Marqeta Inc

NASDAQ:MQ

Earnings Call Analysis

Marqeta's Q3 Performance and Q4 Outlook

In Q3, Marqeta's total payment volume (TPV) hit $57 billion, a 33% year-over-year increase. This puts the company on track to exceed $200 billion in TPV for the year. Despite the robust TPV growth, net revenue sharply contracted by 43% to $109 million, severely affected by a 70 percentage point decline from the Cash App contract renewal. Gross profit also dipped by 9% to $73 million. A newer 'Pay Anywhere' solution for Buy Now, Pay Later (BNPL) grew significantly, now constituting about 10% of BNPL volume. Heading into Q4, Marqeta anticipates similar impacts from the Cash App renewal on revenue and gross profit as in Q3, with net revenue expected to contract by 45-47%. Despite short-term challenges, Marqeta eyes reinvestment and innovation to reignite growth in 2024.

Q3 Performance and Long-Term Partnerships

The third quarter saw better-than-expected results for net revenue, gross profit, and operating expenses, resulting in a marginal adjusted EBITDA dip of negative $2 million. The company sustained its momentum with a Total Processing Volume (TPV) of $57 billion, up by 33% from the same quarter last year, marking the third sequential quarter surpassing $50 billion. Nevertheless, net revenue plunged by 43% year-over-year due to changes relating to Cash App's accounting, and gross profit receded by 9%. These were somewhat mitigated by a diligent 20% reduction in operating expenses linked to restructuring and cost-saving actions.

Investing in Growth Through Partnerships

The company fortified its strategic position by renewing pivotal agreements, such as the Square debit card, for five years, and expanding the scope with Cash App into June 2028. Additionally, Marqeta is positioned to be the default provider for issuing processing and associated services with Block in markets outside the U.S., which could catalyze new growth avenues.

Adapting and Innovating BNPL Services

The company's Buy Now, Pay Later (BNPL) services have evolved to meet the growing consumer demand for flexible payment solutions. By introducing Pay Anywhere features, Marqeta is now capturing approximately 10% of its BNPL volume, reflecting a strategic shift towards more complex consumer offerings where Marqeta retains a competitive edge. This pivot is crucial at a time when instant issuance technology becomes commoditized, and the company projects rebounding growth in 2024 after stabilizing from the Cash App renewal.

Financial Health and Future Outlook

Marqeta concluded the quarter with $1.3 billion in cash and short-term investments. Looking ahead, Q4 is anticipated to see net revenue contract by 45% to 47%, primarily due to the Square renewal. Gross profit is forecasted to contract by 8% to 10%, mirroring Q3's performance. Adjusted expenses are expected to drop by roughly 10% year-over-year, leading to a near breakeven adjusted EBITDA margin as 2023 closes. Overall, 2023 is projected to close with a low double-digit percentage contraction in net revenue and low single-digit positive gross profit growth.

Diversifying Revenue Models

Marqeta is increasingly decoupling its revenue from interchange fees, shifting towards a fee-for-service model that mixes per-transaction and volume-based fees. This strategic alteration yields a more resilient revenue stream, less sensitive to interchange variability, and capable of capturing the upside of spending growth. While 85% of expenses are tied to personnel and technology, there's clarity in the model: technology costs flex with volume, and personnel costs represent the most significant lever for adjusting expense growth.

Gross Profit Developments

The company witnessed a 5 percentage point decrease in gross profit concentration from Block, which now stands in the 40s percentage range. Although providing Block with marginally better pricing under the new Square debit card deal slightly reduces gross profit, the extended partnership and forthcoming opportunities are deemed favorable for growth. Despite a mild softening observed in October TPV, expected gross profit growth for Q4 remains robust. Non-Block gross profit growth is impressive, grossly impacting more than 10 percentage points of drag from renewal activities, suggesting a potential for strong double-digit growth without these effects.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Marqeta Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the call over to Stacey Finerman, Vice President of Investor Relations. Thank you. You may begin.

[Stacey Finerman, executive]

Thanks, operator. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements, including statements regarding anticipated future financial and operating results, and future changes in or developments regarding accounting treatment, among others. These forward-looking statements are subject to numerous risks and uncertainties, including the risks that our accounting treatment may be subject to further changes or developments as well as those set forth in our filings with the SEC, which are available on our Investor Relations website, including our annual report on Form 10-K for the period ended December 31, 2022, and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the time of this call and the company does not assume any obligation or intent to update them, except as required by law.

In addition, today's call includes non-GAAP financial measures, these measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release, our earnings release supplemental materials, which are available on our Investor Relations website. A reconciliation of forward-looking non-GAAP guidance is not available without reasonable effort due to the challenges in practicality with estimating some of the items, such as share-based compensation expense, depreciation and amortization expense and payroll tax expense, the effect of which could be significant.

Hosting today's call are Simon Khalaf, Marqeta's CEO; and Mike Milotich, Marqeta's chief Financial Officer. With that, I'd like to turn the call over to Simon to begin.

[Simon Khalaf, executive]

Thank you, Stacey, and thank you, everyone, for joining our third quarter 2023 earnings call. We had a strong quarter. Our third quarter net revenue, gross profit and operating expenses were all better than our expectations, resulting in an adjusted EBITDA of negative $2 million. Our results over the past few quarters have shown that we can scale the company, while maintaining expense discipline. We're continuing to innovate and expand our solutions with the recent launch of our credit platform as well as deepening our relationship with our customers and capturing new ones. This morning, we announced another expansion of our partnership with Block. And as we will discuss, we saw our business continue to build momentum, signing new embedded finance customers and expanding with our current customer base.

Let me start with our financial performance. Total processing volume, or TPV, was $57 billion, an increase of 33% compared to the same quarter of 2022. This was the third consecutive quarter where our TPV exceeded $50 billion. Our net revenue of $109 million in the quarter contracted 43% year-over-year including negative 60 percentage points from the accounting change related to Cash App, and our gross profit of $73 million contracted 9% versus Q3 2022, primarily due to the Cash App renewal pricing. Mike will discuss this in more detail later on the call.

Our non-GAAP adjusted operating expenses were $75 million, a 20% decrease versus Q3 2022 due to our restructuring and cost-cutting initiatives, resulting in a negative $2 million in adjusted EBITDA for the quarter. As we've done in the last few quarters, we continue to grow our business and enhance our platform while increasing efficiency. At the Money20/20 Conference, we unveiled our new credit platform, which much like our debit and prepaid offerings, offers a full stack solution with issuer processing and program management. We believe that this puts us in a highly advantageous position allowing us to offer a more modern credit product than legacy competitors and 1 with greater product breadth and scale than many modern competitors.

There are multiple benefits to this site of end-to-end solutions. Launching a credit card has historically been a complicated and cumbersome process, and our new platform means that our customers have a one-stop shop from design to launch and scale and can work directly with us rather than several different providers. This reduces complexity for our customers and speeds up the time to market significantly. Further, without offering, customers can own and customize the experience and embed the card within their brands. our ability to offer configurable and flexible solutions enables our customers to build highly differentiated programs with truly personalized rewards and spend controls. Instead of offering the same cookie-cutter reward for every consumer, our customers can now personalize the words to reflect individual needs.

This helps them build credit cards that we imagine customer loyalty and engagement. Best of all, because the offering is truly embedded, the cardholder only interacts with a card program rather than being sent to a bank experience they're simply not familiar with. The initial interest in this product has been very promising, and we're deeply engaged with several prospects. While many equate credit with consumer co-brand offerings, which is undoubtedly a large portion of credit, we also see strong demand for commercial use cases. Commercial use cases can drive loyalty, customer engagement and enable businesses to run more efficiently. Customers building commercial card programs can choose from flexible funding models for their cardholders such as Net 30 Charge cards, receivable purchase and revolving credit to allow them to take control of their business financial health and access capital more efficient.

Following our renewal news last quarter, we continued to deepen our relationship across Blocks ecosystem and are pleased to announce multiple updates to our long-standing relationship. First, we renewed our agreement for the Square debit card for 5 years to run through June 2028. Second, in parallel, we extended our deal with Cash App so that, that deal also extends through June 2028. Finally, we agreed with Block that Marqeta will be the default provider of issuing processing and related services in current or future markets outside of the U.S. where Block may decide to enter and Marqeta is able to provide issuing and processing services. We believe this extension demonstrates the value that Block sees in our platform, especially our ability to support dynamic use cases with both consumer and commercial card programs globally.

In addition to these meaningful announcements, we continue to execute day in and day out, supporting new and existing customers with our ability to offer payment expertise, flexibility, control and scale, which creates a meaningful differentiation between ourselves and others in the space. Last quarter we highlighted how we were converting prospective customers that we're starting to reach scale with other providers. In many instances, these were customers where we initially bid for their business, but they opted to work with another provider. This strength continued into the third quarter, one which we are excited about is an expense management platform focused on the marketing industry that initially looked at us 2 years ago before choosing another modern platform.

They started to see product market fit and strong traction and as a result, needed more service, which they were promised but have yet to materialize. They also felt the spend controls and analytics were pretty decent, which did not work for a company whose business is dependent on providing their end customers with actionable analytics and insights. As a result, they reengaged with Marqeta. In addition, to access to better analytics and customer service, they found our solutions easier to utilize.

As we will discuss during our Investor Day at the end of this week, the breadth and depth of our platform resonates with customers who are looking to provide multiple solutions rather than just point products. This is especially true when it comes to our program management offering. During the quarter, we signed a deal with a marketplace offering financial management tools. The customer approach Marqeta about launching a demand deposit account to their debit card for their user base, offering cash back to help repay student debt. Marqeta was the provider of choice, given our money movement offering, our experience in modern card issuing, our superior service and the quality of our APIs.

While the customer who was initially interested in a Powered by Marqeta construct, they realize the benefits of using a Managed by Marqeta solution to ensure a successful program launch. As a result, the customer ultimately decided to use our program management capabilities and signed on for additional services such as dispute management and interactive voice response.

Another topic we will discuss at length during our Investor Day is the embedded finance opportunity and how the platform is uniquely positioned to benefit. Two examples of embedded finance deals we signed in the quarter are companies looking to use embedded finance to create a better customer experience and keep funds within the ecosystem. One example is the logistics company that will have the ability to offer a Marqeta virtual card with instant refund disbursement to encourage respending at their e-commerce partners website when items are returned. Another e-commerce example is a company that provides software for contractors to manage supply, offering their vendors to be paid via a virtual card so that the payment comes in faster than cheques or ACH.

In addition to these new exciting customers with differentiated use cases, we continue to innovate with our existing customer base. Marqeta's early innovations and solutions such as instant issuance allowed us to be an early beneficiary in Buy Now, Pay Later as our solution enables significant merchant acceptance growth in this space. However, as offerings proliferated, major BNPL providers added new products to keep up with the changing needs of consumers and merchants alike.

While our initial BNPL solution required a virtual card at the point of sale, providers wanted to extend their relationship with their end customers across all purchasing behaviors. As a result, many BNPL providers introduce Pay Anywhere solutions for use across multiple merchants, giving consumers the option of paying in installment rather than an evolving balance. This new use case has shown tremendous growth and the multiple programs we have that use this contract -- construct accounting for approximately 10% of our Buy Now, Pay Later volume. This is particularly remarkable as many of these programs have only been live for just a few quarters. Not only are these programs growing in popularity but they also have better take rates than commercial virtual cards. This shift comes at a critical time from a competitive basis for Marqeta, with instant issuance commoditizing as competitors are catching up to the technology we offered years ago.

However, the shift to these new BNPL programs require the ability to offer a consumer card, which Marqeta is uniquely positioned to do as consumer offerings are increasingly more complex than commercial. As a result, we have maintained an advantage or moat in BNPL given the breadth of our platform.

In summary, the addition of credit and our long-term relationship with Block positions us well as we reset the company in 2023 and look to build from a new, strong baseline. In addition to these considerable accomplishments, we continue executing for our existing and new customers. Combined, we expect these efforts will enable Marqeta to reignite steady growth in 2024 after we have lapped the Cash App renewal.

I will pause there as we plan to discuss the opportunity ahead of us in great detail in just a few days at our Investor Day. With that, I'll turn it over to Mike for his prepared remarks.

[Mike Milotich, executive]

Thanks so much, Simon, and good afternoon, everybody. As expected, third quarter net revenue and gross profit growth contracted due to the Cash App renewal that was signed last quarter. However, our Q3 results were better than expected, particularly our adjusted EBITDA as a result of the continued execution on efficiency initiatives and timing of some expenses that will shift into Q4. The revenue contraction was lower than anticipated, mostly due to business mix differences that impacted the change in Cash App revenue presentation as part of the new contract. I will get into more detail in a few minutes.

Q3 TPV was $57 billion, growing 33% year-over-year and exceeding $50 billion for the third quarter in a row across a diverse portfolio of use cases, putting us on track to deliver over $200 billion in TPV for the full year. The financial services vertical, which is a little over half of our TPV continues to perform well, but did slow a few points from Q2 as the vertical faced tougher comps from the acceleration last year in Q3. Partially offsetting those tough comps was the rapid ramp of accelerated wage access, which delivered 2x the volume versus Q2, and there was little volume last year as this is a newer use case for Marqeta.

Lending, including Buy Now, Pay Later growth accelerated more than 20 points from Q2 and is now growing faster than the total company growth primarily for 2 reasons. First, we lapped the partial loss of 1 Klarna program this quarter. Second, the rapid consumer adoption of several of our BNPL customers pay newer solutions, which deliver their BNPL value proposition on a card that can be used at any card-accepting merchants. On-demand delivery growth accelerated this quarter due to consumer adoption of new services and merchant segments. Expense management growth decelerated this quarter due to increasingly tougher comps as this vertical matures.

Q3 net revenue was $109 million, a contraction of 43% year-over-year, including a 70 percentage point decline due to the Cash App renewal. The bulk of that Cash App renewal impact is the 60 percentage point growth headwind driven by the revenue presentation change related to the costs associated with Cash App's primary payment network volume. This revenue presentation impact on growth was several points lower than we expected due to nuances within Cash App TPV, particularly a greater mix of volume on non-primary networks. We attribute this mix shift to changes in Reg II that went into effect in July. Because this nonprimary network volume still adheres to the prior revenue recognition, it led to higher revenues that do not necessarily translate into higher gross profit, a circumstance that we have discussed in the past.

As expected, the Cash App renewal pricing drove an additional 10-point impact to net revenue growth in the quarter. Excluding the Cash App renewal, net revenue growth was strong, driven by strength across the business, particularly on-demand delivery and Powered by Marqeta. Block net revenue concentration was 50% in Q3, decreasing 28 points from Q2 as a result of the Cash App contract renewal. Our net revenue take rate was 19 basis points. Excluding Cash App, the net revenue take rate was consistent with the prior quarter and several bps higher than our total company take rate.

Q3 gross profit was $73 million, contracting 9%, a little better than we expected. The gross profit contraction is primarily a result of 3 factors: first, the Cash App renewal lowered growth by mid-20s percentage points. Remember, the change in Cash App revenue presentation has no impact on gross profit. Therefore, this impact is solely driven by the renewal pricing.

Second, we renewed approximately 50% of our non-Block TPV between Q2 '22 and Q1 '23. Although the effects are starting to dissipate and we will fully lap this in Q2 '24, these renewals did lower growth by low to mid-single digits this quarter. Lastly, we lost 4 lease incentives on 2 of our customers at the start of 2023, lowering growth by low to mid-single digits. This impact is a little lower than previous quarters due to the volume fluctuations in those customers last year, and we expect to fully lap this impact in Q1 '24.

We believe each one of these gross profit impacts were discrete situations that impacted us all at once. We do not expect to see impacts of this magnitude in the future due to changes in how we approach customer deals and contractual language, starting late last year. Our gross profit take rate was 13 basis points. The gross profit take rate outside of Cash App increased 1 point from last quarter and is several bps higher than our total company gross profit take rate.

Gross profit margin was 67% lower than anticipated because of the smaller impact of the cash out net revenue presentation change, which caused net revenue to be higher but did not flow through to gross profit. Our projections on gross profit and the gross profit take rate were accurate. Therefore, the margin difference is mostly driven by the denominator.

Q3 adjusted operating expenses were $75 million, a decrease of 11% from last quarter and a 20% decrease year-over-year despite an approximately 1 point of inorganic growth driven by the inclusion of power. These declines are primarily driven by the realized savings from our restructuring in late May and efficiency initiatives targeting our technology and professional services expenses. These cost rationalizations have not impacted our platform uptime or performance despite our fast-growing volumes.

Adjusted operating expenses were almost $10 million lower than we expected for 3 reasons, 2 of which are timing related. We have diligently curtailed our technology and professional services expenses, achieving larger benefits than we initially anticipated. A few of our planned third-party expenditures such as support to execute volume migrations from other processors and program management enhancements were delayed in Q3. Therefore, we expect $2 million to $3 million of expense to shift to Q4.

Finally, when we reduced our workforce by approximately 20% in May, we also intended to hire in a few priority areas. As a result, we plan to end the year with a net reduction of just over 15% of our pre-restructuring headcount plan. However, as we thought we consider these additions and work to set up an office in a lower cost jurisdiction, some of these hires are being delayed through the middle of next year.

Q3 adjusted EBITDA was negative $2 million, a margin of negative 2%. This result was better than we expected, driven mostly by cost management successes. Interest income was $15 million, driven by elevated interest rates. The Q3 GAAP net loss was $55 million, including a $16 million noncash post-combination expense related to the Power acquisition. During Q2, we announced a stock buyback of $200 million. As of Q3 quarter end, we purchased 21.6 million shares for an average price of $5.19 for $112 million. We ended the quarter with $1.3 billion of cash and short-term investments.

As we look ahead to Q4, setting all the Block renewals aside, the underlying performance of the business has been performing well throughout the year. With the Square and Cash App business now secured through June of 2028 and with the potential for additional growth from new programs as a default provider, we have a solid foundation from which to build. Although the Square renewal aligns the volumes and price tiering with the Cash App contract, which will reduce gross profit growth by approximately 3 percentage points in Q4, it does not come with the revenue accounting impact of the Cash App renewal. We expect the Cash App renewal impacts on revenue and gross profit in Q4 to be in line with Q3, which is low 70s percentage points for revenue and mid-20 percentage points for gross profit. We also expect the business outside of Block to perform on a similar trajectory as Q3.

Our expectations for Q4 are as follows: Net revenue is expected to contract between 45% and 47%, the few points of deceleration from Q3 is mostly due to the Square renewal. Gross profit is expected to contract between 8% and 10% in line with Q3. The Square renewal growth headwind of approximately 3 percentage points is offset by less drag from non-Block renewals and additional incentives as we reach a new tier. Our gross margin should be in the high 60s.

With the success of our efficiency efforts to date, we expect adjusted operating expense to decline by about 10% year-over-year including the timing shift from Q3 and higher technology costs that come with elevated volumes during the holiday season. Therefore, adjusted EBITDA margin is expected to be negative 3% to 4% on an organic basis excluding the 1 point negative margin impact of the Power acquisition. The lower adjusted EBITDA versus Q3 is consistent with the $2 million to $3 million expense timing shift into Q4. Therefore, our expectations for full year 2023 performance are consistent with what we shared last quarter, except for a better adjusted EBITDA margin, driven by our expense discipline.

Net revenue is expected to contract by low double-digit percentage with an approximately high 30s percentage point decline due to the Cash App renewal, mostly due to the change in accounting treatment. Gross profit growth is expected to be positive low single digits. Adjusted EBITDA margin is expected to be negative low single digits on an organic basis, including the 1 point negative margin impact of the Power acquisition.

To wrap up, we delivered a strong Q3 and have now renewed over 75% of our TPV in the last 6 quarters, positioning the company for long-term success. This is our first quarter incorporating the Cash App renewal in our results, which established a new baseline that sets us up to drive sustained, long-term profitable growth as our sales bookings continue to show growth and momentum. Despite the renewal headwinds on growth, we believe our efficiency initiatives will put us close to adjusted EBITDA breakeven as we exit 2023.

Before we turn it over to Q&A, we understand the longer-term trajectory of the business is of great interest to everyone and our Investor Day materials will be available at 1:30 Pacific Time on Thursday, November 9, on our Investor Relations website. We think you will find the 110 minutes of content helpful. As such, we ask that questions today be limited to Q3 results and 2023 as a whole. Thank you. Now it's time to take questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Tien-Tsin Huang with JPMorgan.

[Tien-Tsin Huang, analyst]

I appreciate all the detail. And I'll ask maybe for you, Mike, just on the clarification for the gross margin coming in at 67% versus the low 70s guide. So that -- is that -- just to understand it correctly, that's just the Reg II effect change in the gross revenue that you assumed? Is there anything else in there that's surprised? And is that high 60s, the right figure, it sounds like now from a baselining standpoint? I think that is what you said for the fourth quarter. Sorry for the clarification.

[Mike Milotich, executive]

Yes. No. Thanks, Tien-Tsin. No, that's correct. So our gross profit came in as expected, just a little bit better. And so our ability to predict the gross profit impact on the Cash App renewal was very accurate. What we didn't quite get right when we talked to you 3 months ago was the revenue impact from the Cash App deal, and that's because the new revenue treatment only applies to the volume on the primary network. And the old revenue accounting that we've talked about many times can lead to higher revenue but not necessarily translate to gross profit, still applies for all the volume on the -- on different networks than the primary network.

So what we didn't quite project accurately is when the new Reg II changes went into effect in July, we saw more volume shift to other networks, which then lifted the revenue in a way that didn't translate to gross profit. And so it lowered the margin, but our -- it's really purely from the denominator. So yes, what we said for Q4 was that our margins should be in the high [ 60s ] and not assuming the Reg II changes that we've started to see is sort of -- is more of the steady state of what we should expect going forward, then that would be the margins that we anticipate.

[Tien-Tsin Huang, analyst]

Understood, a lot of early payment stuff there, but I think I got it. On the operating expenses, if you don't mind me asking on that as a follow-up. So is there any change from a hiring perspective and needs on the developer side, given some of the wins and the changes on Block, everything else? Or it sounds like it was just a timing issue with the hirings being pushed through the middle of next year. I just want to make sure that that's not that was.

[Mike Milotich, executive]

That's right. So it doesn't change the number of people we need. It's really that we're trying to be very thoughtful as we plan what our priorities are going to be, what types of skills and talents that we need to add. And so we're just trying to be very thoughtful about that. And then we're also in the process of setting up a low-cost jurisdiction office somewhere. So we also want to take the time to incorporate that into our hiring plan. So originally, when we executed the restructuring in May, we thought we would add those people by the end of this year. And it's now clear that that's not what's going to happen, and it's going to move into the next several quarters, and we should probably have all that headcount filled by the middle of next year. So that's 1 big factor.

And then the other was some of the expenses that we have with third parties who are helping us with very specific initiatives such as we've contracted with someone to help us migrate volume from another processor to try to make that as seamless and painless for our new customer. That is something that just got delayed a little bit. And so we do expect $2 million to $3 million of expense that we originally expected to hit us in Q3 is now going to be a Q4 expense item.

[Operator]

Our next question comes from the line of Timothy Chiodo with UBS.

[Timothy Chiodo, analyst]

This one is somewhat related to the Cash App comments around Reg II, but more broadly across your portfolio. Would you be able to describe the rough percentage of volumes that might have shifted to the secondary or alternative debit networks? And roughly or directionally, what kind of an interchange impact does that have in terms of the revenue pool that you would be able to share in? In other words, how much lower on average would you say the interchange is for some of those secondary debit networks?

[Mike Milotich, executive]

Yes. So thanks for your question, Tim. Unfortunately, I can't tell you the exact volume that shifted. So I think that that's not necessarily our place to share with you. But it wasn't a massive change. But keep in mind, if you think back to prior quarters, right, we've talked a lot about that in the Block business, our margin was in the sort of high 20s percentage points, which gives you a sense that the revenue take rates were about 4x what they were in gross profit. So it doesn't take a huge shift of volume to make a material difference to the revenue given how different that take rate is compared to what's happening on now the primary network where we essentially are just making the fees associated with the service that we provide to Cash App, and it's not impacted by interchange at all. So that's really what the dynamic is.

In terms of your question on what happens with interchange, it varies a lot, particularly on the ticket size. So Tim, which volume moves there is also quite impactful, just given how vary the interchange rates are. So it makes some impact, but that's not as big of a factor as just the difference in the way our revenue works is what drove the impact to our P&L.

[Timothy Chiodo, analyst]

Perfect. And sticking with -- I appreciate that, that's more than there. And sticking with the theme of keeping it more to current quarter and numbers, just a quick clarifier, I apologize if I missed this. But on the Cash App portion of the contract extending 1 additional year through June 2028, did that come with any incremental pricing concessions on the Cash App side? Or was that sort of same as before when we talked a few months back?

[Simon Khalaf, executive]

Tim, it's Simon. There was no further concessions. So it's the exact same term.

[Mike Milotich, executive]

Sorry. The only thing is just the change that we made is we're now are going to be applying the Square volumes together with Cash App to flow through those years. So it's -- so there will be, I guess, some sort of indirect benefit to Cash App over time. But the bulk of the impact is really for the benefit of the Square debit card.

[Operator]

Our next question comes from the line of Darrin Peller with Wolfe Research.

[Darrin Peller, analyst]

Maybe if we could hone in on the couple of the categories that you've seen some really good newer growth in. And so whether it's early wage access, or the newer part of BNPL just helping provide access to merchants that don't otherwise take your Debit Plus, et cetera. I guess, first of all, just how much of that really been contributing overall now to the numbers? And then really as an add-on to that, I mean, I don't think I heard the bookings -- any bookings commentary around this time around the way we did last couple. So maybe just some comments on what we're seeing right now in terms of -- I know you had strong bookings the last couple of quarters, I know, has that continued in I guess, what categories?

[Mike Milotich, executive]

Thanks, Darrin. So I'll take the first one, and then I'll pass it over to Simon to talk about bookings. So in terms of the newer use cases that we're saying, particularly the accelerated wage access and sort of the new, I guess, consumer-focused BNPL offerings. I would say they are still relatively small but are growing fast enough to make a difference. So like on accelerated wage access, for example, as I mentioned, the financial services vertical is by far our largest, over half of our TPV, and we did have a tougher comp there that we had to lap, but that was mostly offset -- that drag we got from the tougher comp was mostly offset by the rapid growth of the accelerated wage access use case just comparing Q3 to Q2. It was up 2x. So it's still relatively small but growing fast enough to at least offset some slowdown we're seeing in our largest part of the business in financial services.

And then in Buy Now, Pay Later, again, it's growing really fast. It's now just under 10% of our BNPL TPV. So it's still relatively small. But again, that 10% has happened just in the last few quarters. So it's growing really fast. And so it's contributing, but it will be probably more meaningful both use cases in the next several quarters.

[Simon Khalaf, executive]

On the bookings side, the trend that started, I'd say, late in 2024, Q4 -- sorry, in '22 has continued. So it was a strong quarter, and I'll give you some stats, kind of 60% was in North America, about 40% outside the U.S. It was actually even 50-50 between expansions and new program. And the other interesting thing is about 20% of the deals were actually flip deals. So wins from the competition. So all in all, like I'd say, since October 2022 to date, we've seen very strong bookings.

[Darrin Peller, analyst]

That's great to hear. And just one quick follow-up would be around anything you're seeing weakness in. So some of the subverticals, mostly macroeconomically, I guess, is really the question. I mean, we're thinking expense management as a category where we've seen some cracks in. So just as an example. But anything you're seeing that's worth calling out for us to keep an eye on?

[Mike Milotich, executive]

Yes. I would say, yes, the only thing we're seeing when we look at -- and I know several of our payment peers have talked about this. In October, our TPV growth was like a little bit slower than Q3 and in September, not a lot, but a little bit. And we're seeing it across -- we typically break in all the spend categories into sort of high, medium and low discretionary, like how much of it is really discretionary, and we're seeing it slow across all 3. So it's not in a particular area, it's pretty broad-based.

But what I would say, Darrin, is like when you look at our TPV monthly growth since March, so that's about 7 months. We've been moving within about a 5-point band. So it's been pretty tight, and we go -- we've gone up 3x sequentially. We've gone down 4x. So it's kind of been bouncing around in a pretty tight band. So what we're seeing in October is really just a continuation of the trends we've seen before. There's nothing that really concerns us at this point. But obviously, we're monitoring it closely.

[Operator]

Our next question comes from the line of Ramsey El-Assal with Barclays.

[Ramsey El-Assal, analyst]

Terrific results this evening. I wanted to follow-up on Darrin's question, and ask about kind of trends you're seeing or updated thinking on bookings conversion. Are you starting to see some of the sort of bookings momentum that you've experienced flow through to revenues? Should we expect -- what should we expect in terms of conversion trends going forward?

[Simon Khalaf, executive]

Thanks, Ramsey, for the question. Usually, I'd say, it usually takes about 18 months for deals to start contributing materially to revenue. Usually, it's 6 to 12 months to launch and 12 months to fully ramp. So we're starting to see the launch, but I would say it won't be until the tail end of 2024 and 2025, in which we'll see the material impact of the new deals that we started closing in Q4 2022. I mean, we're all focused on delivery and we've made great progress, especially separating commercial from consumer because commercial moves a little bit faster. But I would stick to -- it will be tail end of 2023 -- sorry, '24 and '25 before we see the material impact. And then we will discuss this a lot more kind of the formula and kind of the process at Investor Day. We've got a lengthy section on that because we understand that everybody is expecting to see how and when the bookings will convert into gross profit.

[Ramsey El-Assal, analyst]

Got it. Okay. And 1 follow-up for me. You mentioned a rapid ramp of accelerated wage access, and that is not an opportunity that candidly I thought of in the context of Marqeta had before. I'm not sure why not. But maybe you could talk a little bit about that broader opportunity and the degree to which that could turn into a material sort of flow for you guys?

[Simon Khalaf, executive]

Yes. It's actually a very important segment for us, and we will discuss it specifically at Investor Day since this is an area of growth. But let me kind of give you a preview. So the Comstock that Marqeta has built is actually very unique to us. So a lot of time, you have -- if somebody wants their wages earlier than their employer or labor marketplace delivers, usually, you have a lender that comes in and steps in and offers effectively alone to an employee. That's not how we implemented it. So we actually have done something unique in which the balance sheet of the employer or the marketplace is deployed.

And what happens when, let's say, an employee checks out or clocks out, then the ledger move. The money does not move until the consumer or the employee goes and spend. So we're effectively deploying the working capital of large employers on behalf of the employees without incurring significant or increasing their debt stack, that's why we are seeing kind of like many some large employers adopt our solution because you're not actually bringing in a lender at high interest rates. So it's good for the employer because they're getting the loyalty of the employee, good for the employees because they get paid immediately. And I think it's good for the ecosystem because you're not actually pulling in expensive working capital.

[Mike Milotich, executive]

Essentially, the employer doesn't have to -- essentially can continue to earn interest on the funds until they're spent. And then, of course, as the issuer of the card, then there's economics for them when the employee spend. So it's a really elegant solution. And we have a few customers live on it and it's -- the adoption has been impressive.

[Simon Khalaf, executive]

Yes. The last thing I'd say is you are effectively converting an expense, which is payroll into income, into revenue, because they guess the -- the employer participates in the interchange economics.

[Operator]

Our next question comes from the line of Sanjay Sakhrani with KBW.

[Sanjay Sakhrani, analyst]

Mike, sorry if I missed this, but how much of gross profit was Block in the third quarter? And also, should we think -- how should we think about the Block contribution as a result of the Square seller renewal? Is there any impact there?

[Mike Milotich, executive]

So on your first question, so the gross profit concentration from Block did go down about 5 percentage points. And so it's now in the 40s. So it is lower than our revenue concentration as it's been in the past. So that's the impact of that. The Block concentration post the Square debit card deal, yes, I mean, it will go down a little bit as we gave them a little bit of a better pricing. But we think that the combination of obviously extending the relationship for 5 years, but also being named as their default provider for additional programs that could come in the future positions us well to work together to drive growth.

I think -- yes, sorry, Sanjay, just 1 more thing. I mean, I think I've said before, as much as we, of course, won our concentrate -- Block concentration to go down, we do think there's incredible opportunities that the 2 companies can do together. So we'll see how it plays out in the coming years.

[Sanjay Sakhrani, analyst]

Great. Just a follow-up on this Reg II discussion. But how should we think about the impact to Marqeta as a whole from Reg II, right? Like I mean, is volume moving away to a secondary network, I mean, isn't that dilutive? Or do you make up for it somewhere? I'm just trying to think about if it [ happen ] more over the course of the next few quarters.

[Mike Milotich, executive]

Yes. So I think -- so 1 is at our Investor Day, I have a kind of a slide specific about this, about our different revenue models. I think you all will be surprised to see now how much of our revenue is really tied to revenue models that are influenced by interchange. The majority of our revenue no longer is impacted by interchange, where we're pricing our offering as a pure fee-for-service. And so for the most part, we don't feel the impact of that shift, Sanjay, because it typically is not going to affect the revenue that we're making with some of the evolution in the way we've been moving our pricing structure with customers.

[Operator]

Our next question comes from the line of Ashwin Shirvaikar with Citi.

[Ashwin Shirvaikar, analyst]

Mike, I want to pick up on that last comment, the fee-for-service comment with regards to revenue models. Does that basically imply you're moving more and more to transaction based, not really volume-based and kind of where I was going with that was to connect that comment with what you indicated with regards to TPV. And should there be an economic slowdown, slower volumes that's going to affect you may be less than it might have previously. Is that sort of a right way to think of it?

[Mike Milotich, executive]

Yes, I would say -- yes, thanks for the question, Ashwin. I would say that just because its fee-for-service doesn't necessarily mean it's per transaction, there's still a lot of our customers that we're charging them bps on volume. It's just that we say we're going to charge you bps on volume, and we'll essentially give you all the interchange. And then we have the costs that we have to pay the bank in the network. So it can be per transaction or bps on volume. I would say the per transaction is a more common structure in Europe, for example, and in some of our Powered by Marqeta customers. But I would say that particularly on the Managed by Marqeta customers that use this revenue model, it's almost always still bps on volume. So we have, I guess, the upside that comes with growth and spending.

[Ashwin Shirvaikar, analyst]

Understood. Okay. And continuing along the same vein as you sort of think of OpEx categories where you have flexibility versus not in the short run to potentially ride out volume weakness. How should we think of the near-term flexibility that is in the model today?

[Mike Milotich, executive]

Yes. I think, again, something we'll go into extensively at Investor Day. If you look at our expenses, they're very concentrated. About 85% is driven by personnel and our technology costs, which is really our cloud and SaaS tools that we utilize to run our platform. So I would say -- so some of that will flex, particularly on the technology side, will flex with differences in volume over time. So some of those costs are variable in nature. But the biggest lever for us, 70% of our expenses are personnel related. So if that would be the -- if we were going to really slow down our expense growth, that is -- we would slow down our hiring, for example.

[Operator]

Our next question comes from the line of Bryan Keane with Deutsche Bank.

[Bryan Keane, analyst]

Just thinking about overall TPV growth then, Mike, for the fourth quarter, sounds like it moderated a little on October. Does that take the growth rate down maybe from prior expectations? And then just thinking the underlying gross profit growth in fourth quarter ex-Block entirely, how did that trend versus expectations in that with your guidance?

[Mike Milotich, executive]

Yes. So on the TPV side, I would say this is all kind of consistent with our expectations. I would say when we -- I would say, as you all know, the last couple of months, there's been talk as we get later in the year, there could be some softness. So that's always something that we had sort of accounted for in our planning and forecasting. So I would say what we're seeing in October is not necessarily a big surprise and is in line with what we were thinking.

The underlying gross profit growth in Q4 is still quite strong. In fact, as I mentioned, our gross profit growth will be the same as Q3, and that's with us absorbing the 3 percentage points impact from the Square renewal. So -- and that's being just offset by stronger performance elsewhere and a little bit higher incentives. So the underlying growth of the business outside of Block is actually quite good. And if you think about the impacts that I shared earlier related to the renewals we've done, and the [ Visa ] impact, those impacts I'm giving you are at the total company level.

When you think about that Block makes up about half our business, the impacts on the non-block are about twice as big. So the drag on our gross profit we see from the heavy renewal activity and the lease incentives is more than 10 percentage points. And so without that, our non-Block gross profit would be growing in the double digits. So as we -- as those impacts start to dissipate in the coming couple of quarters, combined with the tailwinds that should start to come in with bookings, as Simon talked about, we expect that to start ramping as we move through 2024. We expect that, that non-Block business to start performing quite well.

[Bryan Keane, analyst]

Got it. Helpful. And then just an update on when the rollout of the credit product will start hitting the P&L and having more of a material impact.

[Simon Khalaf, executive]

Sure. It's Simon. Thanks for the question. So we do anticipate that we will take a couple of programs live in the first half of 2024. So we are very close, but we will not launch them until the first half, but will not materially impact our revenue until these program ramps. So tail end of '24 and '25. But we will go live with a couple of programs in the first half of 2024.

[Operator]

Our next question comes from the line of Chris Kennedy with William Blair.

[Cristopher Kennedy, analyst]

Can you give us an update on your international business?

[Simon Khalaf, executive]

Absolutely. I can give you that, and thank you for the question, Chris. So the volume in -- outside the U.S. is actually growing faster than the U.S. It's 60% year-over-year. So it's a smaller base. And I'd say that there's a couple of things. I mean we are certified to operate in more than 40 countries. And we do have customers that are U.S.-based and expanding in international markets. And we also are live and launched in Brazil. So we do expect the international business to continue to grow. And I would say -- the last thing I'd say is about 40% to -- like low 40% of our bookings in Q3 were outside the United States. So that is a good indicator to the continued growth.

[Cristopher Kennedy, analyst]

Great. And then just one follow-up. Can you talk about kind of the revenue mix and maybe we'll learn about this on Thursday from the Managed by Marqeta versus the Powered by Marqeta model?

[Mike Milotich, executive]

Yes. So I don't want to feel from the anticipation on Thursday. Yes, there will be -- we will talk about that in the Investor Day presentation. So I think when you look at -- the important thing, just the one thing, I guess, I'll say related to your question is, when it comes to Managed by -- the important thing is really to look at -- it's a smaller impact of revenue, a much bigger impact to gross profit because we don't have the bank and network fees associated with that volume. So although the price itself is relatively low compared to Managed by, when you start looking at the gross profit take rate, so the gross profit we make for every dollar of volume, it becomes much closer to our Managed by business. And so we still really like that business a lot because it can scale quite well and be very accretive.

[Operator]

Our final question comes from the line of James Faucette with Morgan Stanley.

[Meryl Thomas, analyst]

This is Meryl Thomas on for James. I wanted to ask about some of your embedded finance customers and the growth within those relationships. Just how have you seen those customers, I guess, grow in size and scope since you first went out with the RFP, just wanted to get a better standing for the existing customer growth there?

[Simon Khalaf, executive]

Sure. Thanks for the question. So the -- we're very bullish on the embedded finance market. And I'd say there's many reasons for that. One is the diverse use cases. So we see traction across many dimensions. The first one is, and I think we've talked about it, is the accelerated wage access. That seems like a use case that can cross multiple industry verticals and also can spill over from traditional employment to labor marketplaces.

The second one is point-of-sale lending. I mean, BNPL kind of demonstrated the way. And many, I'd say, large retailers kind of want to do it on their own, that can translate into solutions using Marqeta. Co-brands are something like your traditional co-brands that are fully integrated into the experience versus obviously using another app and a brand you're not familiar with is something that is very interesting.

And last but not least, is supplier payments, that are fully integrated into the workflow or the software or the operations that companies use in order to pay their suppliers. We've seen many examples, I'd say that are aligned with the line of business. So one example I can give you is, like, we've got somebody who's focused on marketing automation and advertising and be able to use expense management to pay their suppliers. So there is diverse use cases, and we kind of see the excitement around all these. And we'll talk more about it at length in our Investor Day materials.

[Operator]

We have reached the end of our question-and-answer session. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.