Q4 2021 SoFi Technologies Inc Earnings Call
Ladies and gentlemen, thank you for standing by the conference will begin in two minutes time again. Thank you for standing by the conference will begin in two minutes time.
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Good afternoon, and thank you for attending todays <unk> Q4, 2021 earnings Conference call. My name is Sam and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers.
Yes.
If you'd like to ask a question. Please press star one on your telephone keypad.
At this time I would now like to turn the conference over to our host Andrea Cockney Yak.
<unk> of Investor Relations Andrea Please proceed.
Thank you operator, and thank you all for joining us today for <unk> fourth quarter 2021 earnings call. Joining me today are Anthony Noto, so far as CEO and Chris <unk> CFO .
It will share prepared remarks regarding the quarter's results and then take your questions at the end.
Just after market closed today, we issued a press release announcing <unk> fourth quarter and full year 2021 financial results.
For a discussion of our results today is complementary to the press release, which.
Which is available on the Investor Relations page of our web site investors dot by Dot com.
This conference call is being webcast live and will be available as a replay for 30 days beginning about one hour. After the conclusion of this call.
There is also an accompanying investor presentation on our IR page.
During the course of this conference call. We may make forward looking statements based on current expectations forecasts and projections as of today's date.
Any forward looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those included in the statements.
We discuss these factors in our SEC filings, including our 2021 Form 10-K , which can be found on the IR page of our website and the SEC filings web site SEC Gov forward Slash Edgar.
As a reminder, we are not required to update our forward looking statements.
In our presentation today, unless otherwise noted we will be discussing adjusted financial measures, which are non-GAAP measures that need to leave are meaningful when evaluating the company's performance.
For detailed disclosures on these measures and the GAAP reconciliations.
You should refer to the financial data contained within our press release, which is also posted to the IR page of our website.
Today's discussion will focus on both the fourth quarter and full year 2021 results.
As always we encourage you to evaluate <unk> performance on an annual basis.
Quarterly results can be affected by unexpected events that are outside our control.
Now I'll turn the call over to Anthony.
Thank you Andrea and good afternoon, everyone.
Before beginning my prepared remarks.
Wanted to take a moment to recognize unacceptable tragedy and is currently taking place in Ukraine.
It's been truly difficult to watch the series of events unfold over these past few weeks and escalate in recent days.
No one should have to live in fear or under the threat of violence, which has now become a reality.
Hearts go out to everyone directly or indirectly affected by this tragic situation.
Now onto our results.
Had another strong quarter, hitting new highs across our key financial and operating metrics and finishing 2021 with record annual results.
Today, we are in our best position ever to achieve our long term strategic goal.
To be the digital one stop shop for the major financial decisions in our members lives and all of the moments in between.
Here are some of the highlights.
Our record fourth quarter adjusted net revenue of $280 million was up 54% year over year and increased sequentially from a very strong third quarter. Despite the unexpected federal student loan moratorium extension at quarter end.
All three of our business segments achieved higher year over year growth.
We delivered record full year revenue of just over $1 billion at the high end of our guidance, which we increased our third quarter earnings call.
We achieved our sixth consecutive quarter of positive adjusted EBITDA at $5 million and delivered on our goal of positive full year EBITDA.
We had an amazing quarter for member growth, we added 523000, new members in the fourth quarter.
Record, an absolute number terms and impressively up 39% versus the amount added in the third quarter.
As a result, we ended 2021 with $3 5 million members, an increase of $1 6 million up 87% year over year and well above the 3 million member target set in January of 'twenty one.
We also set another record with new product adds of 906000 in the fourth quarter up an incredible 51% versus the number of third quarter ads.
Finished 2021 at $5 2 million total products more than double the $2 5 million, we had at year end 2020.
Galileo we grew enabled accounts, 67% year over year to $100 million.
We were able to achieve these milestones in 2021 and get to such a position of strength today for three main reasons.
First we continued to drive strong growth through great execution across our three diverse businesses, which reflects our ability to capitalize on changing macro conditions.
Second the.
The success of sulfides unique financial services productivity loop strategy accelerated as we scaled our business in 'twenty one.
Which allowed us to exceed our original 2021 member growth target by 40%.
And importantly, still hit our EBITDA target.
Third we took a giant step forward in 2021, and achieving our goal of becoming a household brand name via our so price stadium affiliation the success of our integrated multi media campaigns.
And the reality of the Influencers, we partnered with.
I'll take these points one by one starting with number one how we drove strong growth through great execution across our three diverse businesses.
In lending we grew segment revenues by 30% year over year in the fourth quarter and 42% for the full year, even with the unexpected extension of the federal student loan payment moratorium in late December .
Fourth quarter personal loan originations were a record of $1 7 billion.
Up 168% year over year and more than doubled fourth quarter 2019, as pre pandemic total.
Full year originations were more than $5 3 billion versus $2 6 billion in 2020, and $3 7 billion in 2019.
Personal loans outperformed as a result of our improved execution enhancements to our technology and credit models and the quality of our loans.
And through our lending as a service partnership with Bulgaria.
Added nearly 7700 referred loans across a broader audience, while maintaining our credit criteria.
In home loans, we met our 2021 goals to diversify into purchase those from predominantly refinance loans at the re entered the jumbo loan market.
By the fourth quarter with increased purchase homos from low single digits to low double digits as a percentage of <unk> total home loan volume.
And we relaunched jumbo loans in the second half of the year.
This diversification will help drive continued growth in a rising rate environment.
In student loans, we saw accelerating demand in the fourth quarter ahead of the January federal student loan payment moratorium deadline.
And anticipated rate increases in 2022.
We originated nearly $1 5 billion of loans up more than 50% sequentially, even with the surprise late December extension to May 22, which caused a reduction in demand during the final week of the quarter.
Looking ahead, we expect continued strong growth in lending driven by our ongoing momentum in personal loans. The end of the student loan payment moratorium better positioning in home loans and the many opportunities our new bank license presents.
In financial services, we achieved record growth in our products adopted in the fourth quarter and importantly, a large step up in monetization that drove record revenue up nearly two extra questions Lee.
We added 857000, new financial services products in the fourth quarter up 56% from the number of third quarter ads.
For the year, we added nearly two 5 million new financial services products more than double the $1 2 million we added in 2020.
Do better monetization, we produced a five index year over year increase in our fourth quarter total <unk> services revenue of $22 million as well as our full year revenues of $58 million.
Product improvements that drove the year's phenomenal growth include the following.
And so find invest we gave members more selection and new features.
We added 25, new crypto currencies, making Sofia selection later with 30 at year end.
We offered to regular way ipos to retail investors in the fourth quarter.
The first was revealed the largest IPO since Facebook in 2012.
And the second one was new bank, a leading Fintech company in Brazil.
We introduced stopped limit trade orders in the fourth quarter and margin trading earlier this year, Autosave cashback and no fee overdraft protection.
And with our launch of Sofia checking and savings we now offer members.
1% API 33 times, the National average plus no account fees or minimum balance plus many of the free features members already enjoy gives points for both transactions and smart financial behaviors really took off.
In its first full year.
Quarterly spend balances and accounts grew at high double digit rates and we finished 2021 with 91000 products.
Debut NPS score in the mid fifties.
Finishing with our tech platform download benefited throughout 2021 from growth and enabled accounts.
Transactions per account and adoption of new products by existing partners as well as the addition of diversity of partners.
Fourth quarter segment revenues of $53 million was up 42% year over year, an acceleration versus the year over year growth in Q3 at 29%.
And with the inclusion of a full year of gallium results 2021 revenue more than doubled to $195 million.
Galileo added 11 million new end user accounts in the quarter.
A 67% year over year increase to $100 million a year end up from 60 million enabled accounts at the start of 2020.
Hey, Juan.
Galileo launched live clients and signed nine new ones in the fourth quarter, bringing total full year adds to 44.
We also grew galileo's totaled <unk> client base by 40% in 2021.
We launched <unk> to power its new mobile banking App spruce.
We acquired <unk> to leverage and owned and operated platform to drive rapid innovation with the benefit of a great business that further diversified our revenue.
Now as we announced last week. We're following the same playbook by acquiring Technosis, a leading cloud native multi product core banking platform.
Adding technosis is the next step and vertically integrating sulfides businesses to further accelerate the pace of innovation of our best of breed financial products.
We expect Texas to be a growth multiplier for both <unk> and Galileo in addition to realizing its own enormous growth opportunities, which are further strengthened in partnership with Gallo.
We are well on our way to building the AWS of Fintech.
Now, let's talk about point number two.
The success of sulfides unique financial services productivity loop strategy.
Critical to the FSP is creating best of breed products that build trust and reliability with members, which increases the likelihood they choose so five for a second or third product when they do we benefit from increased LTV per member by generating more revenue at little to no incremental customer acquisition.
Cost.
As a result, our higher LTV allows us to invest in more differentiated products and services, which in turn drives more demand and higher ltvs.
It's a true competitive advantage.
The address Pls had its biggest impact yet on 2021 results.
The scale of our top of the funnel products is now large enough, but at the same cross buy rates fourth quarter cross by volume more than tripled year over year to more than 380000 products.
And more than one third of our new products were adopted by existing members in the quarter contributing to the 17% decline in our customer acquisition costs in 2021.
I mentioned that our total year end members of $3 5 million exceeded our 2021 goal by 500000.
Our unique FSP all advantage not only helped us exceed this goal we did so without notable associated marketing cost. Instead. These efforts PL efficiencies allowed us to significantly exceed our member and product goals, yet still achieve our EBITDA targets.
This brings me to my third key success factor for 2021.
Our ability to drive a dramatic increase in surplus unaided brand awareness.
The unmatched reach of <unk> stadium nationally televised games.
Success of our various integrated multimedia campaigns and the variety of the Influencers, who we partner with.
Here are a few remarkable stats.
The five nationally televised regular season games at <unk> Stadium, we're seeing by an average of more than 22 million households per game, resulting in a household reach of 110 million plus households in total.
This visibility helped increase survives unaided brand awareness by nearly 70% in 2021 to a new record in the fourth quarter.
And that was before an estimated 106 million people tuned in to watch the Rams win the Super Bowl at <unk> Stadium.
Before turning it over to Chris to talk to your results.
I wanted to share a few additional thoughts.
In February I celebrated my fourth anniversary as the CEO of so far.
Well I could not be more proud of all we've accomplished in such a short period of time I am even more excited about what's ahead of US. We are just starting to reap the benefits from the enormous progress we have made on our strategic position the breadth of our differentiated and diversified product suite.
Our tech platform that helps us serve the industry as we build the AWS of Fintech, our balance sheet of $4 7 billion and equity value.
Exponential growth for our brand awareness and of course, most importantly, our team.
With that let me turn it over to Chris for a review of the financials for the quarter and the year.
Thanks, Anthony and good afternoon.
We finished off a remarkable year by delivering record quarterly revenue and our sixth consecutive quarter of positive EBITDA.
Fortunately, we achieved this despite facing new and existing challenges in the quarter proving once again that our diversified and differentiated business model drives sulfides durability and long term growth potential.
I'm going to walk you through some key financial highlights for the quarter and year, and then share color on our financial outlook.
Unless otherwise stated I'll be referring to adjusted results for the fourth quarter of 2021 versus fourth quarter of 2020.
Our GAAP consolidated income statement and all reconciliations can be found in today's earnings release, and our 10-K filing.
For the quarter topline growth accelerated as we delivered record adjusted net revenue of $280 million up 54% year over year from the same prior year period and at the high end of our guidance of $272 million to $282 million adjusted.
Adjusted EBITDA of $5 million was also at the high end of our guidance of 2% to $5 million.
For the full year, we delivered 1.01 billion of adjusted net revenue up 63% year over year.
Our original 2021 plan and what we guided to during the IPO process was $980 million and adjusted net revenue.
That assumed the federal student loan payment moratorium would expire on September 32021, and also included a full year of revenue recognition from our equity investments in apex, which was called last January .
Despite the $50 million plus of revenue headwinds created by those two factors alone we still exceeded our original revenue plan by $30 million.
From an adjusted EBITDA perspective, we delivered $30 million in profits above our original full year guidance of $27 million and up $75 million from the $45 million of losses incurred in 2020.
Now on to the segment level performance, where growth accelerated across all three segments in.
In lending fourth quarter, adjusted net revenue grew 30% year over year to $208 million versus 21% in Q3 of 2021, driven by a 67% increase in funded volume to $3 8 billion in total a new high for us.
The largest contributors to funded volume growth, where our personal loans business, which grew 168% or $1 billion year over year to $1 6 billion in originations for the quarter and our student loans business, which saw more than 50% year over year growth to $1 5 billion.
In personal loans, we captured increased demand from borrowers remodeling their homes and refinancing variable rate debt into attractive fixed rate products as interest rates increase.
Additionally, we continued to improve conversion as reiterated throughout our funnel.
In student loans, we benefited from increased demand from federal student loan borrowers looking to refinance prior to the anticipated January 2022 expiry of the federal student loan payment moratorium.
In addition increased net interest margins and strong gain on sale margins inclusive of hedge gains drove material year over year growth in net interest income and loan sales revenue.
The lending business delivered $105 million of contribution profit at a 51% margin.
Overall contribution dollars were up 23% versus the same prior year period, but margins were down from 53% in Q4 2020.
The slight year over year decline in margins was caused by lower home loans throughput with our third party fulfillment partner, resulting in lower home loans revenue and margins.
I'm pleased to say demand remained robust throughout the quarter and were it not for these partner issues. We would have had strong quarterly performance.
These issues have since been resolved by Onboarding, Another third party fulfillment partner.
In addition expenses were higher in the student loan refinancing business, where we increased marketing to capitalize on elevated demand in the lead up to the January 2022, federal student loan payment moratorium exploration.
When the moratorium was unexpectedly extended to May 2022 at the end of December we lost a week of revenue from anticipated federal student loan fundings and had already spent the marketing dollars.
For the full year lending adjusted net revenue grew 42% to $764 million and the segment delivered $400 million of contribution profit at a 52% margin.
Shifting to our tech platform, where we delivered net revenue of $53 million in the quarter up 42% from the same prior year period.
Overall segment growth was driven by 67% year over year, Galileo account growth to $100 million in total.
As a reminder, it is normal to see a lag between the addition of new accounts and the engagement and monetization of those accounts. We are encouraged by this leading indicator of galileo's growth.
Q4 contribution profit was $20 million at a 38% margin, which is down year over year, given the investments we have made in technology capabilities overall, and the migration to the cloud, but up sequentially from 31% in Q3 2021 due to fixed cost leverage we were able to achieve in the quarter.
This one quarter does not mark the beginning of a trend.
As discussed previously we plan to operate the business in the 20% to 30% contribution margin range for the foreseeable future as we continue investing to take advantage of the opportunity ahead of us.
For the full year. The Tech platform segment grew revenue of 102% to $195 million and delivered $64 million of contribution profit at a 33% margin.
Onto our financial services segment, which continues to benefit from strong growth across all products and our improved ability to monetize that growth.
This segment delivered revenue of $22 million in Q4 more than five times, the prior year quarter at $4 million and up 74% sequentially.
Within this segment year over year revenue growth was particularly strong in Sofia invest lantern sulphide credit card and sulfide money.
As important our year over year revenue growth was twice our exceptional product growth of two and a half ex demonstrating our continued progress in monetization.
Invest added 362000 accounts and reached one 6 billion in total money added 276000 accounts and reached $1 4 million in total and <unk> added 180000 accounts and hit 930000 in total.
Contribution losses were $35 million for the quarter.
While this is a slight improvement year over year, we remain in investment mode focused on creating the right unit economics for each business to drive long term sustainable growth.
For the full year segment revenue of $58 million was nearly five X the $12 million, we delivered in 2020, and a $135 million contribution loss was essentially flat year over year.
Quickly switching to our balance sheet, which grew by approximately $600 million year over year to $9 2 billion in total primarily as a result of growth in originations that accelerated in the back half of the year.
In addition, we exited the year with $1 6 billion drawn on our warehouse facilities less than 25% of our overall $7 billion of capacity.
That low reliance on warehouse capacity allowed us to significantly reduce our cost of funds and we ended the year very well capitalized having raised a total of $3 $6 billion of new capital.
Our total book value is $4 7 billion.
And our capital and leverage ratios are extremely strong.
Finally on December six we redeemed all of the outstanding sulfide technologies, private and public warrants, which removed a significant source of P&L volatility for sulfide.
We are excited about the strength of our balance sheet and we'll continue to make choices that ensure the most efficient cost and use of capital.
The last thing I want to discuss is Q1 and full year 2022 guidance.
It is important to note before getting into the details that the incremental net interest income from sulfide bank will only contribute nominally to Q1 results and prior to fully originating loans in the bank, which we expect in May of 2022.
That's because when we opened the bank in February we did not contribute any existing Sofia loans to the bank as we initially capitalize the bank with cash.
We are still transitioning our operations to have loan originations occur from the bank and that transition will not be fully complete until the end of may.
Over the last several quarters, our unique diversified business model has proven to be an increasingly powerful competitive advantage.
Even as we continue to invest and scale, we expect that strength and momentum to continue.
Our Q1 guidance incorporates the negative impact of the unexpected extension of the federal student loan payment moratorium to may of 2022.
We estimate that negative impact to be approximately 30% to $35 million of revenue and 20% to $25 million of contribution profit in Q1 with loan origination levels for the entire quarter to be consistent with those of the first three quarters of 2021.
For Q1, we expect $280 million to $285 million of adjusted net revenue up 30% to 32% year over year and zero to $5 million of adjusted EBITDA.
Had the Moratoria expired in January we estimate that Q1 revenue would have been $310 million to $320 million and EBITDA would have been 20% to $30 million for.
For a lesser div purposes. We've included this alternative scenario in our investor presentation.
For the full year 2022, we expect to grow adjusted net revenue, 55% year over year to one $5 7 billion and.
And deliver adjusted EBITDA of $180 million.
There are several recent developments that factor into our full year guidance.
First we assume the moratorium on federal student loan payments expires as currently contemplated on May one 2022, and student loan refinancing origination volume will normalize at pre COVID-19 levels partway through Q2 and remain at those levels from that point through the remainder of the year.
Second we assume the sulfide bank will begin contributing the sulfides results more meaningfully in Q2, rather than in Q1, when we opened the bank.
Because as I just mentioned, we opened the bank with no loans and initially capitalized with cash from our balance sheet.
This is an important distinction because we won't begin to realize the lower cost of capital benefits of the bank until we can originate and fund loans in the bank and we believe it will take until Q2 to build the appropriate loan balances to see more than a nominal impact.
Third we assume that <unk> revenue growth will be 20% to 25% for the full year and start contributing to our business. Following the close of the transaction.
And fourth as discussed previously we expect our core sulfide business, excluding the impact of techniques to deliver incremental EBITDA margins of 30% in 2022, as we continue investing to drive sustainable growth for years to come.
<unk> will contribute a small amount of EBITDA in 2022, but as we mentioned last week 2021 was a year of significant investment for <unk>.
Overtime, we expect this business to be additive to consolidated incremental EBITDA margins.
The last thing to cover on guidance as our stock based compensation expense, which we currently forecast to be between 80% and $85 million in Q1 and $340 million for the full year.
In summary, we could not be more proud of the results. So far delivered in 2021 week.
We exceeded $1 billion in annual revenue and delivered a full year of positive EBITDA.
We continue to be extremely well capitalized and are excited about the opportunities in front of us.
We look forward to another strong year in 2022.
That let's open it up to questions.
Thank you.
We will now begin the Q&A session, if you'd like to ask a question. Please press star one on your telephone keypad and if you'd like to remove that question Press Star two as a reminder, if you are using a speaker phone. Please remember to pick up your handset. Please limit your questions to one question and one follow up so we can accommodate as many participants as possible.
You are welcome to rejoin the queue by pressing star one.
We will now take our first question from a line of John Hecht of Jefferies.
John Your line is connected please proceed.
Thanks, very much nice quarter, guys and thanks for the detailed guidance.
Very good member in product numbers for the fourth quarter, maybe can you give us color on what drove that.
In terms of customer acquisition channels customer acquisition cost.
Any change there and what are you seeing opportunities and so forth.
Alright, Thank you John .
So it wasn't extraordinary quarter per member and product growth and is the culmination of a lot of hard work that's gone into the company over the last four years everything from the member whole, creating the app to developing our use of data to make recommendations to our members based on their information other members' information of personal.
Wei a referral program rewards program and then of course.
And the products individually themselves and then layered on top of all of that is just the hard drive that we've made to increase unaided brand awareness as a financial services company to our members need to trust us.
It's become a household brand name and the ability to leverage the broad reach that we talked about.
Our prepared remarks, so far stadium throughout October November December where they gave us a nice lift in unaided brand awareness, which makes all of our marketing more efficient the combination of that and the product differentiation that we've added as it relates to products like Sofia money in Sofia invest which I talked during the quarter.
Really drove a really strong growth rate across both members and products, but importantly at a decreasing customer acquisition cost our Chris talk to the specifics of a decline in customer cost on a per member per product basis, but it was really the culmination of product marketing operations.
A really strong integrated campaigns across traditional media digital and social Influencers.
Thanks, John So if you look at Q4, 2021 total sales and marketing divided by new members Youll see that our overall sales and marketing per new member was down nearly 20% sequentially and if you look at this on a full year basis. It was down about 18% when comparing it to full year 2020.
Okay. That's great. Thanks for that color and then second question and I know, Chris you talked about the.
Contribution from the bank over the course of the year, but maybe can you give us.
Kind of an idea of as rates move during the year, what that does to the kind of context.
Revenues mix, that's coming out of the out of the bank just assume we'll go through a rate a rate hike cycle.
Yes, absolutely I can I can address the overall question on rates, but what I would say is that our current guidance contemplates five rate rate hikes in 2022, that's roughly in line with what's implied by the forward curves today and as a reminder, at a high level.
For the lending business overall, we seek to maximize profit dollars in our lending business, while staying within that 40% to 50% contribution margin range that we've talked about historically in Q4, we delivered $105 million of contribution dollars had a 51% margin across our entire portfolio even as rates increase.
And we expect to maintain this type of approach going forward, even with the bank. As you know you can't really look at rate volatility in isolation is we have a number of levers that we can pull to moderate the impact of interest rate movements, such as pricing the structure of our loan sale agreements and hedging from a pricing perspective, we've worked.
Really hard over the course of the last several years to build the muscle and pricing capabilities to react really quickly to changes in rates and achieve our overall margin objective in Q1, we've started to increase our weighted average coupon in order to keep pace with the rate moves and offset the impact of margin compression that's expected and demand.
Has remained fairly robust specifically in our personal loans business.
From a sales construct perspective some of our forward flow deals are structured with fixed prices, whereas we don't take interest rate or credit risk and we also as you know have an incredibly diversified exit mix, whereas we don't need to overly depend on securitization market is an outlet and therefore, we're a bit more insulated.
And market dislocation situations.
From a hedging perspective, we currently hedge loans on the balance sheet subject to rate volatility in order to eliminate that impact of rates on future gain on sale and then the last thing I would note as it relates to rates is and this is what we've discussed previously we benefit from the fact that we have a diversified portfolio of lending products that do well in <unk>.
Rate environment rising rate environments, our personal loans business does really well and we're seeing that right now.
And in lower rate environments, our student loan refinancing and home loan refinancing the businesses do well overall, our diversified model allows us to adjust in real time, and allocate capital to businesses and opportunities that we do well and do well in specific market and macro backdrops. The additional thing I'd add to that just for.
Everyone's benefit is.
You go back to 2018 and track interest rates throughout that year that into 2019, and 2020, we sort of navigate an environment of higher rates going up meaningfully I think at one point in 18, and we're expecting a four to five rate increases in 2019 were geared up for that we spent the whole year really putting in place the right marketing channel.
All of the right distribution channels for our loans for our whole loan standpoint, Avs standpoint. In addition to our funding costs and our pricing capabilities prepared for that.
When we got into 2019, I think there was maybe one or two rate increases the market completely switched not unlike we started hearing about today and we're able to pivot our business to go to those areas that benefited from a flat rate environment and then again during COVID-19 when rates went from I think fed funds is at one 5% rate to zero, we pivoted again.
So we're not always going to be perfect, we will make our mistakes, but having navigated through that volatile environment in the past gives us great sort of playbook to navigate in the future.
Thank you for your question John .
Our next question comes from Ashwin <unk> of Citi Ashwin. Please proceed with your question.
Thanks.
Hi, Anthony.
Yes.
I was wondering if you could kind of walk through the guidance assumptions by segment.
And the cadence on that.
Yes, absolutely I can take that one ashwin.
So we arent, providing specific segment or product level guidance or quarterly progression guidance at this point, but in order to help bridge you from where we are from a current run rate perspective to our full year guide at the revenue level. There are few things that I would call out.
First there are several businesses are factors that are not in our current run rate, but we will have much more of a meaningful impact beginning in Q2 and beyond this year that bucket includes first a return to normalized pre COVID-19 student loan refinancing originations once the moratorium and and we've quantified that Q1 loss.
<unk> revenue and contribution impact for you as part of our guide.
Second we expect to be fully originating loans in the bank and benefiting from a lower cost of capital by May of this year and the extended hold period benefit a few months thereafter, and then third contribution.
Contribution from <unk> following the close of the transaction.
The second bucket.
<unk> is continued growth across all of our segments within lending I just mentioned the student loan refinancing business, but we also expect to see continued momentum in our personal loans business as rates rise and folks look to refinance at a variable rate debt into attractive fixed rate loans and we continue to improve our overall funnel conversion, which has had a really strong <unk>.
Packed on growth in the last several quarters for us.
We also expect to see strong growth in our home loans business as we move beyond third party throughput.
Throughput issues that I talked about in my prepared remarks, and continue to scale. Our overall purchasing jumbo program as well as continue to capture a large opportunity that we have with our existing member base.
Within financial services.
So we're expecting to see continued growth in products and monetization.
And the things that are going to drive that monetization, our increased assets under management and our investors.
Increased spend on our money and credit card businesses as well as new product releases.
Premium services and scaling our Etfs.
Just quickly hitting on some of the higher growth drivers within financial services and money, we generate revenue as you know from net interest income and interchange.
Given the spending affected growth in accounts that we're going to get now that we can offer a competitive interest rate we're really.
Optimistic about being able to further drive monetization here it is.
We generate revenue from a number of sources net interest income share lending payment for order flow digital assets more recently, we launched margin and soon to be options and all of those are driven by assets under management and we expect continued growth here as our AUM per product trends.
Continues to do really well in our member base grows and then credit card, we generate revenue from interchange and balances and are really optimistic about recent trends that we've been seeing here, particularly around spending.
Collectively the reference trends that I, just talked about are really helping drive growth in monetization and you can start seeing that play out in the actual numbers in Q4 alone. Our overall revenue per financial services product was up more than two X year over year and nearly 40% sequentially.
Then the last thing I'd call out as it relates to the segment forecast is within the Tech platform. We expect continued growth in accounts transactions per account growth and new partners and obviously the combination with Technip really helped drive growth there and a high margin segment.
Okay.
Got it got it okay.
The disciplined application of Gaiam loans included in the personal loan originations number and perhaps you could use that as a stepping off the talk about.
Future partnerships, such as this that might be in the pipeline.
Yes for the benefit of others guys a partnership that we entered in.
As it relates to people outside of the credit box, but so far underwrites, we only approved about 30% of our personal loan applications. Because we were focused on prime borrowers not near prime or subprime.
When we first arrived.
Tier four years ago, we built a strategy, which we call but declined monetization strategy, which was a way of taking applicants to sulfide and selling them to other underwriters and we get a lead generation fee and we do that through landfill.
We wanted to build on that success on a contribution to our business and help satisfy even more people that are applying for loans and our <unk> partnership think of it as a learning as a service it's fully integrated with our application process. The credit approval pricing models are run simultaneously the loan is underwritten by the partner.
We do not take the credit risk on that paper, we do the servicing on that member and offer them other products and services. This was our first quarter, where it contributed to the financial services revenue number because it is a referral revenue fee letting of the service fee.
<unk> talked about the loan volume decline, including correct, Yeah, we don't disclose the actual loan volume what youll see in the disclosures.
The number of members that are attributable to the Guyana and you can see that in our financial services segment that we outlined that in the actual disclosures.
Thank you for your question Ashwin. Our next question comes from Betsy <unk> of Morgan Stanley Betsy. Please proceed.
So can you confirm that your line is not needed.
Okay in the interest of time, we're going to move on that thanks.
Sure.
Anthony you talked a lot about.
And Chris both brokerage you've got the marketing efficiency that you're seeing.
Lower CAC and spur.
Spent maybe $15 million more in marketing could you talk a little bit about how you're thinking about how much you'll be spending what it means for the growth rate and the incremental margins.
Yes, I can take that Moshe.
As I said, we have made really good progress in terms of overall efficiencies what I would say in terms of the overall outlook. We're not been provided at the segment level or spend level of detail, but what I would say is we're at the level that we currently need to be at in order to support our longer term, 30% margin target.
At a consolidated level.
As you know we're right now.
Now at the right unit economics within our financial services segment.
We're seeing really strong cross border trends as we alluded to where we are you starting to feel comfortable about shifting more marketing dollars towards those lower cap products.
Got it thanks, one of the things that we've talked about over the last couple of months since you've.
The bank has.
Closed it up and running.
Is the ability to use that.
As a tool to get direct deposit customers I know that you just launched the deposit.
The suite of products relatively recently, but could you talk about any progress there in terms of getting into direct deposit for the so prime rate cut.
Customers.
And what that means for engagement.
Yes, it's still early days and I would also just emphasize it's not something that we're just starting on now it's really something that we started to emphasize.
Throughout 2021, and we're starting to see the benefit of more and more each quarter.
Q4, and then another 50%.
From Q4 into Q1 already and we obviously just started to introduce.
One of the things that I'd say.
Okay about the direct deposit activity is that once it does begin you do see the pickup in spending.
Chris alluded to so the increases we're seeing are a steady and positive and to the right.
We're really just getting started one of the things that may not be obvious from the outside looking in is that when the federal reserve approved our bank license in January we had to go through a whole product launch we had to switch the technology with the switch the reporting we had to change all the marketing collateral we had to change all the relationships with affiliates and that process is.
Ongoing so it's not like you just flip a switch and all of a sudden all of those things that was driving it.
Your best before it can help drive this new product and service called certified Chucking. It really was sort of closed down so five money and standout certified checking or savings since we have over 1 million accounts as it relates to our money product, which we disclosed we had to do that process in a very coordinated fashion.
We will give the team a ton of credit. It was it's been executed incredibly well knock on wood, so far but we went through a product rollout as if it was an entirely new products launching at first to our existing members have been slowly rolling it out to new members and we're just now actually switching over a lot of the marketing collateral with affiliates et cetera, but in terms of the direct deposit initiatives. It just didn't stop.
In February it started when we launched two very early paycheck, it's sort of already launched overdraft protection. We started when we launched Autosave and it's been a continuous process. So really strong growth in Q3 to Q4 dollars, 50% higher direct deposit adds per week in Q4 versus Q3 and right now we're up another 50% of the numbers are small.
But it is contributing as you're seeing the final selection is from Mihir Bhatia.
Bank of America Mihir. Please proceed.
Great. Thank you thanks for taking my question.
Bob.
I appreciate that youre not giving.
Guidance.
By product, but maybe you can just talk about a couple of things.
Within that platform just overall from a growth perspective, maybe just give us some expectations on account growth in that platform and specifically the two things that I'm, hoping you can address.
With stimulus.
In fact that when you look at account growth that Neo bank, if youre seeing any impact from that and just the competitive backdrop in any major contract renewals that you may have coming up.
Yes, I think it's important to contextualize for everybody the Galileo businesses, probably not that well understood in terms of.
The business drives growth and what the growth opportunities are so let me just frame that at a high level first.
Absolutely benefiting from the secular transition of physical payment for digital payments and thats impacting the entire business and thats, a secular trend behind it whether thats BTB payments or consumer payments or b to C activity.
Here are the growth drivers first is the growth of accounts of our existing partners. So that's the $100 million that we reported this quarter have enabled accounts that continues to grow from existing exists.
Existing partners that $100 million accounts that are enabled and we can provide new products and services to that installed base of Gallo as partners and we have a very robust pipeline to add new products and services to the existing accounts things like secure debit dynamic fraud protection.
A number of other products that youll see us introduce throughout the year. So the first driver is the growth in those accounts. The second driver on top of that is new products against those accounts and then of course underlying all of that.
Is just the increased activity within each one of those accounts the second sort of bucket of drivers as growth of new partners. Some of the new partners, we announced they are a good example, H&R block with <unk>.
<unk> App called Spruce is an example of a new partner and we added 44, new partners entirely new partners in 2021.
The third growth driver is international we have for the largest neo banks as partners in Mexico, we're expanding into Colombia and now on the back of the acquisition Technosis. We can enter another 12 markets that they are already in and operating them.
International expansion is.
Another bucket and then within that bucket are the first two buckets as well and the last thing I'd say is that we continue to diversify our relationships.
The business was built on the back of BDC or consumer Neo banks, but increasingly we are much more attractive to enterprise businesses and will have a competitive advantage in some of these cases enterprise for US is used commercial beds. While <unk>. Also has also has it bank. So sulphide bank could be the sponsor bank to commercial partners Enterprise partners.
And have a 10 to 12 basis points advantage because we are the sponsor bank on top of the fact that we're also payment processor. So we're really excited about the organic growth opportunities at <unk> without a doubt some of the same store customers will face stainless tough comps et cetera, and our goal is to overcome that through all these other growth drivers and that's what we're focused on.
Our outlook reflects it so we absolutely understand the headwind that may be there for some of the existing partners, but we have a bunch of other <unk> to continue to drive strong growth there not to mention the increased growth opportunities from our partnership with Technosis and vice versa.
Got it. Thank you that's a quite comprehensive.
Maybe just switching gears a little bit.
I was curious about EBIT.
EBITDA.
Effectively are going from 5 million to $60 million ramp I understand some of that is clearly the student loans coming back and we saw the Q1 impact of that but maybe just talk about some of the other factors.
So with that scale writing that.
Yes, absolutely in terms of your overall question on how to bridge.
From where we are today in terms of.
Zero to $5 million of EBITDA and 180.
For the year there are a few things I'd call out similar to what I said on the on the revenue guide there are things that will start contributing more as you pointed out the student loan refinancing moratorium. The bank will also start contributing more at scale towards the end of Q2 and thereafter, and then you're also going to see.
Hey, good growth across our higher margin businesses, specifically, our personal loans.
Galileo what I would say in terms of quantifying the overall impact of the bank I want to reiterate again that we just opened it a few weeks ago in February and we capitalized it with cash not loans. The reason that's really important is because there were zero loans in the bank as of day, one and we've just started originating.
Within the bank, we expect to be fully originating those loans.
The end of May of this year as a result, the cost of capital benefits will start occurring in Q2 and the extended hold benefits will start four to five months thereafter, because we're already holding loans on the balance sheet for three to four months.
If you were to assume normalized pre COVID-19 student loan refinancing originations and continued growth in our personal loans business as well as an extended three month hold period and relatively conservative cost of capital or some savings assumptions the impact would be about $70 million to $75 million of revenue for the year and 'twenty to <unk>.
$5 million of adjusted EBITDA, That's what's currently embedded in our guide today.
Thank you <unk> here.
Our next question is from Dominic Gabriel of Oppenheimer.
Nick Please proceed.
Hey, great. Thanks, so much for taking my questions.
I just wanted to go back to actually cover this a little bit but I wanted to go back to the average revenue per product in the financial segment segment, which was much better than I was modeling and really strong maybe you could just go back and talk about the mix of financial products within the segments into one and that how that mix really changed.
In the quarter, and which products you think are.
Getting adopted perhaps faster than you would've expected or a little slower by your customer base on the cross sell any color around those metrics would be we turn it over to Anthony but overall really good traction in the financial services segment.
I ended up driving $22 million.
Revenue in the quarter that was up five X year over year from the $4 million that we did last Q4, so an $18 billion of improvement where that growth ended up coming from what was our best business, which contributed about 32% of that growth our money and credit card businesses combined.
Delivered $8 million on the quarter and contributed about 42% of the growth in our lantern and Gaia business has delivered about $6 million of Q4 revenue and contributed to about 22% of the growth.
In terms of the performance of each of the products I'm looking at the net adds across each of the products.
I would say at a high level. It was a strong quarter across all the products it would be hard to pick out one product and say it was not growing as fast as we'd like.
We had really these are all disclosed and you'll see them in the 10-K, we had a really strong growth in the money product.
Absolute basis on a relative basis really strong in brokerage and in crypto.
As well as Robo I think of those products. The one I think we can differentiate a lot more they all have opportunities we're focused on fast selection content enhance as well as making our products work better together, but of those four that I just mentioned robo.
Oldest of the four products and one of the team is interested in differentiating more and so we think there is a big opportunity there to do so that doesn't mean, we're not going to differentiate on brokerage and launch options, which is down the road or do other things on money as it relates to high yield savings et cetera, there's still opportunities in every one of the products Festival.
Credit card I think is a huge opportunity for us.
Ross the team has done a phenomenal.
But we've really just scratched the surface we have one card.
Segmented by different types of clients.
Yes.
What types of members Spenders, you also have revolvers theres a lot more personalization, we can do with their credit.
The card and there is also an opportunity to make the credit card to work better with all the rest of them.
Products. So we're excited about the opportunity in financial services products, which turns are really strong in the fourth quarter and it would be hard to pick out one or the other.
Performing but I do think what I characterize as some of the opportunities to take some of the products to the next level.
Great and you kind of led me straight into it was the credit card that is a huge opportunity. It can really drive the ARPA was significantly higher compared to some of the other products just by its nature and so I was just curious about what is the target audience. When you think about the App reached FICO score you mentioned prime on some of the other.
Because in particular and just how you think about the life of.
Low loss rates.
Rates that you would be targeting for these products as you ramp it up thanks, so much.
Yes, the credit card product is still a prime product with very high FICO score over 700.
We think theres a lot of opportunity to play in that segment with differentiation within it.
Over time, we can explore different opportunities for broader member base, but we sort of have all these cylinders going at the same time and it's constantly debate between are we doing enough, where we're doing too much or we're doing enough. We're doing too much and I think we have the right balance as it relates to credit card, we want to build a high quality card base, we want to drive strong engagement and we want to make sure we have great.
Product market fit before we step out of our comfort zone. So there's still a lot of room within the prime customer that we have no reason to change you can differentiate within that and in terms of diesel reserves dunnock, you can see in our filing that.
We're running at about a five 5% loss rate right now, which is relatively consistent with our personal loans business, so really healthy.
Thank you Dominic.
We're currently at the top of the hour. So we do not have time for any additional questions. So pass the conference back over to Anthony for any closing remarks.
Thank you and thank you all for tuning in today before we wrap up I wanted to share some final thoughts.
The road to this point, it's so far has had its share of unexpected twists and turns.
And every single time, our team has shown the grit their perseverance and cohesion to navigate through the fog of uncertainty to achieve our goals and come out stronger now.
Not only have we managed to exceed our already.
Vicious goals, we've accomplished more in one year than most companies achieve in their lifetime.
As we've turned the page on 2021 2022 has started off with an even more volatile environment with greater uncertainty.
The fog of uncertainty excites me it creates the greatest opportunities for those who dare to win its one leadership matters, most because when the winners who will take the most are decided.
I Love our team I Love, our strategy I Love, our company and I Love, where I work I wake up every day trying to be a better leader than the day before and reminding myself that who cares wins.
For the first time in four years I also wake up every day, knowing the only thing between us and realize our ambitions is us.
I would take that set up any day of the week and twice on Sundays. Thank you for your time today, and we look forward to addressing any next quarter. When we report Q1 results.
Yeah.
That concludes the <unk> Q4, 2021 earnings conference call. Thank you all for your participation you may now disconnect your line.
Okay.
Alright.
Sure.
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Yes.
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