Marqeta - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered accelerating growth and profitability: Net Revenue $150.4M (+20% YoY), Gross Profit $104.1M (+31% YoY; +22% normalized), TPV $91.4B (+29% YoY), Adjusted EBITDA $28.5M (19% margin), and near GAAP breakeven (Net Loss $0.6M). Growth outperformance was driven by stronger TPV, favorable mix, and lower adjusted OpEx; Gross Profit benefited from a one-time 8.6ppt accounting tailwind on network incentives.
• Wall Street estimates were beaten: Revenue beat by ~$10.1M ($150.4M vs $140.2M*), and EPS swung to ~$0.00 vs -$0.031*; Adjusted EBITDA of $28.5M far surpassed the company’s prior margin outlook (10–11%) and is supported by stronger volume and disciplined costs. Values retrieved from S&P Global*.
• Guidance raised materially: Q3 Net Revenue growth to 15–17%, FY 2025 Net Revenue growth to 17–18%, FY Gross Profit growth to 18–19%, and FY Adjusted EBITDA margin to 14–15% (vs 10–11% prior). Headwinds include a reversal of the network incentive accounting tailwind (2ppt drag in Q3; 4ppt in Q4) and timing of customer renewals; TransactPay adds 1.5ppt to Q3 and 2ppt to Q4 growth.
• Stock narrative catalysts: BNPL momentum with Visa Flexible Credential (Klarna OneCard), European expansion accelerated by TransactPay acquisition, and sustained margin improvement from cost optimization and value-added services traction.

What Went Well and What Went Wrong

What Went Well

• BNPL and lending use cases accelerated: top-10 BNPL customers saw TPV growth acceleration; flexible credentials enable pay-anywhere and improved adoption; Klarna OneCard supported by Marqeta and Visa Flexible Credential.
• Europe is a major growth engine: TPV more than doubled YoY; TransactPay acquired (closed Jul 31) to deliver program management and EMI license support across UK/EU, enabling larger opportunities and uniform offerings vs North America.
• Profitability inflection: Adjusted EBITDA reached an all-time high ($28.5M; 19% margin) with lower adjusted OpEx (-7% YoY) driven by optimization, investment timing, and one-off tax benefits; GAAP Net Loss ~$0.6M with $8M interest income.

What Went Wrong

• Accounting tailwind reverses near term: the revised accrual method for network incentives added 8.6ppt to Q2 Gross Profit growth but will subtract ~2ppt in Q3 and ~4ppt in Q4, weighing on reported growth optics despite underlying strength.
• Mix impact: higher TPV from larger non-Block customers moved pricing into lower tiers, modestly compressing gross profit take rate (>11bps, down 0.3bps QoQ) and Gross Margin (69% vs 71% in Q1), even as overall profits improved.
• Ongoing bank partner pace/regulatory digestion: operational tempo is improving but remains slower than ideal; embedded finance sales cycles are longer than initially expected, pushing some launches later.

Transcript

Speaker 2

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Marqeta Second Quarter 2025 earnings conference call. At this time, the lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will open the line for your questions. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Stacey Finerman, Vice President of Investor Relations. Thank you, and you may begin.

Speaker 1

Thanks, Operator. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website, including our annual report on Form 10-K for the period ended December 31, 2025, and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the time of this call, and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures.

Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which are available on our Investor Relations website. Hosting today's call is Mike Milotich, Marqeta's Interim CEO and CFO. With that, I'd like to turn the call over to Mike to begin.

Speaker 0

Thank you, Stacey, and thank you for joining us for Marqeta's Second Quarter 2025 earnings call. To start, I'll briefly highlight our Q2 results, followed by our progress enabling innovation and business expansion for our customers. I'll conclude with more details about our Q2 financial results and our expectations for the second half of the year. Our second quarter results demonstrate our ability to deliver strong growth while simultaneously increasing our adjusted EBITDA through efficiency and scale. Total processing volume, or TPV, was $91 billion in the second quarter, a 29% increase compared to the same quarter of 2024. Q2 net revenue of $150 million grew 20% year over year, driven by the wide variety of use cases we enable for our customers. Gross profit was $104 million, a 31% increase versus Q2 2024, resulting in a gross margin of 69%.

This includes an 8.6% growth benefit from the revised accounting policy for estimating and recognizing card network incentives. Adjusted EBITDA was $29 million in the quarter, translating into a 19% margin, fueled by both gross profit growth and operating expense discipline. This all-time high for our adjusted EBITDA demonstrates the significant progress we have made on our path to profitability, falling just shy of GAAP net income breakeven for the quarter. Our focus this year has been on expanding and deepening our customer relationships while enabling their continued growth through innovative programs, value-added services, and seamless geographic expansions with consistent and effective execution. One area of strength has been our continued broadening of lending and Buy Now Pay Later use cases. While BNPL has expanded over the last five years, Marqeta remains at the forefront of helping our BNPL customers deliver innovative and user-friendly solutions.

In the early days of our company, we were well ahead of other providers in connecting BNPL providers with retailers via instant issuance virtual cards, enabling seamless payment experiences without costly backend integrations. While others eventually caught up on instant issuance, we continued to leap ahead, enabling BNPL providers with pay anywhere card solutions where they provide their end user the ability to pay later anywhere cards are accepted. Most recently, we have enabled flexible payment experiences for consumers by collaborating with partners to help launch Visa flexible credentials to the market, where we were the first issuer or processor to deliver this functionality in the U.S. In June, we supported Klarna in their launch of the Klarna OneCard, making them the second BNPL provider to offer consumers a flexible credential-enabled card.

This builds on years of collaboration with Klarna and demonstrates how customers can grow on our platform, both in offerings and geographies. Over the past four years, Klarna has expanded from three programs to over 10 programs across many countries. In the second half of this year, we will continue to innovate in BNPL. As we announced at last year's Money 2020, we have been building a new capability that leverages our issuing expertise and BNPL relationships to capitalize on evolving industry trends. This capability embeds within apps and allows consumers to receive multiple BNPL options at purchase while paying with their existing debit card, increasing both distribution and user engagement. We currently have multiple issuing partners and BNPL customers integrating and testing this new service with the goal of a limited release before the 2025 holiday season. The intent is for a broader launch in 2026 with additional partners.

Not only are we helping our customers expand through new innovative programs, we are also delivering more value through additional services. While showcasing the breadth of our offering, value-added services help make our relationships more durable and bolster the economics of our business. While the growth is coming off a small base, in Q2, our value-added services' gross profit more than doubled on a year-over-year basis. These value-added services cut across geographies and use cases as customers further rely on Marqeta for our expertise. A product that is seeing great traction and adding value for customers is real-time decisioning. We built our real-time decisioning capability to be issuer-centric and allow customers to create rules and controls to manage transaction fraud based on the expansive and diverse underlying transaction information.

Currently, over 40 customers who contribute almost 20% of our non-block TPV are using real-time decisioning, which is a major contributor to our value-added services' gross profit growth. We are actively enhancing this product with artificial intelligence and machine learning capabilities to help evaluate transaction risk in real time during the authorization process. This allows customers to customize risk tolerance thresholds and automate transaction acceptance, all with millisecond-level response times. We expect machine learning to continuously improve fraud detection through self-learning models that adapt to emerging threats. One of our longstanding and top five customers in Europe recently tapped Marqeta for this product. While the customer originally worked with a different partner, they needed more flexibility to meet the differing needs of the various geographies in which they operate.

They chose Marqeta not only for the ease of integration, but more importantly, because they believe the flexibility and effectiveness of the tool will help them unlock more growth for their card program on our platform. Europe remains a strong driver of our growth, where TPV continues to more than double year over year. Our European business is diverse and driven by many use cases, just like our business in North America. Neobanking, lending including BNPL, and expense management use cases are each growing over 100% year over year in Europe. This growth is driven by both local customers thriving and multi-regional customers expanding into Europe. One of our fastest growing local customers is planning to expand into nine new markets in Europe, bringing their total to 26 markets. Further, a U.S.-based expense management customer is expanding to Europe.

These are great examples of the strength of our modern card issuing platform, which allows for greater flexibility and easier expansion into new markets. Now our platform capabilities in Europe are going to further expand with the acquisition of TransactPay, enabling even deeper engagement and delivering more value for our customers. After receiving required regulatory approvals, we completed the acquisition of TransactPay on July 31. We expect this business combination will drive value in three ways. First, it'll enable us to deliver more program management services for customers operating throughout Europe. Second, it'll position us to support larger customers who are looking to have a single provider for processing, program management, and the EMI license. Third, it allows us to standardize our offering across geographies and have more control of delivering solutions that are comparable to North America.

The acquisition is already driving significant customer interest, and we are already in market with our joint value proposition since Marqeta and TransactPay have long worked together as partners. We expect further integration of offerings over the coming quarters. To wrap up, before moving to the details of our financial results, the business has strong momentum as we head into the second half of the year. Our ability to continuously enable innovation in lending use cases, including Buy Now Pay Later (BNPL), is one of the larger drivers of our TPV growth, with more expansion opportunities to come in the next few quarters. As our business and our platform matures, we are expanding the services available and finding new ways to add value and deepen our customer relationships.

Finally, our Europe TPV continues to grow over 100%, and with the TransactPay acquisition now complete, we will have a more uniform program management offering across North America and Europe. All these expansions of our capabilities, when combined with the breadth of our card issuing expertise, positions Marqeta well to power our customers' expansion into new programs, use cases, and geographies. Now let me transition to our Q2 financial results. Q2 was a very strong quarter, significantly outperforming our expectations. Q2 TPV growth accelerated by almost three points from Q1 to over 29%. Net revenue and gross profit growth outperformed our expectations by approximately seven points, driven by much higher volume and a more favorable business mix than we anticipated.

In addition, our adjusted operating expenses were much lower than expected due to better execution, but also investment timing delays, delivering a much higher adjusted EBITDA of $29 million in the quarter. This business outperformance, combined with the benefit of increased discipline in managing stock-based compensation over the past couple of years, brought us close to GAAP profitability breakeven in the quarter, demonstrating the profitability potential of our business. Q2 TPV was $91 billion, an increase of 29% year over year. This $91 billion of TPV was more than $20 billion higher than Q2 of last year, demonstrating our ability to continue to grow the business at scale. Q2 non-block TPV grew nearly three times faster than block TPV, fueled by a diverse set of use cases and customers.

Financial services, lending including Buy Now Pay Later (BNPL), and expense management use cases continued to drive the majority of our TPV growth. Growth within financial services remains steady with last quarter, which means it is now growing a little slower than the overall company. Block growth within this use case remains as expected, and our fast-growing non-block neobanking customers continue to grow approximately five times faster than block. Expense management growth was also consistent with last quarter and remains over 30% year over year, driven by our customers sustaining strong end user acquisition by leveraging modern technology to deliver compelling value propositions. Lending including Buy Now Pay Later, year over year growth meaningfully accelerated versus Q1 to a level that is much faster than the company as a whole. In fact, Q2 growth accelerated versus Q1 for each of our top 10 customers within this use case.

The growth acceleration was primarily driven by a combination of geographic expansion on our platform, increased adoption of pay anywhere card solutions, in some cases helped by newly available flexible network credentials, increased distribution through wallets, and strong user growth among SMB lending solutions helped by new value propositions. On-demand delivery growth accelerated from last quarter, but remains in the single digits due to the maturity of this use case. Q2 net revenue was $150 million, growing 20% year over year. The growth accelerated by two points versus Q1 as growth accelerated in each of the four major use cases. Our Q2 net revenue growth acceleration versus Q1 and the outperformance versus expectations were driven by our strong TPV growth, as our net revenue take rate of 16 basis points was in line with last quarter.

Block net revenue concentration in Q2 was consistent with last quarter, rising 20 basis points, rounding to 46%. The concentration is down one point from Q2 2024. We continue to look for ways to add value and support our largest customer with their growth objectives. Non-block net revenue growth was similar to last quarter and remains nearly 10 points higher than block net revenue growth, primarily driven by strong performance of our larger non-block customers and the ramp-up of new programs launched since the start of 2024. Q2 gross profit was $104 million, resulting in year-over-year growth of 31% and a gross margin of 69%. As a reminder, we revised our accounting policy for estimating and recognizing card network incentives starting this quarter.

We are now accruing incentives each quarter based on the forecasted annual contract tier we expect to achieve, as opposed to booking the incentives each quarter as they are earned and moved through the progressive tiers. As a result, Q2 gross profit growth was lifted by 8.6 points due to the difference in methodologies for the year-over-year comparison. Because our two most significant network incentive contracts both have contract years that run April to March, the change in methodology was a benefit in Q2, but will be a drag on growth in the next three quarters. Excluding the year-over-year accounting differences, the normalized growth in Q2 would have been over 22%. Normalization aside, the underlying business growth in Q2 was approximately six points higher than we expected at the end of last quarter.

By far the largest factor driving the gross profit outperformance was strong TPV growth across all our use cases, particularly lending including Buy Now Pay Later. In some cases, the higher TPV meant customers moved into a lower price tier, but that was a small impact compared to the volume benefit. Favorable business mix also was a contributor to the gross profit outperformance, as the TPV outperformance was all non-block and skewed a bit towards higher gross profit take rate use cases. Finally, a true up of an underpaid network rebate earned in prior periods lifted the Q2 growth rate by one point. After normalizing for the impact of the revised accounting policy for network incentives, non-block gross profit growth continues to grow faster than the overall company and is growing a little faster than non-block revenue growth.

Our gross profit take rate was over 11 basis points, 0.3 points lower than last quarter due to our TPV outperformance being mostly driven by our larger customers who have better pricing. Q2 adjusted operating expenses were $76 million, shrinking 7% year over year. The year-over-year change was approximately 10 points lower than expected, with a little over half, or approximately $4.5 million, due to a combination of investment timing delays and non-recurring benefits, while a little less than half was driven by strong execution of optimization initiatives and investment discipline. We had non-recurring tax benefits of $1.1 million, largely due to state sales tax refunds related to the resolution of audits going back several years. These audits lowered adjusted operating expenses because they are related to sales taxes, not income taxes.

The investment timing impacts are primarily driven by delays in headcount addition later within Q2 and into Q3, as well as shifts in a few marketing initiatives to the second half of the year. The lower adjusted operating expenses that are more ongoing in nature are driven by better organizational design in terms of being less top-heavy and more geographically diverse, less reliance on outside professional services to support our key initiatives, and successful efficiency initiatives within our product and technology organizations that are shifting their time to more value-added activities, leading to a higher level of internally developed software capitalization. As has been the case for the past several quarters, we continue to increase efficiency in the technology costs we incur to operate our platform.

Also, as a reminder, the year-over-year growth in our adjusted operating expenses was always expected to be the lowest in Q2 due to an easier year-over-year comparison. Q2 adjusted EBITDA of $29 million, a margin of 19%, were new all-time highs for both metrics as we make significant progress on our profitability. We believe the adjusted EBITDA margin based on gross profit, which was 27%, is a useful data point to illustrate the profitability potential of our business. The Q2 GAAP net loss was a mere $0.6 million, which included $8 million of interest income. We ended the quarter with a little over $820 million of cash in short-term investments before the closing of the TransactPay acquisition. Our share repurchase activity remained ongoing, and we continue to believe the current valuation does not fairly represent the company's value or the market opportunity ahead of us.

In Q2, we repurchased 35.2 million shares at an average price of $4.62. When combined with our Q1 repurchase activity, we've repurchased 61.5 million shares at an average price of $4.45 so far this year, which is more than a 12% reduction in the outstanding shares as of the 2024 year-end. As of June 30, we had $107 million remaining on our buyback authorization. Now let's transition to our expectations for the second half of 2025. As Q2 demonstrated, the business is on a nice trajectory, and we are raising expectations for Q3, Q4, and full year. TPV growth remains strong across all verticals, particularly lending including BNPL and expense management, but some macroeconomic uncertainty remains based on uneven indicators. Therefore, we now expect full-year 2025 revenue growth, gross profit growth, and adjusted EBITDA margin to each be three to four points higher than what we shared last quarter.

Also, keep in mind that at the start of the year, we said Q2 had the easiest year-over-year comparison. There are three items to note for the second half. First, the impact of our revised accounting policy for network incentives will shift from a tailwind in Q2 to a headwind in both Q3 and Q4. We expect the impact on gross profit growth to be two points of drag in Q3 and four points of drag in Q4. TransactPay will be a contributor to the business starting in August, lifting both revenue and gross profit growth by an expected 1.5 points in Q3 and two points in Q4. At the beginning of the year, we anticipated executing two renewals mid-year. We made this assumption knowing that we normally execute renewals several quarters before contract expiration.

Now that we are actively engaged in discussions with the customers, we still expect the renewals to be executed prior to contract expiration, but we now anticipate them to be executed later in the year, which helps Q3 growth. Therefore, we now expect Q3 and Q4 net revenue to grow between 15% and 17%. As a result, we expect full-year 2025 revenue growth to be between 17% and 18%. Gross profit growth in Q3 is expected to be 15% to 17%. Q4 growth is expected to be three points lower than Q3 as the drag from the revised network incentive accounting policy increases and the contract renewals start to impact growth, partially offset by the contribution of new programs continuing to ramp. Therefore, we expect full-year 2025 gross profit growth to be between 18% and 19%. We continue to be focused with our investments in platform capabilities and innovation.

Based on our success improving the efficiency and effectiveness of our resources and technology, Q3 and Q4 adjusted operating expenses are expected to grow in the mid-single digits. Q3 adjusted EBITDA margin is expected to be 12% to 13%, and Q4 should be one point higher than Q3 as gross profit rises during the holiday season. Therefore, we expect the full-year 2025 adjusted EBITDA margin to be between 14% and 15%. This equates to over $85 million in adjusted EBITDA in 2025, which is approximately $30 million more than what we anticipated at the start of the year. In conclusion, our strong financial results in Q2, as well as a small delay of a couple of key customer contract renewals to later this year, have led to us significantly raising our full-year 2025 expectations for net revenue, gross profit, and adjusted EBITDA.

The current trajectory of the business, the additional platform capabilities on the roadmap to be delivered in the second half, and the completed acquisition of TransactPay make us confident that we can deliver on our 2025 growth objectives while rapidly improving the profitability of the business and position the company for long-term success. I will now turn the call back over to the operator for questions.

Speaker 2

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask analysts to limit themselves to one question and a follow-up so that others may also have an opportunity to do so. One moment, please, while we poll for questions. Our first question comes from Tien-Tsin Huang with JPMorgan Chase & Co. Please proceed with your question.

Speaker 0

Hi, really good clean results here. I wanted to ask, Mike, just on the visibility in general, given what you've learned so far, year to date, it seems like the visibility is a little bit better. I just wanted to check you on that, given the update on the renewal and some of the TPV and mixed trends. I'm curious if there's any change in sales cycles, given a lot of activities you called out around credit and BNPL. How are you feeling on visibility?

Yeah, we feel pretty good. Obviously, there's still some amount of uncertainty out there from a macro perspective, particularly some of the spend and employment trends are a little, things are shifting quite a bit. Overall, the trajectory of the business is really solid. The pickup in our TPV in the quarter, we did not expect that when the quarter started, that growth would accelerate by 3%. Lending and BNPL in particular really performed very well. As I mentioned, each of our top 10 customers in that use case, all their growth accelerated, their TPV growth. The customers are doing well. We're having good conversations in terms of pipeline, and we have some good programs that are launching later this year. We feel pretty good about the visibility for the business and what we're sharing as our expectations for the second half.

Okay, good. Just my quick follow-up, and you mentioned value-added services, that there's been a bigger theme across payments in fintech. I realize it's probably small, but is this a new growth sector that we should be asking you more about here, Mike, in the coming quarters? Just curious where that stands with you in the priority list.

Yeah, it's fairly high on the priority list. I would say that it's still fairly small in the grand scheme of things, but it's growing quickly. This really just has to do with the maturity of our business and our platform. A couple of years ago, particularly during the pandemic, the business was really booming and growing incredibly fast. A lot of our energy and efforts were just trying to help the platform sort of keep up with all our customers and make sure we deliver reliably for customers. Now that we've settled in and we've sort of reached a certain level of scale, we can spend a little more time sort of moving horizontally, if you will, on the platform and starting to build out the services that go around our processing, our core offering.

The other aspect to this tension that's important is as we move more and more into embedded finance and talk to those types of prospects, because they're not payment experts and they're really in another business as their core business, they're really looking for a full solution. Whereas in the fintech space, people wanted a little bit of an a la carte menu, if you will, where they could sort of pick and choose what capabilities they took from you, and they might piece together things from other parties as well. In embedded finance, they really want that holistic solution. That's why we're doing things like building a white label app. We're investing heavily in these kind of risk capabilities, tokenization capabilities. We're enhancing our reward solutions, not only for credit, but we're starting to integrate that into debit because we're getting some interest from customers.

We're really trying to bring that whole package. Value-added services should become a bigger and bigger driver of growth going forward.

All right, good. I appreciate all that. Thanks, Mike.

Thanks, Tianshen.

Speaker 2

Our next question comes from Ramsey Clark El-Assal with Barclays. Please proceed with your question.

Speaker 0

Hi, thanks so much for taking my question this evening and great results. I wanted to ask about the increase in your adjusted EBITDA margin guidance, which is a substantial increase. You did walk through quite a few factors from just flow-through on the top line, potentially mix cost efficiencies, perhaps renewals timing. I'm just curious if you could help us rank order that cluster of drivers a little bit so we can determine what are the core sources of upside here.

Sure. Thanks for your question, Ramsey. First, you always want to drive better profit by driving the top line. Strong gross profit growth is always going to be our preference in terms of how we deliver that. We really outperformed there, and it really was driven by strong TPV. To some degree, the mix of the TPV was also favorable. Some of the outperformance came from higher gross profit take rate customers, but really, the bulk of it was just very high quality driven by volume, which is always what you want to see. You just combine that with much lower expenses. As I mentioned, Ramsey, roughly half of that is more timing and one-time in nature. We had a tax benefit, but also we did delay some of our investments. Some of this just has to do with when I stepped into the interim role.

Myself and the rest of the executive team really looked at the investment plan and gave it one more look. That kind of delayed our hiring just by a couple of months, but that was enough to push some of the hiring. We had a lot of additions late in Q2 and they're spilling into Q3. Our headcount was just a little bit lower than we would have thought otherwise. Also, as we look at the year and some of the new capabilities coming in the second half, we've delayed some of our marketing as well. There are some timing issues to this. Also, on top of that, we're just doing a really great job executing on making things much more efficient and just doing things much more effectively. Part of that is AI.

We're helping people be a lot more efficient, but some of it is just we're starting to have more tools, more processes to help everyone be more effective. That's coming in the form of, across the organization, but particularly in engineering, where in engineering, when we look at that, we have people really work in three buckets, the way we think about it. We have people who are just keeping the platform running. We have people who are improving what exists, making incremental changes. Then you have people building new capabilities. The new capabilities really are what drive a lot of the capitalization also of those efforts. As we're getting people to be more efficient, their time is shifting more to building new capabilities, which is exactly what we want.

That's also helping us lower EBITDA in addition to things like how we work with the technology providers who support our platform. We're just getting a lot more efficient in how we utilize those players to make sure that we're getting the full benefits of our scale with those players.

Thank you for that. One quick follow-up from me on the regulatory environment. I just wanted to check in to see whether, you know, I know in the past, some of your bank partners' sort of operational tempos slowed down a bit in response maybe to regulatory scrutiny. I'm just curious whether you're seeing any changes now. We seem to be in a less highly regulated environment. Is that contributing at all to any of the sort of upside that you're showing here, or is that still kind of business as usual?

I would say it's more business as usual. That wasn't a source of upside. I would say, although you're right, the environment has changed a little bit, but things don't pivot really quickly with the banks. I would say it's more that they're starting to emerge from the fog, if you will. It's getting a little better, but it's still a little bit slower than we would like, but we're making good progress. We are, in general, sort of partnering just better, like better communication, better coordination. That helps. We think in the next couple of quarters, we'll continue to make more strides there. For now, it's a small difference. It's not a big factor.

Got it. Thank you very much.

Yep.

Speaker 2

Our next question comes from Timothy Edward Chiodo with UBS Investment Bank. Please proceed with your question.

Speaker 0

Great, thank you. I want to talk a little bit about the broader Visa flexible credential topic, but also expanding that a little bit to just the topic of being able to do BNPL via a card in general. Mike, correct me if I'm wrong, but I think maybe two ways that we could break it down is the pre-purchase decision and then the post-purchase or the retroactive BNPL. I was wondering if you could take us through just some of the mechanics. What's different in terms of the pre-purchase or the toggling ahead and then the post-purchase decision? My understanding is that you're currently supporting both. Clearly, Cash App Card has the retroactive BNPL product. Maybe you could talk a little bit about the mechanics there. Lastly, though, if you don't mind, the interchange. Is this debit, credit?

Does it depend on what you toggled and how that interchange rate might evolve or be some sort of a hybrid down the road?

Thank you, Tim. You always have good questions, challenging questions for us. On the first one, I would say a lot of the activity we're talking about is more in the, like, I guess, I would say the post-purchase is not necessarily as impactful for us. I would say it's more the pre-purchase activity. What used to happen in pre-purchase, Tim, is that one of the use cases used to be, okay, I haven't even gone to the merchant yet, but I know I'm going to go make a large purchase, say a $500. I know I'd like to buy now, pay later. I'd go into the app or the website of my preferred provider and sort of ask them to allow me to finance that. They would essentially generate a card for that person to walk in and use for that purchase.

That was a classic kind of pre-purchase mechanics of how it worked. Now what's happening more and more is our providers are just putting cards into your hand that is the combination of a debit card and something that you can use buy now, pay later. It's a little more seamless in terms of how the user communicates to say, okay, I'm going to pay in full or I'd like to pay in installments. It's just a much cleaner user experience. That's where the flexible credential comes involved. We're seeing now, we're supporting two customers with that. We're seeing good performance, strong adoption. Clearly, the value proposition is resonating. In terms of your question on interchange, it does depend on what happened with the transaction, how they chose to pay. There is a component of the interchange that then becomes more credit-oriented based on the flexible credential.

We are seeing with those flexible cards that some of the qualification is for credit interchange.

Excellent. Thank you, Mike.

Yep. Thanks, Tim.

Speaker 2

Our next question comes from Darrin David Peller with Wolfe Research. Please proceed with your question.

Speaker 0

Guys, thanks. Mike, I just want to touch on the international success you're having in Europe in particular, and now on the back of TransactPay in particular. What do you foresee as the potential over the next year and a half or so? Just when we think about what your capabilities are now around program management capabilities there, what it means for the business, both in terms of your growth opportunity there above and beyond your anchor customers, but also your investment needs in those areas. On the topic of investments and profitability that I know I think was brought up earlier, obviously a big beat on EBITDA. I'm curious if your view of GAAP profitability by the end of the, I think it was the end of 2026, has changed at all. Maybe you moved up a little bit. Thanks, guys.

Yeah, thank you, Darrin, for your question. Yes, in terms of international, the bulk of our international business is in Europe. We operate in Canada, Australia, a few other markets, but the bulk of it is Europe. As I mentioned, it continues to grow over 100% and it has for many quarters now. What's interesting is both financial services, lending and Buy Now Pay Later, and expense management, all those use cases are all growing over 100%. It's not just a narrow area of success. We're really having broad-based success there. What we really are hoping or what we believe will be the benefit of TransactPay is that there are really three areas. One is that we haven't offered program management in Europe in the past. Not only was our take rate lower, but our ability to add more value and more holistically support the customer was not there.

We think even business that maybe last year we won the processing, next year a similar prospect like that would take not only processing, but program management from us. That's just incremental value that we would capture from each customer. The second area is that the much larger players in the market are looking for a single provider who provides processing, program management, and the license, the EMI license that you need. In some ways, we were shut out of the biggest opportunities in the market because we didn't have the full package. There is also going to be a part of the market now that we feel we can serve effectively that was hard for us to do before.

The third piece that's also very important is because it now makes our offering in Europe much more comparable to North America, it's much easier for customers to move on either side of the Atlantic, if you will. Whether you're a European customer now and you want to come to the U.S., it'll feel more similar. If you're a U.S. or Canadian-based customer and you go to Europe, we'll be able to support those customers in a much more similar way, which not only makes it easier for them, but also makes it much more likely that we capture the business. That's what we're really excited about, what TransactPay can do. We're already harmonizing our go-to-market motion so that we show up as one company, as early as this week. We're going to take the next couple of quarters to integrate the rest.

In terms of the investment needs, our investments are really focused on a couple of different areas. The platform is always going to be the first one. We're investing in a lot of different capabilities. I would say the focus area this year has been around banking and money movement capabilities, so different account types, different ways to send and receive money, bill pay type capabilities. We're building out those types of solutions that our customers can utilize. We're enhancing our credit platform. We're getting more volume running through. We're enhancing the rewards capabilities associated with it. We're also enhancing a secured card and more of a charge card type capability, so that we have those kinds of capabilities. The front end, the white label app, just again bringing that user experience component also to our value proposition. I would say those are the areas where we're spending the most.

I would say some in value-added services, although the investment in value-added services really stepped up probably last year, not as much of an increase this year. We're just starting to see the fruit of those investments. We're getting just a lot more efficient in the way we operate. That's what's driving a lot of the expense savings and therefore driving the EBITDA to levels that are much higher than we expected. On your last question, you're right that we are ahead on our profitability. We do believe that we had said before we thought we would exit 2026 GAAP profitable. We now believe that, or we would be GAAP break even, sorry. We now believe that the full year 2026, we will be GAAP break even, and that's without our assumptions for our gross profit in dollar terms changing much.

Our number, our volume is performing better for now, but I would say it's not enough of a trend where we're sort of changing the trajectory over the longer term. The delays in the renewals that I highlighted, they don't really affect next year. It's really just a timing factor between when they occur in 2025. It doesn't really affect 2026. Our views of 2026 gross profit haven't really changed. We're ahead on profitability, and you put those two things together, we do think we can be GAAP break even for the year.

That's great. It's great to hear, Mike. Thanks for the help.

Yep.

Speaker 2

Our next question comes from Sanjay Sathrani with Keefe, Bruyette & Woods. Please proceed with your question.

Speaker 3

Hi, this is Vasundhara Govil for Sanjay. Thank you for taking my question. I guess, Mike, you called out strength in the BNPL vertical and credit. I was expecting you'll also call out crypto as a driver, given just the renewed interest in the space. Anything to call out in terms of the sales pipeline or demand picking up in that vertical?

It's a good question. Good to hear from you, Vasu. That use case, I would say, has been fairly volatile over the last couple of years, as you can imagine, with the ups and downs of the perception in that market. It is definitely performing better. As we announced, I believe, last quarter of the year or the quarter before, BitPanda, who's a great customer of ours, is starting to get up and running in Europe, which is also helpful. The solution we have in crypto right now is that you have a card that allows you to transact essentially in the ecosystem with fiat currency, so no one else has to change the way it works, but your funding source is more of a crypto funding source, and that's done more like as an FX conversion by the issuer.

We think that is a very compelling use case, even more so today, not just for crypto, but also for stablecoin. If stablecoin gets adoption, and there's a lot of people who are talking about stablecoin, I think for the whole ecosystem to evolve, it takes time. It's going to be a couple of years, I guess, in my view, before merchants on a broad basis would be accepting those kinds of forms of payment. In the meantime, we think the solution that we've already had in market for a couple of years is a very good option for those who maybe want to take advantage of stablecoin.

To be honest, when it comes to stablecoin, just since I brought it up, we don't think that's going to be really impactful to our business, at least in the near term, just because of the markets we operate in, more in North America and Europe. We're not huge in cross-border flows. We're probably less exposed to some of the initial use cases of stablecoin, but it is an area we're looking at investing and partnering. For now, we feel like we do have a good solution for that space.

Great, thanks, Mike. That was great color. For my follow-up, I wanted to revisit your efforts about selling into traditional banks and how that's going. I know that was something you guys back at the investor day sounded optimistic about. I am just curious if you're getting any traction on that front.

I would say the conversations continue to be ongoing. At the time of our investor day, what we said was we thought it was probably about five years out. That was about a year and a half ago. I'd say we still feel like it's still a ways into the future. The banks are fairly cautious, and there's probably some modernization that needs to be done on their side before we could really effectively work together. We still think it's a ways off, but there is dialogue. There is some activity. Our plan is to try to get our foot in the door with maybe some small or very specific use cases. That could happen maybe sooner rather than later in sort of very small, very specific niches of the business.

To really support them in a much broader way from a processing perspective, we still believe is several years away.

Thank you, Mike.

Yep, thanks, Vasundhara.

Speaker 2

Our next question comes from Nate Sensen with Deutsche Bank AG. Please proceed with your question.

Speaker 0

Hi, thanks for the question. Last quarter, you kind of talked and gave us a breakdown of TPV by low, medium, and high discretionary spend. You pointed out there was no meaningful shift in Q1. Just wondering if there's any update to that breakdown for Q2 or maybe a month or so here into Q3. I think you mentioned in response to Tien-Tsin's question that there was some shifting spending patterns. Just wondering what specifically those were.

No noticeable shifts to point out. As I mentioned, the TPV outperformance that we saw was fairly broad-based. Maybe the only use case that stood out more than the others was lending and Buy Now Pay Later (BNPL). Even within that, as I'm sure you've heard in the market, some of the big growth areas within Buy Now Pay Later (BNPL) are actually areas that are not highly discretionary. As you give people more of a card product that's both a debit and a Buy Now Pay Later (BNPL) card, and as consumers get more used to using those use cases, they're applying it many more places where cards are accepted, not just the traditional retail and e-commerce where that use case began. There aren't really noticeable shifts.

It's really just better performance by our customers, and the use cases that we support are just really resonating in the market, both for commercial like expense management, but also neobanking and lending and Buy Now Pay Later (BNPL).

Yeah, makes a ton of sense and appreciate the color. Wanted to ask another one on Buy Now Pay Later. Great to hear all of the success there, including the Klarna OneCard. You mentioned in the prepared remarks some new Buy Now Pay Later capabilities that multiple providers are testing with new releases and in-app options that you think are going to be launched on a more broad basis in 2026. Any more color on that specific product capability, what Marqeta is providing, and kind of what you think the benefit for both Marqeta and your BNPL customers could be as that gets fully rolled out?

Yeah, so what our vision for this product is that in our view, there's no reason why Buy Now Pay Later (BNPL) couldn't be a capability that's on any debit card product as a feature of the product. Think about this, when it does, you actually get offers from multiple providers. Think of this as you want to make a transaction and you're on our platform providing this service, and you as a consumer, then if you say within the app, I would like to Buy Now Pay Later, then it might bring up multiple providers that say, here's our offer, and maybe one of them offers you to pay in full or interest-free, and another one offers you to pay over six months at this rate, and you would get choice.

What this does is for our issuing partners, it just differentiates their product and allows them to offer more value to their consumers. It just becomes a better value proposition for them. They get higher engagement. For our Buy Now Pay Later customers who are partners in this effort, we're really bringing them distribution. These are our users that then in transactions that they maybe not have had the opportunity to participate in, that now they are. We really see it as a win-win. It's sort of a two-sided platform that we're building, and we have a couple of partners on both sides who are testing, and we're trying to, because the holiday season is always a big time for this type of use case, be there in a limited release by the end of this year and then roll it out more broadly next year.

That's the vision for the product, and we think it has a lot of potential because where you can also see it going is there are also more and more players who provide lending for very specific types of use cases. This really could become something very powerful where, you know, the consumer, depending on what they're buying, they might see offers from different types of players, and that gives them the flexibility they want and brings the distribution to our BNPL partners.

Exciting stuff. Thanks, Mike.

Yep.

Speaker 2

Our next question comes from Craig Jared Maurer with FT Partners. Please proceed with your question.

Speaker 0

Thanks. Hey Mike and everybody. Wanted to ask about how the pipeline for credit is building and where you are with the launches with American Express. Thanks.

Yep, thanks Craig. Appreciate your question. We feel good about where our credit business is. I would say the focus over the last quarter has been integrating with AMEX, and we're making good progress. I would say we're very close to certification and being ready to go live. I would say we're making good headway there. The second area was the migration we were doing for Perpay, which is a consumer credit card. The Perpay migration is now 97% complete as of the end of July. It's essentially done.

There's a few accounts left to move over, but we feel really good about not only now we're supporting Perpay as a consumer credit proposition on our platform and it's growing nicely, but we also demonstrated our ability to do a migration in credit, which is much harder than debit, just because there's a lot more variables that you need to take into account. We feel good about where things are. We still have another co-brand that we announced in February with an airline that we still expect to launch later this year. We're having good conversations about our pipeline. I would say what's important is what we're trying to do is a little bit different in terms of the value proposition that we're offering people, where they have a little bit more control of things and they're using dynamic rewards.

We're having a lot of good conversations and there's some interest, but we're not rushing. We feel like in credit when you rush, some bad things can happen. The pipeline is good, but no exciting news to share this call.

Okay, thank you.

Speaker 2

Our next question comes from James Eugene Faucette with Morgan Stanley. Please proceed with your question.

Speaker 0

Hey Mike, thanks for all the details and nice work here. Wanted to ask just on your comments around delayed investment. On the one hand, it seemed like, you know, obviously that benefited this quarter. It seemed like you indicated that there was just some delayed hiring maybe because of uncertainty in the macro earlier in the quarter. On the other hand, you're suggesting that maybe we're going to be on a lower OpEx run rate for end of 2026. This gives you more confidence to be GAAP profitable. Can you just help us parse kind of what's happening there and what your current state of mind is? Has there been any kind of more sustained changes in investment priorities, et cetera?

Yeah, thanks for your question, James. Let me see if I can try to clarify it a little bit. I would say of the lower expenses we had in the quarter, roughly half of it, a little more than half, was more timing in nature. The other half, or a little less than half, was just better performance, better optimization of our expenses. The investments were really driven by two things, the investment delays. One is that, you know, when I stepped into the Interim CEO role, we just reassessed things. We took the executive team, looked at everything and said, okay, where do we really want to prioritize some of our hires? That just meant we're just like two months, three months behind where we thought we would be. A lot of those people are joining the company now. We have pretty good visibility to the headcount additions.

It's just they happen much later in Q2 than we had originally thought. Because of that, it just led to some savings in the quarter. There are some things around marketing that, as you always do, you have a plan to begin the year, but then as the year evolves, you look at what kinds of activities, what things we might be doing with customers, what capabilities might be coming live. We just made the decision that it made more sense to spend the money in the second half, where we have some things to talk about and Money 20/20 is in the second half, which is usually an area where we invest more. Those are the things causing the timing-related factors. A little less than half the upside is just better efficiency and optimization. There are a few drivers for that.

One is from just a pure org perspective, we're getting pretty good. In terms of our org shape, if you will, we used to be a little top-heavy and very U.S.-centric. Now we kind of have a better org design where we have more opportunities for people and we don't quite have as many management layers. We also are much more geographically diverse. That's creating just a much more effective organization. We also are, particularly in the technology-related costs, so think of this as like data services, cloud services we use to run our platform. We're just doing a lot better job at making sure we minimize the waste in how we utilize those partners. That's driving a lot of savings.

Between those two things, it's just putting us on a better expense run rate that we think will sustain, which is why we believe 2026 now will be a little bit better from a profitability perspective than we thought just a quarter or two ago.

That's great, Mike. That's really clear. Just back on initiatives and opportunities, embedded finance has been a topic for a few years now. It seems like that's still an area of focus for you. How should we think about what to watch for from a product perspective or other mileposts of development?

Yeah, thanks for your question, James. We're excited about embedded finance, but it's moving a little slower than maybe we initially thought a year ago. These are much larger organizations. Typically, these are very established companies and payments is not their core business. What we're finding is we're engaging for longer periods of time before we get to the solution. We're having some really good conversations. In the meantime, what we're doing is making our value proposition much more of a full stack solution because that's what embedded finance customers are looking for. That's why we're really investing in banking and money movement products and the white label app. We just have a much more comprehensive sort of out-of-the-box solution that they can utilize because that's what they're looking for. A good example of a large customer win that we recently had was an embedded finance customer.

This is a large global brand and we expect them to launch later this year. It's really interesting as we get deep into the delivery process, we always ask them why did you choose us, just so we know what we need to enhance to better serve others. They really said it was a combination of three things. One is that we have a very simplified process for launching a new consumer-focused program. A consumer card is just much more complicated than commercial. They just saw a lot of our expertise and experience there as a real value. The technical integrations and the robust solution that we have, given the scale of our business, just allowed them out of the gate to have a more complete offering and they really valued that. The third thing was just the service and support.

We sort of pride ourselves on being a little bit of a white glove treatment, and that's a differentiating factor when you're solving a lot of problems and it gets complex on a new program like this. We feel like we're well positioned to win in this space. The opportunity is maybe unfolding a little slower than we would have thought a year ago before we really got into it.

Great. Appreciate all that, Mike. Good luck.

Thanks, James.

Speaker 2

Our last question comes from Cristopher David Kennedy with William Blair & Company L.L.C. Please proceed with your question.

Speaker 0

Thanks for squeezing me in. Just a real quick one on open banking and potential, you know, JPMorgan Chase & Co charging the aggregators for access for the data. Any thoughts on that dynamic?

Yeah, saw the news. I think that, you know, it's not, in terms of direct impact to us, we think it's minimal. Some of our customers may face some friction, particularly in areas where they want real-time account data. For account verification, risk decisioning, and then certainly underwriting, those are some of the areas where it's common for people to use those capabilities. It could become more expensive for them to do so, which they either have to decide then does that sort of, do they change their usage patterns or do they end up tightening up maybe the number of people they'll serve.

It's hard to know the implications, but I would say for us right now, based on the use cases we utilize and the maturity of many of our customers and the way they operate, that we see it as minimal, but it's certainly something to watch because if the rest of the banks were to follow their lead, then it could change the cost structure for some of these capabilities that people rely on today.

Great. Thanks for taking the question.

Speaker 2

We have reached the end of our Q&A session. This concludes today's teleconference. You may disconnect your lines at this time.