Earnings Call Transcript
Marqeta, Inc. (MQ)
Earnings Call Transcript - MQ Q2 2023
Operator, Operator
Good afternoon and welcome to Marqeta's Second Quarter 2023 Earnings Call. All participants will be in listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Stacey Finerman. Please go ahead.
Stacey Finerman, Investor Relations
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 further changes in our development regarding accounting treatment among others. These forward-looking statements are subject to numerous risks and uncertainties including the risk that our accounting treatment may be subject to further changes or development set forth in our filing for 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 many 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. A reconciliation of forward-looking non-GAAP guidance is not available without unreasonable efforts due to the challenges and impracticality with estimating some of the items, such as share-based compensation, 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, CEO
Thank you, Stacey, and thank you everyone for joining our second quarter 2023 earnings call. We had a strong quarter, and we just renewed our partnership with Cash App for four years. Our second-quarter net revenue, gross profit, and operating expenses were better than we expected, resulting in positive adjusted EBITDA for the quarter. In addition, we've once again exceeded our sales bookings. The Cash App renewal represents the final major step in a year-long effort to re-establish long-term sustainable growth for Marqeta. This effort started by sharpening our go-to-market operation, expanding our product line through the acquisition and fast integration of Power Finance, and reducing our operating expenses. I am proud of the tremendous progress we have made, and I firmly believe that Marqeta is extremely well-positioned to capitalize on the fast-growing embedded finance market. Let me go back to our financial performance. Total processing volume (TPV) increased 33% compared to the same quarter of 2022. This was the second consecutive quarter where our TPV exceeded $50 billion. Our net revenue of $231 million in the quarter represented 24% growth year-over-year. Gross profit was $85 million in the quarter, an 8% increase versus Q2 2022, while adjusted operating expenses were $84 million, a 5% decrease versus Q2 2022, resulting in positive adjusted EBITDA for the quarter. As we've done in the last few quarters, we continue to grow our business while being very disciplined about our costs. Now moving on to Cash App, we're excited to continue our partnership for another four years. We believe this renewal, as well as our renewal with Afterpay earlier this year, demonstrates the value block fees in our platform and our partnership. This value is exemplified by the scale, flexibility, innovation, and myriad of services we provide to Cash App and Block. While this will impact our financial results in the short term, it's something we expected and proactively made decisions based on the outcome. It also positions us well for the long term, extending our Cash App partnership through the middle of 2027, so we can focus on maximizing our growth for years to come. By working together and continuing to extend the scope of what our two companies can do together, we can both capitalize on this amazing opportunity ahead of us. In addition to the Cash App renewal, we've steadily improved our execution across the company. We've seen considerable sales momentum in the last three quarters after implementing the changes in our go-to-market organization in the fall of 2022. Our bookings for the last three quarters combined grew 150% from the same period a year ago. Notably, we saw a 50-50 split between net-new customers and expansion deals with existing customers, setting us up for durable growth into 2024. On a sequential basis, our bookings for the second quarter grew 60% from the prior quarter, driven by embedded finance, which accounted for two-thirds of our bookings. In addition, one third of the deals we signed in the quarter were flip deals, where we replaced an incumbent provider, which speaks to our superior platform in scale. Similar to the first quarter, our international business continues to be a source of new customers, as over 40% of net-new customer bookings came from markets outside the United States. We expect that international momentum would be a key growth driver going forward and represents a key advantage for Marqeta. Our single-stack platform allows customers to easily launch in more than 40 countries where the Marqeta platform is enabled. The most recent expansion is in Brazil with our new partner Fitbank. This partnership gives us a foothold into the largest fintech market in Latin America and one of the fastest-growing fintech markets in the world, where many of our existing customers also have growth aspirations. We also continue to build pathways with the structures looking to embed financial products into their platform. We recently signed a partnership with a well-known cloud-based HR IT and employment management solutions company. This company sought a new provider for the global expansion management product to replace an incumbent and a market competitor that couldn't support them outside the United States. This customer is also looking to move the new U.S. volume to Marqeta, which is a further vote of confidence in our platform. Our focus on improved execution has not been limited to our go-to-market strategy; it's also evident in our ability to offer new products to our customers in a rapid manner. As planned, we fully integrated our acquisition of Power into the Marqeta platform. In late June, we finished integrating Power's code, and as a result, their APIs are now fully integrated. We are on track to offer general availability of the Marqeta Credit Platform before the end of 2023 with program management, origination, servicing, back office, and ancillary service for consumer and commercial card programs. This improved execution is crucial as we look to unlock additional embedded finance opportunities. As a matter of fact, Marqeta has been in the embedded finance game for over 10 years, well before it became a buzzword, giving us both expertise and a significant competitive advantage. Our advancements regarding improved efficiency mirror our focus on execution. We have reduced our operating expenses by $40 million to $45 million on an annual run rate basis. In short, we're delivering, we're executing, we're winning against the competition, all while being operationally efficient. We're also innovating; we're deploying generative AI tools in our risk and customer service offering to streamline our support and risk operations. We also use generative AI to make our product teams more efficient. For example, our credit and banking teams use generative AI to help generate code, reducing the time spent on code generation and testing tasks by up to 75%. We're also working on purpose-built generative AI tools designed to reduce the time to launch for our customers using OpenAI's large language model. It allows our customers to expedite their integration with Marqeta’s API and accelerate their time to market. In summary, I'm happy with all we have accomplished this year. We have renewed our partnerships with Cash App, Afterpay, and 50% of our non-block volume. We significantly reduced our operating costs and resolved our go-to-market challenges. We achieved all this while winning against the competition, acquired a company, and integrated its product in record time in five months. These accomplishments, along with our strong balance sheet, position us exceptionally well as we look to deliver sustainable, profitable growth in the near future. With that, I'll turn it over to Mike for his prepared remarks.
Mike Milotich, CFO
Thank you, Simon, and good afternoon, everyone. We are excited about the Cash App renewal, as well as the progress we have made over the last year on both go-to-market and efficiency initiatives. Before we discuss the financial aspects of the renewal, let me highlight our strong quarterly results. Second-quarter net revenue growth of 24%, gross profit growth of 8%, and a positive adjusted EBITDA margin were all above our expectations, driven by stronger volume growth from several of our top customers, as well as expense savings achieved through efficiency efforts, particularly within technology and our restructuring in May. Q2 TPV was $54 billion, growing 33% year-over-year, continuing to demonstrate our growth at scale. The financial services vertical continues to be the highest contributor to growth, growing several points faster than the company as a whole. This was fueled by Cash App's continued growth, an increase in transacting active cardholders, and higher-spending proactive users, as well as customers with accelerated wage access use cases ramping rapidly. Lending, including buy now, pay later, saw growth boosted by increased travel spending and relatively new offerings that deliver our customers the BNPL value proposition through a card that can be used at any merchant. Excluding Klarna, which migrated a portion of one program in Q3 2022, the BNPL growth was similar to the overall company growth. Expense management TPV also grew in line with the overall company but slowed compared to prior quarters due to tougher comparisons and maturity of the vertical. Q2 net revenue was $231 million, growing 24% year-over-year, as growth remains strong across multiple verticals, including financial services and on-demand delivery, as well as our powered by Marqeta business. Block continues to be a strong contributor to growth, with our net revenue concentration increasing to 78% in Q2, up about 2 points from Q1. Our net revenue take rate was consistent with last quarter and three basis points lower than Q2 of last year. The decline versus last year is primarily driven by a mix shift toward powered by Marqeta volume, while our managed by Marqeta take rate increased two basis points driven by increases in each of our major verticals, except for BNPL. Q2 gross profit was $85 million, growing 8%. This growth is about 5 points faster than we expected, roughly a third of which was driven by stronger volumes, with the remainder attributable to an unexpected incentive benefit that was a catch-up from previous periods following a review with one of our network partners. Gross profit growth was low in the quarter for four primary reasons. First, we renewed approximately 50% of our non-block TPV between Q2 of 2022 and Q1 of 2023, lowering growth by mid-to-high single digits. Second, we lost a portion of our TPV from one Klarna program starting in Q3 last year, lowering growth by mid-single digits. Third, incentive timing, as our incentive contracts run from April to March each year, meant that every Q2 we start from zero and build up our volume toward incentive tiers. Due to changes in Visa incentives, we filled the tiers more slowly in Q2 than we did last year, which lowered growth by low single digits. Fourth, we lost four Visa incentives for two of our customers at the start of 2023, lowering growth by mid-single digits. Finally, the unexpected incentive benefit in Q2 was partially offset by lower ticket sizes, which diminishes gross profit because of the per-transaction component of network fees versus the per-transaction component of interchange. The first three of these factors will no longer impact us by the end of this year, and we believe these were relatively unique situations that affected us all at once because of the acceleration we experienced coming out of the pandemic. The fourth factor will lap in Q1 2024 and shouldn't reoccur based on our new contract with Visa. Gross margin was 37%; Q2 is typically our lowest margin quarter of the year due to incentive timing. While the Block net revenue concentration has steadily increased over the past four quarters, the Block gross profit concentration has remained relatively steady. This is due to less favorable volume mix within the Block business and improving margins in our non-Block business. The increasing revenue concentration weighs on our overall margin since our Block margin is over 40 percentage points lower than the rest of the business. Our Q2 gross profit growth, excluding Block, Klarna, and normalizing for items like the unexpected incentive benefit, is about two and a half times faster than the business as a whole. This is driven by customers with higher margins growing faster than others, more than offsetting the impact from renewals that we are still lapping, as well as the loss of certain Visa incentives at the start of this year. Q2 adjusted operating expenses were $84 million, a decrease of 10% from last quarter and a 5% decrease year-over-year, despite a one-point organic growth driven by the inclusion of Power. Our restructuring in late May reduced our workforce by approximately 20%, resulting in Q2 savings of $6 million. On a run rate basis going forward, we expect quarterly restructuring savings of approximately $11 million after we reinvest in new headcount priority areas, leading to a net reduction of over 15% of the pre-restructuring headcount plan. Our expense reduction in Q2 was not solely a result of restructuring; we have many efficiency initiatives underway. Our technology expenses, which include cloud and SaaS tool costs, were flat in Q2 versus last year despite year-over-year transaction growth of over 40%. We are leveraging automation and conducting thorough reviews of our usage to improve efficiency while simultaneously enhancing our uptime, security, and performance. We also continue to be mindful of hiring and cost associated with headcounts such as travel while reducing our usage of contractors and consultants. We recorded a one-time restructuring charge of $8 million related to severance, net of the release of bonus accruals and share-based compensation forfeitures, all of which is excluded from adjusted operating expenses and EBITDA. Q2 adjusted EBITDA was positive $1 million, a margin of 0.4%. This result was better than expected, driven by gross profit growth and cost management successes. Interest income was $11 million, driven by elevated interest rates. The Q2 GAAP net loss was $59 million, including a $10 million one-time non-cash post-combination expense related to the Power acquisition, as well as the one-time restructuring cost of $8 million. During Q2, we announced a stock buyback of $200 million. As of quarter-end, we purchased 10.2 million shares for an average price of $4.75 for $48.5 million. We ended the quarter with $1.4 billion of cash and short-term investments. Now let's shift to our Q3 outlook, as well as the Cash App renewal. Let me set aside the Cash App renewal for a minute and briefly talk about the business trajectory. The underlying performance of the business is a little stronger coming out of Q2 than we expected a quarter ago. In addition, some of the drags on gross profit growth in Q2 are dissipating in Q3. We expect high single digits percentage points less drag in Q3 versus Q2 from just two factors—the lapping of the Klarna volume loss and starting to lap some of the heavy renewal activity last year. We will continue to see low single-digit percentage point gross profit growth headwinds in Q3 from incentive timing as we ramp through the tiers more slowly in 2022, but that will correct itself by year-end. Moving on to the Cash App renewal, we are excited to extend our partnership another four years as both parties recognize the growth and innovation that we enable and the success we enjoy together. As we anticipated, Cash App is receiving improved economics given the growth trajectory since our last renewal in 2021. We believe the best proxy for our price, and therefore the way to measure the economic impact of the renewal, is the impact on our gross profit take rate, which measures how much gross profit we earn for every dollar of Cash App TPV. Looking ahead to Q3 and Q4 of 2023, we expect the gross profit take rate we earn on Cash App volume to be approximately 40% lower as a result of the renewal. We believe this price is fair for both parties, commensurate with market rates for Cash App scale while accounting for the additional services we provide and our differentiated platform capabilities. We are excited to move forward for the next four years. The renewal has two structural changes that are important to note. First, the pricing structure. We previously used a net interchange pricing structure, where we aggregated the interchange network fees and bank fees together and then determined the split between Marqeta and Cash App based on volume tiers. In the new pricing construct, starting in July 2023, we will charge Cash App a price for the services we provide based on volume tiers, while the interchange network and bank fees are passed directly to Cash App. This new construct more clearly defines the price we charge for the value we provide while reducing volatility caused by several business mix factors. We already use this pricing structure with a few other customers, and in those cases, it does not change how the business is presented in our P&L. The second structural change is consequential to our revenue presentation. As part of the renewal, Cash App is taking responsibility for the primary payment network relationship. While we still provide Cash App with the same level of support on every other aspect of the program, they will manage the primary payment network relationship. Although we do not receive incentives on Cash App volume from that network, this change is significant because the costs associated with Cash App's primary payment network volume will no longer be reflected in our P&L. Previously, we were responsible for this relationship, and therefore these costs were presented in both our net revenue and cost of revenue. That will no longer be the case starting in Q3 2023. To clarify, this expected change in revenue presentation has zero impact on our gross profit but will materially reduce our reported net revenue. To put the net revenue impact in perspective, in Q3 and Q4 of 2023, the impact of the accounting change will reduce our net revenue by approximately six times the amount of the price reduction tied to the Cash App renewal. Now, let's talk specifically about our Q3 outlook. First, let me reiterate that the underlying performance of the business is a little stronger coming out of Q2 than what we thought a quarter ago. Second, for each of the next four quarters, we plan to share the impact of the Cash App renewal on our numbers given its significance. Our expectations for Q3 are as follows: net revenue is expected to contract between 49% and 51%, with an approximately mid-70s percentage point decline due to the Cash App renewal. Roughly 15% of the renewal impact is a result of the new pricing terms, while the remaining 85% is due to our anticipated shift in accounting treatment. Gross profit is expected to contract between 9% and 11%, with an approximately mid-to-high 20s percentage point decline due to the Cash App renewal. Our gross margin should be in the low 70s. Given the success of our efficiency efforts year-to-date, as well as the restructuring completed in Q2, we expect adjusted operating expenses to decline by a high single-digit percentage. Therefore, adjusted EBITDA margin is expected to be negative 12% to 14% on an organic basis, excluding the one-point negative margin impact of the Power acquisition. This includes an approximately mid-teens percentage point decline due to the Cash App renewal, almost half of which is due to the new accounting treatment because of the lower revenue denominator. Consistent with what we thought a quarter ago, we expect our Q4 performance to be a little better than Q3 as we continue to lag the impact of heavy renewal activity in 2022. Compared to Q3, we expect net revenue growth to be one to two points better, gross profit to be three to four points better, and adjusted EBITDA margin to be four to five points better. We anticipate that the Cash App renewal impact will be similar in both quarters. Therefore, full year 2023 performance is expected to be the following: net revenue is expected to contract by a low teens percentage, with an approximately low 40s percentage point decline due to the Cash App renewal, the large majority of which is due to the anticipated change in accounting treatment for Cash App related revenue. Gross profit growth is expected to be positive low single digits, with an approximately low to mid-teens percentage point negative impact due to the Cash App renewal. Adjusted EBITDA margin is expected to be negative low to mid-single digits on an organic basis, excluding approximately one point negative margin impact of the Power acquisition. This includes an approximately mid-to-high single-digit decline due to the Cash App renewal. This 2023 adjusted EBITDA margin, even with the negative impact of the Cash App renewal, and the expected new revenue presentation for half of the year, is consistent with our expectations at the beginning of the year, excluding the Block renewal. This is primarily due to our cost reduction efforts, which have been achieved while accelerating sales and without a slowdown in innovation. Without the Cash App renewal, we believe we would have been EBITDA positive this year, whereas now we expect to exit 2024 at a positive EBITDA run rate. To wrap up, we delivered a strong Q2 across all metrics and have been making significant progress to position the company for long-term success. Our bookings continue to show strong growth and momentum as we capitalize on the expanding embedded finance opportunities, which should help diversify our business with strong sustainable growth. We made significant progress toward our operating efficiency goals with our restructuring efforts, as well as our overall focus on reductions across all expense categories. And of course, our renewal with Cash App establishes a new baseline and sets us up for sustained long-term profitable growth. Before we go to Q&A, we understand the long-term trajectory of the business, including the Cash App renewal impacts, is of great interest, but we will not be discussing 2024 performance implications during today's call beyond the fact that we will exit 2024 with positive EBITDA. However, we plan to host an investor day in Q4 to discuss the longer term with more details to follow.
Operator, Operator
The first question comes from Tien-Tsin Huang with JPMorgan. Please go ahead.
Tien-Tsin Huang, Analyst
Thanks so much, and good afternoon. I appreciate you going through all the Cash App renewal details. I know we're all going to dig into the numbers as you shared it, but I'm just curious at a high level here, as we think about the benchmarking exercise. I know it's tough to negotiate and talk about it publicly too much, but can you walk us through the benchmarking exercise of the pricing and the new deal on the take rate and just the general fairness? I know a lot of people are listening, competitors and other clients, etcetera. But I'd love to understand a little bit more about the benchmarking exercise. Thank you.
Simon Khalaf, CEO
Thanks, Tien-Tsin, I really appreciate the question, and it's good to be talking again. Let me put it this way. We strongly believe the deal is extremely fair for both parties. It is actually commensurate with the scale and the volume that Cash App has achieved and also commensurate with the value, the differentiation, and the premium that Marqeta commands over the competition. But I would say that there are two reasons companies actually diversify. One of them is economical, and the second is more stability—distributing your load on multiple providers to have some form of redundancy. We've addressed both in the agreement, creating an economic incentive for us to capture the vast majority of the volume. We've done a lot of work on the redundancy and the stability of the platform, which we've demonstrated. There are now almost negligible reasons for diversification.
Mike Milotich, CFO
Yes, the only thing I would add, Tien-Tsin, is that when you consider what's weighing on our growth right now, it stems from the incredible weak growth we saw in 2021 coming out of the pandemic. Many of our customers' businesses boomed, and that meant many of our deals needed to be adjusted because their businesses were much bigger. That process started last year, as we've talked about 50% of our non-Block volume, we renewed over a four-quarter period, ending in Q1 of this year. We renewed Cash App as well as Afterpay this year. We've now renewed much of the business that we had before, which had incredibly grown. Now we're into longer-term contracts that we can build upon with the customers we already have, in combination with the sales momentum driven by our differentiated platform. That's where we believe the growth is going to come from. Obviously, the next four quarters will see some noise in revenue, and we'll do our best to help everyone understand how much of that is coming from the revenue accounting change. But if you focus on gross profit growth, you'll get a sense of how the business is performing.
Darrin Peller, Analyst
Congrats, guys, on these announcements—it's great to see. Maybe if you don't mind just a little bit more plain vanilla clarification on the Block renewal in terms of the actual impact to your gross profit dollars—just to be clear from pre to post on either a second-half 2023 basis or an annualized basis. There were a lot of moving parts in the growth rate impacts you talked about. And then just very quickly, also on that, I heard Afterpay was renewed earlier; I think Cash App here. I don't think I heard about the seller. So just a quick update. Thanks, guys.
Mike Milotich, CFO
Yes, so... let me take the first part, and then I'll hand it over to Simon to talk about Afterpay and Square. To think about it, Darrin, it's a 40% reduction in our price. By our price, I mean the gross profit take rate—how much gross profit we make for every dollar of volume, which is the best measure in this case. Regarding the accounting change, essentially, in our net interchange structure, we took interchange network fees and bank fees, combined them, and decided how to split that between Cash App and Marqeta. While they got the bulk of it, we had to account for the costs in our cost of revenue. In the new structure, Cash App will manage the primary fees, and so what we book in our revenue will not need to incorporate those costs. That means our revenue is significantly reduced, but so is our cost of revenue. Hence, it's not impactful to gross profit, ultimately, but it will materially influence revenue growth, and we'll help normalize the impact over the next four quarters.
Simon Khalaf, CEO
Yes, we did renew the Afterpay partnership before, just reviewed Cash App. We said multiple times that there's much activity with Block and ourselves. It's a very fluid situation. Seller is not due for renewal until later in 2024. We'll be working on that as well, but in the meantime, I expect a lot of great work to happen between us, Cash App, Afterpay, and Seller. It's a very symbiotic relationship; it's a daily collaboration. The growth they have witnessed is fascinating, and we're celebrating every moment of that.
Ramsey El-Assal, Analyst
Hi, thanks for taking my question this evening. Following up a little bit on Darrin's question, can you help us think through a hypothetical run rate basis? What the revenue and gross profit contract concentrations will be with Block versus non-Block? I assume that might be the silver lining here that this deal will have Block be a lower concentration of your overall business on a percentage basis, but just wondering your thoughts there?
Simon Khalaf, CEO
Yes, you are correct, Ramsey. What we expect based on this is that our revenue concentration is likely to fall into the mid to high 20 percentage points. Gross profit concentration is likely to fall around 10 percentage points based on this deal going forward.
Mike Milotich, CFO
Thank you for your question! I’ll take the first part of the question. After two great sales quarters, what is the timing for that largely sustained growth to reflect in revenue? Is this still a 2024 kind of event or can we begin to see some of that by the end of this year?
Simon Khalaf, CEO
Thank you for the question. I believe we'll begin seeing that growth by the end of the year. On average, commercial programs take about 60 to 180 days for deployment after which they ramp up. Consumer programs, however, take around a year to launch and then ramp from there. The bulk of sustainable growth won't be fully visible until 2024, but we are working to accelerate delivery. So no pressure to the delivery team, but that’s the goal.
Ashwin Shirvaikar, Analyst
Thanks, and congratulations on closing the deal. In terms of thinking about the margins going forward, can you add some clarity on that, and whether you're leaning more towards viewing on a gross profit basis as you look at renewals and new bookings?
Simon Khalaf, CEO
Sure. In Q3, we expect our margin to be in the low 70s. Our Block margin is under 30%, while the rest of our business is over 70%. That more than 40% gap in margin was driven by high network costs. By removing those costs from revenue, our margin will better reflect the non-Block business going forward. We will also see improvements in our gross profit metrics due to ongoing sales growth.
Craig Maurer, Analyst
I wanted to ask about the new BIN sponsorship in Brazil. Brazil is a crowded market with strong processors. What are your expectations for that market, and are you seeing demand from players outside Brazil looking to issue there?
Simon Khalaf, CEO
Great question, Craig. I agree that Brazil is moving very fast. Most of the demand today, given where our brand resonates, is from international customers expanding into Brazil. That’s where we are gaining traction. While we will consider domestic companies, most of our pipeline currently consists of U.S. or European companies targeting Brazil for expansion.
Mike Milotich, CFO
The platform setup is seamless for multinationals. Once they use us in a few markets and see how easy it is to scale, they often ask about additional market expansion due to the lack of integration barriers.
Robert Napoli, Analyst
Thanks for taking my question, Simon and Mike. Good to see that deal behind you. I wanted to clarify about being EBITDA positive upon exiting 2024. What are your thoughts on that, and what does the long-term growth and profitability model look like after this deal?
Simon Khalaf, CEO
Thanks for the question, Bob. The way we look at it is consistent with previous conversations: As a platform business, we naturally get scale benefits. The Power acquisition was the last piece we needed. Last year we added banking and money-moving capabilities, as well as risk products. We now believe we have all the key components of the platform in place. We can now begin reducing our incremental investments because our platform is ready. If we see new sales kicking in and are able to launch durable contracts longer than three years, we expect to see exciting growth and profitability more quickly, potentially adding significant profits without substantial expense growth over the next year or two.
Mike Milotich, CFO
I'd like to add that we're getting a halo effect from the acquisition. Customers considering one product often ask about additional offerings. The ability to offer both debit and credit seamlessly helps us in our overall sales process.
Bryan Keane, Analyst
Hey guys, congrats on the deal. Just a clarification regarding any business loss with Block either going in-house or competition? Also, expectations on new scope work from the contract?
Simon Khalaf, CEO
I don't believe there’s anything going in-house that we know of. We’re continuing and strengthening our partnership with Block. There's a lot we are doing, from small changes to highly innovative products. We will likely see some of these developments within the next six to twelve months.
Julian Broche, Analyst
What are your primary competition dynamics on earned wage access, considering there are many on the call? Can you elaborate on that?
Simon Khalaf, CEO
Yes, the way we’ve implemented accelerated wage access is actually unique to our market. I won't go into extreme detail, but our solution ensures that companies do not drain their working capital. There's currently no solution in the market that operates exactly like ours. There are independent software developers offering similar solutions, but they depend significantly on the marketplace size. We help clients like Branch tightly in the wage access area, and they remain a fantastic partner for us.
Kathy Chen, Analyst
Just wanted to ask about July trends—anything to share relative to June or the second quarter around TPV or ticket size, possibly between managed by vs. powered by. Any color would be appreciated.
Simon Khalaf, CEO
Overall, trends are stable; we're not seeing a meaningful change in the trajectory of the business. So yes, steady as it goes.
Kathy Chen, Analyst
I wanted to follow up on the unexpected incentive benefits from Q2. How much did that contribute to gross profit growth, and to clarify, you aren't expecting that to continue into Q3, correct?
Simon Khalaf, CEO
That's correct. Our gross profit growth was about five points faster than expected, and roughly two-thirds of that was driven by these unexpected incentives. Essentially, we discovered we were owed more incentives than we had been paid in prior periods, resulting in a one-time catch-up. Therefore, it's not something we expect to recur.
Operator, Operator
There are no more questions in the queue. Thank you for attending today’s presentation. You may now disconnect.
Simon Khalaf, CEO
Thank you.