Q1 2024 Affirm Holdings Inc Earnings Call

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

Welcome to the certain holdings financial year, 'twenty 'twenty, four first 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 your questions.

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

I would now like to turn the call over to <unk> director of Investor Relations. Thank you you may begin.

Thank you operator.

Before we begin I would like to remind everyone listening that todays call may contain forward looking statements.

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

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 intent 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.

For historical non-GAAP financial measures reconciliations to the most directly comparable GAAP measures can be found in our earnings supplement slide deck, which is available on our investor Relations website.

Hosting todays call with me are Max Levchin, affirms founder and Chief Executive Officer, and Michael Linford affirms Chief Financial Officer.

Before we begin today's call we would like to remind investors that will be we will be holding an investor Forum next Tuesday November 14th from 2% to five P. M Eastern time.

Both the live cast of the forum as well as a replay are open to the public.

Additional details about the form including registration information are available on our Investor Relations website.

In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into questions and answers.

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

Thank you Dan.

Thanks, everybody for joining us today.

Keep it very brief and a very strong fiscal Q1 beat our outlook across all metrics given growth accelerated sequentially, we significantly exceeded our own outlook for revenue less transaction costs.

Continuing to gain market share.

Kept are already starting economics quite good drove positive rate outcomes, which matters to us most and added some funding capacity.

Our plans now.

<unk> continued to invest in risk management technology, and product development and to turn our attention to growing faster back to us.

Thank you Max with that we will now take your questions. Operator. Please open the line for our first question.

Thank you very much sir.

Ladies and gentlemen, we will be conducting the question and answer session.

To ask a question. Please press Star then one.

Thanks, Doug.

Your line is my question.

You might be starting June if you would like to read the question from the queue.

Rockies.

Our first question is from Bryan Keane of Deutsche Bank. Please go.

Yeah, Hi, good afternoon, and congrats on the solid results I'm just thinking about it.

We head in to the second quarter here given the outperformance in the first especially in in Gmg in volume what kind of led to the outperformance and then it looks like the growth rate will decelerate back a little bit after accelerating this quarter in the second quarter.

<unk>, maybe you can just help us with that thanks.

Yeah.

Yeah.

I think Oh I'll take the.

Why why the growth.

I think we've just been executing really well.

As you saw in just the overall.

Leverage we are.

Firing on all Pistons in the company.

Which I have to tell it feels very good.

We're able to deliver.

All of really.

Key initiatives on the product side.

Our friends in Ottawa in particular, we are we had several really strong.

Ideas, that's played out very well for us there and so as to the Shopify volume accelerated again.

Speaks to.

Maybe the way we operate the business.

Sometimes it seems like you signed is a great partner and that's that's a burst of volume but in reality.

Makes us years to fully realize the opportunity for us when partnerships are this rich and.

Despite potential so that's one example.

Card grew quite well.

As well and so we're happy with those results.

Theres not one.

The thing that I can stick a finger and say this is the.

The core reason for the human growth, but.

The other thing is that the demand for the product remains strong we are still declining quite a number of applicants because we're trying to remain as thoughtful and.

Productive in our credit outcomes, but the consumer demand for what we have to offer is.

<unk> to us it pulls forward.

The only thing.

Comments on for Q2.

That's our largest quarter of the year and so we just have a lot more.

Mass in the comparable period, and we do expect that some of our programs our largest enterprise partner programs are continuing to mature in a way that we would expect a little bit less growth. This year that we had.

Last quarter.

Got it and then just as a quick quick follow up Michael maybe you could talk a little bit about adjusted operating profit came in quite a bit ahead of expectations is that some timing of expense items that even out throughout the year or any anything to call out there for the margin in the first quarter versus for the quarters for the rest of the year.

Thanks, so much.

Yes, thanks for taking the question, yes, the adjusted operating income did come in well ahead of where we thought it was going to be for the quarter and I think it shows the power of our technology orientation. When we are able to control expenses and drive a little bit of extra growth.

Growth and profitability is very very strong.

Context, we had 28% GDP growth or 37% revenue growth in our non transaction operating expenses reduced.

Absolute basis by $50 million year on year.

When that happens obviously you can you can grant pretty strong results I think due to our outperformance we did raise the outlook for the full year, we're now expecting closer to 5%.

And I think that we were driving leverage really across all three line G&A sales and marketing and data analytics.

And those lines are all very legible and our business we maintain this for quite some time.

And yes, that's also the area, we invest and primarily human capital.

To make sure we maintain the ability to invest in the back half of year, which is why we wouldn't expect to run at this level, but no there really wasn't any sort of timing benefit.

We will expect.

Marketing to creep up a little bit in Q2, as we invest into the holiday season.

But other than that we've got.

Q1 was very close to run rate before we.

Again maintained.

And making the investments.

Yeah.

Okay, great. Thanks, so much.

Thank you. The next question is from Michael <unk> with Goldman Sachs. Please go ahead.

Hey, good afternoon, I just have two.

First as a follow up to the first question around.

Shop pay installments GMB growth acceleration I was just wondering if you could talk a little bit about what functionally changes or ramps up over time.

That allows you to drive this acceleration in <unk> over <unk>.

Two years since the initial partnership.

What can that tell us about how you approach some of these enterprise partnerships and then I have a quick follow up.

I'm going to give a long winded answer so I'll actually try to keep this one is shorter.

The very short answer is optimization both companies are very numerically driven we spend an incredible amount of energy just EEG testing.

Various forms of presentation of the product.

We offered to consumers.

Try to simplify things try to.

Fine tune that.

Everything from.

Okay.

How do we explain.

Interest if there is interest to pay how do we make sure people understand that there is no interest in products like paying for just all of that and if you have one.

One of them.

Obvious truisms. If you will if you have a significant amount of volume already even one or 2% increase in ton conversion just creates millions or tens of millions of dollars of incremental JV. So it's never a.

Sometimes it is sort of a brilliant unlock where we say oh, we forgot there is this thing we can try and it works, but nine or 10 times its really just optimizing existing consumer experience finding ways of presenting the offer a little bit more of a funnel. So consumer understands there is a budget, perhaps more than the budget. They realized because we can tell them.

<unk>.

We're willing to approve you for et cetera, and then.

Just doing that over and over again has compounding effects. So there's not a.

The secret sauce is in the work not in secret.

Great.

That's really helpful. And then maybe just a quick one on a firm card.

$224 million of GMB.

Accelerating from the 130 last quarter.

Could you just talk a little bit about.

How youre approaching.

Driving growth there the user growth seemed like it was steady at that 75 K P.

Per month, and anything you can tell us around the mix of <unk> and how that may have changed relative to last quarter.

So I don't want to steal too much of Libre show next week.

To quote my favorite movie level of you to come and give me notes.

When we do Investor Forum, a week from now.

But the short hand is.

The mix remained largely in line with what we said last quarter.

It's still <unk>.

More.

Splits pay or split.

Transactions versus painful.

We will talk a lot about things like cohort retention and usage over time or is it about lifetime value next week, so theres a lot to share and I don't want to spoil the party too much.

The.

Growth.

Is quite strong.

Managed to the number that we once we have internal goals that we are driving card numbers too we won't run out of opportunities.

Opportunities there for some time, we also want to make sure that we don't.

Paint ourselves into a corner following sentence.

Product.

This is not something that existed before we have lots of intellectual property protection around some of the stuff that we invented both kind of what meets the eye and whats under the.

Under the Hood, there and every time you launch a new product even if it is exceptional uptake, which we think this one it does you are educating the consumer you have to look for long term.

One of my.

Many nighttime jobs is to read.

Consumer feedback that comes to me directly from the card. It's now a very steady stream of content.

And a lot of it is about sort of getting in touch with rpms, and saying Hey, there's a sprinkle in a card that people still don't fully understand how do we fix this again.

Again these are in service of that let's get 3% more conversion, let's say, 5% more conversions. The cortisone new every time, we find some major comprehension unlock we find ourselves in another 10% gains so it's gratifying to us.

Block a fix a mistake, we made or unblock comprehension detail and suddenly you have a lot more volume. So we will continue growing users quite deliberately will be very very focused on.

Blocking <unk>.

All the course of these interfacing old educating that we have to do before we start.

Sending a car to everybody as they sign up with over the long period of time I fully expect to get to a place that is P. Welcome to affirm the cards in the mail that thats not going to happen anytime in the immediate or even a foreseeable future, but the long term point of the card. It is the best way of experiencing we will build.

All of our product Roadmaps on this idea of you should have this card is the best thing ever and you should just have one of these even if you've transacted with them for the first time yesterday.

Great. That's all very clear thank you Max.

Yeah.

Okay.

Thank you very much. The next question is from Ben Donuts.

Please go ahead.

Hey, guys great results so.

So crowd.

Max.

B to B.

Initiatives in the Ams.

Amazon partnership I think it was last week, a lot of excitement and a lot of press.

Can you maybe tell us what makes you. So excited about this kind of the opportunity sizing it and maybe.

Talking whether or not there'll be other b to B partners and then I have a very quick follow up thank you.

[laughter] [laughter].

Thank you Dan we are very proud too, but I really appreciate hearing that.

But the team worked very hard and I know a bunch of a firm <unk>.

Folks are listening.

Neil did this quarter. Thank you for your hard work.

The BBB.

That.

We started showing is certainly.

Not a one off in fact.

We start reviewing the opportunity my ask the team was please come back to me with a plan of what this looks like in a market.

What's the true opportunity across many many possible.

Platforms not just one so yes, you should expect us to do more obviously, we will speak to it when we're getting ready.

The.

Current product as you see it today is for sole proprietorships and is this interesting space where.

The efficiency of the lending market to that user is really really poor.

And so as a result, the consumer typically borrows money either on their personal financial devices, which is just for a variety of reasons about idea.

<unk> through all kinds of just Unoptimized old school for a 19th century lending platforms and there's no reason why that should be this way given our expertise in underwriting in particular underwriting consumers so expanding our models too.

Small very small sole proprietorship type business underwriting was not a huge challenge the actual.

Work began something like.

More than a year ago, where we primarily just tested we'll our underwriting work as well as it doesn't consumer if we expanded it to very small businesses and obviously, we feel confident enough to start rolling it out with the largest e-commerce player. So.

I feel very positive about it will be very deliberate it's a new business for us nothing.

As we will not do anything that damages our stellar credit performance.

Certainly it was always job number one.

But exciting there's lots of merchants that have very sizable.

Site households, if you will where they sell their goods.

On their platform too so prompts that either use them or we sell them.

They too need some honest financial services and here we are for that.

That's super helpful and maybe as a quick follow up for you or for Michael.

Caught my eye in the shareholder letter was the ability to sustain 3% to 4% revenue less transaction costs, we all know that the key pushback.

From clients that we were talking to it sounds like you guys have figured out a way to.

Not to be a problem anymore. So maybe just kind of walk us a little bit through sort of the path to making sure that this 3% to 4% is sustainable even in a higher for longer environment. Thank you again.

Yes, we're really proud that we were towards the high end of our long term range in a quarter when we.

We are obviously up against a substantially lower rate environment, and we feel like we're settling into the higher for longer.

I think there's maybe a few things to call out. The first is that we've done a really good job of making sure our assets have the right economic content in them and our letter we do plot with the yield of our asset is and also where our funding costs have gone.

And you can see that certainly you see a pretty big inflection towards the end on the firm asset yield and Thats.

A reflection of our pricing initiatives, but also the really strong credit controls that we've had in place over the past year.

And it always starts there you got to get the asset yield right. But then the second piece is really important is we've been executing really well on the capital markets.

<unk> added forward flow partners to the mix, which of course helps the.

In theory, it earning power is you can sell loans and are in the gain on sale.

Which is really important for us to do and.

Maybe notably is that the percentage of loans sold.

In our first quarter with more in line with historical averages and we had been in the prior quarter, which was a pretty depressed level and so what youre seeing is the benefit of the improvements of the asset yield and the benefit of the capital markets execution.

Which in turn is the benefit of the discipline that we've had on the asset yield right. Those two things are very much linked and youre seeing it really shine right now where our engagement with capital markets partners is really positive Max mentioned that we went and solved many folks.

Over the past couple of months and the discipline that we've had is really giving us a credit there and so.

What gives us confidence that this rate environment is one that we can operate well and we've done the work to get the asset yields are they need to be we're getting credit for it in the capital markets.

And our focus is really around at this point.

Beginning to scale the network, we've earned the right to do that.

Amazing results. Thank you so much.

Thank you. The next question is from Andrew bulk.

Wells Fargo. Please go ahead.

Hey, guys. Thanks for taking my question just wanted to ask a general state of the consumer kind of question I know that the.

The student loan forgiveness, or forbearance is coming due and so any kind of updated thoughts on how you think that.

Impacts overall demand and then maybe like a higher level question.

As macro is deteriorating as has deteriorated.

In the past you've said that you know.

There is a reasonable possibility that <unk> becomes a more preferred payment method.

In more challenging economic times, just trying to get a sense of have things kind of played out the way that you had anticipated in both of those those those Apis.

Opportunities.

Lots to go there.

So on the student loan that's an easy one we started we said it's for two quarters in a row before this one.

We've got very seriously, obviously, nobody had sort of a real sense for exactly what it would look like.

Dan perhaps last quarter because.

He really something that's predicted pretty precisely what we thought would happen too soon.

Student loan repayment.

Impact on our ability to to approve people and the point is we've been looking at it for months and months and months and incorporate its underwriting changes to make sure. We are prepared for the student loan repayment assumption at this point they've been effectively back.

The obligations for a month and a little bit.

Feel that we'd handle it really well we can see in our credit prints that it had no material impact on us in fact.

Slight increase that we saw was seasonality exactly as we predicted so we did a really good job preparing for it for that.

Largely think it's behind us.

Yes.

I think so.

More broadly that is that has been our strength as a company. We take underwriting is the single most important thing we cannot make a mistake on.

We obsess over it we look at all the metrics all the time, we called <unk>.

Final arm fires every time, some metric as ever so slightly off to make sure that we know exactly why it is.

And that's what has allowed us to maintain.

This level of performance in credit.

I'm not sure I agree that the economy has deteriorated that thats, a very broad statement, there definitely signs of stress going back as far as April of 'twenty two.

It's generally speaking for our consumer not been a dramatic change in.

Their ability to pay their bills back because.

Effectively fully employed obviously the most recent unemployment numbers start to show.

Some very modest cracks in the full employment number, but still very very strong relative to what we would consider to be E series.

Area of concern and we tune our models to both internally source data of actual repayment and the macroeconomic inputs such as job Prince is what we consider as we try to forecast.

Not very distant future.

The reason, we don't need to forecast a very just the futures because the terms of our loans are really really short. So we have to be right about what's going to happen to our consumer in the near term.

Much more than we have to predict.

The world economic future.

As far as the NPL popularity, we're certainly seeing the.

The stronger demand as we had seen.

And quite some time.

It does help that we are the only player of scale that is willing to write monthly installment loans. The pain for was a pretty cool idea. When it was all fun and games into your interest rates to underwrite people for six months alone in 12 months loans, you have to be quite a bit more detail oriented and thoughtful in.

Our modeling and that is our strength and the source of our overall superiority, we feel very good about our ability to continue performing in those loans as well as the shorter term stuff.

It seems that offering the full spectrum of product.

He does drive consumer preference, but obviously still a very very competitive market.

Not going to declare victory just yet, but it does seem that the NPL has remained a consumer favorite certainly be affirmed version of the Npls for me to get some her favorite given as the.

Economic party may have gotten a little bit cooler.

No understood and thanks for all the color and.

We look forward to seeing you guys next week.

Thank you.

Thank you the next.

Question is from trace <unk> of Bank of America. Please go ahead.

Thanks, guys I know the shareholder letter mentioned that you've seen some disparate GMB trends among some of the various categories that you serve so I'm wondering just as you look at the guide the updated guide for fiscal 'twenty. Four are you assuming any material change in the more discretionary categories.

<unk>.

No we're really not so as part of the usual we try to hold what were seeing right now when we provide our guidance and we don't really assume things are going to get materially better or worse, because we really don't try to prognosticate too much about where the economy is going we do see some positive trends.

Right now.

Youre seeing categories that were real decliners over the past couple of quarters return to something that looks more like flat or certainly less decline.

And we think that's a good healthy sign.

And obviously, we still have exposure to some of the largest.

Platforms in e-commerce, and that does that breadth of exposure allows us to get pretty wide category coverage and so.

More operative question trusses are consumers going to be out spending and we certainly feel like the evidence right now that they are.

Okay. Max you touched briefly on decline rates and I'm just wondering if you've seen any notable change in those decline rates not just in terms of this year, you know percent of loan requests that you're declining but.

Just how that might vary across different slices of your your demographic or are you seeing.

Certain consumers coming back with more requests more frequently.

Sorry.

I'll start by reminding that.

Decline.

It's kind of the point of last resort so.

<unk>.

A huge percentage of underwriting decisions.

We tried to do and do pretty well say, yes, and <unk> is we need you to make a down payment.

We think that you should borrow not $800 for example, but $600 and if you have $200 to make another payment that would be wonderful.

And so.

That's a.

This is an important thing to keep in mind. So when we look at our approval rates they have largely remained.

Broadly the same.

Obviously between sort of groups of consumers, if you stratify them by credit.

They generally remain the same but by definition the credit mix the mix has not really.

It does not really.

Changed all that much so very broadly the answer is no. We're not we're not seeing anything dramatic the only thing that's really different dimensions.

Last quarter, we're on track to.

Broadened our EPR range from zero to 36%, obviously before we were between <unk> and <unk> as we broadened it to 36. The natural consequence of that is we're able to approve a little bit more books and.

That is a great tool to have obviously the number one job that we have visited consumers is to offer them access to credit in a transparent fairly priced way, having a wider range of prices available to us does allow us to say, yes to more people and so on.

We skipped equal.

You will see us probably on the margin be slightly more approved full if that's a new word.

Made that up.

But.

Being able to price the risk and allows us to say, yes more often.

Okay. Thank you.

Thank you very much.

Next question is from Rob Wallach.

This research.

Please go ahead.

Hey, guys.

I wanted to ask about the higher allowance quarter over quarter, maybe follow on from that last question can you speak to the drivers there and then given the short duration that youre emphasizing I'm curious the degree to which you think of changes in the allowance is proactive ie, we see credit versus reactive.

Things kind of started looking worse than we expected.

It's definitely not reactive meaning things look worse, it's very mathematical for us so.

We make an estimate of the losses for all the loans, we have on the balance sheet at any point in time, and we make sure that we have an allowance appropriate to support that.

As you change the mix of on and off balance sheet quarter over quarter. So the increase in sold loans does drive the math to be higher this period, given the fact that you're selling more early stage loans until.

Naturally have a little bit of a shift there, but we don't view that as a bad thing. It's certainly not a reflection of underlying credit performance. We think the underlying credit performance remains exactly where we'd like it to be in.

When we have the kind of unit economics that we had this quarter, which is really strong at the high end of our three years to 4% range. Obviously, we're very comfortable with the amount of provision needed to support the growth in allowance.

Okay. Thanks, and then maybe one on the on the regulatory front. The CFPB has been pretty active with respect to buy now pay later and even fintech more broadly. So what are your latest thoughts on their role and then how do you see that evolving going forward. Thanks.

Yes.

We view them as one of our key regulators, but its been a fair amount of time on the advisory board two years ago, So and so obviously being subject to supervision from CFPB.

From my point of view is a formalization of the relationship between affirm.

And Bureau.

We think we may be somewhat unique in this but we think it's a positive step.

Sure.

The industry, most importantly sort of normalizes.

The engagement with the regulatory bodies. It's also good for consumers for obvious reasons and good for us.

Because we think it levels the playing field in quite a number of centers we've been in contact with the Bureau for a long long time, and certainly expect to continue to be engaged with them.

Our priorities remain exactly what they have been we are.

Everything if knocks transparent and clear.

With the borrower and that certainly aligns very well with the mission of the Bureau, so I feel.

Generally speaking feel quite good about the regulatory engagement.

Thank you very much.

The next question is from Ramsey El <unk> of Barclays. Please go ahead.

Hi, Thanks for taking my question this evening.

I wanted to ask about the competitive landscape in general it seems like the stability and the merchant fee rates that you guys lay out in the slide presentation points to a pretty rational environment. There, but you mentioned, taking some market share how are your conversations with merchants growing merchant partners going and how does the sales pipeline and kind of progress.

In that context.

It's more rational now than it was before I wouldn't call it.

Fully rationale just yet.

It's harder.

With every passing moment.

So long as we agree.

That the overall economic <unk>.

Reality is not on a positive.

Direction.

<unk> said in a previous question, we have not seen a dramatic turn for the worst but we are very very active in managing credit.

It is a competitive advantage for us and I think if I'm completely honest, it's a bit of a soft spot for some of the competition. So what this does to merchants. If our competitors are rational is they have to tighten approval dramatically they can't separate risk as well as we can the only way to not have losses you just.

Decline indiscriminately a lot more our strength is ability to separate good and bad risks.

Therefore, we can maintain high approvals that has served us really really well over the years and I have lots of stories to tell from the earliest days of the firm where some.

Extremely valuable logo merchant would come to us and say well we know the cause.

<unk> just showed up and they offered US right. So we're going to call you and go there.

During those times I would sort of stress.

<unk>.

This means everything is broken about the company.

We've always maintained with much urging an occasional head slapping for Michael.

We maintained the discipline as saying look at this as an irrational deal rollouts sided.

<unk>.

Most often those merchants would come back to us and say actually the weirdest thing happened, we are paying a much lower price, but the approval suck.

And it's not an accident. If you are good at managing risk you know how to price it and if youre not a price that you can then deliver it.

At a fair price to both the consumer and the merchant and so as it becomes a little bit harder ore for some folks obviously, a lot harder to underwrite, it's a little bit easier to prove.

To our partners that being rational on the.

Pricing side. It is really important so just consider that become a little bit easier.

Sort of break it down even more and I promise I'll stop in a second but.

It is obviously super important topic that I spent a fair amount of time on.

Because the thing that really becomes interesting as you talk to folks that run these merchant companies and some of them are still very very focused on bottomline, others arent topline and sometimes its a function of having inventory, sometimes it's function of trying to meet growth targets for investing purposes, depending on that.

They're going to change and the thing that we're really really good at it.

Is tuning financial offers for consumers.

To meet merchants financial targets. If they are if the merchant is very focused on driving inventory out of the weyerhaeuser off their virtual shelves.

We're very good at creating consumer offers at no APR fixed low APR that we can dynamically price for the merchant and a consumer and make those transactions happen. If the person is very focused on narrow bottom line, we're very comfortable working with them to reduce or to drive their mbr's down to ensure that their costs are under huge degree of control.

And passing the cost onto the consumer because we are so transparent with pricing to both sides, it's never a mystery and never.

Sort of a black box negotiation or do you feel like they've been somehow hurt by it.

This whole process, we were very very clear with our merchants here's exactly what you can get the current environment with the current approvals.

Over the years, that's built a reputation for us that just time and time again, so the concessions have always been.

Rational with the merchants that we have and Thats why you see our mtr's quite stable and our merchant base quite retain quite well received.

A couple of things just to add there.

The market will continue to be competitive. This is a growing category for a reason consumers are seeking out alternatives and so we expect the market to continue to be competitive we expect to continue to be rational in the face of competitors, who want to be less rational, but we expect competition.

And then just specifically answer your question around the pipeline, we don't disclose any any pipeline SaaS, but we feel good about the level of commercial activity right now there's lots of great conversations happening.

We remain.

And conversations today that we probably couldn't have had a few years ago given some of the irrationality. So we think thats a good thing, but those are conversations and pipeline. So theres certainly nothing nothing concrete there.

Fantastic.

And then a quick follow up for me in the shareholder letter you mentioned some improvements at checkout with affirmative brick and mortar big box partner and also I think expanding the partnership with Verifone, how should we think about that physical opportunity that brick and mortar opportunity does that kind of change.

Now with a firm card in terms of how youre thinking about monetizing sort of the physical transaction or are there still is there still.

Another leg potentially that you can develop here by perfecting that physical affirm at checkout experience.

He must have been spying on our conversation with Michael yesterday.

So.

Joke aside yes, the short answer is absolutely.

We've been caged in this e-commerce, Keith for a very long time and feel very good about our.

Breaking out into the bigger wide open.

<unk> space writ large.

Our firm works pretty well in store if the merchant is cooperating so depending on where you go you'll find us in a kiosk you'll find us on your phone, but speaking to the phone of our store associates did a bunch of modalities that will develop over the years and they were fairly well for existing users.

And if the merchant helps they can even help us with user acquisition. The card just super charges. This thing it's like a totally different level will again I'm going to bite my tongue on some of the coolest asked I think it was going to show up next week, but we will talk a little.

A little bit about the.

Success, we're seeing offline with the card.

But even beyond that we do think that there is work to be done.

He has to be.

B to be tried offline even before the consumer gets the card and.

That's a pretty exciting thing at this point.

Michael put it yesterday.

Wifi or cell coverage in a store next door starting to solve problem.

We do have a 80 ish percent app download for existing users in a very very high propensity to download our app just because of the brand.

Reviews have been so strong so still very good about what we will do offline it.

It is brick and mortar which means that it means a little bit slower, but the prizes worth.

Worth the effort.

Fantastic. Thank you very much.

Thank you very much.

The next question is from James Fawcett of Morgan Stanley. Please go ahead.

Great. Thank you so much a couple of follow up.

Questions on things, you've already talked about Max and Michael first.

In terms of like the engagement with the merchants and that kind of thing I'm wondering how active conversations.

Conversations are beyond just kind of making available to them what they're what they could do from a promotional.

Respective on interest rates et cetera, and the reason I ask is because in a period of rising interest rates and kind of normalizing.

Normalizing retail activity I would've thought we would've seen a bit more zero percent promotional activity on the part of merchant partners to date, and maybe I'm, just missing it et cetera or or its impact on your financials. So far but just wondering what that process looks like.

Yeah.

That's certainly a major part of the conversation.

I think.

I sort of started answering this and Michael has a lot of opinions on this one so I'll call him in a second but the shorthand is it really depends on the merchant margin structure, if you're <unk>.

Overall Worldview is couple points of margin lots of turns of inventory.

Just don't have the margin capacity to drive these European deals unless the manufacturer is willing to contribute and.

We've sort of dropped the bread crumbs of that idea for quite some time and obviously, it's a massive <unk>.

Sales and engineering effort, where you're trying to tie more than just the consumer and the seller, but also the consumer and the seller and a manufacturer brand or some other third party that wants to subsidize the interest. So that's a fun design and engineering challenge, but we've been making very very steady progress because it sort of appointed in my letter about.

What we internally call mixed cards, which I think I referenced the ability to combine multiple financing programs.

Have a manufacturer or brand that sponsoring is Europe's and deal, let's say, it's a TV manufacturer and you're buying that TV.

And a bag of cookies and the cookies are not zero percent sponsored you have to be able to provide correct accounting for both sides of the transaction, but consumer to think of it as a single basket and so before we got to full distribution of the brand sponsor promotions that we call them, we have to deploy a robust implementation of mixed cart.

Accounting and sort of downstream transactional and capital markets work.

It took us a fair amount of time and effort just a sign of sort of how complex. Some of this stuff can be now that we have that like we have a variety of really rich conversations around helix had a zero percent promotion and you don't have to directly fund.

The EPR discount.

Mr Merchant, so thats one side of it.

If your margin structure is I've got 60% gross margin and maybe a subscription to support future revenue streams of course, you want to do to your percent deals and that becomes much much easier conversation. So we have merchants of both kinds and everything in between we work pretty closely with them as the holidays roll along.

People start becoming very concerned with driving inventory off the shelves sometimes into the holiday sometimes right after depending on sort of what they think will happen to them or what does happen to them around.

Five days of sales around Thanksgiving and so we'll certainly support all those but.

Big part of who we are is we're.

Fundamentally an engineering company as we're building. These tools is would we enjoy the most.

As we shipped new tools immediately bring them to market to our merchant partners offering them new ways of driving more sales and so we have quite a lot of fun stuff that we shipped the last.

60 to 90 days and all of that will get deployed into the into the holidays.

The only thing I'd add is we have been intentional around introducing fixed APR offers.

Low Apr's think five and 10% APR offers into the merchant base and those serve.

The same.

<unk> overall that it's your percent served in a zero percent rate environment.

I think that's it.

Well received and have consumed a lot.

Lastly, I just there is a merchant mix here that matters a lot in this conversation.

The merchant platforms that are scaling the most right now.

The most interest bearing mix and I think thats, probably distorts the trend I think youre pulling on which is a little bit below the surface and overwhelmed by just the mix across our merchant base. So as you sell less exercise bikes and you sell more general merchandise.

Trends tend to play out that way.

That's great. That's really helpful and then separately on on debit plus and.

Like how are you seeing clearly like Youre seeing a pickup in <unk> and <unk> and frequency of use et cetera, how does that use tracking versus your expectation of people using it for debit trend type transactions versus some sort of credit.

Generating transaction thanks.

That's definitely the.

Third the show next week so.

Okay.

Thank you.

A light preview versus the very fulsome.

<unk>.

Which you should expect next week.

Generally speaking it's tracking to expectations.

What you will.

Here.

<unk> about next week is.

It's becoming very clear journey, where we are teaching consumers.

A new product when they just sign up for the card. So these are all repeat consumers theyre not we've never spent a penny marketing the card there is no big.

Billboards over one one or anything like that it's just the card that you get if you like affirm and we offered to you and we don't we haven't pushed it particularly hard just yet.

You do get it.

The first comprehension hurdle is hey, this is just like a firm where I ask for a loan and get approved then it works, but now it works I can consummate the transaction with a card sort of first intellectual hurdle is affirmed on a piece of plastic that's cool.

So you can't expect that to become your daily spending instrument because affirm today is for everything from dresses too.

Fancy, what kind of equipment, but it's not.

In your mind, just yet for a cup of coffee overtime, you see folks slowly recognized that actually it's pretty cool. It provides some buyer protection. Unlike your debit card. It has a bunch of release features like you can say Oh. This transaction was actually a little bit more than I wanted to spend I can go back in time and split it if that's appropriate.

So as people understand all the functionality of the card, which is not something that they pick up in a day or two it actually we have a whole bunch of work that we put in.

This quarter, we actually if you.

Have you the card before you kind of missed out on a whole bunch of really neat things that we shipped as a first time user experience through a whole pile of features helping people understand all the various things that as people off we start graduating people to more and more transactions like might on some of the really cool reveals but we have so the ticket.

Spear the consumers that really get it how it works are tracking better than expectations I'm very very excited about that group and our job is really now taking the customer through.

This is affirmative card too this is actually something I could use instead of my debit card.

It's good for everyone.

Doing really well.

Yeah.

The card team will tell you that.

Occasionally message them in the middle of the night, mostly to find out that they are already working on the idea that I just hadn't.

Literally my last message in a slack channel to the car team. Okay. Okay I'll get out of your hair you have thought of everything so I'm very excited about where we're going.

Lots of work to do though definitely.

Very very far from done.

That's great. Thank you for that.

Thank you.

Question is from Andrew Jeffrey of crews Securities. Please go ahead.

Alright, I appreciate you guys taking the question.

Very thorough discussion of the business. So that's helpful.

Max could you talk a little bit about trends in our firm's tender.

With your enterprise.

Apprised customers.

Versus across the entire business and whether you're sort of closing that gap, we've seen on big days like Amazon Prime day, where apparently the NPL over samples.

Uh huh.

I think you've talked about as being your total tender share and maybe just an update there and how much runway there is in closing that and whether or not ultimately U.

Grow that beyond the the total company.

Certainly.

Building, an appropriate for me to comment on any one particular partner, although obviously, we feel we've done really well there, but if you look at share of cart as we call it in our largest partners.

We're far from done.

The I'll refer you back to Mike.

One of my bragging points chunk like partnership has been around for three years.

And I think several folks in the analyst community have written that off as well, it's now stable and will grow.

Some sort of high single digits.

Slow grower because they are fully integrated now and yet the volume there keeps accelerating because both.

Companies are excited to build new things and try to.

Deliver more value to both merchants and consumers and so we certainly have a lot more room to grow in all of our.

Very large partnerships frankly, I think we have a lot of room to grow in small ones as well the larger ones, obviously pay off better because when you unlock something.

1%, you're playing with billings instead of millions so feel very good about there about that.

These companies are enormous they have lots of conflicting priorities.

No.

It will absolutely take longer than our average efforts, especially because the reason these companies chose us because we are technologists and we built software really really well that means that the majority of the integrations are complex. When you have your tiny company and you take our standard API and implemented and we're bringing live.

Literally it can be done at this point in a self service environment for a small company, that's pretty awesome I bragged about that in the letter as well for a much larger partner. This is a real effort and it takes quarters to get it right and make sure all the plumbing works and scales and handles things like Prime days, which are enormous spikes of volume and so once that's there.

We're deploying.

Deploying optimizations and changes and new initiatives is not a thing you can sort of flip a switch and see what happens you have to follow the.

Thoroughness and.

Deliberate nature of such efforts, but when they do work.

<unk> dramatically and so we certainly have many more leads to take.

Obviously I'm extremely biased so sort of discounting that appropriately I do think the product we offer works both in credit cards and credit cards are the dominant way to pay.

Across all the merchants, we feel like we have a lot more share to grab it.

Okay.

Helpful and then.

I've asked you this question before.

The the 91% of transactions from existing customers that.

At Kpis that stat.

Does that number over time for you to achieve your goals need to come down a lot.

Just as far as as greater acceptance and use across the basin.

Is it firm card help you get there or am I, just barking up there Andre.

It's a.

I, certainly don't think you're breaking up their own trade. So it's something that I look at a lot.

<unk>.

I think about it is every consumer cause a certain amount of spend that they're doing today some of it on credit some of it from.

Cash.

We are competing for that we are not trying to create new debts, where there wasn't some because we are.

Obviously, we don't charge late fees, we don't compound interest. So we don't benefit from delinquency, we don't benefit from overspending, we're very careful not to over extend our consumers part of the mission is to create healthier financial reality for our customers not to push them into unsustainable spending and so we are trying to shift spending onto our instruments.

And kind of how far you cast your eye in the future of our firm.

Obviously first time transactions that number.

You are talking about will come down.

As we get to more and more customers underwritten by definition that number will start trending up so I don't know if I have the right number is 70, 837% that's the perfect one.

I look at it as a.

Indicator of where we are.

Reality of new versus repeat users for us it's kind of a two sided coin. If you will new users are the highest risk.

Loans, we will right when you have never transacted with affirmed before by definition, we don't know you as well as we do someone who has transacted already.

So wherever we take a more careful.

Risk stands and we have been in a relatively conservative on for quite some time, you can expect us to be deliberately careful with approving new consumers.

On the other hand.

We are.

Very excited to take more and more share from.

From our friends in the courtyard world and so we are delighted to win the frequency goes up which is in fact reflected in the percentage of transactions from repeat users. So there are multiple vectors on this metric not too obsessed with it I care a lot more about overall GDP growth.

Credit metrics, obviously are absolutely Paramount.

You will give consumers something that I look quite a lot about although.

It's worth saying that at this point, we see very clear stratification of consumers people have chosen that affirm is their primary spending device and that those numbers are very different from the average that we posted at some point I'm sure, we'll start breaking that out but not read the second.

Thank you very much.

Last question is from Richard Smith of Jpmorgan. Please go ahead.

Hey, congrats on the quarter and thanks for squeezing me in.

I guess the biggest variance this quarter too.

With the interest income mines and I notice.

I've seen over the past few quarters that your mix of interest.

Bearing transactions and volume has been growing a question for you.

What's how common are prepayments.

And your business.

I asked that because I'm trying to I guess to get to the durability of that interest income I know I think in quarters past Michael suggested that.

It took a while for the rates to kind of bleed in and it looks like we're seeing that now so I'm just trying to figure out the durability data.

Yeah.

Yes, prepayments our business or our common there understood price into all of our capital deals.

And for the record we think a good thing.

<unk> mentioned it before we think about consumer exposure is the real limiter.

And if consumer prepays that opportunity for us to transact with them again and Thats a good thing for us, it's a really healthy sign.

Said differently the prepayment for at risk for Us is not really a risk versus the credit risk in the business.

And so we don't view prepayments as as really a problem at all I think a thing to remember about the product just how short the duration is and so prepayment risk and other asset classes as a real important thing, especially in a declining rate environment, given the long term nature of those loans.

But.

The weighted average life here, so fast that it's really difficult for us to have a meaningful amount of the economics eroding or that interest income going away. So long as the originations are still there right. So that's the more important variable in terms of what we can generate.

Not just the back book for Us.

So I guess the pipeline is that that yield is pretty durable.

Going forward as long as you continue to it so originated at the right way to think about it.

You got it equal lots of little loans spitting off pretty nice rates, but not.

We don't suffer from Oh, My God, We just lost 29 years of interest like nothing of that sort of applicable here.

And yet I think it's worth pointing out that.

What you saw in the past year was this rate shock hitting the <unk> and theyre being a few quarters depressed asset yield.

And you've seen us recover from it so.

This is model isn't one.

The one that is completely imperative and purpose in the short term to these kinds of shocks, but over the medium term, we're able to really get the yield back in the asset get the execution in the capital markets to a level to where we can continue to scale the business.

Like we want.

Perfect.

We've got a hours of Mac on that kind of holds you guys any log I guess isn't like that.

Call back thanks for taking my questions.

Thanks, guys. Thank you.

Yeah.

Thank you.

No further questions in the conference.

In the question queue, and I would like to turn the call back to Kevin for some closing remarks.

Well. Thank you favorably everybody for joining the call today and we look forward to speaking with you again next week at our Investor Forum.

Yes.

Thank you very much ladies.

Ladies and gentlemen concludes todays event.

May now disconnect your lines.

Okay.

Yeah.

Yeah.

Okay.

[music].

[music].

[music].

Welcome to the same holdings financial year, 2021st 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 your questions.

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

I would now like to turn the call over to Zac Taylor director of Investor Relations. Thank you you may begin.

Thank you operator.

Before we begin I would like to remind everyone listening that todays call may contain forward looking statements.

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

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 intent to update them, except as required by law.

In addition, todays call may include non-GAAP financial measures.

Measure should be considered as a supplement to and not a substitute for GAAP financial measures.

For historical non-GAAP financial measures reconciliations to the most directly comparable GAAP measures can be found in our earnings supplement slide deck, which is available on our investor Relations website.

Hosting todays call with me are Max selection, a firm's founder and Chief Executive Officer, and Michael Linford, our firm's Chief Financial Officer.

Before we begin today's call we would like to remind investors that will be we will be holding an investor Forum next Tuesday November 14th and.

2% to five P M eastern time.

Both the live cast of the forum as well as a replay are open to the public.

Additional details about the form including registration information are available on our Investor Relations website.

In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into questions and answers.

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

Okay. Thank you and thanks, everybody for joining us today.

Keep it very brief.

Strong fiscal Q1 beat our outlook across all metrics TV growth accelerated sequentially, we significantly exceeded our own outlook for revenue less transaction costs.

To gain market share.

Kept our already strong economics quite good drove positive rate outcomes, which matters to us most and added some funding capacity.

Our plans now.

<unk>.

<unk> to invest in risk management technology, and product development and to turn our attention to growing faster back to you David.

Thank you Max with that we will now take your questions. Operator. Please open the line for our first question.

Thank you very much.

Ladies and gentlemen, we will be conducting a question and answer session.

I'd like to ask a question please respond and wanted to let you know.

Doug Your line is in the question queue.

You might be starting to if you would like to remove your question from the queue.

All participants using speaker equipment is that necessary to pick up there since it before.

<unk>.

Our first question is from Bryan Keane of Deutsche Bank. Please go.

Yeah, Hi, good afternoon, and congrats on the solid results.

Just thinking about.

We head in to the second quarter here given the outperformance in the first especially in in Gmg in volume what kind of led to the outperformance and then it looks like the growth rate will decelerate back a little bit after accelerating this quarter.

The second quarter, maybe you can just help us with that thanks.

Yeah.

Okay.

I think.

Yeah.

Why why the growth.

I think we've just been executing really well.

As you saw just the overall.

Leverage we are.

Firing on all Pistons in the company.

So it feels very good.

We're able to deliver.

Really.

Key initiatives on the product side.

Our friends in Ottawa in particular, we had several really strong.

Ideas, that's played out very well for us there and so as to the Shopify volume accelerated again.

Speaks to.

Maybe the way we operate the business.

Sometimes it seems like you signed is a great partner and.

First a volume but in reality it takes us years to fully realize the opportunity for us when partnerships are this rich and.

With respect potentials.

One example.

Card grew quite well.

As well and so we're happy with those results.

Theres not one.

The thing that I can stick a finger and say this is the.

The core reason for the GV growth, but.

The other thing is that the demand for the product remains strong we are still declining quite a number of applicants because we're trying to remain as thoughtful and.

Productive.

Our credit outcomes, but the consumer demand for what we have to offer.

<unk>.

Continuing to push forward.

The only thing.

Comment on for Q2 is both our largest quarter of the year until we have a lot more.

Matt.

Variable period, and we do expect that some of our programs our largest enterprise partner programs are continuing to mature in a way that we would expect a little bit less growth this year than we had.

Last quarter.

Got it and then just as a quick quick follow up Michael maybe you could talk a little bit about adjusted operating profit came in quite a bit ahead of expectations is that some timing of expense items that even out throughout the year or any anything to call out there for the margin in the first quarter versus for the quarters for the rest of the year.

So much.

Yes, thanks for taking the question, yes, the adjusted operating income did come in well ahead of where we thought it was going to be for the quarter and I think it shows the power of our technology orientation. When we are able to control expenses and drive a little bit of extra growth.

Growth and profitability is very very strong and I think I put it.

Context.

98% JV growth or 37% revenue growth in our non transaction operating expenses reduced.

Absolute basis by $15 million.

Year on year.

When that happens. Obviously, then you can grant pretty strong results I think due to our outperformance we did raise the outlook for the full year, we're now expecting closer to 5%.

And I think that we were driving leverage really across all three lines, G&A sales and marketing and tech data and analytics.

And those lines are all very <unk> on our business.

And as for quite some time.

And yet that is.

Also the area, we invest in primarily in human capital, we want to make sure we maintain the ability to.

In the back half of year, which is why we wouldn't expect to run at this level, but no there really wasn't any sort of timing benefit will.

We will expect sales and marketing to creep up a little bit in Q2, as we invest into the holiday season.

But other than that we feel that Q1 was very close to run rate before we.

Again maintained.

And making the investments.

Okay, great. Thanks, so much.

Thank you. The next question is from Michael <unk> with Goldman Sachs. Please go ahead.

Hey, good afternoon, I just have two.

First as a follow up to the first question around.

Shop pay installments GMB growth acceleration I was just wondering if you could talk a little bit about what functionally changes or ramps up over time.

That allows you to drive this acceleration in <unk> over.

Two years since the initial partnership.

Sure.

What can that tell us about how you approach some of these enterprise partnerships and then I have a quick follow up.

I am known to give a long winded answer so I'll actually try to keep this kind of shorter.

The very short answer is optimization both companies are.

Three numerically driven we spend an incredible amount of energy just AB testing.

Various forms of presentation of the product.

We offered to consumers.

Try to simplify things to try to.

Fine tune everything from.

Okay.

How do we explain.

Interest if there is interest to pay how do we make sure people understand that there is no interest in products like paying for just all of that and if you have one.

One of the sort of.

Obvious truisms. If you will if you have a significant amount of volume already even one or 2% increase in ton conversion just create millions or tens of millions of dollars of incremental G&A. So it's never a great.

Sometimes it is sort of a brilliant unlock where we say oh, we forgot there is this thing we can try and it works, but 90% times, it's really just optimizing existing consumer experience finding ways of presenting the offer a little bit more of a funnel. So consumer understands there is a budget, perhaps more than the budget. They realized because we can tell them.

<unk>.

We're willing to approve you for et cetera, and then.

Just doing that over and over again has compounding effect. So there's not a.

The secret sauce is and the work not in secret.

Great.

Thanks, Max that's really helpful. And then maybe just a quick one on <unk>.

Firm card.

$224 million of GMB.

Accelerating from the 130 last quarter.

Could you just talk a little bit about.

How youre approaching.

Driving growth there the user growth seemed like it was steady at that 75 K P.

Per month, and anything you can tell us around the mix of <unk> and how that may have changed relative to last quarter.

So I don't want to steal too much of LIBOR show next week.

Two quick Eric movie level of you to come and give me notes.

When we do Investor Forum, a week from now.

But the short hand is.

The mix remained largely in line with what we said last quarter, it's still <unk>.

More.

Splits pay or split.

Transactions versus painful.

We will talk a lot about things like cohort retention and usage over time or is it about lifetime value next week, there's a lot to share and I don't want to spoil the party too much.

The.

Growth.

Is quite strong is managed to the number that we want to we have internal goals that we are driving card numbers too we won't run out of.

Opportunities there for some time.

I want to make sure that we don't.

Paint ourselves into a corner following sentence the the product because it is a new idea and this is not something that exited fourth we have lots of intellectual property protection around some of the stuff that we invented both kind of what meets the eye and whats under the under.

Under the Hood, there and every time you launch a new product even if it is exceptional uptake, which we think this one it does you are educating the consumer you have to look for long term.

One of my <unk>.

Many nighttime jobs is to read.

Consumer feedback that comes to me directly from the card. It is now a very steady stream of content.

And a lot of it is about sort of getting in touch with rpms, and saying Hey, there's a sprinkle in a card that people still don't fully understand how do we fix this again.

Again these are in service of that let's get 3% more converting let's say, 5% more conversion. The card is so new every time, we find some major comprehension unlock we find ourselves in another 10% gains so it's gratifying to.

Block a second.

Mistake, we made or unblock comprehension detail and suddenly have a lot more volume. So we will continue growing users quite deliberately will be very very focused on.

Unblocking all the course of these interfacing all of educating that we have to do before we start.

Sending a car to everybody as they sign up with over the long period of time I fully expect to get to a place that hey, welcome to affirm the cards in the mail like that's not going to happen anytime in the immediate or even a foreseeable future, but the long term point of the card.

Best way of experiencing department, we will build all of our product Roadmaps on this idea of you should have this card. It is the best thing ever and you should just have one of these even if you've transacted with them for the first time yesterday.

Great. That's all very clear thank you Max.

Yeah.

Okay.

Thank you very much.

First question is from Ben Donuts Mizuho. Please go ahead.

Hey, guys great results.

So crowd.

Max.

B to B.

Is that the.

Amazon partnership I think it was last week on a lot of excitement and a lot of press.

Can you maybe tell us what makes you. So excited about this kind of the opportunity sizing it and maybe.

Talking whether or not there'll be other <unk> partners and then have a very quick follow up thank you.

[laughter].

Thank you Dan we are very proud too, but I really appreciate hearing that.

But the team worked very hard I know a bunch of a firm <unk>.

Folks are listening.

Neil did this quarter. Thank you for your hard work.

The BBB.

That.

We started showing is certainly.

Not a one off in fact.

When we start reviewing the opportunity my ask the team was please come back to me with a plan of what this looks like in a market.

Sort of what the true opportunity across many many possible.

Platforms not just one so yes, you should expect us to do more obviously, we will speak to us when we're getting ready.

The.

Current product as you see it today is first of all proprietorships.

Interesting space, where.

The efficiency of the lending market to back user is really really poor.

And so as a result, the consumer typically borrows money either on their personal financial devices, which is just for a variety of reasons a bad idea.

Core through all kinds of just Unoptimized old school for a 19th century lending platforms and there's no reason why that should be this way given our expertise in underwriting in particular underwriting consumers so expanding our models too.

Small very small sole proprietorship type business underwriting was not a huge challenge the actual.

Work began something like.

But more than a year ago, where we primarily just tested well our underwriting work as well as it doesn't consumer if we expanded into two very small businesses and obviously, we feel confident enough to start rolling it out with the largest e-commerce player and so.

We feel very positive about it will be very deliberate it's a new business for us nothing.

As we will not do anything that damages our stellar credit performance.

Certainly as always job number one.

But exciting there is lots of merchants that have very sizable.

Side Hustles, if you will where they sell their goods or goods on their platform to sole prompts that either use them or we sell them and they too need some honest financial services here, we are for that.

That's super helpful and maybe as a quick follow up for you or for Michael I mean, what caught my eye in the shareholder letter.

The ability to sustain 3% to 4% revenue less transaction costs, we all know that the key pushback.

From clients that we were talking to it sounds like you guys have figured out a way to.

Not to be a problem anymore. So maybe just kind of walk us a little bit through sort of the path to making sure that this these.

3% to 4% is sustainable even in a higher for longer environment. Thank you Ian.

Yes, we're really proud that we were towards the high end of our long term range in a quarter win.

We are obviously up against a substantially lower rate environment, and we feel like we're settling into the higher for longer.

I think there's maybe a few things to call out. The first is that we've done a really good job of making sure our assets have the right economic content in them.

Our letter we do plot with the yield of our asset is and also where our funding costs are gone.

And you can see that certainly you see a pretty big inflection towards the end on the firm asset yield and Thats.

A reflection of our pricing initiatives, but also the really strong credit controls that we've had in place over the past year.

And it always starts there you got to get the asset yield right. But then the second piece is really important is we've been executing really well on the capital markets we have.

<unk> added Ford flow partners to the mix, which of course helps the.

The in period, earning power as you can sell loans and earn the gain on sale.

Which is really important for us to do and.

Maybe notably is that the percentage of loans sold.

In our first quarter was more in line with historical averages and we had been in the prior quarter, which was a pretty depressed level and so what youre seeing is the benefit of the improvement to the asset yield and the benefit of the capital markets execution.

In turn as the benefit of the discipline that we've had on the asset yield rate. Those two things are very much link and youre seeing it really shine right now where our engagement with capital markets partners is really positive that Max mentioned that we went and solved many folks.

Over the past couple of months and the discipline that we've had is really giving us credit there and so that's what gives us confidence that this rate environment is one that we can operate well and we've done the work to get the asset yields are they need to be we're getting credit for it in our capital markets.

And our focus is really around at this point.

Continuing to scale the network, we've earned the right to do that.

Amazing results. Thank you so much.

Thank you. The next question is from Andrew bulk.

Wells Fargo. Please go ahead.

Hey, guys. Thanks for taking my question just wanted to ask you a general state of the consumer kind of question I know that the.

The student loan forgiveness, or forbearance is coming due and so any kind of updated thoughts on how you think that.

Impacts overall demand and then maybe like a higher level question.

As macro is deteriorating as has deteriorated.

In the past you've said that.

There is a reasonable possibility that <unk> becomes a more preferred payment method.

In more challenging economic times, just trying to get a sense of have things kind of played out the way that you had anticipated in both of those those those opportunities.

Opportunities.

Lots to go there.

So on the student loan that's an easy one so we started we said that for two quarters in a row before this one.

We've got very seriously, obviously, nobody had sort of a real sense for exactly what it would look like.

Dan perhaps last quarter because.

He really something that predicted pretty precisely what we thought would happen too soon.

Student loan repayment.

Impact on our ability to to approve people and the point is we've been looking at it for months and months and months and incorporated underwriting changes to make sure. We are prepared for the student loan repayment assumption at this point they've been effectively back.

The obligations.

For a month and a little bit.

That we would handle it really well we can see it in our credit prints that it had no material impact on us in fact.

Slight increase that we saw was seasonality exactly as we predicted so we did a really good job preparing for that.

Largely think it's behind us.

I think so.

More broadly that is that has been our strength as a company we take underwriting as the single most important thing we cannot make a mistake on.

We obsess over it we look at all the metrics all the time, we called <unk>.

Final arm fires every time, some metric as ever so slightly off to make sure that we know exactly why it is.

And that's what has allowed us to maintain.

This level of performance in credit.

I'm not sure I agree that the economy has deteriorated that's a very broad statement there definitely signs of stress going back as far as April of 'twenty two.

Generally speaking for our consumer not been a dramatic change in.

Their ability to pay their bills back the cause.

Effectively fully employed obviously the most recent unemployment numbers start to show.

Some very modest cracks in the full employment number, but still very very strong relative to what we would consider to be E series.

Area of concern we tune our models to both internally source data of actual repayment and the macroeconomic inputs such as job print because what we consider as we try to forecast.

Not very distant future.

The reason, we don't need to forecast a very just the futures because the terms of our loans are really really short. So we have to be right about what's going to happen to our consumer in a near term.

Much more than we have to predict.

The world economic future.

As far as the BNP popularity, we're certainly seeing a.

Stronger demand as we had seen.

In quite some time.

It does help that we are the only player of scale.

That is willing to write monthly installment loans the pain for was a pretty cool idea. When it was all fun and games in their interest rates to underwrite people for six months longer than 12 months loans you have to be.

Quite a bit more detail oriented and thoughtful in our modeling and that is our strength and the source of our overall superiority.

Very good about our ability to continue performing in those loans as well as the shorter term stuff.

It seems that offering the full spectrum of product really does drive consumer preference, but obviously still a very very competitive market.

I'm not going to declare victory just yet, but it does seem that the NPL has remained a consumer favorite certainly be affirmed version of the NPL for me to get some of your favorite given as the.

Economic party may have gotten a little bit cooler.

No understood and thanks for all the color and.

Look forward to seeing you guys next week.

Thank you.

Thank you Nick.

Next question is from Jason Kupferberg of Bank of America. Please go ahead.

Thanks, guys I know the shareholder letter mentioned that you've seen some disparate GMB trends among some of the various categories that you serve so im wondering just as you look at the guide the updated guide for fiscal 'twenty. Four are you assuming any material change in the more discretionary categories.

<unk>.

No we're really not so as part of the usual we try to hold what were seeing right now when we provide our guidance and we don't really assume things are going to get materially better or worse, because we really don't try to prognosticate too much about where the economy is going we do see some positive trends.

Right now.

Youre seeing categories that were real decliners over the past couple of quarters return to something that looks more like flat or certainly less decline.

And we think that's a good healthy sign.

And obviously, we still have exposure to some of the largest.

Platforms and e-commerce in that does that breadth of exposure allows us to get pretty wide category coverage and so.

More operative question for US is our consumer is going to be out spending.

We feel like the evidence right now that they are.

Okay, Max you touched briefly on decline rate.

And I'm just wondering if you've seen any notable change in those decline rates not just in terms of this year percent of loan requests that you're declining but.

Just how that might vary across different places of your your demographic or are you seeing sharing consumers coming back with more requests more frequently.

Tony.

I'll start by reminding that.

Decline.

It's kind of the point of last resort so.

A huge percentage of underwriting decisions.

<unk> tried to do and do pretty well say, yes, and and and as we need you to make a down payment.

We think that you should borrow not $800 for example, but $600 and if you have several dollars to make another payment that would be wonderful.

And so.

That's a.

This is an important thing to keep in mind. So when we look at our approval rates they have largely remained.

Broadly the same Michael.

Obviously between.

Tween sort of groups of consumers, if you stratify them by credit.

They generally remain the same but by definition the credit mix the mix has not really.

Does not really.

Changed all that much so very broadly the answer is no. We're not we're not seeing anything dramatic the only thing that's really due to a dimension. So we said last quarter.

We're on track to broaden our APR range from zero to 36%, obviously before we were between <unk> and <unk>.

Broadened and $2 36, the natural consequence of that is we're able to approve a little bit more books and.

That is a great tool to have obviously the number one job that we have neither the consumers is to offer them access to credit in a transparent and fairly priced way, having a wider range of price available to us does allow us to say, yes to more people. So all these kept equal.

You will see us probably on the margin be slightly more approved full if thats a new word.

Did that.

Sorry go ahead Joe.

Being.

Being able to price the risk and allows us to say, yes more often.

Okay. Thank you.

Thank you very much.

Question is from Rob Wallach.

This research.

Go ahead.

Hey, guys.

I wanted to ask about the higher allowance quarter over quarter, maybe follow on from that last question can you speak to the drivers there and then.

Given the short duration that youre, emphasizing I'm curious the degree to which you think of changes in the allowance is proactive ie, we see credit versus reactive things.

Things kind of started looking worse than we expected.

It's definitely not reactive meaning things look worse, it's very mathematical for us so.

We make an estimate of the losses for all the loans, we have on the balance sheet at any point in time, and we make sure that we have an allowance appropriate to support that.

As you change the mix of on and off balance sheet quarter over quarter. So the increase in sold loans.

Does drive the math to be higher this period, given the fact that you're selling more early stage loans until you or not.

Naturally have a little bit of a shift there, but we don't view that as a bad thing. It's certainly not a reflection of underlying credit performance. We think the underlying credit performance remains exactly where we'd like it to be and when we have the kind of unit economics that we had this quarter, which is really strong at the high end of our 2% to 4% range.

Obviously, we're very comfortable with the amount of provision needed to support the growth in allowance.

Okay. Thanks, and then maybe one on the on the regulatory front the <unk>.

<unk> has been pretty active with respect to buy now pay later and even fintech more broadly. So what are your latest thoughts on their role and then how do you see that evolving going forward. Thanks.

Yes, so we've always viewed them as one of our key regulators if I spend a fair amount of time on the advisory Board.

Ago.

So obviously being subject to supervision from CFPB.

From my point of view is a formalization of the relationship between our firm and the Bureau.

We think we may be somewhat unique in this but we think it's a positive step for the industry. Most importantly sort of normalizes.

The engagement with the regulatory bodies. So is it good for consumers for obvious reasons and good for us.

Because we think its leveled the playing field in quite a number of centers we've been in contact with the Bureau for a long long time, and certainly expect to continue to be engaged with them.

Our priorities remain exactly what they have been we are.

Everything.

If knocks transparent and clear.

With the borrower and that certainly aligns very well with the mission of the Bureau, so I feel.

Generally speaking feel quite good about the regulatory engagement.

Thank you very much.

Next question is from Ramsey El <unk>.

<unk> of Barclays. Please go ahead.

Hi, Thanks for taking my question this evening.

I wanted to ask about the competitive landscape in general it seems like the stability and the merchant fee rates that you guys lay out in the slide presentation points to a pretty rational environment. There, but you mentioned, taking some market share how are your conversations with merchants growing merchant partners going and how does the sales pipeline kind of progressing.

In that context.

It's more rational now than it was before I wouldn't call it.

Fully rational just yet I think it's harder.

With every passing moment.

So long as we agree.

The overall economics.

Reality is not on a positive <unk>.

Direction.

<unk> said in a previous question, we have not seen a dramatic turn for the worst but we are very very active in managing credit.

It is a competitive advantage for us and I think if I'm completely honest, it's a bit of a soft spot for some of the competition. So.

What this does to merchants if our competitors are rational.

They have to tighten approvals dramatically they can't separate risks as well as we can the only way to not have losses, you just decline indiscriminately a lot more our strength is ability to separate good and bad risks.

Therefore, we can maintain higher approvals that has served us really really well over the years and I have lots of stories to tell from the earliest days of the firm where some.

Extremely valuable logo merchant, who would come to us and say well we know the competitors of yours, just showed up and they offered is half the price. So we're going to call you and go there.

During those times I would sort of stress and worry that this means everything is broken about the company and we've always maintained with much urging an occasion milled head slapping for Michael.

We maintained the discipline of saying look at this as an irrational deal not sided and.

Most often those merchants would come back to us and say actually the weirdest thing happened, we are paying a much lower price, but the approval stock.

And it's not an accident. If you are good at managing risk you know how to price it and if you had a price you can then deliver it.

At a fair price to both the consumer and the merchant and so as it becomes a little bit harder ore for some folks obviously, a lot harder to underwrite, it's a little bit easier to prove.

To our partners that being rational on the pricing side. It is really important so it just continues to become a little bit easier.

Sort of break it down even more and I promise I'll stop in a second but.

It is obviously super important topic that I spend a fair amount of time on.

The thing that really becomes interesting as you talk to folks that run these merchant companies and some of them are still very very focused on bottomline, others, our topline and sometimes its a function of having inventories sometimes it's function of trying to meet growth targets for investing purposes.

Pending on that.

There goes change and the thing that we're really really good at is tuning financial offers for consumers.

To meet merchants financial targets.

Or if the merchant is very focused on driving inventory out of the weyerhaeuser after virtual shelves.

We're very good at creating consumer offers at no APR fixed low APR that we can dynamically price for the merchant and consumer and make those transactions happen. If the person is very focused on their own bottom line, we're very comfortable working with them to reduce or to drive the mtr's down to ensure that their costs are under huge degree of control.

We'll and passing the cost onto the consumer because we are so transparent with pricing to both sides, it's never a mystery and never.

Sort of a black box negotiation or do you feel like <unk> been somehow hurt by.

This whole process, we're very very clear with our merchants here's exactly what you can get the current environment with the current approvals.

Over the years, that's built a reputation for us that just time and time again, so the concessions have always been.

<unk> with the merchants that we have and Thats why you see our mtr's quite stable and our merchant base quite retain quite well received.

A couple of things just to add.

The market will continue to be competitive. This is a growing category for a reason consumers are seeking out alternatives and so we expect the market to continue to be competitive we expect to continue to be rational in the face of competitors, who wanted to be less rational, but we expect competition.

And then just specifically answer your question around the pipeline, we don't disclose any pipeline SaaS, but we feel good about the level of commercial activity right now there's lots of great conversations happening.

We remain.

And conversations today that we probably couldn't have had a few years ago given some of the irrationality. So we think that's a good thing, but those are conversations and pipeline. So theres certainly nothing nothing concrete there.

Fantastic.

And then a quick follow up for me in the shareholder letter you.

Mentioned, some improvements at checkout with affirmative brick and mortar big box partner and also I think expanding the partnership with Verifone, how should we think about that physical opportunity that brick and mortar opportunity does that kind of change now with a firm card in terms of how youre thinking about monetizing the physical transaction.

Or are there still is there still another leg potentially that you can develop your by perfecting that physical.

Firm at checkout experience.

Like you must've been spying on our conversation with Michael yesterday.

So.

Jokes aside yes, the short answer is absolutely.

We've been caged in this e-commerce <unk> for a very long time and feel very good about our.

Breaking out into the bigger wide open commerce space writ large.

Our firm works pretty well in store if the merchant is cooperating so depending on where you go you'll find us in a kiosk you will find us on your phone, but speaking to the phone of our store associates did a bunch of modalities that we've developed over the years and they were fairly well for existing users.

And if the merchant helps they can even help us with user acquisition the card to supercharge as this thing it's like a totally different level again, I'm going to bite my tongue on some of the core SaaS I think we're going to show up next week, but we'll talk about.

A little bit about the <unk>.

Because we are seeing offline with the card.

But even beyond that we do think that there is work to be done.

It has to be.

B to be tried offline even before the consumer gets the card.

<unk>.

That's a pretty exciting thing at this point.

Michael put it yesterday.

Wifi or cell coverage in a store next door story to solve problem.

We do have a 80 ish percent app download for our existing users in a very very high propensity to download our app just because the brand is the app reviews have been so strong. So we feel very good about what it will do offline.

It is brick and mortar which means that it means a little bit slower, but the prizes worth.

The effort.

Fantastic. Thank you very much.

Thank you very much.

The next question is from James Faucette Morgan Stanley. Please go ahead.

Great. Thank you so much a couple of follow up.

Questions on things, you've already talked about Max and Michael first in terms of like the engagement with the merchants and that kind of thing I'm wondering how active conversations are beyond just kind of making available to them what they're what they could do from a promotional perspective on <unk>.

First rates et cetera, and the reason I ask is because in a period of rising interest rates and kind of normalizing.

<unk>.

Normalizing retail activity I would've thought we would've seen a bit more zero percent promotional activity on the part of merchant partners to date, and maybe I'm, just missing it et cetera or or its impact on your financials. So far but just wondering what that process looks like.

That's certainly a major part of the conversation.

I think.

I sort of started answering this and Michael has a lot of opinions on this one so I'll call him in a second but the shorthand is it really depends on the merchant margin structure if your.

Overall Worldview is Cove point, the margin lots of turns of inventory.

Just don't have the margin capacity to drive these European deals unless the manufacturer is willing to contribute and.

We've sort of dropped the bread crumbs of that idea for quite some time and obviously, it's a massive sales and engineering effort, where youre trying to tie more than just the consumer and the seller, but also the consumer and the seller and a manufacturer brand or some other third party that wants to subsidize the interest so that's a fun.

Design and engineering challenge, but we've been making very very steady progress because it sort of a point in my letter about what we internally called mixed cart, which I think I referenced the ability to combine multiple financing programs. If you have a manufacturer or brand that sponsoring is Europe's deal, let's say, it's a TV manufacturer and you're buying that TD.

<unk>.

And a bag of cookies and the cookies are not zero percent sponsored you have to be able to provide correct accounting for both sides of the transaction, but consumer to think of it as a single basket and so before we got to full distribution of the brand sponsor promotions as we call them, we have to deploy a robust implementation of mixed cart.

Accounting and sort of downstream transactional and capital markets.

Work so that.

It took us a fair amount of time and effort just a sign of how complex. Some of the stuff can be now that we have that like we have a variety of really rich conversations around helix had a zero percent promotion and you don't have to directly fund.

<unk>.

The EPR discount.

Mr Merchant, so that's one side of it.

If your margin structure is I've got 60% gross margin and maybe a subscription to support future revenue streams of course, you want to use your percent deals and that becomes much much easier conversation. So we have merchants of both kinds and everything in between.

Pretty closely with them as the holidays roll along.

People start becoming very concerned with driving inventory off the shelves sometimes into the holiday sometimes right after depending on sort of what they think will happen to them or what does happen to them around.

508 of sales around Thanksgiving and so we'll certainly support all those but.

Big part of who we are is we're.

Fundamentally an engineering company as we're building. These tools is would we enjoy the most.

As we ship the tools immediately bring them to market to our merchant partners offering them new ways of driving more sales and so we have quite a lot of fun stuff that we shipped in the last.

60 to 90 days and all of that will get deployed into the into the holidays.

The only thing I'd add is we have been intentional around introducing fixed APR offers.

Low APR in five and 10% APR offers into the merchant base and those serve.

The same promotional roll that it's your percent served in a zero percent rate environment.

I think those have been well received and have consumed a lot.

Lastly.

There is a merchant mix here that matters a lot in this conversation.

The merchant platforms that are scaling the most right now.

The most interest bearing mix and I think thats, probably distorts the trend I think you are pulling on which is a little bit below the surface and overwhelmed by just the mix across our merchant base. So as you sell less exercise bikes when you sell more general merchandise.

Friends tend to play out that way.

That's great. That's really helpful. And then separately on debit plus and unlike how are you seeing clearly like youre seeing a pickup in <unk> and <unk> and frequency of use et cetera, how does that use tracking versus your expectation of.

People are using it for debit trend type transactions versus some sort of credit <unk>.

<unk> transaction. Thanks.

That's definitely the thorough the show next week so.

Okay.

Give you.

A light preview versus the very fulsome presentation.

Which you should expect next week.

Generally speaking it's tracking to expectations.

Would you.

Here.

About next week is.

It's becoming very clear journey, where we are teaching consumers.

A new product when they just sign up for the card. So these are all repeat consumers theyre not we've never spent a penny marketing the card there is no big.

Billboards over one one or anything like that it's just the card that you get if you like affirm and we offered to you and we don't we haven't pushed it particularly hard just yet.

You do get it.

The first comprehension hurdle is this is just like a firm where I ask for a loan and get approved and it works, but now it works I can consummate the transaction with a card. So first intellectual hurdle is affirmed on a piece of plastic that's cool.

So you can't expect that to become your daily spending instrument because affirm today is for everything from dresses too.

And see what kind of equipment, but it's not.

In your mind, just yet for a cup of coffee overtime, you see folks slowly recognized that actually it was pretty cool. It provides some buyer protection. Unlike your debit card. It has a bunch of release features like you can say Oh. This transaction was actually a little bit more than you wanted to spend I can go back in time and split it if that's appropriate.

So as people understand all the functionality of the card, which is not something that they pick up in a day or two it actually we have a whole bunch of work that we put in.

This quarter, we actually if you.

Have you the card before you kind of missed out on a whole bunch of really neat things that we shipped as a first time user experience through a whole pile of features helping people understand all the various things that as people off we start graduating people to more and more transactions and I'll touch on some of the really cool reveals but we have so the ticket.

Spear the consumers that really get it how it works are tracking better than expectations I'm very very excited about that group and our job is really now taking the customer through.

This is affirmative card too this is actually something I could use instead of my debit card.

It's good for everything.

Doing really well.

Sure.

The card team will tell you that.

Occasionally message them in the middle of the night, mostly to find out that they are already working on the idea that I just hadn't.

Literally my last message in a slack channel to the car team. Okay. Okay I'll get out of your hair you have thought of everything so I'm very excited about how well we're doing.

Lots of work to do though definitely.

Very very far from done.

That's great. Thank you for that.

Thank you.

Question is from Andrew Jeffrey of crews Securities. Please go ahead.

Alright, I appreciate you guys taking the question.

Very thorough discussion of the business. So that's helpful.

Max could you talk a little bit about trends in our firm's tender.

With your enterprise customers versus across the entire business and whether you're sort of closing that gap, we've seen on big days like Amazon Prime day, where apparently the NPL over samples.

What what I think you've talked about as being your total tender share and maybe just an update there and how much runway there is in closing that and whether or not ultimately Hugh you can grow that beyond the the total company.

Certainly.

I think previously you could comment on any one particular partner, although obviously, we feel we've done really well there, but if you look at share of cart as we call it in our largest partners.

Sure.

Far from done.

I refer you back to Mike.

One of my bragging points shall quite partnership has been around for three years.

And I think several folks in the analyst community have written that off as well. It is now stable and will grow.

Some sort of a single digits.

Slow grower because they are fully integrated now and yet the volume there keeps accelerating because both.

Companies are excited to build new things and try to.

Deliver more value to both merchants and consumers and so we certainly have a lot more room to grow in all of our.

Very large partnerships frankly, I think we have a lot of room to grow in small ones as well the larger ones, obviously pay off better because when you unlock something to June at.

At 1%, you're playing with billions instead of millions so.

Good about there about that.

The companies are enormous they have lots of conflicting priorities.

It will absolutely take longer than our average efforts, especially because the reason these companies chose us because we are technologists and we built software really really well that means that the majority of the integrations are complex.

Tiny Little company and you take our standard API and implemented.

We're bringing live literally it can be done at this point in a self service environment for a small company, that's pretty awesome I bragged about that in the letter as well for a much larger partner. This is a real effort and it takes quarters to get it right and make sure all the plumbing works and scales and handles things like Prime days, which are enormous spikes of volume and so.

Once that's there dips.

Deploying optimizations and changes at new initiatives is not a thing you can sort of flip a switch and see what happens you have to follow the.

Thoroughness and.

Deliberate nature of such efforts, but when they do work.

<unk> dramatically and so we certainly have many more leads to take.

Obviously I'm extremely biased so.

And with that appropriately I do think the product we offer works both in credit cards and credit cards are the dominant way to pay.

Across all the merchants, we feel like we have a lot more share to grab it.

Okay.

Helpful and then.

I've asked you this question before.

The the 91% of transactions from existing customers that.

At Kpis that stat.

Does that number over time for you to achieve your goals need to come down a lot.

Just as far as as greater acceptance and use across the basin.

Is it firm card help you get there or am I, just barking up there Andre.

It is.

I, certainly don't think you're breaking up there aren't right. So it's something that I look at a lot.

<unk>.

We think about it is every consumer has a certain amount of spend that they're doing today some of it on credit some of it from.

Cash.

We are competing for that we are not trying to create new debts, where there wasn't some because we are.

Obviously, we don't charge late fees, we don't compound interest. So we don't benefit from delinquencies, we don't benefit from overspending, we're very careful not to over extend our consumers part of the mission is to create healthier financial realities for our customers not to push them into unsustainable spending and so we are trying to shift spending onto our instruments.

Lending and kind of how far you cast your eye in the future of our firm.

Obviously first time transactions that number.

You are talking about will come down.

As we get to more and more customers underwritten by definition that number will start trending up so I don't know if I have the right number is 70 837, that's the perfect one.

Not at all I look at it as a.

Indicator of where we are.

The.

Reality of new versus repeat users for us it's kind of a two sided coin. If you will new users are the highest risk.

Loans, we will right when you have never transacted, we affirmed before by definition, we don't know you as well as we do someone who has transacted already so wherever we take a more careful.

Risk stands and we have been in a relatively conservative on for quite some time, you can expect us to be deliberately careful with approving new consumers.

On the other hand.

We are.

Very excited to take more and more share from.

From our friends in the courtyard world and so we are delighted to win the frequency goes up which is in fact reflected in the percentage of transactions with repeat users. So there are multiple vectors on this metric.

Too obsessed with it I care a lot more about overall GDP growth.

Credit metrics, obviously are absolutely Paramount.

Frequency of consumers something that I look quite a lot about although it.

It's worth saying that at this point, we see very clear stratification of consumers people have chosen that affirm is their primary spending device and those numbers are very different from the average that we posted at some point I'm sure, we'll start breaking that out but not very good.

Thank you very much and I'll ask the question is from Richard Smith of Jpmorgan. Please go ahead.

Hey, congrats on the quarter and thanks for squeezing me in.

I guess the biggest variance this quarter to my estimate was the interest income lines and I notice.

I've seen over the past few quarters that your mix of interest bearing transactions of volume has been growing my question for you.

What's how common are prepayments.

Your business.

I ask that because I'm trying to get to the durability of that interest income I know I think in quarters past Michael suggested that.

It took a while for the rates to kind of bleed in and it looks like we're seeing that now so I'm just trying to figure out the durability there.

Yeah.

Yes, prepayments our business or our common there understood price into all of our capital deals.

And for the record we think a good thing Matt.

Max mentioned it before but we think about consumer exposure is the real limiter.

And consumer Prepays that opportunity for us to transact with them again and that's that's a good thing for us it's a really healthy sign.

Currently the prepayment for at risk for US is not really a risk versus the credit risk in the business.

And so we don't view prepayments as as really a problem at all I think a thing to remember about the product just how short the duration is and so prepayment risk in other asset classes as a real important thing, especially in a declining rate environment and given the long term nature of those loans.

But.

The weighted average life here, so fast that it's really difficult for us to have a meaningful amount of the economics eroding or that interest income going away. So long as the originations are still there right. So that's the more important variable in terms of what we can generate.

Not just the back book for Us.

So I guess the pipeline is that that yield is pretty durable.

Going forward as long as you continue to it so originated at the right way to think about it.

You got it equal lots of little loans spinning off pretty nice rates, but not.

We don't suffer from Oh, My God, We just lost 29 years of interest like nothing of that sort of applicable here.

And yet I think it's worth pointing out that I think what you saw in the past year was this rate shock hitting the <unk> and there being a few quarters.

Pressed asset yield.

And you've seen us recover from it so.

This is model isn't one that is completely impairment purpose in the short term to these kinds of shocks, but over the medium term, we're able to really get the yield back in the asset gets the execution of the capital markets to a level to where we can continue to scale the business.

Yeah.

Perfect.

We've got our snack on that kind of holds you guys any analogue I guess, we can catch up on.

I'll call back thanks for taking my questions.

Thanks, guys. Thank you.

Thank you.

We have no further questions in the conference.

In the question queue.

Got to turn the call back to saying Kevin for some closing remarks.

Well. Thank you favorably everybody for joining the call today and we look forward to speaking with you again next week at our Investor Forum.

Thank you.

Thank you very much.

And James Bond Benzene concludes today's event you may now disconnect your lines.