Marqeta, Inc. Q2 FY2025 Earnings Call

Good afternoon, everyone, and thank you for being here. Welcome to the Marqeta Second Quarter 2025 Earnings Conference Call. This call is being recorded. I will now hand it over to Stacey Finerman, Vice President of Investor Relations. Thank you, and you may begin.

Thanks, operator. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including 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, 2025, 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 or earnings release supplemental materials, which are available on our Investor Relations website. Hosting today's call is Mike Milotich, Marqeta's Interim CEO and CFO. With that, I'd like to turn the call over to Mike to begin.

Thank you, Stacey, and thank you for joining us for Marqeta's Second Quarter 2025 Earnings Call. To start, I'll briefly highlight our Q2 results, followed by our progress enabling innovation and business expansion for our customers. I'll conclude with more details about our Q2 financial results and our expectations for the second half of the year. Our second quarter results demonstrate our ability to deliver strong growth while simultaneously increasing our adjusted EBITDA through efficiency and scale. Total processing volume, or TPV, was $91 billion in the second quarter, a 29% increase compared to the same quarter of 2024. Q2 net revenue of $150 million grew 20% year-over-year, driven by the wide variety of use cases we enable for our customers. Gross profit was $104 million, a 31% increase versus Q2 2024, resulting in a gross margin of 69%. This includes an 8.6% growth benefit from the revised accounting policy for estimating and recognizing card network incentives. Adjusted EBITDA was $29 million in the quarter, translating into a 19% margin, fueled by both gross profit growth and operating expense discipline. This all-time high for our adjusted EBITDA demonstrates the significant progress we have made on our path to profitability, falling just shy of GAAP net income breakeven for the quarter. Our focus this year has been on expanding and deepening our customer relationships while enabling their continued growth through innovative programs, value-added services and seamless geographic expansions with consistent and effective execution. One area of strength has been our continued broadening of lending and Buy Now, Pay Later use cases. While BNPL has expanded over the last 5 years, Marqeta remains at the forefront of helping our BNPL customers deliver innovative and user-friendly solutions. In the early days of our company, we were well ahead of other providers in connecting BNPL providers with retailers via instant issuance virtual cards, enabling seamless payment experiences without costly back-end integrations. While others eventually caught up on instant issuance, we continue to leap ahead, enabling BNPL providers with pay anywhere card solutions where they provide their end users the ability to pay later anywhere cards are accepted. Most recently, we have enabled flexible payment experiences for consumers by collaborating with partners to help launch Visa Flexible Credentials to the market, where we were the first issuer processor to deliver this functionality in the U.S. In June, we supported Klarna in their launch of the KlarnaOne Card, making them the second BNPL provider to offer consumers a flexible credential-enabled card. This builds on years of collaboration with Klarna and demonstrates how customers can grow on our platform, both in offerings and geographies. Over the past 4 years, Klarna has expanded from 3 programs to over 10 programs across many countries. In the second half of this year, we will continue to innovate in BNPL. As we announced at last year's Money 20/20, we have been building a new capability that leverages our issuing expertise and BNPL relationships to capitalize on evolving industry trends. This capability embeds within apps and allows consumers to receive multiple BNPL options at purchase while paying with their existing debit card, increasing both distribution and user engagement. We currently have multiple issuing partners and BNPL customers integrating and testing this new service with the goal of a limited release before the 2025 holiday season. The intent is for a broader launch in 2026 with additional partners. Not only are we helping our customers expand through new innovative programs, but we're also delivering more value through additional services. While showcasing the breadth of our offering, value-added services help make our relationships more durable and bolster the economics of our business. While the growth is coming off a small base, in Q2, our value-added services gross profit more than doubled on a year-over-year basis. These value-added services cut across geographies and use cases as customers further rely on Marqeta for our expertise. A product that is seeing great traction and adding value for customers is real-time decisioning. We built our real-time decisioning capability to be issuer-centric and allow customers to create rules and controls to manage transaction fraud based on the expansive and diverse underlying transaction information. Currently, over 40 customers, who contribute almost 20% of our non-Block TPV, are using real-time decisioning, which is a major contributor to our value-added services gross profit growth. We are actively enhancing this product with artificial intelligence and machine learning capabilities to help evaluate transaction risk in real-time during the authorization process. This allows customers to customize risk tolerance thresholds and automate transaction acceptance, all with millisecond level response times. We expect machine learning to continuously improve fraud detection through self-learning models that adapt to emerging threats. One of our long-standing and top 5 customers in Europe recently tapped Marqeta for this product. While the customer originally worked with a different partner, they needed more flexibility to meet the differing needs of the various geographies in which they operate. They chose Marqeta not only for the ease of integration, but more importantly, because they believe the flexibility and effectiveness of the tool will help them unlock more growth for their card program on our platform. Europe remains a strong driver of our growth, where TPV continues to more than double year-over-year. Our European business is diverse and driven by many use cases, just like our business in North America. New banking, lending, including Buy Now, Pay Later and expense management use cases are each growing over 100% year-over-year in Europe. This growth is driven by both local customers thriving and multi-regional customers expanding into Europe. One of our fastest-growing local customers is planning to expand into 9 new markets in Europe, bringing their total to 26 markets. Further, a U.S.-based expense management customer is expanding to Europe. These are great examples of the strength of our modern card issuing platform, which allows for greater flexibility and easier expansion into new markets. Now our platform capabilities in Europe are going to further expand with the acquisition of TransactPay, enabling even deeper engagement and delivering more value for our customers. After receiving required regulatory approvals, we completed the acquisition of TransactPay on July 31. We expect this business combination will drive value in 3 ways: First, it will enable us to deliver more program management services for customers operating throughout Europe; second, it will position us to support larger customers who are looking to have a single provider for processing, program management and the EMI license; and third, it allows us to standardize our offering across geographies and have more control of delivering solutions that are comparable to North America. The acquisition is already driving significant customer interest, and we are already in market with our joint value proposition since Marqeta and TransactPay have long worked together as partners. We expect further integration of offerings over the coming quarters. To wrap up, before moving to the details of our financial results, the business has strong momentum as we head into the second half of the year. Our ability to continuously enable innovation in lending use cases, including Buy Now, Pay Later, is one of the larger drivers of our TPV growth with more expansion opportunities to come in the next few quarters. As our business and our platform matures, we are expanding the services available and finding new ways to add value and deepen our customer relationships. Finally, our Europe TPV continues to grow over 100%. And with the TransactPay acquisition now complete, we will have a more uniform program management offering across North America and Europe. All these expansions of our capabilities, when combined with the breadth of our card issuing expertise, positions Marqeta well to power our customers' expansion into new programs, use cases and geographies. Now let me transition to our Q2 financial results. Q2 was a very strong quarter, significantly outperforming our expectations. Q2 TPV growth accelerated by almost 3 points from Q1 to over 29%. Net revenue and gross profit growth outperformed our expectations by approximately 7 points, driven by much higher volume and a more favorable business mix than we anticipated. In addition, our adjusted operating expenses were much lower than expected due to better execution, but also investment timing delays, delivering much higher adjusted EBITDA of $29 million in the quarter. This business outperformance, combined with the benefit of increased discipline in managing stock-based compensation over the past couple of years, brought us close to GAAP profitability breakeven in the quarter, demonstrating the profitability potential of our business. Q2 TPV was $91 billion, an increase of 29% year-over-year. This $91 billion of TPV was more than $20 billion higher than Q2 of last year, demonstrating our ability to continue to grow the business at scale. Q2 non-Block TPV grew nearly 3x faster than Block TPV, fueled by a diverse set of use cases and customers. Financial services, lending, including Buy Now, Pay Later and expense management use cases continued to drive the majority of our TPV growth. Growth within financial services remained steady with last quarter, which means it is now growing a little slower than the overall company. Block growth within this use case remains as expected, and our fast-growing non-Block neobanking customers continue to grow approximately 5x faster than Block. Expense management growth was also consistent with last quarter and remains over 30% year-over-year, driven by our customers sustaining strong end user acquisition by leveraging modern technology to deliver compelling value propositions. Lending, including Buy Now, Pay Later, year-over-year growth meaningfully accelerated versus Q1 to a level that is much faster than the company as a whole. In fact, Q2 growth accelerated versus Q1 for each of our top 10 customers within this use case. The growth acceleration was primarily driven by a combination of geographic expansion on our platform, increased adoption of pay anywhere card solutions, in some cases, helped by newly available flexible network credentials, increased distribution through wallets and strong user growth among SMB lending solutions helped by new value propositions. On-demand delivery growth accelerated from last quarter, but remains in the single digits due to the maturity of this use case. Q2 net revenue was $150 million, growing 20% year-over-year. The growth accelerated by 2 points versus Q1 as growth accelerated in each of the 4 major use cases. Our Q2 net revenue growth acceleration versus Q1 and the outperformance versus expectations was driven by our strong TPV growth as our net revenue take rate of 16 basis points was in line with last quarter. Block net revenue concentration in Q2 was consistent with last quarter, rising 20 basis points, rounding to 46%. The concentration is down 1 point from Q2 2024. We continue to look for ways to add value and support our largest customer with their growth objectives. Non-Block net revenue growth was similar to last quarter and remains nearly 10 points higher than Block net revenue growth, primarily driven by strong performance of our larger non-Block customers and the ramp-up of new programs launched since the start of 2024. Q2 gross profit was $104 million, resulting in year-over-year growth of 31% and a gross margin of 69%. As a reminder, we revised our accounting policy for estimating and recognizing card network incentives starting this quarter. We are now accruing incentives each quarter based on the forecasted annual contract tier we expect to achieve as opposed to booking the incentives each quarter as they are earned and move through the progressive tiers. As a result, Q2 gross profit growth was lifted by 8.6 points due to the difference in methodologies for the year-over-year comparison. Because our 2 most significant network incentive contracts have contract years that run April to March, the change in methodology was a benefit in Q2, but will be a drag on growth in the next 3 quarters. Excluding the year-over-year accounting differences, the normalized growth in Q2 would have been over 22%. Normalization aside, the underlying business growth in Q2 was approximately 6 points higher than we expected at the end of last quarter. By far, the largest factor driving the gross profit outperformance was strong TPV growth across all our use cases, particularly lending, including Buy Now, Pay Later. In some cases, the higher TPV meant customers moved into a lower price tier, but that was a small impact compared to the volume benefit. Favorable business mix also contributed to the gross profit outperformance as the TPV outperformance was all non-Block and skewed a bit towards higher gross profit take rate use cases. Finally, a true-up of an underpaid network rebate earned in prior periods lifted the Q2 growth rate by 1 point. After normalizing for the impact of the revised accounting policy for network incentives, non-Block gross profit growth continues to grow faster than the overall company and is growing a little faster than non-Block revenue growth. Our gross profit take rate was over 11 basis points, 0.3 points lower than last quarter due to our TPV outperformance being mostly driven by our larger customers who have better pricing. Q2 adjusted operating expenses were $76 million, shrinking 7% year-over-year. The year-over-year change was approximately 10 points lower than expected with a little over half or approximately $4.5 million due to a combination of investment timing delays and nonrecurring benefits, while a little less than half was driven by strong execution of optimization initiatives and investment discipline. We had nonrecurring tax benefits of $1.1 million, largely due to state sales tax refunds related to the resolution of audits going back several years. These audits lowered adjusted operating expenses because they are related to sales taxes, not income taxes. The investment timing impacts are primarily driven by delays in headcount additions later within Q2 and into Q3, as well as shifts in a few marketing initiatives to the second half of the year. The lower adjusted operating expenses that are more ongoing in nature are driven by better organizational design in terms of being less top-heavy and more geographically diverse, less reliance on outside professional services to support our key initiatives, and successful efficiency initiatives within our product and technology organizations that are shifting their time to more value-added activities, leading to a higher level of internally developed software capitalization. As has been the case for the past several quarters, we continue to increase efficiency in the technology costs we incur to operate our platform. Also, as a reminder, the year-over-year growth in our adjusted operating expenses was always expected to be the lowest in Q2 due to an easier year-over-year comparison. Q2 adjusted EBITDA of $29 million, and a margin of 19% were new all-time highs for both metrics as we make significant progress on our path to profitability. We believe the adjusted EBITDA margin based on gross profit, which was 27%, is a useful data point to illustrate the profitability potential of our business. The Q2 GAAP net loss was a mere $0.6 million, which included $8 million of interest income. We ended the quarter with a little over $820 million of cash and short-term investments before the closing of the TransactPay acquisition. Our share repurchase activity remained ongoing, and we continue to believe the current valuation does not fairly represent the company's value or the market opportunity ahead of us. In Q2, we repurchased 35.2 million shares at an average price of $4.62. When combined with our Q1 repurchase activity, we have repurchased 61.5 million shares at an average price of $4.45 so far this year, which is more than a 12% reduction in the outstanding shares as of the 2024 year-end. As of June 30, we had $107 million remaining on our buyback authorization. Now let's transition to our expectations for the second half of 2025. As Q2 demonstrated, the business is on a nice trajectory, and we are raising expectations for Q3, Q4 and the full year. TPV growth remains strong across all verticals, particularly lending, including BNPL and expense management, but some macroeconomic uncertainty remains based on uneven indicators. Therefore, we now expect full year 2025 revenue growth, gross profit growth and adjusted EBITDA margin to each be 3 to 4 points higher than what we shared last quarter. Also keep in mind at the start of the year, we said Q2 had the easiest year-over-year comparison. There are 3 items to note for the second half. First, the impact of our revised accounting policy for network incentives will shift from a tailwind in Q2 to a headwind in both Q3 and Q4. We expect the impact on gross profit growth to be 2 points of drag in Q3 and 4 points of drag in Q4. TransactPay will be a contributor to the business starting in August, lifting both revenue and gross profit growth by an expected 1.5 points in Q3 and 2 points in Q4. At the beginning of the year, we anticipated executing 2 renewals midyear. We made this assumption knowing that we normally execute renewals several quarters before contract expiration. Now that we are actively engaged in discussions with the customers, we still expect the renewals to be executed prior to contract expiration, but we now anticipate them to be executed later in the year, which helps Q3 growth. Therefore, we now expect Q3 and Q4 net revenue to grow between 15% and 17%. As a result, we expect full year 2025 revenue growth to be between 17% and 18%. Gross profit growth in Q3 is expected to be 15% to 17%. Q4 growth is expected to be 3 points lower than Q3 as the drag from the revised network incentive accounting policy increases and the contract renewals start to impact growth, partially offset by the contribution of new programs continuing to ramp. Therefore, we expect full year 2025 gross profit growth to be between 18% and 19%. We continue to be focused with our investments in platform capabilities and innovation. Based on our success improving the efficiency and effectiveness of our resources and technology, Q3 and Q4 adjusted operating expenses are expected to grow in the mid-single digits. Q3 adjusted EBITDA margin is expected to be 12% to 13% and Q4 should be 1 point higher than Q3 as gross profit rises during the holiday season. Therefore, we expect the full year 2025 adjusted EBITDA margin to be between 14% and 15%. This equates to over $85 million in adjusted EBITDA in 2025, which is approximately $30 million more than what we anticipated at the start of the year. In conclusion, our strong financial results in Q2 as well as the small delay of a couple of key customer contract renewals to later this year has led us to significantly raise our full-year 2025 expectations for net revenue, gross profit and adjusted EBITDA. The current trajectory of the business, the additional platform capabilities on the road map to be delivered in the second half, and the completed acquisition of TransactPay make us confident that we can deliver on our 2025 growth objectives while rapidly improving the profitability of the business and positioning the company for long-term success. I will now turn the call back over to the operator for questions.

Our first question comes from Tien-Tsin Huang with JPMorgan.

Really good clean results here. I wanted to ask, Mike, just on the visibility in general, given what you've learned so far year-to-date, it seems like the visibility is a little bit better. I just wanted to check you on that, given the update on the renewal and some of the TPV and mix trends. I'm curious if there's any change in sales cycles given a lot of activity as you called out around credit and BNPL. How are you feeling on visibility?

We feel pretty good. Obviously, there's still some amount of uncertainty out there from a macro perspective, particularly some of the spend and employment trends are shifting quite a bit, but overall, the trajectory of the business is really solid. The pickup in our TPV in the quarter, we did not expect that when the quarter started, that growth would accelerate by 3 points. And lending and Buy Now, Pay Later, in particular, really performed very well. As I mentioned, each of our top 10 customers in that use case, all their growth accelerated their TPV growth. So the customers are doing well. We're having good conversations in terms of pipeline, and we have some good programs that are launching later this year. So we feel pretty good about the visibility for the business and what we're sharing as our expectations for the second half.

Okay. Good. Just my quick follow-up, and you mentioned value-added services that's been a bigger theme across payments in fintech. I realized it's probably small, but is this a new growth vector that we should be asking you more about here, Mike, in the coming quarters? Just curious where that stands with you in the priority list.

Yes, it's quite high on our priority list. While it may still be relatively small in the overall context, it's growing rapidly. This aligns with the maturation of our business and platform. A couple of years ago, especially during the pandemic, our business was booming and growing at an incredible pace. We focused a lot of our energy on ensuring the platform could keep up with customer demand and deliver consistently. Now that we've achieved a certain level of scale, we can dedicate more time to expanding horizontally on the platform and developing services that complement our core offering. An important aspect of this is our movement into embedded finance. Prospective clients in this area, who are not payment experts and focus on other core businesses, seek comprehensive solutions. Unlike the fintech space, where clients preferred a more modular approach to selecting services, in embedded finance, there's a strong desire for a complete solution. This is why we're working on initiatives like a white-label app and heavily investing in risk and tokenization capabilities. We're also enhancing our rewards solutions, not just for credit but also integrating them into debit due to customer interest. Our goal is to provide a comprehensive package, and we expect value-added services to become an increasingly significant growth driver moving forward.

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

Great results. I wanted to ask about the increase in your adjusted EBITDA margin guidance, which is a substantial increase. And you did walk through quite a few factors from just flow-through on the top line, potentially mix, cost efficiencies, perhaps renewals timing. I'm just curious if you could kind of help us rank order that cluster of drivers a little bit and so we can determine what are the core sources of upside here.

Thank you for your question, Ramsey. First, we always aim to enhance profit by increasing the top line. Strong gross profit growth is our preferred method for achieving this, and we have certainly outperformed in this area, largely due to robust TPV. Additionally, the mix of TPV has been favorable; some of our outperformance stemmed from customers with higher gross profit take rates, but the majority came from high-quality volume, which is what we always strive for. We also experienced significantly lower expenses. Roughly half of this reduction is related to timing and is one-time in nature. We had a tax benefit and postponed some investments. When I took on the interim role, the executive team reevaluated the investment plan, which led to a slight delay in hiring. We had many new hires planned for Q2 that are now occurring in Q3, so our headcount is a bit lower than expected. Moreover, as we look toward the second half of the year with new capabilities on the horizon, we have also deferred some marketing expenses. There are timing issues at play, but we are also excelling at improving efficiency across the board. Part of this efficiency is driven by AI, which is helping our team work more effectively. We're also implementing better tools and processes to enhance overall productivity, especially in engineering. In engineering, we categorize our efforts into three areas: maintaining the platform, making incremental improvements, and creating new capabilities. The focus on developing new capabilities is crucial as it drives capitalization of these efforts. As our teams become more efficient, they can allocate more time to building new capabilities, which is exactly what we aim for. This approach is also contributing to lowering our EBITDA, along with our enhanced collaboration with technology providers to maximize the benefits of our scale.

I have a quick follow-up regarding the regulatory environment. I'm wondering if you've noticed any changes now, considering that in the past, some of your bank partners seemed to slow down their operational tempo due to regulatory scrutiny. Given that we appear to be in a less regulated environment, is that contributing to the positive outcomes you're experiencing, or is it still business as usual?

I would say it's more business as usual. That wasn't a source of upside. Although you're correct that the environment has changed a little, things don't shift quickly with the banks. It seems they're starting to emerge from the fog, so it's getting a little better, but progress is still slower than we would prefer. However, we're making good progress overall. In general, we're partnering better with improved communication and coordination, which helps. We believe that in the next couple of quarters, we will continue to make more strides in this area. For now, it's a small difference and not a significant factor.

Our next question comes from Timothy Chiodo with UBS.

I want to talk a little bit about the broader Visa Flexible Credential topic, but also expanding that a little bit to just the topic of being able to do BNPL via a card in general. So Mike, correct me if I'm wrong, but I think maybe 2 ways that we could break it down is the pre-purchase decision and then the post-purchase or the retroactive BNPL. And I was wondering if you could take us through just some of the mechanics. What's different in terms of the prepurchase or the toggling ahead and then the post-purchase decision? My understanding is that you're currently supporting both. Clearly, Cash App card has the retroactive BNPL product. Maybe you could talk a little bit about the mechanics there. Lastly, though, if you don't mind, the interchange. So is this debit, credit, does it depend on what you toggled and how that interchange rate might evolve or be some sort of a hybrid down the road?

Thank you, Tim, for your insightful questions. Regarding the first point, the majority of our activity is focused on prepurchase rather than post-purchase. In the past, when someone planned to make a large purchase, like $500, they would visit their preferred provider's app or website to seek financing options, which would result in the generation of a card for that specific purchase. Now, our providers are increasingly offering cards that combine debit with Buy Now, Pay Later options, making it simpler for users to decide whether to pay in full or in installments. This results in a more streamlined user experience, and we're currently supporting two customers in this area with positive outcomes and strong adoption, indicating that the value proposition is resonating. As for your question about interchange, it varies based on the transaction and payment choice, but there is a portion of interchange that leans towards credit due to the flexible credentials. Thus, these flexible cards may lead to credit-oriented interchange qualifications.

Our next question comes from Darrin Peller with Wolfe Research.

Mike, I want to discuss the international success you're experiencing in Europe, particularly with TransactPay. What potential do you see over the next 1.5 years? Considering your current program management capabilities, what does this mean for your business in terms of growth opportunities beyond your main customers, and what are your investment requirements in these areas? Additionally, regarding investments and profitability, I know this was mentioned earlier, and with a significant increase in EBITDA, has your perspective on achieving GAAP profitability by the end of '26 shifted at all? Have you perhaps adjusted that timeline?

Thank you, Darrin, for your question. Regarding international operations, the majority of our business is in Europe, although we also operate in Canada, Australia, and a few other markets. Our European segment has been growing over 100% for many quarters, and this includes growth in various areas like financial services, lending, Buy Now, Pay Later, and expense management. This success is widespread, not limited to just one area. The introduction of TransactPay should benefit us in three main ways. First, we have not previously offered program management in Europe, which limited both our take rate and our ability to deliver comprehensive customer support. We believe that in the coming year, clients we've previously engaged for processing could also seek our program management services, providing additional value to each customer. Second, larger players in the market are in need of a single provider for processing, program management, and the required EMI license. In the past, we were unable to pursue some of the biggest opportunities due to lacking this full offering. Now, we can effectively serve a segment of the market that was previously challenging for us. The third critical point is that our enhanced European offerings will now be comparable to those in North America, simplifying the transition for customers moving between regions. Whether they are European clients entering the U.S. or vice versa, our support will be more aligned, making it more likely for us to win their business. We are excited about what TransactPay can achieve, and we are already working to consolidate our market approach to present ourselves as a unified entity, starting as early as this week, with further integration over the next few quarters. Regarding investment needs, we are primarily focusing on several key areas, with platform development being our top priority. This year, we've emphasized banking and money movement capabilities, including various account types and money transfer options. We are also enhancing our credit platform, increasing transaction volume, and improving rewards features, alongside developing secured and charge card capabilities. Another area of investment is in our white label app, which enhances user experience as part of our overall value proposition. While we also invest in value-added services, the significant increase in those investments happened last year, and we are now beginning to see the outcomes. Our operational efficiency has improved, leading to cost savings and resulting in EBITDA levels exceeding our expectations. In response to your final question, we are indeed ahead on profitability. Previously, we anticipated exiting 2026 at GAAP breakeven; however, we now expect to achieve GAAP breakeven for the entire year of 2026. This estimate is based on our gross profit assumptions remaining consistent. Although our volume is performing better than expected, we do not view this as a trend that significantly alters our long-term projections. The delays in renewals I mentioned earlier do not impact next year, only timing within 2025, so they do not affect our outlook for 2026. Overall, our expectation for 2026 gross profit remains unchanged, but we are currently ahead in profitability, which positions us well to reach GAAP breakeven for the year.

Our next question comes from Sanjay Sakhrani with KBW.

This is Vasu Govil for Sanjay. I guess, Mike, you called out strength in the BNPL vertical in credit. I was expecting you'll also call out crypto as a driver given just the renewed interest in the space. Anything to call out in terms of the sales pipeline or demand picking up in that vertical?

It's a great question, Vasu. That use case has been quite volatile over the past few years due to fluctuations in market perception. However, it is definitely improving. As we mentioned previously, Bitpanda, a valued customer of ours, is getting started in Europe, which is beneficial. Our current crypto solution includes a card that enables transactions within the ecosystem using fiat currency, so it doesn't require any changes on their end. The funding source is primarily crypto, managed like an FX conversion by the issuer. We believe this is a compelling use case, especially today, not just for crypto but also for stablecoins. Should stablecoins gain traction, which many are discussing, there will be a need for the ecosystem to evolve, and that will take time. I anticipate that broad merchant acceptance of such payment methods will take a few years. In the meantime, our existing solution remains a solid option for those looking to leverage stablecoins. It's important to note that we don't expect stablecoins to significantly impact our business in the near term, especially in the North American and European markets where we operate. Our exposure to initial stablecoin use cases is limited, but we are exploring investments and partnerships in this area. For now, we feel confident in the solution we already have in place.

Great. That was great color. And then just for my follow-up, I wanted to revisit your efforts about selling into traditional banks and how that's going. I know that was something you guys back at the Investor Day sounded optimistic about. And so just curious if you're getting any traction on that front.

The conversations are still ongoing. At our Investor Day, we mentioned that we thought it was probably about five years away, and that was about a year and a half ago. We still feel it is a ways into the future. The banks are quite cautious and likely need to modernize before we can effectively collaborate. We believe it's still a distant prospect, although there is some dialogue and activity. Our plan is to try to establish a presence with a few small or specific use cases, which might occur sooner rather than later in specific niches of the business. However, providing broader support in terms of processing is still several years away.

Our next question comes from Nate Svensson with Deutsche Bank.

Last quarter, you kind of talked and gave us a breakdown of TPV by low, medium and high discretionary spend, and you pointed out there was no meaningful shift in 1Q. Just wondering if there's any update to that breakdown for 2Q or maybe a month or so here into 3Q. I think you mentioned in response to Tien-Tsin's question that there was some shifting spending patterns. So just wondering what specifically those were.

Yes, there haven't been any noticeable shifts to highlight. The TPV outperformance we observed was quite broad-based. The only use case that stood out more than others was lending and Buy Now, Pay Later. Even within that, as you may have heard in the market, some of the major growth areas within Buy Now, Pay Later are actually not highly discretionary. As we provide people with a product that functions as both a debit and a Buy Now, Pay Later card, consumers are increasingly using those use cases in more locations where cards are accepted, not just in the traditional retail and e-commerce spaces where this use case initially started. Therefore, there aren't any remarkable shifts. It's primarily improved performance from our customers, and the use cases we support are resonating well in the market, for both commercial expenses and neobanking, lending, and Buy Now, Pay Later.

Yes, makes a ton of sense, and I appreciate the color. I wanted to ask another one on Buy Now, Pay Later. Great to hear all the success there, including the KlarnaOne Card. You mentioned in the prepared remarks some new Buy Now, Pay Later capabilities that multiple providers are testing with new releases and in-app options that you think are going to be launched on a more broad basis in 2026. Any more color on that specific product capability, what Marqeta is providing and kind of what you think the benefit for both Marqeta and your BNPL customers could be as that gets fully rolled out?

Our vision for this product is that Buy Now, Pay Later could easily be a feature available on any debit card product. When this feature is implemented, consumers will receive offers from various providers. For example, if you're using our platform and decide to choose Buy Now, Pay Later in the app, you might see multiple offers like interest-free options or payment plans over six months. This provides consumers with choices, which enhances the value for our issuing partners by differentiating their offerings and increasing consumer engagement. For our Buy Now, Pay Later partners, this creates distribution opportunities by allowing them to participate in transactions they may not have previously accessed. We view it as a mutually beneficial arrangement, and we are developing a two-sided platform with several partners testing it. With the holiday season approaching, we're aiming for a limited release by the end of this year, followed by a broader rollout next year. We believe this product has great potential, especially as more players enter the lending space for specific use cases. This could empower consumers to see various offers based on their purchases, providing them with flexibility and benefiting our BNPL partners by increasing distribution.

Our next question comes from Craig Maurer with FT Partners.

I wanted to ask about how the pipeline for credit is building and where you are with the launches with American Express?

Yes, thank you for your question, Craig. We feel positive about the state of our credit business. Over the past quarter, our main focus has been on integrating with Amex, and we are making good progress. We are very close to certification and being ready to go live. Additionally, the migration for Perpay, our consumer credit card, is now 97% complete, which means it is essentially finished. There are just a few accounts remaining to be transferred, and we feel confident not only in supporting Perpay as a consumer credit option on our platform—with its growth being encouraging—but also in our demonstrated ability to handle a migration in credit, which is more complex than in debit due to the numerous variables involved. We are satisfied with our progress. We also have another co-brand partnership announced in February with an airline that we still plan to launch later this year. Conversations regarding our pipeline are going well. Importantly, we are taking a different approach with our value proposition, giving users more control and offering dynamic rewards. We are having productive discussions and there is some interest, but we are not in a rush. We believe that rushing in the credit space can lead to negative outcomes. The pipeline is promising, but there is no exciting news to report in this call.

Our next question comes from James Faucette with Morgan Stanley.

Thank you for the detailed information and great work on this. I wanted to address your comments regarding delayed investments. It appears that this had a positive impact on this quarter. However, you mentioned that there may have been some delays in hiring due to earlier macroeconomic uncertainty. At the same time, you suggested that we might see a lower operating expense run rate by the end of 2026, which would enhance your confidence in achieving GAAP profitability at that time. Could you clarify what's going on there and share your current perspective? Have there been any lasting changes in investment priorities?

Thank you for your question, James. To clarify, of the lower expenses we experienced this quarter, approximately half were related to timing, while the other half resulted from improved performance and optimization of our expenses. The delays in investments were primarily due to my reassessment of priorities after stepping into the interim CEO role. The executive team reviewed our hiring strategy and decided to postpone certain hires, which has pushed our timeline back by 2 to 3 months. Consequently, many new employees are starting now, but this has led to some savings in the quarter. Additionally, we revised our marketing plans; while we initially had a budget for the year, we've opted to allocate funds to the second half where we anticipate more customer activities and events like Money 20/20, where we typically invest more. A bit less than half of the cost savings also stem from improved efficiency and optimization. From an organizational standpoint, we've streamlined our structure to create more opportunities and reduce management layers. We're also more geographically diverse, enhancing the effectiveness of the organization. In terms of technology costs, particularly for data services and cloud services, we are minimizing waste in our use of these partners, which is contributing to savings. Together, these factors are positioning us on a more sustainable expense run rate, which leads us to believe that our profitability in 2026 will be better than we anticipated a quarter or two ago.

That's great, Mike. That's really clear. And then just back on initiatives and opportunities. Embedded finance has been a topic for a few years now. It seems like that's still an area of focus for you. How should we think about like what to watch for from a product perspective or other mileposts of development?

Yes, thanks for the question, James. We're excited about embedded finance, but it's progressing more slowly than we initially anticipated a year ago. These are much larger organizations, typically well-established companies for whom payments is not their main business. Consequently, we find ourselves engaged for longer periods before arriving at a solution. We're having some productive conversations, and in the meantime, we're enhancing our value proposition to be a more comprehensive solution because that's what embedded finance customers are seeking. That's why we're investing in banking and money movement products along with the white label app, providing a more complete out-of-the-box solution for their needs. A recent example of our success in this area is securing a large global brand as an embedded finance customer, which we expect to launch later this year. As we delve into the delivery process, we always ask what influenced their choice in selecting us, in order to identify areas for improvement to serve others better. They cited three main reasons: our simplified process for launching a consumer-focused program, our technical integrations and robust solutions that allow a more complete offering from the start, and our commitment to service and support, which they found valuable. We take pride in providing a white-glove experience, distinguishing us in addressing the complexities involved in new programs like this. We believe we are well positioned to succeed in this space, even though the opportunity is unfolding a bit slower than we had expected a year ago before fully engaging with it.

Our last question comes from Cris Kennedy with William Blair.

Just a real quick one on open banking and potentially JPMorgan charging the aggregators for access for the data. Any thoughts on that dynamic?

Yes. You saw the news, and in terms of its direct impact on us, we believe it's minimal. Some of our customers might experience challenges, especially when they require real-time account data. This includes account verification, risk decision-making, and underwriting, which are common use cases for these capabilities. It could become more costly for them, leading to decisions on whether to adjust their usage patterns or limit the number of clients they serve. The implications are uncertain. However, at this moment, considering our use cases and the maturity of many of our customers, we view the impact as minimal. Still, it's something to monitor since if other banks decide to follow suit, it could alter the cost structure for the capabilities that clients depend on.

We have reached the end of our Q&A session. This concludes today's teleconference. You may disconnect your lines at this time.