Q2 2022 Affirm Holdings Inc Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by welcome.

Speaker 1: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Affirm Holdings Fiscal Year 2022 Second Quarter Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise.

Welcome to the a firm holdings fiscal year 2022 second quarter earnings Conference call.

At this time all lines have been placed on mute to prevent any background noise.

Speaker 1: Following the speaker's remarks, we will open the lines for your questions.

Following the speakers remarks, we will open the lines for a quote for your questions.

Speaker 1: As a reminder, this conference call is being recorded and a replay of the call will be available on your investor relations website for a reasonable period of time after the call..

As a reminder, this conference call is being recorded and a replay of the call will be available on your Investor Relations website for out for a reasonable period of time after the call.

I'd now like to turn the call over to Ron Clarke, Vice President of Investor Relations. Thank you you may begin thanks.

Speaker 1: I'd now like to turn the call over to Ron Clark, Vice President of Investor Relations. Thank you. You may begin. Ron Clark Thanks, operator. Before we begin, I'd like to remind everyone listening that today's call may contain forward-looking statements.

Thank you operator before we begin I'd like to remind everyone listening that todays 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.

Speaker 1: 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.

Speaker 1: 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.

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.

Speaker 1: In addition, today's call may include non-GAAP financial measures.

Speaker 1: These measures should be considered as a supplement to, but not as a substitute for, GAAP financial measures.

These measures should be considered as a supplement to but not as a substitute for GAAP financial measures.

Speaker 1: 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.

Conciliations 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.

Speaker 1: Hosting today's call are Matt Levchin, the firm's founder and chief executive officer, and Michael Linford, the firm's chief financial officer. With that, I'd like to turn over.

<unk> Chief Financial Officer.

With that I'd like to turn over the call to map to begin.

Hello, and thank you for joining us on this earnings call.

Speaker 1: Hello and thank you for joining us on this earnings call.

Speaker 1: Affirm is just a handful of days away from its 10th anniversary, and this earnings report also marks the first anniversary of our public service.

<unk> is just a handful of days away from its 10th anniversary. This earnings report also marks the first anniversary of our public debut.

While the road ahead of us is significantly longer than the one we've travelled so far the Acacia does warrant a moment of reflection on the execution of our strategy during the last 12 months.

Speaker 1: While the road ahead of us is significantly longer than the one we've traveled so far, the occasion does warrant a moment of reflection on the execution of our strategy during the last 12 months.

We feel great about our progress.

Speaker 1: We remain quite unpivoted and focused on delivering long-term compounding value to all our stakeholders, consumers, merchants, employees, and shareholders.

We remain quite unlimited and focused on delivering long term compounding value to all our stakeholders consumers merchants employees and shareholders.

Speaker 1: As we introduced ourselves to the public markets a year ago, we talked about several key themes.

As we introduced ourselves to the public markets a year ago, we talked about several key themes.

Speaker 1: first and foremost is our mission, which is to deliver honest financial products to improve lives and to do so while delighting the people we get to serve every day.

First and foremost is our mission, which is to deliver honest financial products to improve lives and to do so while delighting the people who get to serve every day.

Because the opportunity embedded in our mission is still so vast and open consumer growth is very important to our firm we've done very well indeed, our active consumer growth accelerated growing by 50% to provide well north of 11 million people with a smarter way to pay.

Speaker 1: Because the opportunity embedded in our mission is still so vast and open, consumer growth is very important to offer. We've done very well. Indeed, our active consumer growth accelerated, growing by 150 percent, to provide well north of 11 million people with a smarter way to pay.

Speaker 1: growth for us is never just about getting the next million consumers.

Growth for US is never just about getting the next million consumers.

It's also about the impact it can have on our financial wellbeing of the folks who rely on a farm.

Speaker 1: It's also about the impact we can have on the financial well-being of the folks who rely on us.

Speaker 1: We've also talked about our other all-important constituent, the merchant.

We've also talked about our other all important constituent the merchant.

Afirma is as much a safe and transparent pay over time option for the buyer as it is the ultimate marketing tool for the seller, we help our partners drive meaningful incremental sales without needing to resort to gimmicks or discounting.

Speaker 1: Affirm is as much a safe and transparent pay-over-time option for the buyer as it is the ultimate marketing tool for the seller. We help our partners drive meaningful incremental sales without needing to resort to gimmicks or discounts.

Speaker 1: The number of active merchants on our platform is another key measure for our firm, and over the last year, we've significantly expanded our reach. There too, we accelerated, with a more than 20x increase from a year ago, and a 64% increase from the rolling 12-month tally we reported just 90 days ago.

The number of active merchants on our platform is another key measure for our firm over the last year, we've significantly expanded our reach there too we accelerated with a more than 20 X increase from a year ago and a 64% increase from the rolling 12 months tally, we reported just 90 days ago.

As a company founded by Engineers, we focused early on investing heavily in technology scalable data to economically support the smallest of businesses all the way up to the world's largest retailers. We've continued this policy of investment and development in pursuit of technological competitive superiority. The strategy is working.

Speaker 1: As a company founded by engineers, we focused early on investing heavily in technology, scalable enough to economically support the smallest of businesses all the way up to the world's largest retail industry.

Speaker 1: We've continued this policy of investment and development in pursuit of technological competitive superiority. The strategy is working and delivering results.

And delivering results in fact, our technology is what has enabled us to work with tech savvy Giants, such as Walmart Shopify, Amazon and target.

Speaker 1: In fact, our technology is what has enabled us to work with tech-savvy giants such as Walmart, Shopify, Amazon, and Target.

We estimate that this year affirmed process to one 6% of all U S outlined transaction volume for the Black Friday, Cyber Monday period, another triple digit increase from last year simultaneously, a momentous number and a signifier of just how early we are in this market.

Speaker 1: We estimate that this year, the firm processed 1.6% of all US online transaction volume for the Black Friday, Cyber Monday period. Another triple digit increase from last year.

Speaker 1: Simultaneously a momentous number and a signifier of just how early we are in this market. Even a decade in, the ramp up to the holiday shopping rush is an intense yet exhilarating exercise in scalability prepared.

Been a decade in the ramp up to the holiday shopping rush is an intense exhilarating exercise in scalability preparedness.

Speaker 1: Each year's Black Friday weekend brings by far the greatest number of concurrent transactions we've ever experienced.

Each year's Black Friday weekend brings by far the greatest number of concurrent transactions we've ever experienced.

I'm very proud of our engineering teams for delivering another flawlessly executed a record breaking black Friday weekend and I'm also grateful to our friends at Shopify Engineering, who had learnt some of the technical expertise to us as we prep in the days before.

Speaker 1: I'm very proud of our engineering teams for delivering another flawlessly executed, record-breaking Black Friday weekend. And I'm also grateful to our friends at Shopify Engineering who had lent some of their technical expertise to us as we prepped in the days before.

It is an offer heated outage that product innovation slows down as companies go public.

Speaker 1: It is an oft-repeated adage that product innovation slows down as companies go public.

Speaker 1: I'm pleased to report that we were able to accelerate our product delivery since the IPO. We've rolled out cashback rewards for participating merchants, delivered the unique adaptive checkouts, launched the Affirm Super app and the Affirm Chrome extension and introduced the beta version of super simple, consumer friendly crypto safe.

I am pleased to report that we were able to accelerate our product delivery since the IPO, we've rolled out cashback rewards for participating merchants delivered the unique adaptive checkout launched the affirm super App and reaffirm chrome extension and introduced the beta version of Super simple consumer friendly crypto savings you.

Speaker 1: You may have noted the announcement of Visa being the launch partner for Debit Plus, which is now in the initial waitlist rollout.

You May have noted the announcement of visa being the launch partner for debit plus which is now in the initial weightless rollout.

Speaker 1: Though I will continue to caution you to not yet get crazy forecasting this product's impact on our P&L at scale, I do have fun insight to share.

I will continue to caution you to not yet get crazy forecasting this products impact on our P&L at scale I do have fun insight to share on.

Speaker 1: On average, the number of weekly transactions by a Debit Plus consumer, excluding our own employees, is greater than an order of magnitude above that of a regular Affirm user. Of course, these are enthusiastic early adopters and we fully expect the number to normalize, but it's exciting to see first glimpses of what Affirm as a daily instrument might look like. We remain very excited about the future of this product.

On average the number of weekly transactions by debit plus consumer excluding our own employees.

Greater than an order of magnitude above that of a regular affirmed user of course. These are enthusiastic early adopters and we fully expect the number to normalize but it's exciting to see first glimpses of what our firm is a daily instrument might look like we remain very excited about the future of this product and expect to talk a lot more about it this year.

Speaker 1: We have said last year that BNPL is an international phenomenon, and we intend to bring a firm's unique no-laid-fees, no-gotchas, no-regrets approach well beyond our home board.

We had said last year that the NPL is an international phenomenon and we intend to bring our firm's unique no late fees no gotcha, no regrets approach well beyond our home borders over the last 12 months, we've solidified our industry leadership with pay bright Biopharm, and Canada and launch in Australia, Our first non North American market.

Speaker 1: Over the last 12 months, we've solidified our industry leadership with PayBride by a firm in Canada, and launched in Australia our first non-North American market. And the growth of our business continues.

And the growth of our business continues to accelerate our firm had more than 160000 active merchants on the platform as of the end of calendar 2021, largely thanks to our partnerships with online commerce platforms in aggregate affirm is now president sites that account for more than half of all U S ecommerce and that number continues.

Speaker 1: Affirm had more than 168,000 active merchants on the platform as of the end of calendar 2021, largely thanks to our partnerships with online commerce platforms. In aggregate, Affirm is now present on sites that account for more than half of all US e-commerce and that number continues to march higher every day.

March higher everyday.

In our second quarter year over year, GMB growth accelerated to 115% from 84% in our first fiscal quarter moving beyond the testing phase of our collaboration with Amazon before the holidays, but a significant driver of this growth. However, if you exclude Amazon RGB still doubled year over year.

Speaker 1: In our second quarter, year-over-year GMB growth accelerated to 115% from 84% in our first fiscal quarter.

Speaker 1: Moving beyond the testing phase of our collaboration with Amazon before the holidays, we are a significant driver of this growth. However, if you exclude Amazon, RGNV still doubled year over year.

We are highly cognizant of the fact that over 80% of commerce still conducted offline or.

Speaker 1: we are highly cognizant of the fact that over 80% of commerce is still conducted off-

Our recently announced partnerships with Verifone and Adient are just two of the numerous investments, we're making with our partners to bring honest financial products to consumers at the physical point of sale. We're also expanding the ability to use it from in store with our own product like that with plus or.

Speaker 1: Our recently announced partnerships with Verifone and Adian are just two of the numerous investments we're making with our partners to bring honest financial products to consumers at the physical point of sale. We're also expanding the ability to use a firm in-store with our own products like DevOps Plus.

Speaker 1: Our focus on using exceptional technology to drive growth and improve efficiency has been a winning strategy for our firm, and we never stopped finding ways to optimize and deliver even more value. This shows up in our results in a number of ways from new partnerships to long standing relationships. For example, iterating over the last three years, our relationship with Walmart has grown as we proved the value of our products. We expect similarly great things from our other major partnerships with Walmart and our firm.

Our focus on easing exceptional technology to drive growth and improve efficiency has been a winning strategy for our firm and we never stop finding ways to optimize and deliver even more value. This shows up in our results in a number of ways from new partnerships to longstanding relationships for example, integrating over the last three years our relationship with Walmart has.

<unk> grown as we prove the value of our products. We expect similarly, great things from our other major partnerships with time.

As we develop with an alert from each customer we are excited to bring these learnings and products. They engender to all merchants big and small the strength of our network is measured in merchant coverage and repeat consumer engagement both of which are rising rapidly. We grew total transactions by 200.

Speaker 1: As we develop with and learn from each customer, we are excited to bring these learnings and the products they engender to all merchants, big and small. The strength of our network is measured in merchant coverage and repeat consumer engagement, both of which are rising rapidly. We grew total transactions by 218% and transactions per active user by 15% year over year, even as we added a tremendous number of new consumers.

18% and transactions per active user by 15% year over year, even as we added a tremendous number of new consumers.

Speaker 1: Our momentum is strengthening, our strategy is working, and we are extending our lead.

Our momentum is strengthening our strategy is working and we are extending our lead with.

Speaker 1: We intend to double down on the three key things that got us here. 1. Deliver unique and delightful financial products that align fully with our mission.

We intend to double down on our three key things that got us here won't deliver unique and delightful financial product that aligns fully with our mission to continue to be the partner of choice for merchants that care about intelligent growth scalability and reliability and three.

Speaker 1: 2. Continue to be the partner of choice for merchants that care about intelligent growth, scalability, and reliability. 3. Deepen our underwriting advantage.

Deepen our underwriting advantage.

Speaking of underwriting.

We managed risk.

Speaker 1: Though we are an easy to understand tool to maximize one's personal capital and the retail marketer's best friend, at our core, a firm is ultimately a risk manager.

Though we aren't easy to understand tool to maximize one's personal capital and the retail marketers best friend at our core affirm is ultimately a brisk managing business. We facilitate the transaction settled with the merchants soon thereafter and build the buyer over a predetermined period of time.

Speaker 1: facilitate the transaction, settle with the merchants soon thereafter, and build the buyer over a predetermined period.

But wait there is more when we charge interest, which we don't always do we don't compounded into principal. Moreover, we don't compound interest after it reaches the amount we communicated to the consumer at purchase time, we've refined interest when the buyer Prepays, we don't even charge late fees.

Speaker 1: But wait, there's more. When we charge interest, which we don't always do, we don't compound it into principle. Moreover, we don't compound interest after it reaches the amount we communicated to the consumer at purchase time. We refund interest when the buyer prepays. We don't even charge late fee.

Speaker 1: These are all deliberate choices made in the first few days of our companies.

These are all deliberate choices made in our first few days of our company's life, we meant to align ourselves with our consumers in this manner of boding, the moral hazard of capitalizing on their mistakes for revenue opportunities.

Speaker 1: We meant to align ourselves with our consumers in this manner, avoiding the moral hazard of capitalizing on their mistakes for revenue.

Speaker 1: These decisions are as unmissioned and moral as they are self-serving. These policies are an important part of why our consumer satisfaction is so high and we only want it to go up.

These decisions are as admission and moral as their self serving these policies are an important part of why our consumer satisfaction is so high and we only wanted to go up.

With the self imposed guardrails exceptional underwriting and risk management frameworks are a requirement.

Speaker 1: exceptional underwriting and risk management frameworks are a requirement.

That's why we underwrite every transaction before making a credit decision. Unlike some of our competitors in the NPL space, who readily admit they do know underwriting at all.

Speaker 1: That's why we underwrite every transaction before making a credit decision, unlike some of our competitors in the BNPL space who readily admit they do no underwriting at all. It is also important to understand that the

It is also important to understand that unlike many players in our industry, we do not treat delinquencies or defaults as an outcome of our business decisions. Indeed, we choose acceptable delinquency rates as an input into our decision, making based on the pricing our products command with our customers our view of the macroeconomic conditions.

Speaker 1: Do not treat delinquencies or defaults as an outcome of our business.

Speaker 1: Indeed, we choose acceptable delinquency rates as an input into our...

Speaker 1: based on the pricing our products command with our customers, our view of the macroeconomic conditions, and the demand for our loan volume in the capital market.

And the demand for our loan volume in the capital markets. This.

Speaker 1: This distinction may seem subtle, but I think it really helps understand our approach.

This distinction may seem subtle, but I think it really helps understand our approach to risk.

We spent the last decade building, what we believe to be one of the best in class credit underwriting ecosystems data tools processes and teams that deliver underwriting models with some of the very best results in the industry.

Speaker 1: We spent the last decade building what we believe to be one of the best in class credit underwriting ecosystems.

Speaker 1: data, tools, processes, and teams that deliver underwriting models with some of the very best results in the industry.

Today, I'll pull the curtain back a little and while I will keep it very high level in part to avoid giving out trade secrets feel free to tune out for a few minutes, while I have no doubt.

Speaker 1: Today, I'll pull the curtain back a little, and while I will keep it very high level in part to avoid giving out trade secrets, feel free to tune out for a few minutes while I nerd out.

Speaker 1: A firm's underwriting advantage begins before any of our models are interrogated for a decision with our product.

Firms underwriting advantage begins before any of our models are interrogated for a decision with our product design.

Because affirm is predominantly offered at the point of sale, we have a natural opportunity to explain our value and transparent approach to the consumer.

Speaker 1: Because a firm is predominantly offered at the point of sale, we have a natural opportunity to explain our value and transparent approach to the consumer.

Speaker 1: As a result, we avoid much of the adverse selection that often comes with traditional lending.

As a result, we avoid much of the adverse selection that often comes with traditional lending.

Coupled with the SKU level data, we received from our partners our models tend to split the risk far better than those used in traditional consumer loans.

Speaker 1: Coupled with skew level data we received from our partners, our models tend to split the risk far better than those used in traditional consumer...

Another fundamental structural advantage of firm has is its total separability of transactions. Unlike providers of lines of credit, we underwrite transactions individually modeling of consumers' ability to pay us back as well as their propensity to do so.

Speaker 1: Another fundamental structural advantage a firm has is its total separability of transactions. Unlike providers of lines of credit, we underwrite transactions individually, modeling a consumer's ability to pay us back as well as their propensity to do so. This notion of separability...

This notion of separability is also recursive a.

A consequence of our product because repayment schedules are highly predictable our models operate at an individual installment level. The separability is a powerful tool for modeling as well as managing risks, we're able to deliver a reliable forward looking picture of what consumers and our own cash flow.

Speaker 1: This separability is a powerful tool for modeling as well as managing risk. We're able to deliver a reliable forward looking picture of both consumers and our own.

Speaker 1: Our proprietary network of directly integrated merchants, as well as other sources of non-traditional underwriting data, offers us a significant raw data advantage in feature engineering.

Our proprietary network of directly integrated merchants as well as other sources of non traditional underwriting data offers us a significant raw data advantage into feature engineering.

We maintain a library of over 500 features that we select from as we create new models or update existing ones, while continuously looking for and eliminating any potential for disparate impact in our decisioning, both at the individual variable and model levels.

Speaker 1: We maintain a library of over 500 features that we select from as we create new models or update existing ones while continuously looking for and eliminating any potential for disparate impact in our decisioning, both at individual variable and model.

Speaker 1: We train our models using academically well understood gradient boosting.

We train our models using academically well understood gradient boosting technique with significant proprietary modifications, we've invented that help us improve results.

Speaker 1: with significant proprietary modifications we've invented that help us approve results.

Because from the theory, beginning we focused equally on consumer and merchant information. We ended up with a large number of models that are specific to a product and merchants who use them.

Speaker 1: because from the very beginning, we focused equally on consumer and merchant information, we ended up with a large number of models that are specific to our products and merchandise.

Speaker 1: Moreover, as we launch new products with new and existing partners, we acquire new types of data that we incorporate into the models and over time give incremental

Moreover, as we launch new products with new and existing partners, we acquire new types of data that we incorporate into the models and over time give incremental weight too.

Underwriting models to key overtime as macroeconomic conditions and consumer behaviors change, even the very best performing ones can lose a few percentage points of their area under the curve every few months over the years. We've built special purpose model that track model decay. The machine learning equivalent of a Canary in a coal mine, our proprietary software and processes.

Speaker 1: Underwriting models decay over time as macroeconomic conditions and consumer behavior

Speaker 1: even the very best performing ones can lose a few percentage points of their area under the curve every few minutes.

Speaker 1: Over the years, we've built special purpose models that track model decay, the machine learning equivalent of a canary in a coal mine. Our proprietary software and processes allow us to rapidly retrain, retest, and redeploy models with a performance that has deteriorated in a matter of...

Allow us to rapidly retrained retest and redeploy models with a performance has deteriorated in a matter of days.

Speaker 1: To illustrate this, let's take a side-by-side look at ITACS, one of our longest serving proprietary models versus a traditional credit scoring system like FICA.

To illustrate this let's take a side by side look at <unk>, one of our longest serving proprietary models.

As a traditional credit scoring system like FICO.

Speaker 1: Using ITACs, reducing originations by 10% would eliminate a third of all delinquencies in dollars, while using the traditional credit scoring system would only reduce delinquencies by a mere 13%

Using <unk>, reducing originations by 10% would eliminate a third of all delinquencies in dollars, while using the traditional credit scoring system would only reduce delinquencies by mere 13%, let's take it a step further if we were to reduce originations by 30% using I tax we would remove 70% of all delinquencies while the traditional score.

Speaker 1: Let's take it a step further. If we were to reduce originations by 30% using ITACs, we would remove 70% of all delinquencies, while the traditional score would only catch.

With only catch 36.

So needless to say this model slopes a lot better than their traditional industry standard.

Speaker 1: So needless to say, this model slopes a lot better than a traditional...

These achievements may sound quite abstract, but they have a very real impact with our superior underwriting capabilities a firm can approve many more college students buying tickets to see family after months of pandemic isolation and young parents picking up their first stroller.

Speaker 1: These achievements may sound quite abstract, but they have a very real impact. With our superior underwriting capabilities, the firm can approve many more college students buying tickets to see family after months of pandemic isolation, and young parents picking up their first stroll.

Speaker 1: And because a firm's average loan duration at origination, by design, is very short at just 5.2 months, the exceptional precision and recall of our credit models give us great confidence that our portfolio, both retained and sold, will continue to perform well in

And because our firm's average loan duration at origination by design is very short at just $5 two months, the exceptional precision and recall of our credit models give us great confidence that our portfolio both retained and sold will continue to perform well in the future.

Any use of advanced technology has both advantages and risks associated with it as we push our model performance further in pursuit of expanding our offerings. We worked just as diligently on ensuring that our models are both complying with all applicable laws and rules and that our model decisions are both reasonable and are under.

Speaker 1: Any use of advanced technology has both advantages and risks associated with it.

Speaker 1: As we push our model performance further in pursuit of expanding our offerings, we work just as diligently on ensuring that our models are both compliant with all applicable laws and rules. And that our model decisions are both reasonable and are understandable by consumers. We regularly audit our models to avoid correlation with prohibited basis and have them audited externally. We also invest heavily in explainability of model outcomes so that both consumers and regulators can understand our decisions quite easily.

<unk> by consumers, we've regularly audits our models to avoid correlation was prohibited basis and have them audited externally. We also invest heavily in explain ability of model outcomes. So that both consumers and regulators can understand our decisions quite easily.

None of this of course would exist without the extraordinary team of people that make it all possible I am truly fortunate to have been able to start this company with a group of brilliant minds, who in turn attracted more and more talented folks to join our mission and bring their mathematical and other talents to bear.

Speaker 1: None of this, of course, would exist without the extraordinary team of people that make it all possible.

Speaker 1: I am truly fortunate to have been able to start this company with a group of brilliant minds who in turn attracted more and more talented folks to join our mission and bring their mathematical and other talents to the world.

It is this embarrassment of riches among my teammates that makes me so optimistic about the next decade of a firm large some of these numbers might be.

Speaker 1: It is this embarrassment of riches among my teammates that makes me so optimistic about the next decade of Affirm. Large as some of these numbers might be, Affirm still accounts for around 1% of US e-commerce, and both consumers and merchants are genuinely excited to get more value from Affirm. And we're excited towater this heelsome and how

Our firm still accounts for around 1% of U S ecommerce and both consumers and merchants are genuinely excited to get more value from our firm.

And we are excited to deliver it.

Speaker 1: As usual, I want to thank my team for all their amazing work, and even during some pretty volatile moments for our stock price, for staying truly focused on a long-term value creation for all our stakeholders and on our mission. Now on to Michael for the numbers.

As usual I want to thank my team for older Amazing work.

Even during some pretty volatile moments for our stock price for stink truly focused on our long term value creation for all our stakeholders and then our mission.

Now onto Michael for the numbers.

Thanks, Mac and good afternoon, everyone.

Our second quarter results demonstrate a massive step change in our network scale driven by our partnership with the largest enterprises in our technology advantage.

Speaker 1: Our second quarter results demonstrate a massive step change in our network scale, given by our partnership with the largest enterprises and our technology advantages.

Speaker 1: Growth accelerated on both sides of our network as active consumers more than doubled, while active merchants increased more than 20 times.

Growth accelerated on both sides of our network is active consumer has more than doubled our active merchants increased more than 20 times.

Speaker 1: Frequency increased alongside that explosive user growth. Total transactions grew 218%. The fastest rate since our Series D private funding...

<unk> increased alongside that explosive user growth total transactions grew 218%.

Fastest rate since our series the private funding round.

We grew <unk> of 115% and revenue by 77%.

Speaker 2: We grew GMB 115% in revenue by 77%.

In November we completed the rollout of our initial offering at Amazon in the United States and even excluding Amazon contribution we significantly exceeded our outlook for both <unk> and revenue.

Speaker 2: In November , we completed the rollout of our initial offering at Amazon in the United States. And even excluding Amazon's contribution, we significantly exceeded our outlook for both PMB and revenue.

Unit economics, we're off to a strong revenue less transaction costs grew faster than revenue, 93% from the prior year.

Speaker 2: Union economics were also strong. Revenue-less transaction costs grew faster than revenue at 93% in the prior year.

And even as we accelerated network growth, we continue to operate with efficiency, reducing the equity capital used to fund our loans by 17% versus last year.

Speaker 2: And even as we accelerated network growth, we continued to operate with efficiency, reducing the equity capital we use to fund our loans by 17% versus last year.

With the accelerating growth of our business and the early traction with our enterprise partners. We are raising our outlook for fiscal year, 'twenty, two which will I'll share more about in a moment.

Speaker 2: With the accelerating growth of our business and the early traction with our enterprise partners, we are raising our outlook for fiscal year 22, which I'll share more about in a moment. Before I do that.

Before I do that let's walk through the second quarter results.

Speaker 2: Unless stated otherwise, all comparisons refer to our second fiscal quarter of 2022 versus Q2 of fiscal 21.

Unless stated otherwise all comparisons refer to our second fiscal quarter of 2022 versus Q2 of fiscal 'twenty one.

We had another great quarter for consumer growth active.

Speaker 2: We had another great quarter for consumer growth. Active consumers increased 150% to 11.2 million and increased 2.5 million sequentially from fiscal Q1.

Active consumers increased 150% to $11 2 million and increased $2 5 million sequentially from fiscal Q1.

Speaker 2: Despite adding users at this aggressive pace, we grew transactions per active consumer by 15% year to year and more than tripled the number of transactions.

Despite adding users at this aggressive pace, we grew transactions per active consumer by 15% year on year and more than tripled the number of transactions.

More merchants platforms and brands are leveraging the power of a trying to grow their businesses.

Speaker 2: More merchants, platforms, and brands are leveraging the power of a firm to grow their business.

Speaker 2: In the second quarter, active merchants grew to more than 168,000 from just 8,000 last year, thanks in large part to the scaling of our partnership with Shopify.

In the second quarter active merchants grew to more than 168000.

8000 last year. Thanks in large part to the scaling of our partnership with Shopify.

On a sequential basis active merchants, which we calculate over a trailing 12 month timeframe grew 64% from the September ending quarter.

Speaker 2: On a sequential basis, active merchants, which we calculate over a trailing 12-month timeframe, grew 64% from the September ending quarter.

Turning to <unk>.

Speaker 2: We grew GMV to $4.5 billion in our second quarter, a $2.4 billion increase from last year.

We grew dnb to $4 $5 billion in our second quarter, a $2 4 billion increase from last year.

Speaker 2: The 115% increase includes the volume from our partnership with Amazon.

115% increase includes the volume from our partnership with Amazon.

Speaker 2: We completed the launch of our interest-bearing program at Amazon in November , ahead of Black Friday. And while the program is still in its infancy, with a long roadmap of optimizations to work on, we've seen rapid consumer adoption. We look forward to years of growth in this collaboration.

We completed the launch of our interest bearing program at Amazon in November ahead of Black Friday.

And while the program installment infancy with a long roadmap of optimizations to work on we have seen rapid consumer adoption.

We look forward to years of growth in this collaboration.

We have strong momentum across our business, excluding Amazon GMB doubled with growth across all products and verticals.

Speaker 2: Splitting Amazon, GMB double with growth across all products and verticals.

Speaker 2: I would also note that our business with Peloton, our second largest merchant partner by GMV in the quarter, was up against an unusually strong prior year comp following the launch of a new product slate and boosted by COVID tailwind.

I would also note that our business with peloton, our second largest merchant partner by DMD in the quarter was up against an unusually strong prior year comp following the launch of a new product slate and boosted by Covid tailwind.

Speaker 2: As a testament to the increasing depth and breadth of our network, no single merchant accounted for more than 10% of Q2 GMV. One year ago, we discussed how we would expand into higher frequency purchase areas and diversify our merchant partners.

As a testament to the increasing depth and breadth of our network no single merchant accounted for more than 10% of Q2 GMP one.

One year ago, we discussed how we would expand into higher frequency purchase areas and diversify our merchant partnerships a year later I'm really proud of how our team has delivered on these objectives for our shareholders.

Speaker 2: A year later, I'm really proud of how our team has delivered on these objectives for our shareholders.

The thing the industry vertical we had a phenomenal holiday season with more.

Speaker 2: Difting the industry vertical, we had a phenomenal holiday season. We more than doubled our volume for Black Friday, Cyber Monday, and we believe we took significant market share from both traditional incumbents and BNPL peer plays.

Than doubled our volume for Black Friday, Cyber Monday, and we believe we took significant market share from both traditional incumbents in the NPL pure plays.

As Matt shared we estimate that a firm facilitated one 6% of total online transaction volume for the Black Friday Cyber Monday period in the U S and we saw particular strength in key holiday categories in Q2.

Speaker 2: As Max shared, we estimate that a firm facilitated 1.6% of total online transaction volume for the Black Friday, Cyber Monday period in the U.S. and we saw particular strength in key holiday categories in Q2.

Travel and ticketing increased 314% from last year topping last quarter's high mark even despite the emergence of the Amazon variant.

Speaker 2: Travel and ticketing increased up 314% from last year, topping last quarter's high mark even despite the emergence of the Omicron variant.

General merchandise grew to 368% above last year, driven by our deepening partnership with the industry, leading retailers and the launch of our offering at Amazon in the U S.

Speaker 2: General Merchandise grew 368% above last year, driven by our deepening partnership with the industry's leading retailers and the launch of our offering at Amazon in the US.

Consumer electronics, which grew 290% year to year with another great story, driven by strong demand for Tvs laptops and gaming consoles.

Speaker 2: Consumer Electronics, which grew 209% year to year, was another great story driven by strong demand for TVs, laptops, and gaming consoles.

Our results this holiday season, and our ability to take share and grow in any environment and importantly, why we're so different from the competition.

Speaker 2: Our results this holiday season hide our ability to take share and grow in any environment, and importantly, why we're so different from the competition.

Outside the U S. We had another outstanding quarter.

Speaker 2: Outside the US, we had another outstanding quarter. Our Canadian business more than tripled in size thanks to existing and new partnerships, including Apple, which launched in the fall to brisk consumer demand. In the second quarter, we also entered the Australian market with Peloton and look forward to growing our business with them.

Our Canadian business more than tripled in five thanks to existing and new partnerships, including Apple, which launched in the fall to British consumer demand in.

In the second quarter. We also entered the Australian market with peloton and look forward to growing our business with them there.

This quarter, our interest bearing program, which includes our initial offering at Amazon grew significantly up 124% year on year to $1 4 billion.

Speaker 2: This quarter, our interest-bearing program, which includes our initial offering at Amazon, grew significantly, up 124% year-on-year to $1.4 billion.

Speaker 2: Before I jump into the financials, let me walk through the mechanics of this offering to illustrate the impact on the income statement.

Before I jump into the financials, let me walk through the mechanics of this offering to illustrate the impact on the income statement.

On the revenue side.

Speaker 2: On the revenue side, we monetize these loans by either holding them to maturity or selling them to third parties.

As these loans by either holding them to maturity, we're selling them to third parties.

When we hold the loans, we primarily earn interest income, which we recognized over the duration of the loan.

Speaker 2: When we hold the loans, we primarily earn interest income, which we recognize over the duration of the loan.

Speaker 2: Hence, this quarter's revenue reflects just a portion of the total yield we will ultimately see from the GNV we generated in Q2. Alright and then, let's go back to Q3 to see if people he will recognize the balance

Hence this quarter's revenue reflects just a portion of the total yield you will ultimately see from the Dnb we generated in Q2.

We will recognize the balance over the subsequent quarters.

Speaker 2: As an illustrative data point, we sold 59% of the interest-bearing loans generated in the U.S. this quarter and retained the remains."

As an illustrative data point, we sold 59% of the interest bearing loans generated in the U S. This quarter and retained the remainder.

On the expense side, the provision for credit losses upfront for loans. We hold this means that the margin profile is back end weighted.

Speaker 2: On the expense side, the provision for credit losses up front. For loans we hold, this means that the margin profile is back in when...

Our partnerships with key enterprise merchants are unlocking more opportunities for our business everyday and we are investing today to realize the full long term potential.

Speaker 2: Our partnerships with key enterprise merchants are unlocking more opportunities for our business every day. We are investing today to realize the full long-term potential.

Speaker 2: While we were just in the beginning stages in scaling these partnerships, we are already seeing them drive network expansion and we expect to deliver strong unit economics when they rescale.

While we were just in the beginning phases in scaling these partnerships we are.

We're already seeing them driving network expansion and we expect to deliver strong unit economics, when they reach scale.

Now turning to the financials.

The strong GMB growth also drove strong revenue growth net revenue grew 77% to $361 million well above our outlook.

Speaker 2: The strong D&D growth also drove strong revenue growth. Net revenue grew 77% to $361 million, well above our outlook.

Total network revenue grew 39%, while interest income increased 87% and gain on loan sale rose four fold.

Speaker 2: Total network revenue grew 39%, while interest income increased 87%, and gain on loan sale rose fourfold.

Speaker 2: Revenue as a percentage of GMV contracted 170 basis points to 8%, driven by product.

Revenue as a percentage of GMB contracted 170 basis points to 8% driven by product mix.

Speaker 2: Split pay grew over four times year on year and accounted for more than 20% of GMB in the second quarter from just 11% last year.

What pay grew four times year on year and accounted for more than 20% of the dnb in the second quarter from just 11% last year.

In our earnings supplement posted to our Investor Relations website, you will see that merchant revenue take rates have remained relatively constant for each of our offerings.

Speaker 2: In our earnings supplement posted to our investor relations website, you will see that merchant revenue take rates have remained relatively constant for each of our options.

On the expense side, we continue to grow revenue faster than transaction costs delivering real leverage.

Speaker 2: On the expense side, we continue to grow revenue faster than transaction costs, delivering real level.

Speaker 2: Total transaction costs of $177 million grew 63% year over year, compared to revenue growth of 77%.

Total transaction cost of $177 million grew 63% year over year compared to revenue growth at 77% in.

Speaker 2: and excluding provision for credit losses, transaction cost as a percentage of GMB declined 190 basis points to 2.8%.

And excluding provision for credit losses transaction costs as a percent of the GMT declined 190 basis points to two 8%.

Speaker 2: Given the makeshift from longer duration 0% APR load.

Given the mix shift from longer duration.

APR loans.

Boston loan purchase commitments declined 4%, while improvements in our capital program up limit the growth of funding costs to 47%.

Speaker 2: Loss on loan purchase commitments declined 4%, while improvements in our capital program help limit the growth of funding costs to 47%.

Provision for credit losses grew from $13 million, one year ago to $53 million.

Speaker 2: Provision for credit losses grew from $13 million one year ago to $53 million as a year ago figure included a $39 million release of excess COVID-related loan allowance, while this year's figure reflects the intentional normalization of credit that we've discussed over the past several quarters.

As a year ago figure included a $39 million release of excess COVID-19 related loan allowance. While this year's figure reflects the normalization of credit that we've discussed over the past several quarters.

Over the first half of the fiscal year, we have managed delinquencies 30 days or more to remain below the same periods of fiscal 2019 and 2020, even as we have expanded the credit box to a more normalized level.

Speaker 2: Over the first half of the fiscal year, we have managed delinquencies of 30 days or more to remain below the same periods of fiscal 2019 and 2020, even as we have expanded the credit box to a more normalized level compared to the early days of the pandemic.

Compared to the early days of the pandemic.

Our strong top line growth and leverage we achieved on transaction costs drove a 93% increase in revenue less transaction costs to $184 million above our outlook range or for 1% of the GMB.

Speaker 2: Our strong top-line growth and leverage we achieved on transaction costs drove a 93% increase in revenue-less transaction costs to $184 million above our outlook range for 4.1% of GMV.

Looking at Opex beyond transaction costs, we continue to invest in building our team and elevating our brand we doubled head count to more than 2000 of farmers and increased marketing around the holidays.

Speaker 2: Looking at optics beyond transaction costs, we continue to invest in building our team and elevating our brand. We doubled headcounts to more than 2,000 of farmers and increased marketing around the holidays.

Speaker 2: Our teams have delivered a torrent of exciting new offerings, while our brand campaign drove greater awareness across all age cohorts and helped us reach the highest aid awareness among BNPL providers at 45%. Growing our team resulted in higher personnel...

Our teams have delivered a torrent of exciting new offerings, while our brand campaign drove greater awareness across all age cohorts and helped us reach the highest aided awareness among the NPL providers at 45%.

Growing our team resulted in higher personnel costs and stock based compensation.

Speaker 2: In Q2, total operating expenses, exclusive transaction costs grew $258 million, of which $158 million was related to DNA, stock-based compensation, warrant expense, and one-time expenses related to our IPO and acquisition.

In Q2 total operating expenses exclusive of transaction costs grew $258 million.

Which $158 million was related to DNA stock based compensation warrant expense and onetime expenses related to our IPO and acquisitions.

Excluding these items non transactional operating expenses grew 109%.

On a GAAP basis operating loss was $196 million, which compares to a loss of $27 million last year.

Speaker 2: adjusted operating loss was $8 million in the quarter compared to a $3 million of income in the prior year.

Adjusted operating loss was 8 million in the quarter compared to a $3 million of income in the prior year.

Now turning to our balance sheet, we fortified our cash position and delivered accelerating GMB growth, while continuing to manage our capital with discipline the inefficiency.

Speaker 2: Now turning to our balance sheet, we fortified our cash position and delivered accelerating GMB growth while continuing to manage our capital with discipline and efficiency.

Speaker 2: In November , we issued $1.7 billion in zero coupon senior convertible notes with a five-year maturity, which has significantly increased the capital we have to invest and grow, at an extremely attractive long-term borrowing cost while minimizing the loss of capital.

In November we issued $1 7 billion zero coupon senior convertible notes with a five year maturity, which has significantly increased the capital we have to invest in growth.

At an extremely attractive long term borrowing costs, while minimizing dilution.

Our effective capital markets program in December .

Speaker 2: Our effective capital markets program in disinterference helped to reduce equity capital used to fund our business from $277 million last year to $230 million, even as loans on the balance sheet grew by more than $500 million.

To reduce equity capital used to fund our business from $277 million last year to $230 million, even as loans on the balance sheet grew by more than $500 million.

Speaker 2: As a percentage of total platform portfolio, equity capital required declined to 3.6% from 7.5% last year.

As a percentage of total platform portfolio.

Equity capital required declined to three 6% from seven 5% last year.

Hello platform portfolio grew 72% from $3 7 billion to $6 3 billion at the end of Q2, and we increase our overall funding capacity in line from $4 $7 billion last year to $8 $8 million.

Speaker 2: Total platform portfolio grew 72% from $3.7 billion to $6.3 billion at the end of Q2. And we increased our overall funding capacity in line from $4.7 billion last year to $8.8 billion last year.

Speaker 2: Over the past year, we brought on $1.9 billion in new loan buyer commitments from both new and existing capital partners.

Over the past year, we brought on $1 9 billion in new new loan by our commitments from both new and existing capital partners.

Speaker 2: Our balances held by third party loan buyers from our forward flow program grew 129% to $3.7 billion, while our securitization program grew 83%.

Our balances held by third party loan buyers from our Ford flow program grew 129% to $3 7 billion, while our securitization program grew 83%.

Our help balances declined 24% as we continue to focus on more efficient funding vehicles.

Speaker 2: Our health balance has declined 24% as we continue to focus on more efficient funding.

Speaker 2: Before I move to our outlook, I want to touch on an important topic that has been top of mind for investors, interest rates.

Before I move to our outlook I wanted to touch on an important topic that has been top of mind for investors interest rates.

Speaker 2: While potential interest rate hikes have dominated headlines, we remain confident in our ability to continue to grow rapidly while delivering strong economics as rates rise.

While potential interest rate hikes have dominated headlines.

We remain confident in our ability to continue to grow rapidly while delivering strong economics as rates rise.

Speaker 2: Our financial outlook already reflects the roughly 180 basis point increase embedded in a three-month LIBOR forward curve. And our current long-term model, which calls for revenue that's transaction costs of 3 to 4%, also assumes rate normalization.

Our financial outlook already reflects the roughly 180 basis point increase embedded in the three months LIBOR forward curve.

And our current long term model, which calls for revenue of transaction costs of 3% to 4% also assumes rate normalization.

We had significant advantages to help us mitigate the impact of rising rates, including <unk>.

Speaker 2: We have significant advantages to help us mitigate the impact of rising rates, including.

Speaker 2: broad and diverse funding partnerships, and allow it to shift funding to less rate-sensitive counterparts.

Broad and diverse funding partnerships allow us to ship funding to less rate sensitive counterparties.

Speaker 2: sophisticated underwriting and risk management infrastructure that allows us to manage unit economics with changes to our cost environment and high turnover short term assets that make our portfolio inherently nimble and able to react quickly to changing market conditions.

Sophisticated underwriting and risk management infrastructure that allows us to manage the economics with changes to our cost environment and high turnover short term asset that make our portfolio inherently nimble and able to react quickly to changing market conditions.

At a constant product and funding mix, we estimate that a 100 basis point increase beyond the increase implied by the current yield curve would only result in a 10 to 20 basis point impact to revenue less transaction costs as a percentage of <unk> for the remainder of fiscal year 'twenty two.

Speaker 2: At a constant product and funding mix, we estimate that a 100 basis point increase beyond the increase implied by the current yield curve would only result in a 10 to 20 basis point impact to revenue less transaction costs as a percentage of GMV for the remainder of fiscal year 22.

Speaker 2: Looking out to fiscal 23, we believe that a further 100 basis point rate increase, again, beyond current expectations, would only result in approximately 20 basis point impact to revenue less transaction costs as a percentage of the GMB based upon our current funding and GMB.

Looking out to fiscal 'twenty three we believe that a further 100 basis point rate increase again beyond current expectations will only result in approximately 20 basis point impact to revenue less transaction costs as a percent of the GMB based upon our current funding in <unk>.

Speaker 2: And that is before we apply any of the numerous offsets we have, including consumer and merchant pricing, funding strategies, and credit optimization.

And that is before we apply any of the numerous offsets we have including.

Including consumer and merchant pricing funding strategies in our credit optimizations.

Looking beyond fiscal year 'twenty three at our current funding and product mix, we estimate the impact to revenue less transaction costs as a percentage of <unk> to be approximately 40 basis points for every 100 basis points of rate movement beyond the current forward curve.

Speaker 2: Looking beyond fiscal year 23, at our current funding and product mix, we estimate the impact to revenue by transaction costs as a percentage of GMV to be approximately 40 basis points for every 100 basis points of rate movement beyond the current board curve. And again, that is before applying any cost, credit and revenue optimizations.

And again, that's before applying any cost credit and revenue optimization.

Now turning to the outlook.

Speaker 2: Our business has never been stronger. And as we look to the remainder of our fiscal year, we are raising our financial outlook to reflect the robust second quarter results, accelerating momentum in the business, and we are now including Amazon's expected contribution to the outlook.

Our business has never been stronger and as we look to the remainder of our fiscal year, we are raising our financial outlook to reflect the robust second quarter results accelerating momentum in the business and we are now, including Amazon and the expected contribution to the outlook.

For fiscal year 'twenty, two we now expect G&A to be between $14 five eight and $14 78 billion, representing a 76% to 78% increase for fiscal year 'twenty one.

Speaker 2: For fiscal year 22, we now expect GMB to be between 14.58 and 14.78 billion, representing a 76 to 78% increase for fiscal year 21.

Given the strong traction we're seeing with shopify.

Speaker 2: Given the strong traction we're seeing with Shopify, we now expect our split pay offering to comprise 15 to 20% of total GNV for the fiscal year.

We now expect our split pay offering to comprise 15% to 20% of total GMB for the fiscal year.

We expect revenue of 109 to $1 31 billion representing year over year growth of 48% to 50%.

Speaker 2: We expect revenue of 1.29 to 1.31 billion, representing year-over-year growth of 48 to 50 percent.

We expect transaction costs of $705 million to $715 million, resulting in revenue less transaction costs of $585 million to $595 million.

Speaker 2: We expect transaction costs of 705 to 715 million, resulting in revenue-less transaction costs of 585 to $595 million. This reflects the continuing impact of the COVID-19 pandemic.

This reflects the continued mix shift we're seeing in the business.

We expect an adjusted operating loss as a percentage of total revenue of 12% to 14% as we continue to invest in our long term growth of our business.

Speaker 2: We expect an adjusted operating losses percentage or revenue of 12 to 14% as we continue to invest in the long term growth of our business. And way to the average share the proc.

And weighted average shares of approximately $285 million.

Consistent with <unk> remarks, our outlook does not assume a material impact from the rollout of debit plus.

Speaker 2: Consistent with MAC's remarks, Airlock does not assume a material impact from the rollout of DevApplause.

We also expect a very strong fiscal third quarter with <unk> of $3 six 1% to $3 71 billion.

Speaker 2: We also expect a very strong fiscal third quarter with GMV of 3.61 to 3.71 billion.

Total revenue of $325 million to $335 million.

Speaker 2: Total revenue of $325 to $335 million.

Transaction cost of $187 million to $192 million.

Speaker 2: transaction costs of $187 to $192 million.

Revenue less transaction costs of $138 million to $143 million.

Speaker 2: and revenue less transaction costs of $138 to $143 million.

Speaker 2: adjusted operating loss as percentage of revenue of 19 to 21%, and weighted average shares at the same name of 290.

Adjusted operating loss as a percentage of revenue of 19% to 21%.

And weighted average shares outstanding of $290 million.

In closing, we just posted an incredible quarter, Greg and our team is seizing this momentum to continue to deliver on our mission.

Speaker 2: In closing, we just posted an incredible quarter of a break, and our team is seizing this momentum to continue to deliver on our...

Speaker 2: I'd like to add my thanks to the great work of all of our members this quarter. That's an island.

I'd like to add my thanks to the great work all farmers this quarter.

Max and I will now open the line for questions.

Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.

Speaker 3: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session.

If you'd like to ask a question you May press star one on your telephone keypad, a 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.

Speaker 3: If you'd like to ask a question, you may press star one on your telephone keypad. A 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 your handset before pressing the star key.

Speaker 3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment, while we poll for questions.

Before we open it up for Q&A I want to briefly address the earlier than customary issuance of our earnings press release today due to human error, a small portion of our Q2 results were inadvertently tweeted from our firm's official Twitter account earlier today and because of that we felt it was appropriate to release, our full financial results.

Speaker 1: Before we open it up for Q&A, I want to briefly address the earlier than customary issuance of our earnings press release today. Due to human error, a small portion of our Q2 results were inadvertently tweeted from a firm's official Twitter account earlier today. And because of that, we felt it was appropriate to release our full financial results as promptly as possible thereafter, rather than waiting until after the market closed. With that, I'll turn it over to Doug to begin the Q&A.

So as promptly as possible thereafter, rather than waiting until after the market closed.

With that I'll turn it over to Don to begin the Q&A session.

Thank you. Our first question comes from the line of James Fawcett with Morgan Stanley . Please proceed with your question.

Speaker 3: Thank you. Our first question comes from the line of James Fawcett with Morgan Stanley . Please proceed with your question.

Alright. Thank you very much I guess my first question is obviously the December quarter was massive for you guys.

Speaker 4: Great, thank you very much. I guess my first question is, obviously, the December quarter was massive for you guys.

Speaker 4: But the outlook doesn't seem as comparatively strong, especially the March quarter, and particularly if we're now incorporating more split pay from Shopify and Amazon, et cetera. Can you walk us through kind of that dynamic, especially on a sequential basis? I mean, is this seasonality more than expected drag from Peloton impact of revenue timing on Amazon and others? Just kind of help us understand the sequential evolution of the business.

But the outlook doesn't seem is comparatively strong, especially the march quarter, and particularly if we're now incorporating.

More split pay from from Shopify, and Amazon et cetera can you walk us through kind of that dynamic, especially especially on a sequential basis. I mean is this seasonality more than expected drag from peloton impact of revenue timing on Amazon and others.

Just kind of help us understand the sequential.

Evolution of the business.

Yeah, I'll grab that one then.

Speaker 2: You know, I think to start off, we're very happy with the pace of scaling in the network. The Q4 results that you said were pretty spectacular, sorry, calendar Q4 results were pretty spectacular. And it was indeed a special quarter.

I think to start off we're very happy with the pace of scaling in the network. The Q4 results that you said were pretty spectacular sorry calendar Q4 results were pretty spectacular.

And it was indeed, a special quarter.

Speaker 2: We are reiterating our guidance and taking it up. So, our outlook continues to improve for the balance of the fiscal year. And we're still well in excess of the growth phase. We're in the hyper growth phase. So, we feel really good about this.

We are reiterating our guidance and taking it up and so our outlook continues to improve for the balance of the fiscal year and we're still well in excess of the high growth phase we are in a hyper growth phase for the stock and so we feel really good about the scaling that we're doing yes, there are impacts of seasonality calendar Q4 tends to be.

Speaker 2: Yes, there are impacts of seasonality. Calendar Q4 tends to be heavier with holiday shopping.

Heavier with holiday shopping.

Speaker 2: share in my remarks, we had a really strong holiday season. So there's a little bit of sequential impact there. And yes, the growth of interest bearing will tend to create some back-endedness to both the revenue and margin profile of those originations. But again, I think we're very happy with the pace at which we're scaling. And we're certainly not focused on or concerned with the next quarter. We're really looking about where this network will be over the next decade.

I didn't hear it in my remarks, we had a really strong holiday season, so there's a little bit of a sequential impact there and yes. The growth in interest bearing will tends to create some backend ednas to both the revenue and margin profile of those originations.

But again I think we're very happy with the pace at which we are scaling and we're certainly not focused on or concerned with.

Next quarter, we're really looking about where this network will be over the next decade.

Speaker 4: And then Michael, this is probably also for you, but you know, and I think both of you and Max highlighted that there's been a lot of questions around interest rates, but a lot of the other questions have to do with delinquencies, et cetera.

And then Michael this is probably also for you but.

I think both of you do and Max highlighted that Theres been a lot of questions around interest rates.

A lot of the other questions have to do with delinquencies et cetera, and as you said is that you kind of close to your target but.

Speaker 4: you said is that you're kind of close to your target. But we noticed that the most recent update, at least in the supplemental, indicated that the percentage of 30-day delinquency started to turn down and away from kind of...

We noticed that the most recent update at least in the supplemental indicate that the percentage of 30 day delinquency started to turn down and away from kind of your 2%.

Speaker 4: target in recent weeks. Is that purely because of the nature of the incremental mix from the likes of Amazon or better consumer repayments? Are you tightening the credit standards? And how should we expect that to evolve?

Target in recent weeks is that purely because of the nature of the incremental mix from the likes of Amazon or better consumer repayments or are you tightening of credit standards and how should we expect that to evolve in coming quarters.

Okay very good question. If you look at the chart that we have in the supplement you can see the seasonality curve of delinquencies and there is actually quite a bit of seasonality tied to both the shopping seasons and the repayment schedule is that happening.

Speaker 2: Very good question. If you look at the chart that we have in the supplement, you can see the seasonality curve of delinquencies. There's actually quite a bit of seasonality tied to both the shopping seasons and the repayment schedule that happened. We're back to a more normalized seasonality curve with respect to what you see in delinquencies.

We are back to a more normalized seasonality curve with respect to what you see in delinquencies.

Speaker 2: And to reiterate the point, we're very happy with the credit outcomes we're driving right now.

And to reiterate the point I mean, we're very happy with the credit outcomes, we're driving right now when we take a very intentional approach here and we have intentionally been loosening the credit box over the past year were still below 19% and 20 members fiscal 19 and 20.

Speaker 2: take a very intentional approach here and we have intentionally been losing the credit box over the past year. We're still below 19 and 20 numbers, fiscal 19 and 20, and feel really good about the level of delinquency in light of the total unit economics that we're driving. And the only other thing I'd add is that we really do manage to a total portfolio number here. There's a bit of a misunderstanding. We're still below 19 and 20 numbers, fiscal 19 and 20, and feel really good about the level of delinquency in light of the total unit economics that we're driving.

Feel really good about the level of delinquency in light of the total unit economics that we're driving.

And the only other thing I'd add is that we really do manage to a total portfolio number here.

Bit of a misunderstanding, we think out there with folks looking at not the portfolio delinquencies, but looking at one securitization vehicle or one particular slice of our business. We are very thoughtful about portfolio construction that goes into any one of our funding vehicles and each one has a unique profile based upon market demand and our needs.

Speaker 2: with folks looking at not the portfolio delinquencies, but looking at one securitization vehicle or one particular slice of our business.

Speaker 2: we are very thoughtful about portfolio construction that goes into any one of our funding vehicles. And each one has a unique profile based upon market demand and our needs. For example, split pay content may change, we may pledge loans that have some starting delinquency, etc. And so, no one securitization dataset can really represent the portfolio and we really encourage everybody to look at our investor supplement to see a real view of portfolio-wide DQs.

For example, like a split pay content may change, we made plus loans that happened, starting delinquency et cetera, and so no. One securitization data set can really represent the portfolio, we'd really encourage everybody to look at our investor supplement to see a real view of portfolio Waikiki.

That's great Michael Thank you very much.

Speaker 3: Our next question comes from the line of Timothy Chiodo with Credit Suisse. Please proceed with your question.

Our next question comes from the line of Timothy Chiodo with Credit Suisse. Please proceed with your question.

Great. Thanks for taking the question.

Speaker 5: Great, thanks for taking the question. Michael, you touched on this a little bit in your prepared remarks in terms of slide 13, which has the merchant fee rates, and you're right, overall, most of the lines are pretty stable. I wanted to see if we could just touch on a few of them that are moving around a little bit.

Michael.

On this a little bit in your prepared remarks in terms of slide 13, which has the merchant fee rates and you're right. Overall most of the lines are pretty stable I wanted to see if we could just touch on a few of them that are moving around a little bit specifically, the dark blue, which is the split pay seems to be ticking up a little bit in terms of the take rate I was thinking maybe that could be related to shopify.

Speaker 5: Specifically the dark blue, which is the split pay, seems to be ticking up a little bit in terms of the tick rate. I was thinking maybe that could be related to Shopify.

Speaker 5: Also the purple line, which is the core IB, just ticking down a hair may be related to Amazon. And then if you could help us maybe collaborate on either of those and also the green, the non-integrated virtual card, I would really appreciate that.

Also the purple line, which is the core IV just ticking down a hair may be related to Amazon and then if you could help us maybe elaborate on either of those and also the green the non integrated virtual card could really appreciate that context.

Yes. The last we have the least amount of control over that really is a function of the network interchange that we earn.

Speaker 2: Yeah, the last we have the least amount of control over that really is a function of the network interchange.

Speaker 2: And I think you nailed it. The line that you see on split pay merchant fee rates up versus Q1, we were promotional with Shopify in particular.

And I think you nailed it the.

The alignment you see on split pay merchant fee rates.

Up versus Q1, we were promotional with shopify in particular.

Speaker 2: in Q1, but really up even year on year back to the fiscal Q2 in 21.

Q1, but really up even year on year back to fiscal Q2 in 'twenty. One so we feel really good about our resiliency with respect to the most competitive space, which is the split.

Speaker 2: So we feel really good about our resiliency with respect to the most competitive space, which is the split page.

Speaker 2: product set. The IB line that you point out is a function of the growth that we have in our largest enterprises.

<unk>.

The IV line that you point out is a function of the.

The growth that we have in our largest enterprises.

Speaker 2: we would earn less there than we would everywhere else.

We would earn less.

Are there then we would anywhere else.

Part of the reason, we're so confident in how we're growing as those two things mix in our favor where you've got a lot of growth and the split pay offering with really high merchant fees and you have a lot of user growth that comes along with that combined with these enterprise scale offerings that will drive tremendous processing.

Speaker 2: Part of the reason we're so confident in how we're growing is those two things mix in our favor, where you've got a lot of growth in the split pay offering with really high merchant fees and you have a lot of user growth that comes along with that combined with these enterprise scale offerings that will drive tremendous processing volume as well as in the long run, we think really strong economics. So feel really good about the mix.

<unk> as well as in the long run we think really strong economics.

I feel really good about the mix.

Speaker 2: I really want investors to understand that when you have this sort of major shift in the mix in the portfolio, it will shake out differently.

Really want investors to understand that.

When you average when you have the sort of major shifts in the mix in the portfolio. It will shake out differently in the income statement.

Thank you point well taken there on the on the various mix dynamics depreciate. It quick followup is on processing cost. So fully appreciate that shopify revenue share will hit in that line item, which could cause a little bit of upward pressure on that specific.

Speaker 5: Thank you. Point well taken there on the various mixed dynamics. Appreciate it. Quick follow-up is on processing costs. So, fully appreciate that the Shopify revenue share will hit in that line item, which could cause a little bit of upward pressure on that specific expense line. But a potential offset could be reduced card mix within their loan repayment. Is there any potential for you to work with someone like a Plaid or a Finicity to help increase the mix of direct bank account repayment?

Expense line, but a potential offset could be reduced card mix within their loan repayment and is there any potential for you to work with someone like applied or initially to help increase the mix of direct bank account repayments.

Yes.

There is the potential.

Speaker 1: There is a potential. I was just starting to fall asleep because you guys are asking Michael's excellent questions and he's doing a great job answering them. The long story of it is...

Yeah.

I was just starting to fall asleep, because you guys are asking Michael excellent questions and he is doing great job answering them.

The long and short of it is.

It's exactly right.

Speaker 1: The way I think, and this goes back many years now, the way we look at our transactional economics is in multiple dimensions. One is, of course, lifetime value of the consumer, kind of managing credit side of it. But in the ROA basis, you have to look at the charge-offs.

I think.

That goes back many years now.

Look at our transactional economics.

Correct local dimensions, one is of course less high value consumer.

Managing credit side of it but the ROA basis, you have to look at the charge offs the incur.

Speaker 1: And once you know, Michael touched this really well, and it's kind of all over my script, but basically we manage that to a number. We decide what that's going to be, and we drive that to a basis point if we like per product, per merchant, et cetera.

And once you.

Michael question is really well and it's a lot of my script basically we manage it to a number we decided what thats going to be and we drive that to a basis point that we like per product per merchant et cetera.

Speaker 1: After you're done with that, you look at your other costs. And servicing is the one where we're always really hesitant to mess too much because you want the consumer experience to be amazing. Obviously, over time, we'll optimize that to a perfect number. But the sort of high-touch, white-glove service we've created is really, really valuable to us. We're completely ruthless on the rest of it. The repayment cost is something that just screams 18 points away. And you're totally right. There's lots and lots of opportunity.

<unk> done with that you look at your other costs and servicing is the one where we're always really hesitant to mess too much because you want the consumer experience to be amazing.

Obviously over time, we will optimize that took metric number but sort of a high touch white glove service of accretive is really valuable to us we're completely ruthless on the rest of it the prepayment cost is something Thats, just screams 80 basis points away and you're totally right.

And lots of opportunity.

The repayment devices or vehicles, they're not all created equal.

Speaker 1: The repayment devices or vehicles are not all created equal. There's some really interesting innovation happening even sort of beyond, which is currently kind of the. Most popular flash cheapest 1 and so we will absolutely do lots of things there. It is more important and in this whole story of this quarter, we're reporting and going forward, but we're still taking enormous amounts of white space. The growth of the network is what we are grading ourselves on right now.

So really interesting innovation happening even sort of beyond <unk> currently kind of the most.

The most popular flagship is one so we will absolutely do lots of things there.

It is more important in this whole story of this quarter.

And going forward, but we're still keeping enormous amounts of white space.

Growth of the network is what we are grading yourself on right now.

Speaker 1: We are paying attention to cost and scale be a real dollars and we will invest in reduction of these costs as well. And I guess pretty well where opportunities are. Excellent. Thank you.

We are paying attention to Boston at scale <unk> will invest in reduction of these costs as well.

Guessed pretty well where opportunities are.

Excellent. Thank you Michael next.

Our next question comes from the line of Ramsey El <unk> with Barclays. Please proceed with your question.

Speaker 3: Our next question comes from the line of Ramsey L. Azale with Barclays. Please proceed with your question.

Hi, guys. Thank you so much for taking my question. This evening I wanted to ask about the the spread between.

Speaker 6: Hi, guys. Thank you so much for taking my question this evening. I wanted to ask about the spread between volumes and revenue-less transaction costs.

Volumes and revenue less transaction costs, and just kind of get your your expectations about.

Speaker 6: and just kind of get your expectations about, you know, at where those kind of yields should sort of trend and shake out over the next few quarters. Where do they exit the year? You know, what should we think about in terms of next year modeling them out? If you kind of go on to the top, what could be the next year model and how this will impact our last year seeing that really

At where those kind of yield should sort of trend and shake out over the next few quarters, where do they exit the year.

What should we think about in terms of next year modeling them out.

If you could comment on that would be it would be very helpful.

Speaker 2: Yeah, we're not ready to give guidance for 23. So, avoid that one. But I think the guide that you see and the results we just posted, you know, we talk a lot about the long term economics of the business being somewhere between 3 and 4% on a revenue-less transaction cost basis. And we're on the higher end of that last quarter and inside the guidance for the back half of the year as well. While, you know, I think it is changing.

Yes, we're not ready to give guidance for 'twenty three so.

Avoid that one but I think that the guide that you see in the results we just posted.

We talk a lot about the long term economics of the business being somewhere between 3% and 4% on revenue less transaction cost basis, and we're on the higher end of that last quarter and inside the guidance for the back half of the year as well.

I think there it is changing.

Speaker 2: quite quickly with respect to the product level economics.

Quickly with respect to the product level economics.

Speaker 2: if you're taking on a split pay product with five to five and a half percent merchant fees, you're not going to be making four points of margin. And so you do expect a little bit of compression on a percentage of GMV basis on the split pay business. And yet the opposite is true on our interest bearing business where we're able to earn even higher total revenue transaction costs, but over time. And I think as we continue to scale some of our enterprise partnerships,

If youre, taking honest what pay product with five to five 5% merchant fees youre not going to be making four points of margin and so you do expect a little bit of compression on a percentage of G&P basis.

On the split pay business and yet the opposite is true on our interest bearing business, where we're able to earn even higher.

Total regular transaction costs, but over time and I think as we continue to scale some of our enterprise partnerships, you're going to see some again back ended nurse to the timing of those things. So our guidance reflects the mix that we expect over the next six months.

Speaker 2: you're going to see some again back-endedness to the timing of those things. So our guidance reflects the mix that we expect over the next six months. And we'll update everybody with 23 back when we talk later this year. But we're not at all concerned with our long-term guidance of staying in the three to 4% range, which we believe is still materially better than our competition. Okay.

And we'll update everybody with 23 back when we when we talk later this year, but we're not we're not at all concerned with our long term guidance of staying in the 3% to 4% range, which we believe is still materially better than our competition.

Okay.

And.

Speaker 6: I guess more broadly on profitability, can you kind of give us your updated view on the sort of longer term multi-year path to profitability? Has ramping up any of these larger, significantly large, you know, larger partners like the Amazons of the world, maybe faster than expected, the ramp down of Peloton, has there been any change to your view or approach or ability to kind of solve for profitability at the same pace over the longer term?

I guess more broadly on profitability can you kind of give us your updated view on the sort of longer term multi year path to profitability.

<unk> is ramping up any of these larger significantly large larger partners like the Amazons of the world maybe faster than expected the ramp down of peloton.

There have been any any change to your view of approach or ability to kind of solve for profitability at the same pace over the longer term.

No.

Max's line and the setup today, so what I'd like to reiterate which is our strategy Hasnt changed we talked about the financial model and framework in September and that remains true no matter the macro conditions changing while we have the opportunity to grow at this pace with what we think.

Speaker 2: Max's line in the setup today is one I'd like to reiterate, which is our strategy hasn't changed. We talked about the financial model and framework in September , and that remains true no matter the macro conditions changing. While we have the opportunity to grow at this pace with what we think are industry leading unit economics.

Our industry, leading unit economics.

Speaker 2: we're not gonna take our foot off the gas and we're gonna keep scaling up the network. And the path towards profitability, the long-term financial profile of the business remains the same and it is a function of us achieving scale greater than where we're adding human capital. That human capital is what's driving all of these, we think, fantastic results and we're still well-prepared to keep investing into what we think is an incredible growth opportunity.

Not going to take our foot off the gas and we're going to keep scaling up the network.

The path towards profitability.

The long term financial profile of the business remains the same and it is a function of us read achieving scale.

Greater than where we're adding human capital human capital is what's driving all of these we think are fantastic results and we're still well prepared to keep investing into what we think is an incredible growth opportunity.

Speaker 1: Great, I appreciate it. Just one more, one more way of thinking about it that I guess.

Great I appreciate it thanks, so just one more.

One more way of thinking about it.

I guess.

Speaker 1: I utilize fundamentally just from going back to my experience 20 odd years ago.

Utilizing fundamentally just going back to my experience.

Odd years ago.

Pricing power of our payments network is directly proportionate to the number of active users. It has full stop but ultimately when it comes to market and say I have a product in.

Speaker 1: pricing power of a payment network is directly proportionate to the number of active users it has full stop. Like ultimately when it comes to marketing today I have a product and I would like you to buy my way of delivering tender.

I would like you to be.

By my way of delivering tender.

Speaker 1: the price that product is able to command is inevitably a function of how many people are using that product, prefer it, would like to use that as a check out, you know, whatever we want to call it. And so the reason we are so consumer growth and coverage obsessed isn't for some sort of a vanity number, but the fact that ultimately we intend to come to market and say we are the largest network, we are the most active network, we would like you to pay for that appropriately. And so this growth is a direct tie to the path to profitability.

Price that product is able to command.

Inevitably a function of how many people are using that product preferred would like to use that as a checkout whatever way you want to call. It and so the reason we are so consumer growth and coverage.

Is it some sort of.

Any number but the fact that ultimately we intend to come to market and say we are the largest network. We are the most active network. We would like you to pay for that appropriately and so the growth is a direct tie to a path to profitability.

Speaker 6: I see. Great. So not too much has changed since your prior view, despite how the business has evolved. I appreciate it. Thanks for your answers.

Great so not not too much has changed since your prior prior view despite how the business evolves I appreciate it thanks for your answers.

Our next question comes from the line of Dan Perlin with RBC capital markets. Please proceed with your question.

Speaker 3: Our next question comes from the line of Dan Perlin with RBC Capital Markets. Please proceed with your question.

Thanks good.

Speaker 1: Thanks, and good evening, guys. I wanted to ask a question around the kind of frequency of repeat customers versus the first time users. You have a slide on that a little bit. And the question is really the interplay there between your customer acquisition model and how we should be thinking about that influencing cost into the second half of the year and maybe even into next year.

Good evening, guys I wanted to ask a question around the.

Kind of frequency of repeat customers versus the first time users you have a slide on that a little bit in the <unk>.

<unk> is really the interplay there between your customer acquisition model.

And how we should be thinking about.

That influencing cost into the second half of the year and maybe even.

Into next year.

Speaker 2: I'll start and then that can add on. I think we included that slide in the supplement because we're really proud of...

Yes, so I would say.

Got it okay.

I'll start and then that can add on I mean, I think we're actually we included that slide in the supplement because we're really proud of.

Speaker 2: what's going on underneath the surface. So we have a set change in the number of users, 150% growth. And increasing frequency when you have that much user growth is actually really challenging. And if you look at a chart and look at just the total transactions from repeat users and the growth there alongside the net new user growth, it is a really good spot.

Whats going on underneath the surface, we have step changed the number of users 150% growth in.

An increasing frequency when you have that much user growth is actually really challenging and if you look at that chart and look at just the total transactions from repeat users and the growth there alongside the net new user growth.

Yes. It is.

So I have really good spot in the business there.

Speaker 2: the business. There is some impact with respect to the rate of new user growth on Union Economics. First-time use tends to be slightly less profitable than the lifetime value of the consumer, and so you do have a little bit of, you know, startup costs associated with that user growth. But as Max mentioned before, long-term that's much more important to us. So we're going to keep adding users at a very aggressive clip.

There is some impact with respect to the rate of new user growth on unit economics first time use tends to be slightly less profitable than milk, then the lifetime value of the consumer and so you do have a little bit of startup cost associated with that user growth, but as Max mentioned before long term that's much more important.

So we're going to keep adding users at a very aggressive clip and we're going to stay focused on that.

Speaker 2: We're going to stay focused on that. And part of the reason we have so much confidence in the long-term economics is that's happening right alongside tremendous growth and repeat usage on the platform. And we talk about network effects in the business, that's what that means. And in the long run, it gives us all the confidence to the world around where the economics will be.

And part of the reason we have so much confidence in the long term economics.

That's happening right alongside tremendous growth and repeat usage on the platform. When we talk about network effects of our business, that's what that means and in the long run.

It gives us all the confidence in the world around where the economics will ultimately be.

Yes.

Speaker 1: I thought that was a pretty impressive set of numbers as you think about growing the network that quickly to have that level of frequency so quickly. So the other question I have, do you have any insight that you can share with us around kind of January trends in particular around the health of maybe some of the lower income cohorts that might be coming into the portfolio? I know some players out there have some concerns around what that dynamic is looking like. So if you could share any of those, that would be great. Thank you.

No I thought that was a pretty impressive.

So the numbers if you think about growing the network that quickly to have that level of frequency. So quickly. So.

The other question I have do you have any insight that you can share with us around kind of January trends in particular around the health of.

Maybe some of the lower income cohorts that might be coming into the portfolio and not some some players out there have some concerns around what that dynamic is looking like so if you could share any of those that would be great. Thank you.

Speaker 2: Yeah, I think what you saw in the disclosure around the delinquency trend is similar to, I think you should think about it, which is,

Yeah, I think what you saw in the disclosure around the delinquency trend.

It's similar to I think you should think about it which is to date our credit outcomes are still a function of the decisions we've taken with respect to approval rates.

Speaker 2: To date, our credit outcomes are still a function of the decisions we've taken with respect to approval rates. There's obviously a number of seasonal effects that do require taking a fine-tooth combover, but not seeing the broader weakness that others have seen in our overall credit performance and feel really good about where we're at. That's what gives us the confidence to give the guide that we have for this quarter.

There is obviously a number of seasonal effects that do require taking.

Fine to come over.

But not seeing the broader weakness that others have seen and our overall credit performance and feel really good about where we're at and that's what gives US again the confidence to give the guide that we have for the for this quarter.

Great. Thank you.

Our next question comes from the line of Jason Kupferberg.

Speaker 3: Our next question comes from the line of Jason Koppenberg with Bank of America. Please proceed with your question.

Copper Berg with Bank of America. Please proceed with your question.

Hey, Thanks, guys. So I just wanted to come back to this kind of general topic because we're.

Speaker 7: Hey, thanks, guys. So I just wanted to come back to this kind of general topic of, you know, we're adding a billion and a half of GMV to the full year guide, but we're basically not changing revenue less transaction expense.

Adding a 1 billion and a half of <unk> to the full year guide, but we are basically not changing revenue less transaction expense.

Speaker 7: I know you're talking about the interest and kind of the revenue recognition dynamics there. I mean, how long is that lag typically? I mean, I think this is a dynamic that's kind of throwing people off of it. And how much of this sort of dynamic is due to Amazon?

I know you were talking about.

Interest bearing kind of the revenue recognition dynamics there I mean, how long is that lag typically I mean I think this is a dynamic that is kind of throwing people off a bit and how much of the assertive.

Dynamic.

Due to Amazon.

Yes, so the.

Amazon part of it.

Speaker 2: Amazon's part of it. But, you know, while the growth rate in Amazon, while the addition of Amazon is great for us, as we communicate, we still double GMV, excluding Amazon. And so

But.

While the growth rate in Amazon. Additionally, Amazon is great for us.

As we communicated we saw double GMB, excluding Amazon. So we know theres a lot of growth happening across the whole portfolio. So it's not just limited to Amazon.

Speaker 2: we know there's a lot of growth happening across the whole portfolio. So it's not just limited to Amazon. But the interest bearing portfolio is growing quite quickly and that does tend to have that effect that you talked about. The other obvious impact with respect to the, you know, revenue-less transaction cost as a percentage of D&B is

The interest bearing portfolio is growing quite quickly and that does tend to have that effect that you.

You talked about.

Other obvious impact with respect to the.

Revenue less transaction cost as a percentage of Dnb is.

Speaker 2: the mix towards split pay, again, as it does run lower. I mean, again, it's a repeated theme with us, but product mix really does shake out with respect to the take rates on both revenue and the revenue-less transaction costs. And again, I think the only other thing to repeat is...

Mix towards split pay again as it does run.

Lower again repeated theme with us, but product mix really does shake out with respect to the take rates on both revenue and the revenue less transaction costs.

And again I think the only other thing to repeat as we feel like we're operating at the higher end of the range that we've given folks.

Speaker 2: We feel like we're operating at the higher end of the range that we've given folks in that 3% to 4% range and have a lot of confidence again in our long-term economics here and again would put ourselves up against anybody in our space with respect to the rates at which we're delivering.

That 3% to 4% range and.

Have a lot of confidence again in our long term unit economics here and again would put ourselves up against anybody in our space with respect to the rates at which we're delivering here.

Speaker 7: Okay. And then, I guess, just for the back half of the year, how should we be thinking about GMV growth, excluding Peloton? Like, like, has your, your expectation on Peloton changed at all, just given some of the challenges that they're having?

Okay.

Then I guess just for the back half of the year, how should we be thinking about GMB growth excluding peloton.

Your full year expectation on peloton changed at all just given some of the challenges that they're having.

Speaker 2: Our current guidance reflects all of our current thinking.

Our current guidance reflects our all of our current thinking on where they're at.

Speaker 2: on where they're at. We had, frankly, a good quarter in Q2 above our internal expectations.

Had frankly, a good quarter in Q2 above our internal expectations.

Speaker 2: feel like they're still delivering an incredible amount of volume for us. And we admire their brand and we admire the loyalty that they have amongst their consumers. And we'll keep partnering with them. We launched with them in Australia this past quarter and we're gonna keep helping them grow their business.

Feel like they're still delivering an incredible amount of volume for us.

We admire their brand and we admire the loyalty that they have amongst our consumers and we will keep partnering with them, we launched with them in Australia.

This past quarter, and we're going to keep helping them grow their business.

Okay. Thank you.

Our next question comes from the line of Andrew Jeffrey with tourists Securities. Please proceed with your question.

Speaker 3: Our next question comes from the line of Andrew Jeffery with Trubas Securities. Please proceed with your question.

Hi, guys I appreciate you taking the question.

Speaker 6: Hi, yeah, I appreciate you taking the question.

Maybe.

As it relates to shopify Im still trying to sort of reconcile James's question, a little bit too.

Speaker 1: As it relates to Shopify, I'm still trying to sort of reconcile James's question a little bit too.

Yeah.

Speaker 1: I think you said it's 15 to, it'll be 15 to 20% split pay. I think we'll be at about 15 to 20% of GMBs.

You said its 15 to it'll be 15% to 20% per pay it will be at a 15% to 20% of <unk>. This year I guess the first question would be where do you think that can go.

Speaker 1: I guess the first question would be, where do you think that can go? It's a pretty quick ramp, although not totally out of line with our expectations. And then the follow up would be it kind of implies, based on your guidance, that the rest of the business is growing about 45 percent volume wise, which might be a little bit lower than than we might have thought. Can you just address those two points?

That's a pretty quick ramp although not totally out of line with our expectations and then the follow up would be.

It kind of implies based on your guidance that the rest.

Rest of the business is growing about 45% volume wise, which might be a little bit lower than than we might've thought can you just address those two points.

Yeah.

I'll start and I'll, let Michael.

Finish.

Speaker 1: So I don't think we'll break out exactly what percentage of Shopify store pay

So.

I don't think.

We will break out exactly what percentage of shopify.

Hey, Tom as well.

Obviously grown really well the merchant adoption has been excellent.

Speaker 1: It's obviously grown really well, the merchant adoption has been excellent.

And yet.

Speaker 1: And yet there's no shortage of demand and so I'm confident it can go up more. We don't think we're breaking that out.

There's no shortage of demand.

I'm confident it can go up more.

I don't think we're breaking that out.

Speaker 1: in our guidance. I hope Michael can correct me if I'm wrong here. But there's an enormous amount of road there. Just if you take a quick look at.

Our guidance or Michael can correct me.

If I'm wrong here.

But there's an enormous amount of growth there just if you take a quick look at <unk>.

<unk> pay.

Speaker 1: Shop Pay, shopping installments doesn't even support interest-bearing loans today. But that alone as a headline should give you a pretty good idea that the service has been scratched with not a whole lot.

Shopping installments doesn't even support interest bearing loans today.

That alone is a headline should give you a pretty good idea.

Service has been scratched with lot of Walmart.

Yes.

Speaker 2: Yeah, and so 15 to 20 is a good number. How big could it be? It could be very big. Um, just like we haven't launched interest varying on Shopify. We haven't launched Splitpay.

Yeah and so.

Is it good number how big could it be could be very big just like they havent locked interest bearing on shopify, we havent launched split pay with either of our two largest enterprise merchants. So to have a lot of confidence that that number can continue to go out I think the only other point with respect to the rest of the portfolio growth is just we.

Speaker 2: with either of our two largest enterprise merchants. So, I have a lot of confidence that that number can continue to go up. I think the only other point with respect to the rest of the portfolio growth is just.

Speaker 2: We are up against continued elevated levels in our long-term zero finance business. And we would continue to expect some of that to be a drag on the balance of the portfolio, but not something that we're trying to, again, target the Q3 growth number. We're thinking about how this network scales and then how those network effects show up with repeat usage across the whole portfolio. During worship events, we will be able to do the same for us in the front end of the day.

We are up against continued elevated levels in our call a long term view of finance business.

And we would continue to expect some of that to be a drag on the balance of the portfolio, but not something that we're trying to again targeted at Q3 gross number we're thinking about how this network scales and then how that those network effects show up with with repeat usage across the whole portfolio.

Okay, Alright, well I appreciate it thank you.

Yeah.

Speaker 3: Our next question comes from the line of Andrew Botch with SMBC, NICO Securities America. Please proceed with your question.

Our next question comes from the line of Andrew <unk> with <unk> Nikko Securities America. Please proceed with your question.

Hey, guys I wanted to ask a question about the CFPB look at buy now pay later.

Speaker 3: Hey guys, I wanted to ask a question about the CFPB, look at buy now pay later. And from whatever you can share, is there anything you've garnered from those initial discussions that kind of give us a sense of how they're looking at the offering going forward?

Trevor you can share is there anything you've garnered from those initial discussions that kind of.

Give us a sense of how they're looking at the the offering going forward.

Okay.

First of all.

Speaker 1: It's obviously not for us to comment on. They work there.

It's obviously not for us to comment on that.

Work there.

Speaker 1: The thing that's been true for us for the last 10 years is that.

The thing that's been true for us, whereas the last 10 years.

<unk>.

We have a very very high moral ground approach to this entire business to the way, we conduct ourselves to the way we treat consumers.

We deal with disputes et cetera, et cetera, and so all things equal.

We've been at the forefront of the industry, suggesting to the regulators that they should have a look in a set of clear rules and.

Just a good guidance around comp.

Speaker 1: Just a good guidance around the conduct of all the players. And so in that sense, it's a positive news. That's a, you know, it's a regulatory relationship is both a very, very important thing that are serious thing. We're interacting with them. There's a really.

First of all the players and so in that sense. It's a.

Positive news.

It's the regulatory relationship is both a very very important things that are serious thing we're interacting with them.

Clearly.

Details of the customer information, obviously, we will deploy to that.

Speaker 1: But all these could be, well, I think regulatory attention to the space is great. I was a little bit glib when I pointed out that in a public record of the information demand.

Well. This is typical I think of regulatory attention to this space is great.

It was a little bit glib I pointed out the public.

Third of the information demand.

Speaker 1: There was quite a lot of space dedicated to asking for the information around fees charged the link fees or different interests or.

Quite a lot of space dedicated to asking for the information around fees charged to the link Cesar deferred interest or all sorts of other things and we feel that out to zero, because we don't charge any of those things to consumers.

Speaker 1: sorts of other things, and we filled it out with zeros because we don't charge any of those things to consumers. It took a small amount of pride in that we stuck to our mission and stuck to our approach to treating consumers right. That said,

Small amount of pride in that we stuck to our mission and stuck to our approach to treating consumers right that said.

Speaker 1: I'm confident over time there will be more regular attention and we will comply with all the necessary rules and we will do well there.

I'm confident over time, we'll be more regulatory attention and we will comply with all the necessary room.

We'll do out there so.

Too early to tell what the future looks like it's to be determined but we.

Speaker 1: too early to tell what the future looks like. It's something for them to determine, but we're very happy to engage.

We're very happy to engage.

Speaker 3: I'll help people. Thank you. Like my follow up would it be, is there any kind of guideposts that you can kind of give us from a macro perspective, what you're embedding in the outlook for unemployment, inflation and rates? And I appreciate the color and the, uh, the interest rate moves to the impact of the model, but just kind of thinking about what a baseline number that you're embedding in your assumption would be. Yeah.

Thank you.

My follow up would it be is there any kind of guidepost that you can kind of give us from a macro perspective, what you're embedding in the outlook for unemployment inflation.

Rates and I appreciate the color on the.

The interest rate moves to the impact of the model, but just kind of thinking about what a baseline number that you're embedding in your assumptions would be.

Yes.

Yes.

But sorry.

Speaker 1: But I'll get it to the last time it was yours. But so I'm sure you'll have macro views as well. But just the thing that I think people really misunderstand about our products may be because it is.

I'll.

Take the victory lap the last one was yours, but so.

And I'm sure we'll have macro.

As well, but just.

I think that I think people really misunderstand about our products.

Because.

<unk> is more popular outside.

Outside of.

Speaker 1: outside of high finance perhaps.

Outside of <unk> and perhaps.

Speaker 1: When the interest rates go up, when the prices go up, a product is more useful. If you try to make ends meet and you're trying to pay for a couch.

When interest rates go up when the prices clearly when prices go up our product is more useful if you try to make ends meet and you're trying to pay for a couch and your credit card is confusing you and the rates just went up and.

Speaker 1: and your credit card is confusing you and the rates just went up and

Speaker 1: And, and, and, a firm gives you clarity and a way to pay for things and a clear schedule and then you're done and there are no late fees.

And Ed Afirma gives you clarity and way to pay for things in a clear schedule.

And then Youre done and there are no leaks.

Speaker 1: and half the time, plus or minus, the seller will sponsor it and you pay no interest. Just here's a basic thought experiment. If the hard rate that you paid went up 5%,

And half the time, plus or minus the seller will sponsor at any point of interest.

Here's a basic thought experiment.

The hard rates that you paid one up 5%.

Speaker 1: For example, how do you feel about the 0% rate that a seller at a home or a shop is offering you, powered by a firm? It's 5% more compelling. And so as inflation happens, the product that we provide is actually more powerful, more useful, has significantly better bearing on the consumer demand side of things. On the flip side, of course, the government addresses inflation, raises rates, etc.

For example, how do you feel about the zero percent rate that a seller at a homeware shop with offering powered by far.

5% more compelling.

As inflation.

The product that we provide is actually more powerful more useful have significantly better bearings as well.

Tumor demand side I think on the flip side of course, the government addresses inflation raises rates et cetera.

Speaker 1: I'll stop now and Michael can tell you what we've done about it. But all these get equal at that cop line. This is generally a pale wind, not a headwind.

I'll start now with Michael I can tell you we've done about it but at least kept equal topline. This is generally a tailwind not a headwind.

Got it I appreciate that guys.

Speaker 2: Yeah, just for the total avoidance of doubt, all of our outlook reflects the forward curve. And so there's roughly 180 basis points of rate increases. We take that into all of our models when we give guidance.

Yes, Michael for the total avoidance of doubt.

All of our outlook reflects the forward curve and so there's roughly 180 basis points of rate increases we take that in to all of our models when we give guidance.

Speaker 2: consistent with the market expectation of rate movement. And so we talk about rising rates. That's not a problem for us at all. That's already reflected in the guidance.

It's consistent with the market expectation of rate movement, and so we talked about rising rates, that's not not a problem for us at all thats already reflected in the guidance.

I appreciate the color.

Speaker 8: Our next question comes from the line of Brian Keen with Deutsche Bank. Please proceed with your question.

Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.

Hi, guys. Thanks for taking the questions just two clarifications I guess.

Speaker 9: Hi guys, thanks for digging the questions. Just two clarifications, I guess, just because it's come up a few times.

Because it's come up a few times, but.

Speaker 9: the implied revenue transaction cost take rate uh... when you gave guidance for Q2 was almost about five percent

The implied revenue transaction costs take rate.

When you gave guidance for Q2 was almost about 5%.

Speaker 9: So I think one of the surprises was it came in at 4.1. So and you talked about mix. So was that just that you didn't realize that the shop pay business was going to grow that much and it had that much of a factor on it? Just trying to make sure that the guidance versus the actual.

And so I think one of the surprises was it came in at four one.

So and you talked about mix. So is that just that you didn't realize.

The shop pay business was going to grow that much and it had that much of a factor on it just trying to make sure the guidance versus the actual.

Speaker 2: Yeah, that's right. The mix impact of the business, the growth that we saw, which was obviously well in excess of the guidance that we had given in the quarter, tended to mix towards either lower revenue loss transaction costs to take rates as a percentage of the total, or tend to be a little bit more back end weighted. And both those two effects caused the percent to go down, despite the fact that we did, of course, beat the guidance on the dollar.

Yes, that's right.

Mix impacted the business the growth that we saw which was obviously well in excess of the guidance that we had given in the quarter.

<unk> tended to mix towards either lower revenue less transaction costs take rates as a percentage of the total or tend to be a little bit more backend weighted in both those two effects caused the percentage to go down.

Despite the fact that we did of course be beat the beat the guidance on a dollar basis.

Got it and then the follow up question, we get often is the profitability on those larger contracts like an Amazon or shop pay.

Speaker 9: Got it. And then the follow-up question we get often is the profitability on those larger contracts like an Amazon or ShopPay. How do we think about that? Because obviously those terms are, with some larger merchants, typically a merchant acquiring, the larger merchants push pricing the hardest. And so it's really all pricing is made on SMB. So just trying to think about that relationship. Thanks so much.

How do we think about that because those those obviously those terms are.

With some larger merchants typically in merchant acquiring the larger merchants.

Push pricing the hardest and so it's really all pricing is made on smbs. So just trying to think about that relationship. Thanks. So much.

Speaker 2: If you look at the merchant take rate slide again in the supplement, you'll see that we're doing quite well on the split pay business with respect to our ability to continue to earn good fees. We're not breaking out profitability by partner, but I think a key part of the reason we were able to deliver these exceptional enterprise experiences to the largest merchants is the fact that we're not just reliant on merchant.

Yes, if you look at the merchant take rate slide again supplement youll see that were doing quite well on the split hay business with respect to our ability to continue to earn good fees.

We're not breaking out profitability by partner, but I think a key part of the reason we were able to deliver these exceptional enterprise experiences to the largest merchants is the fact that we're not just reliant on merchant fees and the fact that we do have consumer interest and the economic model does allow us to get to the.

Speaker 2: The fact that we do have consumer interest in the economic model does allow us to get to the merchant fee clearing rates that work for largest enterprises while still delivering really strong unit economics.

Merchant fee clearing rates that they work for largest enterprises, while still delivering really strong unit economics.

Got it thanks for the clarification.

Yeah.

Speaker 8: Our next question comes from the line of Dan Dodd with Mizzouho. Please proceed with your question.

Our next question comes from the line of Dan <unk> with Mizuho. Please proceed with your question.

Speaker 1: Hey, thank you for taking my questions. I just have a question regarding. Kind of where you are in terms of GMV and what's implied in the guidance. I'm still trying to get my heads around. You know, the massive beat in the quarter. And then you seem to be guiding kind of.

Hey, Thank you for taking my questions I just have a question regarding kind of where you are in terms of GNP and what's implied in the guidance I'm still trying to get my heads around.

The massive beat in the quarter and then you seem to be guiding kind of.

Speaker 1: in terms of a sequential basis, the much lower GMV. I just want to make sure that this is hopefully a sign of conservatism and that there's, the question we're getting a lot from investors this evening is that there's maybe something else that got weaker. So we just want to reassure ourselves and investors that this is simply being conservative given the strong results and thank you very much.

In terms of a sequential basis, so much lower <unk> I just want to make sure that this is hopefully a sign of conservatism in that there is the question, we're getting a lot from investors.

It means that there is maybe something else that got weaker so we just want to reassure ourselves investors.

This is simply being conservative given the strong results and thank you very much for this.

Okay.

First of all Michael as you mentioned this seasonality is a significant components of this business and so that's a.

Speaker 1: First of all, I think Michael already mentioned this seasonality is a significant component of this business. So that's a. An important piece of the puzzle.

An important piece of the puzzle.

Yeah.

Speaker 1: I'm not sure exactly what you're asking about in terms of something that may have gotten weaker. Not from our point of view. I think we've done fine and not anticipating weakness, but we, we try to. Try to make sure that we promise and deliver as opposed to promise and hold over. I can see what happens that's probably a topical. Approach to to you guys.

I'm not sure exactly what you're asking about in terms of something you may have gotten weaker not from our point of view.

And not anticipating weakness.

So we will try to.

Try to make sure that we promise and deliver as opposed to a promising and hold our breath and see what happens, but that's probably a philosophical.

To pursue.

So we're out there.

Speaker 1: Got it. Yeah, sorry. I didn't I didn't mean to sort of harp on it. I know if I look at sort of pre-COVID kind of trends on a GMB basis, it doesn't look like at least like Q3, Q4, Q5, Q6, Q7, Q8, Q9, Q10, Q11, Q13, Q14, Q16, Q17, Q18, Q19, Q19, Q20, Q22, Q23, Q24, Q25, Q26, Q27, Q28, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q29, Q

Got it yes, sorry, I didn't I didn't mean to sort of harp on it.

I look at sort of pre COVID-19 .

Kind of trends on a <unk> basis, it doesn't look like at least like.

Q3 Q4.

That's why I asked the question but.

Speaker 1: In kind of all honesty, the quarter we just exited, just an absolutely monster. So no matter what you sort of expect for the next one, it'll look like, well, you know.

Again, it's kind of all in all honesty.

Quarter, we just exited just an absolutely monster. So no matter what are you sort of for the next one it looks like well.

Speaker 1: Gosh, what happened here, but our transaction volume, I'm going to remember it here, so I may be wrong. Michael, correct me, but I think we tripled year on year of Black Friday, Cyber Monday transaction counts. But we haven't tripled any metric of that class.

That's what happened here, but our transaction volume remember here something maybe Michael correct me, but I think we trip.

Tripled year on year of Black Friday, Cyber Monday transaction count.

Sure.

We havent tripled any metric.

Our class.

We were a series of the year series C company, so the growth in GB and transactions accelerated quite a lot.

Speaker 1: to a Series B or Series C company. So the growth of GMB and transactions accelerated quite a lot. We'll digest it and grow some more.

We will digest that and grow similar.

I appreciate it. Thank you so much guys appreciate it.

Our next question comes from the line of Vincent <unk> with Stephens. Please proceed with your question.

Speaker 8: Our next question comes from the line of Vincent Tantic with Stevens. Please receive your question.

Hey, Thanks for taking my question.

Speaker 7: Thanks for taking my question and thanks for all the details on the credit trends, all those slides there. I just wanted to follow up on that.

For all the details on the credit trends all those all the.

The slides there.

Wanted to follow up on that I guess.

Is this concern about.

Speaker 7: there's this concern about credit normalization and how it impacts the business, if at all. And so, looking at the slides, the delinquent fees still below 2019, but getting there, the net charge off as well. Just wondering, as you're thinking, if credit is normalizing, how...

<unk> normalization and how it impacts your business if at all and so looking at the slides the delinquencies still below 2019, but getting there and the net charge offs as well just wondering as you were thinking.

Credit is normalizing.

How does that.

Speaker 7: Impact the business and if you can describe some of the. The offsets that you were mentioned earlier, like the optimization, the merchant pricing and so on that would be helpful.

Impacts of the business and if you can describe some of the offsets that you were mentioned earlier like the optimizations to merchant pricing and so on that would be helpful. Thank you.

Speaker 1: I'm sorry, but Michael as well, so I'll never try repeating it, but.

I'll start.

Let Michael chime in as well so.

I will never tire of repeating it but.

Speaker 1: we choose the delinquency number we post.

We choose delinquency number.

We post.

Speaker 1: Module compensating Earth and completely unexpected events. Our job slash goals slash approach is to drive to a number that we like and we feel that we were probably retrospectively unnecessarily careful or unnecessarily. Tight lack of better term.

Module compensating earth completely unexpected events are job slash goal slash approach is to drive to a number that we want.

We feel that we were probably retrospectively unnecessarily careful are necessarily tie.

Tight for lack of a better term.

Speaker 1: And then so we've loosened quite deliberately. And as you noted, we've also someone else actually noticed that we have now.

And then so we've loosened quite deliberately.

As you noted we've also or someone else actually started noticed that we have now.

Got into roughly the range that we that we like and we will continue managing the number and so.

Speaker 1: gotten to the roughly the range that we like and we'll continue managing the number. And so in that sense...

<unk>.

Inevitably.

Ups and downs in consumer behavior, as a stimulus winding up and all the other versions of microeconomic events impacting the business, but we have an enormous number of transactions.

Speaker 1: ups and downs in consumer behavior and stimulus winding up and all the other versions of micro economic events impacting the business, but we have an enormous number of transactions. Think of it as a curve that's differentiable at every point, basically infinite number of derivatives, but it's a high number of derivatives in terms of ability to differentiate, which means that at any given time we have control both at product level and at the

Think of it as a curve differential at every point basically.

Is that a number of derivatives, but it's a high number of derivatives in terms of ability to differentiate which looked at any given time, we have controlled product level and.

Speaker 1: consumer level and also not being a line of credit allows us to differentiate a specific point of purchase to the type of transaction. So we'll continue driving to the outcomes that we need we want for our margin and our numbers and the macroeconomic realities or at least our read of it is what shapes our willingness to sort of bet into the gray zone and as we read the macroeconomic numbers we'll become less or more willing to...

Consumer level and also not being a line of credit allows us to differentiate specific point of purchase to the type of transaction.

We'll continue driving to the outcomes that we need we want for our margin on our numbers in the.

The macroeconomic.

The realities are if it's our read of it is what shapes, our willingness to sort of the gray zone.

The macroeconomic numbers will become lesser or more willing to.

I'll close with a box into the system, but it is something that is a tweaks.

Speaker 1: alkaloids or the borax into the system. But it's something that is a choice. In that sense, it's almost hard for me to react to what is the macroeconomic or the, you know, what is the wider consumer trend doing.

It's always hard for me to react to what does the macroeconomy.

What is the wider consumer tried doing.

Speaker 1: There's a lot more demand for a product than we are approving. In many cases, because it's just a bad idea for the consumer to borrow, certainly borrow from us, given our loss of guardrails, no keys, etc. So, in that sense, this demand for a product significantly outstrips our willingness to take the risk and we'll continue managing the right products.

There's a lot more demand for our products than we are approving in many cases, because it's just a bad idea for that particular consumer to borrow certainly borrow from us given our loss of guardrails millipede et cetera.

In that sense.

Demand for our product significantly outstrips, our willingness to take the risk and we'll continue managing the right partner.

Okay, great. Thank you.

Speaker 7: Okay, great. Thank you. I mean, I guess following up on that you're so it's you have.

I guess following up on that.

Yes.

Speaker 7: credit variables as an input of your decision making. I mean, I guess if there is a kind of a macro credit issue that

Credit the credit variables is the input of our decision making.

I guess if.

There is a kind of a macro credit issues that.

It doesn't.

Speaker 7: doesn't sound like that's really going to impact volumes or merchant pricing that just stays the same because

Like that's really going to impact volumes or merchant pricing that just stayed the same because.

Speaker 7: your product becomes more valuable in that situation. Maybe you could talk about, I don't know, like the inputs and outputs there.

Youre, probably becomes more valuable in that situation or maybe if you could talk about I don't know.

Like.

The inputs and outputs there.

Yes.

So.

I'll tell you a.

A little bit of a color.

Speaker 1: generating anecdotes. In the early days of the pandemic, we actually went to our merchants and said, look, we believe the macroeconomic conditions are going to worsen before they get better. We don't really know there's a lot of uncertainty. For those of you who are very focused on the bottom line.

Generating anecdote nuclear release due to the pandemic, we actually went to our merchants and said look we believe the macroeconomic conditions are going to worsen before they get better we don't really know theres a lot of uncertainty.

Have you heard very focused in our bottom line.

We are going to adjust credits, which means that approvals will go down a little bit.

Speaker 1: we are going to adjust credits, which means that approval will go down a little bit. We're dealing on a margin here, so this is points up or down, but for those focused on the top line, and it all depends on the margin embedded in the merchant's product, right? Some people manufacture their own others, resell something they buy and resell it again, but the margin content that they have is usable to increase our approval and allow us to bet in the consumer ability to repay sort of gray zone where the model say probability is five, but it's not.

Dealing on the margin here. So this is points up or down.

For those focused on the topline and it all depends on the margin embedded in the merchants product rates and some people manufacture their own others resell somebody they buy and resell it again, but the margin content. They have usable to increase our accruals and allowed us to put in.

<unk>.

It's the ability to repay or gray zone, where the model safe liabilities fiber.

Not 100%.

Speaker 1: And we generally speaking, we're able to command a significant price increases at the merchant base during the early days of the pandemic. Because the products that we provide to the consumer in the moments of uncertainty is just so damn powerful. And so processed

And we generally speaking were able to come in a significantly significant price increases.

<unk> base during the early days of the pandemic because the products that we provide to the consumer in the moments of uncertainty is just so damn hard.

No.

So.

Yes, generally speaking, there's lots of sort of asterisks to add there.

Speaker 1: Yes, generally speaking, there's lots of asterisks to add there and.

Macroeconomic issues can be described as all kinds of things, but as the economy ebbs and flows.

Speaker 1: macroeconomic interests can be described as all kinds of things, but as the economy as it flows...

Speaker 1: If consumers need more access to credit, many, many, many of our partners are very happy to pay more for that consumers to complete transactions. Because the certainty and sense of control that we provide is what helps them move merchandise off the shelf. So in that sense,

If consumers need more access to credit.

Many many of our partners are very happy to pay more for that consumers to complete transactions because of the certainty in central control that we provide is what helps them move merchandize off the trucks.

Thanks.

Speaker 1: It's a little blip, but macroeconomic uncertainty is actually a driver of business like ours. If everybody was just swimming in government stimulus money, maybe just buy everything for cash. And so the discontinuation of various stimuli is on net a positive driver for the business, both on the consumer demand side and the merchant's willingness to pay for our services.

It's a little glib, but macroeconomic uncertainty is actually a driver of business like ours. It's everybody was just swimming in government stimulus money may be just buy everything for cash and so the discontinuation of various stimuli.

Net a positive driver for the business both on the consumer demand side and the merchants' willingness to.

To pay for our services.

Okay perfect. That's very helpful commentary. Thank you.

Our next question comes from the line of Chris <unk> with D. A Davidson. Please proceed with your question.

Speaker 8: Our next question comes from the line of Chris Brenler with DA Davidson. Please proceed with your question.

Hi, Thanks, good afternoon, and thanks for my questions.

Speaker 1: I'll start a little bit something a little bit more boring on the expense side. You have pretty big sequential increases in all the non-GAAP expenses, technology, sales and marketing. I just want to get a sense, is that related to some of the ramp up and some of these partnerships, or should we think of that expense growth as a run rate? And obviously I know you have the operating income guidance out there for the near term, but just thinking about expense growth slow and maybe giving a characteristic of some of that expense growth would be great as well. Thanks.

I'll start a little bit turning a little boring on the expense side.

Pretty big sequential increases in all of the non-GAAP expenses in technology and sales and marketing I just wanted to get a sense is that related to some of the ramp up in some of these partnerships or should we think of that expense growth.

Run rate and obviously I know you have the operating income guidance out there for the near term, but just thinking about your expense growth slow.

And they'll be giving a characteristic of some that expense growth would be great as well. Thanks.

Speaker 2: Yeah, characteristic is mostly human capital combined with marketing investments on the non-GAAP side. On the GAAP side, there's also the impact associated with stock-based compensation, DNA, and the other non-cash items.

Yes characteristic as most of the human capital combined with marketing investments on the non-GAAP side on the GAAP side is also the impact associated with stock based compensation, the DNA and the other noncash items.

Speaker 2: You know, I think we will stand by our long-term guidance that we gave in September around the profitability of the business being a function of the growth rate. So while we're growing like this, we are going to keep investing in that human capital to build great products and delight consumers. And when and if that growth rate ever starts to slow down, you'll see us grow expenses much slower and begin to deliver positive adjusted operating income.

I think we will stand by our long term guidance that we gave in September around the profitability of the business being a function.

The growth rate so while we're growing like this we are going to keep investing in that human capital to build great products and delight consumers and when and if that growth rate ever starts to slow down youll see us.

Grow expenses much slower and begin to deliver positive adjusted operating income.

Speaker 2: I think of the profitability or bottom line measures that we really manage to, that adjusted operating income number is what we intend to hit. That's where we have the guidance out for you.

The profitability or bottom line measures that we really manage to that adjusted operating income number is what we intend to hit where we have the guidance out for you for this period and Thats. The number that we think will become.

Speaker 2: for this period and that's the number that we think will become a scaling up and down as growth rates...

Scaling up and down as the growth rates change.

Okay. Thank you and I guess another boring question Michael.

Speaker 7: Okay, thank you. And I guess another boring question, Michael, is the just the health of the debt markets. I know you continue to use securitization both on and off balance sheet. Looks like you sold some more whole loans this quarter. Balance sheet growth actually came in a little bit below our estimates. Just, you know, is it still as healthy as it was given your increase in traction among fixed income investors or has there been a bit of a pullback given the macro condition?

Just the health of the debt markets I know you continue to use securitization both on and off balance sheet. It looks like you sold some more whole loans this quarter balance sheet growth actually came in a little below our estimates.

Is it still as healthy as it was given your increasing traction among fixed income investors have been a bit of a pullback given the macro conditions.

No I think we still continue to have very well received deals in the market. Both single counterparty deals on our forward flow relationships you mentioned on the script, we added a great deal of capacity by adding new partners and upsizing existing ones and we still continue to receive a lot of demand for the assets.

Speaker 2: No, I think we still continue to have very well-received deals in the market, both single counterparty deals and our forward-flow relationships.

Speaker 2: mentioned on the script, we added a great deal of capacity by adding new partners and upsizing existing ones, and we still continue to receive a lot of demand for the assets. And our securitization activity has also been very successful, and you're going to see us continue to be very, very active there in both of those two markets and levers to continue to grow our business and deliver, we think, again, excellent capital efficiency. Thank you.

And our securitization activity has also been very successful and youre going to see us continue to be very very active there and both of those two markets and levers to continue to grow our business and deliver.

Think again excellent capital efficiency.

Great and congrats on the results as well and thank you so much.

Ladies and gentlemen, this concludes our question and answer session.

Speaker 8: Ladies and gentlemen, this concludes our question and answer session. This also concludes our call. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

This also concludes our call. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

[music].

[music].

[music].

Speaker 10: St.