Q4 2022 Affirm Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the affirm holdings fiscal year 2022 fourth quarter earnings Conference call. At this time all lines have been placed on mute to prevent any background noise. Following the Speakers' remarks, we will open the lines for questions. As a reminder, this conference call is being recorded and <unk>.
The call will be available on our Investor Relations web site for a reasonable period of time after the call I'd now like to turn the call over to Rob Ohare Senior Vice President of Finance to begin. Please go ahead Sir.
Thanks, operator, before we begin I would like to remind everyone listening that todays call may contain forward looking statements. These.
These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website.
Actual results may differ materially from any forward looking statements we make today.
These forward looking statements speak only as of today and the company does not assume any obligation or intend to update them, except as required by law.
In addition, todays call may include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures.
Historical non-GAAP financial measures reconciliation to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our Investor Relations website.
Hosting todays call are Max Levchin, affirms founder and Chief Executive Officer, and Michael Wintered affirms Chief Financial Officer.
With that I'd like to turn the call over to Max to begin.
Thank you for joining us on this call.
The fourth quarter capped off an exceptionally strong fiscal 'twenty two for our firm we have once again posted a very healthy set of numbers being our own financial targets.
Executed well throughout the quarter meeting U S consumers spend where it was with COVID-19 restrictions nearly gone getting out of the house and out of town became a huge draw homewares and fashion experienced something of a retreat to more normal levels of growth.
To help our longtime partners online travel agencies have a banner quarter posting triple digit year on year growth in some cases, we had anticipated this shift a little while ago and recently announced some timely new partnerships in this space like <unk> and <unk>.
Despite what you may have heard elsewhere people are still buying things online a lot of them last.
Last month featured our very first Prime day, which was as much a test of a product is it one of our systems and scalability.
Quite pleased with the results running up to and during the event, we introduced zero APR programs on numerous skus.
We also expanded our partnership with Blue Commerce, which includes extending our reach to support the merchants in Canada.
More recently affirmed became the commerce is preferred pay overtime partner, replacing a provider that specialized in the six week loan variety underscoring merchant demand for complete solutions.
And we significantly broadened our relationship with stripe unlucky streamline distribution to more merchants and more consumers.
We often talk about our firm is a two sided network of consumers and merchants.
The less obvious but all important third side is our capital partners.
Maintaining a diverse set of funding sources is critical in this economic environment and from our earliest days. We knew there was no winging it with capital markets. Today, we are proud to call. Some of the most sophisticated investors in the world are long term partners.
Thanks to our excellent capital team, we added just over $1 $6 billion of net new committed capital approximately 70% of its capacity came from existing and new warehouse and forward flow agreements, including a new half a billion dollar multi year forward flow commitment.
In addition, our capital team executed two new asset backed securitizations during this quarter.
As proud as we are of our results. This year in quarter, we know that many people are thinking about how the economic picture may unfold and so are we.
The economy is more than likely in the beginning stages of a downturn, it's too early to tell how deep it will be and how long. It will last so how do we continue building the strongest affirm amidst uncertainty any sentence, we're going to be cautious in our management of risk while investing aggressively in the expansion of our total addressable market.
The former means our credit posture will remain conservative until we have a clearer view of the real economy.
The latter is that we expect significant growth from new partnerships, new products and new geographies.
The language of the 19 nineties Internet, we're widening the top of our funnel, while keeping a watchful eye on its bottom let.
Let me spend some time on both of these topics.
As we have said numerous times in the past credit performance, the non negotiable guardrails for our firm.
This is true because we see guarding our consumers financial health as a part of our mission and because we remain obsessively focused on delivering exceptional results to our capital partners.
We have both the underwriting technology and the control systems to deliver on this goal. We covered this in our May earnings call, but for a quick refresher relatively short terms and individual loan approvals gives us enormous flexibility when it comes to managing our back and front books, respectively being able to request a transaction specific downpayment or additional income information.
And offer risk appropriate term selection are just some of the powerful tools, we have built over the years.
This part probably does not need to be said, but just because there still seems to be some confusion. Unlike the folks in the marketplace lending businesses. We are not dealing with it became performance of loans made years ago in pursuit of growth at all costs roughly half of our outstanding loan book is expected to pay down within four months or so and about 80% with an E.
Months.
Our mission and our business model compel us to keep our consumers long term financial interest in mind, alongside our partners and our own.
While we expect to have a conservative mindset with respect to credit during this period, we intend to use our advantaged position to grow and to continue taking market share by expanding our total addressable market aggressively.
Here are just some of the growth initiatives I am excited about.
Inclusive credit we have worked relentlessly over the last several years to evolve our approach to identifying and underwriting credit worthy applicants left outside the traditional credit reporting infrastructure by some estimates. This is almost 45 million Americans and we are excited to begin deploying some of these features in time for the upcoming holiday season.
Scaling brand sponsored promotions, we continue to leverage unique features of the affirm network. Most importantly, SKU awareness.
Through our brand sponsored promotions product manufacturers have the ability to sponsor low zero APR deals at specific retailers on an item by item basis.
Taking this concept a step further we are delivering a full self service console to participating brands and manufacturers to enable them to deploy promotions on the affirm network seamlessly.
International expansion.
Bright now known as affirmed Canada continues to deliver very good results and I am pleased to announce that this past quarter I asked Wayne pollen, formerly the CEO of pay rate to step up to lead all of our international efforts.
Under his leadership, we are investing in the United Kingdom market This fiscal year and plan to continue from there.
Plus.
We have spent significant time fine tuning debit plus this quarter focusing on the usability and profitability of the card transfer.
Transactions per active consumer are at a healthy two seven times per week and the online offline usage breakdown is split nearly evenly.
Is still quite early so as usual a warning about reading too deeply into the fine grain metrics that said GMB per active debit plus consumer is over 40% higher than a non debit plus one and after the first two weeks from consumer Onboarding, we see near perfect cohort retention.
As you will hear in a second we're still adding significant features to debit plus and it's at scale contribution to our top and bottom lines is difficult to forecast.
As a result, we've excluded old debit plus related metrics from our forecast today.
We are excited by what we see and the usage so far and are committed to making debit plus a massive long term success, expanding our reach frequency and profitability.
Rewards.
What are the key preference driving features of modern consumer payments is rewards. It is the most common theoretical objection to be NPL versus credit cards.
We can stop the debate our plan is to launch a firm rewards in beta this September with a number of participating retailers.
As we rolled the program out from consumers will begin to earn points on eligible point of sale from anywhere and debit plus transactions with redemptions and the affirm app.
We're very excited about the possibilities here and expect to scale the program in time for the holidays.
I'll stop here, but there are numerous other initiatives, we're plowing away on while keeping credit performance top of mind last year, we hosted an event, where we discussed our product roadmap and detail and plan to do one again this year.
We will give you a much more detailed overview of what's getting built then.
Before I hand, it off to Michael one more comment on growth for.
For quite some time, we've expected consolidation to begin in this space are exciting mission market leadership, and a strong cash position make a firm and exit of choice for teams with great talent.
Now that the prices in the parlance of our times have corrected a bit.
We have no specific M&A targets to report today, but are keeping a very tonight on the market.
We continue to see strong demand for the simple idea of paying overtime and in particular for our take on it supporting many transaction types and sizes and keeping away from gimmicks and hidden fees.
Our strategy remains exactly the same as before to continue building our network.
More partners more active consumers at more transaction volume.
As always I want to thank the ever growing worldwide band of our farmers United by a shared sense of mission and to send a special shout out to the veterans still going strong through the shared ups and downs of our first decade together.
It's amazing to contemplate that just a few years ago, we imagined that supporting $50 million of transactional volume would be quite D treatment, even as we now plan our March to $50 billion of GMB, just a few years from now.
And now on to Michael for the numbers.
Thanks, Mac and good afternoon, everyone.
I'd like to start by echoing Max and acknowledging all the farmers for their contributions and dedication to our mission.
We're proud of the progress we made this fiscal year as we introduced nearly 7 million more people to honest finance expanded and diversified our merchant base to cover more than 60% of U S E Commerce.
And delivered very strong unit economics at four 3% revenue less transaction costs as a percentage of D&B well above our long term range of 3% to 4%.
With our team's solid execution, we exceeded all of our guidance for fiscal 'twenty two despite increasingly volatile market market conditions in the second half of the fiscal year.
I'll cover three topics before we open the line for questions.
First a more detailed review of our fourth quarter results second an update on what we're seeing in terms of consumer credit performance and third some perspectives on what we expect and how we plan to operate in fiscal 'twenty three given the macro environment. The growth opportunities ahead of us and the profitability targets, we plan to achieve.
Now to the quarter unless stated otherwise all comparisons refer to our fourth quarter of fiscal 'twenty two versus Q4 of fiscal 'twenty one our.
Our Q4 earnings supplement is also posted on our IR website.
We continue to scale, our network active consumers increased 96% year over year to $14 million inactive merchants increased to nearly 235000.
This helped drive 139% growth in transactions, 85% of which came from repeat consumers.
As you've heard us say before driving greater frequency as a key priority as it not only it fuels our flywheel that helps us drive efficiencies.
Annual transactions per user increase for the fourth consecutive quarter to three transactions per year, which was up 31% year over year.
We grew GMB, 77% and 89% excluding peloton.
Our strong traction across our enterprise partnerships continued throughout the quarter with our three largest partners, making up roughly 30% of our total Q4 volume.
Our volume with our two largest partners grew 27% sequentially from Q3 and are still in the beginning stages of the integration.
On slide nine of the supplement you can see just how diversified our network is across industries.
This represents a key area of strength and resilience for our firm, particularly as consumers shift spending patterns like they did in Q4.
That said given how underpenetrated. We are today, our growth is not limited by the growth of our merchants or even broadly to E. Commerce. For example, e-commerce penetration retreated to its pre Covid trend line this quarter and our growth still outpaced the broader market by an order of magnitude.
Travel and ticketing increased to $545 million up 87% from last year, and a staggering 443% compared to pre pandemic levels of Q4 and 2019.
Highlighting the success of our investments and partnerships in the category.
And airlines Expedia, Priceline and <unk> were all top 10 merchants for our firm this quarter.
General merchandise grew to over $881 million, 477% above last year, driven by our deepening relationships with Amazon Walmart target also top 10 merchants for Afirma in fiscal Q4.
Hey, Brian more than doubled posting year over year GMB growth of 116%.
Bright continues to hold a market leadership position in Canada that includes merchant relationships with Apple Samsung and Hudson's Bay Company.
Turning to the financials total net revenue grew 39% to $364 1 million above our outlook of $345 million to $355 million and grew 49% excluding peloton.
Network revenue grew 39% and interest income increased 33%.
Gain on sale increased 30%.
Revenue as a percentage of <unk> contracted by 226 basis points to eight 3% driven by a mix shift away from longer duration zero percent loan and towards short term split payloads.
<unk> grew over 193% year on year and accounted for roughly 23% of <unk> in the fourth quarter compared to 14% last year.
As you can see on slide eight of our earnings supplement.
He has a different economic profile compared to our core zero percent APR program and the composition of these two products effectively reversed year over year as we have expanded into higher frequency of transactions.
In a year over year decline in revenue take rate, which we express as a percentage of <unk>.
Never you can see on slide 14, and take rates within each of our product offerings continue to remain relatively stable.
Our strong topline growth combined with the leverage we achieved on non provision transaction costs drove a 25% increase in revenue less transaction costs to $184 3 million or four 2% of DMV.
Transaction costs of $179 8 million grew 58% year over year.
Excluding provision expense transaction costs grew 21% compared to revenue growth of 39%.
Loss on loan purchase commitments declined 21%, primarily driven by the mix shift I just mentioned as.
As a reminder, last on loan purchase commitment mainly occurred with a core long term zero percent APR loans.
Our funding cost increased 24% year over year in line with the 24% growth in loans held for investment despite the higher rate environment and significantly below that 53% growth in our total platform portfolio.
On our February call, we estimated that a 100 basis point rate increase beyond the forward curve at the time would result in an approximate 10 to 20 basis point impact to our LTC as a percentage of <unk> for the second half of fiscal 'twenty two based on our mix at the time.
Since February peak rate expectations within the forward curve increased by more than 150 basis points.
Despite this we delivered four 4% our LTC as a percentage of GMP for the second half of fiscal 'twenty to well above our implied three 9% and our outlook at the time.
We have the ability to manage the short term impacts and the forward curve with the tools inherent in our product, which Max shared moments ago and staggered renewal periods on our funding facilities.
We continue to estimate that a 100 basis point rate increase beyond the current forward curve may translate to an approximate 10 to 20 basis point impact to our OTC as the percentage of DMV in fiscal 'twenty three.
In comparison to a more normalized fiscal third quarter of 2002 provision for credit losses grew just 10% and provision expense as a percentage of <unk> declined by four basis points sequentially to $1 65 per cent.
Our allowance for losses as a percentage of loans held for investment declined for the third consecutive quarter to six 2% as we continued to drive strong credit performance.
Excluding transaction costs non-GAAP operating expense grew 60% to $215 2 million or 59% of total revenue.
On a non-GAAP basis sales and marketing expense declined 1% year over year.
Adjusted operating loss was $29 3 million in the quarter or 8% of revenue, which was significantly better than our outlook for adjusted operating loss of 15% to 11% in the period driven by better than expected, our LTC and lower than expected operating expenses.
GAAP total operating expenses, excluding transaction cost grew by 76% to $461 6 million driven by year over year growth in enterprise warrant and share based expense of $102 7 million.
GAAP operating loss was $277 2 million, which compares to a loss of $114 3 million in the prior year period.
Now to move on to my second topic consumer credit performance.
We believe we manage this to a great outcome despite the environment.
As we have shared in the past we are first and foremost focus on managing risk.
We constantly monitor the credit performance of our portfolio as well as the broader environment.
Given inflationary pressures, we began to see the signs of stress during the quarter within certain low credit segment consumers.
This stress without mitigation would flow through to charge offs.
However, the inherent advantages of our underwriting every application at the transaction level and the high turnover nature of our book provides natural agility.
Accordingly, we ever so subtly turned our dials and gave up a couple of points of growth this past quarter through small optimizations.
And we still grew GMB by 77%.
When we say we have the ability to manage credit outcomes. This is exactly what we mean our.
Our delinquency levels are healthy for our business and we have demonstrated our ability to grow while controlling them.
We've said it before and we'll say it again, we are different from our competitors, who had to dramatically slowed their growth rates. Because this is the only lever they have for managing risk. We are confident that these differences will only become more apparent over time.
With that let me turn now to our outlook for fiscal 'twenty three.
When we reported our fiscal 'twenty one results a year ago, we had just posted $8 3 billion and <unk> with.
Closed fiscal 'twenty, two well ahead of our plan at nearly $15 5 billion in dnb, representing 87% growth in <unk> and 114% excluding peloton.
Our team's outperformance this year. It means we are ahead of where we expect it to be in terms of market share.
We believe that we are well positioned to continue growing our network, while expanding our product offerings and geographic reach.
That said, we think it is important to acknowledge the current macroeconomic backdrop as we gave our initial guidance for fiscal 'twenty three and attempt to estimate these factors through June of next year.
While we cannot precisely predict the macroeconomic conditions our outlook assumes the current forward interest rate curve.
It also assumes that the current macro economic conditions do not fundamentally changed for the better with early signs of consumer stress persisting through the fiscal year.
If we do see signs of significantly more stress or if rates were to increase much more than expected, we expect to utilize the various levers at our disposal to protect our unit economics.
Among others. These include merchant and consumer pricing.
<unk> shortening approval rate changes and down payment rates.
Our outlook is also informed by the following.
First we made significant progress within our Shopify Amazon programs, which reached general availability in June and November of 'twenty, one respectively as.
As we enter the second year of availability for each of these programs. We expect continued growth in fiscal 'twenty three, albeit from a much bigger base.
Similar to fiscal 'twenty, two we expect holiday driven seasonal <unk> strength in the second quarter of fiscal 'twenty three.
However, we are forecasting in the second quarter to be the low point for the year over year GMB growth given the nearly 370% growth in general merchandise GMB that we're comping against.
Further given timing within the quarter and the product mix, we expect to see a seasonal decline in both revenue and revenue less transaction costs as a percentage of DMV and the period due to how revenues earned on these loans similar to last year.
While we continue to make progress with debit plus we are still in the early innings as such our outlook for fiscal year 'twenty. Three does not include any material GMB or revenue impact from this product.
While the funding markets remain volatile we enjoy a strong position without any current concerns on funding our growth.
We would expect to continue to execute across all of our funding strategies and keep equity capital required below 5% of total platform portfolio.
At that level this would reflect marginally less ABS execution proportionately this year.
With that context in mind for our fiscal year ending June 32023, we expect gross merchandize volume to increase between 32% and 42% from fiscal year 'twenty two to between $25 billion to $22 billion.
This would imply a two year compound annual growth rate of between 57% and 63% versus fiscal 'twenty one.
Accordingly, we expect revenue of $1 65 to $1 75 billion.
Representing year over year growth of 20%, 28% and a two year compound annual growth rate of between 37% and 41%.
The forecasted contraction in total revenue as a percentage of <unk> in fiscal 'twenty. Three is partially driven by our April mentioned interest rate expectations and the continued mix shift to expand into higher frequency purchases.
Turning to expenses.
We expect transaction costs of $865 to $915 million, reflecting a modest year over year reduction in transaction cost as a percentage of GMP.
This improvement is expected to be driven primarily with the loss on loan purchase commitment line.
As a result, we expect revenue less transaction costs of $760 million to $810 million.
Revenue less transaction costs as a percentage of dnb is expected to be roughly three 7% in line with our long term model of 3% to 4% of JMP.
Moving down the P&L, while we will be prudent with expenses to be reflective of the current environment. We will continue to invest in engineering and product talent to support the robust product roadmap that has been and will continue to be a key differentiator for our firm.
We expect our sales and marketing and G&A expense lines to grow our dollar basis in the year.
However, these lines should demonstrate operating leverage as a percentage of revenue when measured on an adjusted non-GAAP basis.
Accordingly, we expect adjusted operating loss as a percentage of revenue of $6 five to four 5% for the full year.
As we shared at our May earnings call, we expect to achieve a sustained profitability run rate on an adjusted operating income basis by the end of this fiscal year.
As we said previously we do not expect to compromise our long term growth opportunities as we progress towards sustained profitability.
Finally, we expect weighted average shares of approximately $298 million for the year.
For our first quarter ending September 32022.
We expect <unk> to grow 55% to 62% to four 2% to $4 4 billion.
We expect that growth to drive total revenue of $345 million to $365 million.
Our outlook for the first quarter also contemplates transaction costs of 176% to $188 million.
Revenue less transaction costs of $169 million to $177 million.
Adjusted operating loss as a percentage of revenue of 12% to 10%.
And weighted average shares outstanding of $292 million.
Oh, the uncertain macro picture over the next 10 to 11 months as well as us lapping some staggering year over year comps are leading us to be prudent in the short term, we remain very bullish about our opportunities we.
We are confident in our ability to execute and we continue to see strong underlying trends that position affirmed for further growth and success.
With that we'll open it up for questions operator.
Thank you well now be conducting a question and answer session. We ask you. Please ask one question one follow up the return to the queue, if you'd like to be placed in the question queue. Please 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'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one and once again. That's one question one follow up and please return to the queue. Our first question is coming from Ramsey El <unk> from Barclays. Your line is now live.
Hi, Thanks for taking my questions. This afternoon.
I wanted to first ask about the July and August delinquencies.
Should we think about it.
Ongoing increase as we move forward sort of similar magnitude this year or can you adjust your credit box as you kind of mentioned just sort of engineer more of a of a plateau. There I guess an easier way to ask the question is what provisions and losses are baked into the full year guide maybe thats the way I should have characterized it.
Thanks for the question I'll start and Michael can help quantify it.
So probably most important headline is that we are in full control.
You should start seeing.
We mean by that.
Relatively quickly.
One good.
Metric or what you sort of anecdotes you offer.
So we have been taking a fairly conservative posture that you hopefully heard on the call or in the prerecorded part of the call we have been.
Keeping an extremely careful I the credit performance.
All the while our approval rates have actually gone up so what we've been doing in the background.
It sounds like we've often undergo debacle significantly I think the three points of incremental approvals.
What that means though is that we've been optimizing credits very very actively this implies things like tightening in durations are asking for.
Excuse me more down payment in some cases asking for incremental income information.
Yes, I don't think you should expect us to.
Increase.
The provision in fact, we intend to.
If anything.
B.
Quite conservative I know Michael wants to quantify for us.
Just look I think what youre seeing very.
Very recently.
In terms of the sequential build is is what we consider to be a pretty normal seasonal pattern.
That seasonal patterns should begin to abate and go down as you know there is two things to think about there is the numerator and denominator. The one thing to do keep in mind is that obviously as that.
Base that you divided by.
Both in terms of the impact that we have on total term length as well as what we have.
Just in terms of.
Actual change in the total portfolio will change the measure that we report publicly.
When we look at the business and think about the state of credit.
Feel very optimistic that we have it well in hand, and the ultimate proof as how that shows up in our confidence around our margins in the business, which we continue to believe are quite strong and on the higher end of our long term range that we've given everybody.
Got it okay. Thank you one follow up from me could you give us a progress report on the Amazon ramp and maybe focusing particularly on Prime day, how did that go for you I think it's a new input into the model. This year did the zero percent loans gained traction and could you see a scenario where that has become a more permanent fixture at Amazon.
Okay.
<unk>.
So probably the most important thing to know about Amazon is that it's still very very early relative to the potential of the.
Just the sheer scale they have many different ways for us to work together.
We were very pleased with our project performance frankly as much.
Technically.
The ability to a proven ability to scale the old.
I think from underwriting to.
To the web systems all of that is really really well with our partners have given us high marks on that front. We have a lot of work to do you are right that the zero percent is always a extreme crowd pleaser when it comes to consumer buying in.
I think both of us and our partnership with noticed that it is in fact a.
Very successful way offering consumers a reason to buy now.
So we expect more of that.
As it happens, we'll certainly report on it.
The current state of partnership is.
Excellent.
Thank you. Our next question is coming from Dan Perlin from RBC capital markets. Your line is now live.
Thanks, Good evening everyone.
I wanted to just touch base on the transaction cost ramp.
It looks like.
You gave us the first quarter and the full year. So it looks like it's going to materially ramp as you go out into the back half of the year.
Especially with your commentary around some leverage on loss on loan purchase commitments are totally makes sense.
I'm just trying to understand.
I guess a couple of major drivers you just mentioned that you're provisioning didn't sound like it was going to be off the charts, although I suspect it has to be higher and then your funding costs, obviously have to be up based on the yield curve. So maybe you can just help us walk through the cadence a little bit of that and maybe some of the line items that we need to make sure we're really focused on there.
Yes, I think.
I think one of maybe the most important thing to think about it.
The seasonality that we would expect around both the revenue and transaction cost.
Q2 is going to see.
We think <unk>.
Ali both in terms of the growth rate in the business the revenue take rate and the revenue less transaction costs.
More to do with the timing and type of loans that we originated much like it did last year.
In the back half of the year, we would truly the back half of the year, we would not expect any material changes.
With respect to the efficiency that we'd actually would assume it improves on a margin basis from Q2 onward.
Okay.
And then.
I mean, you sound decidedly more conservative and may be concerned about the macro and the consumer on this call relative to maybe previous calls rightfully so but.
How do we think about how big maybe that cohort is when youre talking about lower credit quality seeing signs of stress.
Any way you can size that for us or just give us some context about what that looks like inside of your.
Inside of our portfolio. Thank you.
Yes, the answer that we have been given it bulks up until this quarter that we saw no signs of stress and that was something that was the first quarter. We saw any signs I think what you saw though in the quarter.
All of our tool to manage that on full display.
The reality is we solve the stressed and we began to have to react to it.
So I don't know that we're making a statement about things into the future beyond that what we saw today is extremely manageable and that's just not the case for other lenders out there right. Now are these credit segments. We're trying to differentiate us is that we actually have the levers to control it.
We did.
We continue to feel very good about being able to do that into the future.
They've been around.
Macro environment really should be heard as uncertainty.
Wood.
Politely talent to anybody who thinks they can predict where the economy is going to be in 10, or 11 months and I think that that gives us reason to be prudent in how we operate the business.
Given the lead that we've built where we have the ability to be very careful and thoughtful about how we run the business.
It doesn't show up and as Max said doesn't show up in US throttling approval rates substantially it shows up maybe and the timing and type of products that we might want to launch and being careful about introducing a lot of net new.
Because we don't feel like we need to right now we can be very careful and thoughtful about the state of the consumer and.
And play with the lead that we have right now.
Thank you next question is coming from James Faucette from Morgan Stanley . Your line is now live.
Thank you I wanted to.
Just ask a clarifying question on the horizon delinquencies I mean, it seems like.
We're kind of at least in the last month or six weeks are a little outside of where you've historically targeted are you, saying that through the incremental changes in the way that you're managing that we should expect those to come back towards that 2% or what's kind of the right range for us to think about where those should be added.
And.
And I guess, along with that are there adjustments you need to be making to your provisioning and then I have a follow up question on funding.
Yes, So let me start with the second question first.
The allowance that we have.
On the balance sheet.
Which determines the provision in the income statement.
Is that for the third quarter decline.
So we have.
I can't I can't find any other words to describe how comfortable we are with the current state of credit other than.
We provided for.
A full expectation that credit losses at the time of origination and that outlook has been improving for the third consecutive quarter. So we feel very strong about the state of the portfolio delinquency.
Delinquency data that we show publicly.
Is the portion of the total total platform portfolio that 30 days.
Or more and is probably mumbling through a little bit earlier.
There is a numerator and denominator effect, there and it's a little bit difficult for us to wanted the prescriptive on where that number needs to be obviously, we have a guardrail.
<unk> away from the guardrail to guardrail as we talked about earlier this year as many points above any anything that we've ever operated the business at.
The real thing we would like to do is make sure that the unit economics are revenue less transaction costs are still printing out really high level with the provisions that we are we would need to be taking.
And those are the numbers that we feel really very strong about and on top of all that we are hitting the seasonal peak for delinquencies and therefore would expect the seasonality trend to working to our favor from here.
Got it and then on funding capacity I appreciate the update there.
Can you help characterize for us the <unk>.
But the nature of those commitments are from a capacity standpoint and.
Anything that we should be aware of either in terms of upcoming renewals or where the way terms of those commitments could change et cetera. Thanks.
Yes. Thank you for the question. So first just overall the way to think about the market, we have really strong demand.
Our supply.
Four.
On balance sheet warehouse capacity I would characterize it as us having to say no.
The banks are plenty willing to lend money right now.
I think the port slow market also remains very attractive.
Robust pipeline of Port float buyers, who are interested in partnering with US I think the ABS market is obviously quite volatile and youre going to see us be.
Little bit more careful and thoughtful about where and when we execute there this year.
However, with respect to forward flow that capital is very committed and we.
We have about $200 million out of $4 $3 billion of forward flow capacity, that's even up for renewal in the entire fiscal year.
That is to say, 95% of our capacity is it's mostly locked into the entirety of fiscal 'twenty three on the flow side.
What that does for US is it serves as one of the many tools that we have to mitigate any impact of rates. So the ways that could embrace that impact us are first and foremost access to credit we enjoy a large amount of capacity will not constrain growth in the second lien impacts US is obviously at a higher cost of bonds or lower yields that we that we were able to get when we sell them.
And both of those cases, those impacts or delay what you saw in the back half of <unk>.
22 was a huge shock right when we talked in February till the end of the year peak rate moved as I said in my note over 150 bps and the impact to US was frankly impossible for anybody to see as we crushed our revenue less transaction cost numbers in that period.
So we look at next year as being.
A very secure and state level funding with the upside being our team is still out executing deals because the markets are still very constructive on the forward flow side I think the one thing that youre going to see less of this year, though is ABS execution with a big caveat being that we just don't know.
If the market does find a new stable footing youll see us be active in the back half of the year, but as we sit here today, we do think that there is.
A lot more volatility in that market, we're going to be and thats showing up in how we're how we're talking about the funding mix for the next year.
Thank you. Our next question is coming from Jason Kupferberg from Bank of America. Your line is now live.
Hey, Thanks, guys.
Wanted to start with a two part question on GMB can you tell us the fiscal 'twenty three the GMB growth guidance ex <unk>.
And then just the second piece there is.
If we reflect back on fiscal 'twenty. Two I think you had started the year guiding to $50 to 54% you ended up at 87, the Amazon helps and so I'm just trying to get a sense of how much sorry.
You guys might be trying to bake in just as you kind of multiple times. There is a lot of uncertainty out there and then I have a follow up thank you.
Yes. So the first question in terms of peloton.
We're very proud that we've expanded our merchant and category mix, where <unk> continues to deconcentrate in our business.
It was it was low single digit percentage of our business in Q4 for example, and yet we still haven't lapped all of the contribution. So we would continue to expect it to be a declining business. Our current expectations are that its something on the order of four points of GMB growth, 7% to eight points of revenue growth that we are.
That we are.
Not getting this year or at least that we expect telecom to drag against that.
And that's part of the reason why we're so confident in the long term here is that we do have to have that grow out of this a little bit of it.
<unk> associated with a partner who is.
To write a troubled ship.
The.
Second question was how much conservatism, we have if you look our guide as our guide.
We're not going to.
Caveat I'd characterize it in any way, except it's our guidance. However, we do take it very seriously.
We like to put numbers out there that we can achieve youll notice that the ranges are wider this year the width of the range reflects the fact that we do have a lot more factors that play that we can't control.
But our guide is the guide and yet we take it very seriously and I don't think we've missed one yet.
That is true.
A follow up I guess on the credit side I mean the.
As we've talked about the delinquencies are up a little bit I think charge offs were up as well, but it looks like there was actually a little bit of a reserve release in the quarter as you mentioned the allowance ratio.
Down again, so can you just help us reconcile all of that I guess.
Just given what's going on in the macro.
Yes, so maybe a little bit of a brief description of how the allowance and provisioning works mechanically so at the time of origination we make an estimate.
The likelihood likely allow us needed for that loan and then every month, we update we would consider to be the the back books drift or improvement and so for example, we might estimate alone are pooled loans will have a 5% total loss content to origination and a month later, depending upon actual repayment informed.
Shan or the flow rates from one delinquency bucket to the other we update that view.
It is the case that we are outperforming your own expectation that just generally speaking are we like to try to be pretty thoughtful and ensuring that were never under provided for potential losses.
The right side of the ledger to be on as far as we're concerned.
And I think that's.
A factor thats, probably be very difficult for you to read through and which is why we keep pointing people back to look at our current allowance rate and Thats that is.
That is our current estimate of all of the future losses of the loans.
Better than our balance sheet.
I think that drawing a straight line between data like the DQ30 HR too.
Eventual charge offs.
Big step and probably not something that I would do I would look to the current allowance rate as the total losses for the book that's on the balance sheet, and then think about that number as being.
Increasing or decreasing consistent with the future expectation of losses.
Thank you. Our next question today is coming from Moshe Orenbuch from Credit Suisse. Your line is now live.
Great. Thanks, Michael I think you partially answered this.
One of your earlier comments.
Could you talk a little more about the credit tightening steps that you took and what impact they have on.
On the GMB in fiscal 'twenty.
Yes.
I think the let me speak to what happened in the prior quarter first because I think thats pretty illustrative of what we think will happen we might look at a particular merchant or set of consumers of our products. We're very we're able to be very surgical and we'll find a pocket of risk that say as is currently experiencing signs of distress.
Yes.
The levers that we have at our disposal are everything from.
Actually just increasing the credit bar sort of lower approval rates, because you have less capacity to approve to changing the term length. As you change from a 24 to 18 months you risk posture changes.
Or requiring more down payments.
<unk> mentioned this at the very top we made all of those moves to manage the early signs of distress. Those are signs of stress I think you've seen reported in a lot of other context we.
We were able to fully mitigate those there'll be very thoughtful and actually increase our approval rates and thats because approval rate yesterday now isn't the only lever that we have we have a lot more tools at our disposal and we can be a great growth will because we are still launching scaling these very large platform relationships like with Amazon and shopify.
So I would characterize them as truly we're talking about low single digit percentage at <unk> on a net basis, because while we're doing those tightenings. We're also doing optimizations that open up and find opportunities to underwrite really good risk.
If you think about how that informs the plan going forward I think it's maybe a tertiary factor I would like to take it as a primary factor in the deck.
We true that we have a more conservative posture today than we did a year ago, but the impact of lapping the explosive growth in the first half of last fiscal year and April mentioned peloton categorical headwinds combined with the.
Seems like the shift in e-commerce, and the discretionary spend.
Probably matter more than the things that we're seeing directly on credit as we sit here today.
The truth is we said on the call. If we see deterioration we will pull extra levers. They may not show up is substantially less growth, but they will nonetheless show up with.
Protecting our unit economics.
Got it thank you.
And as a follow up.
At the beginning of the call Max had mentioned.
The rewards program, just hoping you could kind of.
Maybe flesh out a little bit how you think that will impact both both sides of revenue west transaction costs, how it'll impact kind of volume.
Costs as we go forward.
So first of all we're launching a beta and as we do everything here. It's a slow start very careful optimization, we're not going to compromise our unit economics, we're not going to compromise any other metric that we care a lot about.
The goal is first and foremost is to compel consumers to transact with affirm more.
I think when we took this company public.
The conversation in the investment community and the analyst community was well you guys are great, but people transact more.
Just one five times a year or whatever the number was we've shown that we can continue to move that number up and up and up one of the preference drivers is how rewarding our these transactions and typically that means miles or points or something like that of course will put our own spin out I think we are different and we like our differences, but it will be a wait.
To give consumers want more reason to choose a firm, but they have all the choices rewards also tends to attract a higher credit quality consumers just as a general statement you will see that folks that need credit to improve their buying capacity don't care as much about rewards folks that have lots of choices tend to.
Theyre paying instrument.
In part based on how rewarding it is.
Therefore cautiously.
We're being very careful in the forecast here.
At least without peace of mind, we don't expect to.
Make these cost us more.
Economics. The goal is to keep the unit economics, but they are protecting we quite like our LTC rate then we'll keep targeting that.
That hopefully makes it clear that these are predominantly merchant funded will launch with a handful of early merchant partners.
And just a little while from now and we'll see how it goes and how well it drives increment holiday to JV. So.
The simple answer is we expect more JV hopefully more transactions per active user.
Should not expect deterioration that you think Alex.
Thank you. Our next question is coming from Rob <unk> from Autonomous your line is now live.
Hi, guys.
Okay.
Yeah.
Wanted to drill down a bit on the revenue outlook as a percentage of volume revenue. This year was eight 7% in the midpoint of the guidance is for seven nine so what else besides peloton.
Thing is moving around in there.
Yes peloton.
And in general the mix shift towards lower take rate products and.
If you think about a dollar.
Low teens MTR high long term zero percent being swapped in for a dollar.
4% to 5%.
Split PE type MTR as Youre, giving up a lot on a <unk> basis in terms of total revenue.
Now some of that's offset by the strong revenue profile of our interest bearing product, although there's obviously a timing element to that as well, but the biggest driver is just the growth in our <unk> business, which has a lower revenue take rate.
Okay. Thanks, and then on debit plus I appreciate that it's still early but now that that's generally available.
How do the unit economics, there compare to the 3% to 4% revenue less transaction cost yield that you're always talking about and emphasizing.
And would growth in that product.
Has any material effect on the target for adjusted operating profit to be positive by year end.
Yeah.
It's a great question.
The short answer is too early to tell the reason we excluded the forecast.
Is because.
Literally what ive been spending.
A lot of my personal Taiwan.
Not prepared to declare it to be ready to be given to everyone. We have 14 million active users that are.
Very excited about this product, it's very clear that they're transacting a lot more people.
Drill down and that Youll see in the metrics that there's quite a lot of P&L transactions. Those obviously have a very different revenue profile theres not a lot of risk in there at all.
And.
That's obviously a natural drag on.
Probably less transaction costs, if you start thinking of it that way on the flip side, we see quite a lot more loan volume, which is great and we're excited about.
The incremental usage that we get in the credit that we provide there.
Again, our goal is very clear, we very much like our unit economics, we intend to protect them, we're not going to compromise them.
Okay.
The risks associated with these transactions is new to us we're still optimizing exactly for example, what sort of insufficient funds rates, we'll see the transaction has flowed through to connect the checking accounts.
Why we haven't pushed it all the way through to the general population is available, but we have really not promoted it very hard.
So.
I think I've given.
Just enough data before.
The thing I would.
Maybe to put it in context, the revenue models for the debit plus product will be.
Unregulated today via debit interchange was obviously youre, not making 3% to 4% when your grosses is down there and then interest bearing I'll just note that some of our strongest and most profitable programs our direct to consumer interest bearing products, we feel really good about that side of the house and obviously youll see some lower tow.
It'll growth in that take rate revenue take rate.
LTC take rates on the pain, our debit transactions that happen on the card and we've not given any guidance because of the fact that it's a bit too early but.
You would expect it to be.
To be lower so that being said our direct to consumer product is much higher than that and so we haven't given guidance and not going to today, but we feel really good about where we get to once we are at scale.
Thank you next question is coming from Reggie Smith from Jpmorgan. Your line is now live.
Thank you for taking the question guys.
Two quick ones.
First I guess.
Kind of signals that you saw some deterioration and I was curious.
If that was something that you saw in the.
Calendar second quarter or is it more simply that you are seeing in this.
During the quarter, recognizing that youre almost two months into the quarter.
Second part of that question.
Just curious what some of the I guess, leading indicators you guys are looking at I can certainly appreciate that you have more insight than maybe the traditional credit card that is it slower payment.
Balances and the associated second account, but what kind of data are you guys pulling from.
Obviously, recognizing you don't want to.
Given where your secret sauce, so whatever you can share there would be helpful.
Well give away a little bit of a secret sauce.
Hopefully it does not help my competitors too much.
So one really interesting actually answered the probably the more kind of a.
Relevant part of the question.
Anticipating.
Some form of stress since as early as January so we have been keeping our eyes.
Very very open and have been optimizing credit and credit performance.
Proud the calendar year. So this is not a new thing.
All.
The.
Call. It April and May is when we started.
Taking <unk>.
To look at things just on a sort of.
We're spending more time on the analytics. So I think the people will be easier our credit and risk teams has really not changed in the last what are months, where a nine.
Just the level of intensity, we've been applying to the research side of it has increased and increased increased and the more you look the more you find and we have been finding pockets of interesting things that we care to correct afforded the EBITDA side of it to something greater so one anecdote that I was going to share is.
There is a really interesting so as much as.
Michael just pointed out drawing a straight line from <unk> to the ultimate charge off.
That idea in my opinion, because theres a lot of opportunity secured there's a lot of tools we have.
Everything from loan modifications to collection strategies.
That said when you look at early delinquencies and how the flow rates change is a really good predictor of at least one kind of consumers and basically say look.
Kind of short right now, but I will make good on it a little bit later than I was supposed to end.
That's enough of a Canary in a coal mine where.
If you look at it everywhere he probably wont notice it because most consumers are still just fine, but if you look in the pockets, where you might expect that sort of thing you can start spotting these sort of things.
At scale that typically means job losses, we're obviously not there yet and hopefully we won't get too far but before that.
Actually a reflection of consumer sentiment about their potential for job loss, which second order metric, but we care a lot about those.
Got it.
And then if I can get one more follow up and you had the slide where we show delinquency trends by.
Cohort.
I believe that's when your health portfolio.
Talk to just what the trends look like for the entire loan portfolio is consistent with that or any any.
Any differences worth calling out between the two.
Yes, if you're if you're referring to the chart we have in our earnings supplement.
The title delinquency performance that total portfolio excluding <unk>.
We exclude that because there's a bunch of good because it happened with the denominator and that's the chart. We've been chatting earlier today, but that takes a look at the total platform portfolio, we manage credit and look at credit metrics, we never distinguished between on and off except for when we go to the financial statements.
Actual credit measures are always on portfolio wide.
And there you can see.
The trend we were talking about earlier, where you saw the seasonal growth.
Pretty normal thing to see sequential increases going into late summer months.
As you have seasonally low period coming off of the tax season.
And so that's what it looks like overall again I think we feel very strong about where credit sits today, we feel very good about our ability to manage the small levels of stress that we have seen and are very optimistic and confident in our ability to do so through the rest of the fiscal year.
Thank you. Your next question is coming from Michael <unk> from Goldman Sachs. Your line is now live.
Great. Good afternoon, and thank you very much for the question.
I was just wondering if you could provide a little bit more color around the 32% to 42% year over year origination volume outlook.
Is there anything you can talk about as it relates to.
How each of the segments or products will grow relative to that consolidated growth rate.
And is there anything that you could potentially talk about as it relates to the category.
Whether it's faster or slower than the consolidated growth rate. Thanks.
Yes, so just to recap again I do think we would expect our alright sporting goods and outdoor business to show some headwind. It was the only category that declined last quarter. We would continue to expect that to be a drag we estimate that.
Single partner to be 4% GMB headwind.
<unk>.
The second thing I'd say is in Q2 of last year, we launched.
To general availability with with Amazon.
And we also went to <unk>.
Late Q1 early Q2 for Shopify and you start to lap those you are going to see for the category to be over indexed in some compression. So for example, general merchandise will have lower growth rates. However, that's from a very very very high growth rate base because of the base gets bigger dollars of growth are still very impressive there and just.
Second we really clear on what it not.
The guidance for <unk> does not reflect the view that we have around consumer demand for our product.
Still seeing healthy application levels as I mentioned before our approval rates are actually up so both the demand and our ability to underwrite.
It's also not a function of any shift away from or falling out of favor at the category.
Continue to see our payment and that that is being more important to merchants than it was in a prior period.
And lastly, it's not a function of capital constraints and so our outlook really is about that.
One or two pieces of acute headwind and then.
We're lapping some really gaudy numbers, we feel really good about the underlying absolute value of the business and feel really good about our path to continue to build a really big network at scale.
Great. Thank you, Michael and just as a follow up.
I'm sorry, I know this came up earlier on the call, but could you just talk a little bit more about the trajectory of revenue less transaction margins throughout the year. I know you said there was going to be a valley in the fiscal second quarter is that a function of the holiday and mix is that more slipped pay.
Any color there would be helpful. Thank you.
Yeah. So you have our guide for Q1, and then what Youll expect to see in Q2 is as originations spiking lots of originations later in the quarter and when that happens. It's just the way things flow through the P&L as you end up with lower.
Revenue and our LTC rate in the quarter and then the back half of the year or are you kind of realize some of the benefit of origination because it happened earlier in the year, we'd expect the same trend to play out, albeit slightly more muted because again I think the explosive growth that we had in Q2.
It won't be repeated but the shape should look very similarly.
You have our guide for Q1 think about Q2 as being lower on a vertical basis. Although again, we feel really good about the economic content Dolby originating that quarter, especially at the back half of the year will be improving from there.
Okay.
Thank you. Our next question is coming from Andrew Jeffrey from True Securities. Your line is now live.
I appreciate you taking the question here.
Max when I look at the very impressive customer and merchant growth metrics, you put up and I juxtapose those with the.
Very high recurring transactions Youre getting there.
The recurring rate from your existing customers 85%.
How do we think about monetizing all of this new potential.
Both merchants and customers you brought on it strikes me that for a firm to be really successful long run you've got a really spread out monetization. So how do we think about that in the long run.
Great question.
So.
The medically the way I've been thinking about overall strategy for this fiscal year.
Our strategy set a little bit earlier than in the year. So we're thinking about it for a while but this is the year, we're going to execute on it.
This is really the year of the consumer last year, we were lucky proud successful enough to bring on.
Over half of e-commerce volumes onto the platform.
We launched two.
Joe the ability on a whole bunch of Blackberry and have been able to scale with them.
And it's showing up in the network effects, you see transaction usage growing transaction per consumers to sort of the year. We brought on a lot of new consumers. So the denominator has grown in the numerator out pasted and so it's all goodness in terms of bringing on new users onto the network and this year, we're really going through it.
Best in just making this deep very best product for the end consumer in every imaginable way.
I'll definitely.
We spent a lot of this volume I'm talking about this at our.
Roadmap event.
Sometime towards the end of the calendar year, but just if you scan the things that we brag about.
In the in my recorded section rewards I think it's going to really move the needle not just in terms of consumer satisfaction, but also will make it a very compelling promotional platform for merchants and we expect to find good monetization there.
Brand sponsor promotions is something that we've proven to work.
Almost manually if you will and some of our largest big box partners, we're really going to.
Put it on a conveyor belt by creating a self service console for that and integrating at a bunch of places.
We have obviously debit plus is something that I am personally very passionate about.
Fantastic customer stories now when I say customer here, I mean, consumer, but I literally had to capture the person who went to Colombia the country on vacation with exactly one carton as wallets debit plus.
The early data it did not work internationally. So we have had two us scramble.
For him but.
It's something that I really think it's just the.
Fantastic way of increasing trajectory, obviously two points on transactions per week is.
Massive massive opportunity to create more value for consumers.
Every one of these transactions is decided to go with the merchants on the other side and they are excited about the incremental conversion incremental volume that we're bringing on and frankly, there are huge opportunities in demand discovery and demand generation, which we're just scratching the surface. If you go into the affirm app Youll find we've made a lot of really interesting improvements in item level search.
There is some really clever promotions around specific items.
One really good metric north of 50% of our.
<unk> owned and operated service originated transactions basically from anywhere and now debit plus transactions begin in a search box.
An interesting stats that.
Should tell you opportunities there to monetize our pre Norris Theres, a full company at mountain view that figured out how to make money on capturing consumer demand from search. So we have lots of really really exciting things planned for the consumer for this year end.
I have to brag about them on our next call, but I will stop now so.
I have taken up our time, because Michael Pennsylvania for the good questions.
But yes, we.
We have a loft land on the consumer side for sure in every one of these things as an opportunity to increase our margins.
Okay, and then just as a follow up.
Just can you just speak to a firm's competitive position you've had some new entrants in the market that are growing really fast.
What convinces you that a firm is the long term winner.
I think.
And at least the.
Unit basis, we're seeing more.
Competitors exit the market then.
Following in terms of their competitive position I think the if you look at the North American footprint I would argue we've established our dominance.
The last fiscal year quite decisively.
Presumably you're talking about.
But might be the number one.
Relative to the current baby people entering the business generally did not have an impact that we can discern in our ability to close merchants or our ability to convince consumers that we have a great product.
Thank the audience that Paypal serves is a little bit like me.
<unk>, a couple of kids and a dog.
Affirm serves predominantly Gen Z and millennial audience of the two are quite different and.
It's good that there are products available to everyone and we're excited too.
Overall, the shift from credit cards and cash to buy now pay later so for the moment because the segment is so underpenetrated, we're not really feeling any competitive pressures.
I am sure eventually will come to the end, but for the moment, we're still single digit.
U S ecommerce and.
My point of view the single most exciting thing.
I'm not saying, there's a lot of X I think that's actually out there, but one of the most exciting things that we're seeing right now is debit plus being 50 50 online offline there's just.
A complete greenfield offline transactions that no one has really figured out and we think we have something really special there.
Thank you. Our next question is coming from Chris <unk> from D. A Davidson your line is now live.
Alright, Thanks, Tim.
I'd love to hear I appreciate your guidance Didnt include.
Sort of a.
A deceleration in consumer activity in this space, but I'd love to hear if you have any.
Recent color on consumer demand for buy now pay later, so given the inflationary environment are we seeing more folks just this product because to make ends meet are we seeing more folks shipped to the split Paypal to avoid some of the longer term the bigger purchases any color there would be great understand consumer behavior recently.
I'll start and I'm sure Michael has a credit facility.
So sort of a difference.
So.
Short answer is no we're seeing if anything increased demand on the consumer side, which is exactly as we expected primarily because inflation takes away.
Spending capacity and you.
You borrow too so I think in terms of need more credit that has been pointing north.
Other inflation became more and more of a thing.
We do see.
Secondary.
The effects of inflation, some folks choose not to buy because the prices relative to their earning capacity are higher and so they.
Our thinking.
Longer they are buying a little bit less but I don't think that impacts might not pay later, if anything it accrete to buy now pay later and other parts of the credit.
<unk>.
In terms of shifts to.
Shorter and longer term, that's a really really good and important question. There's a lot of that did we control in the sense that the consumer sees at least three sometimes four different term lengths that we offer for every transaction depending on what the consumer looks for and we've now gotten quite good with I'd have to check out.
Optimizing towards the right collection of offerings.
Consumer can decided quite differently folks that are buying something that is pretty short term pretty low <unk> tend to select short term because those transactions. We can generally speaking do.
At all and so it really is a free loan.
Pretty great. If you can get it because for us the money.
It flips pretty dramatically when you are looking at an item that is actually outside of your personal cash position a personal cash flow. It then becomes a matter of monthly cash flow impact and so at that point consumers tend to choose the longest term possible because that lowers their overall cash exposure.
On a monthly basis.
Obviously increases our risks and create a number of opportunities that consumer has to go delinquent or the bulk and as a result.
We manage our risk by being judicious about just how long you were willing to take this term out two very transaction. So we have as much to say about these terms.
The consumer does if not more but there is definitely some differentiated behavior.
The one thing that I can tell you were quite right about zero percent NPR transactions are that much more exciting in an inflationary environment because borrowing money has become your expenses base.
And buying more expensive based regulation so as you can.
Or a transaction that has no interest at all.
Pretty great.
Yes, the only thing to add to that.
If you look at the transaction count that's a really good measure for.
What's going on our consumers wanting to use this product more because so many other things are a function of the puts and takes on merchant relationships prototypes and everything else, but the actual transaction count growth is.
Transactions last quarter, 139% the biggest piece of growth in the business as hitting more transactions on the platform and yes. We're proud that 85% came from repeat users, but the total gross number of transactions. So really good measure of just how much there isn't there and it's sequentially up a lot too wasn't just up year over year, we were up sequentially from Q3 quite a bit.
And across a really wide set of categories. This past quarter saw our travel and ticketing business really dominate.
I think with the goal of over 12% of DMD that quarter.
And that just shows you that it does not.
A single use product theyre not for us anyway.
<unk>.
Beauty or to our T shirts on shopify, it's about everything that they're buying as you called out last quarter.
Yes.
Transactions per active customer also ticked up pretty meaningfully sequentially as well.
Last one real quick.
Australian listed or formerly Australian listed competitors.
I've seen some strong results recently, and you mentioned M&A and I imagine Theres a lot of concern from the smaller players I think sitting capital and seeing growth slow.
Can you just talk a little bit if you can give a little color on your M&A appetite. Thanks, so much.
I want to embarrass the person, but I got a fantastic piece of advice when I asked.
Our friendly Investor how do you think about M&A.
Ask yourself.
What does the asset best off if it's owned by a firm.
And obviously there is some limited tusa.
We think we can manage anything but there are definitely things that are very accretive to the business.
We can find.
Something in the space or near the space that is better off owned by us and operated by Us.
I think we will we will take it very seriously now that the.
The prices have normalized and we do have a very clear road to profitability and have a quite a quite a significant cash position.
Maybe slightly more technical way of thinking about what we're looking for there's a bunch of really good ideas in the space, but I don't pay later is this really white surface.
Call It honest finance because I'm, an idealist I think you can think of it as a non revolving credit tenant remains calling it but this idea that it's too confusing to borrow money and you had credit is really important is it so simple idea, but it seems.
Time has finally come actually really really hard to do.
And the hard part comes from all sorts of things like underwriting is really really difficult we have a lot of seemingly smart people.
I think I'm surrounded by pretty clever people and I feel like a moron every time I talked to a a credit team because they're really really smart good would be due and it's hard to hire that team and it's really hard to scale, it's hard to get it to be functioning and so there are plenty of smaller entrepreneurs with really good ideas that.
Built a really cool mousetrap, but theres just not that good at underwriting and scale.
Really allows you to hire even more of those people train them on real data.
Operating it gives you a lot of interesting use cases that you just wouldn't have seen a pretty small and so.
So.
We're looking for businesses that had amazing entrepreneurs amazing ideas amazing first signs of traction that would really benefit from being.
Put on the platform that has exceptional underwriting exceptional capital market's reach at.
At this point very very large user base merchant base. So there's.
I think lots of opportunity will be very judicious will be extremely good stewards of shareholder capital not a.
Yes.
The other thing we're going to execute imminently, but we're looking just because the market has now.
Reduced somewhat weighted auditions.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.
Thank you everybody for joining the call, we'll see you next quarter.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
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