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 ) 80 Consolidated Balance Sheets 84 Consolidated Statements of Operations and Comprehensive Loss 85 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 86 Consolidated Statements of Cash Flows 87 Notes to Consolidated Financial Statements 89 79 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2103 framework), and our report dated February 28, 2023, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 80 Table of Contents Revenue Share, Consideration Payable to Customers Description of the Matter For the year ended December 31, 2022, the Company’s net revenue was $748.2 million, and as of December 31, 2022, the Company’s revenue share payable was $142.2 million. As described in Note 2 to the consolidated financial statements, the Company's contracts with its customers typically include provisions under which the Company shares a portion of interchange fees with its customers, referred to as revenue share. Revenue share payments are incentives to customers to increase their processing volume on the Company’s platform, computed as a percentage of the interchange fees earned or processing volume, and paid to customers monthly. As customers’ processing volumes increase, the customers may earn an increased percentage of revenue share. Revenue share, determined to be consideration payable to customers, is recorded as a reduction to net revenue in the consolidated statements of operations and comprehensive loss. The Company records the amount due to the customer as revenue share payable on the consolidated balance sheets. Auditing the Company’s revenue share amounts was challenging because the revenue share calculation includes a significant volume of data and multiple inputs that could be different across customers. Further, the revenue share calculation for certain customers is performed manually by the Company because of the bespoke and complex nature of certain contractual terms. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to calculate and record revenue share, including controls over management’s review of the calculation and of the completeness and accuracy of data used in the revenue share calculation. We performed the following audit procedures, among others, related to revenue share amounts. We independently calculated total annual revenue share for a sample of customers based on the contractual terms of the customers’ agreements and other inputs, including processing volume, interchange fees and card network and issuing bank fees using source data and compared our independent calculations of revenue share to the Company’s recorded amounts. For this same sample of customers, we inspected the underlying customer agreements and used the revenue share rates per the contract to calculate each customer’s total annual revenue share. Additionally, we performed analytical procedures to assess the reasonableness of the revenue share for all other customers entitled to revenue share over the fiscal year and evaluated any significant deviations from developed expectations that considered contractual revenue share rates and processing volume, among other factors. We tested the completeness and accuracy of the underlying payment transaction data used in the revenue share calculation and also compared the revenue share payable as of December 31, 2022, to amounts paid in subsequent periods. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. San Mateo, California February 28, 2023 81 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Marqeta, Inc. Opinion on Internal Control Over Financial Reporting We have audited Marqeta, Inc.'s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Marqeta, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 28, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 82 Table of Contents /s/ Ernst & Young LLP San Mateo, California February 28, 2023 83 Table of Contents Marqeta, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) As of December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 1,183,846 $ 1,247,581 Restricted cash 7,800 7,800 Marketable securities 440,858 452,875 Accounts receivable, net 15,569 13,187 Settlements receivable, net 18,028 11,266 Network incentives receivable 42,661 30,399 Prepaid expenses and other current assets 38,007 35,617 Total current assets 1,746,769 1,798,725 Property and equipment, net 7,440 9,687 Operating lease right-of-use assets, net 9,015 11,296 Equity method investment — 8,384 Other assets 7,122 2,286 Total assets $ 1,770,346 $ 1,830,378 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 3,798 $ 2,693 Revenue share payable 142,194 121,179 Accrued expenses and other current liabilities 136,887 114,096 Total current liabilities 282,879 237,968 Operating lease liabilities, net of current portion 9,034 12,427 Other liabilities 5,477 6,557 Total liabilities 297,390 256,952 Commitments and contingencies (Note 7) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 100,000,000 and 100,000,000 shares authorized, no shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively — — Common stock, $ 0.0001 par value: 1,500,000,000 and 1,500,000,000 Class A shares authorized, 486,530,334 and 421,792,153 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively. 600,000,000 and 600,000,000 Class B shares authorized, 54,833,765 and 119,591,365 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 53 54 Additional paid-in capital 2,082,373 1,993,055 Accumulated other comprehensive loss ( 7,237 ) ( 2,230 ) Accumulated deficit ( 602,233 ) ( 417,453 ) Total stockholders’ equity 1,472,956 1,573,426 Total liabilities and stockholders’ equity $ 1,770,346 $ 1,830,378 See accompanying notes to consolidated financial statements. 84 Table of Contents Marqeta, Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Year Ended December 31, 2022 2021 2020 Net revenue $ 748,206 $ 517,175 $ 290,292 Costs of revenue 428,205 285,470 172,385 Gross profit 320,001 231,705 117,907 Operating expenses: Compensation and benefits 415,094 318,116 129,802 Technology 52,361 33,637 13,239 Professional services 23,479 18,443 7,188 Occupancy 4,514 4,181 4,337 Depreciation and amortization 3,853 3,534 3,498 Marketing and advertising 3,995 2,284 1,670 Other operating expenses 26,513 13,516 5,260 Total operating expenses 529,809 393,711 164,994 Loss from operations ( 209,808 ) ( 162,006 ) ( 47,087 ) Other income (expense), net 24,926 ( 2,563 ) ( 521 ) Loss before income tax expense ( 184,882 ) ( 164,569 ) ( 47,608 ) Income tax expense (benefit) ( 102 ) ( 640 ) 87 Net loss $ ( 184,780 ) $ ( 163,929 ) $ ( 47,695 ) Net loss attributable to common stockholders $ ( 184,780 ) $ ( 163,929 ) $ ( 47,695 ) Other comprehensive income (loss), net of taxes: Change in foreign currency translation adjustment $ ( 167 ) $ ( 14 ) $ ( 64 ) Change in unrealized gain (loss) on marketable securities ( 4,840 ) ( 2,241 ) 43 Net other comprehensive income (loss) ( 5,007 ) ( 2,255 ) ( 21 ) Comprehensive loss $ ( 189,787 ) $ ( 166,184 ) $ ( 47,716 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.34 ) $ ( 0.45 ) $ ( 0.39 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 545,397,254 362,756,466 122,932,556 See accompanying notes to consolidated financial statements. 85 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 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 accumulated 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 accumulated 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 Issuance of common stock upon exercise of options — — 7,785,748 — 9,754 — — 9,754 Repurchase of early exercised stock options — — ( 45,958 ) — — — — — Issuance of common stock under employee stock purchase plan — — 683,485 — 4,762 — — 4,762 Issuance of common stock upon net settlement of restricted stock units — — 3,214,677 — ( 15,362 ) — — ( 15,362 ) Vesting of common stock warrants — — — — 8,621 — — 8,621 Share-based compensation expense — — — — 160,743 — — 160,743 Repurchase and retirement of common stock — — ( 11,657,371 ) ( 1 ) ( 79,200 ) — — ( 79,201 ) Change in accumulated other comprehensive income (loss) — — — — — ( 5,007 ) — ( 5,007 ) Net loss — — — — — — ( 184,780 ) ( 184,780 ) Balance as of December 31, 2022 — $ — 541,364,099 $ 53 $ 2,082,373 $ ( 7,237 ) $ ( 602,233 ) $ 1,472,956 See accompanying notes to consolidated financial statements. 86 Table of Contents Marqeta, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net loss $ ( 184,780 ) $ ( 163,929 ) $ ( 47,695 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,853 3,534 3,498 Share-based compensation expense 160,743 142,660 28,211 Non-cash operating leases expense 2,281 2,115 2,029 Amortization of premium on marketable securities 277 1,162 543 Gain on sale of equity method investment ( 17,889 ) — — Impairment of other financial instruments 11,616 — — Other 649 3,110 1,929 Changes in operating assets and liabilities: Accounts receivable ( 2,577 ) ( 4,940 ) ( 4,485 ) Settlements receivable ( 6,762 ) 1,601 ( 2,961 ) Network incentives receivable ( 12,262 ) ( 10,377 ) ( 9,400 ) Prepaid expenses and other assets ( 8,621 ) ( 7,742 ) ( 2,481 ) Accounts payable 254 190 ( 839 ) Revenue share payable 21,015 42,988 48,442 Accrued expenses and other liabilities 22,257 49,372 34,997 Operating lease liabilities ( 3,020 ) ( 2,772 ) ( 1,515 ) Net cash (used in) provided by operating activities ( 12,966 ) 56,972 50,273 Cash flows from investing activities: Purchases of property and equipment ( 2,319 ) ( 2,743 ) ( 2,375 ) Purchase of patents ( 1,600 ) — — Purchases of marketable securities ( 70,495 ) ( 455,266 ) ( 216,200 ) Sales of marketable securities — — 71,981 Maturities of marketable securities 77,400 148,888 89,032 Purchase of equity method investment and purchase option — ( 20,000 ) — Sale of equity method investment 25,732 — — Net cash provided by (used in) investing activities 28,718 ( 329,121 ) ( 57,562 ) 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 Proceeds from exercise of stock options, including early exercised stock options, net of repurchase of early exercised unvested options 9,249 4,539 3,144 Proceeds from exercise of warrants — 60 — Proceeds from shares issued in connection with employee stock purchase plan 4,762 3,201 — Taxes paid related to net share settlement of restricted stock units ( 15,362 ) ( 23,552 ) — Repurchase of common stock ( 78,136 ) — — Payment of deferred offering costs — ( 4,760 ) ( 2,708 ) Net cash (used in) provided by financing activities ( 79,487 ) 1,299,297 167,378 (Decrease) Increase in cash, cash equivalents, and restricted cash ( 63,735 ) 1,027,148 160,089 Cash, cash equivalents, and restricted cash - Beginning of period 1,255,381 228,233 68,144 Cash, cash equivalents, and restricted cash - End of period $ 1,191,646 $ 1,255,381 $ 228,233 See accompanying notes to consolidated financial statements. 87 Table of Contents Marqeta, Inc. Consolidated Statements of Cash Flow s (in thousands) Year Ended December 31, 2022 2021 2020 Reconciliation of cash, cash equivalents, and restricted cash Cash and cash equivalents $ 1,183,846 $ 1,247,581 $ 220,433 Restricted cash 7,800 7,800 7,800 Total cash, cash equivalents, and restricted cash $ 1,191,646 $ 1,255,381 $ 228,233 Supplemental disclosures of cash flow information: Cash paid for interest $ — $ — $ — Cash paid for income taxes $ 84 $ 201 $ 109 Supplemental disclosures of non-cash investing and financing activities: Purchase of property and equipment accrued and not yet paid $ 563 $ 1,190 $ 159 Repurchase of common stock accrued and not yet paid $ 1,065 $ — $ — Deferred offering costs not yet paid $ — $ — $ 426 Conversion of redeemable convertible preferred stock to common stock $ — $ — $ 809 See accompanying notes to consolidated financial statements. 88 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 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 legal entities in Singapore and Brazil as of December 31, 2022. 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. 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, and the fair value of equity method investments and a purchase call option to acquire the remaining interest in the equity method investee. Actual results could differ materially from these estimates. Business Risks and Uncertainties The Company has incurred net losses since its inception. For the year ended December 31, 2022, the Company incurred a net loss of $ 184.8 million and had an accumulated deficit of $ 602.2 million as of December 31, 2022. 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 $ 440.9 million as of December 31, 2022 are sufficient to fund its operations through at least the next twelve months from the issuance of these financial statements. 89 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 2. Summary of Significant Accounting Policies Revenue Recognition 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 under MxM and PxM arrangements and managing the interactions with the Issuing Banks and Card Networks on behalf of its customers under MxM arrangements. 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. 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 range from three to five years , with automatic renewal for successive one-year periods thereafter unless either party provides written notice of its intent not to renew. The Company develops estimates of variable consideration on the basis of both historical information and current trends and does not expect or anticipate significant reversal of revenue in the future periods. As the Issuer Processor for its customers, 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. 90 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Historically, the Company did not capitalize material 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 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. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. This material right is valued by estimating the discount that will be redeemed by the customer during the optional renewal period. Reserve for Contract Contingencies and Processing Errors Customer contracts generally contain service level agreements that can result in performance penalties payable by the Company when contractually required service levels are not met or can result in payments by the Company for processing errors. As such, the Company records a reserve for estimated performance penalties and processing errors. When providing for these reserves, the Company considers factors such as its history of incurring performance penalties and processing errors, actual contractual penalty charge rates in customer contracts, and known or estimated processing errors. These reserves are included in 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, 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) 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, 2022, 2021, and 2020, revenue outside of the United States, based on the billing address of the customer, was not material. As of December 31, 2022 and December 31, 2021, 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’ equity (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. Cash and Cash Equivalents The Company considers all highly liquid investments and investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist primarily of bank deposit accounts and investments in money market funds. Restricted Cash Restricted cash consists of deposits with financial institutions that issue payment cards (credit, debit, or prepaid) either on their own behalf or on behalf of businesses that issue customized card products to their end users, or Issuing Banks, to provide the Issuing Bank collateral in the event that customers’ funds are not deposited at the Issuing Banks in time to settle customers’ transactions with the networks that provide the infrastructure for settlement and card payment information flows, or Card Networks. Restricted cash also includes cash used to secure a letter of credit for the Company’s lease of its office headquarters in Oakland, California. Marketable Securities The Company's marketable securities include U.S. treasury securities, U.S. agency 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 periodically evaluates them for unrealized losses. For unrealized losses in securities that the Company intends to hold and will not more 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) likely than not be required to sell before recovery, the Company further evaluates whether declines in fair value below amortized cost are due to credit or non-credit related factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. The Company considers credit related impairments to be changes in value that are driven by a change in the creditor’s ability to meet its payment obligations, and records an allowance on the consolidated balance sheets with a corresponding loss in other income (expense), net in the consolidated statements of operations and comprehensive loss when the impairment is incurred. Unrealized non-credit related losses and unrealized gains are recorded as a separate component in accumulated other comprehensive income (loss), a component of stockholders’ equity (deficit) until realized. The Company records any realized gains or losses on the sale of marketable securities in 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 periodically reviews investments accounted for under the equity method for impairment. Investments in other entities not accounted for under the equity method of accounting, including options to purchase these entities, are accounted for at cost less impairment, if applicable. Additionally, the value of these investments may be adjusted to fair value resulting from observable transactions for identical or similar investments. In 2021, the Company acquired a preferred equity interest in a private company that is accounted for under the equity method of accounting. Concurrent with this investment, the Company also acquired an option that 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. As of December 31, 2021, the option was reflected within prepaid expenses and other current assets in the consolidated balance sheets. The Company applied the measurement alternative to measure the option at cost, less any impairment. During the year ended December 31, 2022, the Company recorded an impairment of $ 11.6 million related to the option based on the Company’s decision not to exercise the option. During the year ended December 31, 2022, the Company sold its equity method investment in a private company. The carrying amount of this investment was $ 7.8 million as of the date of sale and the purchase price was $ 25.7 million. As a result, the Company recorded a gain of $ 17.9 million in the year ended December 31, 2022 in Other income (expense), net on the Consolidated Statement of Operations. Accounts Receivable Accounts receivable are recorded at invoiced amounts and do not earn interest. The Company estimates an allowance for accounts receivable based on its assessment of the collectability of accounts by considering its historical accounts receivable collection experience for each customer, the age of each outstanding invoice and an evaluation of current expected risk of credit loss based on current economic conditions and reasonable and supportable forecasts of future economic conditions over the life of the receivable. The Company assesses collectability on an individual basis when it identifies specific customers with collectability issues and by reviewing accounts receivable on an aggregated basis where similar characteristics exist. As of December 31, 2022 and 2021, the allowance for accounts receivable was $ 0.3 million and $ 0.2 million, respectively. 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) 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 with no historical collections issue, mitigating the associated risk of collection. No allowance has been established. The Company does not generate revenue from Issuing Banks. 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, 2022 and 2021, 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. 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 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) 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, 2022, 2021 and 2020, were $ 2.2 million, $ 1.7 million and $ 1.4 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 $ 108.3 million, $ 84.1 million, and $ 34.0 million for the years ended December 31, 2022, 2021 and 2020, 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 The Company measures lease liabilities based on the present value of the total lease payments not yet paid discounted based on the Company’s incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. The Company measures right-of-use assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs the Company incurs and (iii) tenant incentives under the lease. The Company begins to recognize rent expense when the lessor makes the underlying asset available to the Company. For short-term leases, the Company records rent expense in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term and records variable lease payments as incurred. The Company has no finance leases. 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) 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. In general, 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. 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) Executive Chairman Long-Term Performance Award In April and May 2021, the Company’s board of directors granted the Company’s Executive Chairman and then-Chief Executive Officer equity incentive awards in the form of performance-based stock options, or collectively, the Executive Chairman Long-Term Performance Award, formerly known as the CEO Long-Term Performance Award. The Executive Chairman Long-Term Performance Award vests upon the satisfaction of a service condition and the achievement of certain stock price hurdles over a seven year performance period following the expiration of the lock-up period associated with the IPO. 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 Executive Chairman 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. 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) Recently Adopted Accounting Pronouncements The JOBS Act allowed “emerging growth companies” to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Before December 31, 2021, the Company met the definition of an “emerging growth company” and 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 Company adopted this new guidance as of December 31, 2022 upon the loss of “emerging growth company” status, with an effective date of January 1, 2022, using a modified retrospective approach. The adoption did not have a material impact on the balances reported in the Company’s consolidated financial statements. 3. Revenue Disaggregation of Revenue The following table provides information about disaggregated revenue from customers: Year Ended December 31, 2022 2021 2020 Platform services revenue, net $ 725,629 $ 502,296 $ 283,305 Other services revenue 22,577 14,879 6,987 Total net revenue $ 748,206 $ 517,175 $ 290,292 Contract Balances The following table provides information about contract assets and deferred revenue: Contract balance Balance sheet line reference December 31, 2022 December 31, 2021 Contract assets - current Prepaid expenses and other current assets $ 621 $ 950 Contract assets - non-current Other assets 1,323 927 Total contract assets $ 1,944 $ 1,877 Deferred revenue - current Accrued expenses and other current liabilities $ 17,048 $ 19,060 Deferred revenue - non-current Other liabilities 4,202 6,107 Total deferred revenue $ 21,250 $ 25,167 Contract assets relate 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, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was $ 13.8 million and $ 4.1 million, respectively. 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) 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. As of December 31, 2021, $ 4.2 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. As of December 31, 2022, the Company did not have a material right included in its deferred revenue balance. 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, 2022 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Marketable securities U.S. treasury securities $ 384,951 $ — $ ( 6,949 ) $ 378,002 U.S. agency securities 29,012 47 — 29,059 Commercial paper 28,815 — — 28,815 Corporate debt securities 5,049 — ( 67 ) 4,982 Total marketable securities $ 447,827 $ 47 $ ( 7,016 ) $ 440,858 December 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Marketable securities U.S. treasury 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 The Company had thirteen and nineteen separate marketable securities in unrealized loss positions as of December 31, 2022 and 2021, respectively. The Company does not intend to sell any marketable securities that have an unrealized losses at December 31, 2022 and it is not more likely than not that the Company will be required to sell such securities before any anticipated recovery. There were no material realized gains or losses from marketable securities that were reclassified out of accumulated other comprehensive income for the year ended December 31, 2022. For marketable securities that have unrealized losses, the Company evaluated whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis and (iii) the decline in the fair value of the investment is due to credit or non-credit related factors. Based on this evaluation, the Company determined that for its marketable securities, there were no material credit or non-credit related impairments as of December 31, 2022. The Company did not identify any marketable securities that were other-than-temporarily impaired as of December 31, 2021. 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) The following table summarizes the stated maturities of the Company’s marketable securities: December 31, 2022 December 31, 2021 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due within one year $ 447,827 $ 440,858 $ 64,914 $ 64,879 Due after one year through two years — — 390,090 387,996 Total $ 447,827 $ 440,858 $ 455,004 $ 452,875 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, 2022 Level 1 Level 2 Level 3 Total Fair Value Cash equivalents Money market funds $ 462,459 $ — $ — $ 462,459 Marketable securities U.S. treasury securities 378,002 — — 378,002 U.S. agency securities — 29,059 — 29,059 Commercial paper — 28,815 — 28,815 Corporate debt securities — 4,982 — 4,982 Total assets $ 840,461 $ 62,856 $ — $ 903,317 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. treasury 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 The Company classifies money market funds, commercial paper, U.S. treasury securities, U.S. agency 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. 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. 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) The fair value of the redeemable convertible preferred stock warrant liabilities was estimated using the following assumptions: June 9, 2021 Dividend yield 0.00 % Expected volatility 49.93 % Expected term (in years) 2.34 Risk-free interest rate 0.31 % Fair value of Series B redeemable convertible preferred stock $ 27.00 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 Balance, beginning of the period $ 2,517 Remeasurement of redeemable convertible preferred stock warrant liabilities 2,921 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 $ — There were no transfers of financial instruments between the fair value hierarchy levels during the years ended December 31, 2022 and 2021. 6. Certain Balance Sheet Components Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: December 31, 2022 December 31, 2021 Prepaid expenses $ 9,082 $ 6,492 Inventory 5,150 3,940 Prepaid hosting and data costs 6,443 2,455 Accrued interest receivable 3,983 392 Prepaid insurance 3,729 3,546 Card program deposits 2,128 2,167 Contract assets 621 950 Other financial instruments — 11,616 Other current assets 6,871 4,059 Prepaid expenses and other current assets $ 38,007 $ 35,617 101 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Property and Equipment, net Property and equipment consisted of the following: December 31, 2022 December 31, 2021 Leasehold improvements $ 8,110 8,110 Computer equipment 9,115 8,581 Furniture and fixtures 2,542 2,459 Internally developed and purchased software 3,082 2,954 22,849 22,104 Accumulated depreciation and amortization ( 15,409 ) ( 12,417 ) Property and equipment, net $ 7,440 $ 9,687 Depreciation and amortization expense was $ 3.9 million, $ 3.5 million and $ 3.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company did no t capitalize any internal-use software costs during the year ended December 31, 2022, because development costs meeting capitalization criteria were not material during the respective periods. The Company capitalized $ 1.6 million as internal-use software costs during the year ended December 31, 2021. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: December 31, 2022 December 31, 2021 Accrued costs of revenue $ 57,191 $ 41,339 Accrued compensation and benefits 41,268 32,954 Deferred revenue 17,048 19,060 Accrued tax liabilities 4,978 3,240 Accrued professional services 4,784 2,454 Operating lease liabilities, current portion 3,394 3,021 Reserve for contract contingencies and processing errors 2,494 3,386 Other accrued liabilities 5,730 8,642 Accrued expenses and other current liabilities $ 136,887 $ 114,096 Other Liabilities Other liabilities consisted of the following: December 31, 2022 December 31, 2021 Deferred revenue, net of current portion $ 4,202 $ 6,107 Other long-term liabilities 1,275 450 Other liabilities $ 5,477 $ 6,557 102 Table of Contents Marqeta, Inc. Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) 7. Commitments and Contingencies Operating Leases The Company's operating lease costs are as follows: Year Ended December 31, 2022 2021 2020 Operating lease cost $ 3,372 $ 3,424 $ 3,514 Variable lease cost 439 212 534 Short-term lease cost 435 358 271 Total lease cost $ 4,246 $ 3,994 $ 4,319 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, 2022 December 31, 2021 Weighted average remaining operating lease term (in years) 3.1 4.1 Weighted average discount rate 7.7 % 7.7 % Maturities of operating lease liabilities by year are as follows as of December 31, 2022: 2023 4,239 2024 4,472 2025 4,599 2026 780 Total lease payments $ 14,090 Less imputed interest ( 1,662 ) Total operating lease liabilities $ 12,428 Supplemental cash flow information related to the Company's operating leases was as follows: Year Ended December 31, 2022 2021 2020 Cash paid for operating lease liabilities $ 4,112 $ 4,081 $ 3,192 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ — $ — $ 192 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. 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) Purchase Obligations As of December 31, 2022, the Company had non-cancellable purchase commitments with certain service providers and Issuing Banks of $ 221.7 million, payable over the next 5 years. These purchase obligations include $ 212.6 million related to minimum commitments as part of a cloud-computing service agreement. The remaining obligations are related to various service providers and Issuing Banks processing fees over the fixed, non-cancellable respective contract terms. 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, 2022, 2021 and 2020, the Company contributed a total of $ 5.8 million, $ 3.1 million and $ 1.9 million to its defined contribution plans, respectively. Legal Contingencies From time to time in the normal course of business, the Company may be subject to various legal matters such as threatened or pending claims or proceedings. As of December 31, 2022 and 2021, 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. 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) 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, 2022 2021 2020 Restricted stock units $ 76,094 $ 59,652 $ — Stock options 28,816 31,231 10,895 Executive Chairman Long-Term Performance Award 53,214 38,189 — Employee Stock Purchase Plan 2,619 1,946 — Secondary sales of common stock — 11,642 17,316 Total $ 160,743 $ 142,660 $ 28,211 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 is 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 generally satisfied over four years . 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, 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 Granted 36,159,090 8.91 Vested ( 4,883,296 ) 13.99 Canceled and forfeited ( 6,131,197 ) 14.07 Balance as of December 31, 2022 34,146,546 $ 9.74 During the year ended December 31, 2022, share-based compensation expense recognized for RSUs was $ 76.1 million. As of December 31, 2022, unrecognized compensation costs related to unvested RSUs was $ 296.0 million. These costs are expected to be recognized over a weighted-average period of 3.3 years. 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) 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, 2020 (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 Granted 4,182,522 10.16 Exercised ( 7,785,748 ) 1.20 Canceled and forfeited ( 4,425,817 ) 6.60 Balance as of December 31, 2022 (2) 36,156,445 $ 16.37 7.67 $ 29,101 Vested as of December 31, 2022 7,389,512 $ 6.57 4.98 $ 24,410 (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. The weighted-average grant date fair value of options granted during the years ended December 31, 2022, 2021, and 2020, was $ 5.89 , $ 12.10 , and $ 1.81 , per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020, was $ 61.6 million, $ 83.0 million, and $ 32.8 million, respectively. The total grant-date fair value of options vested during the years ended December 31, 2022, 2021, and 2020, was $ 40.0 million, $ 17.6 million, and 10.7 million, respectively. As of December 31, 2022, aggregate unrecognized compensation costs related to unvested outstanding stock options, excluding the Executive Chairman Long-Term Performance Award, was $ 58.6 million. These costs are expected to be recognized over a weighted-average period of 2.4 years. 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) 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, 2022 2021 2020 Dividend yield 0.0 % 0.0 % 0.0 % Expected volatility 61.52 % 52.36 % 48.11 % Expected term (in years) 6.08 6.14 6.02 Risk-free interest rate 2.32 % 1.00 % 0.54 % 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. Executive Chairman Long-Term Performance Award In April and May 2021, the Company’s board of directors granted the Company’s Executive Chairman and then-Chief Executive Officer equity incentive awards in the form of performance-based stock options covering 19,740,923 and 47,267 shares of our Class B common stock with an exercise price of $ 21.49 and $ 23.40 per share, respectively, or collectively, the Executive Chairman Long-Term Performance Award, formerly known as the CEO Long-Term Performance Award. The Executive Chairman Long-Term Performance Award vests upon the satisfaction of a service condition and the achievement of certain stock price hurdles over a seven year performance period following the expiration of the lock-up period associated with the IPO. The stock price hurdle will be achieved if the average closing price of a share of our Class A common stock during any 90 consecutive trading day period during the performance period equals or exceeds the Company stock price hurdle set forth in the table below. The Executive Chairman Long-Term Performance Award is divided into seven equal tranches which vest upon the achievement of the following Company stock price hurdles: Tranche Company Stock Price Hurdle Number of Options Eligible to Vest 1 $ 67.50 2,826,884 2 $ 78.98 2,826,884 3 $ 92.40 2,826,884 4 $ 108.11 2,826,884 5 $ 126.49 2,826,884 6 $ 147.99 2,826,884 7 $ 173.15 2,826,884 Total 19,788,188 The grant date fair value of the Executive Chairman 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 Executive Chairman Long-Term Performance Award was estimated to be $ 10.53 per option share. As of December 31, 2022, the aggregate unrecognized compensation cost of the Executive Chairman Long-Term Performance Award was $ 117.0 million, which is expected to be recognized over the remaining derived service period of 3.1 years. 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) 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 2021 and 2020, the Company recorded share-based compensation expense for the difference between the price paid and the estimated fair value on the date of the transaction of $ 11.6 million and $ 17.3 million, respectively. 9. Stockholders’ Equity Transactions 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, 2022 and 2021, 695,637 and 300,504 warrants were vested, respectively. The Company recorded $ 7.3 million and $ 5.0 million as a reduction of net revenue related to these warrants during the years ended December 31, 2022 and 2021, respectively. Upon vesting, the fair value of the vested warrants are recorded into the Company’s additional paid-in capital. Timing differences caused by the pattern of processing volume generated by the 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. 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 % Share Repurchase Program On September 14, 2022, the Company’s Board of Directors authorized a share repurchase program of up to $ 100 million of the Company’s Class A common stock beginning September 15, 2022. Under the repurchase program, the Company was authorized to repurchase shares through open market purchases, in privately negotiated transactions or by other means, in accordance with applicable federal securities laws, including through trading plans under Rule 10b5-1 of the Securities and Exchange Act of 1934. The number of shares repurchased and the timing of purchases are based on general business and market conditions, and other factors, including legal requirements. The share repurchase program has no set expiration date. During the year ended December 31, 2022, the Company repurchased and subsequently retired 11.7 million shares for $ 79.2 million under the repurchase program, for an average price of $ 6.77 . The total price of the shares repurchased and related transaction costs are reflected as a reduction to common stock and additional paid-in capital on the Company’s consolidated balance sheets. As of December 31, 2022, $ 20.8 million remained available for future share repurchases under this repurchase program. 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) 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, 2022 2021 2020 Numerator Net loss attributable to Class A and Class B common stockholders $ ( 184,780 ) $ ( 163,929 ) $ ( 47,695 ) Denominator Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted 545,397,254 362,756,466 122,932,556 Net loss per share attributable to Class A and Class B common stockholders, basic and diluted $ ( 0.34 ) $ ( 0.45 ) $ ( 0.39 ) 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, 2022, 2021 and 2020. 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. 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, 2022 2021 2020 Redeemable convertible preferred stock, all series — — 351,844,340 Warrants to purchase redeemable convertible preferred stock — — 203,610 Warrants to purchase Class B common stock 1,900,000 1,900,000 1,419,528 Stock options outstanding, including early exercise of options 36,156,445 45,307,479 23,421,374 Unvested RSUs outstanding 34,146,546 9,001,949 4,430,336 Shares committed under the ESPP 408,831 211,118 — Stock options and RSUs available for future grants 60,892,581 61,893,427 7,683,069 Total 133,504,403 118,313,973 389,002,257 In addition, the Company committed up to 280,000 common stock shares for future issuance, or the equivalent in cash, to fund and support the Company’s social impact initiatives over the next seven years . 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) 11. Income Tax The components of loss before income taxes by tax jurisdiction were as follows: Year Ended December 31, 2022 2021 2020 United States $ ( 185,612 ) $ ( 165,160 ) $ ( 47,911 ) Foreign 730 591 303 Loss before income taxes $ ( 184,882 ) $ ( 164,569 ) $ ( 47,608 ) The components of income tax expense (benefit) were as follows: Year Ended December 31, 2022 2021 2020 Current: Federal $ — $ — $ — State 353 38 18 Foreign 18 — 147 371 38 165 Deferred: Federal — — — State — — — Foreign ( 473 ) ( 678 ) ( 78 ) ( 473 ) ( 678 ) ( 78 ) Total: Federal — — — State 353 38 18 Foreign ( 455 ) ( 678 ) 69 Income tax expense (benefit) $ ( 102 ) $ ( 640 ) $ 87 The reconciliation of the Company's effective tax rate to the statutory federal rate is as follows: Year Ended December 31, 2022 2021 2020 Taxes at federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal effect 4.6 % 4.0 % 4.4 % Share-based compensation 3.9 % 4.5 % ( 8.5 ) % Section 162(m) limitation ( 13.8 ) % ( 8.3 ) % — % Other 1.4 % ( 0.3 ) % ( 0.1 ) % Change in valuation allowance ( 17.0 ) % ( 20.5 ) % ( 17.0 ) % Effective tax rate 0.1 % 0.4 % ( 0.2 ) % 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) Deferred tax assets and liabilities consist of the following: December 31 2022 2021 Deferred tax assets: Federal and state net operating losses $ 33,497 $ 41,418 Research and development credits 77 77 Property and equipment 205 ( 47 ) Accruals and other 20,884 16,173 Share-based compensation 14,490 7,124 R&D capitalization expenditures 23,404 — Reserve for contract contingencies and processing errors 614 818 Deferred revenue 6,011 3,132 Lease liability 3,061 3,730 Total deferred tax assets 102,243 72,425 Less valuation allowance ( 98,816 ) ( 68,847 ) Total deferred tax assets, net of valuation allowance 3,427 3,578 Deferred tax liabilities: Right-of-use asset ( 2,220 ) ( 2,728 ) Total deferred tax liabilities ( 2,220 ) ( 2,728 ) Net deferred tax assets $ 1,207 $ 850 In accordance with ASC 740 and based on all available evidence on a jurisdictional basis, the Company believes that it is more likely than not that its U.S. deferred tax assets will not be utilized and has recorded a full valuation allowance against its net deferred tax assets in the U.S. jurisdiction. The Company assesses on a periodic basis the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income or losses and expectations and risks associated with estimates of future taxable income in assessing the need for the valuation allowance. If it is not more likely than not that the Company expects to recover its deferred tax assets, the Company will increase its provision for taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. The available negative evidence at December 31, 2022 and 2021 included historical and projected future operating losses. As a result, the Company concluded that an additional valuation allowance of $ 30.0 million and $ 32.4 million was required to reflect the change in its deferred tax assets prior to valuation allowance during 2022 and 2021, respectively. As of December 31, 2022 and 2021, the Company considered it more likely than not that substantially all of its deferred tax assets would not be realized. The Tax Cuts and Jobs Act of 2017 (TCJA) requires taxpayers to capitalize and amortize research and development (R&D) expenditures under Section 174 for tax years beginning after December 31, 2021. This became effective for the Company during the year ending December 31, 2022, and resulted in the capitalization of R&D costs of $ 23.4 million. The Company will amortize these costs for tax purposes over 5 years for R&D performed in the US and over 15 years for R&D performed outside of the US. As of December 31, 2022, the Company had net operating loss carryforwards of approximately $ 130.0 million and $ 85.3 million for federal and state tax purposes, respectively. Of the Company's federal net operating loss carryforwards as of December 31, 2022, $ 121.5 million can be carried forward indefinitely but is limited to 80% of taxable income. If not utilized, the federal and state net operating carryforwards will begin to expire in 2036 and 2025, respectively. In addition, the Company has research and development tax credit carryforwards of approximately $ 0.2 million for federal income tax purposes. If not utilized, the federal research and development tax credit carryforwards will begin to expire in 2031. The California state research credit can be carried forward indefinitely. 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) 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, 2022, 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 and Australia. Due to tax attribute carryforward still being utilized, the Company's federal and state returns remain open for examination since inception. 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 have any material unrecognized tax benefits in 2022, 2021, and 2020. 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, 2022. The Company does not expect any significant increases or decreases to its unrecognized benefits within the next twelve months. 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, 2022 and December 31, 2021 included $ 0.5 billion and $ 1.2 billion, respectively, of investments in three money market mutual funds which invest primarily in U.S. treasury securities and U.S. agency securities. As of December 31, 2022, marketable securities were $ 440.9 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 and U.S. Agency Securities, which amounted to $ 407.1 million, or 92 % of the marketable securities. All debt securities within the Company's marketable securities portfolio are investment grade. 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 the total balance, except for U.S. Treasuries, which amounted to $ 418.3 million, or 92 % 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, 2022, 2021 and 2020, 82 %, 90 % and 96 % of Total Processing Volume, which is the total dollar amount of payments processed through the Company’s platform, net of returns and chargebacks, was settled through Sutton Bank, respectively. For 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, 2022 2021 2020 Customer A 71 % 69 % 70 % 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) Percent of Customers' Receivables as of December 31, 2022 2021 Customer B 18 % * Customer C * 20 % Customer D * 13 % * Less than 10% 13. Related Party Transactions The Company may enter into transactions with related parties. The Company had an equity method investment in a private company, which was a related party up until the investment was sold in October 2022. During the years ended December 31, 2022 and 2021, the Company earned net revenue of $ 2.7 million and $ 2.8 million from the private company, respectively. The Company had $ 4.1 million in revenue share payable to this private company as of December 31, 2021. 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, 2021 and 2020, 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. 14. Subsequent Event On February 3, 2023, the Company acquired Power Finance Inc. (Power Finance) for a purchase price of $ 221.9 million in cash, approximately one-third of which is payable over a two-year period subject to certain conditions. The purchase price does not include potential future earn-out amounts tied to additional performance-based goals to be achieved within the next 12 months with a maximum payout of up to $ 53.1 million. Power Finance’s cloud-native platform offers credit card program management services for companies creating new credit card programs. This acquisition is expected to allow the Company’s customers to launch a wide range of credit products and constructs. The Company is currently finalizing the accounting for this transaction and expects to complete the preliminary allocation of purchase consideration to the assets acquired and liabilities assumed by the end of the first quarter of 2023 . 113 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.