Marqeta Inc
NASDAQ:MQ
Earnings Call Analysis
Q4-2023 Analysis
Marqeta Inc
The company experienced a robust 33% growth in Total Payment Volume (TPV), raking in $62 billion for the third consecutive quarter. However, the flipside of this growth story is a considerable contraction in net revenue and gross profit. The net revenue plummeted by 42% year-over-year to $119 million, largely impacted by a revenue presentation change due to the Cash App renewal and an additional downturn from Cash App renewal pricing. The gross profit also shrunk by 4%, although excluding Block, the decrease was slightly mitigated by a more than 5-point acceleration.
On a positive note, the company's adjusted operating expenses were reduced by 16% year-over-year to $80 million, reflecting savings from restructuring and efficiency initiatives. Despite a sequential quarter increase due to typical end-of-year costs, adjusted EBITDA was able to remain in the green at $3 million thanks to these cost-saving measures and investment timing delays.
While 2023 witnessed a 10% decline in net revenue and a modest 3% upturn in gross profit, these numbers do not fully encapsulate the company's business potential, skewed by the Cash App revenue presentation change and frequent renewal activities. Nevertheless, there was a reason for optimism, as TPV grew by 34%, adjusted EBITDA hovered marginally below zero at negative $2 million, and the company sustained free cash flow positivity throughout the year.
Investor expectations for 2024 might require tempering. The company is bracing for a 20% to 24% pullback in full-year net revenue owing to the carryover effects of Cash App's prior renewal. Meanwhile, gross profit is projected to climb 6% to 9%, with adjusted operating expenses climbing in the mid to high single digits. Adjusted EBITDA is anticipated to break even by year-end. The first half, particularly Q1, is expected to bear the brunt of these adjustments, projecting a net revenue nosedive of 45% to 48% and a gross profit contraction between 8% and 10%. Despite these setbacks, Q1 adjusted EBITDA margins are projected slightly positive, ranging from 0 to 2%, while Q2 is predicted to be the only quarter with negative adjusted EBITDA margins in the -79% area due to resetting of network incentives and increased investments.
The company anticipates a turnaround in the latter half of 2024, projecting a resurgence in net revenue growth (23% to 26%) and concurrent gross profit growth. This optimism is pinned on three pivotal factors: outliving the impact of the Cash App presentation change, realizing the growth potential of existing customers, and capitalizing on new program initiatives. Adjusted operating expenses are anticipated to expand but within a controlled range, while adjusted EBITDA is projected to swing back to a positive margin of 1% to 3%.
Looking beyond the immediate fiscal years, the company's confidence stems from strategic moves like securing over 80% of TPV through renewals and tapping into novel revenue streams like 'Buy Now, Pay Later' cards and accelerated wage access. They have also embraced new credit capabilities, all of which align with the evolving embedded finance landscape and bolster the company's market stance. Importantly, the cost structure has been refined to drive profitable growth without compromising on compliance or innovation. As a result, the second half of 2024 and onwards is poised to manifest the gains from these foundational strategies, as the fiscal figures are anticipated to mirror the underlying business potential.
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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Marqeta Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] 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.
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, 2022, 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 are Simon Khalaf, Marqeta's CEO; and Mike Milotich, Marqeta's Chief Financial Officer.With that, I'd like to turn over the call to Simon to begin.
Thank you, Stacy, and everyone, for joining us for Marqeta's Fourth Quarter 2023 Earnings Call. Last fiscal year was a transformative year for Marqeta, and I'm excited about the foundation laid for the future of our company. I'll briefly touch on our results for the fourth quarter and full year '23 before sharing exciting developments at Marqeta. The last time we spoke was after we released our Investor Day materials which detailed the changes we made throughout 2023 and the opportunity ahead of us in 2024 and beyond. This most recent quarter demonstrates the focused effort made during 2023 is starting to pay off and has set Marqeta on a new trajectory. The staff will lead to sustainable growth, profitability, innovation and a great ability to capitalize on the fast-growing embedded finance market.Total processing volume, or TPV, in the quarter was $62 billion, an increase of 33% compared to the same quarter of 2022. Our net revenue of $119 million in the quarter contracted 42% year-over-year, which included a decrease of 59 percentage points from the revenue presentation change related to our Cash App contract renewal. Our gross profit of $83 million contracted by 4% versus Q4 2022, primarily due to the Cash App renewal pricing. Our gross margin for the fourth quarter was 70%.Our non-GAAP adjusted operating expenses were $80 million, a 16% decrease versus Q4 2022 due to our restructuring, operational efficiencies and delayed investments, resulting in a positive adjusted EBITDA of $3 million in the quarter. On a full year basis, TPV was $222 billion, an increase of 34% compared to the previous year. The full year net revenue was $676 million, representing a 10% contraction from the previous year. This includes a 31 percentage point decline related to the revenue presentation change resulting from the Cash App renewal. Gross profit for the full year was $330 million, a 3% increase compared to 2022. Gross profit was negatively impacted primarily by several renewals, particularly Cash App and changes in our Visa incentives at the start of the year.I'm thrilled with these financial results and thankful to all Marqetans who have made this possible. Outside our pure financial performance, we've delivered on product innovation, sales growth and operational efficiencies. In 2023, we greatly enhanced our credit platform. We added credit program management capabilities with the acquisition of Power and quickly executed the integration to launch a unified modern credit offering. The 2 commercial deals we recently signed are characterized by their ability to bring an embedded experience to their end customers, made possible by Marqeta's flexible platform. The first deal we signed was with International Travel Solutions or ITS.ITS is a successful travel management company with a substantial customer base. ITS plans to use the Marqeta credit platform to build an unsecured credit card for its end users. ITS chose us because of our established reputation in modern card issuing, not to mention our ability to offer solutions with a significant amount of customization and control, which is critical to travel management. With our partnership, ITS can launch and innovate faster to meet the ever-changing demands of its travel partners. Additionally, ITS can personalize its offering to its partners, allowing them to run their business more effectively by providing more robust controls over their travel expenses. For example, ITS expects to enable carbon impact tracking to help partners make conscious decisions and provide dynamic rewards to enable more customized incentives.We also signed another commercial credit deal, albeit for a very different use case. AffiniPay, a leader in online payment and software solutions for professionals will partner with Marqeta to launch its planned LawPay Visa credit card embedded within the MyCase platform. The first comprehensive solution in the industry that helps law firms pay, track and manage firm and client expenses. AffiniPay selected us because of our trusted platform for building card program management at scale that are dynamic, flexible and tailored to customer needs. By partnering with Marqeta, MyCase Smart Spend users will have a comprehensive, easy-to-use platform that gives them access to real-time card issuing, transaction data and spend controls to their credit card offering. This help cardholders stay on top of business expenses and access capital easily, all from a single dashboard. Smart Spend will be rolled out to other AffiniPay product, CASEpeer and LawPay in the end of 2024 and beginning 2025.Let me talk about the progress we made in our go-to-market approach. As we've previously discussed, we have overhauled our go-to-market operations to better capitalize on the embedded finance opportunities. These changes included reorganizing the sales force, realigning our compensation structure and shifting the focus of the sales organization more towards full solution selling such as accelerated wage access, SMB credit as well as co-brands. These changes resulted in bookings growth of over 50% in 2023 compared to 2022. Specifically, in the fourth quarter, we captured another solid slate of bookings, generally in line with the makeup of what we saw during the year. Expansion deals with existing customers came in at approximately 60% of total bookings.Although most bookings came from North America, 20% of the deals came from Europe and predominantly from net new customers, which bodes well for the future of that geography for Marqeta. Like previous quarters, we also won multiple deals through flipping volumes from our competitors as customers sought out Marqeta's proven scale, flexibility and expertise in modern card issuing, which was lacking through their current provider.In addition to growing our bookings, we also made great strides in accelerating the time to launch for new programs signed to convert these bookings into revenue and gross profits faster. On average, the time between close and launch in Q4 of this year was about 100 days better than the previous year. This was achieved without adding significant resources, by focusing on solutions architecture and using preconfigured card constructs. In other words, while we designed innovative solutions for our customers, we also rely on our expertise to create a plan that will be approved by other members of the payment ecosystem such as banks and networks.Moving back to product. Another area where we invested in 2023 was our reliability and continued ability to scale. The results from this investment can be seen in our transaction success rate metrics for the 2023 holiday season, which increased by 3 basis points. This is remarkable when one considers that on our peak day in 2023, our platform saw over 40 million authorizations, up 66% compared to the peak day in 2022. This improvement occurred simultaneously with efficiency initiatives that rightsize our technology spending, but also increased investment on multi-region authorization, demonstrating that we are focusing on the right efforts when considering the reliability of our platform.In summary, in 2023, we focused on building the solid foundation for a growing and profitable business in the long run. We went broad, building out our platform and reorienting our sales teams to a proven and winning solutions. In 2024, we plan to accelerate what we started and the return to strong revenue and gross profit growth as we bring to life new and exciting solutions with our fintech customers and prospective embedded finance customers. Our ability to offer credit, debit, banking and risk solutions at scale positions us well to unlock the massive embedded finance opportunity that's ahead of us. We've only just begun to execute over the strong foundation we have built. With that, I will turn it over to Mike for a more detailed look at our results for the quarter, the full year and financial outlook for 2024.
Thank you, Simon, and good afternoon, everyone. As expected and consistent with last quarter, net revenue and gross profit contracted due to the Cash App renewal with the majority of the renewal impact on revenue resulting from the revenue presentation change. Q4 was a strong finish to the year with TPV growth of 33% and better-than-expected results for net revenue, gross profit and expense, driving positive adjusted EBITDA. Net revenue and gross profit outperformed due to stronger-than-expected TPV growth, particularly in BNPL, on-demand delivery and accelerated wage access as well as higher network incentives. Continued execution of efficiency initiatives, such as streamlining technology spend as well as delays in planned investments, coupled with higher gross profit led to $3 million of adjusted EBITDA in the quarter. I will share the Q4 highlights before spending more time detailing our expectations for 2024.Q4 TPV was $62 billion, growing 33% for the third straight quarter. Non-Block TPV grew approximately 10 points faster than Block growth. The financial services vertical continues to grow a little faster than the overall company, helped by the rapid ramping of accelerated wage access TPV, which now contributes about 3% of total company TPV. Lending, including Buy Now, Pay Later, grew several points faster than the overall company due to a strong holiday season and the continued adoption of our BNPL customers [ Pay Anywhere ] card solutions. On-demand delivery continues to grow in the double digits due to consumer adoption of new services in merchant segments as well as geographic expansion. Expense management growth reaccelerated this quarter, but is growing a little slower than the overall company as this vertical matures.Q4 net revenue was $119 million, a contraction of 42% year-over-year. The key drivers of our net revenue growth are as follows, the most significant impact was the 59 point growth headwind related solely to the revenue presentation change resulting from the Cash App renewal. As we've described previously, this change in revenue presentation is related to the costs associated with Cash App's primary payment network volume. Previously, the bank and network fees associated with the primary network volume were included in net revenue and cost of revenue. Starting in Q3 2023, these costs are netted against revenue. There is an additional 10 percentage point decline in net revenue growth due to the Cash App renewal pricing. Non-Block revenue growth accelerated by more than 5 points as we begin to lap prior year renewals and newer, faster-growing solutions such as BNPL, Pay anywhere cards and accelerated wage access, increase in their contribution. Block net revenue concentration was 51% in Q4, increasing 1 point from Q3 due to seasonality. Our net revenue take rate remains unchanged from last quarter at 19 bps. Excluding Cash App, the net revenue take rate has remained consistent over the last 3 quarters despite the lower take rate powered by Marqeta TPV growing faster than Managed by as we continue to move beyond the period of heavy renewal activity.Q4 gross profit was $83 million, contracting 4%. Similar to net revenue, gross profit growth, excluding Block, also accelerated by more than 5 points. Three factors continue to weigh on gross profit growth. First, the Cash App renewal lowered growth by mid-20 percentage points. As a reminder, the Cash App revenue presentation change does not impact gross profit. Second, non-Block renewals between Q2 2022 and Q1 2023 lowered growth by low to mid-single digits. These customers represented approximately 50% of our non-Block TPV and the effects of these renewals will be fully lapped in Q2 2024.Lastly, we lost full lease incentives for 2 of our customers at the start of 2023, lowering growth by low to mid-single digits each quarter until we lap this impact in Q1 of '24. Our gross profit take rate was 13 bps consistent with last quarter. The gross profit take rate outside of Cash App increased 1 point from last quarter due to higher network incentives. As expected, the gross profit margin was 70%. Q4 adjusted operating expenses were $80 million, a decrease of 16% year-over-year due to realized savings from our restructuring in late May as well as efficiency initiatives in our technology and professional service expenses. These savings were achieved without sacrificing innovation, compliance or platform resiliency.On a sequential basis, expenses grew 7% quarter-over-quarter, largely due to an increase in professional services, which tend to increase in Q4 due to the timing of audit fees as well as product and security assessments. Q4 adjusted operating expenses were over $3 million lower than we expected, mostly due to investment timing delays, particularly hiring, as we just recently established an office location in Poland, which we intend to utilize for a significant portion of our headcount growth. Q4 adjusted EBITDA was positive $3 million, a margin of 3%. Interest income was $15 million, driven by elevated interest rates. The Q4 GAAP net loss was $40 million, including a $10 million noncash post-combination expense related to the Power acquisition.During Q2, we announced the buyback of $200 million. As of the Q4 quarter end, we purchased 31.3 million shares for an average price of $5.36 for $168 million. We ended the quarter with $1.25 billion of cash and short-term investments. The full year 2023 net revenue decrease of 10% and gross profit growth of 3% did not necessarily reflect the strength of our underlying business due to the change in the Cash App revenue presentation and heavy renewal activity. 2023 was a transformative year for Marqeta putting the company on a path to sustainable growth, profitability and innovation. TPV grew 34%, and our adjusted EBITDA was negative $2 million as we restructured our cost base and focused on efficiency while securing over 80% of our TPV in renewals over the past 7 quarters. We were free cash flow positive for the year.Now let's transition to our expectations for 2024. Let me quickly provide full year 2024 expectations before diving into more details on the first and second halves. I will also call out any changes to the 2024 financial targets we shared at Investor Day a few months ago. Full year 2024 net revenue is expected to contract 20% to 24% as the change in Cash App revenue presentation weighs on growth in the first half. 2024 gross profit growth is expected to grow 6% to 9%, which equates to a gross profit margin in the high 60s. Adjusted operating expenses are expected to grow in the mid- to high single digits as we continue to operate with a strong investment discipline and focus on achieving economies of scale. Therefore, we expect full year 2024 adjusted EBITDA to be around breakeven or said differently, an adjusted EBITDA margin of around 0%. Because of the details I'll describe in a minute, we expect to be adjusted EBITDA positive in 3 out of the 4 quarters in 2024. This expectation is a little better than what we shared at our Investor Day in November as a result of efficiency initiatives.Before I get into the more granular detail, let me first start by providing important context for 2024. We have assumed the overall macroeconomic environment remains consistent with recent trends. We have yet to see meaningful changes in the spend patterns on our consumer and commercial cards in the past several months. Therefore, we assume the current trajectory persists. Our financial performance will be meaningfully different in the first and second half of 2024, primarily for 2 reasons. First, the lapping of the effects of the cash up renewal will dissipate at the start of Q3. Second, the revitalization and strength of our sales bookings since Q4 of 2022 should lead to a fair amount of new business launching and ramping on our platform throughout the year. The contribution of these bookings to net revenue and gross profit will increase each quarter, further accentuating the difference in our first and second half growth rates.Adjusted expense growth will also be meaningfully different in the first and second halves of 2024 due to our restructuring executed at the end of May 2023. Our expense base was meaningfully different in the first 5 months of 2023 than it was in the last 7 months. The difference was further exacerbated by the fact that we did not reinvest some of the savings in new initiatives and focus areas as quickly as we intended, as referred to in my Q4 2023 comments. Therefore, our second half 2023 adjusted expenses are unusually low.Now let's turn to the first half of 2024. For Q1 2024, we expect net revenue to contract between 45% and 48%, including a 65 to 70 percentage point negative impact of the Cash App renewal, mostly due to the revenue presentation change, consistent with what we have seen in the last 2 quarters. We expect Q2 net revenue to contract in the same range. As expected, this is a few points lower than the second half of 2023 due to the unfavorable business mix and slower growth from a few of our customers without much contribution from new program launches at this point.Q1 gross profit is expected to contract between 8% and 10% with a gross profit margin in the high 60s. We expect gross profit to contract in the same range in Q2. However, the Q2 gross margin will be approximately 7 points lower than Q1 as our network incentive tiers reset in April with our 2 largest network partners. The first half gross profit contraction is now expected to be a little worse than what we shared at our November Investor Day due to unfavorable business mix and revised expectations for the timing of when some key customers will achieve certain price tiers based on their TPV trajectory.Q1 adjusted operating expenses are expected to strengthen the mid-teens, similar to Q4 '23, but with some ramp in hiring results from the delays I discussed earlier. In contrast, we expect Q2 adjusted operating expenses to grow in the mid-single digits. In Q2, we'll begin to lap our restructuring from last May, and we'll incur additional costs from our reinvestment in hiring as well as investments and platform resiliency to support our scaled customers. Therefore, Q1 adjusted operating -- sorry, therefore, Q1 adjusted EBITDA margin is expected to be in the 0 to positive 2% range. This is better than what we shared at Investor Day due to our investment delays and increased efficiencies we realized in Q4 '23. We expect Q2 to be our only negative adjusted EBITDA quarter with a margin in the negative 79% range due to a combination of the resetting of our network incentives weighing on gross profit and additional investment needed to support our growth.In the second half of '24, our business performance metrics are expected to improve significantly after lapping almost all of the major renewal activity, particularly Cash App. We expect net revenue growth in the second half of 2024 to reaccelerate to 23% to 26%, primarily driven by 3 factors. First, lopping the Cash App revenue presentation change; second, realizing existing customers' growth as we lap all the elevated renewal activity; and third, benefiting from the ramping new programs as we progress through the year.Second half 2024 gross profit growth is also expected to be in the 23% to 26% range, consistent with net revenue. This second half gross profit growth is expected to be a little higher than what we shared with you at Investor Day due to positive business mix and expected shifts in a couple of existing program constructs where we currently incur excessive network fees. Second half 2024 adjusted operating expenses are expected to grow in the high teens as we continue to invest in growth initiatives and resiliency, combined with the fact that we grow over the unusually low expenses in 2022 as our post-restructuring reinvestment was delayed. Therefore, we expect second half 2024 adjusted EBITDA to be positive 1% to 3% margin, a little higher than what we shared at Investor Day due to higher gross profit.In conclusion, we are exiting 2023 with great business momentum and a solid foundation to deliver sustainable growth, profitability and innovation in 2024 and beyond. Our excitement and confidence is primarily driven by 3 factors. First, by renewing over 80% of our TPV in the last 7 quarters, most of which are in contracts of at least 4 years, we have secured our attractive customer base and opened up potential cross-selling opportunities as we continue to expand our platform capabilities. This was short-term pain for long-term gain.Second, we are starting to get contributions from ramping new use cases such as BNPL [ Pay Anywhere ] cards and accelerated wage access. As we move through 2024, this will be combined with ramping new cohorts that result from our improved sales performance that delivered over 50% bookings growth in 2023. Third, we are getting early customer traction with our new credit capabilities, signing our first 2 customers to leverage our fully modern scaled issuer credit platform for innovators. Although this won't meaningfully contribute much to the 2024 P&L, credit will be a meaningful driver of future growth.Fourth, Marqeta's differentiated platform in terms of both breadth and depth of our capabilities gives us an outsized market opportunity as many fintechs continue to thrive, combined with the continued emergence of embedded finance use cases. Lastly, we have achieved a more efficient cost structure while maintaining compliance, security and innovation that will power profitable growth for years to come. Starting in the second half of 2024, our business and financial metrics are expected to reflect this momentum as we return to growth. We are excited to share our progress with you in the coming quarters. I'll now turn it back over to the operator for questions.
[Operator Instructions] Our first question is from Timothy Chiodo of UBS.
Great. I wanted to touch on accelerated wage access a little bit. So you had the 2 large customers to start with, the Uber and also the [ One App ]. One App was becoming the default for all Walmart employees as new employees have come on and others have rolled off or left the company. Can you just talk a little bit about the traction that you're seeing with the offering with that one large customer? And related, you had mentioned that there were others coming down the pike in terms of your pipeline for accelerated wage access. Could you just give a brief update on what that looks like now a few months later?
Tim, Simon here. Thanks for the question. We are indeed extremely excited about accelerated wage access. So the trend is extremely healthy and accelerated wage access is now about 3% of our processing volume, up from an insignificant number in 2022. So I mean, to put that in perspective, you're looking at about an annualized $7 billion of pay that is running through the Marqeta pike. That's a massive achievement. We can't comment specifically on individual customers, but the trend is extremely healthy and so is our pipeline. I mean, at the end of the day, look, I mean, our solution is kind of a win and win-win-win. Our approach actually benefits the actual employer that has a contingent workforce because they can retain the working capital, but at the same time give accelerated wage access to their contingent. And of course, the associates or the contingent workforce gets paid instantaneously, and we save the employer money. So they actually make money. So you're taking effectively an expense line and moving it into a revenue potential that could be returned to the contingency in terms of rewards and discounts. So I mean, the win-win-win gives us ironically an accelerator, and we're extremely excited about it.
The next question is from Ramsey El-Assal of Barclays.
It was great to hear you signing some credit deals. Can you comment on the credit pipeline and just signals you're picking up in the marketplace in general about the demand environment for credit? And maybe even to put a little nuance on it in the context of the sort of embedded finance use case that it seems like you're winning.
Yes. Thanks, Ramsey, for the question. The pipeline is extremely healthy. As we stated many times, we actually did expect the consumer credit demand to be high. What we were positively surprised by is the SMB credit demand. And especially from, I'd say, aggregators or platforms that have established relationship with SMBs and have great purview and visibility into the performance of these SMBs and can help with getting them credit because they know what their revenues are going to be, so they can diminish the risk. So I would say across the board, our credit pipeline is extremely healthy. And I would say that the vast majority is in the embedded finance, whether it is commercial or consumer, I mean that's the space we're playing in. So there could be bias because that's what we're actually chasing. But also from a demand perspective, I would say, between SMB credit and new modern day co-brand, I think there's plenty of innovations to simply drive user engagement and change online commerce and not just payments. So we're very excited about that.
The next question is from Tien-Tsin Huang of JPMorgan.
Really strong bookings with -- was up 50%, I believe. I'm just curious, does that include any wins with the potential for clients to become maybe top 10 down the road? Just a little bit more context on the type of stuff that you're adding and also just your confidence in your ability to replenish that pipeline and backlog. Are there large deals out there to win versus 90 days ago?
Hey, Tien-Tsin, Simon here. Thanks for the question. I mean, let me start with your last. Our ability to replenish the pipeline is actually very strong. We haven't drained the pipeline or accelerated or artificially accelerated any deals. Quite the contrary. Our pipeline is actually growing very efficiently. In terms of the customers, we have closed absolutely. I mean, all of them could be big. It takes time. I mean you understand this industry, it takes time to ramp. But all of them have great potential and transformative potential. I mean not of each one of them, but there's definitely quite a few that we're very excited about. And ability to capitalize on the pipeline, we do have an aggressive plan, but we feel comfortable about it.
Next question is from Darrin Peller of Wolfe Research.
Couple of things. Number one, it looks like when we see the -- all the adjustments that would sort of normalize for gross profit, a bridge to normalized gross profit growth, we're coming out to the -- well into the high 20s percent growth. And I know there's obviously some element of cadence as the year progresses as your second quarter starts off with incentive rebuild, et cetera. But maybe just talk about that nuance to make sure we're in the right ballpark first. And second of all, you talked about the second half being a little bit better, Mike. So any more color on what's gone well there would be great.
Yes. So the first question, I would say it's probably more closer to mid-20s. We were negative 4% on an adjusted basis, as you mentioned, we are negative 4% in our reported results. The Cash App is mid-20s. And then Visa incentives and renewals are both kind of low to mid. So it kind of puts you low to mid-single digits that is. So it's a total impact of, say, around 30%, plus or minus, which puts you kind of on an adjusted basis in the mid-20s percent growth, which is now what we're sort of saying we expect the second half to be is in that 23% to 26% gross profit growth range in the second half of 2024 once we've lapped most of these things. The biggest, I guess, benefit we're getting compared to what we knew a few months ago when we had Investor Day is some of it is a little bit of business mix, as you know, in our business between all the different use cases and -- and is it physical or virtual card, and is it powered by Managed by, like we have lots of different gross profit take rates on our volume. And there's a little bit of positive mix there. But I would say the bigger factor is that we have a couple of programs right now where we feel we incur sort of excessive network costs. And we're always working with our customers to try to optimize how their program is operating, both for their benefit and of course ours as well. And this can take the form of how they're looking at declines. And are they really optimized based on the way their program is set up? Are they incurring sort of unnecessary costs? Or the same thing can happen in cross-border? How exactly is their program set up for cross-border? And as you know, those come with much higher fees associated with them. And so are there changes that can be made. And we've identified some changes for a couple of our programs that are in flight right now that we expect to be fully in place for our benefit in the second half. These kinds of things are always opportunities you're hunting for, but you don't really count on them. They are a lot like how flips. I would say how we think about flips. We're always of course going after flip volume, but you don't count on flip volume when you're projecting business into the future. So that's really what's driving the upside in the second half. And that's a great win because it's really a structural benefit for our -- for those programs and therefore our P&L.
The next question is from Bryan Keane of Deutsche Bank.
I just want to ask about the bookings ramp. It sounds like, Simon, you've closed some of the time to ramp. Can you talk about that as the bookings, the 50% growth in bookings kind of unfold in 2024? And do we still expect kind of the $20 million in revenue in '24, $50 million in '25 and $150 million and '26 from these bookings? Just trying to get the cadence down correctly and the ramp times.
Yes. Brian, thanks for the question. Yes, it's about right. I'd say we are on track to deliver the number that we kind of backed at Investor Day. So the $20 million, $50 million and $150 million. So I mean, we're always working to accelerate those. But I think that's the right range. So we're very comfortable with these numbers.
Our next question then is from James Faucette of Morgan Stanley.
Great. I just wanted to ask quickly on the long-term FI opportunity, just there's some opportunity to win some de novo at some of the top 10 banks. How long do you think it will take for those stacks to catch up such that adoption of Marqeta becomes easier? Just trying to think about ongoing penetration into more of that broader market.
James, yes, thanks for the question, Simon here. So we're still on the same time line. There is definitely a lot of conversations with large FIs, but I do believe we're still on the same trajectory. The majority of the growth we will witness over the next 2 years will be from fintechs and embedded finance customers. But as I'd say, those players take share, either de novo or take spending share, it's going to be extremely hard for the financial institutions not to look and say, hey, what's going on here. And we expect that trend to start materializing exactly what we've guided, in the '25-'26 time frame.
And just to add one thing, James, to that. I think that we fully expect that the initial opportunities are likely to come on the commercial side as well because if you look at what's happening with some of the more modern sort of expense management and corporate card issuing platforms, several of those companies have gotten to be quite big and starting to capture larger and larger accounts. And so we believe that there's a little more activity within large banks on the commercial side to sort of counteract the impacts that might be seeing from those companies. There's less of that so far on the consumer side. We hope to, I guess, propagate that in the future with people coming on board and doing some modern co-brands with our new credit capabilities. But we would expect the initial traction is much more likely to be in commercial than it is in consumer with large FIs.
The next question is from Andrew Bauch of Wells Fargo.
I know you don't guide to it per se, but I just want to get a sense on how we should be thinking about TPV growth and kind of the take rate dynamics here into '24. I know you've mentioned in the past that because of your enhanced data capabilities that your ability to forecast TPV is significantly better than it has been in the past. So any thoughts around there would be helpful.
Sure, Andrew. So our TPV growth, we expect it to be about 30% throughout 2024, and it will be relatively consistent each quarter. So just to give you a little sense, if we grew in Q4 33%, it was relatively consistent each month. October was a little lighter, November a little stronger. But in January, our TPV growth was very similar to the December growth rate. It was only 1 point lower. In February, through the first 3 weeks, is looking very similar to January, and of course we'll get the benefit of leap year at the end of the month. So I'd say the trajectory of TPV growth is sort of in that low 30s range so far and that -- and we expect about 30% growth for the year. So it will all be kind of in that same area of around 30%, plus or minus. From a take rate perspective, I think we're starting to see stability, right? As we've said, we have 80% of our -- over 80% of our TPV we've renewed recently. And so, as I -- I sort of called out, if you exclude Cash App, which of course we're still lapping, our take rate on revenue has been consistent, excluding Cash App for 3 straight quarters. On the gross profit side, it's actually ticked up in Q4 compared to Q3 when you exclude Cash App which just has to do with a lot more incentives happening in the fourth quarter compared to Q3. So we expect take rate stability for the most part. There'll always be some -- a little bit of renewal activity, but we'll also have new customers ramping who aren't nearly as deep into their pricing tiers as our existing customers. So we expect relative stability on that 30% TPV growth.
The next question is from Dan Dolev of Mizuho.
Great results. I think, Simon, you mentioned that you flipped volumes from your competitors in your prepared remarks, like without naming specific names, can you give us a flavor of sort of the types of competitors that you're winning share from?
Sure. Thanks for the question. Yes. I mean I'd say there's 2 flavors. One flavor is taking share from legacy. The other is, I'd say, the flight to quality. There's folks who have probably chosen an alternate processor because they were cheaper than Marqeta. But then as they scaled up, and they realized our stability, our multiple lines, and as their business scaled, they're looking for a partner that can take them to the next stage. So I'd say it's a mix, a healthy mix of like taking incumbents out and also taking kind of less stable processors.
And just to add a little bit to that, Dan, I would say the -- in Q4 of our bookings, about 10% were flips. And that's actually on the low side for each quarter of the year. So each quarter in 2023, at least 10% of our bookings were flips. So I think there's a good amount of activity of, as Simon was saying, people who maybe a couple of years ago made a different choice. We were a contender for the business, and we didn't get it and now they're sort of realizing some of the benefits of -- in terms of our expertise to help them scale and grow their platform, also the reliability we provide. And so I think that's really what's helping us.
The next question is from Craig Maurer of FT Partners.
I wanted to come back to Buy Now, Pay Later for a second. Do you expect that Block's new Cash App strategy to drive more adoption using Buy Now, Pay Later will cause any inflection in volume?
We do expect -- I mean there's no question that the Buy Now, Pay Later market is here to stay. And we're seeing 2 types of distribution for Buy Now, Pay Later solutions. One is integration with merchants. And the other one is integration with the payment vehicle. And we are seeing, I would say, higher engagement, consumer engagement with integrating Buy Now, Pay Later into a payment vehicle or a card. So across the Marqeta platform. And that's where Marqeta has a higher moat. So in terms of Cash App specifically, of course, I mean, Cash App is widely distributed, it's a highly engaging product. So having Buy Now, Pay Later in it, which is also powered by Marqeta, is definitely a solution we're excited about. It makes sense for the consumers, it makes sense for the distribution of Buy Now, Pay Later. And it's a segment that Cash App is well penetrated in.
Yes. I mean if you think about, Craig, that there's over 23 million active Cash App card users every month. So although Afterpay has been successful for them and for our business, that's an incredible installed base. So what they talked about on their call last week makes a lot of sense to us.
The next question is from Cris Kennedy of William Blair.
Can you provide an update on your -- on the regulatory environment for banking as a service and embedded finance and kind of how you view that operating environment?
Thanks, Chris. I would say there's no changes. There is not much that we can talk about, either positive or negative. I'd say that the environment is -- remains healthy. I mean the great news about a lot of what's going on in embedded finance is solutions that are tailoring to the unbanked and the under-banked. There is no question that Buy Now, Pay Later has opened the credit box and provided what is effectively lending without the 29% APR. So that's definitely helping the community. And same thing with SMBs. They're kind of like the forgotten entity. So I do -- there's a lot of goodness that is happening with these solutions. So I do -- we're comfortable with the regulatory environment. The second thing I'd say is, as a company, we have invested in program management, and we've invested in compliance. We've invested in a lot of these services because, number one, we take it very seriously. And the second thing is that when we target the brands, especially in embedded finance, the last thing we want is bring them regulatory trouble. So I think we've taken this very seriously as a platform.
And I think as you maybe referred to, Chris, I mean, some of the announcements out there about BaaS platforms and some of the banks to do business with, the more of those announcements, there's definitely a component of a flight to quality, which we think we are the beneficiaries of just given our scale and the level of investment, and we were one of the first movers in this space. So we think that although it's unfortunate that there's some disruption in the marketplace like that. I think generally speaking, we're definitely more of a beneficiary than something that hurts us.
The next question is from Cassie Chan of Bank of America.
Just 2 quick questions for me. So first, I wanted to ask about the competitive landscape. There's obviously been some headlines around corner and Block with audience. Are you guys seeing the competitive landscape evolving or intensifying among the existing clients? And then just a quick clarifying question. Did you guys disclose the impact or was there any from Reg II in the quarter? And if there's anything assumed in the one quarter -- in the first quarter of the 2024 guide?
Cassie, thank you for the question. I'll take the first one, and I'll toss the second one to Mike. In terms of the competitive landscape, I'd say it is more favorable than it used to be because the majority of the growth we are seeing is in the areas that Marqeta has a much higher moat. So in the one time, I'd say the onetime virtual commercial card space, yes, there is competition. But most of our customers buy from us or partner with us on more than that. So the growth is coming from areas where our moat is higher. So I think we're comfortable there in terms of the competitive landscape. Now that doesn't mean we're not mindful of competition. On the contrary, we respect it. It keeps everybody honest, and it keeps us innovating.
And on your second question on Reg II, nothing really to -- nothing really of note to point out. I think last quarter we did have something because we were a little surprised by the changes that went into effect and the degree to which the mix of volume changed, which is very relevant for us in Cash App now based on the way the accounting change in the renewal. So that was something where we just didn't expect as much shift as we saw and that impacted our economics a little bit in Q3. But with that knowledge now, Q4 was largely as expected, and there's nothing we see or I've assumed in '24 that's noteworthy.
The next question is from Andrew Jeffrey of Truist Securities.
I wanted to ask about expansion deals. It sounds like -- or expansion of existing relationships, sounds like that was a call-out growth driver as well last year. Can you talk a little bit, I guess you said perhaps 60% of total bookings for expansion deals. Can you talk a little bit about additional capabilities and how you're monetizing existing customers the way -- at improving rate the way you are.
Yes, absolutely, Andrew, thanks for the question. There's many angles to this. I mean, what we've done over the last year is focus on solution selling. Like if you look at the trajectory of Marqeta that I would say there is neobanking then Buy Now, Pay Later, then expense management and on-demand delivery, and we started working on accelerated wage access, SMB credit and co-brands. So in all of them, processing is kind of the least common denominator. And just-in-time processing is the least common denominator, everybody uses it. And then as we started rolling out like Banking-as-a-Service product, program management such as disputes and chargebacks, risk solutions, those were kind of like good add-ons. But I'd say what also has happened is a lot of our customers started launching multiple programs with us. Like as an example, the Buy Now, Pay Later community, most of them started with a solution that integrates with merchants. And all of them are now moving, I'd say, a good majority of them actually either integrating into a payment card or having a payment card like a super card. So they launch more programs with us. So I'd say it is either more programs launched with us or value-added services that we are adding. The third angle is international expansion. So we've taken the strategy that we're going to basically go where our customers go. I mean, with reason and efficiency. So a lot of them, a lot of the multinationals are -- they want to code once and deploy everywhere. And Marqeta gave them that ability. So that's the third dimension of expansion. So in summary, I'd say first one is launching more programs. The second one more value-added services. Third one is international. Now looking forward, credit is a phenomenal opportunity to a lot of the debit partners we have. So we are in deep conversations with a lot of our customers that use us for debit and they want to use us for a credit as well.
And another example that I would just add to what Simon just said is they might look at credit or maybe they have something that's customer-facing and now maybe we're engaged on something that's more employee-facing on accelerated wage access. So as we add to the use cases and the breadth of our platform, there's lots of different opportunities that we can discuss with our customers, and that's one of the -- as we go into embedded finance, that's one of the really compelling things about our platform is most of these customers are going to -- or prospects are going to start somewhere, but many of them are already big companies in their own right and are thinking a little bit bigger, and they have that opportunity to do that with one partner on the Marqeta platform that might be difficult to achieve with some of our competitors.
The next question is from Moshe Katri of Wedbush Securities.
Can we talk a bit about the center that you're opening in Poland and how that could potentially bring down some of your technology or development costs down the road?
Absolutely. Thanks, Moshe. Yes, I mean we all come from a background in which we scale the organizations. And there's multiple reason to do this. One is the talent in Poland is really good. And especially as some folks in our industry, whether it's networks or, I'd say, accounting, have back-end services done in Poland. The second one is strong back-end engineering, risk operations, AI, machine learning, so on and so forth. The labor market is still favorable compared to the United States in terms of availability and in terms of cost. So the areas where we are investing in in Poland will help us on the risk operations, program management as well as engineering services. And we expect also to invest on the, what I call, the back-office sales organization as well. I mean throughout my career, I've had tremendous success in Poland. So I think we're looking good there.
Our final question is from Jamie Friedman of Susquehanna.
Mike, I think you said in your prepared remarks that the non-Block renewals lowered gross profit growth, low to mid-single digits. If I heard you wrong, I apologize. If so, that's the case, I was wondering how we might -- if you could unpack that a little about the inputs and how we might be thinking about that in 2024 would be helpful.
Yes, you got it exactly right, Jamie. This is -- it was low to mid-single digits from deals that we did between Q2 of '22 and Q1 of 2023. So in that 4-quarter period, we renewed about 50% of our non-Block TPV. And so the last couple of quarters, I've been calling this out. So this will lap in Q2 of '24. Now what's not in there, it's not all renewals that are non-Block, it's just within that window of time when there was just a lot of activity. And so we really just have one more quarter, Q1 of '24 before we start lapping. But you got it right. It was low to mid-single digit of gross profit growth drag in Q4 as a result of those.
Ladies and gentlemen, that then concludes today's event. Thank you for attending, and you may now disconnect your lines.