Mike Milotich: So far, what we’re seeing is we’re a little bit ahead of schedule. So we had said we expected about $20 million in revenue coming from these new cohorts for 2024 and then that ramping to $60 million next year. And in Q1, it’s obviously early but we are a little bit ahead based on a couple of customers launching a little more quickly than we expected and 1 or 2 also ramping a little faster than we had projected. That being said, because of, as you can imagine, the ramp of a card program, it takes a little bit of time. So we’re, I guess, encouraged by the first couple of months but the real value will be generated, say, 4 to 7, 8 months after the launch, when you really start to see what kind of momentum those programs have and what kind of volume they can generate. But we’re off to a good start, a little bit ahead of schedule.
Simon Khalaf: On the credit side, again, like we said, our focus is to do a hell of a job on the initial accounts and partners that we have established. I’d say we’re looking really good on the consumer credit side. I’d say for one particular reason which is most of the brands that align with our vision on credit are thinking about a co-brand as an engagement tool and not just a loyalty tool. And kind of like addressing the top of the funnel which is bringing more users or regain me the usage that have lost versus making my loyal customers more loyal. So that fits exactly with how we perceive the credit market going and also it’s a great thing for our platform because it operates in real time and the rewards engine could be changed in a real-time basis in order to increase engagement and not just loyalty.
And on the commercial side, it’s actually better than we had expected. We did not anticipate such strong demand in commercial credit. And most of it is driven by, I’d say, the aggregator marketplaces that have great visibility into the performance of a small- to medium-sized business. So just to give you an example, at all lending that JPMorgan has done last year, only 2.6% of that went to small businesses. But small businesses account for like 53% of our GDP. I think we should have anticipated this great demand but we didn’t but I think it’s actually a very good sign for us.
Operator: Our next question comes from Andrew Bauch with Wells Fargo.
Andrew Bauch: I wanted to speak about the expense management customer that you highlighted in the prepared remarks. You said that this one customer was looking at other competitors but then decided to come back to us. So maybe if you could just extrapolate what went on there.
Simon Khalaf: So as expense management players start adding more features and start reaching scale, they will look at Marqeta as a platform of choice. I’ll give you an example. It’s very simple. Like expense management is part of it that finance department takes. There’s like invoicing, there is bill payments, there are so many things. So as we see this conversion trend materialize and like I said, it’s not just in the consumer space, in the commercial space which is where expense management land, we’re seeing a lot of players come to us and say, look, I can do more with your platform and you have all the program management that I need. You’ve got all the relationships that I need. I’m coming back to you. And that takes us away from, as Mike mentioned, the one-time virtual commercial card that is almost a commodity or heading in that direction. So I would attribute these things to the conversion trends.
Mike Milotich: Then the only thing I’d add is that it also is this is where I think we are benefiting from our focus on issuing specifically. So as our customers get bigger and bigger and so therefore, they become more sophisticated and looking at a lot of different capabilities they would like and to be delivered at very high reliability and a high level of service, that’s something that we’re just well positioned to do given our sole focus on the issuing business, where a lot of our competitors have a broader remit and therefore, may not have the breadth of capabilities and focus that we have.
Andrew Bauch: I wanted to just talk to the adjusted EBITDA outperformance in the quarter. Nice to see the EBITDA positive and the cash headwinds coming to an end in unison in the third quarter here. So how should we think about the ramp of EBITDA margins as we progress beyond these headwinds that you guys have been experiencing? Meaning the amount of flow-through or in your ways you want to invest in the business?
Mike Milotich: The way we’ve thought about it is that we believe we can grow our gross profit in the 20%-plus, so in the 20s. And we also believe that if we’re growing at that pace that we only need to grow our expenses in the low double digits, that there should be at least a 10-point gap. Once we lap all this and we get a normalized base to grow off of starting in ’25 and ’26 that there should be about a 10-point gap at least between our gross profit growth and our expense growth. And that’s just the benefit of a platform business and reaching our economies of scale. And so when you start to look at that 10-point gap in growth and you start to grow that out a year or two, you’ll see that the EBITDA comes in pretty significant chunks.
It doesn’t just drip in. It’s becomes a meaningful gap as our volume and business just keeps getting bigger and bigger. And so that’s really the formula we’re looking at. And just to get a little more specificity, because we’re so headcount and technology-driven, our cost structure. What we see is between merit increases and things we’d get to our employee base as well as the variable costs we have of running our platform with Cloud costs and other data tools that we use, just those 2 things, our expenses would probably grow in the like mid- to high single-digit range, assuming we continue to compound at this kind of clip in terms of volume. And so with that then, it’s all a matter of how much more are we going to be investing incrementally to drive additional capabilities on the platform.
