Q4 2021 Affirm Holdings Inc Earnings Call

[music].

Good afternoon, ladies and gentlemen, and thank you for standing by welcome to affirm holding this golf fourth quarter and fiscal year 2020 One earnings conference call. At this time all lines have been placed on mute to prevent any background noise.

Blowing the speaker's remarks, we will open your lines for your questions.

As a reminder, this conference call is being recorded I would now like to turn the call over to Ron Clarke, Vice President of Investor Relations to begin.

Thanks, operator.

Before we begin I'd like to remind everyone listening to 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.

Actual results may differ materially from any forward looking statements. We make today. These forward looking statements speak only as of today and the company does not assume any obligation or intent to update them, except as required by law.

In addition, todays call may include non-GAAP financial measures. These measures should be considered as a supplement to and not as a substitute for GAAP financial measures.

Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our Investor Relations website.

Hosting todays call are Max Levchin, affirms founder and Chief Executive Officer, and Michael Lynford.

Our firm's chief financial officer with that I'd like to turn the call over to Matt to begin.

Welcome everyone.

Thank you for joining us on today's call.

Before we get into the results I want to start by talking about what we're actually building out of her.

Around 10 years ago, we found that a firm with a simple mission to deliver honest financial products that improve lives.

We started by rebuilding payments to make them transparent simpler smarter and more delightful.

Our core insight was that that generation is coming of age after the financial crisis of 2008 were no longer willing to tolerate getting into permanent depth by putting it all in the cards.

Getting burned by late season deferred interest.

These young consumers in many Likeminded overruns grew.

<unk> fundamentally suspicious of credits and retreated into the simplicity of their debit cards.

This created no less than a once in a generation opportunity to transform credits.

Thus began the great unbundling of the credit card.

The credit card was the ultimate buying bundled a single product, allowing you to put purchases of all sizes together in one basket with the freedom to pay for them later.

Unfortunately, if you couldn't pay for them later and at full endless debt became nearly inevitable and that credit card could quickly become the financial equivalent of a ball and chain that's where.

<unk> came in.

We've deconstructed, rather we unbundled the credit card starting with the largest purchases we made these easier and more transparent and help consumers be smarter about buying now and paying later.

In order to do all of this we built proprietary technology from the ground up and developed sophisticated capital markets expertise.

Gameplan was always simple.

Obsessed over consumer happiness, and use superior tech to give more people confidence to buy without resorting to kind of dirty tricks. The credit card industry's infamous for late fees fine print deferred interest to name a few.

We believe this would earn us the right to partner with the best most important online and offline retailers.

After creating in my personal opinion, the best imaginable alternative to using a credit card. So that kind of larger purchases that are most likely to get you into long term revolving debt such as plane tickets home, where sporting goods auto parts we.

We start to bring the convenience and flexibility of our longer term pay over time solutions to shorter term lower priced transactions.

Demand for simpler more transparent payments was growing rapidly in these new segments, such as fashion and apparel. These purchases naturally happen more frequently and are great opportunities to meet consumers, where they shop and offer them a smarter alternative.

By partnering with merchants and ecommerce platforms to offer these solutions affirm is able to deliver meaningful incremental sales volume via increased card sizes improved checkout conversion and new customer acquisition, thus, enabling our partners to achieve more predictable sustainable revenue growth.

Today, we offer both the long term paid monthly and short term pay later solutions to our merchant partners often as a bundle.

And unlike our competitors that only offer the ladder.

Neither constrained by the amount the consumer wants to spend nor the time do you need to pay us back thanks to our investments in technology and capital management, we leveraged this technology as well as our deep merchant partnerships to bring forward the best options to consumer always with an eye towards the fact that they will never offer loans that we don't believe can be repaid.

Our breadth of offerings enables our partners to offer their specific shoppers the right payment solution for the right item at the right moment.

Our consistent results our culture of engineering excellence focused on intelligent risk management depth of capital markets execution, and relentless search for opportunities to delight. Our shared consumers have earned the trust and partnership of some of the worlds largest commerce platforms. These businesses depend on having the best technology to support their needs and that is why the AUM.

For welding, we choose a firm.

Our technology enables superior experiences provides unrivaled flexibility and customization and can address the most complex requirements.

And we're constantly adding to those services.

In fact, our firm's roadmap for new merchant services is very low we.

We see natural product expansion opportunities wherever access to capital risks are complex engineering requirement prevent merchants from delighting their consumers or acquisition of return Lee and its unique returns management capabilities is a great example of one such idea. Another is the merchant marketplace built directly into the affirm app and website purchases originating.

On these affirm owned and operated surfaces amounted to nearly one third of transactions, we facilitated in the fiscal year 2021, and these transactions are particularly valuable to our merchant partners.

<unk> love a marketplace because the reach can be highly targeted and effective in driving conversion in this use case affirms both the provider of purchasing power to the consumer and the demand generation platform for merchants.

We expect to continue to find many more opportunities like these to build and buy and offer these high value services for our merchant partners.

Meanwhile, the great credit card unbundling continues to accelerate in both the United States and internationally.

The next frontier of on bundled payments is daily spent groceries restaurants incidental purchases. This is why we're so excited to be rolling out the very first part of its kind the affirm debit plus card I will tell you a lot more about in a moment.

As we speed into our fiscal year 'twenty two I believe affirm is strongly positioned to capture much more of the vast opportunity in front of US we will do that by remaining obsessively focused on our two constituents the merchant and the consumer and by leveraging our core strengths to continue building products that delight both sides of our network.

As we look back upon our fiscal year 2021, we made great progress on executing our strategy.

We facilitated purchases for more than 7 million consumers nearly twice the number of consumers. We served in the prior fiscal year.

At the same time, we delivered a five fold increase interactive merchant base that as merchants that transacted on our platform over the prior 12 months. Thanks to several large partnerships, including Williams Sonoma, Dick's Sporting goods Neiman Marcus as well as the launch of shop pain statements all of which helped add over 23000 active merchants to our platform.

We also expanded our product offerings the savings products, we introduced at the start of the fiscal year demonstrated the power of our platform to drive consumer engagement by simply adding savings to the affirm app. We've attracted total deposits of approximately $300 million.

With no fanfare and no promotion simply through organic engagement and a great product offering.

Many of our firm savers have gone on to use our platform to also discover great deals with our affiliate partners and manage their financial lives.

On the merchant side, our recent acquisition of return Lee has meaningfully expanded our addressable market.

Not only does return we sold one of the merchants most critical pain points. It also provides us with another unique offering for higher velocity merchants, especially in categories, such as fashion and apparel where returns are quite frequently.

And of course, we extended our presence in North America by closing the acquisition of a leading pay later brand in Canada <unk> in January.

<unk> has not only expanded our presence in Canada. It is also winning exciting new business with powerful consumer brands and delight and Canadian consumers.

And we are developing deep connection with our consumers brand awareness increased approximately 70% in fiscal year 2021.

Particularly strong among gen Z and millennial consumers, whose awareness increased 94% and 16% respectively.

Both these wins help us create a more valuable two sided network for our consumers and merchants as we facilitated more than 16 million transactions totaling more than $8 billion.

In <unk> in fiscal year 'twenty one.

So what comes next.

We have an ambitious plan for the fiscal year and more importantly for the decade ahead.

To fuel the expansion of our business and to increase our share of the growing market. We're focusing on three key areas for fiscal year 'twenty two.

Increasing our consumer reach and frequency growing our merchant and partner network and extending our product offerings.

Our partnerships with enterprise merchants and platforms like Shopify.

Introduce more consumers in high velocity merchants to affirms honest and transparent offering.

In our current fiscal year, we have continued to ramp merchant activation of shop installed.

When we reported earnings back in May we shared with you that we had on boarded 12500 shopify merchants at the time and today that number stands at hundreds of thousands of our focus now is to drive more consumers to experience shopping installments.

So we're activating both shopify and affirms consumer networks via our range of marketing channels.

Through our host of integrated partnerships with the largest merchants and ecommerce and brick and mortar retail our firm will be offered as a payment option for merchants representing more than half of U S ecommerce, which we believe will ultimately enable us to demonstrate a firm's powerful value proposition to millions of new to affirm consumers and grow active consumers meaningfully in fiscal year 'twenty two.

What excites me the most about the year ahead is the affirmed debit card.

Currently in the hands of several hundred people.

We've worked very hard to create a product designed to meet the bar of convenience set by the best cars people have in their wallet today.

But we didn't stop there our team is designed to develop the most meaningful innovation that debit card since its inception.

Three years ago, putting unparallel choice and flexibility directly into the hands of the consumer.

The consumer can use the affirm debit plus card in place of the regular debit card you can seamlessly to their existing bank account and no new checking account as required.

Once you swipe your card you can use the intuitive debit plus companion app to turn any eligible transaction into and affirm pay overtime product <unk>.

All it takes is a couple attached with a date after the transaction occurs it's just that simple.

Effortless access to a smarter more transparent way of paying overtime at brick and mortar and online is very close to being indistinguishable from magic, but as always with a firm. There are no magic tricks are tricks of any guidance just excellent technology.

The beauty of our card is that it's powered by software, which means that you can expect us to regularly add new features and functionality via App update.

I believe debit plus is a revolutionary idea that can truly help millions of people enjoy life with a lot less angst about spending and saving money with a beta test wrapping up this month, we're very excited to bring his card out the nearly million strong waiting list of existing affirmed customers and then to the general public I invite you to sign up for yours at affirmed dotcom.

Flashcard.

Pretty awesome, but don't take my word for it try it yourself.

On the merchant side, expanding our solution drives greater monetization by providing cross selling opportunities designed to also increase retention.

Following the acquisition of returns in the coming year, we plan to accelerate its adoption amongst existing affirmed merchants through our cross selling efforts.

We believe the combination of our French flexibility in terms of duration and returns lease elegant solution to returns problem will deliver significant value to retailers, particularly in higher velocity categories.

Beyond <unk>, we believe we can do a lot more to expand upon our strong merchant relationships and are working on additional opportunities to leverage our technology chops and underwriting expertise to address more of our merchant fee.

Combined with the momentum we generated in 2021, we believe these initiatives will deliver yet another year of strong growth at scale in fiscal year 'twenty two.

With expected year over year JV growth of at least 50% based on our outlook.

And as we launched new offerings, such as affirmed debit plus and activate exciting new merchant partnerships, we see a very bright long term future for FERC.

In closing.

I've never been more excited about how well our firm is positioned to win.

Even at a blistering pace of growth the opportunity before us as fast.

Adoption by consumers and merchants alike continues to accelerate yet at the same time, we are just getting started with.

With our company's deep roots in product development and engineering, we are at our happiest and most productive with building an innovative with so many new ways to delight consumers and sold merchants problems plan for the coming years, we're poised to expand our addressable market to grow a firm and deliver on our ambitious mission to improve lives.

I went to stinker team for continually delivering for our consumers our merchants and our shareholders 21 has been a monumental year for our firm.

Tearing us to go public to integrating with some of the largest players in U S retail and e-commerce, the affirmed team as to amount of countless challenges with the flow.

Without a firm his hard work and continued dedication none of this would be a reality and I am truly grateful for the hustle and sacrifice.

Before I turn it over to Michael I have a quick announcement that I want to make.

On September 28th our firm will hold a virtual investor event after the market closed.

We plan to share more detail about our business our strategy and our product plans at the special events, including and especially the affirm debit plus card.

I would like to invite you to join US. Please look out for more information at our Investor Relations website.

Investors got a firm dot com.

And with that I will turn it over to Michael to take you through the numbers.

Thanks, Max and good afternoon, everyone.

We delivered another set of strong results to close out our fiscal year and.

In the fourth quarter, we accelerated year over year growth rate both JV in revenue.

Second consecutive quarter to 106% and 71% respectively.

Excluding our largest merchant peloton, which saw GMB growth of over 328% in fiscal fourth quarter of 2020, our fourth quarter GMB grew 178%.

We also delivered strong unit economics.

Excluding the provision for credit losses revenue less transaction costs were 7% of GMB.

And even as we delivered these strong results we continue to improve the capital efficiency of our business the equity capital used to fund our loan decreased by another 19% to $178 million, despite more than doubling DMV and nearly doubling total platform portfolio.

We also continue to deliver excellent credit performance.

Our allowance as a percentage of loans held for investment declined to just five 8% down from nine 2% last year, even as we expanded credit availability within our multi installment insulet payload.

And while we are pleased with the progress we've made in the fourth quarter. We're even more excited about how our product road map and recent merchant partnerships set us up for another year of expected strong growth in the fiscal year ahead.

I will discuss our financial outlook for fiscal year 'twenty two in a moment.

Walk you through the key highlights of the fourth quarter first.

Unless stated otherwise all period to period comparative data refers to our fourth fiscal quarter of 2021 compared to our fourth fiscal quarter of 2020.

Fourth quarter, G&A grew 106% to $7.0 billion exceeding our outlook.

The momentum in <unk> was strongest in categories leveraged to the reopening of the economy.

We began to anniversary the steep acceleration in the growth of categories that benefited from social distancing.

The first time fashion and beauty was our largest category. Thanks to our focus on expanding into lower <unk> segment.

While travel in ticketing continued to grow rapidly contributing 14% at D&B up from 9% in our fiscal third quarter of 2021.

Owing to the strong growth of our business merchant concentration continue to decline as peloton contributed 9% fourth quarter G&P compared to 32% in the prior years fourth quarter.

GMB growth came from both new and existing merchant relationships as well as our direct to consumer virtual card product.

Merchant signed in fiscal year, 'twenty, one delivered 15% of our fourth quarter <unk>, excluding pay bright in retirement.

Merchants launched prior to fiscal 'twenty. One also grew quickly delivering more than 100% dollar basis margin retention and excluding peloton. Our DMD from these merchants grew 92% in fiscal Q4.

Additionally, our non integrated virtual card product grew 462% this quarter.

More and more consumers are choosing the firm's honest and transparent payment alternatives growth in active consumers, which we measure over the prior 12 month period accelerated effectively doubling $8.0 million.

Not only are we seeing strong growth in new consumers. We are also seeing encouraging trend among existing customers.

And while we have expanded into higher frequency and lower A&P categories transactions per active consumer has increased by 8% to 1% to $2 three.

At the end of the fourth quarter active margin those merchants, who have transacted on the platform over the prior 12 months increased to almost 29000 compared to just 5700 in the prior year. Thanks in large part to our partnership with Shopify.

Even though shop installments only became generally available to shopify merchants in the last 20 days of the fiscal year and quarter.

As Max indicated with hundreds of thousands of merchants now enabled to shop paint on it.

We are working closely with shopify to drive consumer awareness and get even more consumers to try shop paint on it.

I would also note that the overall active merchant count includes roughly 3000 incremental pay rate and return on margin. Following the close of the strength of the acquisitions in January and May respectively.

Turning to the mix of our offerings, we drive 38% of <unk> from our zero percent APR product down from 54% in the fourth quarter of 2020, while the GNP contribution from interest bearing products increased to 62% from 46% last year.

The mix shift was primarily driven by the strong growth in categories like travel, which have fewer zero percent merchant and the moderation of peloton volume.

Loans with the term length of greater than 12 months accounted for 22% down from 43% last year.

<unk> declined from $672 to $495 driven by the same category mix shift.

As Max noted we continue to drive a large portion of our <unk> on our platform to our merchant partners from our own properties.

In the fourth quarter, 29% of transactions originated on the firm's owned and operated properties or 32%. If you exclude return landscape right.

Strong fourth quarter GNP also helped accelerate growth in revenue.

Fourth quarter net revenue of $262 million grew 71% year over year up from 67% in our fiscal third quarter and 57% in our fiscal second quarter.

These results reflect the diversity of our product offering which enable us to deliver consistent revenue growth by giving merchants and consumers greater flexibility in terms of duration and of course purchased items.

Our ability to offer a wide range of options is one of the many reasons why so many merchants, especially many of the retail largest enterprises choose the FERC.

That flexibility, including being able to pivot from zero percent APR offers to interest bearing offers has also enabled us to quickly adapt to major changes in the environment on behalf of our merchants over the past year and a half.

Total network revenue grew 23% to $108 million in the fourth quarter.

However, excluding peloton total network revenue grew 106%.

As a percentage AMB total network revenue declined 300 basis points year over year.

Roughly consistent on a sequential basis and reflects our growth in our interest bearing products, especially in the travel category and our direct to consumer virtual card product.

Revenue as a percent of GMB. Our total revenue take rate was 10, 5% ahead of our expectations.

While down versus last year at the overwhelming majority of the year over year change was due to the mix of loans originated on our platform.

Last year's take rate also benefited from temporary increases in <unk> as certain high AOE merchants elected to pay increase mtr's in order to secure additional revenue in the early days of the pandemic.

Excluding these two factors revenue take rates were roughly stable year over year.

Interest income grew 111% to $104 million.

However, it is important to note that 40% of the increase of interest income was driven by 212% year on year increase.

The amortization of the discount on loans held for investment on the balance sheet.

And then from consumer interest payments.

<unk> of interest income related to consumer interest payments grew 77%, which is roughly in line with total revenue growth we reported in the period.

Revenue from gain on sale of loans of $43 million increase from $12 million in a year ago quarter. As a result of more favorable loan sale pricing and increase in the volume of loans, we sold to third parties and our 2021 non consolidated Europe percent securitization transaction.

Finally servicing income of $7 million increased from $5 million in the prior year as the average unpaid principal balance of loans owned by third parties through Europe.

Now turning to expenses.

Total transaction cost of $114 million came in better than our outlook of $135 to $140 million in the fourth quarter.

All transaction costs grew 149% year over year, nearly all of the increase was related to $58 million year to year swing in the provision for credit losses, which I will discuss in a moment.

Is there any impact of provision we continue to drive the improvement in our unit economics.

Transaction costs, excluding the provision for credit losses grew 14% compared to the total revenue growth of 71%.

Looking at the components of total transaction costs.

Loss on purchase commitments of $51 million compared to $55 million in the prior year.

Loss on loan purchase commitment directly correlated to the level of longer duration zero percent APR GMB originated.

Provision for credit losses was $25 million compared to a gain of $32 million in the prior year, reflecting better than expected prepayments reduce stressed multiple in a year ago quarter in the context of sizable loss allowance that was established at the end of the third fiscal quarter of 2020 in the fairly early days.

Funding cost increase from 8 million to $16 million in the fourth quarter of 2021, consistent with the growth of loans held for investment.

The increase reflects the issuance of securitization trusts.

Which bear interest at a fixed rate as well as an increase in average funding debt offset by a lower average interest rates.

<unk> processing and servicing costs grew 48% to $22 million.

Total platform portfolio growing 88%, reflecting the ongoing scale efficiencies we are achieving.

The combination of strong topline performance and reduce transaction costs resulted in much better than expected revenue less transaction costs of $148 million compared to our fourth quarter outlook of $80 million to $85 million.

Looking beyond transaction cost operating expenses, our strong growth in the fourth quarter enabled us to invest long term growth of our business.

Technology and data analytics expense, which is primarily composed of personnel expenses and our product and engineering organization grew 124%.

$71 million.

As a percentage of total revenue technology and data analytics increased.

From 21% to 27%.

However, excluding the impact of stock based compensation technology and data analytics as a percent of revenue declined by 60 basis points compared to last year.

The year over year cash increase in technology and data analytics was driven by higher engineering head count dedicated to deliver the exciting slate of product and technology initiatives that Max discussed.

Sales and marketing expenses, which include both personnel and our marketing activities increased from $5 million of $64 million.

3% to 24% total revenue.

The majority of the dollar growth was driven by consumer branding to drive awareness and adoption.

<unk> contributed $6 million of year over year increase and the warrants we issued to shopify in conjunction with our commercial agreement contributed $17 million.

General and administrative expenses increased from $31 million last year to $138 million.

Or from 21% to 53% of total revenue.

However, excluding stock based compensation G&A was 21% of net revenue compared to 19% in the year ago quarter.

The cash increase in G&A was primarily the result of increased head count to support the company's long term growth and public company operations.

Including these expenses GAAP operating loss was $125 million in the fourth quarter of 2021.

Care to a GAAP operating income of $39 million in the fourth quarter of 2020.

Despite making these significant investments in our long term growth we delivered positive adjusted operating income.

Adding back DNA stock based compensation, the amortization of shopify as warrant and other onetime expenses adjusted operating income was $14 million.

Compared to $47 million in the prior year or five 4% of total revenue.

Turning to our balance sheet, we delivered triple digit GNP growth, while driving even more efficiency from a capital perspective.

So our platform portfolio, which we define as the unpaid principal balance outstanding for all loans facilitated through our platform.

Holding those loans owned by third party increase.

<unk> increased $4.0 billion from June $32031.0 billion at the end of the fourth quarter half of the $4.0 billion increase was funded on a non consolidated basis through a combination of forward flow and our first on a consolidated securitization transaction.

This was funded through a consolidation securitization warehouse facility.

In terms of our overall funding mix warehouse financing continued to shrink from 1.0 billion to <unk> 7 billion at June 32021.

We expect to fund future growth, primarily through a combination of loan sales and securitization transaction, which continue to garner strong demand in the ABS market from a diverse array of large institutional investors.

As alluded to previously during the quarter. We successfully closed 2021, we won our first consolidated securitization transaction.

In addition, we recently issued our ABS transaction 2021 be in.

At a very attractive financing terms, resulting in minimal equity capital required biopharm.

By establishing ourselves as a programmatic ABS issuer the securitization in conjunction with our committed forward flow agreements and warehouse facilities.

Guidance with financial flexibility to support our GNP growth aspirations by creating meaningful capacity to efficiently fund billions of dollars alone with negligible incremental equity capital requirements.

Immaterial noteworthy results of our approach to funding optimization across these channels as the reduction of equity capital we used to fund our business.

Equity capital required declined by 19% from the year ago quarter from $221 million to $178 million, despite growing our loans on the balance sheet by $1 billion.

Accordingly, as a percentage of total platform portfolio equity capital required fell to below a 4% from 9% in the year ago quarter.

Now turning to the year ahead, we expect the strategic progress we've made in the fiscal year 2021, and the accelerating consumer and merchant adoption of our offering to drive strong growth once again in fiscal year 2022.

Before I dive into the numbers, let me share some color on our outlook.

After a year of explosive growth, we expect a moderation in peloton GMP in fiscal year 2022.

Peloton business benefited from strong pandemic related tailwind last year as well as the introduction of new products.

Putting the highly successful bike plus and lower priced Tret September of 2020.

Additionally, we have not included any GMB or revenue from the Amazon partnership we've recently announced.

We are currently in the early stages of integration and we will update you on the progress and the incremental impact to our outlook each quarter.

Finally, while we are very excited about the rollout of the affirm debit card.

Outlook for fiscal year 'twenty. Two also does not include a contribution from those new products.

<unk> and revenue from this new product, but also be incremental to our outlook.

With that context in mind for our fiscal year ending June 32022, we expect gross merchandise volume to increase between 104% for fiscal year 'twenty, one to between $57.0 to $87.0 billion.

Excluding peloton, we expect GMB growth of 70% to 75%.

We also expect our split pay offerings contributed 10% to 15% of our fiscal year 2022 GMB.

The largest contributor at this volume coming from the shop pay installments program.

Accordingly, we expect revenue of $1, one six to $10.0 billion.

Representing year over year growth of 33% to 37%.

Owing to the ongoing mix shifts we expect modest contraction in total revenue as a percentage of GMP in fiscal year 2022 as implied in our outlook.

Turning to expenses, we expect transaction costs of $605 million to $620 million.

As a percentage of total revenue, we also expect modest deleverage and transaction costs as a percentage of revenue.

As a result, we expect revenue less transaction costs of $555 million to $570 million.

As Max said in his comments, we plan to deliver an exciting slate of tumor and merchant product offerings in fiscal year 2022, as well as over the next several years.

To drive the success of these initiatives, we are investing in engineering and product talent here in United States and deploying a new engineering center in Poland.

As a result, we have significant investment in technology and data analytics in fiscal year 'twenty to Europe.

Also increasing our spending in marketing to drive consumer awareness and adoption accordingly.

Accordingly, we expect an adjusted operating loss of $145 million to $135 million.

Finally, we expect weighted average shares of approximately $290 million for the year.

For our first quarter ending September 32021, we expect <unk> to grow 64% to 57% to $44.0 to two $7.0 billion.

We expect that the growth to drive total revenue of $240 million to $250 million.

Our outlook for the first quarter also contemplates transaction cost of $145 to $150 million.

Revenue less transaction costs of $95 million to $100 million.

Adjusted operating loss of $68 million to $63 million.

And weighted average shares outstanding of $275 million.

In closing we have made another year of excellent progress on our mission to bring consumers and merchants together with on its financial product.

Like Max I'm extremely proud of the team's accomplishments over the last year.

Shaping the future of finance or the better in every day more and more consumers and merchants are coming to affirm for honest transparent and delightful product experiences.

I have never been more confident in our competitive position nor more excited about the future that lies ahead.

Here's to another year of the extraordinary achievements to come.

And with that we're happy to answer your question.

I still would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from thank you.

For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question is from Ramsey El <unk> with Barclays. Please proceed.

Hi, Thanks for taking my question this evening and congratulations on these impressive results.

I wanted to I wanted to ask about about your shopify relationship and in terms of signing new merchants I mean, the quarter saw such a huge step up in active merchants how far penetrated do you think you are at this term in terms of the merchant base. That's available to you sort of what inning are you in the process of rolling out Shopify.

Okay.

Asking me about innings.

We will immediately any sports highlights where you want to.

I'm only good for one year.

Mike.

The day before the Brexit a first week of sort of Trump the only export them before.

I have no idea how the beginnings exist in any big sports.

Got it.

So I would say early.

Thank you Mark So just to give you a sense how about the process actually works. So you first.

The merchant base, then you have to onboard them then you start activating them both through marketing and just.

Exposure to consumers and then eventually start processing volume. So you can kind of think of it in these four stages. The number we highlighted in both.

Michael through market in mind is the tens of thousands of active across our entire base, but obviously shopify question here. If you look at the Onboarding, which is the stage before that number is in the hundreds of thousands now and so we will start ramping the next stages of that process for the merchant, but it will take time so.

It's early.

Very happy with how it's going.

Lots more to cover.

Okay.

And then I wanted to ask you a kind of a higher elevation question about all the M&A. We've seen in this space over the last few months. It seems like there's a kind of an accelerating trend towards bundling buy now pay later and with other financial services and I know you guys are sort of embarking on that from sort of the other direction, but can you give us your thoughts on industry consolidation.

The end state of the industry looks like and sort of the different strategic paths available to you guys.

So let me try.

I just want to speculate.

First of all to level set.

E Commerce is.

$100 billion in the us so and I think buy now pay later.

The various names or referred to in my mind Unbundled credit card really trying to make that point in my little speech, but the whole idea here is the industry very rapidly unbundling, the credit card product into a bunch of different connected services.

All that said, it's still like in the 3% to 4% of the overall E Commerce and then of course not.

Our ecommerce.

A long road to go this route.

So I think companies.

Companies like affirm that.

A vision that since passed.

Just a handful of years really just have a lot a lot of growth and a lot of our product building.

So from that point of view.

We are very keen observers of the industry.

I think ourselves great technologists, obviously really careful risk managers managers really thoughtful builders of things.

And we're not bad at all capital markets those are kind of the key.

Notes in our core that we're trying to strike the industry wherever we can build or buy more merchant services that speaks to the strength we will.

That's what we're looking for.

Returning to this kind of a great highlight.

Beautiful complementary service that fits all.

Those strengths instantly benefit from cross sell to merchants instant benefit from our depth of capital markets.

Badger managers themselves, but obviously, we have to share notes now.

So that you will see us do more and more off.

We think there's just a lot to do there always buying but we are very keen on creating this ultimate merchant bundle with those three key areas.

As the guiding.

Paul.

The industry itself I think to be completely honest I'm, a little surprised by the Salinas and Thats the word of the consolidation, but that said.

Congratulations the atrophy team specifically I think those guys are.

Bill.

Really cool barriers to that product.

Pleased to see the market really value are important.

We are obviously a much much much wider impact surface, we cover both the short term.

You are paying for it.

Yes.

All the way out to multi year monthly payments, both interest bearing and industry, we involved manufacturers and subsidizing some of the interest payments for consumers.

Just a much much much broader around that offering and so.

Opportunities for us to extend well beyond.

Sure plugging our point solution into someone else's.

Larger vision.

We'll decide on their own.

Do think that the entire financial ecosystem well beyond the startup really everyone has now can be woken up to the idea that buy now pay later.

Unbundle credit card is a huge opportunity and consumers are driving that change and so.

That's just really important it's happening very very quickly and we happened to be surfing that wave.

There's a lot more companies that are now playing there as well.

Okay.

That's hugely helpful. Thanks, so much.

Our next question is from Jason Kupferberg with Bank of America. Please proceed.

Hey, Thanks, guys. Congrats on the numbers here I wanted to start with a question just on the <unk> transaction expenses for 'twenty, two I think it's going to be more than 5% of dnb and I know that that's materially higher than the low to mid 3% range, but I think you've historically targeted so should we think of the mid <unk>.

<unk> as kind of a new normal or are there some.

Normally that you would call out for fiscal 'twenty, two I mean, I know the number was even higher than the last couple of quarters, but just wanted to see how we should think about it on a more normalized basis.

Yes, I think Theres, a couple of things to think about here.

It has been higher recently, although we have benefited from continued improvement in credit outlook that has contributed nicely.

When you look forward.

As you model out.

Split pay <unk> business.

We'll see numbers coming down there just to start with a much smaller revenue base. So as a percentage of JV do you have less revenue less transaction cost of those transactions. We've indicated that we expect 10% to 15% of next year's number to be there over the longer term, we do expect that to continue to grow faster.

And so I think we'd like to maintain that kind of longer term indication we've given everybody.

Okay. So we should still think about that that low to mid <unk> just based on mix over the longer term.

That's right.

Okay, Okay, and then just.

Following the Amazon announcement.

And how your pipeline looks for other potential large.

Wins, and then maybe as part of that can you just talk a little bit about the availability on Amazon I mean, I think the press release, it said kind of the coming months, but would you encourage us to think about that.

The next quarter or is this more like two to three quarters out.

So I think we.

We try to be as disclose this and as careful as we can be when we talk about this large market.

Okay.

Testing is ongoing literally day and night.

Yeah.

We are in in that phase of the partnership.

And I think the opportunity is enormous the exact contours of availability.

Where and when.

A little bit.

Beyond the scope of this particular conversation.

In terms of enterprise pipeline.

Well I want to take my own horn too much here.

We have become sort of the undisputed provider of the service to the enterprises.

<unk> really got good.

We think that.

Enterprise thinking about about offering buy now pay later or monthly looks.

It looks at the firm as the gold standard and we.

We intend to provide those services to England.

Only a terrible idea to pre announce deals are deals that aren't closed.

Didn't really become come into the pipeline.

Certainly.

Have extreme conviction that we built resonates with folks who care about technology scalability availability delivery of them.

Full suite of products as opposed to a point solution. So in essence I think the market is meeting us where we are with our suite of services.

Okay, well, thank you I appreciate it.

Our next question is from Dan Perlin with RBC capital markets. Please proceed.

Thanks, and let me add my congratulations as well.

Thanks, I wanted to maybe dive in a little bit.

And to that last question a bit and the question really is the nature of which.

Amazon chose you guys.

A couple of things there, but I mean is it ultimately the breath of product is it that you saw kind of the sweet spot for them and helping them convert.

<unk>.

And is it also that there's a parallel kind of roadmap that you might share with them. So just any incremental color in terms of maybe why that relationship.

It was born would be very helpful. Thanks.

Again, I think it is important too.

Yes.

As announced is a test we are working very hard to make sure.

The test is successful.

The reason.

Companies of this scale and.

Customer obsession.

By the way.

One reason why companies.

This type perhaps <unk>.

Everything I said technology risk management conversion all of that is true, but at the very core.

It is.

With the end consumer we want to deliver the best possible service, sorry, I'm getting I'm getting feedback that it's very hard to hear me.

Is this any better.

Yeah.

I can hear you fine.

Alright, great.

Sure.

I'll try to add more microphones to.

So the punch line is we.

We're obsessed with.

Consumer delight, we want to make sure that we are driving sales increasing conversion improving the size of the card all of that while being on the consumer side without charging and late fees without.

Bearing in.

In fine print and things like that I think thats.

It's typically the cornerstone of our most successful partnerships that is where these enterprise merchants that expect to low four hundreds of years.

Ian has lots of repeat transactions.

They want to know that we will treat their consumers rates that theyre consumer doesn't.

Become.

Our footnotes in.

And chase revenue.

So I think that's really really important.

That's where a lot of these relationships that's what we bring in bets, we take that very seriously.

And certainly as do they.

The <unk> got it.

Yeah, sorry, I'll stop ranting, but.

The other thing perhaps worth noting I think that's the important thing here is.

I think the way of the industry that I highlighted is what's driving a lot of these relationships as well we are the best technology. We are repeatable scalable provider here as these very very large retailers say this isn't going away. It's not cool feature it's a real product they look to us to provide us.

And then my follow up just briefly kind of as an extension to that as you as you <unk>.

Lee noted.

Youre, winning a lot of these enterprise platform deals. The question I guess longer term is how do you think about and this is a high quality problem, obviously, but how do you think about the potential concentration risk that a company like shop, and Amazon Telecom will come back and you probably went to other large scale enterprise.

Relationship I'm, just wondering how you think about that and what are those discussions like internally about how to mitigate some of those risk concerns. Thank you.

It's a great question.

If I'm honest I think our job is to build exceptional product.

Maintain our leadership, both intellectually and and at the product level.

Hi.

Enterprises, you inevitably run some level of concentration risk I think we've demonstrated something looking at peloton that we're quite good at diversifying those concentration risks.

Can't say.

We don't know what to do about risks in general, but at the very core of our success depends on our ability to build great products and run it successfully at Great unit economics.

Okay. So that's helpful.

Thank you.

Our next question is from James <unk> with Morgan Stanley. Please proceed.

Great. Thank you very much Max I want to kind of build on the theme of adding new merchants et cetera, and our own research we saw a bit slower growth among the largest online merchants, which is probably understandable in the largest online ones outside of Amazon.

That's understandable given the push to bring shop merchants on et cetera, how should we think about.

More generally in merchant growth dynamics going forward and I think this builds a little bit on the last question should we expect a lot more bigger merchants.

Near term or is it still like building up.

A broader base just kind of help us think through what you are targeting and where youre putting effort.

Yes, we think this product mix.

A lot of sense for consumers first and foremost.

<unk>.

Okay.

This point is a premier provider of these services to platforms of various kinds.

We intend to bring products to market with them.

That is really important to us, but that's fueling a fair amount of our excitement here.

That said.

We very much care about.

Smaller merchants in fact, we are investing in areas of merchant self service, making sure that we can bring someone live from.

Interest and affirm to accepting transactions as quickly as possible one of the core metrics.

Literally every week is how long does it take to go from uninterested in affirmed two taken post transaction and that's something that we are concentrating to minimize it.

It really matters for these little shops that do not have a legal team and so on and so forth. So.

We see ourselves as providers not just to the very largest but also to everyone mid tail long tail.

All those are great customers and frankly, the impact we have on the long tail base is really staggering, that's where you can have.

Sure card that can number and certainly staggering high double digit numbers.

Now.

We're in are so interested in so invested in east bloxom partnerships, because a lot of them carry enormous amount of long tail. So building our service in a way that consumable and installer will really easy really high converting both at the consumer end, but at.

Really small merchant and it's really important to us merchant until service pipeline works really well.

<unk> way of integrating with.

I think all the platforms old ecommerce lockers out there at this point cant think of one where we are now supported.

Also through these partnerships and so.

We intend to go after every imaginable merchant out there both online and then also we have our designs.

That's great and just as a quick follow up. This is for you Michael can you give a little bit more color on I guess kind of the activity mix during the quarter I asked because number of users. There was a lot better than we had modeled in things like virtual card network revenue was better as well.

Gain on sale, but on the flip side like the merchant network revenues were a little less so just wondering how we should think about like.

What caused that during the course of the quarter, perhaps and then how we should kind of think about that that mix volatility if you will going forward.

Yes, so the change in which income statement lines. The revenue hits is very much a function of the product and so as we mix away from longer term zero percent loans Youll see.

You'll see loans that are coming into the interest bearing side as we talked about we did have a higher mix of interest bearing this quarter and when we put us on our balance sheet. We are in interest income and when we tell them, we get the gain on sale and you saw that big growth in gain on sale there and the underlying reasons are related to the segment that saw the strongest growth.

So we had segments like travel and ticketing, which obviously as early stages of the reopening saw explosive growth.

But also we had our direct to consumer a virtual card product affirm anywhere grow substantially and that product has a little bit of virtual card network revenue and then obviously interest bearing activity behind it and so really it's the mix of products that shows up with driving those results and as we've said many times before.

We really don't look at or try to manage those sub lines, we target a total revenue number and try to deliver that and we keep a keen eye on that revenue less transaction cost number to make sure. We're delivering really strong unit economics. So we can generate revenue and generate the unit economics for the rest of itself sources it out.

That's really good context, thanks, Michael.

Our next question is from Andrew Jeffrey with truly Securities. Please proceed.

Hi, Good afternoon I appreciate you taking the question.

Max I'm intrigued by.

The affirm debit plus.

Product and recognizing that you're not including any <unk>.

<unk> revenue in your guidance I Wonder if you could just flesh out a couple of things for us one.

Do you think is the most likely use case mix of.

Our firm split pay purchases or affirm loan purchases versus sort of broad use and then also how do you think that product effects.

Payment tender does it does it.

The definition definite definition Lee <unk>.

Result in.

Debbie.

This loan repayment or is there more of an AC H characteristics I'm just trying to think through the dynamics is this product takes hold and gains traction.

Okay Great question.

I'm not sure I can hit them all.

But this is like.

First of all is going to be awesome alright.

Alright, too long winded.

No no no. It's a great set of questions, but I am I am temporary my excitement for the product.

Good lawyers.

But it is part of the temporary.

Great product.

And.

First of all.

Do you see a scenario that we envisioned.

So I've been testing the product.

More or less daily for the last month or two.

And.

Bob and incredible amount of coffee.

Public service announcements do not buy pre ground beans by holdings only but its in the tens of thousands at this point that is quite close to swap the fleets recognize the debit card.

<unk>.

It is critical it works with my existing.

Checking accounts, so when I do nothing it just settled against that.

Some period of time.

And when I feel like swiping less turning into a favorite time transaction, that's what it is.

And it's Super smooth very quick to physical card so.

No different from from one.

<unk> gave you.

The expectation and the intent that we have for this product is that it really takes place since your top of wallet.

Marie <unk>.

Transacting device.

So we're stepping back for a second I'll allow myself a little bit of it.

So are you telling.

One way of analyzing this whole bean Npls evolution is actually this is Mike.

100 million plus people that basically said I'm, just giving you my debit card because I don't understand credit cards, but I know there had good morning Ian.

It tells people can disagree, but I generally think decided that.

Put it all on the supply to get that resolved many pay interest on your lots as the coffee beans, Andy.

Andrew or Marc sensor purchases, you're doing it wrong like you shouldnt be paying interest in those.

And.

As a result of all these people basically said, yes, I kind of get it I don't have a better alternatives. So I'm just going to live with it might means and use my debit card and every once in a while something like a firm or one of our competitors would come along and say hey, you're buying this thing and it doesn't fit into your debit card budget. That's cool you can use this overtime solutions. We've developed it's available at the point of sale.

What they call in mass Olympia is a partial solution yes.

Yes, it's great, but you don't get full marks for that what do you really want is a ubiquitous tool that allows you to say hey, anytime you want to use a debit.

By debit and anytime I want to turn it into a favorite centers action, it's got to be very easy.

The harder than using a credit card has to be as simple and.

Really really convenient and that's what we built with debit plus and so the most important thing.

To understand we fundamentally connected the dots between this partial solution of buy now pay later at the point of sale by moving it into the hands of the end consumer built right into a debit card without asking them to change their accounts et cetera. So that's why I'm. So we've talked about it.

Partially to do with just the sheer amount of copyright law.

Yes.

It's sort of part one.

Yes.

I would like I told you that I know exactly what's going to happen with all the different prepayment modalities.

Still in early beta a lot of consumers are telling us is awesome.

We're learning a lot about how they are using it but generally speaking the goal is to delight the customer this is a.

A group of people that says Hey, I love the idea of having very tight control sense of financial responsibility Kennedy.

Just paint for things with its really doing simple papers on instrument and mostly not and what we have built something that marries the two.

Really elegantly.

That's that's what we're launching is going to bring to market.

Over time, we think there's a lot of other cool stuff to add.

And.

So are you this.

Software defined payments.

George anything that I came up with.

We will continue to add features to the card in the App by software updates there'll be a lot of fun stuff to to add to it not announcing any of those yet, but you can imagine how the apple infinite possibilities.

I appreciate it thank you.

Our next question is from Moshe Orenbuch with credit Suisse. Please proceed.

Great. Thanks, maybe to follow up on that and some of the previous pad.

Some of the previous questions.

As you expand as a firm is able to expand its marketplace and the consumers that shop, there and now with a debit card.

Can you talk about how the expansion of the Tam that that would provide essentially.

And.

How often can you were an affiliate fees, how often not like how do we think about the underlying economics.

Perhaps.

As these.

As you are able to expand in those in those ways.

Okay.

Good question, so again without I realize I'm sounding a little bit like.

Child higher.

The pilot sugar, but I think the seven plus thing is pretty awesome.

We wanted to be the primary transactional device for our consumers.

So the Tam is their spend.

2000 tonnes, a month on food and things like that.

It's it's shopping or purchasing with whatever you call. It so in that sense, we have.

And your Internet ambition.

In terms of affiliate fees.

The important thing there is obviously, we've done pretty well, we can see it in our numbers or the FERC from our numbers there.

We're not yet focused on that to be completely transparent we're trying to build an amazing experience. We're trying to convince our consumers that this is a far better way of buying things overtime, obviously, a tremendous value for our merchant partners or whoever.

Our consumers choose to go to ensure.

We brought that customer to them.

It's a service that we bundle if you will with the transaction itself.

Plenty of sort of advertising and marketing revenue to compete for there, but certainly that's part two parts. One is we want the consumer that picks up that across to say. This is the best thing ever I don't really need to use my real that pardon me Mark is better and I certainly don't have with my credit card over to GAAP.

Assuming we hit that.

We are we've got to stay out of the park, but I realize that's not what I'm talking about again.

Assuming we deliver on assuming we deliver on that I think affiliate fees will come.

We'll start forecasting that.

As we measure the actual penetration, but the Tam itself.

Got it okay. Thanks, and just as a quick follow up.

On the Amazon.

Relationship or test could you talk about how that will be presented to the consumer because there are multiple products that Amazon does offer from a payment standpoint anything that you can kind of tell us as to whether how Amazon is going to be choosing to do that or how that process works.

I'm afraid that's what test support to figure out the best presentation best user interface and ultimately.

We will know what works best.

And then we'll see it.

Okay. Thanks very much.

Okay.

Our next question is from Rob <unk> with Autonomous Research. Please proceed.

Hi, guys. Thanks for fitting me in just a question on funding Michael you called out drivers and gain on sale for this quarter, but just wanted to get your latest outlook for the demand and pricing trends on whole loans from here and how that could potentially flow through to the level of equity capital required going forward.

Yes so.

We fund our business with now.

Now four different funding tools securitizations at both get consolidated and our non consolidated.

Flow and on the warehouse side in our earnings supplement we show a pretty good breakdown.

The funding mix by channel.

<unk>.

The growth that you saw this quarter was predominantly and securitizations.

Consolidated and consolidated.

When the Securitizations consolidated it does show up on the balance sheet as an asset, but it's really efficient if you look at the last two deals we've done.

We're kind of barring 97%, 98% on average of the consumer balances, which is obviously just an extremely efficient way to fund it with respect to equity capital.

But to answer your question, specifically around the market and the reaction in pricing around fourth Hello.

It remains very strong I.

I think the demand for paper and the market is really high they desire the asset type, which is really shortened duration.

And they acknowledged that we've been really good at underwriting and so they really like the credit quality, we can generate.

Okay. Thank you.

We have reached the end of our question and answer session and this does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

[music].

[music].

[music].

Good afternoon, ladies and gentlemen, and thank you for standing by welcome to affirm holding fiscal fourth quarter and fiscal year 2020 One earnings conference call. At this time all lines have been placed on mute to prevent any background noise.

Following the speakers remarks, we will open your lines for your questions. As a reminder, this conference call is being recorded I would now like to turn the call over to Ron Clarke, Vice President of Investor Relations to begin.

Thanks, operator.

Before we begin I'd like to remind everyone listening that todays call may contain forward looking statements.

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.

Actual results may differ materially from any forward looking statements, we make today and these forward looking statements speak only as of today and the company does not assume any obligation or intent to update them, except as required by law.

In addition, todays call may include non-GAAP financial measures. These measures should be considered as a supplement to and not as a substitute for GAAP financial measures.

Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our Investor Relations website.

Hosting todays call are Max Levchin, affirms founder and Chief Executive Officer, and Michael Linford affirmed.

The firm's chief financial officer with that I'd like to turn the call over Tibet to get.

Welcome everyone.

Thank you for joining us on today's call.

Before we get into the results I want to start by talking about what we're actually building out of her.

Around 10 years ago, we founded the firm with a simple mission to deliver honest financial products that improve lives.

We started by reinventing payments to make them transparent simpler smarter and more delightful.

Our core insight was that that generation is coming of age after the financial crisis of 2008 were no longer willing to tolerate getting into permanent depth by putting it all in the card or getting burned by late fees and deferred interest.

These young consumers and many like minded older Woods group.

<unk> fundamentally suspicious of credits and retreated into the simplicity of their debit cards.

This created no less than a once in a generation opportunity to transform credits.

Thus began the great unbundling of the credit card.

The credit card was the ultimate buying bundled a single product, allowing you to put purchases of all sides together in one basket with the freedom to pay for them later.

Unfortunately, if you couldn't pay for them later and in full endless debt became nearly inevitable and that credit card could quickly become the financial equivalent of a ball and chain.

That's reaffirmed came in.

We deconstruct it a rather we unbundled the credit card starting with the largest purchases we made these easier and more transparent and help consumers be smarter about buying now and pay later.

In order to do all of this we built proprietary technology from the ground up and developed sophisticated capital markets expertise.

Gameplan was always simple.

<unk> of our consumer happiness, and your superior tech to give more people confidence to buy without resorting to kind of dirty tricks. The credit card industry's infamous for late piece fine print deferred interest to name a few.

We believe this would earn us the right to partner with the best most important online and offline retailers.

After creating in my personal opinion, the best imaginable alternative to using a credit card. So the kind of larger purchases that are most likely to get you into long term revolving debt such as plane tickets toleware sporting goods auto parts we.

We start to bring the convenience and flexibility of our longer term pay over time solutions to shorter term lower price transaction.

Demand for simpler more transparent payments was growing rapidly in these new segments, such as fashion and apparel. These purchases naturally happen more frequently and are great opportunities to meet consumers, where they shop and offer them a smarter alternative.

By partnering with merchants and ecommerce platforms to offer these solutions affirm is able to deliver meaningful incremental sales volume via increased card sizes improved checkout conversion and new customer acquisition, thus, enabling our partners to achieve more predictable sustainable revenue growth.

Today, we offer both the long term pay monthly and short term pay later solutions to our merchant partners often as a bundle.

And unlike our competitors that only offer the ladder we are in.

Neither constrained by the amount the consumer wants to spend nor the time they need to pass back thanks to our investments in technology and capital management.

We leveraged this technology as well as our deep merchant partnerships to bring forward the best options to consumer always with an eye towards the fact that they will never offer loans that we don't believe can be repaid.

Our breadth of offerings enables our partners to offer their specific shoppers the right payment solution for the right item at the right moment.

Our consistent results our culture of engineering excellence focused on intelligent risk management depth of capital markets execution, and relentless search for opportunities to delight. Our shared consumers have earned the trust and partnership of some of the worlds largest commerce platforms. These businesses depend on having the best technology to support their needs and that is why the <unk>.

Well I mean, we choose a firm.

Our technology enables superior experiences provide unrivaled flexibility and customization and can address the most complex requirements.

And we're constantly adding to those services.

In fact, our firm's roadmap for new merchant services is very low we.

We see natural product expansion opportunities wherever access to capital risks are complex engineering requirement prevent merchants from delighting their consumers or acquisition of return Lee and its unique returns management capabilities.

Great example of one such idea another merchant marketplace built directly into the affirm app and website purchases originating on these affirm owned and operated surfaces amounted to nearly one third of transactions. We facilitated in the fiscal year 2021, and these transactions are particularly valuable to our merchant partners.

<unk> love a marketplace because the reach can be highly targeted.

Effective in driving conversion in this use case affirm as both the provider of purchasing power to the consumer and the demand generation platform for merchants.

We expect to continue to find many more opportunities like these to build and buy and offer these high value services for our merchant partners.

Meanwhile, the great credit card unbundling continues to accelerate in both the United States and internationally.

The next frontier of on bundled payments.

Really spent groceries restaurants incidental purchases. This is why we're so excited to be rolling out the very first part of its kind the affirmed debit plus card I will tell you a lot more about it in a moment.

As we speed into our fiscal year 'twenty two I believe affirm is strongly positioned to capture much more of the vast opportunity in front of US we will do that by remaining obsessively focused on our two constituents.

Merchant and the consumer and by leveraging our core strengths to continue building products that delight both sides of our network.

As we look back upon our fiscal year 2021.

Great progress on executing our strategy.

We facilitated purchases for more than 7 million consumers nearly twice the number of consumers. We served in the prior fiscal year.

At the same time, we delivered a five fold increase interactive merchant base that as merchants that transacted on our platform over the prior 12 months. Thanks to several large partnerships, including Williams Sonoma, Dick's Sporting goods Neiman Marcus as well as the launch of shop Haynesville amidst all of which helped add over 23000 active merchants to our platform.

We also expanded our product offerings the savings product, we introduced at the start of the fiscal year demonstrated the power of our platform to drive consumer engagement by simply adding savings to the affirm app. We've attracted total deposits of approximately $300 million.

With no fanfare and no promotion simply through organic engagement and a great product offering.

Many of the firm's savers have gone on to use our platform to also discover great deals with our affiliate partners and manage their financial lives.

On the merchant side, our recent acquisition of return Lee has meaningfully expanded our addressable market.

Not only does return we sold one of the merchants most critical pain points. It also provides us with another unique offering for higher velocity merchants, especially in categories, such as fashion and apparel where returns are quite frequently.

And of course, we extended our presence in North America by closing the acquisition of <unk>, the leading pay later brand in Canada.

In January <unk>.

<unk> has not only expanded our presence in Canada. It is also winning exciting new business with powerful consumer brands and delighting Canadian consumers.

And we are developing deep connection with our consumers brand awareness increased approximately 70% in fiscal year 2021, and it was particularly strong among gen Z and millennial consumers because awareness increased 94% and 16% respectively.

All of these wins help us create a more valuable two sided network for our consumers and merchants as we facilitated more than 16 million transactions totaling more than $8 billion.

In <unk> in fiscal year 'twenty one.

So what comes next.

We have an ambitious plan for the fiscal year.

And more importantly for the decade ahead.

To fuel the expansion of our business and to increase our share of the growing market. We're focusing on three key areas for fiscal year 'twenty two.

Increasing our consumer reach and frequency.

Our merchant and partner network and extending our product offering.

Our partnerships with enterprise merchants and platforms like Shopify.

Introduce more consumers in high velocity merchants to our firm's honest and transparent offering.

In our current fiscal year, we have continued to ramp merchant activation of shopping installed there.

When we reported earnings back in May we shared with you that we had on boarded 12500 shopify merchants at a time and today that number stands at hundreds of thousands our focus now is to drive more consumers to experience shopping installments.

So we're activating both shopify and affirms consumer network CPR range of marketing channels.

Through our host of integrated partnerships with the largest merchants and ecommerce and brick and mortar retail our firm will be offered as a payment option for merchants representing more than half of U S ecommerce, which we believe will ultimately enable us to demonstrate a firm's powerful value proposition to millions of new to affirm consumers and grow active consumers meaningfully in fiscal year 'twenty two.

What excites me the most about the year ahead is the affirmed debit card.

Currently in Haynesville several hundred people.

We've worked very hard to create a product designed to meet the barb convenience set by the best cars people have in their wallet today.

But we didn't stop there our team is designed to develop the most meaningful innovation that debit card since its inception.

Three years ago, putting unparallel choice and flexibility directly into the hands of the consumer.

The consumer can use the affirm debit plus card in place of the regular debit card you can seamlessly to their existing bank account and no new checking account as required.

Once you swipe or capture card you can use the intuitive debit plus companion app to turn any eligible transaction into and affirm pay overtime product.

All it takes is a couple of taps within days after the transaction occurs it's just that simple.

This effortless access to a smarter more transparent way of paying overtime at brick and mortar and online is very close to being indistinguishable from magic.

But as always with a firm there are no magic tricks are tricks of any guidance just excellent technology.

The beauty of our card is that it's powered by software, which means that you can expect us to regularly add new features and functionality via App update.

I believe debit plus is a revolutionary idea that can truly help millions of people enjoy life with a lot less angst about spending and saving money with a beta test wrapping up. This month, we are very excited to bring his card out nearly million strong waiting list of existing affirmed customers and thats the general public.

I invite you to sign up for yours at a firm dotcom flashcard, it's pretty awesome, but don't take my word for it tried yourself.

On the merchant side, expanding our solution drives greater monetization by providing cross selling opportunities designed to also increase retention.

Following the acquisition of returns in the coming year, we plan to accelerate its adoption amongst existing merchants through our cross selling efforts.

We believe the combination of our French flexibility in terms of duration and returns lease elegant solution to returns problem will deliver significant value to retailers, particularly in higher velocity categories.

Beyond <unk>, we believe we can do a lot more to expand upon our strong merchant relationships and are working on additional opportunities to leverage our technology chops and underwriting expertise to address more of our merchant fee.

Combined with the momentum we generated in 2021, we believe these initiatives will deliver yet another year of strong growth at scale in fiscal year 'twenty two.

With expected year over year JV growth of at least 50% based on our outlook.

And as we launch new offerings, such as affirmed debit plus and activate exciting new merchant partnerships, we see a very bright long term future.

In closing.

I've never been more excited about how well our firm is positioned to win.

Even at our blistering pace of growth the opportunity before us is fast.

Adoption by consumers and merchants alike continues to accelerate at the same time, we are just getting started with.

With our company's deep roots in product development and engineering, we are at our happiest and most productive with building and innovating with so many new ways to delight consumers and sold merchants problems plan for the coming years, we're poised to expand our addressable market to grow affirm and deliver on our ambitious mission to improve lives.

I went to stinker team for continually delivering for our consumers our merchants and our shareholders 21 has been a monumental year for our firm.

Tearing us to go public to integrating with some of the largest players in U S retail and E. Commerce. The affirmed team is to amounts of countless challenges with the flow.

Without a firm his hard work and continued dedication none of this would be a reality and I am truly grateful for the hustle and sacrifice.

Before I turn it over to Michael I have a quick announcement that I want to make.

On September 28th our firm will hold a virtual investor event after the market closed.

We plan to share more detail about our business our strategy and our product plans at the special events, including and especially the affirm debit plus cart.

Like to invite you to join US. Please look out for more information at our Investor Relations website.

Investors start to firm dotcom.

And with that I will turn it over to Michael to take you through the numbers.

Thanks, Max and good afternoon, everyone. We.

We delivered another set of strong results to close out our fiscal year.

In the fourth quarter, we accelerated year over year growth rate, both <unk> and revenue.

Second consecutive quarter to 106% and 71% respectively.

Excluding our largest merchant peloton, which saw GMB growth of over 328% in the fiscal fourth quarter of 2020, our fourth quarter GMB grew 178%.

We also delivered strong unit economics.

The provision for credit losses revenue less transaction costs were 7% of DMV.

And even as we deliver these strong results we continue to improve the capital efficiency of our business the equity capital used to fund our loan decreased by another 19% to $178 million, despite more than doubling DMV and nearly doubling total platform portfolio.

We also continue to deliver excellent credit performance.

Our allowance as a percentage of loans held for investment declined to just five 8% down from nine 2% last year, even as we extended credit availability within our multi installment insulet payloads.

And while we are pleased with the progress we've made in the fourth quarter, we're even more excited about how our product road map and recent merchant partnerships.

For another year of expected strong growth in the fiscal year ahead.

I will discuss our financial outlook for fiscal year 'twenty two in a moment, but let me walk you through the key highlights of the fourth quarter first.

Unless stated otherwise all period to period comparative data refers to our fourth fiscal quarter of 2021 compared to our fourth fiscal quarter of 2020.

Fourth quarter, G&A grew 106% to $7.0 billion exceeding our outlook.

The momentum in <unk> was strongest in categories leveraged to the reopening of the economy.

While we began to anniversary the steep acceleration in the growth of the category that benefited from social distancing.

For the first time fashion and beauty was our largest category. Thanks to our focus on expanding into lower <unk> segment while.

While traveling ticketing continued to grow rapidly contributing 14% of GMB up from 9% in our fiscal third quarter of 2021.

Owing to the strong growth of our business merchant concentration continue to decline as telecom contributed 9% fourth quarter G&P compared to 32% in the prior years fourth quarter.

GMB growth came from both new and existing merchant relationships as well as our direct to consumer virtual card product.

Merchant signed in fiscal year, 'twenty, one delivered 15% of our fourth quarter Dnb, excluding pay bright in retirement.

Merchants launched prior to fiscal 'twenty. One also grew quickly delivering more than 100% dollar based margin retention and excluding peloton. Our DMD from these merchants grew 92% in fiscal Q4.

Additionally, our non integrated virtual card product grew 462% this quarter.

More and more consumers are choosing affirmed honest and transparent payment alternatives growth in active consumers, which we measure over the prior 12 month period accelerated effectively doubling $8.0 million.

Not only are we seeing strong growth in new consumers. We are also seeing encouraging trend among existing customers.

And while we have expanded into higher frequency and lower A&P category transactions per active consumer has increased by 8% to 1% to $2 three.

At the end of the fourth quarter active margin those merchants, who have transacted on the platform over the prior 12 months.

Increased to almost 29000 compared to just 5700 in the prior year. Thanks in large part to our partnership with Shopify.

Even though shop installments only became generally available to shopify merchants in the last 20 days of the fiscal year and quarter.

As Max indicated with hundreds of thousands of merchants now enabled to shop paint on it we are working closely with shopify to drive consumer awareness and get even more consumers to try shop paints element.

I would also note that the overall active merchant count includes roughly 3000 incremental pay rate of return on the margin. Following the close of the strength of the acquisitions in January and May respectively.

Turning to the mix of our offerings, we drive 38% of <unk> from our zero percent APR product down from 54% in the fourth quarter of 2020, while the GMT contribution from interest bearing products increased to 62% from 46% last year.

The mix shift was primarily driven by the strong growth in categories like travel, which had fewer zero percent merchant and the moderation of peloton volume.

Loans, what the term length of greater than 12 months accounted for 22% down from 43% last year.

<unk> declined from $672 to $495 driven by the same category mix shift.

As Max noted we continued to drive a large portion of our <unk> on our platform to our merchant partners from our owned properties.

In the fourth quarter, 29% of transactions originated on Afirma owned and operated property or 32%. If you exclude return landscape right.

Strong fourth quarter GNP also helped accelerate growth in revenue fourth.

Fourth quarter net revenue of $262 million grew 71% year over year up from 57% in our fiscal third quarter and 57% in our fiscal second quarter.

These results reflect the diversity of our product offering which enable us to deliver consistent revenue growth by giving merchants and consumers greater flexibility in terms of duration and of course purchased items.

Our ability to offer a wide range of options is one of the many reasons why so many merchants, especially many of the retail largest enterprises choose it firm.

That flexibility, including being able to pivot from zero percent APR offers to interest bearing offers has also enabled us to quickly adapt to major changes in the environment on behalf of our merchants over the past year and a half.

Total network revenue grew 23% to $108 million in the fourth quarter.

However, excluding peloton total network revenue grew 106%.

As a percentage of <unk> total network revenue declined 300 basis points year over year was roughly consistent on sequential basis and reflects our growth in our interest bearing products, especially in the travel category and our direct to consumer our virtual card product.

Revenue as a percentage of <unk>. Our total revenue take rate was 10, 5% ahead of our expectations.

While down versus last year, the overwhelming majority of the year over year change was due to the mix of loans originated on our platform.

Last year's take rate also benefited from temporary increases in mtr's as certain high AOE merchants elected to pay increase mtr's in order to secure additional revenue in the early days of the pandemic.

Excluding these two factors revenue take rates were roughly stable year over year.

Interest income grew 111% to $104 million.

However, it is important to note 40% of the increase of interest income was driven by 212% year on year increase.

The amortization of the discount on loans held for investment on the balance sheet.

And then from consumer interest payments.

<unk> of interest income related to consumer interest payments grew 77%, which is roughly in line with the total revenue growth we reported in the period.

Revenue from gain on sale of loans of $43 million increase from $12 million in the year ago quarter. As a result of more favorable loan sale pricing and increase in the volume of loans, we sold to third parties and our 2021 non consolidated Europe percent securitization transactions.

Finally servicing income of $7 million increased from $5 million in the prior year as the average unpaid principal balance of loans owned by third parties through year end.

Now turning to expenses.

Total transaction cost of $114 million came in better than our outlook of 135 million to $140 million in the fourth quarter.

All transaction costs grew 149% year over year, nearly all of the increase was related to $58 million year to year swing in the provision for credit losses, which I will discuss in a moment.

Is there any impact of provision we continue to drive the improvement in our unit economics.

Transaction costs, excluding the provision for credit losses grew just 14% compared to the total revenue growth of 71%.

Looking at the components of total transaction cost.

Loss on purchase commitments of $51 million compared to $55 million in the prior year.

Loss on loan purchase commitment directly correlated to the level of longer duration zero percent APR GMB originated.

Provision for credit losses was $25 million compared to a gain of $32 million in the prior year, reflecting better than expected prepayments reduce stress multiples than a year ago quarter in the context of a sizable loss allowance that was established at the end of the third fiscal quarter of 2020 in the fairly early days and then it.

Funding cost increase from 8 million to $16 million in the fourth quarter of 2021, consistent with the growth of loans held for investment.

The increase reflects the issuance of securitization trusts.

Which bear interest at a fixed rate as well as an increase in average spending debt offset by a lower average interest rates.

Processing and servicing costs grew 48% to $22 million. Despite total platform portfolio growing 88%, reflecting the ongoing scale efficiencies we are achieving.

The combination of strong top line performance and reduce transaction costs resulted in much better than expected revenue less transaction costs of $148 million compared to our fourth quarter outlook of $80 million to $85 million.

Looking beyond transaction costs to operating expenses, our strong growth in the fourth quarter enabled us to invest in long term growth of our business.

Technology and data analytics expense, which is primarily composed of personnel expenses and our product and engineering organization grew 124%.

$71 million.

As a percentage of total revenue technology and data analytics to increase.

From 21% to 27%.

However, excluding the impact of stock based compensation technology and data analytics as a percent of revenue declined by 60 basis points compared to last year.

The year over year cash increase in technology and data analytics was driven by higher engineering head count dedicated to deliver the exciting slate of product and technology initiatives that Max discussed.

Sales and marketing expenses, which include both personnel and our marketing activities increased from $5 million to $64 million.

3% to 24% total revenue.

Majority of the dollar growth was driven by consumer branding to drive awareness and adoption.

<unk> contributed $6 million of year over year increase.

And the warrants we issued to shopify in conjunction with our commercial agreement contributed $17 million.

General and administrative expenses increased from $31 million last year to $138 million.

Or from 21% to 53% of total revenue.

However, excluding stock based compensation G&A was 21% of net revenue compared to 19% in the year ago quarter.

The cash increase in G&A was primarily the result of increased head count to support the company's long term growth and public company operations.

Including these expenses GAAP operating loss was $125 million in the fourth quarter of 2021.

Care to a GAAP operating income of $39 million in the fourth quarter of 2020.

Despite making these significant investments in our long term growth we delivered positive adjusted operating income.

Adding back DNA stock based compensation, the amortization of Shopify is warranty and other onetime expenses adjusted operating.

Operating income was $14 million.

Compared to $47 million in the prior year or five 4% of total revenue.

Turning to our balance sheet, we delivered triple digit GNP growth, while driving even more efficiency from a capital perspective.

So our platform portfolio, which we define as the unpaid principal balance outstanding for all loans facilitated through our platform.

Putting those loans owned by third parties increased $4.0 billion.

June $32031.0 billion at the end of the fourth quarter half of the $4.0 billion increase was funded on a non consolidated basis through a combination of forward flow and our first on a consolidated securitization transaction.

<unk> was funded through a consolidation securitization warehouse facility.

In terms of our overall funding mix warehouse financing continued to shrink from 1.0 billion to <unk> 7 billion at June 32021.

We expect to fund future growth, primarily through a combination of loan sales and securitization transaction, which continue to garner strong demand in the ABS market from a diverse array of large institutional investors.

As alluded to previously during the quarter. We successfully closed 2021 D won our first on consolidated securitization transaction.

In addition, we recently issued our ABS transaction 2021 be at a very attractive.

The financing terms, resulting in minimal equity capital required biopharm.

By establishing ourselves as a programmatic ABS issuer the securitization in conjunction with our committed forward flow agreements and warehouse facilities.

Guidance with financial flexibility to support our GMB growth aspirations by creating meaningful capacity to efficiently fund billions of dollars alone with negligible incremental equity capital requirements.

Immaterial noteworthy results of our approach to funding optimization across these channels as the reduction of equity capital we used to fund our business.

Equity capital required declined by 19% from the year ago quarter from $221 million to $178 million, despite growing our loans on the balance sheet by $1 billion.

Accordingly, as a percentage of total platform portfolio equity capital required fell to below 4% from 9% in the year ago quarter.

Now turning to the year ahead, we expect the strategic progress we made in the fiscal year 2021, and the accelerating consumer and merchant adoption of our offering to drive strong growth once again in fiscal year 2022.

Before I dive into the numbers, let me share some color on our outlook.

After a year of explosive growth, we expect a moderation in peloton GMP in fiscal year 2022.

Telephone business benefited from strong endemic related tailwind last year as well as the introduction of new products.

Putting the highly successful bike plus and lower priced Tret September of 2020.

Additionally, we have not included any GMB or revenue from the Amazon partnership We've recently announced we.

We are currently in the early stages of integration and we will update you on the progress and the incremental impact to our outlook each quarter.

Finally, while we are very excited about the rollout of the affirm debit plus cars.

Outlook for fiscal year 'twenty. Two also does not include a contribution from those new products.

<unk> and revenue from this new product, but also be incremental to our outlook.

With that context in mind for our fiscal year ending June 32022, we expect gross merchandise volume to increase between 104% for fiscal year 'twenty, one to between $57.0 to $87.0 billion.

Excluding peloton, we expect GMB growth of 70% to 75%.

We also expect our split pay offerings contributed 10% to 15% of our fiscal year 2022 <unk>.

The largest contributor of this volume coming from the shop installment program.

Accordingly, we expect revenue of $1, one six to $1, one 9 billion.

Representing year over year growth of 33% to 37%.

Owing to the ongoing mix shift we expect modest contraction in total revenue as a percentage of GNP and the fiscal year 2022 as implied in our outlook.

Turning to expenses, we expect transaction costs of $605 million to $620 million.

As a percentage of total revenue, we also expect modest deleverage and transaction cost as a percentage of revenue.

As a result, we expect revenue less transaction costs of $555 million to $570 million.

As Max said in his comments, we plan to deliver an exciting slate of tumor and merchant product offering in fiscal year 2022, as well as over the next several years.

To drive the success of these initiatives, we are investing in engineering and product talent here in United States.

And deploying a new engineering center in Poland.

As a result, we have significant investment in technology and data analytics in the fiscal year 'twenty two.

Also increasing our spending in marketing to drive consumer awareness and adoption accordingly.

Accordingly, we expect an adjusted operating loss of $145 million to $135 million.

Finally, we expect weighted average shares of approximately $290 million for the year.

For our first quarter ending September 32021, we expect <unk> to grow 64% to 57% to $44.0 to two $7.0 billion.

We expect that the growth to drive total revenue of $240 million to $250 million.

Our outlook for the first quarter also contemplates transaction cost of $145 to $150 million.

Revenue less transaction costs of $95 million to $100 million.

Adjusted operating loss of $68 million to $63 million.

And weighted average shares outstanding of $275 million.

In closing we have made another year of excellent progress on our mission to bring consumers and merchants together with on its financial product.

Like Max I'm extremely proud of the team's accomplishments over the last year.

We are shaping the future of finance or the better in every day more and more consumers and merchants are coming to affirm for honest transparent and delightful product experiences.

I have never been more confident in our competitive position nor more excited about the future that lies ahead.

Here's to another year of the extraordinary achievements to come.

And with that we're happy to answer your question.

If he would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Our first question is from Ramsey El <unk> with Barclays. Please proceed.

Hi, Thanks for taking my question this evening and congratulations on these impressive results.

I wanted to I wanted to ask about about your shopify relationship and in terms of signing new merchants I mean, the quarter saw such a huge step up in active merchants how far penetrated do you think you are at this term in terms of the merchant base. That's available to you sort of what inning are you in.

The process of rolling out Shopify.

Okay.

Asking me about any.

We'll immediately any sports highlights where you want it.

Okay.

Good for one.

Like did.

Before their breath, a first we kept sort of frame the only sport im good for now.

Idea, how the beginnings exist in any big sports.

Yeah.

So I would say early.

Thank you Mark So just to give you a sense how about the process actually works. So you first.

Educate the merchant base then you have to onboard them then you start activating them both through marketing and just.

Exposure to consumers and then eventually start processing volume so.

You can kind of think of it in these four stages. The number we highlighted in both.

Michael Mark and Mike.

The tens of thousands of active across our entire base, but obviously shopify question here. If you look at the Onboarding, which is the stage before that number is in the hundreds of thousands now and so we will start ramping the next stages of that process.

But it will take time so.

It's early.

Very happy with how it's going.

Lots more to cover.

Okay.

And then I wanted to ask you a kind of a higher elevation question about all the M&A. We've seen in this space over the last few months. It seems like there's a kind of an accelerating trend towards bundling buy now pay later and with other financial services and I know you guys are sort of embarking on that from from sort of the other direction, but can you give us your thoughts on industry consolidation.

<unk>, maybe the end state of the industry looks like and sort of the different strategic paths available to you guys.

Yeah.

So let me try.

I just want to speculate.

First of all to level set the E. Commerce is $800 billion in Europe, So and I think buy now pay later.

Various means or referred to in my mind unbundled credit card sort of really trying to make that point in my little speech, but the whole idea here is the industry.

We rapidly unbundling, the credit card product into a bunch of different connected services all.

All that said, it's still like is the 3% to 4% of the overall ecommerce and then of course not e-commerce and so so long road to go.

So I think.

Companies like affirm that.

A bit in that sense.

Pat.

Just a handful of years really just have a lot a lot of growth and a lot of our product building from.

That point of view.

We are very conservative in the industry.

I think ourselves great technologist, obviously really careful risk managers managers really thoughtful builders of things.

And we're not bad at all capital markets those are kind of the key.

In our core that we're trying to strike when the industry wherever we can build or buy more.

Merchant services that speaks to the strength, we will that's what we're looking for.

Return rates kind of a great highlight.

Beautiful complementary service that fit all those strengths instantly benefit from cross sell to merchants instant benefit from our depth of capital markets.

Theyre help address managers themselves, but obviously, we have to share notes now so that you will see us do more and more often.

We think there's just a lot to do there always buying but we are very keen on creating this ultimate merchant bundle would those three key areas as the.

The guiding principles.

The industry itself I think.

To be perfectly honest I'm, a little surprised by the <unk>.

That's the word of the consolidations, but that said congratulations.

The atrophy team specifically I think these guys are built.

<unk> really cool berries to that product.

Pleased to see that the market really value are important.

We are obviously much much much wider impact surface, we cover both the short term.

You are paying for it.

Yes.

All the way out to multiyear monthly payments, both interest bearing and.

Three week ball manufacturers and subsidizing some of the interest payments for consumers.

Just a much much much broader around about offering so.

Opportunities for us to extend well beyond sort of plugging our point solutions into someone else's.

Larger vision.

We'll decide on their own.

Do you think that <unk>.

The entire financial ecosystem, well beyond the start ups really everyone has now can be woken up to the idea that buy now pay later.

Unbundled credit card is a huge opportunity and consumers are driving that change and so.

That's just really important it's happening very very quickly and we happen to be surfing that wave.

There's a lot more companies that are now playing there as well.

That's hugely helpful. Thanks, so much.

Our next question is from Jason Kolbert.

<unk> with Bank of America. Please proceed.

Alright, Thanks, guys. Congrats on the numbers here I wanted to start with a question just on the <unk> transaction expenses for 'twenty. Two I think is going to be more than 5% of DMD and I know that that's materially higher than the low to mid 3% range, but I think you had historically targeted so should we think of the mid <unk>.

Or is that as kind of a new normal or are there. Some anomalies that you would call out for fiscal 'twenty. Two I mean, I know that number was even higher the last couple of quarters, but just wanted to see how we should think about it on a more normalized basis.

Yes, I think Theres, a couple of things to think about here.

It has been higher recently, although we have benefited from continued improvement in credit outlook that has contributed nicely.

When you look forward.

As you model out.

Split pay low <unk> business.

We'll see numbers coming down there just it starts with a much smaller revenue base. So as a percentage of <unk> do you have less revenue less transaction costs. Those transactions. We've indicated that we expect 10% to 15% of next year's number to be there over the longer term, we do expect that to continue to grow faster.

And so I think we'd like to maintain that kind of longer term indication we've given everybody.

Okay. So we should still think about that that really limit just based on mix over the longer term.

That's right.

Okay, Okay, and then just.

Following the Amazon announcement.

And how your pipeline looks for other potential large.

Wins, and then maybe as part of that can you just talk a little bit about the availability on Amazon I think press releases SEC kind of coming months, but would you encourage us to think about that.

Next winter or was this more like two to three quarters out.

So I think we are.

We try to be as closest and as careful as we can be when we talk about such large.

Yes.

Testing is ongoing literally day and night.

So.

We are in that phase of the partnership.

And I think the <unk>.

<unk> is enormous the exact contours of availability.

Both word Gwen.

A little bit.

Beyond the scope of this particular conversation.

In terms of enterprise pipeline.

Well.

My own horn too much here, but we have become sort of the undisputed provider of the service to the enterprises, because we are really good.

We think that any enterprise thinking about about offering buy now pay later or monthly.

Looks at the firm as the gold standard.

Tend to provide those services to grow.

We'd like them.

Only a terrible idea to pre announce deals or pre announce deals that are closed.

If you could kind of comment again pipeline, but.

Certainly.

The extreme conviction that we built resonates with folks who care about technology scalability availability delivery of them.

Full suite of products as opposed to point solutions. So in essence, I think the market is meeting us where we are with our suite of services.

Okay, well, thank you I appreciate it.

Our next question is from Dan Perlin with RBC capital markets. Please proceed.

Thanks, and let me add my congratulations as well.

Next I wanted to maybe dive in a little bit.

So that last question a bit and the question really is the nature of which.

Amazon chose you guys.

Threw off a couple of things there, but I mean is it ultimately the breath of product is it that you saw you know kind of the sweet spot for them and helping them convert.

<unk>.

And is it also that there is this parallel kind of roadmap that you might share with them. So just any incremental color in terms of maybe why that relationship.

It was born would be very helpful. Thanks.

Again, I think it is important too.

Yes.

As announced is a test we are working very hard to make sure.

The test is successful.

Good reason.

Companies of this scale and.

Customer obsession.

By the way.

Reason why companies.

This time, perhaps to this.

Everything I said technology risk management conversion all of that is true but.

The very core.

It is.

With the end consumer we want to deliver the best possible service, sorry, I'm getting I'm getting feedback that it's very hard to Sherry.

Is this any better.

Yeah.

I can hear you fine.

Alright, great.

I'll try to add more microphones to.

So the punch line is.

We are obsessed with.

Consumer delight, we want to make sure that we are.

<unk> sales increasing conversion improving the size of the card all of that while being on the consumer side without charging and late fees without.

Bearing in.

Despite Brexit things like that because I think that's.

It's typically the cornerstone of our most successful partnerships that is where these are enterprise merchants that expect to live for hundreds of years.

Ian has lots of repeat transactions.

They want to know that we will treat their consumers right that their consumer doesn't.

Because.

Our footnotes.

In <unk> revenue.

So I think that that's really really important.

That's where a lot of these relationships of course, that's what we bring in bets, we take that very seriously.

And certainly as do they.

Got it.

Yeah, sorry, I'll stop ranting, but.

The other thing I'll, just perhaps worth noting I think that's the important thing here is.

I think the.

The way the industry that I highlighted.

And what's driving a lot of these relationships as well we are the best technology. We are repeatable scalable provider here as these very very large retailers say this isn't going away. It's not cool feature it's a real product.

They look to us to provide it.

And then my follow up just briefly kind of as an extension to that as you as you.

At Lee noted.

Youre, winning a lot of these enterprise platform deals.

And I guess longer term is how do you think about and this is a high quality problem, obviously, but how do you think about the potential concentration risk.

Company like shop, and Amazon Telecom will come back and you probably weren't other large scale enterprise.

Relationship I'm, just wondering how you think about that and what are those discussions like internally about how to mitigate some of those risk concerns. Thank you.

It's a great question.

Honest I think our job is to build.

<unk> product.

<unk> maintained our leadership.

Intellectually and the product level.

Yes.

Enterprises, you inevitably brought some level concentration risk.

We have demonstrated.

Looking at peloton that we're quite good at diversifying the concentration risks.

Can't say.

We don't know what to do about risks in general, but at the very core of success depends on our ability to build great products and run it successfully at Great unit economics.

Okay. So that's helpful.

Thank you.

Our next question is from James <unk> with Morgan Stanley. Please proceed.

Great. Thank you very much Max I want to kind of build on the theme of adding new merchants et cetera, and our own research, we saw a bit slower growth, marking the largest online merchants, which is probably understandable largest online ones outside of Amazon, but that's understandable given the.

The push spring shop merchants on et cetera, how should we think about.

Just more generally in merchant growth dynamics going forward.

It was a little bit on the last question should we expect a lot more bigger merchants near.

Near term or is it still like building up.

A broader base.

Help us think through what you are targeting and where youre putting effort.

Yeah.

Yes, we think this product makes a lot of sense for consumers first and foremost.

Yeah.

Yeah.

No at this point the premier provider of these services to platforms of various kinds.

We intend to bring products to market with them.

That is really important to us, but that's fueling a fair amount of our excitement here.

That said.

We very much care about.

Smaller merchants in fact, we are investing in areas of merchants self service, making sure that we can bring someone lives from.

Interest in our firm to accepting transactions as quickly as possible and one of the core metrics. We do literally every week how long did it take to go from uninterested in our firms to taken first transaction and Thats something that we are concentrating minimized.

It really matters for for these little shops that do not have a legal team.

And so forth so.

We see ourselves as providers not just to the very largest but also to everyone mid tail long tail.

Those are great customers and frankly, the impact we have on the long tail base is really staggering, that's where you can have.

Sure card that.

Number and sort of the staggering high double digit numbers.

Now.

Yeah.

We're in are so interested in so invested in these black and partnerships just because a lot of them carry enormous amount of long tail. So building our service in a way that the consumable and installer will really easy really high converting both at the consumer end, but at the really small merchant and it's really important.

And to us.

Self service pipeline works really well.

By way of integrating with.

I think all the platforms all ecommerce lockers out there at this point cant think of one where were not supported.

Also through these partnerships so.

We intend to go after every imaginable merchant out there both online and then also we have our designs.

That's great and just as a quick follow up. This is for you Michael can you give a little bit more color on I guess kind of the activity mix during the quarter I asked because number of users was a lot better than we had modeled in things like virtual card network revenue was better as well.

Gain on sale, but on the flip side like the merchant network revenues were a little less so.

I'm wondering how we should think about like.

What caused that during the course of the quarter, perhaps and then how we should kind of think about that that mix volatility if you will going forward.

Yes, so the change in which income statement lines. The revenue hits is very much a function of the product and so as we mix away from longer term zero percent loans Youll see.

Youll see loans that are coming into the interest bearing side as we talked about we did have a higher mix of interest bearing this quarter and when we put us on our balance sheet. We are in interest income and when we sell them, we get the gain on sale and you saw that big growth in gain on sale there and the underlying reasons are related to the segments that saw the strongest growth in.

We had segments like travel and ticketing, which obviously as the early stages of the reopening saw explosive growth.

But also we had our direct to consumer virtual card product for them anywhere grow substantially and that product has a little bit of virtual card network revenue and then obviously interest bearing activity behind it and so really it's the mix of products that shows up with driving those results and as we've said many times before.

We really don't look at or try to manage those sub lines, we target a total revenue number and try to deliver that and we keep a keen eye on that revenue west transaction cost number to make sure. We're delivering really strong unit economics. So we can generate the revenue and generate the unit economics for the rest of itself sources it out.

That's really good context, thanks, Michael.

Our next question is from Andrew Jeffrey with truly Securities. Please proceed.

Hi, Good afternoon I appreciate you taking the question.

Max.

<unk> bye.

Affirm debit plus product.

Recognizing that you you're not including any <unk>.

<unk> revenue in your guidance I Wonder if you could just flesh out a couple of things for US one what do you think is the most likely use case mix of.

Our firm split pay purchases or affirm loan purchases versus sort of broad use and then also how do you think that product effects.

Repayment tender does it does it.

Definition definite definitional Lee.

The result in.

Debit.

This loan repayment or is there more of an AC H characteristics I'm just trying to think through the dynamics is this product takes hold and gains traction.

Great question.

I'm not sure I can hit them all.

This is like.

First of all is going to be awesome alright.

Alright, too long winded.

No no no.

It's a great set of questions but.

I am temporary my excitement for the product because I know the lawyers.

But it is part of the temporary okay.

Great product.

And.

First of all.

Could you just give us you know how that we envisioned.

So I've been testing the product.

More or less daily for the last month or two.

And.

But an incredible amount of coffee.

Public service announcements do not buy pre ground beans by holdings only but it's in the tens of thousands at this point that's my closest swaps in place recognizing a debit card.

And.

It is critical.

With my income.

A C.

Checking accounts, so when I do nothing it just settled against that.

For a period of time.

And when I feel like swiping less turning into a favorite time transaction Thats what it does.

Super-smooth very quick physical card so.

No different from from one that Youre Bank gave you and.

The expectation and intent that we have for this product is that it really takes place since your top of wallet.

Marie <unk>.

Transacting device.

So we're stepping backward looking now allow myself a little bit of it.

Sorry Kelly.

One way of analyzing this whole bean npls evolution is actually it was like 100 million plus people that basically said I'm just gonna use my debit card because I don't understand credit cards, but I know there have been important Ian.

In terms of you can disagree, but I generally think besides that.

Put it all on the use of plastic and then revolve then you pay interest on your lot days and your coffee beans.

And your more expensive purchases you're doing it wrong like you shouldnt be paying interest on those things.

And.

As a result of all these people basically said, yes, I kind of get it I don't have a better alternatives. So I'm just going to live within my means and use my debit card and every once in a while something like a firm or one of our competitors would come along and say hey, you're buying this thing and it doesn't fit into your debit card budget that's cool.

Overtime solutions, we've developed it's available at the point of sale.

What they call in mass Olympia is a partial solution.

It's great, but you don't get full marks for that what are you really wanted to ubiquitous tool that allows you to say hey, Amy kind of want to use a debit.

And any kind of want to turn it into a paper time transaction, it's got to be very hot.

Harder than using a credit card has to be as simple and.

We really convenient and that's what we built with debit plus.

What's important.

To understand we fundamentally connected the dots between this partial solution a finality leader at the point of sale by moving it into the hands of the end consumer.

Right into a debit card without asking them to change their accounts et cetera. So.

Thats why im so we talked about it probably partially to do with just the sheer amount of copyright law.

But.

That's sort of part one.

<unk>.

I would like Mike told you that I know exactly what's going to happen with all the different treatment modalities.

Still in early beta a lot of consumers are telling us it's awesome.

We're learning a lot about how they are using that but generally speaking the goal is to delight. The customer. This is a bigger with people that says hey, I love the idea of having very tight control sense of financial responsibility sanity by just paying for things with it's really very simple papers on instrument and mostly not and what we have been.

Something that marries the two really elegantly.

That's what we're launching is going to bring to market.

Over time, we think there's a lot of other cool stuff to add.

So we view this.

Software defined payment.

The jargon anything that I came up with.

Yes, we will continue to add features to the card in the App by software updates there'll be a lot of fun stuff to add.

Two it not announcing any of those yet, but you can imagine how the apple hospitality.

I appreciate it thank you.

Okay.

Our next question is from Moshe Orenbuch with credit Suisse. Please proceed.

Great. Thanks, maybe to follow up on that and some of the previous pad.

Some of the previous questions.

As you expand as a firm is able to expand its marketplace and the consumers that shop, there and now with debit card.

Can you talk about how the expansion of the Tam that that would provide essentially.

And how.

How often can you wear an affiliate fees, how often not like how do we think about the underlying economics.

Perhaps.

As these.

As you are able to expand in those in those ways.

Okay.

Good question, so again without I realize I'm sounding a little bit.

Child, Hi, Anna.

The pilot sugar, but I think the set of clustering, it's pretty awesome.

And we wanted to be the primary transactional device for our consumers.

So the Tam is their spend.

2000 tonnes, a month on food and things like that.

It's it's shopping or purchasing with whatever you call. It so in that sense, we have.

And your Internet ambition.

In terms of affiliate fees.

The important thing there is obviously, we've done pretty well, we can see that our numbers are the FERC from our numbers there.

We're not yet focused on that to be completely transparent we're trying to build an amazing experience. We tried to convince our consumers that this is a far better way of buying things overtime, obviously, but a tremendous value for our merchant partners or whoever.

Our consumers choose to go to ensure.

We brought that customer to them.

It's a service that we bundle if you will with the transaction itself.

Plenty of sort of advertising and marketing revenue to compete there but.

<unk> that's part two parts one is.

The consumer that picks up debit plus to say this is the best thing ever I don't really need to use my real that apart anymore. Because this is better and I certainly don't have to put my credit card ever again.

Assuming we hit that.

We are we've got to stay out of the park, but I realize that's not what I'm talking about again.

Assuming we deliver on assuming we deliver on that I think isolate these will come.

We'll start forecasting that.

As we measure the actual penetration, but the tenants of ours.

Okay, Thanks, and just as a quick follow up.

On the Amazon.

<unk> ship or test could you talk about how that will be presented to the consumer because there are multiple products that Amazon does offer from a payment standpoint anything that you can kind of tell us as to whether how Amazon is going to be choosing to do that or how that process works.

That's what test support to figure out the best presentation best user interface and ultimately.

We will note what works best.

And then we'll all see it.

Okay. Thanks very much.

Okay.

Our next question is from Rob <unk> with Autonomous Research. Please proceed.

Hey, guys. Thanks for fitting me in just a question on funding Michael you called out drivers and gain on sale for this quarter, but just wanted to get your latest outlook for the demand and pricing trends on whole loans from here and how that could potentially flow through to the level of equity capital required going forward.

Yes so.

We fund our business with now.

Now four different funding tools securitizations at both get consolidated and our non consolidated workflow and on the warehouse side.

Our earnings supplement we show a pretty good breakdown.

The funding mix by channel.

And.

The growth that you saw this quarter was predominantly and securitizations.

Consolidated and consolidated.

When the Securitizations consolidated it does show up on the balance sheet as an asset, but it's really efficient if you look at the last two deals we've done.

We're kind of barring 97%, 98% on average of the consumer balances, which is obviously just an extremely efficient way to fund it with respect to equity capital.

But to answer your question, specifically around the market and the reaction in pricing around fourth Hello.

It remains very strong I think the demand for paper and the market is really high they desire the asset type, which is really shortened duration.

They acknowledged that we've been really good at underwriting and so they really like the credit quality, we can generate.

Okay. Thank you.

We have reached the end of our question and answer session and this does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.