Q1 2022 Affirm Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by welcome to the Sun Holdings fiscal year 2022 first quarter earnings Conference call.
At this time, all lined up and placed on mute to prevent any background noise.
Just because I'm off will all tie lines for your questions. As a reminder, this conference call is being recorded.
I would now like to 10 o'clock right over to one clock Vice president of the Investor relations to begin.
Thanks, operator, before we begin I'd like to remind everyone was wrong, but 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 at.
Actual results may differ materially from any forward looking statements we make today. Please.
These forward looking statements speak only as of today and the company does not assume any obligation or intend to update them, except as required by law.
In addition, today's call May include non-GAAP financial measures. These measures should be considered as a supplement to but not as a substitute for GAAP financial measures Brecon.
Reconciliation to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our Investor Relations website.
Posting today's call our Max Levchin.
Firms founder and Chief Executive Officer, and Michael Linford, a firm's chief financial Officer.
And with that I'd like to turn the call over to Max to begin.
Welcome everyone. Thanks for joining us on today's call.
Q1 was yet another record quarter for a firm as we continued to rapidly grow both sides of our network we.
We increased G. A V two more than $2.7 billion during the period, which we close with some really great momentum.
<unk> first ever billion dollar GB month in September and it over 102000 active merchants and eight 7 million active consumers at the end of the first fiscal quarter.
That said, we measure affirms results and impact in years and decades, not months and quarters this'll.
This allows us to think strategically about the lighting consumers and delivery value to a merchant partners while building an exciting brand on a foundation of trust.
The seeds, we planted years ago are just beginning to bear fruit the growth of our network is accelerating and my confidence in the firm's market position has never been stronger.
Deep tech powered partnerships with exceptional partners form a key part of our multiyear growth strategy.
These are beginning to scale up and we are continuously investing in delivering even more value for partners with new ideas and products.
Our partnership with Shopify is showing really strong signs of scale and impact will touch on the exact numbers in a moment, but glance at the actor merchant number to get a good sense for how that is starting to take shape.
We continued to rapidly expand our partnership with Walmart has recently announced affirms providing walmarts consumers and efficient alternative to lay away for the holiday shopping season in November Walmart at a firm will be marketing together across a variety of digital and physical channels, including T V walls and over 3900 Walmart stores.
Are deep engagement with this all important partner helped meaningfully accelerate our GB with Walmart over the last year, we see even more opportunities to serve Walmart and its consumers in the year ahead.
On the strength of our test results were also deepening our relationship with Amazon to help accelerate the growth of our network.
We will now serve as Amazon only credit card alternative in a buy now pay later space through the next two holiday seasons in the United States.
Eligible Amazon customers will have the opportunity to use affirmative check out on Amazon, providing a transparent and flexible way to pay at their own pace.
And we'll also be embedded as a payment method and Amazon pays digital wallet and become available to all consumers and merchants that use Amazon pace at checkout in the U S.
Finally, we continue to close launch and expand our enterprise partnerships broadening our network reach we.
We launched American Airlines, an Apple Canada resigned three year deals with Priceline sickness launched a deeper integration with target, which more than doubled our current target business and close brand new partnerships with newegg and Michael's.
Platform and merchant partnerships and the strunk growth of our consumer platform represent an incredible opportunity to expand the potential reach of ambition to hundreds of millions of people and we're excited to bring them access to our honest financial products.
On a lighter note I'm excited to share that we've launched our consumer holiday campaign. Just this week you might catch it on social media, while streaming T V and on Billboards in several markets.
The campaign explores the stupid and stressful things that can happen around the busy holiday season from questionable gifts to regrettable behavior and juxtaposes bat with a firm the smart choice for pain at your own pace with no late fees, no gotcha and no regrets.
There's a lot to be proud of this quarter and even more to be excited about in the years to come.
Approached core strengths line risk management capital markets execution, and putting our ability to solve our technical problems towards building, great products and creating consumer delight.
With the context of the great unbundling of the credit card. We gave you a sneak peek into part of our product roadmap at our investor for them in September.
Let me update you on the progress with meat on these products sits.
After being put through its pieces by hundreds of of farmers are debit plus card is out in the wild being further tested by consumers as we make our way through a waitlist and get it ready for Gen pop lunch in the new year.
We also ship the first version of our Super App, while it's still very early days and many versions will follow this one I'm excited to see the meaningful increase in consumer engagement that it has already driven across product, particularly are shopping Piper.
Cash back rewards in crypto savings are both life pilot mode, which you may have already seen in your App or Wilson.
We also launched affirm in Australia last week with our longtime enterprise partner peloton, extending our international reached by partnering with our merchants wherever they do business is an important facet of our growth strategy and received many more markets to come stay tuned.
Finally, adaptive check out the reinvention of our core business is fully live in the market has delivered in over 25% conversion lift and has already been adopted by 44% of eligible merchants.
Let me go back to something I touched on briefly a moment ago.
The first course strength.
Can be summed up to one thing.
Are extraordinary team.
It's hard to overstate just how much of our success to date is rooted in the exceptional level of talent and sheer grit of our people.
The key strategic insight leading to the creation of the great Unbundling thesis was the fear and loathing of the credit card by the millennial generation as they came of age after the financial crisis.
Related to this was the dramatic rerouting of the flow of intellectual capital in the prior decade, the best and brightest technical minds flocked to wall Street to learn and earn suddenly they create something else professionally they needed a mission a chance to fix the problems of the financial system that have failed their families.
Our mission is at the very core of who we are.
Combined with a firm belief that any solution to societal problems must be self sustaining and profitable stand the test of time.
It has allowed us to attract amazing talent since the very early days of a firm many of whom are still here today a decade later.
The output of our engineering team is the key reason why we have become the partner of choice for so many joys of commerce.
Our partners rely on us to show up with solutions for scale speed and reliability and to work tirelessly and intelligently to deliver results.
A risk in data science teams were founded on the belief that traditional cutting scoring excluded bar too many people from access to credit and the conviction that alternative data sources can be utilized in creative and compliant ways to dramatically expand the taxes without compromising risk performance.
Very similar origin story is alive and well today in our legal and compliance team several of them hail from key supervising regulators like FDIC, the fed and the CFPB.
Our commitment to winning the right way with no fine print and no leader hidden fees is what brought them to a firm.
This update will become prohibitively long if I were to properly highlight each team and their contributions to our many successes. So far so I hope you will indulge me with just one anecdote featuring great many of farmers.
As we readied the rollout of shopping installments power by a firm in the late spring of this year, we needed a way to onboard several hundred thousand shopify merchants to review them for eligibility identify and solve corner cases that them for regulatory compliance issues of course eventually this would all be done by machine learning models.
Examining the site content and scoring it but to build this type of model you need reasonable prior knowledge from previously approved merchants and we hadn't yet accumulated enough of that at the time.
At the regular reviewer capacity merchant ops would take several months and we wanted to launch in three weeks.
We had about 1000 employees at the time.
If a large percentage would manually review a few hundred shops, each we would be ready to launch within the time allotted and collect an excellent training set of data to build the models for automated approval.
Within a day, we had organized robust online training classes for our quote unquote volunteer reviewers Ah leaderboards for those competing overview productivity.
An operation shovel loser was up and running.
Executive in terms of like which finished there already busy workdays pick up their next batch of Shopify merchant Url's and get reviewing Meanwhile.
Meanwhile, our machine learning team should new software tools everyday to help automate more and more of the reviewer tasks.
I maintain the respectable pop twentyish position on the productivity leaderboards, but got completely overrun by Michael and his team a few days before the rap only to watch him get left behind by the machine learning folks who had automated the review process after two weeks.
We have the data with built the models and we were ready to launch.
It's easy to dismiss this episode as a pandemic era zoom addled startup ethic.
But I think it's very revealing.
We have assembled perhaps the most formidable fintech team ever.
And in addition to talent, even 10 years and we have maintained the startup grit.
And are never afraid throw up our sleeves to achieve our goals.
I went to think of farmers for another excellent quarter.
And a great beginning to an important year for a company it's.
It's a privilege to lead this team and an honor to work with all of you.
Now after Michael who will take us through the numbers.
Thanks, Max and good afternoon, everyone.
R Q1 results demonstrate the powerful impact that our team and our investments in technology are having on our business.
But before I get into the results for the quarter I want to share some details about our expanded agreement with Amazon.
Although we just announced our original relationship with Amazon at the end of August the results. We've seen have enabled us to expand beyond our tests that began earlier this year.
We are now wrapping towards general availability, which we expect to achieve by the end of the calendar year.
Our expanded agreement makes affirm the only credit card alternative and the BNP L space in the United States through January 2023.
Also excited to announce that a firm will be embedded that's a payment method and Amazon pay at all eligible U S merchant.
The initial term Obar murdered agreement will go through January 2025.
Together with the team at Amazon, we crafted an agreement that aligns our interests with equity grants tied to our grip.
<unk> will receive an initial graft of $1 million any warrant and an additional $6 million at best over the initial terms of the contract when certain performance conditions are met.
Given Amazon massive consumer base, we expect this partnership to help create a step change in our network scale.
To ensure continued alignment on that goal Amazon has the opportunity to best up to an additional 15 million warrants with a 100 dollar strike price tied to the scale of our user network over the next seven years.
We're excited to deepen our relationship with Amazon to deliver an exceptional consumer experience, while delivering shareholder value.
This deal at another point in our leadership as the enterprise partner of choice.
Enterprises take a firm because we are the technology leader and now we have integrated relationships with partners, representing approximately 60% of USA commerce.
This is a big win and we're just getting started.
Now, let me turn to the quarter's results.
Looking at the Big picture, we continue to expand our two sided network, while delivering strong top line growth and industry leading needed economics.
Zooming in we scaled both our consumer and merchant networks dramatically growing active consumers by 124% to eight 7 million and increasing active merchants to a staggering 102000 from just 6500 a year ago.
Jim vigorous, 84% and revenue grew 55%.
Both ahead of our outlook X.
Putting our largest merchant beckworth was even stronger Jim Vigrid, 138% and revenue increased 99%.
That top line growth generated strong unit economics with revenue last transaction costs up 103% to $112 million or $4, 1% of G. M. B, a 38 basis point increase.
Even as we significantly Gareau network, we also improved our capital efficiency, demonstrating a disciplined approach to scaling.
The equity capital, we used to fund our loans decreased on our dollar basis by 36% from last year to just $140 million, representing less than 3% of our $5 billion total platform portfolio.
Given our strategic progress and strong queue on results, we have raised our outlook for GMB revenue and revenue last transaction costs for fiscal year, 22, which I will discuss in detail in a moment.
Before I do that let's walk through the results.
Unless stated otherwise all comparisons refer to our first fiscal quarter of 22 versus Q1, a physical 21.
After consumers increased 124% to eight 7 million, which corresponds to a 1.6 million sequential increase from Q4 and over the past few quarters. We've added 3.3 million net new consumers to our network.
One of the key drivers with a strong queue and performance with the ramp of our partnership with Shopify, which has enabled merchants to provide consumers with a fat seamless pay everytime product.
After making shop installments wildly available in June.
Have worked closely with shopify to drive merchant uptake in consumer adoption.
As part of that effort in the first quarter, we ran a limited time promotion or shop at by merchants to demonstrate the impact of shop pain installments.
Successive that promotion and the ramp of our partnership accelerated the growth of our network.
While shopify was a significant driver of user growth.
Also experienced broadbase adoption across other merchants in categories.
Ah recently acquired paper and returned any business has also contributed a combined 120000, new consumer sequentially from Q4 and $1.3 million from last year.
Our partnership with Shopify also drove more than 15 times increase inactive merchant from 6500 in the prior year to more than 102000 in Q1.
On a sequential basis active merchants, which is calculated over at 12 trailing 12 month timeframe for $3 five times from the junior any quarter.
While a relatively small impact of growth.
I'd also note that pay bright and returning added about 2600 incremental merchants.
Moving to <unk>.
Weaker GMB, 84% in our first quarter, two over $2.7 billion exceeding our outlook.
This growth reflects traction across all products and verticals and our ability to serve a diverse set of merchants and consumers across a wide to that transaction types and sizes.
Importantly are strong growth reflects not only the new merchant partnerships, we've side, but also the deep partnerships, we are forging with our existing merchant.
Excluding our largest merchant or GMB with merchant that it down affirms platform for 12 months or longer grew 70%, reflecting an increase share cart within this group of merchants.
We delivered triple digit GMB grew up in several categories are.
Our travel business grew eightfold from last year suppressed baseline, reaching a new high watermark Ah.
A strong position among broadline retailers, including Walmart and target drove a 170% increase in GMB for this category compared to last year.
The apparel category also remainder wrote bright spot growing 128% year over year, which in our view shows the value strong low AOU offerings, when paired with high AOU products to.
To sum it up the quality depth and breadth of our merchant partners as well as our ability to address a wider range of transaction types are key areas of strength for a firm and they are delivering results.
In addition to helping our integrated merchant partners drive converging or direct to consumer virtual card product also deliberate triple digit growth growing 119% demonstrating strong adoption of our offerings, particularly among returning consumers.
We had a strong quarter outside the U S as our Canadian business added over $100 million of GMB.
We serve a wide range of merchants and large enterprises in Canada, including Apple, which launched in the first quarter and has exceeded our expectations today.
Beyond Canada, we see a great opportunity to expand internationally by bringing our products to more of the regions that are merchant partner surf.
As part of that strategy, we are excited it deepened our relationship with Palestine by watching Australia.
Our business with peloton globally remains strong in the first quarter with Jamie more than doubling compared to the more normal quarter ending September 2019.
As a reminder, and late calendar year, 2020, peloton transition to capturing transactions upon shipment versus authorization.
Makes our Palatine GMB comparison skewed to the first half of our fiscal 22.
Bell South concentrations declined to 8% of our GMB this quarter compared to 29% in a year ago quarter and given our strong broad based growth no other merchant partner accounted for more than 5% of our <unk>.
While we are still in the early stages of our partnership with Shopify, we are already seeing some of the trends associated with the rapid growth of our split pay offerings.
Which currently power shop paints Thomas.
First growth and lower the categories has accelerated resulting in an expected AOA declined from $661 one year ago, two $402 in Q1.
Additionally, we are seeing continued growth in frequency as transactions practice consumer rose, 8% to approximately 2.3.
Finally, we expect the growth in our split a business, which has it generally lower merchant discount rate that are zero percent APR business to drive lower total revenue yield as a percentage of GMB, albeit with lower total transaction costs once we reach scale.
That turned into the financials.
The strengthened GMB helped us deliver strong Q1 revenue growth net revenue of $269 million grew 55% year over year and also exceeded our queue in outlook.
Total network revenue grew 13%, but that figure masks much stronger underlying results.
Excluding merchant fees earned from our largest merchant partner in Q1.
Total revenue growth was 99% and told them network revenue growth was 81%.
As a percentage of GMB revenue was 10% consistent with our outlook.
The 190 basis points declined from last year was driven by the Knicks shipped away from longer duration zero percent APR lines.
On the expense side, we achieved significant leverage on transaction costs.
Total transaction costs of $157 million grew 33% year over year compared to revenue growth of 55%.
The make shift I described a moment ago Lhasa alone purchase commitment declined 22% while improvements in our capital program limited the growth of funding costs to 62%. Despite growing liabilities, we used to fund our loans by 76%.
Provision for credit losses grew at 120%.
Given by the provision releases in the comparable period, but also reflecting the credit loosening initiated earlier this year.
Our credit outlook in position remains the same as we described in our investor form.
We expect to continue to see the impact of credit loosening, resulting intentionally higher allowances, which in turn dry provisions for credit losses in each period.
So robust top line growth and leverage and transaction costs resulted in higher revenue less transaction costs, which grew 103% to $112 million or $4, 1% of GMB.
With a strong growth and unit economics as well as the massive opportunities we see.
We are continuing to invest for the long term.
As Max discussed in Q1, we continue to invest in building our team.
We are also investing in marketing to build our brand and scalar network.
This resulted in higher personnel cost in stock based confidence in technology and data analytics as well as sales and marketing.
And Q1 total operating expenses outside of the transaction costs grew $190 million driven by an $87 million increase in stock based compensation.
Primarily due to the IPO in January.
Excluding SPC these expenses grew 125%.
GAAP operating loss was $166 million compared to a loss of $33 million last year adjusted.
Adjusted operating losses $45 million in the quarter compared to an 8 million dollar loss in the prior year.
Turning to our balance sheet, we delivered another strong quarter GMB growth, while continuing to drive greater efficiency from a capital perspective.
Federal platform portfolio group from $3 billion to $5 billion at the end of Q1, and we increase our overall funding capacity from four $2 billion last year to seven $3 billion.
Are disciplined approach also drove a reduction in the equity capital we used to fund our business from $220 million to just $140 million, despite growing our loans and the balance sheet by more than $800 million a year over year.
Accordingly, as a percentage of total platform portfolio.
Equity capital required fell to an all time low of 3% from 8% last year.
Now looking to the year head, we expect a strategic progress we made a physical Q1 as well as the strength, we are experiencing in consumer and merchant adoption to help drive even stronger results for fiscal 22.
Accordingly, we are raising our outlook for the year.
We now expect D&B to increase between 58 and 61% from fiscal year 21 too.
<unk> between $13, one three to $13 $38 billion.
We expect revenue of 1.2252125, O 1 billion, representing year over year growth of 41% to 44%.
We expect transaction costs of $645 million to $655 million.
Resulting in revenue last transaction costs 582 $595 million.
Finally, we expect an adjusted operating loss as a percentage of total revenue of 12% to 14% as we continue to invest in the long term growth of our business.
We expect weighted average shares of approximately $290 million for the year consistent with our prior outlook.
While these financial results do not include the benefit of our recently signed partnership with Amazon. We have included the impact of Penny warrants previously mentioned with 1 million investing upon signing at 6 million invest in quarterly over the three year contractual period.
And given the same trends were also raising our outlook for our second fiscal quarter ending December 31 2021.
We now expect GMB to grow 71% to 76% 23552 365 billion.
Total revenue of $320 million to $330 million.
Total transaction costs of 143, two $148 million.
Revenue last transaction costs of 178, two $183 million.
Adjusted operating loss as a percentage of revenue of 5% to 7%.
And weighted average shares outstanding of $285 million.
In closing I wanted to add my thanks to the farmers, who helped deliver such strong results.
Our team is the best part of my job here and there continued ingenuity and hard work enables us to impact the lives of millions of consumers.
Max and I will now open up the lines for questions.
We will now begin the question and answer session.
Joined the question Q U a Christa then I'm wondering telephone keypad, you'll hear a tone acknowledging your request.
If you're using a speaker phone please pick up your handset before pressing any keys too.
<unk>. Your question. Please Cresta then too.
The first question comes from James was that with Morgan Stanley. Please go ahead.
Thank you very much I'm wondering.
Michael you talked about previously expanding the credit box and.
The benefits that you get you seem to be repeating that can you just talk about how that progressed, thus far and how we should anticipate that and packing things like reserves et cetera going forward. Thank you.
Yeah. So again I think consistent with as we talked about it at the Investor form we ran the business had a very high level coming out of Covid and have been on a path over the past year Ah slowly relaxing, they're great a box.
We've also seen the impact of mix in our business.
That would show up as well.
The governor for US is always that revenue last transaction costs, we think about credit as a thing that we control and two is not something that happens to us.
That being said, we're generally very conservative and how we think about provisioning and the allowance that we maintain we always wanted to be careful here.
And we do expect that some of that can serve as a may show up in the queue to guidance, we have given for revenue what's transaction costs, where we do think that we're probably on the on the more conservative end of the allowances we sit here today.
Got it makes sense and then Max I wanted to ask you is like when you look at kind of the the growth and and the messaging and availability of affirm and you look at all the the the emergency you're reaching now.
How are you thinking about measuring that in terms of as it relates to transactions per active user and how you'd like to see that track and what kind of expectation should we be have us be having as investors. Thanks.
Great question.
So for a little while.
As much as I enjoy so.
But I'm not sure Goldman and trying to beat them.
I think we should expect.
The denominator too overwhelmed numerator, we sign a bunch of the really powerful partnerships with massive distribution Taylor.
<unk> built into them and so no matter how good we are at rolling out products to drive huge repeats I suspect. The second derivative there is gonna get overwhelmed by the second grade of just the sheer user growth. So for a claim transactions for you here.
My guess is it will be hard to predict simply because the ramp up places like Amazon and even tropophyte, which is still quite early it'd be a little bit tricky to predict that said.
The transactions for you just to be up into the right.
As possible I think the real step change in Michael will probably not let me talk about this next quarter, but I hope to start talking about a little later.
It's going to be in my opinion at least there's going to be very different.
Number of transaction for you here for those that take on our debit plus products and the ones that haven't yet the debacle consumers are we expect them. We asked them, we welcomed him to use a credit daily.
Idea there is to restart tracking into.
As often as he.
The origin of our user base for quite some time, especially as user base itself gross but we'll start talking about are super users are power users and what they are really experiencing as an important metric for us that those are the ones that.
You expect to just outside steep your numbers.
Thanks for that I'm Gonna ask thanks Micheal.
Okay.
The next question comes from Brian came from Deutsche Bank. Please go ahead.
Hi, guys. Congrats on the results in the progress.
What about asked about the Amazon extension here just want to be clear, what what is new from from previous.
It looks like the exclusivity for one year and the warrants and then and then secondly, just trying to think about timing, but it sounds like Amazon will happen. This holiday season. So we just mean conservative not putting it into the quarterly numbers, because we don't know how big it'll be just sort of.
Will thought process around that thanks.
Thank you.
So I think.
We are the so dedicated by not good with your partner through June 23.
That's important and powerful our last.
Yeah, I think so it's very very explicitly this is a non-exclusive pilot so.
Important quality to change here is Amazon had obviously and partners in this space be tested they tested us we pass the tests with flying colors and.
And better and so do I think that that's a very important.
Qualitative.
Matter here the Amazon pay embedding is new that was not in the last conversation, which is important because we said it before and I'll say it again.
Wallet.
Placement to be tendered inside the important wallets is really good at the next page.
Page in the history on financial services to make payments and it's important for us to be better in Walt.
And.
Frankly, the fact that we are ramping pretty quickly to this holiday season is.
Was not explicit and our last.
And our last announcements I think at the time, we made it may qualify to this strategy, we should be life.
In the in this holiday season.
Presently.
That's the qualitative matters.
Michael can describe the.
The details of the financial arrangements.
Yes, yes, the warrants are new we think it's an important piece of aligning incentives.
If you think about the posture the relationship where you're dealing with someone is large.
With this much scale as as Amazon is a good thing to have them invested in the outcomes that are good for you and that's how we thought about it as we worked on that and then met in terms of why why not have it in the forecast, yes, that's exactly right our approach to building forecast and giving guidance as we need to see it before we.
Before you commit to it.
And we're just now beginning the process of fully ramping that's out so over the next.
Couple of weeks and then throughout the rest of the holiday season, while but pretty good read and be prepared to give you some pretty clear guidance coming into the next quarter.
Excellent and just one follow up on the the shop relationship.
How much further do we have to go before we get to a full run rate by quarter or maybe some other things that might happen to get get us. There. Obviously, it's off to a great start I'm trying to figure out how much more room. There is to grow just to get to a run rate that a quarter or two or is that going to be several year process.
So I will give a qualitative answer as as is my custom Michael may or may not want to add a little bit more.
But probably the most important thing to understand about us as a company.
We don't build a thing and start selling it and roll it out.
And that's the.
The reason the shop with my partner with US. The reason all these great enterprise look at US and say this was the right partner for us because we come into a relationship with a plan to build more stuff. If you look at the piece of growth at Walmart, which has been a partner for numerous years.
It's growing any and accelerating quick.
Because somehow.
Right on a tree and now they're ready to pick it's because we continue to invest in your relationship with building coat.
The whole TNA of affirmative, let's build things that help us grow faster. So we are in control of that growth.
It makes it a little harder to predict too but.
If we do it right it will accelerate that's probably the most important takeaway Michael what's to commit to a forecasting schedule, but I just want to make sure that that part is clear.
Yeah, I would I would just add in a call to your comment that we're not yet fully optimize their I mean, we're really excited with attraction that we are seeing but there's a lot of work left to do and I think that we've got many precedents here as we think about enterprise ramps. They don't happen in weeks and months to happen in quarters, and oftentimes even years and that's the harass.
With which we're investing effort to optimize those those programs. So we think there's still a lot of work to do and we're definitely not near the peak.
Okay, great. Thanks for the color.
The next question comes from Kaden Cook with the Bank of America. Please go ahead.
Hey, Thanks, guys, Yeah, I just wanted to start on Amazon as well should we expect that you'll monetize the Amazon volume more on the consumer side in the merchant side will these mostly be interest bearing loans and is there the opportunity to perhaps use the third party manufacturer model that you use with with Walmart.
And then just on the exclusivity element was just wondering if a firm is any way subject to that as well in terms of doing business with any of Amazons competitors I didn't see anything about that in the U K, but just wanted to check.
Yeah on your first question. The product is currently live on Amazon Dot Com is an interest bearing product, which is skewed towards consumer monetization. Although of course, we will monetize that either by by keeping on a balance sheet or selling it to capital partners on a 412 basis and so.
Won't necessarily hit the interest income line on the income statement. That's the practice life. Today. However, we have the opportunity desires to eventually broaden the whole portfolio framers on dot com, but also importantly, with inside of Amazon pay where that relationship is going to start with a wide set of products.
As for the questions around that.
Nature of ours unique.
Relationship.
We are not obligated to not serve any partner, we generally don't agree to that any contact I think it's very important for our network to remain open.
Okay great.
Then just as a follow up.
I wanted to see if we can get an update just on the non peloton GMB growth guidance for the year I wasn't sure if that followed the G. M V rays is coming on the non Palestine sides and I think previously you were talking about 70% to 75% for the fiscal year and I wanted to see what that looks like now.
Thanks.
Yeah, we're not going to update any sort of forward looking number for peloton, except to say that the Q1 results for us on pallets on that exceed our internal estimates and and certainly nothing that we've seem to suggest that we should be changing our outlook overall in light of where that businesses at.
Okay, great well congrats on the results.
The next question comes from Ramsey at this time on both please please go ahead.
Hi, Thanks for taking my question this evening.
I also wanted to ask a clarifying question on Amazon.
Is the use of a firm on the platform for baskets over $50 or for individual products on Amazon, they're priced higher than $50, it's a bit of a nuance, but it actually makes a difference when we try to kind of put pen to paper and model it out.
Initially it will be for baskets of our $50.
The way that integration work today, that's it's at the check out and as we work too.
Get the final print that met that will probably be limited to a more narrow setup of items.
Okay and I wanted also to ask about travel and ticketing as a percentage of total gym via it looked like it fell this quarter to about 10% versus about 14% last quarter figuring a lot of that problem may have to do with mix and the shopify ramp, but I'm just I'm just trying to figure out whether there's also some kind of delta impact in there.
And then I guess what expectations around to travel recovery are included in your guidance.
So that the travel business did.
I have a slight sequential decline period period, which probably as a result of COVID-19, but there's also really strong seasonality in that business and of course that seasonality has been.
Impacted by all of the Covid trends.
That the year on year growth of course is still extremely strong given the low baselines I think we've been pretty pretty careful not to put too much risk in the guidance around travel. So we're not we're not really assuming any sort of further resurgence and travel.
We've talked about last year that travel a 10% was a good number for us and we think thats still probably the case.
Got it thank you so much.
The next question comes from <unk> Com Credit Suisse. Please go ahead.
Thanks, a lot for taking my question I, one dig in a little bit on shop pay installments just wanted to see if you could give us some context on the pricing dynamic there. When you are offering the product into shop, a high merchant are they being presented a different price based on their size or their a O V or a specific vertical or category they're in.
Are the larger shopify merchants able to negotiate this just wanted to see if you could bring to life. How that works and then I have a quick follow up also related to shop installments.
Obviously.
Quite a lot of neurons.
For merchants relationship with.
Arm and Tropophyte they get.
Up in scale.
Speaking there is a great merchants and counter as we bring your product to market depending on.
Some of the.
So the other parts of the relationship with the shop, the day may or may not see changes to it but generally speaking it's reasonable to expect that the largest merchants on tropophyte, probably have a human that talks about the prices and.
Some of the smaller ones have.
Price if they can click to accept.
And everything.
Perfect. Okay. Thank you Max the follow up is more around the GMB guide I apologize if I missed it but I know that last quarter. When you gave the initial guide for the year, you mentioned that split pay and including shop would be roughly 10% to 15% of the total mix of G. M. D is that still roughly the portion that we.
You should be expecting or did that maybe move a little higher.
Yeah, we're not updating the guide.
For that number about what we will say is that in Q1, we were right in the middle of that range for split pay overall.
Okay, great. Thanks, a lot Michael I appreciate it.
The next question comes from Andrew Jeffrey from tourists. Please go ahead.
Hi, This is we've done stepping on for Andrew.
Generally thinking about the industry is it moving your view is moving more towards direct integrations and lead to that how do we think about Ah mastercard's announcement today.
Monitoring and open loop BMP all product.
So I think generally speaking.
It's a fairly varied landscape out there. So if you are a platform.
Hosting numerous merchants.
Or serving merchants as in.
For example on the backend.
Whether it's processing or other.
Let me talk to a merchant services.
Those are natural points for direct integration court affirm.
And that's.
I think that's something that you can expect to continue obviously, we pride ourselves on our engineering chops. So when we come to these partnerships we come in with a view to make it more efficient make it faster introduced new transactional symantec's, which may be potential consumers and merchants.
<unk>.
I think all of that is just something that we certainly intend to continue continue doing.
In terms of mastercard's announcements.
Change our world at all.
In a sense that our.
Our network.
A number of differentiation is ability to see and.
Benefit from the.
From the skews embedded in transactions being able to utilise through an end to end connectivity that we have been both be sir.
In magnitude traditional networks issue or acquire a network, where all three at all times.
Which allows us to build some pretty unique products and services and so.
I think the metro announcement, the biggest one before that.
Targeted at bringing along other credit issuers that may want to play in the <unk> space, which I think is good.
General moving away from a revolving credit towards installments cause ended loans is just healthcare for being a consumer so positive for them to the industry I'm glad to that at your card is something else can supported.
We'll continue building or anything in the.
I'm glad to see the industry move towards products that pioneered.
The next question comes from Andrew.
S M. B C. Please go ahead.
Hey, guys. Thanks for taking my question.
Active customer growth continues to trend pretty strongly quarter over quarter. So maybe I was just wondering is there anything involved in your strategy still kind of word of mouth or are you guys being a little bit more aggressive on.
The customer acquisition fine. Thanks.
Alright.
Okay.
By far the most important growth of consumers for us comes from our Mercury partners.
Instead of going and I'll say it again, our number one growth strategy is signing best most popular most successful merchants and delivering.
Version and uplift for them so that they.
Affirm can benefit together and so that's where we continue doing our growth is that budget is largely represented into engineering budget to to put it in financial terms, perhaps you'll.
You'll see us step out a little bit of our comfort zone that is to say it was never done a national.
Regional marketing campaigns and Super Bowl.
Very uncomfortable territory for me, maybe three or four years ago, something that we have to learn a couple of years ago now look at us were taken out.
You think like T V commercials, and so you'll see us do more of that that is fundamentally about teaching the end consumer that <unk> is here. It's important half of Americans. We surveyed we didn't service all the time from now expressed interest in using products like ours and the other half vanilla mix, which means that it's on us to educate.
The market and explain what this is and how it's fundamentally different from your credit card, it's less scary much more on your site and then within that narrative. How affirm is unique in the sense that we don't charge late fees weekly do nasty things like different interest in all the various other gimmicks and so that is something that will continue doing and one of the things that we've learned sort of in the.
<unk> understanding how to tell our own story, perhaps where we learned it as as we got larger more sophisticated we partnered with a huge number of our merchants in particular are enterprise partners to promote our product in the context of.
Their offerings. So if you look at a firm five six years ago, the idea of saying, Hey, Here's a really compelling bill.
To be in a bicycle or a couch or article of clothing.
Right now pay later is something that you will see from a bike vendor or something but I might encounter in my in my spare time.
Through now pay later another line I've seen recently, we tend to have a lot of our partners in the coffee space, giving my personal addiction and zone as important as we learned how to drive these consumer messages to learn a lot about marketing.
Understood how to leverage the channels that are merchants have that are natural and made it to them how we can.
Put both our intelligence and technology and dollars to to work there. So I'll be skipped equal you will see us do even more of that because we have must be very efficient.
I would not expect us to plunk billions of dollars into things like digital acquisition in our mail drops or anything so it wasn't the standard behaviors in the industry.
Mhm.
And then just wanted to touch upon debit plus.
One of the lucky ones can be like the part of the beta program and I noticed that there's that programs upwards of half a million people now. So I thought that number was was ultimately going to be a little bit less before the end of the year. So should we take that as an indication of stronger demand for debit plus and when you had originally anticipated or is there some other variable.
He should be considering.
I was literally embracing myself facing something like and then I got declined or something like that so I'm glad I.
I use my debit plus four to five times, a day and I haven't been to glide since the early alpha, but I'm still in the.
The nightmare of being declined card swipe comes to me from my teenage years.
It also.
Although the firm's history.
So that is.
Hard to.
Decide whether the pretty overwhelmingly positive support for debit plus they're gobbled from our users is more or less than we expected.
Billy ran another E mail to our entire userbase, saying, hey, plus it actually real like if you're in a waiting list.
It's coming and if you're not in the way. He was maybe you should and then it moved.
The waiting with adult grew by another double digit percentages just in Australia single announcement within our own user base. So we're going against the zero cards, one year ago. So it'll be infinite growth no matter, how we would like to quote I think it'll be Greek asked me to get into a few quarters, how old were doing but all signs point to it will be good, but I will channel banter might call. It.
Including your excel spreadsheet down and forecast nothing we will not know what this thing will look like for a while we're not budgeting any any volume any revenue in its a products that were bringing out there because.
There's really nothing like it out there forecasting into the full Derek you think it's awesome I literally swipe my card buying a bag of beans yesterday and the Guy next to me the lines Whoa that was so cool because of course on purpose I split a transaction right in front of him on my phone and it.
It's like.
Whoa man, what it goes back and so.
When do we have a few million dollars of those happening they'll be able to forecast how many marble.
So sit back and enjoy the experience.
Thanks, guys actually I get can I ask you a question.
Yeah. So what are you like in the card.
Like the card would you like that you're experiencing.
Yeah, the experience is pretty seamless.
<unk>.
The feature to payback in four is pretty intuitive and I.
I feel like the the.
The overall smoothness of the App and moving from from patient pages is pretty easy.
Excellent if you're on the 199.
And which finger amount has been pushed Juliet you'll see like a four X improvement in the loading speed up the transaction list on the front pain, it's really really embarrassing what it was until the 199, but once you get to one one it'll be supervised alright.
Sorry, I will keep on night, alright, Thanks, Mike customer research moment.
Oh the last question comes from Chris Bruntlett from da Davidson. Please go ahead.
Hi, Thanks for such a.
My question, Michael It seems like the the bigger issue give you all the success is going to be how you fund all this growth and I just love to hear an update on how you are thinking about the funding picture and also on the off balance sheet securitization.
That tends to create some.
Challenges potentially on the balance sheet I don't see the securitization acid on there anymore. So how are you Molly mat and even as you open the credit box to you expect the securitization has to be as successful as credit losses started to normalize. Thanks. So much.
[noise] so.
Your first question first we.
We grew total platform portfolio by about $2 billion, we added value of $120 million on the balance sheet made up of about $101.1 billion that we securitized on the balance sheet.
$250 million reduction in the warehouse funding, which is probably a little bit at.
Tighter even then we would like to run it that's what drove there really efficient equity capital required number that we posted this quarter and of course, the rest of it grew off balance sheet with the biggest piece be fort flow.
I think that strategy is going to continue to be in play today we.
Close to another.
Zero coupon securitization.
Zero financing programs are securitization and continue to have real success in that market. Despite the.
The rate movements and the.
Loosening of the credit box. So we're not we're not convinced what we're going to have a struggle there and yet as we've always discussed our approach to capital is to ensure that we've got multiple sources to fund the business.
And we're not going to be wet to any one funding model or lever and continue to invest in grand capacity across all of our funding types.
What about the opportunity to grow deposits.
Alternative for instance, as you got with milk, maybe Pat four three or three to five years, you don't want to be wholesale funded obviously, so it seems like a huge opportunity and a potential <unk>.
Solution to this problem of having too much growth.
Yeah, I certainly appreciate that too much growth problem, our capital team works really hard to ensure that we've cut adequate capacity in their wake up everyday ensuring that we can find the business today.
Today, our deposits are held by cost for bank and not a source of funding for the business, but we will always keep an eye on on other alternative methods as we scale this business at a pretty rapid clip.
Thanks, so much congratulations.
Ladies and gentlemen.
This concludes today's call you may disconnect you mind.
Thank you for participating and have a pleasant day.
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