Marqeta, Inc. 10-Q

Item 1. Financial Statements Marqeta, Inc. Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) (unaudited) June 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 1,579,287 $ 220,433 Restricted cash 7,800 7,800 Marketable securities 105,053 149,903 Accounts receivable, net 5,931 8,420 Settlements receivable, net 9,598 12,867 Network incentives receivable 37,437 20,022 Prepaid expenses and other current assets 11,179 11,461 Total current assets 1,756,285 430,906 Property and equipment, net 10,104 9,477 Operating lease right-of-use assets, net 12,353 13,411 Other assets 1,582 3,886 Total assets $ 1,780,324 $ 457,680 Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 2,301 $ 2,362 Revenue share payable 82,015 78,191 Accrued expenses and other current liabilities 87,323 60,545 Total current liabilities 171,639 141,098 Redeemable convertible preferred stock warrant liabilities — 2,517 Operating lease liabilities, net of current portion 13,984 15,449 Other liabilities 8,715 10,452 Total liabilities 194,338 169,516 Commitments and contingencies (Note 7) Redeemable convertible preferred stock, $ 0.0001 par value; zero and 352,047,950 shares authorized; zero and 351,844,340 shares issued and outstanding; aggregate liquidation preference of zero and $ 552,868 as of June 30, 2021 and December 31, 2020, respectively — 501,881 Stockholders’ equity (deficit): Preferred stock, $ 0.0001 par value; 100,000,000 and zero shares authorized, no shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively — — Common stock, $ 0.0001 par value: 1,500,000,000 and zero Class A shares authorized, 65,947,205 and zero shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively. 600,000,000 and 545,000,000 Class B shares authorized, 472,936,246 and 130,312,838 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 54 13 Additional paid-in capital 1,920,936 39,769 Accumulated other comprehensive income (loss) ( 88 ) 25 Accumulated deficit ( 334,916 ) ( 253,524 ) Total stockholders’ equity (deficit) 1,585,986 ( 213,717 ) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 1,780,324 $ 457,680 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents Marqeta, Inc. Condensed Consolidated Statements of Operations (in thousands, except share and per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net revenue $ 122,266 $ 69,402 $ 230,249 $ 117,790 Costs of revenue 75,291 41,785 133,417 71,611 Gross profit 46,975 27,617 96,832 46,179 Operating expenses: Compensation and benefits 95,204 25,901 140,043 50,883 Professional services 6,382 2,479 12,643 4,825 Technology 7,569 2,660 13,195 5,099 Occupancy 907 1,080 1,993 2,167 Depreciation and amortization 874 850 1,781 1,707 Marketing and advertising 495 343 990 681 Other operating expenses 3,530 1,101 4,825 2,627 Total operating expenses 114,961 34,414 175,470 67,989 Loss from operations ( 67,986 ) ( 6,797 ) ( 78,638 ) ( 21,810 ) Other income (expense), net ( 481 ) ( 295 ) ( 2,648 ) 200 Loss before income tax expense ( 68,467 ) ( 7,092 ) ( 81,286 ) ( 21,610 ) Income tax expense ( 87 ) ( 15 ) ( 106 ) ( 27 ) Net loss $ ( 68,554 ) $ ( 7,107 ) $ ( 81,392 ) $ ( 21,637 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.29 ) $ ( 0.06 ) $ ( 0.44 ) $ ( 0.18 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 234,669,664 120,051,635 183,784,697 119,265,816 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents Marqeta, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net loss $ ( 68,554 ) $ ( 7,107 ) $ ( 81,392 ) $ ( 21,637 ) Other comprehensive income (loss), net of taxes: Change in foreign currency translation adjustment ( 12 ) ( 23 ) ( 26 ) ( 36 ) Change in unrealized gain (loss) on marketable securities ( 56 ) 254 ( 87 ) 288 Comprehensive loss $ ( 68,622 ) $ ( 6,876 ) $ ( 81,505 ) $ ( 21,385 ) See accompanying notes to condensed consolidated financial statements. 3 Table of Contents Marqeta, Inc. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (in thousands, except share amounts) (unaudited) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (loss) Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of December 31, 2020 351,844,340 $ 501,881 130,312,838 $ 13 $ 39,769 $ 25 $ ( 253,524 ) $ ( 213,717 ) Issuance of common stock upon exercise of vested options — — 1,904,186 — 1,410 — — 1,410 Issuance of common stock upon early exercise of unvested options — — 319,883 — — — — — Repurchase of early exercised stock options — — ( 18,567 ) — — — — — Vesting of early exercised stock options — — — — 223 — — 223 Share-based compensation expense — — — — 11,392 — — 11,392 Change in other comprehensive income (loss) — — — — — ( 45 ) — ( 45 ) Net loss — — — — — — ( 12,838 ) ( 12,838 ) Balance as of March 31, 2021 351,844,340 $ 501,881 132,518,340 $ 13 $ 52,794 $ ( 20 ) $ ( 266,362 ) $ ( 213,575 ) Issuance of common stock upon initial public offering, net of issuance costs — — 52,272,727 7 1,312,331 — — 1,312,338 Conversion of redeemable convertible preferred stock to common stock upon initial public offering ( 351,844,340 ) ( 501,881 ) 351,844,340 34 501,847 — — 501,881 Reclassification of redeemable convertible preferred stock warrant liabilities to common stock and additional paid-in capital upon initial public offering — — — — 5,438 — — 5,438 Issuance of common stock upon exercise of options — — 859,343 — 1,161 — — 1,161 Repurchase of early exercised stock options — — ( 9,897 ) — — — — — Issuance of common stock upon net settlement of restricted stock units — — 730,186 — ( 10,273 ) — — ( 10,273 ) Issuance of common stock upon exercise of common stock warrants — — 668,412 — — — — — Vesting of common stock warrants — — — — 2,102 — — 2,102 Share-based compensation expense — — — — 55,536 — — 55,536 Change in other comprehensive income (loss) — — — — — ( 68 ) — ( 68 ) Net loss — — — — — — ( 68,554 ) ( 68,554 ) Balance as of June 30, 2021 — $ — 538,883,451 $ 54 $ 1,920,936 $ ( 88 ) $ ( 334,916 ) $ 1,585,986 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents Marqeta, Inc. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit (in thousands, except share and per share amounts) (unaudited) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (loss) Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Balance as of December 31, 2019 336,843,578 $ 335,748 118,430,031 $ 12 $ 7,365 $ 46 $ ( 205,829 ) $ ( 198,406 ) Issuance of common stock upon exercise of vested options — — 2,233,220 — 173 — — 173 Issuance of common stock upon early exercise of unvested options — — 313,587 — — — — — Repurchase of early exercised stock options — — ( 142,726 ) — — — — — Vesting of early exercised stock options — — — — 119 — — 119 Share-based compensation expense — — — — 3,745 — — 3,745 Change in other comprehensive income (loss) — — — — — 21 — 21 Net loss — — — — — — ( 14,530 ) ( 14,530 ) Balance as of March 31, 2020 336,843,578 $ 335,748 120,834,112 $ 12 $ 11,402 $ 67 $ ( 220,359 ) $ ( 208,878 ) Issuance of Series E-1 redeemable convertible preferred stock at $ 8.34 per share, net of issuance costs of $ 8,058 17,991,220 143,109 — — — — — — Issuance of common stock upon exercise of vested options — — 94,685 — 44 — — 44 Issuance of common stock upon early exercise of unvested options — — 19,584 — — — — — Repurchase of early exercised stock options — — ( 28,206 ) — — — — — Vesting of early exercised stock options — — — — 294 — — 294 Share-based compensation expense — — — — 2,918 — — 2,918 Change in other comprehensive income (loss) — — — — — 231 — 231 Net loss — — — — — — ( 7,107 ) ( 7,107 ) Balance as of June 30, 2020 354,834,798 $ 478,857 120,920,175 $ 12 $ 14,658 $ 298 $ ( 227,466 ) $ ( 212,498 ) See accompanying notes to condensed consolidated financial statements. 5 Table of Contents Marqeta, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 81,392 ) $ ( 21,637 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,781 1,707 Share-based compensation expense 66,928 6,663 Non-cash operating leases expense 1,058 1,010 Amortization of premium on marketable securities 716 87 Provision for doubtful accounts 73 23 Other 2,901 601 Changes in operating assets and liabilities: Accounts receivable 2,416 ( 1,918 ) Settlements receivable 3,269 135 Network incentives receivable ( 17,415 ) ( 1,718 ) Prepaid expenses and other assets 354 612 Accounts payable ( 18 ) ( 534 ) Revenue share payable 3,824 22,580 Accrued expenses and other liabilities 22,738 7,947 Operating lease liabilities ( 1,420 ) ( 848 ) Net cash provided by operating activities 5,813 14,710 Cash flows from investing activities: Purchases of property and equipment ( 1,096 ) ( 1,501 ) Purchases of marketable securities ( 13,145 ) ( 63,033 ) Maturities of marketable securities 57,188 61,720 Net cash provided by (used in) investing activities 42,947 ( 2,814 ) Cash flows from financing activities: Proceeds from initial public offering, net of underwriters’ discounts and commissions 1,319,809 — Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs — 143,109 Proceeds from exercise of stock options, including early exercised stock options 2,571 561 Taxes paid related to net share settlement of restricted stock units ( 10,273 ) — Payment of deferred offering costs ( 1,981 ) ( 511 ) Repurchase of early exercised unvested options ( 32 ) ( 65 ) Net cash provided by financing activities 1,310,094 143,094 Net increase in cash, cash equivalents, and restricted cash 1,358,854 154,990 Cash, cash equivalents, and restricted cash- Beginning of period 228,233 68,144 Cash, cash equivalents, and restricted cash - End of period $ 1,587,087 $ 223,134 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents Marqeta, Inc. Condensed Consolidated Statements of Cash Flow s (in thousands) (unaudited) Six Months Ended June 30, 2021 2020 Reconciliation of cash, cash equivalents, and restricted cash Cash and cash equivalents $ 1,579,287 $ 215,334 Restricted cash 7,800 7,800 Total cash, cash equivalents, and restricted cash $ 1,587,087 $ 223,134 Supplemental disclosures of non-cash investing and financing activities: Purchase of property and equipment accrued and not yet paid $ 1,476 $ 207 Vesting of early exercised stock options $ 223 $ 413 Deferred offering costs not yet paid $ 1,153 $ 83 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 1. Business Overview and Basis of Presentation Marqeta, Inc., or the Company, creates digital payment technology for innovation leaders. The Company's modern card issuing platform, or the Platform, places control over payment transactions into the hands of its customers, or Customers, enabling them to develop modern state-of-the-art product experiences. The Company provides all of its Customers issuer processor services and for most of its Customers it also acts as a card program manager. The Company primarily earns revenue from processing card transactions for its Customers. The Company was incorporated in the state of Delaware in 2010 and is headquartered in Oakland, California, with offices in the United States and United Kingdom, and a presence in Australia. Initial Public Offering In June 2021, the Company completed an initial public offering, or the IPO, in which the Company issued and sold 52,272,727 shares of its newly authorized Class A common stock, which included 6,818,181 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares at a price of $ 27.00 per share. The Company received aggregate net proceeds of $ 1.3 billion after deducting underwriting discounts and commissions of $ 91.6 million and offering costs of $ 7.5 million. Immediately prior to the completion of the IPO, the Company filed its Amended and Restated Certificate of Incorporation authorizing a total of 1,500,000,000 shares of Class A common stock which entitles holders to one vote per share, 600,000,000 shares of Class B common stock which entitles holders to 10 votes per share, and 100,000,000 shares of undesignated preferred stock. All shares of common stock then outstanding were reclassified as Class B common stock and all redeemable convertible preferred stock then outstanding were converted into 351,844,340 shares of common stock on a one -for-one basis and reclassified into Class B common stock. In addition, 2,569,528 shares of common stock warrants were converted to an equivalent number of shares of Class B common stock warrants and 203,610 shares of convertible preferred stock warrants were converted to an equivalent number of shares of Class B common stock warrants. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and the applicable rules and regulations of the Securities and Exchange Commission, or (the SEC, for interim reporting. Certain information and note disclosures included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2020 has been derived from our audited consolidated financial statements, which are included in the prospectus dated June 8, 2021, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, or the Prospectus. The accompanying condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in the Prospectus. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary for a fair presentation of the Company's consolidated financial position, results of operations, comprehensive loss, and cash flows for the interim periods presented. The interim results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or for any other future annual or interim period. 8 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) Use of Estimates The preparation of the financial statements requires management to make estimates and assumptions relating to reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Significant estimates and assumptions relate to the estimation of variable consideration in contracts with Customers, collectability of accounts receivable, reserve for contract contingencies and processing errors, the useful lives of property and equipment, the incremental borrowing rate used to determine operating lease liabilities, the fair value of equity awards and warrants, and share-based compensation. Actual results could differ materially from these estimates. Business Risks and Uncertainties The Company has incurred net losses since its inception. For the three and six months ended June 30, 2021, the Company incurred net losses of $ 68.6 million and $ 81.4 million, respectively, and had an accumulated deficit of $ 334.9 million as of June 30, 2021. The Company expects losses from operations to continue for the foreseeable future as it incurs costs and expenses related to creating new products for Customers, acquiring new Customers, developing its brand, expanding into new geographies and developing the existing Platform infrastructure. The Company believes that its cash and cash equivalents of $ 1.6 billion and marketable securities of $ 105.1 million as of June 30, 2021 are sufficient to fund its operations through at least the next twelve months from the issuance of these financial statements. In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. Since then, the COVID-19 pandemic has continued to spread throughout the United States and the world. While the Company has not been adversely affected by the COVID-19 pandemic to date, the prolonged disruption to the economy and the long-term financial impact of the pandemic cannot be reasonably estimated. The Company continues to monitor the situation and may take actions that alter its operations and business practices as may be required by federal, state, or local authorities or that the Company determines are in the best interests of its Customers, vendors, and employees. 2. Summary of Significant Accounting Policies The Company’s significant accounting policies are discussed in “Consolidated Financial Statements — Note 2. Summary of Significant Accounting Policies” in the Prospectus. There have been no significant changes to these policies during the three and six months ended June 30, 2021. Segment Information The Company operates as a single operating segment. The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, allocating resources and evaluating the Company's financial performance. For the three and six months ended June 30, 2021 and 2020, revenue outside of the United States, based on the billing address of the Customer, was not material. As of June 30, 2021 and December 31, 2020, long-lived assets located outside of the United States were not material. Restricted Cash Restricted cash consists of deposits with financial institutions that issue payment cards (credit, debit, or prepaid) either on their own behalf or on behalf of businesses that issue customized card products to their end users, or Issuing Banks, to provide the Issuing Bank collateral in the event that Customers’ funds are not deposited at the Issuing Banks in time to settle Customers’ transactions with the networks that provide the infrastructure for settlement and card payment information flows, or Card Networks. Restricted cash also includes cash used to secure a letter of credit for the Company’s lease of its office headquarters in Oakland, California. 9 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) Deferred Offering Costs Deferred offering costs consist primarily of accounting, legal, and other fees related to the IPO. Upon the completion of the IPO in June 2021, the deferred offering costs were reclassified to stockholders’ equity and recorded net against the proceeds from the IPO. New Accounting Standards Adopted In August 2018, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The Company adopted the new standard as of January 1, 2021. The adoption of ASU 2018-15 did not have a material impact on the Company's condensed consolidated financial statements. New Accounting Standards Not Yet Adopted As an emerging growth company, the Jumpstart Our Business Startups Act, or the JOBS Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption date discussed below reflects this election. In June 2016, the FASB issued ASU No. 2016-13, Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-13 replaces the incurred loss model with the current expected credit loss, or CECL, model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The CECL model requires a company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The guidance will be effective for the Company beginning January 1, 2023, and interim periods therein. The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. The Company is still evaluating the impact this ASU will have on its condensed consolidated financial statements. 10 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 3. Revenue Disaggregation of Revenue The following table provides information about disaggregated revenue from Customers: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Platform services revenue, net $ 118,263 $ 67,250 $ 224,496 $ 114,255 Other services revenue 4,003 2,152 5,753 3,535 Total net revenue $ 122,266 $ 69,402 $ 230,249 $ 117,790 Contract Balances The following table provides information about contract assets and deferred revenue: Contract balance Balance sheet line reference June 30, 2021 December 31, 2020 Contract assets - current Prepaid expenses and other current assets $ 82 $ 118 Contract assets - non-current Other assets 940 294 Total contract assets $ 1,022 $ 412 Deferred revenue - current Accrued expenses and other current liabilities $ 8,247 $ 3,983 Deferred revenue - non-current Other liabilities 7,521 8,865 Total deferred revenue $ 15,768 $ 12,848 Net revenue recognized during the three months ended June 30, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $ 2.4 million and $ 0.2 million, respectively. Net revenue recognized during the six months ended June 30, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $ 1.6 million and $ 0.5 million, respectively. Remaining Performance Obligations The Company has performance obligations associated with commitments in Customer contracts for future stand-ready obligations to process transactions throughout the contractual term. Remaining performance obligations include related deferred revenue currently recorded and exclude contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services as performed. The amount and timing of revenue recognition is largely driven by the Customer’s utilization of the Company’s Platform services. 11 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 4. Marketable Securities The amortized cost, unrealized gain (loss), and estimated fair value of the Company's investments in securities available for sale consisted of the following: June 30, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Marketable securities U.S. government securities $ 80,217 $ 11 $ — $ 80,228 Commercial paper 7,393 — — 7,393 Asset-backed securities 2,031 — — 2,031 Corporate debt securities 15,387 16 ( 2 ) 15,401 Total marketable securities $ 105,028 $ 27 $ ( 2 ) $ 105,053 December 31, 2020 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Marketable securities U.S. government securities $ 125,823 $ 47 $ ( 6 ) $ 125,864 Commercial paper 4,991 — — 4,991 Asset-backed securities 4,294 21 — 4,315 Corporate debt securities 14,683 52 ( 2 ) 14,733 Total marketable securities $ 149,791 $ 120 $ ( 8 ) $ 149,903 The Company had three and six separate marketable securities in unrealized loss positions as of June 30, 2021 and December 31, 2020, respectively. The Company did not identify any marketable securities that were other-than-temporarily impaired as of June 30, 2021 and December 31, 2020. All of the Company’s marketable securities had a stated maturity of one year or less as of June 30, 2021 and December 31, 2020. 12 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 5. Fair Value Measurements The Company’s financial instruments consist of cash equivalents, marketable securities, accounts receivable, unbilled Customers' receivable, settlements receivable, accounts payable, accrued liabilities, and prior to the IPO, redeemable convertible preferred stock warrant liabilities. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Marketable securities are carried at fair value. Accounts receivable, unbilled Customers' receivable, settlements receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The redeemable convertible preferred stock warrant liabilities were carried at fair value. The following tables present the fair value hierarchy for assets and liabilities measured at fair value: June 30, 2021 Level 1 Level 2 Level 3 Total Fair Value Cash equivalents Money market funds $ 1,558,150 $ — $ — $ 1,558,150 Marketable securities U.S. government securities 80,228 — — 80,228 Commercial paper — 7,393 — 7,393 Asset-backed securities — 2,031 — 2,031 Corporate debt securities — 15,401 — 15,401 Total assets $ 1,638,378 $ 24,825 $ — $ 1,663,203 December 31, 2020 Level 1 Level 2 Level 3 Total Fair Value Cash equivalents Money market funds $ 203,592 $ — $ — $ 203,592 Marketable securities U.S. government securities 125,864 — — 125,864 Commercial paper — 4,991 — 4,991 Asset-backed securities — 4,315 — 4,315 Corporate debt securities — 14,733 — 14,733 Total assets $ 329,456 $ 24,039 $ — $ 353,495 Other liabilities Redeemable convertible preferred stock warrants $ — $ — $ 2,517 $ 2,517 Total liabilities $ — $ — $ 2,517 $ 2,517 The Company classifies money market funds, commercial paper, U.S. government securities, asset-backed securities and corporate securities within Level 1 or Level 2 of the fair value hierarchy because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. 13 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) The Company classifies the redeemable convertible preferred stock warrants within Level 3 because the Company determines their fair value using unobservable inputs, including the fair value of the Company’s redeemable Series B convertible stock, which the Company determines in the same manner as the fair value of its common stock prior to the IPO. The Company records the change in the fair value of redeemable convertible preferred stock warrants in other income (expense), net in the condensed consolidated statements of operations. Immediately prior to the completion of the IPO in June 2021, the outstanding redeemable convertible preferred stock warrants were converted to Class B common stock warrants and the fair value of the liability as of that date was reclassified into the Company’s Class B common stock and additional paid-in capital. The fair value of the redeemable convertible preferred stock warrant liabilities was estimated using the following assumptions: June 9, 2021 December 31, 2020 Dividend yield 0.00 % 0.00 % Expected volatility 49.93 % 49.93 % Expected term (in years) 2.34 2.78 Risk-free interest rate 0.31 % 0.17 % Fair value of Series B redeemable convertible preferred stock $ 27.00 $ 12.66 The following table sets forth a summary of the changes in the fair value of the redeemable convertible preferred stock warrant liabilities: June 30, 2021 December 31, 2020 Balance, beginning of the period $ 2,517 $ 569 Remeasurement of redeemable convertible preferred stock warrant liabilities 2,921 1,948 Reclassification of redeemable convertible preferred stock warrant liabilities to common stock and additional paid-in capital upon initial public offering ( 5,438 ) — Balance, end of the period $ — $ 2,517 There were no transfers of financial instruments between the fair value hierarchy levels during the three and six months ended June 30, 2021 and the year ended December 31, 2020. 6. Certain Balance Sheet Components Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: June 30, 2021 December 31, 2020 Prepaid expenses $ 4,983 $ 6,162 Card program deposits 2,167 2,174 Other current assets 4,029 3,125 Prepaid expenses and other current assets $ 11,179 $ 11,461 14 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) Property and Equipment, net Property and equipment consisted of the following: June 30, 2021 December 31, 2020 Leasehold improvements $ 8,110 8,110 Computer equipment 8,206 7,634 Furniture and fixtures 2,459 2,333 Internally developed and purchased software 2,743 1,299 21,518 19,376 Accumulated depreciation and amortization ( 11,414 ) ( 9,899 ) Property and equipment, net $ 10,104 $ 9,477 Depreciation and amortization expense was $ 0.9 million for each of the three months ended June 30, 2021 and 2020, and $ 1.8 million and $ 1.7 million for the six months ended June 30, 2021 and 2020, respectively. The Company capitalized $ 1.4 million as internal-use software costs during the three and six months ended June 30, 2021. The Company did no t capitalize any internal-use software costs during the three and six months ended June 30, 2020, because development costs meeting capitalization criteria were not material during the respective periods. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: June 30, 2021 December 31, 2020 Accrued costs of revenue $ 32,443 $ 24,529 Reserve for contract contingencies and processing errors 11,717 9,537 Accrued compensation and benefits 16,190 14,078 Deferred revenue 8,247 3,983 Operating lease liabilities, current portion 2,852 2,771 Accrued professional services 3,032 867 Other accrued liabilities 12,842 4,780 Accrued expenses and other current liabilities $ 87,323 $ 60,545 Other Liabilities Other liabilities consisted of the following: June 30, 2021 December 31, 2020 Deferred revenue, net of current portion $ 7,521 $ 8,865 Other long-term liabilities 1,194 1,587 Other liabilities $ 8,715 $ 10,452 15 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 7. Commitments and Contingencies Operating Leases In 2016, the Company entered into a lease agreement for its corporate headquarters in Oakland, California for 19,000 square feet of office space, which was subsequently amended resulting in a total of 63,000 square feet of office space being leased. The non-cancellable operating lease expires in February 2026 and includes options to extend the lease term, generally at the then-market rates. The Company excludes extension options that are not reasonably certain to be exercised from its lease terms. The Company’s lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. The Company is responsible for operating expenses that exceed the amount of base operating expenses as defined in the original lease agreement. The Company's operating lease costs are as follows: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating lease cost $ 869 $ 880 $ 1,738 $ 1,768 Variable lease cost ( 42 ) 112 70 224 Short-term lease cost 59 68 131 135 Total lease cost $ 886 $ 1,060 $ 1,939 $ 2,127 The Company does not have any sublease income and the Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants. The weighted average remaining operating lease term and the weighted average discount rate used in the calculation of the Company's lease assets and lease liabilities were as follows: June 30, 2021 December 31, 2020 Weighted average remaining operating lease term (in years) 4.6 5.1 Weighted average discount rate 7.7 % 7.7 % Maturities of operating lease liabilities by year are as follows as of June 30, 2021: Remainder of 2021 $ 2,016 2022 4,111 2023 4,239 2024 4,472 2025 4,599 Thereafter 780 Total lease payments $ 20,217 Less imputed interest ( 3,381 ) Total operating lease liabilities $ 16,836 Supplemental cash flow information related to the Company's operating leases was as follows: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Cash paid for operating lease liabilities $ 1,032 $ 900 $ 2,065 $ 1,799 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ — $ — $ — $ 192 16 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) Letters of Credit In connection with the lease for its corporate headquarters office space, the Company is required to provide the landlord a letter of credit in the amount of $ 1.5 million. The Company has secured this letter of credit by depositing $ 1.5 million with the issuing financial institution, which deposit is classified as restricted cash in the condensed consolidated balance sheets. Purchase Obligations As of June 30, 2021, the Company had non-cancellable purchase commitments with certain service providers and Issuing Banks of $ 11.3 million, payable over the next 5 years. These purchase obligations generally represent minimum commitments for cloud-computing services and issuing bank processing fees over the fixed, non-cancellable respective contract terms. Defined Contribution Plans The Company maintains defined contribution plans for eligible employees, including a 401(k) plan that covers substantially all of its U.S. based employees and to which the Company provides a matching contribution of 50 % of the first 6 % of compensation that an employee contributes. The matching contribution vests after one year of service. During the three months ended June 30, 2021 and 2020, the Company contributed a total of $ 0.7 million and $ 0.4 million to its defined contribution plans, respectively. During the six months ended June 30, 2021 and 2020, the Company contributed a total of $ 1.5 million and $ 0.9 million to its defined contribution plans, respectively. Legal Contingencies From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. As of June 30, 2021 and December 31, 2020, there were no legal contingency matters, either individually or in aggregate, that would have a material adverse effect on the Company’s financial position, results of operations, or cash flows. Given the unpredictable nature of legal proceedings, the Company bases its assessment on the information available at the time. As additional information becomes available, the Company reassesses the potential liability and may revise the estimate. Settlement of Payment Transactions Generally, Customers deposit a certain amount of pre-funding into accounts maintained at Issuing Banks to settle their payment transactions. Such pre-funding amounts may only be used to settle Customers’ payment transactions and are not considered assets of the Company. As such, the funds held in Customers’ accounts at Issuing Banks are not reflected on the Company’s condensed consolidated balance sheets. If a Customer does not have sufficient funds to settle a transaction, the Company is liable to the Issuing Bank to settle the transaction and would therefore incur losses if such amounts cannot be subsequently recovered from the Customer. Indemnifications In the ordinary course of business, the Company enters into agreements of varying scope and terms pursuant to which it agrees to indemnify vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements and there are no claims that the Company is aware of that could have a material effect on its condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss, or condensed consolidated statements of cash flows. 17 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) The Company also includes service level commitments to its Customers warranting certain levels of performance and permitting those Customers to receive credits in the event the Company fails to meet those levels. Non-income Taxes The Company is subject to state and local indirect taxes in various jurisdictions in the United States. In several of these jurisdictions the Company has reviewed and concluded that such indirect taxes are not applicable to the Company’s service offerings. In a few of these jurisdictions the tax regulations are less clear. While the Company believes its service offerings are not subject to tax in these jurisdictions, the Company is working with the respective state and local tax authorities to confirm the Company’s conclusions. The Company has not recorded a liability associated with these matters as of June 30, 2021 as it believes it is not probable that the indirect taxes are applicable to the Company. In the event that adverse information is received in response to the Company's state inquiries, and the Company chooses not to appeal, a potential range of tax liabilities would be $ 1.6 million to $ 6.7 million as of June 30, 2021. 18 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 8. Stock Incentive Plans The following table summarizes the share-based compensation expense recognized for the different stock incentive plans discussed below: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Stock options (1) $ 19,635 $ 2,918 $ 25,140 $ 5,227 Secondary sales of common stock 5,755 — 11,642 1,436 Restricted stock units 30,068 — 30,068 — Employee Stock Purchase Plan 78 — 78 — Total $ 55,536 $ 2,918 $ 66,928 $ 6,663 (1) Includes the share-based compensation expense recognized for employees, non-employees and the CEO Long-Term Performance Award. 2011 Equity Incentive Plan In 2011, the Company’s board of directors adopted, and its stockholders approved, the 2011 Equity Incentive Plan, which was most recently amended and restated in 2021 as the Amended and Restated 2011 Equity Incentive Plan, or the 2011 Plan. The 2011 Plan provided for the grant of share-based awards to employees, non-employee directors, and other service providers of the Company. The 2011 Plan was terminated in June 2021 in connection with the IPO, but continues to govern the terms of outstanding awards that were granted prior to the IPO. No further equity awards will be granted under the 2011 Plan. Upon the expiration, forfeiture, cancellation, hold back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, or repurchase of any shares of Class B common stock underlying outstanding share-based awards granted under the 2011 Plan, an equal number of shares of Class A common stock will become available for grant under the 2021 Stock Option and Incentive Plan, or the 2021 Plan, that was established in connection with the IPO. 2021 Stock Option and Incentive Plan In May 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Plan, which became effective in connection with the IPO. The 2021 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, or RSUs, and other forms of equity and cash compensation. A total of 60,000,000 shares of the Company’s Class A common stock were initially reserved for issuance under the 2021 Plan. The number of shares of Class A common stock reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022, by 5 % of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee of the Company’s board of directors. 2021 Employee Stock Purchase Plan In May 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan, or the ESPP, which became effective in connection with the IPO. The ESPP authorizes the issuance of shares of the Company’s Class A common stock pursuant to purchase rights granted to employees. A total of 6,000,000 shares of the Company’s Class A common stock were initially reserved for issuance under the ESPP. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022, by the lesser of 12,000,000 shares of the Company’s Class A common stock, 1 % of the number of shares of the Company’s Class A and Class B common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. 19 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) The offering periods of the ESPP are six months long and begin on May 16 and November 16 of each year, except for the initial offering period. The initial offering period began on June 8, 2021 and will end on the last business day occurring on or before November 15, 2021. The price at which Class A common stock is purchased under the ESPP is equal to 85 % of the fair market value of a share of the Company’s Class A common stock on the first or last day of the offering period, whichever is lower. Stock Options Under the 2011 Plan and the 2021 Plan, the exercise price of an incentive stock option shall not be less than the fair market value of one share of the Company’s Class A common stock on the date of grant (not less than 110 % of the fair market value of one share of Class A common stock for grants to stockholders owning more than 10 % of the total combined voting power of all classes of stock of the Company, or a 10 % Stockholder. Options are exercisable over periods not to exceed ten years from the date of grant ( five years for incentive stock options granted to 10 % Stockholders). A summary of the Company's stock option activity under both stock incentive plans was as follows: Number of Options Weighted-Average Exercise Price per Share Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (1) Balance as of December 31, 2020 (2) 23,421,374 $ 1.35 8.33 $ 248,002 Granted 29,090,184 20.06 Exercised ( 3,083,412 ) 1.07 Canceled and forfeited ( 1,108,195 ) 1.15 Balance as of June 30, 2021 (2) 48,319,951 $ 12.64 8.89 $ 745,699 Vested as of June 30, 2021 8,778,372 $ 1.28 7.40 $ 246 (1) Intrinsic value based is calculated based on the difference between the exercise price of in-the-money-stock options and the fair value of the common stock as of the respective balance sheet dates. (2) The 2011 Plan allows for early exercise of stock options and these balances include all exercisable stock options regardless of vesting status. During the three months ended June 30, 2021 and 2020, share-based compensation expense recognized for employee stock options, excluding the CEO Long-Term Performance Award, was $ 8.2 million and $ 2.9 million, respectively. During the six months ended June 30, 2021 and 2020, share-based compensation expense recognized for employee stock options, excluding the CEO Long-Term Performance Award, was $ 13.6 million and 5.1 million, respectively. As of June 30, 2021, unrecognized compensation costs related to unvested outstanding stock options, excluding the CEO Long-Term Performance Award, was $ 122.0 million. These costs are expected to be recognized over a period of 6.3 years. The fair value of stock options granted was estimated using the Black-Scholes option pricing model and the following weighted average assumptions: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Dividend yield 0.0 % 0.0 % 0.0 % 0.0 % Expected volatility 54.72 % 49.30 % 54.15 % 48.06 % Expected term (in years) 6.84 6.02 6.73 6.02 Risk-free interest rate 1.32 % 0.40 % 1.22 % 0.55 % Subsequent to the completion of the IPO, the fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its Class A common stock, which is traded on the Nasdaq Global Select Market. 20 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) Secondary Sales of Common Stock Prior to the completion of the IPO, certain economic interest holders acquired outstanding common stock from current or former employees for a purchase price greater than the Company's estimated fair value at the time of the transactions. During the three months ended June 30, 2021 and 2020, the Company recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction of $ 5.8 million and $ 0.0 million, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction of $ 11.6 million and $ 1.4 million, respectively. CEO Long-Term Performance Award In April and May 2021, the Company’s board of directors granted the Company’s Chief Executive Officer equity incentive awards in the form of performance-based stock options covering 19,740,923 and 47,267 shares of our Class B common stock with an exercise price of $ 21.49 and $ 23.40 per share, respectively, or collectively, the CEO Long-Term Performance Award. The CEO Long-Term Performance Award vests upon the satisfaction of a service condition and the achievement of certain stock price hurdles over a seven year performance period following the expiration of the lock-up period associated with the IPO. The stock price hurdle will be achieved if the average closing price of a share of our Class A common stock during any 90 consecutive trading day period during the performance period equals or exceeds the Company stock price hurdle set forth in the table below. The CEO Long-Term Performance Award is divided into seven equal tranches which vest upon the achievement of the following Company stock price hurdle: Tranche Company Stock Price Hurdle Number of Options Eligible to Vest 1 $ 67.50 2,826,884 2 $ 78.98 2,826,884 3 $ 92.40 2,826,884 4 $ 108.11 2,826,884 5 $ 126.49 2,826,884 6 $ 147.99 2,826,884 7 $ 173.15 2,826,884 Total 19,788,188 The grant date fair value of the CEO Long-Term Performance Award was estimated using a Monte Carlo simulation model that incorporated multiple stock price paths and probabilities that the Company stock price hurdles are met. The weighted-average grant date fair value of the seven tranches of the CEO Long-Term Performance Award was estimated to be $ 10.53 per option share. In the three months ended June 30, 2021, the Company recognized $ 11.4 million of share-based compensation expense related to the CEO Long-Term Performance Award. As of June 30, 2021, the aggregate unrecognized compensation cost of the CEO Long-Term Performance Award was $ 197.0 million, which is expected to be recognized over the remaining derived service period of 4.6 years. Restricted Stock Units Commencing in 2020, the Company began granting RSUs to employees. RSUs granted prior to April 1, 2021 vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for these awards is satisfied over four years . On June 8, 2021, the Company completed its IPO and the liquidity condition for these awards was satisfied and the Company recognized $ 23.1 million of share-based compensation expense associated with RSUs that had service-vested as of the IPO completion date. Subsequent to the IPO, the unamortized grant date fair value of these RSUs will be recorded as share-based compensation expense over the remaining service period. 21 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) RSUs granted on or after April 1, 2021, vest upon the satisfaction of a service condition. The service condition for these awards is satisfied over four years . In the three months ended June 30, 2021, the Company recognized $ 7.0 million of share-based compensation expense related to these RSUs. A summary of the Company's RSUs activity under both stock incentive plans was as follows: Number of Restricted Stock Units Weighted-average grant date fair value per share Balance as of December 31, 2020 4,430,336 $ 4.93 Granted 5,321,906 18.87 Vested ( 1,116,788 ) 3.30 Canceled and forfeited ( 212,317 ) 9.28 Balance as of June 30, 2021 8,423,137 $ 13.17 During the three and six months ended June 30, 2021, share-based compensation expense recognized for RSUs was $ 30.1 million and $ 30.1 million, respectively. As of June 30, 2021, unrecognized compensation costs related to unvested RSUs was $ 106.3 million. These costs are expected to be recognized over a period of 3.3 years. 22 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 9. Warrants to Purchase Common Stock In both 2013 and 2014, in connection with prior loan agreements, the Company issued two warrants to the lender to purchase 101,805 and 101,805 shares of Series B redeemable convertible preferred stock, both at an exercise price of $ 0.295 per share. As of June 30, 2021, both warrants are fully vested and exercisable and expire in 2023. Prior to the IPO, the warrants were classified as a liability in the condensed consolidated balance sheets and were remeasured at each balance sheet date using the Black-Scholes option pricing model, and any changes in fair value were recorded in other income (expense), net in the Company's condensed consolidated statements of operations. Immediately prior to the completion of the IPO in June 2021, these outstanding redeemable convertible preferred stock warrants were converted to Class B common stock warrants and the fair value of the liability as of that date was reclassified into the Company’s Class B common stock and additional paid-in capital. In 2015 and 2016, in connection with prior loan agreements, the Company issued two warrants to the lender to purchase 231,348 and 621,066 shares of common stock, both at an exercise price of $ 0.053 per share. As of December 31, 2020, 231,348 and 438,180 warrants were fully vested and exercisable, and classified as equity instruments. Immediately prior to the completion of the IPO, those warrants were converted to an equivalent number of shares of Class B common stock warrants. In June 2020, both warrants were exercised and a total of 668,412 shares of Class B common stock were issued. In September 2020, the Company issued a warrant to a Customer to purchase up to 750,000 shares of the Company’s common stock over a period of five years , ending in September 2025, at an exercise price of $ 0.01 per share, for a total fair value of $ 5.7 million. The warrant becomes exercisable when the vesting conditions are met. The warrant vesting is contingent on certain performance conditions, which include the Customer reaching certain annual transaction count thresholds over the five-year contract term. This warrant is classified as an equity instrument and expires in September 2025. It is treated as consideration payable to a Customer and recorded as a reduction to net revenue based on the probability of vesting conditions being met and the grant date fair value of the warrant. As of June 30, 2021, 22,500 warrants were vested and the Company recorded an immaterial amount as a reduction to net revenue during the three months then ended. The fair value of the warrant was estimated using the Black-Scholes option pricing model and the following assumptions as of the date of the grant: Dividend yield 0.0 % Expected volatility 50.0 % Contract term (in years) 5.0 Risk-free interest rate 0.3 % In March 2021, the Company issued warrants to two Customers to purchase up to 1,100,000 and 50,000 shares of the Company’s common stock, respectively, over a period of four years , ending in April 2025, at an exercise price of $ 0.01 per share. The aggregate grant date fair value of these warrants was $ 26.4 million. The warrants’ vesting is contingent on certain performance conditions, which include issuing a specified percentage of new cards on the Company’s Platform over a three-year measurement period. The warrants are treated as consideration payable to a Customer and the grant date fair value of the warrants will be recorded as a reduction to net revenue based on the probability of vesting conditions being met. As of June 30, 2021, 91,667 warrants had vested and the Company recorded $ 1.0 million as a reduction to net revenue during the three and six months ended June 30, 2021. The fair value of the warrants was estimated using the Black-Scholes option pricing model and the following weighted average assumptions: Dividend yield 0.0 % Expected volatility 50.0 % Contract term (in years) 4.0 Risk-free interest rate 0.6 % 23 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 10. Net Loss Per Share Attributable to Common Stockholders The Company presents basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Prior to the completion of the IPO, all series of redeemable convertible preferred stock were considered participating securities. Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into shares of Class B common stock. See Note 8 for additional information. The Company has not allocated net loss attributable to common stockholders to redeemable convertible preferred stock in any period presented because the holders of its redeemable convertible preferred stock were not contractually obligated to share in losses. The Company calculates basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders gives effect to all potential shares of common stock, including common stock issuable upon conversion of redeemable convertible preferred stock and redeemable convertible preferred stock warrants, stock options, RSUs and common stock warrants to the extent these are dilutive. The Company calculated basic and diluted net loss per share attributable to common stockholders as follows: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerator Net loss attributable to Class A and Class B common stockholders $ ( 68,554 ) $ ( 7,107 ) $ ( 81,392 ) $ ( 21,637 ) Denominator Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted 234,669,664 120,051,635 183,784,697 119,265,816 Net loss per share attributable to Class A and Class B common stockholders, basic and diluted $ ( 0.29 ) $ ( 0.06 ) $ ( 0.44 ) $ ( 0.18 ) Basic net loss per share is the same as diluted net loss per share because the Company reported a net loss for the three and six months ended June 30, 2021 and 2020. The rights, including the liquidation and dividend rights, of the holders of Class A common stock and Class B common stock are identical, except with respect to voting. As the liquidation and dividend rights are identical for Class A common stock and Class B common stock, the undistributed earnings are allocated on a proportionate basis and the resulting loss per share will, therefore, be the same for both Class A common stock and Class B common stock on an individual or combined basis. The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect: As of June 30, 2021 2020 Redeemable convertible preferred stock, all series — 354,834,798 Warrants to purchase redeemable convertible preferred stock — 203,610 Warrants to purchase Class B common stock 2,103,610 669,528 Stock options outstanding, including early exercise of options 48,319,951 27,579,970 Unvested RSUs outstanding 8,423,137 2,759,659 Total 58,846,698 386,047,565 24 Table of Contents Marqeta, Inc. Notes to Condensed Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) (unaudited) 11. Income Tax The provision for income taxes was not significant for all periods presented. The Company’s effective tax rate was approximately zero percent for all periods presented. The effective tax rate was lower than the U.S. federal statutory rate primarily because of the domestic valuation allowances. For all periods presented, the Company recognized an insignificant provision related to foreign income taxes. 12. Concentration Risks and Significant Customers Financial instruments that potentially expose the Company to concentration of credit risk consist of cash and cash equivalents, marketable securities, accounts receivable and unbilled Customers' receivable, or collectively, Customers' receivables, and settlements receivable. Cash on deposit with financial institutions may, at times, exceed federally insured limits. Management believes that these financial institutions are financially sound and, accordingly, minimal credit risk exists. Cash and cash equivalents as of June 30, 2021 and December 31, 2020 include $ 1.6 billion and $ 203.6 million, respectively, of investments in three money market mutual funds which invest primarily in securities issued by the U.S. Government or U.S. Government agencies. As of June 30, 2021, marketable securities were $ 105.1 million, and there was no concentration of securities of the same issuer with an aggregate fair value greater than 5% of the total balance, except for U.S. Treasuries, which amounted to $ 80.2 million, or 76 % of the marketable securities. All debt securities within the Company's portfolio are investment grade. As of December 31, 2020, marketable securities were $ 149.9 million, and there was no concentration of securities of the same issuer with an aggregate fair value greater than 5% of the total balance, except for U.S. Treasuries, which amounted to $ 125.9 million, or 84 % of the marketable securities. All debt securities within the Company's portfolio are investment grade. A significant portion of the Company's payment transactions are settled through one Issuing Bank, Sutton Bank. For the three months ended June 30, 2021 and 2020, 92 % and 96 % of Total Processing Volume, which is the total dollar amount of payments processed through the Company’s Platform, net of returns and chargebacks, was settled through Sutton Bank, respectively. For the six months ended June 30, 2021 and 2020, 93 % and 96 % of Total Processing Volume was settled through Sutton Bank, respectively. A significant portion of the Company's revenue is derived from one Customer. For the three months ended June 30, 2021 and 2020, this Customer accounted for 72 % and 66 % of the Company’s net revenue, respectively. For the six months ended June 30, 2021 and 2020, this Customer accounted for 73 % and 66 % of the Company’s net revenue, respectively. For the three and six months ended June 30, 2020, another Customer accounted for 16 % and 13 % of the Company’s net revenue, respectively. 13. Related Party Transactions The Company may enter into transactions with related parties. Prior to the completion of the IPO, DFS Services LLC, a holder of more than 5 % of the Company's outstanding capital stock, was a related party. During the three and six months ended June 30, 2020, the Company incurred $ 6.9 million and $ 12.1 million in Card Network fees, net, recorded within costs of revenue, to PULSE Network LLC, an entity affiliated with DFS Services LLC . 14. Subsequent Events The Company has evaluated events through August 11, 2021, the date the financial statements as of and for the three and six months ended June 30, 2021 were available to be issued. No subsequent events were identified that would have required recognition or disclosure in the financial statements. 25 Table of Contents