What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-28 · 133 added, 180 removed, 210 unchanged (60% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.

As discussed in the section titled “Note About Forward Looking Statements,” our actual results may differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” under Part I, Item 1A.

You should read the following discussion and analysis of our financial condition and results of operations together with our Audited Consolidated Financial Statements and the related notes included elsewhere in this Annual Report on Form 10-K.

A discussion regarding our liquidity, financial condition, and results of operations for the fiscal year ended December 31, 2023 compared to the fiscal year ended December 31, 2022 is presented below.

A discussion regarding our liquidity, financial condition and results of operations for the fiscal year ended December 31, 2021 compared to the fiscal year ended December 31, 2020 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 11, 2022, which is hereby incorporated by reference.

Marqeta’s modern card issuing platform empowers our customers to create customized and innovative payment cards, giving them the ability to build more configurable and flexible payment experiences.

We serve customers in multiple industry verticals including on-demand services, lending (including BNPL financing), expense management, disbursements, online marketplaces, and digital banking.

Before the rise of modern card issuing, issuing cards was slow, complex, and subject to mistakes.

Marqeta helps solve these problems.

Our platform, powered by open APIs, enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases.

Our modern architecture allows for flexibility, a high degree of configurability, and accelerated product development, democratizing access to card issuing technology.

It also enables us to rapidly expand our platform’s functionality, creating added value for our customers.

See the section titled “Business” under Part I, Item 1 of this Annual Report on Form 10-K for further discussion of our business, products, business model, and trends.

A discussion regarding our liquidity, financial condition, and results of operations for the fiscal year ended December 31, 2022 compared to the fiscal year ended December 31, 2021 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 28, 2023, which is hereby incorporated by reference.

Marqeta’s mission is modernizing financial services by making the entire payment experience native and delightful.

Marqeta’s modern platform empowers our customers to create customized and innovative payment card programs with configurability and flexibility.

Marqeta’s open APIs provide instant access to highly scalable, cloud-based payment infrastructure that enables customers to embed the payments experience into apps or websites for a personalized user experience.

Customers can launch and manage their own card programs, issue cards, and authorize and settle payment transactions quickly using our platform.

We also deliver robust card program management, allowing our customers to embed Marqeta in their offering without having to build certain complex compliance elements or customer support services.

See the section titled “Business” under Part I, Item 1 of this Annual Report on Form 10-K for further discussion of our business and products.

Impact of Macroeconomic Factors

We are unable to predict the impact macroeconomic factors, including the military action against Ukraine launched by Russia , ongoing supply chain shortages, higher inflation and interest rates, and other global economic conditions, will have on our processing volumes, and on our future results of operations.

We are unable to predict the impact macroeconomic factors, including various geopolitical conflicts, ongoing supply chain shortages, higher inflation and interest rates, and uncertainty in global economic conditions will have on our processing volumes, and on our future results of operations.

A deterioration in macroeconomic conditions could increase the risk of lower consumer spending, consumer and merchant bankruptcy, insolvency, business failure, higher credit losses, foreign currency fluctuations, or other business interruption, which may adversely impact our business.

We continue to monitor the situation and may take actions that alter our operations and business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our customers, vendors, and employees.

In addition, the COVID-19 pandemic had a significant impact on the U.S.

economy and the markets in which we operate.

Various governmental measures to slow and control the spread of COVID-19 have led to uncertainty related to the labor market, inflation, and fiscal and monetary policy responses.

Businesses continue to face difficulty in meeting consumer demand, and certain portions of the global supply chain remain challenged by shortages and delays.

We continue to monitor these situations and may take actions that alter our operations and business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our customers, vendors, and employees.

See the section titled “Risk Factors” under Part I, Item 1A of this Annual Report on Form 10-K for further discussion of the possible impact of these macroeconomic factors on our business .

20 unchanged sentences

payroll tax related to share-based compensation;

acquisition related expenses which consists of due diligence costs related to potential acquisitions, and transaction costs, integration costs and amortization of intangible assets related to successful acquisitions;

restructuring charges;

acquisition related expenses which consist of due diligence costs, transaction costs and integration costs related to potential or successful acquisitions and cash and non-cash postcombination compensation expenses;

income tax expense (benefit);

and other income (expense) net, which consists of changes in the fair value of redeemable convertible preferred stock warrant liabilities (for periods prior to the IPO), realized foreign currency gains and losses, interest income from our marketable securities, our share of equity method investments’ profit or loss, impairment of equity method investments or other financial instruments, and gain from sale of equity method investments.

and other income (expense) net, which consists of changes in the fair value of redeemable convertible preferred stock warrant liabilities (for periods prior to the IPO), interest income from our short-term investments, realized foreign currency gains and losses, our share of equity method investments’ profit or loss, impairment of equity method investments or other financial instruments, and gain from sale of equity method investments.

We believe that Adjusted EBITDA is an important measure of operating performance because it allows management and our board of directors to evaluate and compare our core operating results, including our operating efficiencies, from period to period.

7 unchanged sentences

payroll tax related to share-based compensation;

and acquisition related expenses which consists of due diligence costs related to potential acquisitions, and transaction costs, integration costs and amortization of intangible assets related to successful acquisitions.

restructuring charges;

and acquisition related expenses which consists of due diligence costs, transaction cost and integration costs related to potential or successful acquisitions, and cash and non-cash postcombination compensation expenses.

We believe that non-GAAP operating expenses is an important measure of operating performance because it allows management and our board of directors to evaluate and compare our core operating results, including our operating efficiencies, from period to period.

4 unchanged sentences

Platform services revenue, net .

Platform services revenue includes Interchange Fees, net of Revenue Share and other service-level payments to customers.

Platform services revenue includes Interchange Fees, net of Revenue Share and other service-level payments to customers, and Card Network and Issuing Bank costs for certain customer arrangements where the Company is an agent in the delivery of services to the customer.

Platform services revenue also includes processing and other fees.

Interchange Fees are earned on card transactions we process for our MxM customers and are based on a percentage of the transaction amount plus a fixed amount per transaction.

Interchange Fees are earned on card transactions we process for our customers and are based on a percentage of the transaction amount plus a fixed amount per transaction.

Interchange Fees are recognized when the associated transactions are settled.

Revenue Share payments are incentives to our MxM customers to increase processing volumes on our platform.

Revenue Share is generally computed as a percentage of the Interchange Fees earned or processing volume and is paid to our MxM customers monthly.

Revenue Share payments are recorded as a reduction to revenue.

As MxM customers' processing volumes increase, the rates at which we share revenue generally increase.

Processing and other fees are priced as either a percentage of processing volume or on a fee per transaction basis and are earned when payment cards are used at automated teller machines or to make cross-border purchases, and under our PxM agreements.

Revenue Share payments are incentives to our customers to increase their processing volumes on our platform.

Revenue Share is generally computed as a percentage of the Interchange Fees earned or processing volume and is paid to our customers monthly.

Revenue Share payments are recorded as a reduction to net revenue.

Generally, as customers' processing volumes increase, the rates at which we share revenue increase.

Minimum processing fees, where customers' processing volumes fall below certain thresholds, are also included in processing and other fees.

Platform services revenue is recognized as Marqeta satisfies our performance obligations which typically aligns with the period when volumes and transactions are processed.

We recognize revenue when the promised services are complete, and our performance obligations are satisfied.

Platform services are considered complete when we have authorized the transaction, validated that the transaction has no errors, and accepted and posted the data to our records.

Other services revenue.

2 unchanged sentences

Costs of Revenue

Costs of revenue consist of Card Network fees, Issuing Bank fees, and card fulfillment costs.

Costs of revenue consist of Card Network fees, Issuing Bank fees, and card fulfillment costs for customer arrangements where the Company is the principal in providing services to the customer and excludes depreciation and amortization, which is reported separately within the Consolidated Statements of Operations and Comprehensive Loss.

Card Network fees are equal to a specified percentage of processing volume or a fixed amount per transaction routed through the respective Card Network.

Issuing Bank fees compensate our Issuing Banks for issuing cards to our customers and sponsoring our card programs with the Card Networks and are equal to a specified percentage of processing volume or a fixed amount per transaction.

Issuing Bank fees compensate our Issuing Banks for issuing cards to our customers and sponsoring our card programs with the Card Networks and are typically equal to a specified percentage of processing volume or a fixed amount per transaction.

Card fulfillment costs include physical cards, packaging, and other fulfillment costs.

1 unchanged sentence

The amount of the incentives is generally determined based on a percentage of the processing volume or the number of transactions routed over the Card Network.

We record these incentives as a reduction of Card Network fees included in costs of revenue.

We record these incentives as a reduction of Card Network fees in customer arrangements where the Company is the principal.

Generally, as processing volumes increase, we earn a higher rate of monetary incentives from these arrangements, subject to attaining certain volume thresholds during an annual measurement period.

3 unchanged sentences

Compensation and Benefits.

Compensation and benefits consist primarily of salaries, employee benefits, incentive compensation, contractors’ cost and share-based compensation.

Compensation and benefits consist primarily of salaries, employee benefits, severance and other termination benefits, incentive compensation, contractors’ cost, and share-based compensation.

Technology consists primarily of third-party hosting fees, software licenses, and hardware purchases below our capitalization threshold, and support and maintenance costs.

3 unchanged sentences

Depreciation and Amortization.

Depreciation and amortization consist primarily of depreciation of our fixed assets.

Depreciation and amortization consist primarily of depreciation of our fixed assets and amortization of capitalized Internal-use software and developed technology intangible assets.

Marketing and Advertising.

1 unchanged sentence

Other Operating Expenses.

Other operating expenses consist primarily of insurance costs, indemnification costs, employee travel-related expenses, employee training costs, indirect state and local taxes, and other general office expenses.

Other operating expenses consist primarily of insurance costs, indemnification costs, travel-related expenses, indirect state and local taxes, and other general office expenses.

Other Income (Expense), net

Other income (expense), net consists primarily of interest income from our marketable securities, gain from from sale of equity method investments, impairment of equity method investments or other financial instruments, equity method investment share of loss, realized foreign currency gains and losses, and changes in the fair value of the redeemable convertible preferred stock warrant liabilities (for periods prior to the IPO).

Income Tax Expense

Other income (expense), net consists primarily of interest income from our short-term investments and cash deposits, gain from sale of equity method investments, impairment of equity method investments or other financial instruments, equity method investment share of loss, realized foreign currency gains and losses, and changes in the fair value of the redeemable convertible preferred stock warrant liabilities (for periods prior to the IPO).

Income Tax Benefit

Income tax expense consists of U.S.

federal and state income taxes, and U.K.

and Australia income taxes.

federal and state income taxes, and income taxes related to certain foreign jurisdictions.

We maintain a full valuation allowance against our U.S.

19 unchanged sentences

Loss before income tax expense (230,575) (184,882) (164,569)

Income tax expense (benefit) (102) (640) 87

Income tax benefit

(7,613) (102) (640)

Net loss $ (222,962) $ (184,780) $ (163,929)

6 unchanged sentences

Total Processing Volume (TPV) (in millions) $ 222,264 $ 166,260 $ 56,004 34 %

Total net revenue increased by $231.0 million, or 45%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, of which $173.0 million was generated by Block, including Afterpay starting February 1, 2022 following the completion of its acquisition by Block.

The increase in net revenue was primarily driven by a 50% increase in TPV, partially offset by unfavorable changes in our card program mix, particularly the growth of our PxM offering, compared to the same period in 2021.

Other services revenue increased $7.7 million, or 52%, for the year ended December 31, 2022 compared to the year ended December 31, 2021 due primarily to the increase in card fulfillment revenue.

Total net revenue decreased by $72.0 million, or 10%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, of which $68.6 million was attributable to our largest customer, Block.

The decrease in net revenue was primarily driven by the August 2023 Block Amendment which allowed for reduced pricing and impacted the revenue presentation for the Cash App Program as fees owed to Issuing Banks and Card Networks related to the Cash App primary Card Network volume are recorded as a reduction to the revenue earned from the Cash App program within net revenue effective as of July 1, 2023.

In prior periods, these costs were included within Costs of revenue.

The impact of these fees for the year ended December 31, 2023 was a $234.4 million reduction to net revenue, negatively impacting the growth rate by 31 percentage points.

These decreases in net revenue were partially offset by increased TPV from Block’s programs.

Revenue from other customers decreased $3.4 million, primarily driven by one customer migrating a portion of one of their programs to a competitor starting in Q3 2022, unfavorable changes in the mix of our card programs, particularly the growth of our PxM offering, and the impact of contract renewals partially offset by a 33% increase in TPV.

Other services revenue decreased $1.0 million, or 4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 due primarily to a decrease in card fulfillment revenue.

The increase in TPV was mainly driven by growth across all our major verticals, particularly financial services, and PxM customers.

12 unchanged sentences

Gross margin 49 % 43 %

Costs of revenue increased by $142.7 million, or 50%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was primarily due to increased Card Network fees as the result of the 50% increase in TPV and 51% increase in the number of corresponding transactions.

Network fees are presented net of monetary incentives from Card Networks for processing volume through the respective Card Networks during the period.

Card Network fees, net increased $135.8 million, or 56% in the year ended December 31, 2022 compared to the year ended December 31, 2021 and reflect an amendment to one of our Card Networks incentive arrangements that was executed in the third quarter of 2021.

This increase was due to a 50% increase in TPV and a decrease in Card Networks incentives mainly due to the timing of annual cumulative incentives for the years ended December 31, 2022 and 2021.

Issuing Bank fees increased $2.9 million, or 11%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, as a result of an amendment to one of our Issuing Banks’ arrangements that was executed in the third quarter of 2021.

Issuing Bank fees are typically determined based on volume tiers;

as our processing volumes grow, these fees as a percentage of processing volume decline.

As a result of the increases in net revenue and costs of revenue discussed above, our gross profit increased by $88.3 million, or 38%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Our gross margin decreased to 43% during the year ended December 31, 2022 from 45% during the year ended December 31, 2021.

Costs of revenue decreased by $81.5 million, or 19%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease was primarily due to the revenue presentation change for our fees owed to Issuing Banks and Card Networks related to the Cash App primary Card Network volume which are now reflected within net revenue as a result of the August 2023 Block Amendment.

In addition, the Company realized improved economics with Issuing Bank partners.

These decreases were partially offset by increases in Issuing Bank and Network fees driven by increased TPV.

As a result of the decreases in costs of revenue being less than the decreases in net revenue explained above, our gross profit increased by $9.5 million, or 3%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Our gross margin increased to 49% during the year ended December 31, 2023 from 43% during the year ended December 31, 2022.

Operating Expenses

20 unchanged sentences

Percentage of net revenue 91% 71%

Compensation and benefits expenses increased by $97.0 million, or 30%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, predominately due to the $78.9 million increase in salaries, bonus, benefits, and payroll taxes driven by the increase in average headcount, and the increase in compensation rates.

Our headcount has increased to 966 employees as of December 31, 2022 from 789 employees as of December 31, 2021.

Compensation and benefits expenses also increased in the year ended December 31, 2022 compared to the year ended December 31, 2021 due to a $18.1 million increase in share-based compensation expense, mainly because of the increase in our headcount and the Executive Chairman Long-Term Performance Award as detailed in the table below:

Salaries, bonus, benefits, and payroll taxes increased by $64.5 million, or 25%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to a $74.7 million, or 38%, increase in employee salaries, partially offset by a $5.3 million, or 13%, decrease in employee bonuses and a $4.8 million, or 35%, decrease in contractor expense.

The increase in employee salaries was driven by $68.9 million in postcombination compensation costs to former employees of Power Finance and $11.6 million in costs related to the restructuring announced in the second quarter of 2023, partially offset by higher salaries, bonus, and benefits costs capitalized for internal-use software development.

Share-based compensation increased by $20.0 million, or 12% in the year ended December 31, 2023 compared to the year ended December 31, 2022 mainly due to the increase in the number of RSU awards granted to employees, partially offset by higher share-based compensation capitalized for internal-use development.

Year Ended December 31,

6 unchanged sentences

Employee Stock Purchase Plan 1,554 2,619 (1,065) (41) %

Secondary sales of common stock — 11,642 (11,642) n/m

Total share-based compensation $ 180,739 $ 160,743 $ 19,996 12 %

n/m = not meaningful

(1) Includes $23.1 million of expense, for the year ended December 31, 2021, recognized for cumulative prior service as of the IPO completion date for RSUs with both a service and liquidity vesting condition.

Technology expenses increased by $3.3 million, or 6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase was due to higher third-party hosting costs to support our continued growth and higher software licensing costs as we added headcount and implemented new internal systems and tools.

Professional services expenses increased by $5.0 million, or 27%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was due to the increase in consulting, accounting, and legal fees.

Occupancy expense remained relatively flat for the year ended December 31, 2022 compared to the year ended December 31, 2021 as most of our employees and service providers continue to work remotely.

Depreciation and amortization remained relatively flat for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Marketing and advertising expenses increased by $1.7 million, or 75%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The increase was primarily related to conferences, trade shows, and brand awareness investments to further grow our customer base.

Other operating expenses increased by $13.0 million, or 96%, for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of an indemnification cost of $5.9 million, and an increase in insurance and travel costs of $5.2 million.

The increase was due to higher software as a service costs to support our continued growth and higher software licensing costs as we implement new internal systems and tools.

Professional services expenses decreased by $1.8 million, or 8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease was due to the decreased consulting and recruiting fees.

Occupancy expense remained relatively flat for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Depreciation and amortization increased by $6.9 million, or 179%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase was primarily due to the amortization of developed technology intangible assets originating from the Power Finance acquisition.

Marketing and advertising expenses decreased by $1.4 million, or 36%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to decreased conference and trade show costs incurred in the current year.

Other operating expenses decreased by $8.5 million, or 32%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The decrease was primarily due to cost optimization initiatives and an indemnification cost of $5.9 million that was recognized in the prior year.

Other Income (Expense), Net

1 unchanged sentence

(dollars in thousands) 2023 2022 $ Change % Change

Other income (expense), net $ 24,926 $ (2,563) $ 27,489 n/m

Other income (expense), net $ 52,440 $ 24,926 $ 27,514 110 %

Percentage of net revenue 8 % 3 %

Other income (expense), net increased by $27.5 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase of $19.1 million in interest income earned on our marketable securities portfolio and other cash deposit balances, a gain of $17.9 million from the sale of the Company’s equity method investment in a private company, offset by an impairment of $11.6 million of an option to purchase the remaining equity interests in an equity method investee.

Other income (expense), net increased by $27.5 million, or 110%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase of $32.8 million in interest income earned on our short-term investments portfolio and cash deposit balances, offset by a gain of $17.9 million from the sale of the Company’s equity method investment in a private company paired with an impairment of $11.6 million of an option to purchase the remaining equity interests in an equity method investee incurred during the prior year.

Income Tax Benefit

Income tax benefit increased by $7.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily attributable to a $8.0 million partial valuation allowance release due to the Power Finance acquisition, offset by income tax expenses resulting from profitable foreign operations.

Customer Concentration

We generated 68% and 71% of our net revenue from our largest customer, Block, during the years ended December 31, 2023 and 2022, respectively.

Quarterly Results of Operations

The following tables set forth selected unaudited consolidated quarterly statements of operations data for each of the eight fiscal quarters ended December 31, 2022.

The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this Annual Report on Form 10-K and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods.

The Company adopted ASU No.

2016-13, Financial instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments 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 quarterly results previously reported in fiscal year 2022.

In the fourth quarter of 2021, we reclassified contractor costs from professional services to compensation and benefits and all statements of operations below have been adjusted to conform to this new presentation.

This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report.

These quarterly results are not necessarily indicative of our results of operations to be expected for any future period.

Three Months Ended

(in thousands)

Net revenue $ 203,805 $ 191,621 $ 186,678 $ 166,102 $ 155,414 $ 131,512 $ 122,266 $ 107,983

Costs of revenue 116,681 111,519 108,629 91,376 79,615 72,438 75,291 58,126

Gross profit 87,124 80,102 78,049 74,726 75,799 59,074 46,975 49,857

Operating expenses:

Compensation and benefits 110,991 105,887 97,868 100,348 88,995 84,462 97,755 46,904

Technology 14,401 13,422 13,154 11,384 11,143 9,299 7,569 5,626

Professional services 6,295 6,620 5,794 4,770 5,712 4,704 3,831 4,196

Occupancy 1,126 1,125 1,148 1,115 1,097 1,091 907 1,086

Depreciation and amortization 1,019 934 921 979 967 786 874 907

Marketing and advertising 1,862 688 886 559 804 490 495 495

Other operating expenses 5,753 10,922 4,995 4,843 4,811 3,880 3,530 1,295

Total operating expenses 141,447 139,598 124,766 123,998 113,529 104,712 114,961 60,509

Loss from operations (54,323) (59,496) (46,717) (49,272) (37,730) (45,638) (67,986) (10,652)

Other income (expense), net 28,468 6,333 1,802 (11,677) 142 (57) (481) (2,167)

Loss before income tax expense (25,855) (53,163) (44,915) (60,949) (37,588) (45,695) (68,467) (12,819)

Income tax expense (benefit) 471 5 (227) (351) (781) (35) 87 19

Net loss $ (26,326) $ (53,168) $ (44,688) $ (60,598) $ (36,807) $ (45,730) $ (68,554) $ (12,838)

Use of Non-GAAP Financial Measures

8 unchanged sentences

We encourage investors to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures.

A reconciliation of net loss to adjusted EBITDA and non-GAAP operating expenses for the periods presented is as follows:

A reconciliation of net loss to adjusted EBITDA and GAAP operating expenses to non-GAAP operating expenses for the periods presented is as follows:

Year Ended December 31,

10 unchanged sentences

Acquisition-related expenses (1)

Other expense (income), net (24,926) 2,563 521

Income tax expense (benefit) (102) (640) 87

75,473 1,439 1,089

Restructuring

Other (income) expense, net

(52,440) (24,926) 2,563

Income tax benefit

(7,613) (102) (640)

Adjusted EBITDA $ (2,290) $ (41,796) $ (12,767)

4 unchanged sentences

Payroll tax expense related to share-based compensation (2,211) (1,977) (1,956)

Restructuring

Acquisition-related expenses (1)

(75,473) (1,439) (1,089)

Non-GAAP operating expenses $ 331,804 $ 361,797 $ 244,472

_______________

(1) Acquisition-related expenses, which include transaction costs, integration costs, and cash and non-cash postcombination compensation expense, have been excluded from adjusted EBITDA as such expenses are not reflective of our ongoing core operations and are not representative of the ongoing costs necessary to operate our business;

instead, these are costs specifically associated with a discrete transaction.

Liquidity and Capital Resources

1 unchanged sentence

In June 2021, we completed our IPO in which we 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.

At December 31, 2022, our principal sources of liquidity included cash, cash equivalents, and marketable securities totaling $1.6 billion, with such amounts held for working capital purposes.

At December 31, 2022, our cash equivalents and marketable securities were comprised primarily of bank deposits, money market funds, U.S.

At December 31, 2023, our principal sources of liquidity included cash, cash equivalents, and short-term investments totaling $1.2 billion, with such amounts held for working capital purposes.

Our cash equivalents and short-term investments were comprised primarily of bank deposits, money market funds, U.S.

treasury bills, U.S.

treasury securities, U.S.

agency securities, commercial paper, and corporate debt securities.

agency securities, asset-backed securities and corporate debt securities.

We have generated significant operating losses as reflected in our accumulated deficit.

We expect to continue to incur operating losses for the foreseeable future.

On September 14, 2022, our board of directors authorized a share repurchase program of up to $100 million of our Class A common stock beginning September 15, 2022.

Under the repurchase program, we were 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 Exchange Act.

On September 14, 2022, our board of directors authorized a share repurchase program (the “2022 Share Repurchase Program”) of up to $100 million of our Class A common stock beginning September 15, 2022.

Under the 2022 Share Repurchase Program, we were 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 Exchange Act.

The 2022 Share Repurchase Program had no set expiration date;

however, the 2022 Share Repurchase Program was exhausted during the first quarter of 2023.

On May 8, 2023, our board of directors authorized a share repurchase program (the “2023 Share Repurchase Program” and together with the 2022 Share Repurchase Program, the “Share Repurchase Programs”) of up to $200 million of our Class A common stock.

Under the 2023 Share Repurchase Program, we are 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 Exchange Act.

The 2023 Share Repurchase Program has no set expiration date.

As of December 31, 2022, $20.8 million remained available for future share repurchases under this repurchase program.

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.

We believe that this acquisition will allow our customers to launch a wide range of credit products and constructs.

We believe our existing cash and cash equivalents, and our marketable securities will be sufficient to meet our working capital and capital expenditure needs for more than the next 12 months.

As of December 31, 2023, $32.2 million remained available for future share repurchases under the 2023 Share Repurchase Program.

On February 3, 2023, we acquired all outstanding stock of Power Finance.

Upon the closure of the acquisition, we paid $135.8 million to the shareholders of Power Finance Inc, net of cash acquired.

As part of the terms of the acquisition, we paid additional cash of $53.1 million for contingent consideration tied to performance-based goals that were achieved.

We also entered into postcombination cash compensation arrangements with certain key acquired employees whereby we agreed to pay them $85.1 million of cash over a weighted average 2.2 year service period following the acquisition date (subject to forfeiture upon termination).

As of December 31, 2023, $54.1 million of the postcombination cash compensation arrangements remained outstanding.

During the second quarter of 2023, we announced a restructuring plan intended to reduce operating expenses and improve profitability by reducing the Company’s workforce.

In connection with the restructuring plan, we have paid approximately $14.6 million to impacted employees primarily related to one-time severance and benefit payments as of December 31, 2023.

We believe our existing cash and cash equivalents, and our short-term investments will be sufficient to meet our working capital and capital expenditure needs for more than the next 12 months.

As of the date of filing this Annual Report on Form 10-K, we have access to and control over all our cash, cash equivalents and short-term investments, except amounts held as restricted cash.

Our future capital requirements will depend on many factors, including our planned continuing investment in product development, platform infrastructure, share repurchases, and global expansion.

6 unchanged sentences

(in thousands)

Net cash (used in) provided by operating activities $ (12,966) $ 56,972 $ 50,273

Net cash provided by (used in) operating activities

$ 21,104 $ (12,966) $ 56,972

Net cash provided by (used in) investing activities 38,516 28,718 (329,121)

Net cash (used in) provided by financing activities (261,794) (79,487) 1,299,297

Net increase in cash, cash equivalents, and restricted cash $ (63,735) $ 1,027,148 $ 160,089

(Decrease) Increase in cash, cash equivalents, and restricted cash $ (202,174) $ (63,735) $ 1,027,148

Operating Activities

1 unchanged sentence

Our primary uses of cash in our operating activities are for Card Network and Issuing Bank fees, and employee-related compensation.

The timing of settlement of certain operating liabilities, including Revenue Share payments and bonus payments, can affect the amounts reported as net cash provided by operating activities on the consolidated statement of cash flows.

Net cash used in operating activities was $13.0 million for the year ended December 31, 2022 compared to a net cash provided of $57.0 million in the year ended December 31, 2021.

The net cash used in operating activities during fiscal year 2022 was due mainly to the timing of payments for costs of our services and operating expenses, partially offset by the increase in net revenue

The timing of settlement of certain operating liabilities, including Revenue Share payments, bonus payments and prepayments made to cloud-computing service providers, can affect the amounts reported as Net cash used in or provided by operating activities on the Consolidated Statement of Cash Flows.

Net cash provided by operating activities was $21.1 million for the year ended December 31, 2023 compared to a net cash used of $13.0 million in the year ended December 31, 2022.

The increase in net cash provided by operating activities during fiscal year 2023 was mainly due to increased non-cash expenses and the timing of payments for costs of our services and operating expenses.

Investing Activities

Net cash provided by investing activities consists primarily of maturities of our investments in marketable securities and sale of equity method investments.

Net cash used in investing activities consists primarily of purchases of marketable securities, purchases of property and equipment, and equity method investments.

Net cash provided by investing activities was $28.7 million for the year ended December 31, 2022 compared to a net cash used of $329.1 million in the year ended December 31, 2021.

The net cash provided by investing activities during fiscal year 2022 was primarily due to the sale of equity method investments and the decrease in purchases of marketable securities, an equity method investment, and a purchase call option to acquire the remaining interest in the equity method investee.

Net cash provided by investing activities consists primarily of maturities and sales of our investments in short-term investments and sale of equity method investments.

Net cash used in investing activities consists primarily of purchases of short-term investments, purchases of property and equipment, and equity method investments.

Net cash provided by investing activities was $38.5 million for the year ended December 31, 2023 compared to $28.7 million in the year ended December 31, 2022.

The increase in net cash provided by investing activities during fiscal year 2023 was primarily due to sale and maturities in short-term investments, partially offset by the purchase of short-term investments, the Power Finance acquisition in 2023, the sale of equity method investments in 2022, and capitalization of internal-use software.

Financing Activities

Net cash provided by financing activities consists primarily of proceeds from the sale of our equity securities.

Net cash used in financing activities consists primarily of net payments related to the share repurchase program, to the payment of tax withholding for RSU settlements and to payments of offering costs related to the IPO.

Net cash used in financing activities was $79.5 million for the year ended December 31, 2022 compared to a net cash provided of $1.3 billion in the year ended December 31, 2021.

The decrease in net cash provided by financing activities in fiscal year 2022 was primarily due to the decrease in proceeds received from our IPO, net of underwriters’ commission and discounts, and the increase in payments related to the share repurchase program.

Net cash provided by financing activities consists primarily of proceeds from the issuance of our equity securities.

Net cash used in financing activities consists primarily of net payments related to the share-based compensation activity and share repurchase programs.

Net cash used in financing activities was $261.8 million for the year ended December 31, 2023 compared to a net cash used of $79.5 million in the year ended December 31, 2022.

The increase in net cash used in financing activities is primarily due to payments to repurchase shares under the Share Repurchase Programs, the payment of the contingent consideration from our Power Finance acquisition and share-based compensation activity.

Obligations and Other Commitments

Our principal commitments consist of obligations under our operating leases for office space and other non-cancellable purchase commitments.

For additional information about our operating leases, see Note 7 to our Consolidated Financial Statements “Commitments and Contingencies — Operating Leases.”

In connection with our corporate headquarters lease, we are required to provide the landlord a letter of credit in the amount of $1.5 million.

We have secured this letter of credit by depositing $1.5 million with the issuing financial institution.

This deposit is classified as restricted cash in the consolidated balance sheets.

As of December 31, 2022, we 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.

For additional information about our operating leases and non-cancellable purchase commitments, see Note 7 “Leases” and Note 8 “Commitments and Contingencies” to our Consolidated Financial Statements.

Critical Accounting Policies and Estimates

1 unchanged sentence

The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures.

On an ongoing basis, we evaluate our estimates and assumptions.

On an ongoing basis, we evaluate our accounting estimates and assumptions.

Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, discussed in Note 2 to our Consolidated Financial Statements “Summary of Significant Accounting Policies,” the following accounting policies involve a greater degree of judgment and complexity.

Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Based on the Company's aggregate worldwide market value of voting and non-voting common equity held by non-affiliates as of June 30, 2022, the Company became a “large accelerated filer” and lost emerging growth company status on December 31, 2022.

Prior to December 31, 2022 we were an emerging growth company, as defined in the JOBS Act, and elected to take advantage of the extended transition period for complying with new or revised accounting standards.

In other words, we were permitted to delay the adoption of new or revised accounting standards that have different transition dates for public and private companies until those standards would otherwise apply to private companies.

As a result of this election, our prior financial statements may not be comparable to those of companies that comply with the accounting standards as of the public company effective dates.

Our significant accounting policies, including recent accounting pronouncements, are described in “ Note 2 - Summary of Significant Accounting Policies” in the accompanying notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

We believe that of our significant accounting policies, the following policies involve accounting estimates and assumptions which we consider to be the most critical to our financial statements.

An accounting estimate or assumption is considered critical if both (a) the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (b) the impact within a reasonable range of outcomes of the estimate and assumption is material to our Consolidated Financial Statements.

Revenue Recognition

We generate revenue from providing platform services, which includes Interchange Fees and processing fees, and other services, which includes card fulfillment revenue, to our customers.

Our contracts with customers typically include two performance obligations:

(i) providing access to our payment processing platform and (ii) providing card fulfillment services.

Certain customer contracts require us 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 our historical contract pricing and costs incurred to fulfill services.

We satisfy our performance obligation to provide platform services over time as customers have continuous access to our platform, and we stand ready to process customer transactions throughout their term of access.

We allocate variable consideration to the distinct month in which our platform services are delivered.

When pricing terms are not consistent throughout the entire term of the contract, we estimate variable consideration in customers' contracts primarily using the expected value method.

We develop estimates of variable consideration on the basis of both historical information and current trends and do not expect or anticipate significant reversal of revenue in the future periods.

As the Issuer Processor for our customers, we are the principal in providing services under our contracts with customers.

To deliver the services required by our customers, we contract 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.

We control these integrated services before delivery to our customers, we are primarily responsible for the delivery of the services to customers, and we have discretion in vendor selection.

As such, we record fees paid to the Issuing Banks and Card Networks as costs of revenue.

For certain revenue contracts, we estimate variable consideration and material rights to record each period.

This requires that we estimate the expected processing volume over the term of the contract, including any additional extension of the term associated with a material right.

These estimates are predominantly derived by analysis of historical trends and are updated on a quarterly basis.

Changes made to these assumptions during the year ended December 31, 2022 did not have a material impact to the net revenue recorded during the year ended December 31, 2022.

Share-Based Compensation

We measure compensation expense for all share-based payment awards, including stock options and RSUs, granted to employees, directors, and other service providers, based on the estimated fair value of the awards on the date of grant.

Prior to the completion of the IPO, the most significant input in determining the fair value of a stock option was the estimated fair value of our common stock.

The estimated fair value of our common stock was also used to measure the grant date fair value of RSUs granted prior to the completion of the IPO in June 2021.

Additionally, prior to the completion of the IPO, the determination of whether to recognize share-based compensation expense related to secondary sales of common stock by employees or former employees required a significant amount of judgment.

Our methods to estimate the fair value of our common stock and to determine share-based compensation expense related to secondary sales of common stock prior to the completion of the IPO are discussed below.

Fair Value of Common Stock :

Prior to the completion of the IPO, the Company’s board of directors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved.

The factors considered included, but were not limited to:

(i) contemporaneous independent third-party valuations of the Company’s common stock;

(ii) observed secondary sales of the Company’s common stock;

(iii) rights, preferences, and privileges of the Company’s redeemable convertible preferred stock relative to those of its common stock;

(iv) our 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 completion of the IPO, the fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its Class A common stock, which is traded on the Nasdaq Global Select Market.

Secondary Sales of Common Stock .

Prior to the completion of the IPO in June 2021, certain stockholders acquired outstanding common stock from current or former employees for a purchase price greater than the estimated fair value of our common stock at the time of the respective transaction.

The determination of whether the excess of purchase price over the estimated fair value represents share-based compensation is highly judgmental.

We determined whether secondary sales of common stock by employees and former employees resulted in share-based compensation expense by evaluating the extent of our involvement in secondary sale transactions, whether the purchaser of the shares is an existing or new stockholder, and the extent the sale price per share exceeds our estimated fair value per share.

We recorded share-based compensation expense as measured as the difference between the aggregate price paid by the stockholder and our estimated aggregate fair value on the date of the transaction, and recorded $0.0 million, $11.6 million and $17.3 million during the years ended December 31, 2022, 2021 and 2020, respectively.

Such amounts were recorded in compensation and benefits expense on the consolidated statements of operations.

Subsequent to the completion of the IPO, we did not record share-based compensation expense related to secondary sales of our common stock.

Recent Accounting Pronouncements

See Note 2 to our Consolidated Financial Statements “Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements”.

We interact with third party Issuing Banks and Card Networks to deliver our Platform Services to our customers.

For revenue generated from customer arrangements that involve third parties, there is significant judgment in evaluating whether we are the principal, and report revenue on a gross basis, or the agent, and report revenue on a net basis.

In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer.

The assessment of whether we are considered the principal or the agent in a transaction could impact our Net revenue and Cost of revenue recognized on the Consolidated Statements of Operations and Comprehensive Loss.

Business Combinations

When we acquire a business, the purchase price is allocated to the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their respective estimated fair values.

Any residual purchase price is recorded as goodwill.

The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets.

These estimates can include, but are not limited to:

• future expected cash flows from acquired developed technologies;

• obsolescence curves and other useful life assumptions, such as the period of time and intended use of acquired intangible assets in our product offerings;

• discount rates;

• uncertain tax positions and tax-related valuation allowances;

• fair value of assumed equity awards.

These estimates are inherently uncertain and unpredictable, and unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results.

During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill.

We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to our preliminary estimates to goodwill provided that we are within the measurement period.

Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of Operations and Comprehensive Loss.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis