Q4 2022 SoFi Technologies Inc Earnings Call

Speaker 1: The.

Speaker 2: I.

Speaker 3: A.

Speaker 4: Good morning and thank you for attending today's SoFi 4th Quarter and 4 Year 2022 Earnings Conference Call. All lines will be placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. At this time I would now like to turn the conference over to…

Speaker 5: our host, Maura Sia, SoFi's investor relations.

Speaker 6: Thank you and good morning. Welcome to SOFI's fourth quarter and full year 2022 earnings conference call. Joining me today to talk about our results and recent events are Anthony Noto, CEO and Crystal Point, CFO . You can find the presentation accompanying our earnings release on the investor relations section of our website.

Speaker 7: Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include, but are not limited to, our competitive advantages and strategy, macroeconomic conditions and outlook, future products and services, and future business and financial performance.

Speaker 8: Our actual results may differ materially from those contemplated by these forward-looking statements.

Speaker 9: Factors that could cause these results to differ materially are described in today's press release and our upcoming Form 10-K as filed with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. And now I'd like to turn the call over to Anthony.

Speaker 10: Thank you more and good morning everyone.

Speaker 11: 2022 was a remarkable year for SoFi.

Speaker 12: We accomplished more than any of us could have hoped for.

Speaker 13: Our resilient team drove great execution of our strategy that is proven to provide the benefits of business diversification and durability to deliver exceptional growth and improving profitability.

Speaker 14: Our adjusted net revenue grew 52% in 2022 to over $1.5 billion, and we delivered nearly five times the adjusted net we did in 2021.

Speaker 15: We obtained a national bank license which could not have come at a better time, allowing us to be incredibly flexible in a rapidly changing environment.

Speaker 16: We're offering a compelling SoFi money product that is driving high quality direct deposit customers spending and deposit balances.

Speaker 17: The deposits bolster and diversify our surges of funding, enabling us to offer our best rates on loans while generating impressive returns and improving net interest income revenue. In fact, 2022 marks the first time our lending net interest income revenue of $530 million by itself.

Speaker 18: exceeded our total direct attributable lending cost of $443 million.

Speaker 19: We grew our deposit seven times to $7.3 billion from $1 billion over the course of the year. We're really powering that cycle.

Speaker 20: We grew our member base by 1.8 million to 5.2 million members nearly nine times our size in 2018.

Speaker 21: We acquired Technisys, adding a critical capability as we build our end-to-end technology stack and bringing us one step closer to being the AWS of FinTech.

Speaker 22: We navigated unparalleled market volatility, macro headwinds, high inflation and increasing interest rates, and two unexpected extensions of the steel loan moratorium by reacting nimbly and leveraging the diversification of our business to hit record revenue in each quarter of the year.

Speaker 23: The fourth quarter was an incredible end to an exceptional year. We delivered another quarter of record adjusted net revenue and adjusted EBITDA and strong overall operating results.

Speaker 24: A few key achievements from the quarter include our seventh consecutive quarter of record adjusted net revenue of $443 million, up 58% year-to-year, which accelerated from 51% year-to-year growth in the third quarter and reflects record revenue in all three business segments.

Speaker 25: Record adjusted EBITDA of $7 million was up 58% quarter over quarter. That is nearly equal to the total adjusted EBITDA in the first three quarters of the year combined. The total adjusted EBITDA of $7 million was up 58% quarter over quarter over quarter.

Speaker 26: In Q4, we achieved a couple of important financial inflection points.

Speaker 27: Adjustity of a dollar of $70 million is now largely equal to share-based compensation expense of $71 million, a critical step toward gap net income profitability.

Speaker 28: Additionally, net interest income revenue, or NIM revenue, of $183 million exceeded lending non-interest net revenue of $144 million for the first time. And importantly, our NIM revenue is meaningfully greater than our directly attributable lending expense of $106 million.

Speaker 29: In Q4 we had an incremental gap net income margin of 42% resulting in a loss of just $40 million roughly half of the third quarter 2022 loss.

Speaker 30: Said another way, of the $171 million of incremental gap revenue year-to-year, $71 million, or 42% drop to the gap in that income line.

Speaker 31: Given these accomplishments in our 2023 plan, we expect to achieve quarterly positive gap net income in Q4 2023.

Speaker 32: Our strategy is continuing to play out with SoFi money, which allowed us to surpass $7.3 billion in deposits, up 46% quarter-to-quarter, and savings of 190 basis points on cost of funds versus using other sources of debt to fund loans.

Another quarter of positive gap net income for the SoFi Bank at over $30 million and that an 11% margin.

Finally, we grew our tangible book value for the overall company for the second consecutive quarter.

Q4 also saw our second highest quarter ever of member ads and our third highest quarter of product ads with strong momentum continue into Q1.

The 487,000 new members in Q4 2022 brings total members to $5.2 million, up 51% year-over-year.

We also added nearly 700,000 new products in Q4, ending with nearly 7.9 million total products, up 53% year-over-year. Of these new ads, financial services products grew by 60% year-over-year to 6.6 million, while lending products were up 24% to over 1.3 million.

The strength of our results once again underscores how our full suite of differentiated products and services provides a uniquely diversified business that has been not only able to endure, but to thrive through market cycles.

Now I'd like to touch on segment level results with a particular focus on the benefits of our diversified business drivers as well as the structural advantage of our bank charter.

In lending, we generate a record of $315 million of adjusted net revenue, up 51% versus the prior year period. Pin rate increase, which is a groundwater lines at upper $6. Kyle action shows the

Our personal loan performance more than offset the continued lack of demand in student loaner financing and the less robust performance of home loans.

Student loan refi continues to be negatively impacted as federal borrowers again await clarity on the end of the moratorium of federal student loan payments.

Home loans faces macro headwinds from high rates while we continue the process of transitioning to new fulfillment partners.

The personal loans business maintained its strength in Q4.

We originate nearly $2.5 billion, up 50% from $1.6 billion in Q4 2021.

This product continues to deliver even as we've raised our coupons to our borrowers as a result of rate increases and maintained our stringent underwriting criteria.

While these origination levels themselves are impressive, the strength of our balance sheet and diversification of our funding sources provide new options to fund blending growth while driving efficiency with cost savings.

These advantages are a direct result of SoFi Bank.

Having more flexibility with our balance sheet allows us to capture more NIM and optimize returns.

critical advantage in light of the macro uncertainty.

Additionally, by using our deposits as a funding source, we benefit from a lower cost of funding for loans.

In Q4, the difference in our deposit cost of funds and warehouse cost of funds was approximately 190 basis points.

where there's 125 basis points in Q3 and just 100 basis points in Q2. A powerful benefit in a rising rate environment.

Lastly, the bank contributes to strong growth in SoFi money members.

high quality deposits and improved levels of spending and engagement.

This has led to higher average balances even as average spend has increased.

Of the $7.3 billion in deposits at quarter end, 88% were from direct deposit members.

Roughly 50% of newly funded SoFi money accounts are setting up direct deposit by day 30 versus 20% in Q4 21.

And this has had a significant positive impact on spending.

Q4 annualized spend was 3.4 times 2021 total spend and Q4 spend per average funded account was up 25% quarter to quarter.

SoFi money members have increased nearly 53% year-to-year to 2.2 million in total.

Given the quality of these numbers, with 745 median FICO score, we see ample opportunity for cross buy.

This is a great segue into financial services more broadly, where net revenue nearly tripled year over year to $64 million and grew 32% from $49 million sequentially in Q3.

Moreover, Financial Services annualized revenue is now approximately $269 million.

Contribution loss of $44 million improved $9 million versus the third quarter, even as we invested $13 million more in marketing in the fourth quarter. We saw this as a worthwhile opportunity to attract more direct deposit members.

Even with the spend, variable profit including all marketing costs improved quarter-over-quarter and was nearly break-even.

We still anticipate the financial services segment will be contribution profit positive in 2023 as we continue to scale and monetize the business.

We finished Q4 with 6.6 million financial services products, up 60% year-over-year, and 4.9 times total lending products of 1.3 million.

The increased scale of financial services helps drive cross-buy and marketing efficiencies over time.

The scale of financial services not only drives cross-buy and marketing efficiencies, it also is proving to be a large revenue contributor as we continue to drive monetization of these businesses.

In fact, annualized revenue per product is up nearly 2x from $21 in Q4 of last year to $40 in this quarter. This is due to the increasing attractiveness of these products, growing brand awareness, and network effects.

As we've committed, we continue to iterate and invest aggressively in our product suite.

and that investment continues to pay dividends as members embrace our launches.

Since our last earnest call, we will now begin the recording.

we introduced an increase in our checking and savings APY of up to 3.75% as of January 4th.

We launched SoFi Plus, a premium member service that bundles together our wide variety of member benefits and provides incremental value and rewards.

SoFi Plus is on lock through enrolling in direct deposit.