Q3 2023 Affirm Holdings Inc Earnings Call

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[music].

Good afternoon, welcome to the a firm holdings third quarter 2023 earnings Conference call. Following the speaker's remarks, we will open the lines for your questions as.

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

I'd like to turn the call over to Saint Keller Director of Investor Relations. Thank you you may begin.

Thank you operator before we begin I would like to remind everyone listening that today's call may contain forward looking statements.

These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the S. E C, which are available on our Investor Relations website.

Actual results may differ materially from any forward looking statements that we make today.

These forward looking statements speak only as of today and the company does not assume any obligation or attempt to update them, except as required by law.

In addition, today's call May include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures.

For historical non-GAAP financial measures reconciliation. So the most directly comparable gap as yours can be found in our Ernie supplement slide deck, which is available on our Investor Relations website.

Posting today's call with Miramax <unk> firm's founder and Chief Executive Officer at Michael Linford affirms Chief Financial Officer.

The lines are practicing prior quarters, we will begin with brief opening remarks from Max before proceeding immediately and two questions and answers.

On that note I will turn the call over to Max to begin.

[laughter], thanks, everyone for joining and I Hope you had a chance to read our quarterly letter is it pack lots of great information, but.

I will offer a very quick summary for Ya.

We had an excellent quarter beats across all of the important metrics, we track while continuing to maintain excellent credit results.

Excuse me side of things I'm really proud of how team performance quarter, we shipped well over 100 projects from pricing to new credit model to dozens of user interface improvements.

Isolation each of these wins is probably relatively small, but they compounded too huge gains.

A major project is quarter was our continued effort enrolling out debit plus we delivered debit plus into the main affirm app.

And while it's still quite early we continue seeing strong signals of consumer demand.

Plus user transaction frequency.

After 90 days from activation is about seven times that of your regular affirm user.

I'm truly excited about the products and what the team has plan for it and we intend to give you a significantly.

More fulsome update under plus in the quarters to come.

It seems that there is a once in a century event that happens every week lately rattling capital markets, but we continued to deliver greater assurance for our capital market partners and he was rewarded by.

And incremental addition to our funding capacity in the quarter as well as.

In April after after we close.

We had a great quarter, we compounded many small wins into big games.

We're very excited about that and plus and the overall outlook for our farmers a company.

Back to using.

Great. Thank you Max.

We will now begin our question and answer session. Operator. Please open the line for our first question.

Thank you.

He is a gentleman if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tunnel instinct. Realizing the question queue you.

You May press start to if you would like to remove your question form the queue.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the sarkies.

One moment, please while in corporate questions.

Our first question comes from the lineup Marsha Orenbuch with Christmas. Please proceed.

Great Thanks and can.

Congratulations.

I saw an <unk>.

Your letter Michael that.

Hundred 10 basis point increase in the interest bearing.

In the in the quarter and more than that if you went back six months.

Talk a little bit about you know how much that will have arisen by the time. This is fully phased in and.

Also just strategically you know how does that impact your pulse.

Your willingness to serve certain types of merchants and.

Your credit Decisioning, and what impact that could have on G. M D.

Thanks, Yeah, we are proud of the progress that we've made in our pricing initiatives and just to recap on how this works. The first step for US is getting any caps and the way you are getting the cat's out of the way, allowing us to price.

We think we need to price always underneath 36, and we were subject to a number of 30% APR caps and so.

One one potential way to read that is there are six points. However, we don't intend to price every loan out that amount and so there is a reasonable limit to expect.

That being said, we're about halfway rolled out and we've got about a point. So I think a fair rule of thumb would be to double our progress today and that's a that's a good ending spot.

In terms of the impacted those pricing initiatives have an approval is absolutely. The case that we get to approve more consumers drive better conversion for a merchant partners and grow our business faster by being able to price loans in that zone and that is our <unk>. Our intent would be to whoever is that to protect us.

It yields for our investors and still.

Prove more volume and part of the reason why we've seen the acceleration in our direct to consumer businesses, because that's how we have been operating yet.

Frankly, since we've been able to to get that moved first ahead of any sort of a merchant interaction.

Thank you.

Our next great Oxford.

Next question comes from the line of Brian with Deutsche Bank. Please proceed.

Hi, guys might maybe you could just give us your thoughts on the guidance in particular revenue less transaction margin.

Just looking looking at that and then the net take right I know, there's always some puts and takes there when I look sequentially will actually just gross to greater than it take right. Maybe you can just help us walk us through between the three Q to four two.

Yeah. Thanks.

We had obviously a really strong quarter on revenue less transaction costs in Q3.

Driven in large part by our outperformance and credit that resulted in a pretty large be ahead of our expectations and the provision for losses.

And that was despite operating in a very volatile capital markets.

We assume that Q4 will remain volatile.

That's not to say that it.

Isn't a spot where you can add capacity, we do intend to add capacity like we do almost every quarter, but it does mean that we are being very thoughtful around.

What we assume as we prepare forecasts and the guidance.

That we don't aren't overly reliant on things getting better and the and the debt capital markets for us would that be.

Means for us is a little bit more of a.

Reliance or usage of our warehouse funding mechanisms into our fourth quarter.

And as you see in the G. M V guidance, we're showing pretty strong sequential GMB growth from Q3 Q for.

In fact from a seasonality perspective, I think even faster than what we saw last year.

And as we saw during our second quarter. When you have that kind of sequential growth and G&P or that acceleration quarter to quarter. It can sometimes push some of the economics for loans originated in that quarter and the subsequent quarters and the reason why Q3s outperformance was so strong was in part because of the the both the volume and balance.

Strategies, we had used and Q2.

So volatile market that we think we're going to be able to continue to navigate to fund and scale the business, but it will change the shape of of the earning a little bit and and what we saw in Q3 versus Q too we've kind of expect to see in Q1 of next year against you for this year.

Got it no that's really helpful and just as a quick follow up the the the initial rollout of debit plus how do we think about the modeling for that and the impact probably obviously not much and and four Q, but when when should we start to see an impact and how do we think about the mall.

Yeah, we haven't broke anything out because it's that big yet we do intend to give you.

Better tools to model it when we have it becoming a more material part of our business and because we're not providing any guidance and 24, we're not doing that today.

But as we talked about before the there's really two different pieces to that product. One is will look more alike or direct to consumer product that we have today, just looks like an installment loan whether that's paying for a monthly installment loan.

There will be able obtain al volume, which of course will have a very different market structure and later this calendar year will we plan on walking everyone through how to think about modeling and the impact it has on the piano.

Okay, great. Thanks for taking the questions.

Our next question comes from the lineup Ramzi <unk> with Barclays. Please proceed.

Yes, thanks, so much for taking my question.

Wondering if you could update us on credit reporting and buy now pay later it seems to be an area of growing interest just wondering if you could share your latest thoughts on that topic.

Okay.

So first of all.

I encourage everybody to look at the report consumer Financial Protection Bureau, published just about a year ago actually just just under Europe .

Whereas the highlighted what they like and dislike or concerns rather about in buy now pay later.

The headline was really.

Hey, this is a really good product better than credit cards that said they are concerned because we around stacking and furnishing which is a fancy term for reporting.

Credit performance back to.

The credit reporting agencies.

And.

CPB expressed strong desire to see the industry figure out a way to help folks build the credits and also have accurate reporting of performance of these loans.

Actually quite proud to share that we at a firm are partnering with Psycho, which is the maker of preeminent scores.

Out there to build a first of its kind credit scoring model that would enable by now pay later loans to be consistently transparently factored into <unk>.

Lending decisions.

And to be reported to the credit reporting agencies.

I'm, a big fan of will Lansing run so I couldn't I really appreciate his partnership on this and so we're quite excited to talk more about it when we're ready, but we intend to step into the leadership role and help the industry report.

Why not related loans and make sense of them in the broader context of borrowing.

Thank you that's super helpful. A quick follow up from me, there's been some media chatter about some potential consolidation and that sort of broader buy now pay later space.

What is your sort of house view on exploring strategic alternatives for the business is that something that you'd be open to at this point or or maybe not at this juncture in the cycle.

And I'm very focused on things that I love doing versus stick.

Speculating on such complicated things as strategic.

Matters.

We're very very much has down on just building out the product in particular debit plus wishes as everybody knows is my baby.

I think that's that's where my mindset.

Fantastic. Thank you so much.

Our next question comes from the line of chasing Kupferberg with Bank of America. Please proceed.

[noise]. Thanks.

Ooh.

[noise] Los Jason.

Operator, I think we need another Jason Jason.

You're back in.

Okay can you hear me.

Last year please repeat.

I think we can hear you now try asking again.

Can you guys hear me.

Yes, Oh, sorry about that.

I wanted to ask about the reserve ratio declined for I think six to eight quarters and can you talk about some of the drivers of the trend of that trend couldn't move lower from here and then maybe just remind us what drives the.

Reasonably higher delinquencies in queue for that you touched on on the shareholder letter. Thanks.

Yeah.

Really proud of credit results in the business and given the very short duration of our asset they're real time performance of the portfolio derive the allowance calculation for a firm. So we're not doing is making estimates of where the economy will be in a year and building balances for that.

By the time, we get there of course, our asset turns over fast.

Be very little of any principal lap.

On the balance sheet.

Or outstanding with even for quote partners by the time, you get there and so we don't think about credit as a long term estimate and said we think about it as a more near term reflection of the actual performance.

The credit that we have out and given are really strong delinquency performance.

Measured however, you would like the the allowance rate has continued to come down and we would expect that to be.

In line with historical patterns from here the seasonal factors that that come into play are a little bit it's a little bit inverted. The biggest factor is a depressed delinquency numbers you see in and around tax return.

Season, and so is that as you get past that you start to normalize up a little bit and we would expect to follow the seasonal trends pretty much directly on our.

A regular credit monitoring shows being right on top of the historical patterns here and feel very confident about.

Staying within those bands.

That's helpful.

I'm curious if you can share with us GMB growth, if we exclude not only peloton, but Amazon if not a specific number just directionally, what it looked like perhaps versus last quarter.

We're not going to provide a number is broken out, but what I, what I can say that we had <unk>.

Exceptionally strong growth and a couple of pockets, our largest partners really quickly, including our partnerships with platforms like shopify.

Where we actually saw an acceleration in the business.

We also had a real acceleration in our direct to consumer business.

Which is is obviously away from.

Merchants like Amazon and yet we showed really strong growth with Amazon as well.

Okay. Thanks for the caller Michael.

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

Hi, I appreciate you taking the question it looks like some some good momentum and Dennis plus.

Max which is encouraging and I think you called out in the letter.

5%.

Card present spend today, where do you think that number can go grocery still the primary category, but it seems to me if.

If you have a lot of success and current president the whole nature of the business model changes I know you're not talking about.

The economics of car present transactions, yet, but how should we think about is this going to be a steep ramp.

Longer term trends change how do you how do you think about that.

So just to quibble, a little bit maybe with a grocery point I never said grocery is the primary use case. It just happens to be the thing that most of us by a lot.

So I think that's necessarily a common purchase if it's a top of wallet card. The goal for debit plus is to become this off a wallet.

If you ask any affirm or.

What is the most common worried out of my mouth and the last three months, everyone will probably tell your frequency like what we want is consumer frequency, 88% of our transactions are coming from repeat consumers does not an accident will continue putting lots and lots of wood behind that particular era.

The ramp of debit plus.

I think it's something that probably premature to talk about too much right now.

I'm incredibly happy.

The product is which was not the case six or nine months ago really glad we took the time to build it the right way.

I think.

We need to.

Do it writes roll it out correctly.

Make sure that we continue.

Delivering on the overall company goals, while ramping up plus.

I think it's probably a little too early to declare the shape of the curve of dental floss adoption.

Said.

I am.

Finally, now putting it in front of every one of our users that qualify for it and quite excited about that.

Mmk helpful and then Michael.

We're watching equity capital required as a percent of the platform funding.

Creep up here can you comment on that I assume we're not going back to 10% maybe clarify that and also just discuss.

Sort of how you think about life of blown profitability, given some of the shifts and funding.

Yeah, so with respect to equity capital it is creeping up and above our long term goal of 5%.

And.

Nowhere near 10% intend to run the business anywhere near that number I think we said that last corridor I'll just keep repeating it and thank you for the question because it's I know it's on People's minds, We we don't want to run a business with that much equity capital.

We have a pretty low leverage say, a low advanced ray funding strategy with our our warehouse lines for example.

And that's a lever that we could pull in the future. If we if we continue to feel like we're operating in this environment and need to use balance sheet, but today it hasn't been a priority for us because firstly, we have adequate liquidity with over $2 billion of cash and securities available for sale.

And.

Obviously, our economics on loans that we put on the balance sheet actually do return higher to us overall.

So those two factors, we're not really too worked up around it today something that the team will get to work on in the future if the current market <unk>.

Continues to to to operatic us.

In terms of the total loan economics in this funding environment.

We feel really good about it.

This quarter's revenue last transaction costs being.

So.

Little over the midpoint of the 3% to 4% range that we've talked about we're gonna also a quarter to quarter with with an R.

And admittedly high degree of volatility, but none of that takes away from our confidence and that 3% to 4% range. If you think about the question that was asked at the very top of the call.

Our ability to get those pricey.

Pricing initiatives over the line and realized.

Will offset a healthy amount of the headwind that we're experiencing in the capital markets broadly.

Alright, thank you.

Our next question comes from the line of Eugene.

With Moffat Nathan Please proceed.

Hi, guys. Thank you. Thank you for that question.

To ask a relatively high level question at great to see strong credit performance over the last couple of quarters.

The evidence.

Guys been always saying the ability to really control created dotcom, so that'd be great to see.

That's it that's it.

Right.

Cool.

The natural question.

They are an opportunity to you.

Until two up.

You make the credit.

Performance, a little bit of wars, but volume growth, which perhaps is something that that would be desirable. So with lots of you can give us the latest kind of philosophy on that what opportunity.

You see there, especially as we exit the volatile times hopefully that we are in today and maybe give me a little bit more opportunity to turn that dial I'd love to hear your thoughts.

Great question first of all.

I hope the world is listening because.

Maybe the same thing for a very long time and printing quarter after quarter of good credit returns and.

At some point I think people will believe us but.

Until we do and well after it <unk>.

Credit is always job number one probably through number five.

As a non depository lender it is August .

Responsibility to deliver good returns to our cat with partners to make sure that they never have a second thought about partnering with us.

Philosophically.

At the very very top of what what matters to us we have a mission that mission has everything to do with delivering on his financial products to improve People's lives, but the only way we can achieve that mission is by having strong capital markets partnerships and we would get that is through having consistent really strong credit performance. So that that ultra important no compromise there.

The question around is there are pockets of growth if I can put words in your mouth with credit as a sort of trip to cash in.

The short answer is.

I think we'll know a lot more in the coming.

A few quarters.

On the positive side of things the economy is basically fully employed the inflation knock on wood Tomorrow's news or whenever whenever the next CPI print is is not.

Negative, but it does feel like the fed is actually succeeding if maybe not as quick as they would like and doing their job and Tim tamping inflation down. Meanwhile, the labor market held up and if that continues.

Maybe it does look like soft landing and that would be quite excellent for all involved.

There are lots of things that could go wrong. For example, the student loan repayment, that's going to hit US. Some time July August timeframe impact a lot of consumers and <unk>.

We want to make sure that we are prepared for either side of that equation. Good news is that the reason we have such control over our credit outcomes is because we are structurally just really really short duration. So as we see the next change in the weather vane, we know how to tune credit.

Approvals to to make sure that we state within the bands.

Most states.

The slightly unrelated, but we're related but slightly different answer to your question known.

I said, it last quarter, a little bit and try to highlighted in the letter. This time around we have an enormous amount of opportunity.

And growth that has nothing to do with credit or Lord of the acceleration you've seen consumer some of the really successful performance, we seeing with our partners Michael mentioned that our business was shopify accelerated this quarter a lot of that has nothing to do with credit in fact, it has everything to do with optimizing every little bit we.

Can you.

<unk> B I.

Either bored to tears were excited by the pipeline of projects that we've put forth on just every possible metric of the business that has nothing to do with credit performance.

I promise I'll keep this.

Sure does I can but just a very very quick walk through of what it means to actually apply and get approved for a loan with a firm. So you find us typically a funnel.

I think we called as low as which is basically a opportunity to pre qualify that's about three screens then you get to check out a apply for a loan you get your selection of terms you select one then you go to.

If it's a new sign up identification if not the behind the scenes identification then you see a truth in lending disclosure. Then you have to agree then you sign up for auto pay or type in your payment rentals every one of them. So it's a huge amount of steps is actually a product that needs to be simplified more and we're working tirelessly on it. That's also why I'm. So excited about this card because.

A lot of these steps are completed disappeared with the car product, but online each one of these steps has the conversion rates and I am not getting what I can tell you I can rattle off every one of these steps conversion rate what it was and what it will be when we're done with the work and it's something that keeps me excited and up at night, because there's so much opportunity to just get <unk>.

More people through the funnel and so we'll continue investing in that relentlessly.

Credit is not for <unk>.

Playing games with.

Got it got very helpful.

And then for a quick follow up.

Indirectly consumer highlight of time at the top of the of the letter. This time sounds like a great plan. Some debit plot and you talk a little bit about directly to consumers strategically and the way you laid it out in the shareholder later it sounded to me like.

The sequence of.

Consumer engagement is still going to be merchant through March 1st and sort of direct to consumer then second mindful getting that correctly or are you also going to be focusing on finding merchants.

We just engage directly through direct to consumer.

You're 100% rates. It is exactly what I attempted to do in the shareholder letter is to lay out the flywheel one of the greatest things about a firm.

Since the very beginning of time as we have no cost of user acquisition merchants promote our product to their shoppers that they hope to turn into buyers because we're able to approve the.

The right number of shoppers and help them by.

These consumers come back to us, we have a chance to introduce them to new products.

Hard is the single most important one that has the fingers working so hard on and we're now seeing real fruit of our labor.

With a firm card debit plus in their physical wallet in their electronic wallets in their browser artefill everywhere can possibly put these.

Consumers come back to other merchants, whether they are integrated or not one of the really really important things that I think I ultimately edited out because the letter was getting longer than I wanted to but it's really worth highlighting the card will work all the functionality will work at any merchant even if it has absolutely nothing to do with a firm integration. So pick a favorite brand were affirm is 90 at all.

<unk> all you need to do is sign up for the card, which is now basically available to anyone bring your card to that site or to that store and you suddenly have both pay now and buy now pay later functionality on a single payment device, but the flywheel is merch integration consumer transactions consumer repayment gives us a chance to market David.

<unk> to these consumers, David plus becomes a universal access to affirm at any point of sale.

Got it thank you.

Our next question comes from the lineup right now.

Kumar with UBS. Please proceed.

Alright.

<unk>.

Alright, Thanks for taking my question.

So can can you just tell us a little bit about what's going on with the copy Margaret.

Any any change in lesson for securitize consumer credit assets.

Yeah. So.

The good news about the capital markets is that we demonstrated in our twenty-three ADL in the recent reopening that when when structured correctly and tightened correctly, we're able to access the avs market I think really constructively.

Qualitatively the investor sentiment was exceptionally positive in our 23, a reopening our team did a really good job and working with investors and executing in that market quantitatively that particular transaction was three times oversubscribed and those are all really positive signals.

But it's important to put that transaction in context of the broader capital markets and macroeconomic conditions.

The vet transaction in between the failure of Silicon Valley Bank and the sale of first Republic, and I think that it is the case that these things do not impact us directly on a first quarter basis.

But credit spreads all asset classes, including hours are going to widen in times of these moments of pretty boutique.

Economic dislocation.

It is it is just.

Unfortunate reality of the World right now that things are extremely volatile.

That being said, we did execute those two transactions I mentioned in between.

Pretty severe economic events and we are confident that we can continue to do so.

But nonetheless, it will remain volatile we're also adding net new partners and our funding ecosystem.

Adding warehouse funding capacity from net new institutions, and expanding existing relationships with with our existing funding partners.

I would just leave.

<unk> with the idea that it's volatile and obviously spreads are widening and.

That will.

Offset some of what we expect to be a declining rate environment going forward, but nonetheless still able to fund the business, which is always job one for our capital team and we've done that excellently.

Mmm Mmm.

Mmm Mmm.

What's the <unk>.

Alright.

Consumers are resonating with Ya.

Proposition.

Or something else.

We built a really great products that we've put in front of.

At this point lots of consumers, who many of whom have told us over and over again that they would love to use affirm at their favorite grocery add their favorite offline store.

A website, where a competitor might be integrated that they prefer a farm.

Plus is the unlock to use affirm anywhere you like online and offline.

It's.

Gaining popularity.

We're very excited by the way just to be very clear. This is very much will be one the roadmap for debit plus <unk>, we have a lot to build so this is not even remotely the final movement of that particular thing.

Our next question comes from the lineup.

With Mizuno. Please proceed.

Hey, guys excellent quarter I love the acceleration in revenue last transaction costs.

Reach out there.

Quick question.

Max like you're I think you're getting to a slightly lower revenue much transaction costs.

The.

In the fourth quarter and long term, you're still seeing 3% to 4% can you maybe bridges kind of the.

How to get to that long term.

What do you envision to get to that sustainable long term. Thank you.

Yeah, we still feel very confident about 3% to 4% in the long run this quarter was.

Again, the higher end of that range and also ahead of our expectations that we provided guidance for in February .

And and yet we do forecast.

<unk> reduction in that as a percentage AMD into next quarter.

But again I think that two factors I think about our <unk>.

And we have a sequential growth and GMB and we use our warehouse funding.

That means that we provide the provision for the loans that originated upfront and we are a little bit back and and how those earn and that is very similar to what you saw in Q3, we were benefiting in Q3 from the origination imbalances strategy in Q2, and we'd anticipated similar trend to play out for Q4 versus Q.

<unk> and then separately.

It is just the case that we have a a very volatile capital markets as our guidance is always going to try to assume what we think we have high degree of confidence in.

And we we have a lot of sensitivity to our ability to execute there and so when we think about building guidance in our forecasts were pretty careful about making sure we have in the.

Model the deals that we expect to be able to complete.

In the corner.

Got it. Thank you great results I appreciate it.

Our next question comes from the line of James Faucet with Morgan Stanley . Please proceed.

Hey, everybody. Thanks, a lot for for all the color questions today.

Giving your APR cap increases.

I think you said across half the.

Leader merchant.

Two things associated that without when do you expect that to be complete and how.

How much incremental application demand is that allowing you to convert.

Any any metrics you could share their.

Yeah, but on the first.

I don't think that we're ever going to get to 100%.

So completed is probably.

Never I mean, we're going to keep moving forward and try to continue to expand it but we don't expect to ever be at 100% of our our merchants for a variety of reasons, we can go into but.

But we do anticipate continuing to make progress with respect to merchant.

Amendments to allow us to go out to 36% we will leave a lot. It would let the chopping and we're going to keep working on that between now.

And the rest of this calendar year.

When you think about what that does for approval.

It's.

It's a very simple answer was really complicated math simple answer is we try to maintain the same level of unit profitability and so the extra revenue allows us to approve proportionately more.

And offsetting the associated <unk>.

Credit losses, you'd expect in those marginal population than we do think about it on a portfolio basis and so it is obviously something that.

Allows us to create a lot more economic yield across the portfolio and <unk>.

Prove more consumers as a result.

It is also the case that we need some of that to offset the rising cost of funding and maintain the unit economics that we need to not all of it will go to expanded approvals and certainly there are set of approval that we simply can't.

And don't want to approve right.

Consumer defaulting on alone is a bad outcome that we seek to avoid.

And so we will never going to recklessly approve a consumer who we think will.

That being said it is the current posture the business given the credit tightening that we've done do allow us to be expansionary with any 36% gap.

Got it got it and then I appreciate that and then just quickly on trends I know that you mentioned.

That you'd see.

Strong services and travel, although a little bit of weaker performance in discretionary has that changed at all or worse and maybe for discretionary through April 1st.

First few days of Mac.

I think.

The short answer is no we're not seeing particularly seem to be a movement in either direction travel remains very strong.

Yeah.

Other color on the quarter, we mentioned our strength in direct to consumer.

Our guidance definitely.

Points of that trend continuing.

Where we also have strengthened some of our large partnerships that are.

They are accelerating or still growing it very very fast clips.

And travel and ticketing remains.

Spot, we continued to see weakness and sporting goods overall, although as we get through the next quarter. We do have what used to be a largest partner will now be less than 1% of our DMV going forward and becomes very trivial and so some of the sporting goods headwind will become a lot less.

Of an impact in the DMV growth rate of the business and.

And then obviously categories like home and lifestyle and electronics continue to be in a pretty suppress levels when thinking about their comparisons we do think that as you get too.

Three if next fiscal year when you get to about nine months from now you will begin to lap.

A lot easier comps and so we're optimistic that by the time, we get there is some of those businesses will return to some solid growth, but for now the headwinds there continue.

Great Thanks for that.

Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

And our next question comes from the line of Rob Wildhack with Autonomous Research. Please proceed.

Hi, guys with debit plus out in the wild now can you give us some additional color on the unit economics, there and how they.

Into the 3% to 4% or L. T C. As a percentage of G. M V that you'd be having the core business.

We do plan on giving.

Very detailed breakdown for investors later this year not today, but.

Again, and think about the products GMB the stuff that looks like installment loans will fit within our framework today, because they are very similar loans and they should have similar economic similar funding requirements similar.

More of what we do every day.

The the volume that we called pay now that that comes out of the consumers accounts a few days after they swiped. The card those will have different economics today, that's not the majority of the volume running on the card, but we'll watch that closely and give investors a way to think about modeling that as it becomes material.

Okay, and then noticed that you reaffirmed their commitment to positive adjusted operating income exiting this year.

You think about it.

Look to that over the medium term, what's the current line of thinking on the level of reinvestment you need to continue to scale versus your ability to generate real operating leverage and start to drop some of that more and more to earnings.

That's a good question. So as you saw in this quarter in our guidance kind of implies we can we expect to continue to drive real leverage and G&A.

Sales and marketing on a non-GAAP adjusted basis will continue to be.

Slightly volatile than that some of our co marketing commitments.

But more episodic you'll see that number kind of bounce around a little bit but over time.

Still showing real leverage but the area of the business that we do intend to continue to invest in his tech data analytics that enables growth in the business. Both in the near term, enabling us to add infrastructure and acquire more data, but also the.

Hire engineers and product managers to build product to change the world and so we're going to keep doing that and and we intend to keep our foot on the gas with.

The technology side of that is isn't showing leverage and the other part we've not given a framework for what that means in terms of bottom line profitability growth or the trend of adjusted operating income but.

But we do intend to update investors on that later this year.

Okay. Thank you.

Thank you.

And gentlemen, this concludes our question and answer session, just turn a call back as in color.

Well. Thank you everybody for joining the call today, and we look forward to speaking with you again next door.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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