Marqeta, Inc. 10-K

Item 8. Financial Statements and Supplementary Data MARQETA, INC. FORM 10-K INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Registered Independent Public Accounting Firm (PCAOB ID: 42 ) 86 Consolidated Balance Sheets 87 Consolidated Statements of Operation s and Comprehensive Loss 88 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 89 Consolidated Statements of Cash Flows 90 Notes to Consolidated Financial Statements 92 85 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Marqeta, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Marqeta, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. Redwood City, California March 11, 2022 86 Table of Contents Marqeta, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) As of December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 1,247,581 $ 220,433 Restricted cash 7,800 7,800 Marketable securities 452,875 149,903 Accounts receivable, net 13,187 8,420 Settlements receivable, net 11,266 12,867 Network incentives receivable 30,399 20,022 Prepaid expenses and other current assets 35,617 11,461 Total current assets 1,798,725 430,906 Property and equipment, net 9,687 9,477 Operating lease right-of-use assets, net 11,296 13,411 Equity method investment 8,384 — Other assets 2,286 3,886 Total assets $ 1,830,378 $ 457,680 Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 2,693 $ 2,362 Revenue share payable 121,179 78,191 Accrued expenses and other current liabilities 114,096 60,545 Total current liabilities 237,968 141,098 Redeemable convertible preferred stock warrant liabilities — 2,517 Operating lease liabilities, net of current portion 12,427 15,449 Other liabilities 6,557 10,452 Total liabilities 256,952 169,516 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 December 31, 2021 and December 31, 2020, respectively — 501,881 Stockholders’ equity (deficit): Preferred stock, $ 0.0001 par value; 100,000,000 and zero shares authorized, no shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively — — Common stock, $ 0.0001 par value: 1,500,000,000 and zero Class A shares authorized, 421,792,153 and zero shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively. 600,000,000 and 545,000,000 Class B shares authorized, 119,591,365 and 130,312,838 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively 54 13 Additional paid-in capital 1,993,055 39,769 Accumulated other comprehensive income (loss) ( 2,230 ) 25 Accumulated deficit ( 417,453 ) ( 253,524 ) Total stockholders’ equity (deficit) 1,573,426 ( 213,717 ) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 1,830,378 $ 457,680 See accompanying notes to consolidated financial statements. 87 Table of Contents Marqeta, Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Year Ended December 31, 2021 2020 2019 Net revenue $ 517,175 $ 290,292 $ 143,267 Costs of revenue 285,470 172,385 82,814 Gross profit 231,705 117,907 60,453 Operating expenses: Compensation and benefits 318,116 129,802 88,309 Professional services 18,443 7,188 7,157 Technology 33,637 13,239 7,796 Occupancy 4,181 4,337 3,777 Depreciation and amortization 3,534 3,498 3,080 Marketing and advertising 2,284 1,670 2,080 Other operating expenses 13,516 5,260 7,117 Total operating expenses 393,711 164,994 119,316 Loss from operations ( 162,006 ) ( 47,087 ) ( 58,863 ) Other income (expense), net ( 2,563 ) ( 521 ) 698 Loss before income tax expense ( 164,569 ) ( 47,608 ) ( 58,165 ) Income tax expense (benefit) ( 640 ) 87 35 Net loss $ ( 163,929 ) $ ( 47,695 ) $ ( 58,200 ) Deemed dividend to redeemable convertible preferred stockholders — — ( 64,149 ) Net loss attributable to common stockholders $ ( 163,929 ) $ ( 47,695 ) $ ( 122,349 ) Other comprehensive income (loss), net of taxes: Change in foreign currency translation adjustment $ ( 14 ) $ ( 64 ) $ ( 22 ) Change in unrealized gain (loss) on marketable securities ( 2,241 ) 43 69 Net other comprehensive income (loss) ( 2,255 ) ( 21 ) 47 Comprehensive loss $ ( 166,184 ) $ ( 47,716 ) $ ( 58,153 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.45 ) $ ( 0.39 ) $ ( 1.07 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 362,756,466 122,932,556 113,851,714 See accompanying notes to consolidated financial statements. 88 Table of Contents Marqeta, Inc. Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (in thousands, except share amounts) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (loss) Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of January 1, 2019 287,216,434 $ 114,842 121,411,803 $ 12 $ 2,870 $ ( 1 ) $ ( 87,788 ) $ ( 84,907 ) Issuance of Series E redeemable convertible preferred stock at $ 3.89 per share, net of issuance costs of $ 7,010 38,552,483 142,990 — — — — — — Exchange of common stock for Series E redeemable convertible preferred stock 11,074,661 13,767 ( 11,074,661 ) — ( 13,767 ) — — ( 13,767 ) Deemed dividend upon the exchange of Series A and Series C redeemable convertible preferred stock for Series E redeemable convertible preferred stock — 64,149 — — ( 4,308 ) — ( 59,841 ) ( 64,149 ) Issuance of common stock upon exercise of vested options — — 7,767,038 — 515 — — 515 Issuance of common stock upon early exercise of unvested options — — 762,440 — — — — Repurchase of early exercised stock options — — ( 436,589 ) — — — — Vesting of early exercised stock options — — — — 298 — — 298 Share-based compensation expense — — — — 21,757 — — 21,757 Change in other comprehensive income (loss) — — — — — 47 — 47 Net loss — — — — — — ( 58,200 ) ( 58,200 ) Balance as of December 31, 2019 336,843,578 $ 335,748 118,430,031 $ 12 $ 7,365 $ 46 $ ( 205,829 ) $ ( 198,406 ) Issuance of Series E-1 redeemable convertible preferred stock at $ 8.34 per share, net of issuance costs of $ 8,058 20,989,756 166,942 — — — — — — Conversion of Series A and Series C redeemable convertible preferred stock to common stock ( 5,988,994 ) ( 809 ) 5,988,994 1 808 — — 809 Issuance of common stock upon exercise of vested options — — 5,236,999 — 2,472 — — 2,472 Issuance of common stock upon early exercise of unvested options — — 847,184 — — — — — Repurchase of early exercised stock options — — ( 190,370 ) — — — — — Vesting of early exercised stock options — — — — 742 — — 742 Vesting of common stock warrants — — — — 171 — — 171 Share-based compensation expense — — — — 28,211 — — 28,211 Change in other comprehensive income (loss) — — — — — ( 21 ) — ( 21 ) Net loss — — — — — — ( 47,695 ) ( 47,695 ) Balance as of December 31, 2020 351,844,340 501,881 130,312,838 13 39,769 25 ( 253,524 ) ( 213,717 ) 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 — — 4,277,344 — 4,969 — — 4,969 Issuance of common stock under employee stock purchase plan — — 153,905 — 3,201 — — 3,201 Repurchase of early exercised stock options — — ( 85,870 ) — — — — — Issuance of common stock upon net settlement of restricted stock units — — 1,736,212 — ( 23,552 ) — — ( 23,552 ) Issuance of common stock upon exercise of common stock warrants — — 872,022 — 60 — — 60 Vesting of common stock warrants — — — — 6,332 — — 6,332 Share-based compensation expense — — — — 142,660 — — 142,660 Change in other comprehensive income (loss) — — — — — ( 2,255 ) — ( 2,255 ) Net loss — — — — — — ( 163,929 ) ( 163,929 ) Balance as of December 31, 2021 — $ — 541,383,518 $ 54 $ 1,993,055 $ ( 2,230 ) $ ( 417,453 ) $ 1,573,426 See accompanying notes to consolidated financial statements. 89 Table of Contents Marqeta, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 163,929 ) $ ( 47,695 ) $ ( 58,200 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,534 3,498 3,080 Share-based compensation expense 142,660 28,211 21,757 Non-cash operating leases expense 2,115 2,029 1,487 Amortization of premium (accretion of discount) on marketable securities 1,162 543 ( 499 ) Provision for doubtful accounts 173 39 370 Other 2,937 1,890 1,000 Changes in operating assets and liabilities: Accounts receivable ( 4,940 ) ( 4,485 ) ( 2,812 ) Settlements receivable 1,601 ( 2,961 ) ( 4,000 ) Network incentives receivable ( 10,377 ) ( 9,400 ) ( 8,248 ) Prepaid expenses and other assets ( 7,742 ) ( 2,481 ) ( 5,363 ) Accounts payable 190 ( 839 ) 1,613 Revenue share payable 42,988 48,442 18,631 Accrued expenses and other liabilities 49,372 34,997 17,407 Operating lease liabilities ( 2,772 ) ( 1,515 ) ( 1,651 ) Net cash provided by (used in) operating activities 56,972 50,273 ( 15,428 ) Cash flows from investing activities: Purchases of property and equipment ( 2,743 ) ( 2,375 ) ( 4,908 ) Purchases of marketable securities ( 455,266 ) ( 216,200 ) ( 528,300 ) Sales of marketable securities — 71,981 — Maturities of marketable securities 148,888 89,032 433,640 Purchase of equity method investment and purchase option ( 20,000 ) — ( 750 ) Net cash used in investing activities ( 329,121 ) ( 57,562 ) ( 100,318 ) 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 — 166,942 142,990 Payment of bank loan and related fees — — ( 5,005 ) Proceeds from exercise of stock options, including early exercised stock options, net of repurchase of early exercised unvested options 4,539 3,144 1,064 Proceeds from exercise of warrants 60 — — Proceeds from shares issued in connection with employee stock purchase plan 3,201 — — Taxes paid related to net share settlement of restricted stock units ( 23,552 ) — — Payment of deferred offering costs ( 4,760 ) ( 2,708 ) — Net cash provided by financing activities 1,299,297 167,378 139,049 Net increase in cash, cash equivalents, and restricted cash 1,027,148 160,089 23,303 Cash, cash equivalents, and restricted cash- Beginning of period 228,233 68,144 44,841 Cash, cash equivalents, and restricted cash - End of period $ 1,255,381 $ 228,233 $ 68,144 See accompanying notes to consolidated financial statements. 90 Table of Contents Marqeta, Inc. Consolidated Statements of Cash Flow s (in thousands) Year Ended December 31, 2021 2020 2019 Reconciliation of cash, cash equivalents, and restricted cash Cash and cash equivalents $ 1,247,581 $ 220,433 $ 60,344 Restricted cash 7,800 7,800 7,800 Total cash, cash equivalents, and restricted cash $ 1,255,381 $ 228,233 $ 68,144 Supplemental disclosures of cash flow information: Cash paid for interest $ — $ — $ 317 Cash paid for income taxes $ 201 $ 109 $ 1 Supplemental disclosures of non-cash investing and financing activities: Purchase of property and equipment accrued and not yet paid $ 1,190 $ 159 $ 73 Deemed dividend upon the exchange for Series A and Series C redeemable convertible preferred stock for Series E redeemable convertible preferred stock $ — $ — $ 64,149 Deferred offering costs not yet paid $ — $ 426 $ — Conversion of redeemable convertible preferred stock to common stock $ — $ 809 $ — See accompanying notes to consolidated financial statements. 91 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 1. Business Overview and Basis of Presentation Marqeta, Inc., or the Company, 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 payment 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, United Kingdom, and Australia, and a presence in Singapore. 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 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 consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP). All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts reported in our consolidated financial statements and the related notes have been reclassified to conform to the current period presentation. Use of Estimates The preparation of the financial statements requires management to make estimates and assumptions relating to reported amounts of assets and liabilities, disclosure of contingent liabilities, and reported amounts of revenue and expenses. Significant estimates and assumptions relate to the fair value of equity awards and warrants, share-based compensation, the estimation of variable consideration in contracts with Customers, the reserve for contract contingencies and processing errors, the fair value of equity method investments and a purchase call option to acquire the remaining interest in the equity method investee, the incremental borrowing rate used to determine operating lease liabilities, the useful lives of property and equipment, and the collectability of accounts receivable. Actual results could differ materially from these estimates. 92 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Business Risks and Uncertainties The Company has incurred net losses since its inception. For the year ended December 31, 2021, the Company incurred a net loss of $ 163.9 million and had an accumulated deficit of $ 417.5 million as of December 31, 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 $ 1.2 billion and marketable securities of $ 452.9 million as of December 31, 2021 are sufficient to fund its operations through at least the next twelve 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 Revenue Recognition On January 1, 2019, the Company adopted Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers (Topic 606) , using the full retrospective method. Revenue is recognized when control of the promised goods or services is transferred to Customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company’s contracts with Customers typically include two performance obligations: 1) providing access to the Company's payment processing Platform and 2) providing card fulfillment services . Certain Customer contracts require the Company to allocate the transaction price of the contract based on the relative stand-alone selling price of the performance obligations which are estimated using an analysis of the Company’s historical contract pricing and costs incurred to fulfill its services. The Company generates revenue from providing platform services and other services as described below. Platform Services The Company delivers an integrated payment processing Platform to its Customers. The Company’s primary performance obligation is to provide Customers continuous access to the Company’s Platform used to process all Customers’ transactions as needed. This obligation includes authorizing, settling, clearing and reconciling all transactions and managing the interactions with the Issuing Banks and Card Networks on behalf of its Customers. All these services are collectively considered a single performance obligation. The Company’s Platform services revenue is primarily derived from Interchange Fees generated by Customer card transactions and other transaction fees collected from Customers. The Company accounts for these Interchange Fees as revenue earned from its customers because the Company controls the services before delivery to the Customer. The Company’s Platform services revenue consists of a stand-ready service of distinct transaction processing services that are substantially the same, with the same pattern of transfer to Customers. As such, the stand-ready obligation is accounted for as a single performance obligation that is a series of distinct services whereby the variability of the transaction value is satisfied daily as the performance obligation is satisfied. The Company satisfies its performance obligation to provide Platform services over time as Customers have continuous access to the Company's Platform and the Company stands-ready to process Customer transactions throughout their term of access. 93 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) The Company recognizes revenue when the underlying transactions are complete, and its performance obligation is satisfied. Transactions are considered complete when the Company has authorized the transaction, validated that the transaction has no errors and accepted and posted the data to its records. The Company allocates variable consideration to the distinct month in which the Platform services are delivered. When pricing terms are not consistent throughout the entire term of the contract, the Company estimates variable consideration in its Customer contracts primarily using the expected value method. The standard term of the Customer contracts is three years, with automatic renewal for successive one-year periods thereafter unless either party provides written notice of its intent not to renew. The Company develops estimates of variable consideration on the basis of both historical information and current trends and does not expect or anticipate significant reversal of revenue in the future periods. As the Issuer Processor for its Customers, the Company is the principal in providing the services under its contracts with Customers. To deliver the services required by its Customers, the Company contracts with Card Networks for transaction routing, reporting, and settlement services and with Issuing Banks for card issuing, Card Network sponsorship, and regulatory compliance approval services. The Company controls these integrated services before delivery to its Customers; it is primarily responsible for the delivery of the services to Customers, and it has discretion in vendor selection. As such, the Company records fees paid to the Issuing Banks and Card Networks as costs of revenue. The Company's contracts with Customers include certain service level agreements which could require the Company to make payments to Customers if service levels are not met. Any service level payment is recorded as a reduction to net revenue in the consolidated statements of operations and comprehensive loss. The Company does not capitalize costs to acquire contracts. Revenue Share The Company’s contracts with Customers typically include provisions under which the Company shares a portion of the Interchange Fees with its Customers, referred to as Revenue Share. Revenue Share payments are incentives to Customers to increase their processing volume on the Company’s Platform, and is computed as a percentage of the Interchange Fees earned or processing volume and is paid to Customers monthly. The Company records Revenue Share as a reduction to net revenue in the consolidated statements of operations and comprehensive loss. The Company records the amount due to the Customer as Revenue Share payable on the consolidated balance sheets. Other Services Revenue The Company earns revenue from Customers through card fulfillment services. Card fulfillment fees are generally billed to Customers upon ordering card inventory and recognized as revenue when the ordered cards are shipped to the Customers. The Company offers certain Customers the option to purchase physical cards at a discount. The Company has concluded that the discount does not constitute a future material right because the discount is within a range typically offered to the class of customers. Therefore, the Company accounts for the discount as a reduction to revenue when the Company delivers the ordered cards to the Customers. Deferred Revenue Deferred revenue arises when Customers are billed for services in advance of the Company's revenue recognition. The Company's deferred revenue is primarily due to undelivered card fulfillment services and variable consideration from customer contracts where pricing terms are not consistent throughout the entire term of the contract, non-refundable upfront setup fees that are billed at contract inception, and card fulfillment services that are billed to customers in advance of the delivery of the ordered cards. Arrangements that include rights to additional goods or services that are exercisable at a Customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the Customer and if so, they are considered performance obligations. This material right is valued by estimating the discount that will be redeemed by the Customer during the optional renewal period. 94 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Reserve for Contract Contingencies and Processing Errors Customer contracts generally contain service level agreements that can result in performance penalties payable by the Company when contractually required service levels are not met or can result in payments by the Company for processing errors. As such, the Company records a reserve for estimated performance penalties and processing errors. When providing for these reserves, the Company considers factors such as its history of incurring performance penalties and processing errors, actual contractual penalty charge rates in customer contracts, and known or estimated processing errors. These reserves are included in accrued expenses and other current liabilities on the consolidated balance sheets and the provision for contract contingencies and processing errors is included as a reduction to net revenue on the consolidated statements of operations and comprehensive loss. Costs of Revenue Costs of revenue consist of Card Network costs, Issuing Bank costs, and card fulfillment costs. Card Network costs are generally equal to a specified percentage of the processing volume or a fixed amount per transaction processed through the respective Card Network. The Company incurs Card Network costs directly from contractual arrangements with the Card Networks that are passed entirely through Issuing Banks, or directly from the Card Networks. The Company's contracts with Card Networks and Issuing Banks typically have terms ranging from three to five years which may be renewed in one-year to two-year increments as agreed by both parties. Issuing Bank costs compensate Issuing Banks for issuing cards to the Company’s Customers and sponsoring the Company’s card programs with the Card Networks and are generally equal to a specified percentage of the processing volume or a fixed amount per transaction, subject to monthly minimum amounts. Card fulfillment costs include physical cards, packaging, and other fulfillment costs. The Company has marketing and incentive arrangements with Card Networks that provide the Company with monetary incentives based on a percentage of the volume processed over the respective Card Network. Uncollected incentives are included in network incentives receivable on the consolidated balance sheets. The Company records these incentives as a reduction of costs of revenue on the consolidated statements of operations and comprehensive loss. 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 years ended December 31, 2021, 2020, and 2019, revenue outside of the United States, based on the billing address of the Customer, was not material. As of December 31, 2021 and December 31, 2020, long-lived assets located outside of the United States were not material. Foreign Currency The functional currency of the Company’s foreign subsidiary is its respective local currency. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income (loss) within the consolidated balance sheets and the consolidated statements of redeemable convertible preferred stock and stockholders’ deficit. Foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average exchange rate during the period, and equity balances are translated using historical exchange rates. 95 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist primarily of bank deposit accounts and investments in money market funds. Restricted Cash Restricted cash consists of a deposit with one of the Company’s Issuing Banks to provide the Issuing Bank collateral in the event that Customers’ funds are not deposited at the Issuing Bank in time to settle Customers’ transactions with the networks that provide the infrastructure for settlement and card payment information flows, or Card Networks. Restricted cash also includes cash used to secure a letter of credit for the Company’s lease of its office headquarters in Oakland, California. Marketable Securities The Company's marketable securities include U.S. government securities, commercial paper, asset-backed securities, and corporate debt securities. The Company's marketable securities are accounted for as securities available-for-sale and are classified within current assets in the consolidated balance sheets as the Company may sell these securities at any time for use in its operations, even prior to maturity. The Company carries these marketable securities at fair value, and records any unrealized gain and loss, net of taxes, in accumulated other comprehensive income (loss), a component of stockholders’ equity (deficit). The Company records any realized gains or losses on the sale of marketable securities in other income (expense), net in the consolidated statements of operations and comprehensive loss. Management regularly reviews whether marketable securities are other-than-temporarily impaired. If any impairment is considered other-than-temporary, the Company writes down the investment to its then fair value and records the corresponding charge through other income (expense), net in the consolidated statements of operations and comprehensive loss. Equity Investments and Purchase Options The Company applies the equity method of accounting for investments in other entities when the Company exercises significant influence, but no control. Under the equity method, the Company’s records its share of each entity’s profit or loss in other income (expense), net in the consolidated statements of operations and comprehensive loss on a one quarter lag when the most recent financial information of the investee becomes available. The Company regularly reviews investments accounted for under the equity method for impairment. Investments in other entities not accounted for under the equity method of accounting, including options to purchase these entities, are accounted for at cost less impairment, if applicable. Additionally, the value of these investments may be adjusted to fair value resulting from observable transactions for identical or similar investments. In 2021, the Company acquired a preferred equity interest in a private company that is accounted for under the equity method of accounting. Concurrent with this investment, the Company also acquired an option that gives the Company the right, but not the obligation, to purchase all of the remaining equity interests of the private company. The carrying amounts of the equity method investment and the option at December 31, 2021 were $ 8.4 million and $ 11.6 million, respectively. The option is reflected within Prepaid expenses and other current assets in the consolidated balance sheets. The Company applies the measurement alternative and will continue to measure the option at cost, less any impairment. If an indicator of impairment exists or if the Company decides to not exercise its option, which expires on June 30, 2022, the Company will record an impairment charge accordingly. 96 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Accounts Receivable Accounts receivable are recorded at invoiced amounts and do not earn interest. The Company estimates an allowance for doubtful accounts receivable by making its best estimate of specific uncollectible accounts considering its historical accounts receivable collection experience and the information that management has about the current status of accounts receivable balances. As of December 31, 2021 and 2020, the allowance for doubtful accounts receivable was $ 0.2 million and $ 0.1 million, respectively. Settlements Receivable Settlements receivable represent Interchange Fees earned on Customers’ card transactions, net of pass through Card Network fees, and are due from Issuing Banks. Interchange Fees are typically received within one or two business days of the transaction date and are due from well-established Issuing Banks, mitigating the associated risk of collection. No valuation allowance has been established. The Company does not generate revenue from Issuing Banks. Deferred Offering Costs Deferred offering costs consist primarily of accounting, legal, and other fees related to the IPO. Upon the completion of the IPO in June 2021, the deferred offering costs were reclassified to stockholders’ equity (deficit) and recorded net against the proceeds from the IPO. Property and Equipment Property and equipment is stated at cost, less accumulated depreciation and amortization. The Company uses the straight-line method of depreciation and amortization. Estimated useful lives range from three to five years for purchased and internally developed software, computer equipment, and furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term, excluding renewal periods, or the estimated useful life of the leasehold improvement. Gains and losses realized on the sale or disposal of property and equipment are recognized or charged to other income (expense), net in the consolidated statements of operations and comprehensive loss. The Company evaluates the carrying value of property and equipment on an annual basis, or more frequently whenever circumstances indicate a long-lived asset may be impaired. When indicators of impairment exist, the Company estimates the future undiscounted cash flows attributable to such assets. In the event cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair value. During the years ended December 31, 2021 and 2020, the Company did no t recognize any material impairment of long-lived assets. Fair Value Measurements Fair value is an exit price, representing the price that would be received to sell the financial asset or paid to transfer the financial liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy includes a three-level classification, which is based on whether the inputs to the valuation methodology used for measurement are observable: • Level 1 ‑ quoted prices in active markets for identical assets as of the reporting date; • Level 2 ‑ inputs other than Level 1 that are observable, either directly or indirectly; or • Level 3 ‑ unobservable inputs. When developing fair value measurements, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. In instances where the Company lacks observable inputs in the market to measure the fair value of an asset or liability, the Company may use unobservable inputs which requires greater judgment in measuring fair value. In instances where there is limited or no observable market data, fair value measurements for assets and liabilities are based primarily upon the Company’s own estimates, and the measurements reflect information and assumptions that management believes a market participant would use in pricing the asset or liability. 97 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) The Company’s financial instruments consist of cash equivalents, marketable securities, accounts receivable, unbilled Customers' receivable, settlements receivable, accounts payable, accrued liabilities, and prior to the IPO, redeemable convertible preferred stock warrant liabilities. Cash equivalents are stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Marketable securities are carried at fair value. Accounts receivable, unbilled Customers' receivable, settlements receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The redeemable convertible preferred stock warrant liabilities were carried at fair value. Advertising Costs The Company expenses advertising costs as they are incurred. Advertising expenses for the years ended December 31, 2021, 2020 and 2019, were $ 1.7 million, $ 1.4 million and $ 1.1 million, respectively. Research and Development Costs Research and development costs, which consist primarily of salaries, employees' benefits, share-based compensation, third-party hosting fees and software licenses were $ 84.1 million, $ 34.0 million, and $ 25.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. Research and development costs are expensed as incurred and are included in compensation and benefits, and technology expenses in the consolidated statements of operations and comprehensive loss. Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers the available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized. If the Company determines that it is able to realize its deferred tax assets in the future in excess of the net recorded amount, the Company decreases the deferred tax asset valuation allowance, which reduces the income tax expense. Uncertain tax positions are recognized only when the Company believes it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense (benefit) in the consolidated statements of operations and comprehensive loss. Lease Obligations On January 1, 2019, the Company adopted Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), or Topic 842, using the modified retrospective method, which resulted in the recognition of operating lease right-of-use assets and lease liabilities on the Company’s consolidated balance sheets as of December 31, 2019, with no impact to its consolidated statements of operations and comprehensive loss for the year ended December 31, 2019. The Company measures lease liabilities based on the present value of the total lease payments not yet paid discounted based on the Company’s incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. 98 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) The Company measures right-of-use assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs the Company incurs and (iii) tenant incentives under the lease. The Company begins to recognize rent expense when the lessor makes the underlying asset available to the Company. For short-term leases, the Company records rent expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term and records variable lease payments as incurred. The Company has no finance leases. In 2016, the Company entered into a lease agreement for its corporate headquarters in Oakland, California for 19,000 square feet of office space, which was subsequently amended resulting in a total of 63,000 square feet of office space being leased. The non-cancellable operating lease expires in February 2026 and includes options to extend the lease term, generally at the then-market rates. The Company excludes extension options that are not reasonably certain to be exercised from its lease terms. The Company’s lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. The Company is responsible for operating expenses that exceed the amount of base operating expenses as defined in the original lease agreement. Loss Contingencies The Company may be involved in various lawsuits, claims, and proceedings that arise in the ordinary course of business. The Company records a liability for these when it believes it is probable that it has incurred a loss, and the Company can reasonably estimate the loss. The Company regularly evaluates current information to determine whether it should adjust a recorded liability or record a new one. If a loss is reasonably possible and the loss or range of loss can be reasonably estimated, the Company discloses the possible loss in the accompanying notes to the consolidated financial statements. Significant judgment is required to determine both the probability and the estimated amount. See Note 7, "Commitments and Contingencies", for a full description of the Company's loss contingencies. Share-based Compensation Restricted Stock Units Commencing in 2020, the Company began granting restricted stock units, or RSUs, to employees. RSUs granted prior to April 1, 2021 vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for these awards is satisfied over four years . On June 8, 2021, the Company completed its IPO and the liquidity condition for these awards was satisfied and the Company recognized a cumulative share-based compensation expense of $ 23.1 million associated with RSUs that had service-vested as of the IPO completion date. Subsequent to the IPO, the unamortized grant date fair value of these RSUs will be recorded as share-based compensation expense over the remaining service period. RSUs granted on or after April 1, 2021, vest upon the satisfaction of a service condition. The service condition for these awards is satisfied over four years and the grant date fair value of these RSUs will be recorded as share-based compensation expense over the service period. The fair value of RSUs is based on the closing price of the Company’s Class A common stock on the grant date. Prior to the IPO, the fair value of RSUs was based on the fair value of the underlying common stock on the grant date as determined by the Company’s board of directors at each meeting in which RSU awards were approved. Stock Options The Company grants stock option awards to certain employees and directors. The Company estimates the fair value of stock option awards using the Black-Scholes option pricing model. The model requires management to make a number of assumptions, including the expected future volatility of the Company’s Class A common stock, expected term, risk-free interest rate, and expected dividends. The Company records the resulting expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the period for which the employee or director is required to perform services to vest in the award, which is generally four years . The Company accounts for forfeitures as they occur. 99 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) CEO Long-Term Performance Award In April and May 2021, the Company’s board of directors granted the Company’s Chief Executive Officer equity incentive awards in the form of performance-based stock options, or collectively, the CEO Long-Term Performance Award. The CEO Long-Term Performance Award vests upon the satisfaction of a service condition and the achievement of certain stock price hurdles over a seven year performance period following the expiration of the lock-up period associated with the IPO. The stock price hurdle will be achieved if the average closing price of a share of the Company’s Class A common stock during any 90 consecutive trading day period during the performance period equals or exceeds the requisite stock price hurdle for the performance period. The grant date fair value of the CEO Long-Term Performance Award was estimated using a Monte Carlo simulation model that incorporated multiple stock price paths and probabilities that the Company stock price hurdles are met. The Company records the resulting expense in the consolidated statements of operations and comprehensive loss over the derived service period of each of the seven separate tranches using the accelerated attribution method. Employee Stock Purchase Plan In May 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan, or the ESPP, which became effective in connection with the IPO. The ESPP authorizes the issuance of shares of the Company’s Class A common stock pursuant to purchase rights granted to employees. The fair value of purchase rights issued under the ESPP is estimated using the Black-Scholes option pricing model. The model requires management to make a number of assumptions, including the fair value of the Company’s common stock, expected volatility, expected term, risk-free interest rate, and expected dividends. The Company records the resulting expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the six-month offering period. Secondary Sales of Common Stock Prior to the completion of the IPO, certain economic interest holders acquired outstanding common stock from current or former employees for a purchase price greater than the Company's estimated fair value of its common stock at the time of the transactions. For such secondary sales of common stock, the Company recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction. Net Loss Per Share Attributable to Common Stockholders The Company presents basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Prior to the completion of the IPO, all series of redeemable convertible preferred stock were considered participating securities. Immediately prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into shares of Class B common stock. The Company has not allocated net loss attributable to common stockholders to redeemable convertible preferred stock in any period presented because the holders of its redeemable convertible preferred stock were not contractually obligated to share in losses. The Company calculates basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders gives effect to all potential shares of common stock, including common stock issuable upon conversion of redeemable convertible preferred stock and redeemable convertible preferred stock warrants, stock options, RSUs and common stock warrants to the extent these are dilutive. 100 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) New Accounting Standards Not Yet 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 consolidated financial statements. 101 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 3. Revenue Disaggregation of Revenue The following table provides information about disaggregated revenue from Customers: Year Ended December 31, 2021 2020 2019 Platform services revenue, net $ 502,296 $ 283,305 $ 138,106 Other services revenue 14,879 6,987 5,161 Total net revenue $ 517,175 $ 290,292 $ 143,267 Contract Balances The following table provides information about contract assets and deferred revenue: Contract balance Balance sheet line reference December 31, 2021 December 31, 2020 Contract assets - current Prepaid expenses and other current assets $ 950 $ 118 Contract assets - non-current Other assets 927 294 Total contract assets $ 1,877 $ 412 Deferred revenue - current Accrued expenses and other current liabilities $ 19,060 $ 3,983 Deferred revenue - non-current Other liabilities 6,107 8,865 Total deferred revenue $ 25,167 $ 12,848 Contract assets related to the Company’s conditional right to consideration for the Company’s completed performance under the contract. Deferred revenue relates to payments received in advance of performance under the contract. Net revenue recognized during the years ended December 31, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was $ 4.1 million and $ 0.7 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. As of December 31, 2021 and 2020, $ 4.2 million and $ 4.4 million of the deferred revenue balance represent a material right for discounted revenue share rates provided to a Customer as part of a contractual renewal option. 102 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 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: December 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Marketable securities U.S. government securities $ 420,392 $ — $ ( 2,107 ) $ 418,285 Commercial paper 13,878 — — 13,878 Asset-backed securities 2,003 — ( 1 ) 2,002 Corporate debt securities 18,731 3 ( 24 ) 18,710 Total marketable securities $ 455,004 $ 3 $ ( 2,132 ) $ 452,875 December 31, 2020 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Marketable securities U.S. government securities $ 125,823 $ 47 $ ( 6 ) $ 125,864 Commercial paper 4,991 — — 4,991 Asset-backed securities 4,294 21 — 4,315 Corporate debt securities 14,683 52 ( 2 ) 14,733 Total marketable securities $ 149,791 $ 120 $ ( 8 ) $ 149,903 The Company had nineteen and six separate marketable securities in unrealized loss positions as of December 31, 2021 and 2020, respectively. The Company did not identify any marketable securities that were other-than-temporarily impaired as of December 31, 2021 and 2020. The Company does not intend to sell any marketable securities that have an unrealized losses at December 31, 2021 and it is not more likely than not that the Company will be required to sell such securities before any anticipated recovery. The following table summarizes the stated maturities of the Company’s marketable securities: December 31, 2021 December 31, 2020 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due within one year $ 64,914 $ 64,879 $ 149,791 $ 149,903 Due after one year through two years 390,090 387,996 — — Total $ 455,004 $ 452,875 $ 149,791 $ 149,903 103 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 5. Fair Value Measurements The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis: December 31, 2021 Level 1 Level 2 Level 3 Total Fair Value Cash equivalents Money market funds $ 1,213,543 $ — $ — $ 1,213,543 Marketable securities U.S. government securities 418,284 — — 418,284 Commercial paper — 13,878 — 13,878 Asset-backed securities — 2,002 — 2,002 Corporate debt securities — 18,711 — 18,711 Total assets $ 1,631,827 $ 34,591 $ — $ 1,666,418 December 31, 2020 Level 1 Level 2 Level 3 Total Fair Value Cash equivalents Money market funds $ 203,592 $ — $ — $ 203,592 Marketable securities U.S. government securities 125,864 — — 125,864 Commercial paper — 4,991 — 4,991 Asset-backed securities — 4,315 — 4,315 Corporate debt securities — 14,733 — 14,733 Total assets $ 329,456 $ 24,039 $ — $ 353,495 Other liabilities Redeemable convertible preferred stock warrants $ — $ — $ 2,517 $ 2,517 Total liabilities $ — $ — $ 2,517 $ 2,517 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. 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 determined in the same manner as the fair value of its common stock prior to the IPO. The Company records the change in the fair value of redeemable convertible preferred stock warrants in other income (expense), net in the consolidated statements of operations and comprehensive loss. Immediately prior to the completion of the IPO in June 2021, the outstanding redeemable convertible preferred stock warrants were converted to Class B common stock warrants and the fair value of the liability as of that date was reclassified into the Company’s Class B common stock and additional paid-in capital. 104 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 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: December 31, 2021 December 31, 2020 Balance, beginning of the period $ 2,517 $ 569 Remeasurement of redeemable convertible preferred stock warrant liabilities 2,921 1,948 Reclassification of redeemable convertible preferred stock warrant liabilities to common stock and additional paid-in capital upon initial public offering ( 5,438 ) — Balance, end of the period $ — $ 2,517 There were no transfers of financial instruments between the fair value hierarchy levels during the years ended December 31, 2021 and 2020. 6. Certain Balance Sheet Components Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: December 31, 2021 December 31, 2020 Prepaid expenses $ 6,492 $ 3,166 Inventory 3,940 781 Prepaid Insurance 3,546 324 Prepaid hosting and data costs 2,455 2,672 Card program deposits 2,167 2,174 Contract assets 950 119 Other financial instruments 11,616 — Other current assets 4,451 2,225 Prepaid expenses and other current assets $ 35,617 $ 11,461 105 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Property and Equipment, net Property and equipment consisted of the following: December 31, 2021 December 31, 2020 Leasehold improvements $ 8,110 8,110 Computer equipment 8,581 7,634 Furniture and fixtures 2,459 2,333 Internally developed and purchased software 2,954 1,299 22,104 19,376 Accumulated depreciation and amortization ( 12,417 ) ( 9,899 ) Property and equipment, net $ 9,687 $ 9,477 Depreciation and amortization expense was $ 3.5 million, $ 3.5 million and $ 3.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company capitalized $ 1.6 million as internal-use software costs during the year ended December 31, 2021. The Company did no t capitalize any internal-use software costs during the years ended December 31, 2020 and 2019, because development costs meeting capitalization criteria were not material during the respective periods. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: December 31, 2021 December 31, 2020 Accrued costs of revenue $ 41,339 $ 24,529 Reserve for contract contingencies and processing errors 3,386 9,537 Accrued compensation and benefits 32,954 14,078 Deferred revenue 19,060 3,983 Operating lease liabilities, current portion 3,021 2,771 Accrued professional services 2,454 867 Other accrued liabilities 11,882 4,780 Accrued expenses and other current liabilities $ 114,096 $ 60,545 Other Liabilities Other liabilities consisted of the following: December 31, 2021 December 31, 2020 Deferred revenue, net of current portion $ 6,107 $ 8,865 Other long-term liabilities 450 1,587 Other liabilities $ 6,557 $ 10,452 106 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 7. Commitments and Contingencies Operating Leases The Company's operating lease costs are as follows: Year Ended December 31, 2021 2020 2019 Operating lease cost $ 3,424 $ 3,514 $ 3,019 Variable lease cost 212 534 211 Short-term lease cost 358 271 191 Total lease cost $ 3,994 $ 4,319 $ 3,421 The Company does not have any sublease income and the Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants. The weighted average remaining operating lease term and the weighted average discount rate used in the calculation of the Company's lease assets and lease liabilities were as follows: December 31, 2021 December 31, 2020 Weighted average remaining operating lease term (in years) 4.1 5.1 Weighted average discount rate 7.7 % 7.7 % Maturities of operating lease liabilities by year are as follows as of December 31, 2021: 2022 $ 4,112 2023 4,239 2024 4,472 2025 4,599 2026 780 Thereafter — Total lease payments $ 18,202 Less imputed interest ( 2,754 ) Total operating lease liabilities $ 15,448 Supplemental cash flow information related to the Company's operating leases was as follows: Year Ended December 31, 2021 2020 2019 Cash paid for operating lease liabilities $ 4,081 $ 3,192 $ 3,185 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ — $ 192 $ 2,954 Letters of Credit In connection with the lease for its corporate headquarters office space, the Company is required to provide the landlord a letter of credit in the amount of $ 1.5 million. The Company has secured this letter of credit by depositing $ 1.5 million with the issuing financial institution, which deposit is classified as restricted cash in the consolidated balance sheets. 107 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Purchase Obligations As of December 31, 2021, the Company had non-cancellable purchase commitments with certain service providers and Issuing Banks of $ 263.8 million, payable over the next 5 years. These purchase obligations 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 years ended December 31, 2021, 2020 and 2019, the Company contributed a total of $ 3.1 million, $ 1.9 million and $ 1.1 million to its defined contribution plans, respectively. Legal Contingencies From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. As of December 31, 2021 and 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 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 Customers, Card Networks, Issuing Banks, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. With respect to Issuing Banks, the Company indemnifies the Issuing Bank for losses the Issuing Bank may incur for non-compliance with applicable law and regulation, if those losses resulted from the Company’s failure to perform under its program agreement with the Issuing Bank. In addition, the Company has entered into indemnification agreements with its directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements and there are no claims that the Company is aware of that could have a material effect on its consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows. 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. 108 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Non-income Taxes The Company may be subject to state and local indirect taxes in various jurisdictions in the United States. In several of these jurisdictions the Company has reviewed and concluded that such indirect taxes are not applicable to the Company’s service offerings. In a few of these jurisdictions the tax regulations are less clear. While the Company believes its service offerings are not subject to tax in these jurisdictions, the Company is working with the respective state and local tax authorities to confirm the Company’s conclusions. The Company has not recorded a liability associated with these matters as of December 31, 2021 as it believes it is not probable that the indirect taxes are applicable to the Company. In the event that adverse information is received in response to the Company's state inquiries, and the Company chooses not to appeal, a potential tax liability for these tax matters would be $ 6.2 million as of December 31, 2021. 8. Stock Incentive Plans The Company has granted share-based awards to employees, non-employee directors, and other service providers of the Company under the Amended and Restated 2011 Equity Incentive Plan (2011 Plan) and the 2021 Stock Option and Incentive Plan (2021 Plan), collectively, the Plans. The 2011 Plan was terminated in June 2021 in connection with the IPO but continues to govern the terms of outstanding awards that were granted prior to the IPO. Additionally, the Company offers an employee stock purchase plan (ESPP), which allows employees to purchase shares of common stock at 85 % of the fair value of the Company’s Class A common stock on the first or last day of the offering period, whichever is lower. The offering periods are six months long and start in May and November of each year. The following table presents the share-based compensation expense recognized in the periods presented: Year Ended December 31, 2021 2020 2019 Restricted stock units $ 59,652 $ — $ — Stock options 31,231 10,895 6,964 CEO Long-Term Performance Award 38,189 — — Employee Stock Purchase Plan 1,946 — — Secondary sales of common stock 11,642 17,316 14,793 Total $ 142,660 $ 28,211 $ 21,757 Restricted Stock Units On June 8, 2021, the Company completed its IPO and the liquidity condition for the RSUs granted prior to April 1, 2021 was satisfied and the Company recognized a cumulative $ 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. 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 . During the year ended December 31, 2021, the Company recognized $ 34.3 million of share-based compensation expense related to these RSUs. 109 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) A summary of the Company's RSUs activity under the Plans was as follows: Number of Restricted Stock Units Weighted-average grant date fair value per share Balance as of December 31, 2019 — $ — Granted 4,571,886 4.89 Vested — — Canceled and forfeited ( 141,550 ) 3.68 Balance as of December 31, 2020 4,430,336 $ 4.93 Granted 8,409,821 22.20 Vested ( 2,641,196 ) 10.12 Canceled and forfeited ( 1,197,012 ) 14.23 Balance as of December 31, 2021 9,001,949 $ 18.30 During the year ended December 31, 2021, share-based compensation expense recognized for RSUs was $ 59.7 million. As of December 31, 2021, unrecognized compensation costs related to unvested RSUs was $ 136.1 million. These costs are expected to be recognized over a weighted-average period of 3.0 years. Stock Options Under the 2011 Plan and the 2021 Plan, the exercise price of a stock option shall not be less than the fair market value per share of the Company’s Class A common stock on the date of grant (and not less than 110 % of the fair market value per share of Class A common stock for grants to stockholders owning more than 10 % of the total combined voting power of all classes of stock of the Company, or a 10 % Stockholder). Options are exercisable over periods not to exceed ten years from the date of grant ( five years for stock options granted to 10 % Stockholders). A summary of the Company's stock option activity under the Plans 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 January 1, 2019 (2) 19,628,032 $ 0.19 7.69 $ 38,982 Granted 17,008,222 1.30 Exercised ( 8,529,478 ) 0.13 Canceled and forfeited ( 2,947,365 ) 0.54 Balance as of December 31, 2019 (2) 25,159,411 $ 0.92 8.74 $ 46,594 Granted 6,404,800 2.31 Exercised ( 6,084,183 ) 0.53 Canceled and forfeited ( 2,058,654 ) 1.50 Balance as of December 31, 2020 (2) 23,421,374 $ 1.35 8.33 $ 248,002 Granted 29,113,555 20.07 Exercised ( 4,277,344 ) 1.18 Canceled and forfeited ( 4,072,097 ) 5.58 Balance as of December 31, 2021 (2) 44,185,488 $ 13.31 8.46 $ 279,242 Vested as of December 31, 2021 10,007,419 $ 1.53 6.67 $ 157,032 (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. 110 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) The weighted-average grant date fair value of options granted during the years ended December 31, 2021, 2020 and 2019, was $ 12.10 , $ 1.81 , and $ 1.73 , per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019, was $ 83.0 million, $ 32.8 million, and $ 21.2 million, respectively. The total grant-date fair value of options vested during the years ended December 31, 2021, 2020 and 2019, was $ 17.6 million, $ 10.7 million, and 5.2 million, respectively. As of December 31, 2021, aggregate unrecognized compensation costs related to unvested outstanding stock options, excluding the CEO Long-Term Performance Award, was $ 90.4 million. These costs are expected to be recognized over a weighted-average period of 2.5 years. The fair values of stock options granted were estimated using the Black-Scholes option pricing model and the following weighted-average assumptions: Year Ended December 31, 2021 2020 2019 Dividend yield 0.0 % 0.0 % 0.0 % Expected volatility 52.36 % 48.11 % 43.73 % Expected term (in years) 6.14 6.02 6.02 Risk-free interest rate 1.00 % 0.54 % 1.92 % Prior to the completion of the IPO, the Company considered numerous objective and subjective factors to determine the fair value of the Company’s common stock including but not limited to (i) contemporaneous independent third-party valuations; (ii) observed secondary sales; (iii) rights, preferences, and privileges of redeemable convertible preferred stock relative to those of common stock; (iv) the Company’s actual operating and financial performance; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s capital stock. Subsequent to the Company’s IPO, the Company uses the closing share price of its Class A common stock, which is traded on the Nasdaq Global Select Market to measure share-based compensation on the grant date. 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. 111 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) The CEO Long-Term Performance Award is divided into seven equal tranches which vest upon the achievement of the following Company stock price hurdles: Tranche Company Stock Price Hurdle Number of Options Eligible to Vest 1 $ 67.50 2,826,884 2 $ 78.98 2,826,884 3 $ 92.40 2,826,884 4 $ 108.11 2,826,884 5 $ 126.49 2,826,884 6 $ 147.99 2,826,884 7 $ 173.15 2,826,884 Total 19,788,188 The grant date fair value of the CEO Long-Term Performance Award was estimated using a Monte Carlo simulation model that incorporated multiple stock price paths and probabilities that the Company stock price hurdles are met. The weighted-average grant date fair value of the seven tranches of the CEO Long-Term Performance Award was estimated to be $ 10.53 per option share. As of December 31, 2021, the aggregate unrecognized compensation cost of the CEO Long-Term Performance Award was $ 170.2 million, which is expected to be recognized over the remaining derived service period of 4.1 years. Secondary Sales of Common Stock Prior to the completion of the IPO, certain economic interest holders acquired outstanding common stock from current or former employees for a purchase price greater than the Company's estimated fair value at the time of the transactions. During the years ended December 31, 2021, 2020 and 2019, the Company recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction of $ 11.6 million, $ 17.3 million and $ 14.8 million, respectively. 9. Warrants to Purchase Common Stock In 2021 and 2020, the Company issued warrants to Customers to purchase up to 1,150,000 and 750,000 shares of the Company’s common stock, respectively. These warrants vest based on certain performance conditions that include issuing a specific percentage of new cards on the Company’s Platform over a defined measurement period and reaching certain annual transaction count thresholds over the contract term, respectively. All warrants have an exercise price of $ 0.01 per share. These warrants are classified as equity instruments and are treated as consideration payable to a Customer. The grant date fair values of these warrants are recorded as a reduction to net revenue over the term of the respective Customer contract based on the expected pattern of processing volume generated by the Customer and the probability of vesting conditions being met. The aggregate fair values of the warrants issued in 2021 and 2020 were $ 26.4 million and $ 5.7 million respectively. As of December 31, 2021, 300,504 warrants were vested and the Company recorded $ 5.0 million as a reduction of revenue during the year then ended, related to these warrants. As of December 31, 2020, 22,500 warrants were vested and the Company recorded an immaterial amount as a reduction of revenue during the year then ended, related to these warrants. Upon vesting, the fair value of the vested warrants are recorded into the Company’s additional paid-in capital. Timing differences caused by the pattern of processing volume generated by the Customer over the term of the contract and the vesting schedules of the warrants can cause differences in the amount of grant date fair value that is credited to additional paid in capital upon vesting and the amount recorded as a reduction in net revenue during any particular reporting period. 112 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) The fair values of the warrants were estimated using the Black-Scholes option pricing model and the following assumptions as of the grant date of each warrant: March 31, 2021 September 30, 2020 Dividend yield 0.0 % 0.0 % Expected volatility 50.0 % 50.0 % Contract term (in years) 4.0 5.0 Risk-free interest rate 0.6 % 0.3 % 10. Net Loss Per Share Attributable to Common Stockholders Basic and diluted net loss per share attributable to common stockholders is as follows: Year Ended December 31, 2021 2020 2019 Numerator Net loss $ ( 163,929 ) $ ( 47,695 ) $ ( 58,200 ) Deemed dividend to redeemable convertible preferred stockholders — — ( 64149 ) Net loss attributable to Class A and Class B common stockholders $ ( 163,929 ) $ ( 47,695 ) $ ( 122,349 ) Denominator Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted 362,756,466 122,932,556 113,851,714 Net loss per share attributable to Class A and Class B common stockholders, basic and diluted $ ( 0.45 ) $ ( 0.39 ) $ ( 1.07 ) Basic net loss per share is the same as diluted net loss per share because the Company reported a net loss for the years ended December 31, 2021, 2020 and 2019. The liquidation, dividend and other rights, held by of Class A common stockholders and Class B common stockholders are identical, except with respect to voting. As the liquidation and dividend rights are identical for Class A common stock and Class B common stock, the undistributed earnings are allocated on a proportionate basis and the resulting loss per share will, therefore, be the same for both Class A common stock and Class B common stock on an individual or combined basis. The Company considered its proportionate share of the potentially dilutive shares issued by its equity method investee in its dilutive EPS calculation. All potentially dilutive shares of its equity method investee were excluded from the computation as they would have an anti-dilutive effect. 113 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Potentially dilutive securities that were excluded from the computation of diluted net loss per share because including them would have had an anti-dilutive effect were as follows: As of December 31, 2021 2020 2019 Redeemable convertible preferred stock, all series — 351,844,340 336,843,578 Warrants to purchase redeemable convertible preferred stock — 203,610 203,610 Warrants to purchase Class B common stock 1,900,000 1,419,528 3,669,528 Stock options outstanding, including early exercise of options 45,307,479 23,421,374 25,159,411 Unvested RSUs outstanding 9,001,949 4,430,336 — Shares committed under the ESPP 211,118 — — Stock options and RSUs available for future grants 61,893,427 7,683,069 3,844,639 Total 118,313,973 389,002,257 369,720,766 In addition, the Company committed up to 320,000 common stock shares for future issuance, or the equivalent in cash, to fund and support the Company’s social impact initiatives over the next eight years . 114 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 11. Income Tax The components of loss before income taxes by tax jurisdiction were as follows: Year Ended December 31, 2021 2020 2019 United States $ ( 165,160 ) $ ( 47,911 ) $ ( 58,985 ) Foreign 591 303 820 Loss before income taxes $ ( 164,569 ) $ ( 47,608 ) $ ( 58,165 ) The components of income tax expense (benefit) were as follows: Year Ended December 31, 2021 2020 2019 Current: Federal $ — $ — $ — State 38 18 3 Foreign — 147 74 38 165 77 Deferred: Federal — — — State — — — Foreign ( 678 ) ( 78 ) ( 42 ) ( 678 ) ( 78 ) ( 42 ) Total: Federal — — — State 38 18 3 Foreign ( 678 ) 69 32 Income tax expense (benefit) $ ( 640 ) $ 87 $ 35 The reconciliation of the Company's effective tax rate to the statutory federal rate is as follows: Year Ended December 31, 2021 2020 2019 Taxes at federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal effect 4.0 % 4.4 % 3.4 % Share-based compensation 4.5 % ( 8.5 ) % ( 6.5 ) % Section 162(m) limitation ( 8.3 ) % — % — % Other ( 0.3 ) % ( 0.1 ) % ( 6.2 ) % Change in valuation allowance ( 20.5 ) % ( 17.0 ) % ( 11.8 ) % Effective tax rate 0.4 % ( 0.2 ) % ( 0.1 ) % 115 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Deferred tax assets and liabilities consist of the following: December 31 2021 2020 Deferred tax assets: Federal and state net operating losses $ 41,418 $ 27,269 Research and development credits 77 77 Accruals and other 16,173 3,536 Share-based compensation 7,124 1,674 Reserve for contract contingencies and processing errors 818 2,334 Deferred revenue 3,132 695 Lease liability 3,730 4,458 Total deferred tax assets 72,472 40,043 Less valuation allowance ( 68,847 ) ( 36,327 ) Total deferred tax assets, net of valuation allowance 3,625 3,716 Deferred tax liabilities: Property and equipment ( 47 ) ( 309 ) Right-of-use asset ( 2,728 ) ( 3,281 ) Total deferred tax liabilities ( 2,775 ) ( 3,590 ) Net deferred tax assets $ 850 $ 126 The Company believes that it is more likely than not that its U.S. deferred tax assets will not be realized and has recorded a full valuation allowance against its net U.S. deferred tax assets. The available negative evidence as of December 31, 2021 and 2020 included historical and projected future operating losses. As of December 31, 2021, the Company had net operating loss carryforwards of approximately $ 169.0 million and $ 88.5 million for federal and state tax purposes, respectively. If not utilized, these carryforwards will begin to expire in 2030. Of the Company's federal net operating loss carryforwards as of December 31, 2021, $ 121.4 million can be carried forward indefinitely. Under Section 382 of the Internal Revenue Code of 1986, as amended , the Company's ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if the Company has experienced an ownership change. As of December 31, 2021, the Company has concluded that it has experienced ownership changes since inception and that its utilization of net operating loss carryforwards will be subject to annual limitations. However, it is not expected that the annual limitations will result in the expiration of tax attribute carryforwards prior to utilization. The Company files federal and various state tax returns in the U.S., as well as tax returns in the U.K. As of December 31, 2021, the Company’s federal tax returns for 2017 and earlier, and the state tax returns for 2016 and earlier were no longer subject to examination by the taxing authorities. However, tax periods closed in a prior period may be subject to audit and re-examination by tax authorities for which tax carryforwards are utilized in subsequent years. The Company did no t have any material unrecognized tax benefits in 2021, 2020, and 2019. The Company made an accounting policy election to provide for the Global Intangible Low-Taxed Income (GILTI) tax expense in the year the tax is incurred as a period cost. The Company elected and applied the tax law ordering approach when considering GILTI as part of its valuation allowance. The Company did no t incur any interest expenses or penalties or have outstanding liabilities on the balance sheets associated with unrecognized tax benefits for the year ended December 31, 2021. The Company does not expect any significant increases or decreases to its unrecognized benefits within the next twelve months. 116 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 12. Concentration Risks and Significant Customers Financial instruments that potentially expose the Company to concentration of credit risk consist of cash and cash equivalents, marketable securities, accounts receivable and unbilled Customers' receivable, or collectively, Customers' receivables, and settlements receivable. Cash on deposit with financial institutions may, at times, exceed federally insured limits. Management believes that these financial institutions are financially sound and, accordingly, minimal credit risk exists. Cash and cash equivalents as of December 31, 2021 and December 31, 2020 included $ 1.2 billion and $ 203.6 million, respectively, of investments in three money market mutual funds which invest primarily in securities issued by the U.S. Government or U.S. Government agencies. As of December 31, 2021, marketable securities were $ 452.9 million, and there was no concentration of securities of the same issuer with an aggregate fair value greater than 5% of this total balance, except for U.S. Treasuries, which amounted to $ 418.3 million, or 92 % of the marketable securities. All debt securities within the Company's marketable securities 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. A significant portion of the Company's payment transactions is settled through one Issuing Bank, Sutton Bank. For the years ended December 31, 2021, 2020 and 2019, 90 %, 96 % and 97 % of Total Processing Volume, which is the total dollar amount of payments processed through the Company’s Platform, net of returns and chargebacks, was settled through Sutton Bank, respectively. For each significant Customer, net revenue as a percentage of total net revenue and customers' receivables as a percentage of total customers' receivables are as follows: Percent of Net Revenue for the Year Ended December 31, 2021 2020 2019 Customer A 69 % 70 % 60 % Customer B * * 11 % * Less than 10% Percent of Customers' Receivables as of December 31, 2021 2020 Customer C 20 % * Customer D 13 % * Customer E * 14 % * Less than 10% 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 years ended December 31, 2020 and 2019, the Company incurred $ 30.4 million and $ 14.4 million in Card Network fees, net, recorded within costs of revenue, to PULSE Network LLC, an entity affiliated with DFS Services LLC. The Company has an equity method investment in a private company, which is a related party. During the year ended December 31, 2021, the Company earned net revenue of $ 2.8 million from the private company and had $ 4.1 million in revenue share payable to this private company as of December 31, 2021. 117 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.