756,466 | | | 122,932,556 | | | 113,851,714 | |
| Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted | |
| Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted | |
| Net loss per share attributable to Class A and Class B common stockholders, basic and diluted | Net loss per share attributable to Class A and Class B common stockholders, basic and diluted | $ | (0.45) | | | $ | (0.39) | | | $ | (1.07) | |
Basic net loss per share is the same as diluted net loss per share because the Company reported a net loss for the years ended December 31, 2023, 2022 and 2021 2020 and 2019.respectively.
The rights, including the liquidation and dividend and other rights, held byof the holders of Class A common stockholdersstock and Class B common stockholdersstock are identical, except with respect to voting. As the liquidation and dividend rights are identical for Class A common stock and Class B common stock, the undistributed earnings are allocated on a proportionate basis and the resulting loss per share will, therefore, be the same for both Class A common stock and Class B common stock on an individual or combined basis.
The Company considered its proportionate share of the potentially dilutive shares issued by its equity method investee in its dilutive EPS calculation. All potentially dilutive shares of its equity method investee were excluded from the computation as they would have an anti-dilutive effect.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Potentially dilutive securities that were excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect were as follows:
| | As of December 31, | | | As of December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| | | As of December 31, |
| Warrants to purchase Class B common stock | |
| | 2021 | | 2020 | | 2019 |
| Redeemable convertible preferred stock, all series | — | | | 351,844,340 | | | 336,843,578 | |
| Warrants to purchase redeemable convertible preferred stock | — | | | 203,610 | | | 203,610 | |
| Warrants to purchase Class B common stock | |
| | Warrants to purchase Class B common stock | Warrants to purchase Class B common stock | 1,900,000 | | | 1,419,528 | | | 3,669,528 | |
| Stock options outstanding, including early exercise of options | Stock options outstanding, including early exercise of options | 45,307,479 | | | 23,421,374 | | | 25,159,411 | |
| Unvested RSUs outstanding | Unvested RSUs outstanding | 9,001,949 | | | 4,430,336 | | | — | |
| Shares committed under the ESPP | Shares committed under the ESPP | 211,118 | | | — | | | — | |
| Stock options and RSUs available for future grants | Stock options and RSUs available for future grants | 61,893,427 | | | 7,683,069 | | | 3,844,639 | |
| Total | Total | 118,313,973 | | | 389,002,257 | | | 369,720,766 | |
In addition, the Company committed up to 320,000 common stock shares for future issuance, or the equivalent in cash, to fund and support the Company’s social impact initiatives over the next eight years.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
11.15. Income Tax
The components of loss before income taxes by tax jurisdiction were as follows:
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| United States | United States | $ | (165,160) | | | $ | (47,911) | | | $ | (58,985) | |
| Foreign | Foreign | 591 | | | 303 | | | 820 | |
| Loss before income taxes | $ | (164,569) | | | $ | (47,608) | | | $ | (58,165) | |
| Loss before income tax expense | |
The components of income tax expense (benefit) were as follows:
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Current: | Current: | | | | | |
| Federal | |
| Federal | |
| Federal | Federal | $ | — | | | $ | — | | | $ | — | |
| State | State | 38 | | | 18 | | | 3 | |
| Foreign | Foreign | — | | | 147 | | | 74 | |
| 38 | | | 165 | | | 77 | |
| (56) | |
| Deferred: | Deferred: | | | | | |
| Federal | |
| Federal | |
| Federal | Federal | — | | | — | | | — | |
| State | State | — | | | — | | | — | |
| Foreign | Foreign | (678) | | | (78) | | | (42) | |
| (678) | | | (78) | | | (42) | |
| (7,557) | |
| Total: | Total: | | | | | |
| Federal | |
| Federal | |
| Federal | Federal | — | | | — | | | — | |
| State | State | 38 | | | 18 | | | 3 | |
| Foreign | Foreign | (678) | | | 69 | | | 32 | |
| Income tax expense (benefit) | $ | (640) | | | $ | 87 | | | $ | 35 | |
| Income tax benefit | |
The reconciliation of the Company's effective tax rate to the statutory federal rate is as follows:
| | Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Taxes at federal statutory rate | Taxes at federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % | Taxes at federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State taxes, net of federal effect | State taxes, net of federal effect | 4.0 | % | | 4.4 | % | | 3.4 | % | State taxes, net of federal effect | 6.5 | % | | 4.6 | % | | 4.0 | % |
| Share-based compensation | Share-based compensation | 4.5 | % | | (8.5) | % | | (6.5) | % | Share-based compensation | (3.1) | % | | 3.9 | % | | 4.5 | % |
| Section 162(m) limitation | (8.3) | % | | — | % | | — | % |
| Executive compensation | | Executive compensation | (11.0) | % | | (13.8) | % | | (8.3) | % |
| Research and development credits | | Research and development credits | 17.0 | % | | — | % | | — | % |
| Change in uncertain tax positions | | Change in uncertain tax positions | (4.2) | % | | — | % | | — | % |
| Mergers and acquisitions | | Mergers and acquisitions | 3.5 | % | | — | % | | — | % |
| Nondeductible compensation | | Nondeductible compensation | (7.4) | % | | — | % | | — | % |
| Other | Other | (0.3) | % | | (0.1) | % | | (6.2) | % | Other | (1.6) | % | | 1.4 | % | | (0.3) | % |
| | Change in valuation allowance | Change in valuation allowance | (20.5) | % | | (17.0) | % | | (11.8) | % |
| | Change in valuation allowance | |
| | Change in valuation allowance | | (17.4) | % | | (17.0) | % | | (20.5) | % |
| | | Effective tax rate | Effective tax rate | 0.4 | % | | (0.2) | % | | (0.1) | % |
| | Effective tax rate | |
| | Effective tax rate | | 3.3 | % | | 0.1 | % | | 0.4 | % |
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
Deferred tax assets and liabilities consist of the following:
| | December 31 |
| 2021 | | 2020 |
| December 31 | | | December 31 |
| 2023 | | | 2023 | | 2022 |
| Deferred tax assets: | Deferred tax assets: | | | |
| Federal and state net operating losses | Federal and state net operating losses | $ | 41,418 | | | $ | 27,269 | |
| Federal and state net operating losses | |
| Federal and state net operating losses | |
| Research and development credits | Research and development credits | 77 | | | 77 | |
| Property and equipment | |
| Accruals and other | Accruals and other | 16,173 | | | 3,536 | |
| Share-based compensation | Share-based compensation | 7,124 | | | 1,674 | |
| Research and development capitalization expenditures | |
| Reserve for contract contingencies and processing errors | Reserve for contract contingencies and processing errors | 818 | | | 2,334 | |
| Deferred revenue | Deferred revenue | 3,132 | | | 695 | |
| Lease liability | Lease liability | 3,730 | | | 4,458 | |
| Total deferred tax assets | Total deferred tax assets | 72,472 | | | 40,043 | |
| Less valuation allowance | Less valuation allowance | (68,847) | | | (36,327) | |
| Total deferred tax assets, net of valuation allowance | Total deferred tax assets, net of valuation allowance | 3,625 | | | 3,716 | |
| Deferred tax liabilities: | Deferred tax liabilities: | |
| Property and equipment | (47) | | | (309) | |
| Intangibles | |
| Intangibles | |
| Intangibles | |
| Right-of-use asset | Right-of-use asset | (2,728) | | | (3,281) | |
| Total deferred tax liabilities | Total deferred tax liabilities | (2,775) | | | (3,590) | |
| Net deferred tax assets | Net deferred tax assets | $ | 850 | | | $ | 126 | |
TheIn accordance with ASC 740 and based on all available evidence on a jurisdictional basis, the Company believes that it is more likely than not that its U.S. deferred tax assets will not be realizedutilized and has recorded a full valuation allowance against its net deferred tax assets in the U.S. jurisdiction. The Company assesses on a periodic basis the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income or losses and expectations and risks associated with estimates of future taxable income in assessing the need for the valuation allowance. If it is not more likely than not that the Company expects to recover its deferred tax assets, the Company will increase its provision for taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. The available negative evidence as ofat December 31, 20212023 and 20202022 included historical and projected future operating losses. As a result, the Company concluded that an additional valuation allowance of $29.3 million and $30.0 million was required to reflect the change in its deferred tax assets prior to valuation allowance during 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company considered it more likely than not that substantially all of its deferred tax assets would not be realized.
The Tax Cuts and Jobs Act of 2017 (TCJA) requires research and development (R&D) expenditures incurred under Section 174 for tax years beginning after December 31, 2021, to be capitalized and amortized ratably over 5 years for domestic research and 15 years for international research. The mandatory capitalization requirement had no material impact to the Company’s 2023 income tax provision due to the Company’s tax attributes carryover and full valuation allowance position.
As of December 31, 2021,2023, the Company had net operating loss carryforwards of approximately $169.0$194.8 million and $88.5$153.1 million for federal and state tax purposes, respectively. If not utilized, these carryforwards will begin to expire in 2030. Of the Company's federal net operating loss carryforwards as of December 31, 2021, $121.42023, $158.7 million can be carried forward indefinitely but is limited to 80% of taxable income. If not utilized, the federal and state net operating carryforwards will begin to expire in 2033 and 2025, respectively.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
In addition, the Company had research and development tax credit carryforwards of approximately $27.9 million for federal income tax purposes and $11.3 million for California tax purposes. If not utilized, the federal research and development tax credit carryforwards will begin to expire in 2031. The California state research credit can be carried forward indefinitely.
Under Section 382 of the Internal Revenue Code of 1986, as amended, , the Company's ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if the Company has experienced an ownership change. As of December 31, 2021,2023, the Company has concluded that it has experienced ownership changes since inception and that its utilization of net operating loss carryforwards and other tax attributes will be subject to annual limitations. However, it is not expected that the annual limitations will result in the expiration of tax attribute carryforwards prior to utilization.
The Company files federal, state, and various stateforeign income tax returns in jurisdictions with varying statutes of limitations. To the U.S., as well asextent the Company has tax returnsattributes carryforwards, the tax years in which the U.K. As of December 31, 2021, the Company’s federal tax returns for 2017 and earlier, and the state tax returns for 2016 and earlier were no longer subject toattribute was generated may still be adjusted upon examination by the taxing authorities. However,federal, state, or foreign tax periods closedauthorities to the extent utilized in a prior period may be subject to audit and re-examination by tax authorities for which tax carryforwards are utilized in subsequent years.
The Company did not have any material unrecognized tax benefits in 2021, 2020, and 2019.future period.
The Company made an accounting policy election to provide for the Global Intangible Low-Taxed Income (GILTI) tax expense in the year the tax is incurred as a period cost. The Company elected and applied the tax law ordering approach when considering GILTI as part of its valuation allowance.
The Company didrecognizes tax benefits from uncertain tax positions only if the Company believes that it is more likely than not incur any interest expenses or penalties or have outstanding liabilitiesthat the tax position will be sustained on examination by the taxing authorities based on the balance sheets associatedtechnical merits of the position. The Company makes adjustments to the reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.
A reconciliation of the total amounts of unrecognized tax benefits was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Beginning balance | $ | — | | | $ | — | | | $ | — | |
| Reductions of tax positions taken during previous years | — | | | — | | | — | |
| Additions based on uncertain tax positions related to the current period | 3,238 | | | — | | | — | |
| Additions based on uncertain tax positions related to the prior periods | 6,562 | | | — | | | — | |
| Ending balance | $ | 9,800 | | | $ | — | | | $ | — | |
The Company’s policy is to include interest and penalties related to unrecognized tax benefits within our tax provision for income taxes. The Company did not accrue any interest or penalties during the year ended December 31, 2021.2023. The Company doeshad $9.8 million of gross unrecognized tax benefits as of December 31, 2023, which would not expect anyaffect its effective tax rate if recognized due to the Company’s valuation allowance. The Company expects no significant increases or decreases to its unrecognized benefits within the next twelve months.
16. Concentration Risks and Significant Customers
Financial instruments that potentially expose the Company to concentration of credit risk consist of cash and cash equivalents, short-term investments, and accounts receivable. Cash on deposit with financial institutions may exceed federally insured limits. Cash and cash equivalents as of December 31, 2023 and December 31, 2022 included $628.0 million and $462.5 million, respectively, of investments managed by two financial institutions, which invest primarily in securities issued by the U.S. Government or U.S. Government agencies.
Marqeta, Inc.
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
12. Concentration Risks and Significant Customers
Financial instruments that potentially expose the Company to concentration of credit risk consist of cash and cash equivalents, marketable securities, accounts receivable and unbilled Customers' receivable, or collectively, Customers' receivables, and settlements receivable. Cash on deposit with financial institutions may, at times, exceed federally insured limits. Management believes that these financial institutions are financially sound and, accordingly, minimal credit risk exists. Cash and cash equivalents as of December 31, 2021 and December 31, 2020 included $1.2 billion and $203.6 million, respectively, of investments in 3 money market mutual funds which invest primarily in securities issued by the U.S. Government or U.S. Government agencies.
As of December 31, 2021, marketable securities2023, short-term investments were $452.9$268.7 million, and there was no concentration of securities of the same issuer with an aggregate fair value greater than 5% of this total balance, except for U.S. Treasuries and U.S. agency securities, which amounted to $418.3$255.2 million, or 92%95% of the marketable securities. Allshort-term investments. As of December 31, 2023, all debt securities within the Company's marketable securities portfolio are investment grade.
As of December 31, 2020, marketable securities2022, short-term investments were $149.9$440.9 million, and there was no concentration of securities of the same issuer with an aggregate fair value greater than 5% of the total balance, except for U.S. Treasuries, which amounted to $125.9$407.1 million, or 84%92% of the marketable securities.short-term investments. As of December 31, 2022, all debt securities within the Company's portfolio are investment grade.
A significant portion of the Company's payment transactions is settled through one Issuing Bank, Sutton Bank. For the years ended December 31, 2023, 2022 and 2021, 202076%, 82% and 2019, 90%, 96% and 97% of Total Processing Volume which is the total dollar amount of payments processed through the Company’s Platform, net of returns and chargebacks, was settled through Sutton Bank, respectively.
A significant portion of the Company's revenue and accounts receivable is derived from a single customer. For each significant Customer,customer, net revenue as a percentage of total net revenue and customers' receivables as a percentage of total customers' receivables are as follows:
| | | | | | | | | | | | | | | | | |
| Percent of Net Revenue
for the Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Customer A | 69% | | 70% | | 60% |
| Customer B | * | | * | | 11% |
| * Less than 10% | | | | | |
| | | | | | | | | | | | | | | | | |
| Percent of Net Revenue
for the Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Customer A | 68% | | 71% | | 69% |
| | | | | |
| | | | | |
| | | | | | | | | | | |
| Percent of Customers' Receivables as of December 31, |
| 2021 | | 2020 |
| Customer C | 20% | | * |
| Customer D | 13% | | * |
| Customer E | * | | 14% |
| * Less than 10% | | | |
| | | | | | | | | | | |
| Percent of Customers' Receivables as of December 31, |
| 2023 | | 2022 |
| Customer B | 11% | | 18% |
| | | |
| | | |
| | | |
13.17. Related Party Transactions
The Company may enter into transactions with related parties.
The Company had an equity method investment in a private company, which was a related party up until the investment was sold in October 2022. During the years ended December 31, 2022 and 2021, the Company earned net revenue of $2.7 million and $2.8 million from the private company, respectively.
Prior to the completion of the IPO, DFS Services LLC, a holder of more than 5% of the Company's outstanding capital stock, was a related party. During the yearsyear ended December 31, 2020 and 2019,2021, the Company incurred $30.4 million and $14.4 million in Card Network fees, net, recorded within costsCosts of revenue in the Consolidated Statements of Operations and Comprehensive Loss, to PULSE Network LLC, an entity affiliated with DFS Services LLC.
The Company has an equity method investment in a private company, which is a related party. During the year ended December 31, 2021, the Company earned net revenue of $2.8 million from the private company and had $4.1 million in revenue share payable to this private company as of December 31, 2021.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s, or the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on thissuch evaluation, our Chief Executive Officer and our Chief Financial Officermanagement has concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of December 31, 2021.2023, due to the material weaknesses in internal control over financial reporting described in Management’s Report on Internal Control Over Financial Reporting below.
Management's Report on Internal Control Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company’s independent registered public accounting firm due to a transition period established by the rules of SECOur management is responsible for newly public companies.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’sestablishing and maintaining adequate internal control over financial reporting (as such term is defined in RulesRule 13a-15(f) and 15d-15(f) under the Exchange Act) during. Under the fourth quartersupervision of fiscal 2021 that have materially affected, or are reasonably likely to materially affect,and with the Company’sparticipation of our principal executive officer and principal financial officer, our management conducted an assessment of the effectiveness of our internal control over financial reporting except as described below.
Material Weakness Remediation
As previously reported,based on the criteria established in connection with“Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, our management’s assessment of controls over financial reporting during the year ended December 31, 2019, we identified a material weakness inmanagement has concluded that our internal control over financial reporting. reporting as of December 31, 2023 was not effective due to the material weaknesses identified below. The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young, LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report on Form 10-K.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of ourthe Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In the period ended March 31, 2023, management identified a material weakness related to the accounting for our acquisition of Power Finance (the “Business Combination Material Weakness”), including a lack of sufficient precision in the performance of reviews supporting the purchase price allocation accounting, and a lack of timely oversight over third-party specialists and the reports they produced to support the accounting for the Power Finance acquisition. The material weakness resulted in an error related to the allocation of merger consideration between purchase consideration and post-combination expense that we identified occurred because we had inadequate processeswas not detected on a timely basis. The error was corrected by management in the Condensed Consolidated Financial Statements as of and controls to ensurefor the timely reconciliations of certain customer-related settlement bank accounts.three months ended March 31, 2023.
DuringFor the yearsperiod ended December 31, 20212023, management identified a material weakness related to information technology general controls (“ITGCs”) (the “ITGC Material Weakness” and 2020,together with the Company implemented measures designed to remediateBusiness Combination Material Weakness, the control deficiencies contributing to the material weakness. These remediation actions included: (i) establishing an internal team to“2023 Material Weaknesses”) in user access over certain information technology (“IT”) systems that support the Company’s entirerevenue and related financial reporting processes. As a result, the related process-level IT dependent manual controls, certain change management controls, and automated application controls for certain key IT systems were also deemed ineffective for the period ended December 31, 2023.
The 2023 Material Weaknesses did not result in any material misstatements in our Consolidated Financial Statements included in this Annual Report on Form 10-K. Our management concluded that the Consolidated Financial Statements included in this Annual Report on Form 10-K, present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States.
Management’s Plan to Remediate the Material Weaknesses
Our management is committed to maintaining a strong internal control environmentenvironment. As it relates to the Business Combination Material Weakness, we have and its ongoing internalwill continue to take actions to enhance the design of our business combination controls developmentwith the level of precision required to operate them in an effective manner. We will continue to enhance our management review control activities, including the review of inputs, assumptions and monitoring; (ii)reports produced by third-party specialists supporting the purchase price allocation accounting and the application of technical accounting principles.
To remediate the ITGC Material Weakness, we are enhancing the design of our ITGCs over the IT systems that support the Company’s revenue and related financial reporting processes, including, (i) developing and implementing additional training and awareness addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to settlement operations;user access; (ii) increasing the extent of oversight and verification checks included in operation of user access controls and processes; (iii) engaging a third-party to perform an independent assessment; (iv) deploying additional engineering,tools to support administration of user access; and settlement operations personnel; (v) developing a formal process level and monitoring controls(iv) enhancing quarterly management reporting on the remediation measures to ensure timely reconciliation of these customer related settlement bank accounts; and (vi) implementing new monitoring controls including additional analyses, reconciliations, and other post-closing procedures to help mitigate the risk that controls do not operate effectively.
We believe our remediation efforts resulted in the eliminationaudit committee of the previously identified material weaknessboard of directors. Although we intend to complete the remediation process as of December 31, 2021. While this material weakness has been remediated, we cannot assure you that we have identified all of our existing material weaknesses, or thatpromptly as possible, we will not be able to fully remediate the ITGC Material Weakness until these steps have been completed and the controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Except for the identification of the 2023 Material Weaknesses and related remediation efforts to date, there have been no changes in the future have additional material weaknesses. We have dedicated resources to the design, implementation, documentation and testing of our internal control over financial reporting. We will continue to evaluate the effectiveness of ourCompany’s internal control over financial reporting (as such term is defined in Rules 13a-15(d) and will continue15d-15(d) under the Exchange Act) during the fourth quarter of fiscal 2023 that have materially affected, or are reasonably likely to make changes that we believe will strengthen ourmaterially affect, the Company’s internal control over financial reporting to ensure that our financial statements continue to be fairly stated in all material respects.
Neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. In light of the material weakness that was previously identified as a result of the limited procedures performed, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses or significant deficiencies may have been identified.reporting.
Limitations on Effectiveness of Controls and Procedures
The effectiveness of any internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, no matter how well designed and operated, can only provide reasonable, not absolute assurance that its objectives will be met. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Item 9B. Other Information
None.During our last fiscal quarter, on December 12, 2023, Martha Cummings, a member of our board of directors, adopted a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408 providing for the sale from time to time of an aggregate of up to 340,241 shares of our Class A Common Stock. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until April 8, 2025, or earlier if all transactions under the trading arrangement are completed, but in no case earlier than one year or later than two years from December 12, 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this item is incorporated by reference to the definitive Proxy Statement for the 20222024 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended December 31, 2021.2023.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the definitive Proxy Statement for the 20222024 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended December 31, 2021.2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the definitive Proxy Statement for the 20222024 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended December 31, 2021.2023.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the definitive Proxy Statement for the 20222024 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended December 31, 2021.2023.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the definitive Proxy Statement for the 20222024 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended December 31, 2021.2023.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements
See Index to Consolidated Financial Statements at Part II, Item 8 herein.
2. Financial Statement Schedules
All schedules have been omitted because they are not required, not applicable, or not present in amounts sufficient to require submission of the schedule.
3. Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit Number | | Description | | Form | | File No. | | Exhibit Number | | Filing Date |
| 3.1 | | | | S-1/A | | 333-256154 | | 3.2 | | May 24, 2021 |
| 3.2 | | | | S-1/A | | 333-256154 | | 3.4 | | May 24, 2021 |
| 4.1 | | | | S-1 | | 333-256154 | | 4.1 | | May 14, 2021 |
| 4.2 | | | | S-1 | | 333-256154 | | 4.2 | | May 14, 2021 |
| 4.3 | | | | S-1 | | 333-256154 | | 4.3 | | May 14, 2021 |
| 4.4 | | | | S-1 | | 333-256154 | | 4.4 | | May 14, 2021 |
| 4.5† | | | | S-1/A | | 333-256154 | | 4.7 | | May 24, 2021 |
| 4.6† | | | | S-1 | | 333-256154 | | 4.8 | | May 14, 2021 |
| 4.7† | | | | S-1/A | | 333-256154 | | 4.9 | | May 24, 2021 |
| 4.8* | | | | | | | | | | |
10.1#* | | | | | | | | | | |
10.2# | | | | S-1/A | | 333-256154 | | 10.2 | | May 14, 2021 |
10.3# | | | | S-1/A | | 333-256154 | | 10.3 | | June 1, 2021 |
10.4# | | | | S-1/A | | 333-256154 | | 10.4 | | June 1, 2021 |
10.5# | | | | S-1/A | | 333-256154 | | 10.5 | | May 24, 2021 |
10.6# | | | | S-1/A | | 333-256154 | | 10.6 | | May 24, 2021 |
10.7# | | | | S-1/A | | 333-256154 | | 10.7 | | May 24, 2021 |
10.12# | | | | S-1 | | 333-256154 | | 10.12 | | May 14, 2021 |
10.13# | | | | S-1 | | 333-256154 | | 10.8 | | May 14, 2021 |
10.14# | | Offer Letter between the Registrant and Omri Dahan dated June 9, 2011. | | S-1 | | 333-256154 | | 10.9 | | May 14, 2021 |
10.15# | | Offer Letter between the Registrant and Kevin Doerr dated February 25, 2020. | | S-1 | | 333-256154 | | 10.10 | | May 14, 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference |
| Exhibit Number | | Description | | Form | | File No. | | Exhibit Number | | Filing Date |
| 3.1 | | | | S-1/A | | 333-256154 | | 3.2 | | May 24, 2021 |
| 3.2 | | | | S-1/A | | 333-256154 | | 3.4 | | May 24, 2021 |
| 4.1 | | | | S-1 | | 333-256154 | | 4.1 | | May 14, 2021 |
| 4.2 | | | | S-1 | | 333-256154 | | 4.2 | | May 14, 2021 |
| 4.3 | | | | S-1 | | 333-256154 | | 4.3 | | May 14, 2021 |
| 4.4 | | | | S-1 | | 333-256154 | | 4.4 | | May 14, 2021 |
| 4.5† | | | | S-1/A | | 333-256154 | | 4.7 | | May 24, 2021 |
| 4.6† | | | | S-1 | | 333-256154 | | 4.8 | | May 14, 2021 |
| 4.7† | | | | S-1/A | | 333-256154 | | 4.9 | | May 24, 2021 |
| 4.8 | | | | 10-K | | 001-40465 | | 4.8 | | March 11, 2022 |
10.1# | | | | 10-K | | 001-40465 | | 10.1 | | February 28, 2023 |
10.2# | | | | S-1/A | | 333-256154 | | 10.2 | | May 14, 2021 |
10.3# | | | | S-1/A | | 333-256154 | | 10.3 | | June 1, 2021 |
10.4# | | | | S-1/A | | 333-256154 | | 10.4 | | June 1, 2021 |
10.5# | | | | S-1/A | | 333-256154 | | 10.5 | | May 24, 2021 |
10.6# | | | | S-1/A | | 333-256154 | | 10.6 | | May 24, 2021 |
10.7# | | | | 10-Q | | 001-40465 | | 10.1 | | May 9, 2023 |
10.8# | | | | S-1 | | 333-256154 | | 10.12 | | May 14, 2021 |
10.9#* | | | | 10-K | | 001-40465 | | 10.9 | | February 28, 2023 |
10.10# | | | | S-1 | | 333-256154 | | 10.8 | | May 14, 2021 |
10.11# | | | | 10-K | | 001-40465 | | 10.16 | | March 11, 2022 |
| 10.16#* | | | |
10.17# | | Separation Agreement and Release between the Registrant and Omri Dahan, dated March 17, 2021. | | S-1 | | 333-256154 | | 10.11 | | May 14, 2021 |
10.18#* | | | |
| 10.19 | | | | S-1 | | 333-256154 | | 10.13 | | May 14, 2021 |
| 10.20†* | | Master Services Agreement by and between the Registrant and Square, Inc., dated April 19, 2016, as amended on September 1, 2016, October 18, 2016, December 24, 2016, June 30, 2017, August 2, 2017, October 1, 2017, April 1, 2018, June 6, 2019, September 20, 2019, February 7, 2020, November 18, 2020, November 18, 2020, March 13, 2021, May 21, 2021, and January 27, 2022. | |
| 10.21†* | | Amended and Restated Prepaid Card Program Manager Agreement by and between the Registrant and Sutton Bank, dated April 1, 2016, as amended on December 31, 2017, September 1, 2018, August 1, 2020, and July 1, 2021. | |
10.12# | | 10.12# | | | | 10-K | | 001-40465 | | 10.12 | | February 28, 2023 |
| 10.13* | |
| 10.14† | |
| 10.14† | |
| 10.14† | | | Master Services Agreement by and between the Registrant and Square, Inc., dated April 19, 2016, as amended on September 1, 2016, October 18, 2016, December 24, 2016, June 30, 2017, August 2, 2017, October 1, 2017, April 1, 2018, June 6, 2019, September 20, 2019, February 7, 2020, November 18, 2020, November 18, 2020, March 13, 2021, May 21, 2021, January 27, 2022, and March 1, 2023. | | 10-Q | | 001-40465 | | 10.4 | | May 9, 2023 |
| 10.15†* | |
| 10.16 | |
| 10.16 | |
| 10.16 | | | | | 10-Q | | 001-40465 | | 10.1 | | November 8, 2023 |
| 10.17† | | 10.17† | | | | 8-K/A | | 001-40465 | | 10.1 | | August 11, 2023 |
| 10.18† | | 10.18† | | Amended and Restated Prepaid Card Program Manager Agreement by and between the Registrant and Sutton Bank, dated April 1, 2016, as amended on December 31, 2017, September 1, 2018, August 1, 2020, July 1, 2021, and January 23, 2023. | | 10-Q | | 001-40465 | | 10.1 | | August 8, 2023 |
| 21.1* | 21.1* | | | |
| 23.1* | 23.1* | | | |
| 23.1* | |
| 23.1* | |
| 24.1* | |
| 24.1* | |
| 24.1* | 24.1* | | Power of Attorney (incorporate by reference to the signature page to this Annual Report on Form 10-K) | |
| 31.1* | 31.1* | | | |
| 31.1* | |
| 31.1* | |
| 31.2* | |
| 31.2* | |
| 31.2* | 31.2* | | | |
| 32.1** | 32.1** | | | |
| 32.1** | |
| 32.1** | |
| 32.2** | 32.2** | | | |
| 32.2** | |
| 32.2** | |
| 97.1* | |
| 97.1* | |
| 97.1* | |
| 99.1* | |
| 99.1* | |
| 99.1* | |
101.INS* | |
101.INS* | |
101.INS* | 101.INS* | | Inline XBRL Instance Document. | |
101.SCH* | 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. | |
101.SCH* | |
101.SCH* | |
101.CAL* | |
101.CAL* | |
101.CAL* | 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF* | 101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| |
101.DEF* | |
101.DEF* | |
101.LAB* | |
101.LAB* | |
101.LAB* | 101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
| |
101.PRE* | 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| |
101.PRE* | |
101.PRE* | |
104* | |
104* | |
104* | 104* | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |
| |
| † | † | | Certain confidential information contained in this exhibit has been omitted because it is both (i) not material and (ii) is the type that the Registrant treats as private or confidential. | |
| † | |
| † | |
| # | |
| # | |
| # | # | | Indicates management contract or compensatory plan, contract or agreement. | |
| * | * | | Filed herewith. | |
| * | |
| * | |
| ** | ** | | Furnished herewith. The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. | |
| ** | |
| ** | |
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| MARQETA, INC. |
| | | |
Date: March 11, 2022February 28, 2024 | By: | | /s/ Jason GardnerSimon Khalaf |
| Name: | | Jason GardnerSimon Khalaf |
| Title: | | Chief Executive Officer (Principal Executive Officer) |
| | | |
Date: March 11, 2022February 28, 2024 | By: | | /s/ Michael (Mike) Milotich |
| Name: | | Michael (Mike) Milotich |
| Title: | | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jason Gardner,Simon Khalaf, Michael Milotich, and Seth Weissman,Crystal Sumner, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | |
| Signature | Title | Date |
/s/ Jason GardnerSimon Khalaf | Chief Executive Officer and Director | March 11, 2022February 28, 2024 |
Jason GardnerSimon Khalaf | (Principal Executive Officer) | |
| | |
| /s/ Michael (Mike) Milotich | Chief Financial Officer | March 11, 2022February 28, 2024 |
| Michael (Mike) Milotich | (Principal Financial and Accounting Officer) | |
| | |
/s/ Amy ChangJason Gardner | Director | March 11, 2022February 28, 2024 |
Amy ChangJason Gardner | | |
| | |
| /s/ Martha Cummings | Director | March 11, 2022February 28, 2024 |
| Martha Cummings | | |
| | |
| /s/ Gerri Elliott | Director | March 11, 2022February 28, 2024 |
| Gerri Elliott | | |
| | |
| /s/ Helen Riley | Director | March 11, 2022February 28, 2024 |
| Helen Riley | | |
| | |
| /s/ Arnon Dinur | Director | March 11, 2022February 28, 2024 |
| Arnon Dinur | | |
| | |
| /s/ Judson Linville | Director | March 11, 2022February 28, 2024 |
| Judson Linville | | |
| | |
/s/ Christopher McKayKiran Prasad | Director | March 11, 2022February 28, 2024 |
Christopher McKayKiran Prasad | | |
| | |
| /s/ Godfrey Sullivan | Director | March 11, 2022February 28, 2024 |
| Godfrey Sullivan | | |
| | |
| /s/ Najuma Atkinson | Director | February 28, 2024 |
| Najuma Atkinson | | |
