Q2 2024 Affirm Holdings Inc Earnings Call
Operator: Good afternoon. Welcome to the Affirm Holdings, Inc. second quarter fiscal 2024 conference call. Following the speaker's 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 our Investor Relations website for a reasonable price. I'd now like to turn the call over to Zane Keller, Director of Investor Relations. Thank you. Thank you, Operator.
Good afternoon, welcome to the affirm Holdings, Inc. Second quarter fiscal 'twenty 'twenty four earnings call.
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 our Investor Relations web site for a reasonable period of time after the call.
I'd now like to turn the call over to Zane Keller Director Investor Relations. Thank you you may begin.
Zane Keller: Thank you operator before we begin I would like to remind everyone listening that todays call may contain forward looking statements.
Zane Keller: Before we begin, I would like to remind everyone listening that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website. The actual results may differ materially from any forward-looking statements that we make today.
Zane Keller: 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.
Zane Keller: Actual results may differ materially from any forward looking statements that we make today.
Zane Keller: These four 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, today's call may include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures.
Zane Keller: 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.
Zane Keller: Sure it should be considered as a supplement to and not a substitute for GAAP financial measures.
Zane Keller: 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 today's call with me are Max Lebshin, Affirm's founder and chief executive officer, and Michael Linford, Affirm's chief financial officer. In line with our practice in previous 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. Thank you very much.
Zane Keller: 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.
Zane Keller: Hosting todays call with me are Max Levchin, firm's founder and Chief Executive Officer, and Michael Linford firm's Chief Financial Officer.
Max Levchin: In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into questions and answers.
Max Levchin: On that note I will turn the call over to Max to begin.
Max Levchin: Thank you Dan. Thank you all for joining us today.
Max Lebshin: Thank you all for joining us today. We're excited to share the results of another great quarter. As is our custom, the better the results, the fewer words we use to comment on them. This time around, I feel good enough to go directly to the Q&A.
We're excited to share the results of another great quarter.
Max Levchin: Our custom the better the results the fewer words, we used to come in.
Max Levchin: This time around and I feel good enough to go directly to that.
Zane Keller: Thank you, Max. With that, we will now take your questions. Operator, please open the line for our first question. We will now be conducting a question, if you would like to ask, and Jason Kupferberg. Thank you. Thank you. Thank you, and maybe nothing else. Our first question... Elisal with Barker.
Max Levchin: Thank you Max with that we will now take your questions. Operator. Please open the line for our first question.
Speaker Change: Thank you.
Speaker Change: We'll now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate that your line is in the question queue.
Speaker Change: You May press star two if you'd like to move your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Ramsey.
Ramsey: Well I saw with Barclays. Please proceed with your question.
Elisal: Hi, thanks for taking my question this evening. I was wondering if you could help us think through RLTC for the remaining Q3 quarters of the year. Sort of what are the drivers, puts, takes, and variables that could impact RLTC and drive underperformance or outperformance?
Ramsey: Hi, Thanks for taking my question this evening.
Ramsey: I was wondering if you could help us think through our L. T C for the remaining two quarters of the year sort of what are the drivers puts takes variables that could impact our LTC and drive underperformance or outperformance yeah, how should we think about those kind of variables.
Michael Linford: You know, how should we think about those kind of variables? Yeah, I think, obviously, if you're thinking in terms of percentage of GMV, there's a number of factors, mix and macro, at the top of the list. If you're thinking about total dollars, then GMV on the platform is going to be the biggest driver of results there. In terms of the RLTC rate, the take rate on a percentage of GMV, it's really mix and macro. So, the mix of business across our merchant base and the products that we offer there, and from a macro perspective, everything going on with consumers and rates would be there. We really like the environment we're in right now.
Speaker Change: Yeah, I think obviously.
Speaker Change: If youre thinking in terms of percentage of <unk>, there's a number of factors mix and macro.
Speaker Change: Lastly, if you're thinking about total dollars then <unk> on the platform is going to be the biggest driver.
Speaker Change: <unk> of our results there in terms of the our OTC right the take rate on a percentage of G. M D.
Speaker Change: It's really mix and macro so the mix of business across our merchant base and.
Speaker Change: And the products that we offer there and from a macro perspective, everything going on with the consumers and rates would be there we really like the environment. We're in right now that's why we've updated our full year guidance like we have so we feel good about the back half of the year, our LTC margins.
Michael Linford: That's why we've updated our full-year guidance like we have. So, we feel good about the back half of the year RLTC margins as a percentage of GMV, and feel good about that because of the macro environment that we're in. As per the usual, we take the current macro signals, current levels of unemployment, and current forward curve, and bake those into our assumptions.
Speaker Change: As a percentage of DMV and feel good about that because of the macro environment that we're in.
Speaker Change: As per the usual we take the current macro signals current levels of unemployment at current forward curve and bake those into our assumptions, but obviously there are scenarios, where those could could move one way or the other that would change that compressed.
Michael Linford: But obviously, there's scenarios where those could move one way or the other that would change the outcome for us. And a follow-up from me, on slide 10, where you list out your GMV vertical mix, it looks like general merchandise has picked up quite a bit from travel and ticketing, or travel and ticketing has gone down. General merchandise has gone up. Are there any drivers to call out there?
Speaker Change: Okay.
Speaker Change: A follow up for me on Slide 10, where you list out your GM V vertical mix. It looks like general merchandise has picked up quite a bit.
Speaker Change: From travel and ticketing are traveling ticketing has gone down and general merchandize gone up are there any drivers to call out there and I guess more broadly can you just comment on performance across key verticals in there.
Speaker Change: So travel and ticketing is a very seasonal category. So a lot of folks book I'm, sorry vacation travel and the first two calendar quarters last two fiscal quarters of our year and it tends to be lowest in terms of bookings and calendar quarters like Q2, and so we think there is a.
Michael Linford: And I guess more broadly, can you just comment on performance across, So, travel and ticketing is a very seasonal category. So, a lot of folks book summer vacation travel in the first two calendar quarters, the last two fiscal quarters of our year. And it tends to be the lowest in terms of bookings in calendar quarters like Q2. And so, we think there's a huge seasonality factor there. And for general merchandise, you know, some of our largest merchant enterprise partners fall in that bucket. And as we continue to scale those, we will see lots of purchases there. And it's not unusual for that to be a category that spikes around the holiday season as a lot of holiday shopping is done on those channels. Got it, makes perfect sense, and are next in the line of Andrew. I appreciate you taking the question, Max. Brevity is indeed the sister of talent, plain and simple.
Speaker Change: Huge seasonality factor there and for general merchandise some of our largest merchant enterprise partners fall in that bucket and as we continue to scale that as we will see lots of purchases there and it's not unusual for that to be a category that spikes in around holiday season is a lot of holiday shopping is done in those channels.
Speaker Change: Got it makes perfect sense. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Andrew Jeffrey with curious Securities. Please proceed with your question.
Andrew Jeffrey: Hi, I appreciate you taking the question Max Brevity is indeed, the sister of talent.
Andrew Jeffrey: Very clear.
So I have got.
Andrew Jeffrey: Question is just on GMB growth and tender share.
Speaker Change: As I recall.
Speaker Change: You've tightened the credit box about a year ago, and obviously the back half of the fiscal year looks looks strong can you comment either Max Michael just on kind of how underwriting and risk are factoring into that strength and then the corollary I guess for the follow on would be around.
Speaker Change: Tender share your enterprise customers and it does appear to be elevated during the holidays and I just wonder if that's a sign of accelerating tender share to come or aspirational and your share growth.
Speaker Change:
Speaker Change: Appreciate the Gulf with first of all.
Speaker Change: The.
Andrew: So, I've got... A couple questions just on GMV growth and tender share. As I recall, you tightened the credit box about a year ago, and obviously, the back half of the fiscal year looks strong. Can you comment, either Max or Michael, just on kind of how underwriting and risk are factoring into that strength, and then the corollary, I guess, or the follow-on would be around, tend to share your enterprise customers, and it appeared to be elevated during the holidays, and I just wonder if that's a sign. Accelerating Tender Share to Comer Aspirational, and............ Thank you. Thank you. Thank you. The underwriting settings. So the single most important thing.
Speaker Change: Underwriting.
Speaker Change: Settings.
Speaker Change: So the single most.
Speaker Change: I would say accelerated change we've conducted two or as they call. It box. It was really more of a year and a half ago than a year ago.
Speaker Change: April of 'twenty two is when we saw real stress on the consumer and we reacted to that sort of within the next 60 days or so.
Speaker Change: Yeah.
Speaker Change: We've since really not done an enormous amount of significant steering.
Speaker Change: Change marginal cutoffs on a merchant by merchant category by category product by product basis, all the time.
Speaker Change: And also change things like.
Speaker Change: Allowed the terms.
Speaker Change: Durations.
Speaker Change: Required down payment etcetera, so we're managing credit very very actively.
Speaker Change: Since we're at the beginning of time for us.
Max Lebshin: I would say the accelerated change we've conducted in our... we call it the box, was really more of a year and a half ago than a year ago. April 22 is when we saw real stress on the consumer, and we reacted to that sort of within the next, and Reginald Smith. Thank you.
Speaker Change: But theres not been any major change to our posture.
Speaker Change: In the last year and a half.
Speaker Change: The numbers that we printed just now are not an accident, we drove them to be what they are very very deliberately.
Speaker Change: And I don't want anybody to sort of assume that.
Speaker Change: Our hands off and the numbers just sprint themselves. It's a lot of work and we care quite a lot where they end up having certain expectations. We set for the capital markets and we intend to continue delivering those expectations.
Max Lebshin: We've since really not done an enormous amount of significant steering. We change marginal cutoffs on a merchant-by-merchant, category-by-category, product-by-product basis all the time and also change things like allowed terms, as in durations, required down payment, etc. So we've managed credit very, very actively since the beginning of time for us. But there's not been a major change to our posture in the last year and a half. The numbers that we printed just now are not an accident. We drove them to be what they are very, very deliberately.
Speaker Change: So that's first and foremost.
Speaker Change: A lot of our metrics of that put to that.
Speaker Change: The.
Speaker Change: Tender share share of wallet as we call it internally.
Speaker Change: Has done really well over the holidays.
Speaker Change: We've generally been gaining.
Speaker Change: Gaining wallet share although.
Speaker Change: The stores are different category to category.
Speaker Change: In some cases merchant to merchant.
Speaker Change: We feel very good about some of the things that we announced obviously offline we were not noticeable player until recently in between the card and some of the.
Speaker Change: Online offline self checkout kiosk.
Max Lebshin: And I don't want anybody to sort of assume that we're hands-off, and the numbers just print themselves. It's a lot of work, and we care quite a lot where they end up. We have certain expectations with capital markets, and we intend to continue delivering those expectations. And so that's first and foremost, and that governs a lot of our metrics as output to that. TenderShare, or ShareWallet, as we call it internally, did really well over the holidays. We've generally been gaining wallet share, although... The stories are different category to category, and in some cases, merchant to merchant. We feel very good about some of the things that we announced; obviously, offline, we were not a noticeable player until recently, and between the card and some of the... online and offline self-checkout kiosks, very powerful.
Speaker Change: <unk> powerful.
Speaker Change: And then.
Speaker Change: Just sort of call out one, particularly strong performance over the holidays, especially and overall in the last quarter Shopify has just continued to perform extraordinarily.
Speaker Change: The growth of that particular partnership is accelerating.
Speaker Change: Three plus years into the partnership that set of products grew.
Speaker Change: About twice the speed of the rest of the firm. So it's just a story.
Speaker Change: Story of success to success and we still have a lot of things that we have not scaled outs. They have their own offline aspirations that we're obviously very excited to be part of etcetera. So it's a little bit of it.
Speaker Change: A very long winded answer here, but.
Frequency for us has been where consumer shops.
Speaker Change: And sure if tender comes as a consequence of being available and being able to support the various consumer needs that as we encounter them.
Speaker Change: And the only thing I'd add is we did.
Speaker Change: With the 36% APR cap that we were able to get in place we were able to be more expansionary and a number of places.
Speaker Change: That is completely done now and so we wouldn't expect any more volume benefit there. Although there is still some margin benefit we think that will come.
Max Lebshin: And then... just sort of call out one particularly strong performance over the holidays, especially and overall in the last quarter, Shopify has just continued to perform extraordinarily. The growth of that particular partnership is accelerating; three-plus years into the partnership, that set of products grew at about twice the speed of the rest of Affirm. And so it's just been a story of success to success. And we still have a lot of things that we have not scaled out. They have their own offline aspirations that we're obviously very excited to be a part of, et cetera.
Speaker Change: As the program continues to roll out and scale, but we wouldn't expect any more volume there because of 36.
Speaker Change: Yes.
Speaker Change: Thank you I appreciate it.
Speaker Change: Thank you. Our next question comes from the line of Reggie Smith with Jpmorgan. Please proceed with your question.
Reginald Lawrence Smith: Yes, good afternoon and congrats.
Reginald Lawrence Smith: On the quarter I guess.
Reginald Lawrence Smith: You kept your comments sure, but I guess.
Reginald Lawrence Smith: Surprise.
Speaker Change: That's pretty good.
Speaker Change: B.
Speaker Change: And then I had a follow up after that.
Speaker Change: [laughter].
Speaker Change: We tried to run a tight ship so surprises are rarely a welcome thing and if they're to the good.
Speaker Change: I think I already called it out Shopify as a company appears to have done a fantastic job with their product and we.
Speaker Change: <unk> stands to support our partners there have done an altogether.
Speaker Change: Yeah.
Speaker Change: Okay.
Michael Linford: And so it's a little bit of a, and I'm giving a very long-winded answer here, but frequency for us is being where the consumer shops, and Sheriff Tender comes as a consequence of being available and being able to support the various consumer needs that we meet as we encounter them. And the only thing I'd add is that we did, with the 36% APR caps that we were able to get in place, we were able to be more expansionary in a number of places. That is completely done now.
Speaker Change: Surprises.
Speaker Change: Don't like surprises for engine.
Speaker Change: Okay Hany tends to be surprise me either.
Speaker Change: Im going to like the outcome.
Speaker Change: Actually I'll give you one very surprising fact, which is a little bit of an insight into view, but.
Speaker Change: We had very noticeably accelerated our ability to ship software.
Speaker Change: And I had anticipated some of that.
Speaker Change: But.
Speaker Change: Quite surprised but how productive the teams have been on.
Speaker Change: And the engineering side and product side and design side.
Speaker Change: Percolated down to revenue.
Michael Linford: And so we wouldn't expect any more volume benefit there, although there is still some margin benefit, we think, that will come as the program continues to roll out and scale. But we wouldn't expect any more volume there because of 36%. Thank you. I appreciate it.
Speaker Change: So generally speaking.
Speaker Change: I expected that we would rally around.
Speaker Change: Around the goals, especially from sort of the low point of this time last year, but the.
Speaker Change: If it's a turnaround it's a much faster and more aggressive turnaround then I think you might have expected.
Speaker Change: Got it and then just looking at the seasonal patterns of your margins.
Speaker Change: The back half of the year tend to be better than the front half of the year and when I look at your full year guidance for.
Speaker Change: The operating margin I guess it implies.
Reginald Lawrence Smith: This question comes from the line of Reggie Smith with J.P. Morgan. Yeah, good afternoon, and congrats on the quarter. We kept your comments short, but I guess where were you most surprised? It's a pretty big beat, and then we add a follow-up graph.
Speaker Change: Cory I think it implies a pretty substantial sequential increase in expenses below the LTC line like what.
Speaker Change: What's driving that and kind of where you shouldn't see that show up is it a marketing thing is technology.
Speaker Change: My rough math was almost like $20 million, a sequential increase there I'm not sure if that's right or not but if you can comment on that a little bit that would be helpful.
Speaker Change: Yes, we don't provide a specific guidance number for their so sometimes the way in which we build our guidance can lead to a little bit of.
Max Lebshin: We try to run a tight ship, so surprises are rarely a welcome thing unless they are for the good. I think, I mean, I already called it out, but I thought Shopify, as a company, appears to have done a fantastic job with their product and We stand to support our partners there who have done well together, and a lot of other people. Thank you. Thank you, prizes.
Speaker Change: Exaggeration on that on as you calculate it, but but thats right and Theres a couple of factors to think about.
Speaker Change: Firstly, we.
Speaker Change: This will sound very trivial, but I promise you. It does actually end up becoming pretty big we do expect there to be a lot more payroll taxes associated with stock based compensation in our first quarter, both because people have reset their tax obligations too.
Speaker Change: With the new year, but also.
Max Lebshin: I'll give you one very surprising fact, which is a little bit of an inside view, but we have noticeably accelerated our ability to ship software, and I had anticipated some of that. But I'm quite surprised by how productive the teams have been on the engineering side, on the product side, on the design side, you know, sort of percolates down to revenue, etc. So, generally speaking.
Speaker Change: The share price is higher in both those two things will create a little bit of the sequential.
Speaker Change: From quarter to quarter, and then we remain really excited about the opportunities that are ahead for us and so we are continuing to be thoughtful around where we should be adding resources to go build new products and chase the new opportunities.
Speaker Change: The strength in this quarter's results with respect to our unit economics and operating efficiency gives us license to be willing to add a little operating expense, whereas I think <unk> been very cautious to do that until we can demonstrate it.
Speaker Change: Understood.
Speaker Change: Graduation, and great quarter.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Dan Go live with Mizuho. Please proceed with your question.
Max Lebshin: I expected that we would rally around the goals, especially from sort of the low point of this time last year. If it's a turnaround, it's a much faster and more aggressive turnaround than I myself. And then just looking at the seasonal patterns of your margins. The back half of the year tends to be better than the front half of the year.
Dan: Hey, guys.
Dan: Great results.
Dan: Congrats Max and Mike.
Dan: Mike and team quick question I have two questions. The first one is on the guide obviously the knee jerk reaction, which we disagree with was that the <unk> guide is conservative.
Dan: Colin could beat by $700 million.
Dan: Increasing the guide by $1 billion for <unk> like you sound very upbeat about the macro is it just conservatism.
Dan: Yes.
Dan: Just like we have all year long for the full year, we're only providing a floor or a full year guide and so we did take our floor up by $1 billion, which we think is a pretty pretty big step up in what we would expect for the year, we remain very upbeat and excited about the opportunity.
Reginald Lawrence Smith: And when I look at your full-year guidance for... The Operating Margin, I guess it implies, in the third quarter, I think it implies a pretty substantial sequential increase and expenses below the ROCC line. Like what's driving that and kind of where should we see that show up? Is it a marketing thing? Is it technology?
Dan: Yeah.
Speaker Change: Got it yes, no that's.
Speaker Change: It seems like and then maybe one other question on kind of the direct deposit opportunity you have.
Speaker Change: Had tremendous success with the card can you maybe talk a little bit about what youre seeing in terms of the usage and frequency.
Michael Linford: My rough math was almost like $20 million in sequential increase there. I'm not sure if that's right or not, but if you can comment on that a little bit, that would be great. Yeah, we don't provide a specific guidance number for there. So sometimes the way in which we build our guidance can lead to a little bit of exaggeration as you calculate it. But that's right, and there are a couple of factors to think about. Firstly, we – and this will sound very trivial, but I promise you it does actually end up becoming pretty big. We do expect there to be a lot more payroll tax associated with stock-based compensation in our first quarter, both because people have reset their tax obligations to reflect the new year but also because the share price is higher.
Speaker Change: For the people that are.
Speaker Change: Doing the direct deposit into the card or into the affirm it.
Speaker Change: It's a little early.
Speaker Change: We gave the feature name.
Speaker Change: 60, something days ago. So it's a little early to to Greg about the results but.
Speaker Change: Very good about it.
Speaker Change: It's done in the early early versions that it is about as well as we could hope for.
Speaker Change: We have a lot more things coming for that product working on a couple of very specific things that are just.
Speaker Change: Required before you can really call it yourself.
Speaker Change: An account.
Speaker Change: But feel great.
Speaker Change: It's definitely and I think I've mentioned this before but.
Speaker Change: Just kind of three stages of our firm usage. If you are a not.
Speaker Change: Not cardholder not account holder regular user.
Speaker Change: Frequency is four five transactions a year grew again.
Speaker Change: 90, plus percent a year on year, but if you have a card that goes up quite a lot about.
Michael Linford: And those two things will create a little bit of a sequential bump from quarter to quarter. And then we remain really excited about the opportunities that are ahead for us, and so we're continuing to be thoughtful around where we should be adding resources to go build new products and chase new opportunities. And I think the strength of this quarter's results with respect to our unit economics and operating efficiency gives us license to be willing to add a little operating expense, whereas I think we've been very cautious to do that until we can demonstrate it. Congratulations.
Forex and then it grows again.
Speaker Change: Again fairly significantly if you are an account holder so very excited to give more accounts to people because that's ultimately a frequency driver for us as well.
Speaker Change: Got it well it sounds like a huge opportunity and congrats again.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of Rob <unk> with Autonomous Research. Please proceed with your question.
Rob: Hey, guys.
Rob: Ask a question on volume in a different way you know I think the shareholder letter called out three quarters of accelerating volume growth and then within the December quarter, each month accelerated too.
Rob: The updated outlook for the rest of the year seems to point to a pretty healthy slowdown.
Rob: In the second half half over half so.
Speaker Change: Wanted to get your thoughts on what might be driving that slowdown if theres anything specific that youre seeing.
Speaker Change: So again I think the.
Dan Doliv: Great quarter. Our next question comes from the line of Dan Doliv. Hey, guys, great result. Congratulations, Mac. I have two questions.
Speaker Change: Full year outlook for US is is it just a.
Speaker Change: Floor, and so we've not given even a range or a ceiling to where we'd expect any calculation being done on Q4 is probably not getting to a mid point and any math youre doing on that number inclusive of our Q3 ranges is taking is probably squeezing that number quite a bit.
Michael Linford: The first one is on the guide, obviously, the knee-jerk reaction, which we disagree with, that the GMV guide is conservative, quote-unquote, beat by 700 million years. Releasing the Guide by A Billion for GMV, you sound very upbeat about the macro. Is that just conservatism?
Speaker Change: Separate from that we had a really good Q2, right and so they're really strong second quarter isn't something that we would ever taken say that's a fundamental change in the business. That's something we would take credit for being very happy with but we'd be pretty cautious about how we would build up the outlook for the balance of the year and wanted to be mindful of all of the.
Michael Linford: Yeah, I mean, just like we have all year long for the full year, we're only providing a floor for our full year guide. And so we did take our floor up by a billion dollars, which we think is a pretty big step up from what we would expect for the year. We remain very upbeat and excited about the opportunity.
Speaker Change: The factors that can go into that.
Speaker Change: But there's nothing in our business that would suggest that we're slowing down right now.
Speaker Change: Okay. Thanks, and then bigger picture and I. Appreciate this may not be in play for this fiscal year, but how would you expect.
Speaker Change: Potential interest rate cuts to flow through the funding costs and then strategically would you want to drop those savings to the bottom line be at higher our LTC margin or do something different.
Max Lebshin: Yeah, no, that's what it seems like. And then maybe one other question on the kind of direct deposit opportunity. You know, you've had tremendous success with the cars, talk a little bit about that, a little early. We gave the feature a name about 60 something days ago, so it's a little early to brag about the results, but I feel very good about it. It's done in the early, early versions, and it is about as well as we could hope for.
Speaker Change: That's a great question so.
Speaker Change: Whenever we think about a change in rates, we need to understand why the rates are moving.
Speaker Change: Certainly if the rates are moving in response to other stress in the economy, specifically employment.
Speaker Change: It's not a one for one benefit but if you hold all other factors constant then a decline in rates would would help us.
Speaker Change: On the <unk> line.
Speaker Change: We would seek to continue to run the business in the 3% to 4% range that we've talked about really since we've gone public and if we were able to be earning at the high end or above that we would seek to reinvest that and products to engage and reengage acquire new users and reengage them.
Max Lebshin: We have a lot more things coming for that product. We're working on a couple of very specific things that are just..., required before you can really call it yourself, account. But feel great.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.
Jason Kupferberg: Thank you.
Jason Kupferberg: Highlighted in the shareholder letter I think that two thirds of the revenue growth in the quarter was from interest income.
Max Lebshin: It is definitely, and I think I've mentioned this before, but there's kind of three stages of Affirm Usage if you are not a cardholder, not account holder, regular user, frequencies, four and a half transactions a year and grew again. 20 plus percent year-on-year. But if you have a card, that goes up quite a lot, it goes up about 4X, and then it grows again, again, fairly significantly if you are an account holder. So, very excited to give more accounts to people because that's ultimately a frequency driver for us as well. I got it.
Jason Kupferberg: Is it fair to say that's also the revenue line item that surprised you most of the upside relative to your guidance and just curious how much of the revenue guidance range for this fiscal year is coming from the interest income line you guys have obviously been doing a really good job.
Jason Kupferberg: On that side of the equation.
Jason Kupferberg: No.
Jason Kupferberg: Certainly where we're happy to have the unit economics, we do have but I think we are probably more surprised with the healthy merchant fee growth whenever merchant fees outpace GMB growth. It creates a pretty good flow through to the full P&L in a way that's outsized I think some of the strong performance, we had above our expectations around <unk>.
Jason Kupferberg: And the flow through for the full P&L was actually driven by the really healthy merchant fee line, yes. The total aggregate revenue growth wasn't there, but remember against that interest income growth is a pretty steep rise in funding costs and thats driven by both the balance sheet growth as well as the higher benchmark rates that were in this year and in fact interest funding.
Dan Doliv: Well, sounds like a huge opportunity. Congratulations, in the line of Rob Wiley. Hey, guys, let me ask a question about volume in a different way.
Rob Wiley: You know, I think the shareholder letter called out three quarters of accelerating volume growth and then within the December quarter, each month accelerated to. The updated outlook for the rest of the year seems to point to a pretty healthy slowdown in the second half, you know, half over half. Wanted to get your thoughts on what might be driving that slowdown, if there's anything specific that you're seeing. So again, I think the full-year outlook for us is just a floor. And so we've not given even a range or a ceiling to where we'd expect.
Jason Kupferberg: Costs grew faster than interest income and so while that.
Jason Kupferberg: That was important for us to be able to get the business where it is it also the case that.
Jason Kupferberg: We don't see that as the real tailwind here, where we're still managing through.
Jason Kupferberg: Rate environment that substantially lower last year than this year and as those things abate then we will begin to see the benefit of that into the future.
Speaker Change: Okay, no that makes sense and then.
Speaker Change: Just like a two part question on GMB, what's your latest expectation for firm card GMT. This fiscal year and then any comments you might have around January GMB trends I'm kind of curious because we've heard from others that card present volumes suffered because of the severe.
Michael Linford: So any calculation being done on Q4 is probably not getting to a midpoint, and any math you're doing on that number, inclusive of our Q3 ranges, is probably squeezing that number quite a bit. But separate from that, we had a really good Q2, right?
Speaker Change: Severe weather. So just wondering if your business benefited at all from that thank you.
Speaker Change: So we've not given any outlook for the card and I won't know what I would say in the letter we talked briefly about the seasonality of the car and I think this is a really important thing for.
Speaker Change: Everybody to pay attention to which is the card had really strong growth from Q1 to Q2, we would estimate that about half of that growth in card volume was actually underlying seasonality and the other half was growth in the card, which just means as you think through where the volume should be for the car and the balance of the year.
Michael Linford: And so the really strong second quarter isn't something that we would ever take and say, that's a fundamental change in the business, that's something we would take credit for, and be very happy with, but we'd be pretty cautious about how we would build up the outlook for the balance of the year and want to be mindful of all of the factors that can go into that. But there's nothing in our business that would suggest that we're slowing down right now. Okay, thanks. And then your picture, and I appreciate this may not be in play for this fiscal year, but how would you expect potential interest rate cuts to flow through to funding costs, and then, strategically, would you want to drop those savings to the bottom line via a higher RLTC margin or do something different? That's a great question.
Speaker Change: Keep in mind. The Q2, starting point is benefited by a pretty big step up from Q1 to Q2 from a seasonality as consumers do spend more in the holiday season.
Speaker Change: And we're still early enough with the card Fortunately, we're not seeing things like weather impact our card performance.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Jill Shea with UBS. Please proceed with your question.
Jill Shea: Good evening. Thanks for taking the question I was wondering if you can provide us an update on the shopify partnership and any stats that you could share with us that would be great. Thanks.
Speaker Change: All right.
Speaker Change: One of the highlights of this last quarter is growing unbelievably strong.
Speaker Change: It accelerated for the fourth consecutive quarter.
The program is over three years old and the fact that it's still picking up steam is just great and they've been extraordinary partners to us.
Speaker Change: Nothing does wonderful things to say about Tobey and CASM and Heartland. These hard team there and they're just been nothing but excellent in both our execution and the partnership that we had I think already dropped that stat, but the program at Shopify grew twice the speed of the overall the firm growth on the JV side of things.
Michael Linford: So, whenever we think about a change in rates, we need to understand why the rates are moving. Certainly, if the rates are moving in response to other stress in the economy, specifically employment, then it's not a one-for-one benefit. But if you hold all other factors constant, then a decline in rates would help us on the RLTC line. We would seek to continue to run the business in the 3 to 4 percent range that we've talked about pretty much since we went public. And if we were able to be earning at the high end or above that, we would seek to reinvest that in products to engage and reengage, acquire new users, and reengage. Okay, thanks, guys. Thank you.
Speaker Change: They have aspirations offline that they're going after quite strongly and theres been a lot of synergies in what we're doing now.
Speaker Change: There we have a whole host of programs, we're contemplating going forward.
Speaker Change: So lots of wood to chop feeling very good. The fact that it's accelerating suggests that there's just more and more growth to be had for both of us.
Very helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.
James Faucette: Great. Thank you very much.
James Faucette: This afternoon guys for all the time.
James Faucette: Wanted to ask on zero percent promotions seem.
James Faucette: It seemed like at least anecdotally those increase.
James Faucette: Particularly towards the end of the December quarter, and I think in your supplement you showed that zero percent long.
James Faucette: Duration.
James Faucette: Merchant rates had picked up can you talk a little bit about like what's driving that merchant rate tick up is it just longer duration generally within within that long group and how should we think about that both in terms of impacts on our LTC margin, but also in terms of the.
Michael Linford: So you highlighted in the shareholder letter that I think that two-thirds of the revenue growth in the quarter was from interest income. Is it fair to say that's also the revenue line item that surprised you most to the upside relative to your guidance? And just curious how much of the revenue guidance range for the fiscal year is coming from the interest income line? You guys have obviously been doing a really good job, you know, on that side of the equation.
James Faucette: Type of customer and that you are bringing in with those promotions just wondering if that's enough to move the needle on some of these other metrics.
Speaker Change: Yes, that's a good question.
Speaker Change: As rates have gone up any of our longer term to your percent programs have needed higher merchant fees.
Speaker Change: Really think theres really not much more to it than that so it's the mix and tied to benchmark rates.
Michael Linford: Certainly, we're happy to have the unit economics we do have, but I think we were probably more surprised by the healthy merchant fee growth. Whenever merchant fees outpace GMV growth, it creates a pretty good flow-through to the full P&L in a way that's outsized. I think some of the strong performance we had above our expectations around RLTC and the flow-through for the full P&L was actually driven by the really healthy merchant fee line. Yes, the total aggregate revenue growth wasn't there, but remember, against that, interest income growth is a pretty steep rise in funding costs. That's driven by both the balance sheet growth as well as the higher benchmark rates that we're in this year. In fact, interest funding costs grew faster than interest income, and that was important for us to be able to get the business where it is. It's also the case that we don't see that as the real tailwind here.
Speaker Change: Terms of the customers that we bring in it does skew a little bit higher on the credit spectrum. When you do those kind of products, but given the high levels of repeat it's not really going to change the average as much at a firm.
Speaker Change: We of course have been we're very active we're meeting our merchant partners, where he could in providing anything promotional <unk> in the second quarter and we've continued to do that but it's it didn't change an awful lot from the prior quarter in terms of the total mix of wind don't really think there is a fundamental trend there.
Speaker Change: Got it got it and then.
Speaker Change: Wanted to ask maybe just a little bit convoluted question, but.
Youre, obviously growing the affirm card really nicely.
Speaker Change: Kind of that run rate that you've talked about seems to be around 100000 cards, a quarter or I'm, sorry, a month.
Speaker Change: How should we think about it.
I'm wondering how we should think about the availability.
Speaker Change: Credit pool available.
Speaker Change: That's growing by comparison right because as you send out cards people will use. It you said most of it that is interest bearing so some of that available credit gets absorbed but then theres new credit growth in that pool as you add more color. So just how should we think about that potential.
Speaker Change: Potential to buy pool growing these would be the growth in cards hopefully that question makes sense.
Michael Linford: We're still managing through a rate environment that was substantially lower last year than this year. And as those things abate, then we will begin to see the benefits in the future. Okay, no, that makes sense.
Speaker Change: I'm going to try to answer but feel free to tell me that I'm answering your own questions.
Speaker Change: So I think youre, asking I guess the way I am interpreting this wrong at least try to answer is does the card.
Speaker Change: Availability to consumers.
Speaker Change: Create new pools available transactions for us to take on.
Michael Linford: And then, just like a two-part question on GMV, what's your latest expectation for Affirm Card GMV this fiscal year? And then any comments you might have around January GMV trends? I'm kind of curious because we heard from others that card present volumes suffered because of the severe weather. So just wondering if your business benefited at all from that. Thank you.
Speaker Change: And the answer is yes, yes.
Speaker Change: Yeah.
Speaker Change: Yes, our offline usage with the card versus without the card is drastically different and so all of those transactions are entirely incremental.
Speaker Change: Really all that magical Y transactions of the cardholders are significantly higher than average transactions for non cardholder from user. It's because these people are first of all they're more committed because they requested a card and two they are bringing it to stores.
Speaker Change: <unk>.
Jill Shea: So we've not given any outlook for the card, and I won't now. What I would say in the letter is that we talked briefly about the seasonality of the card, and I think this is a really important thing for everybody to pay attention to, which is that the card had really strong growth from Q1 to Q2. We would estimate that about half of that growth in card volume was actually underlying seasonality, and the other half was growth in the card itself, which means as you think through where the volume should be for the card for the balance of the year, just keep in mind that the Q2 starting point is benefited by a pretty big step up from Q1 to Q2 from seasonality as consumers do spend more in the holiday season.
Speaker Change: Just touches a larger.
Speaker Change: Open field of opportunity.
Speaker Change: In terms of underwriting and sort of our exposure on the credit side et cetera. There is no change in a sense that we and we've talked about it before but for the longest time are sort of calling card in the.
Speaker Change: Underwriting World was this thing called <unk>, which is the internal transactional farm credit score and that allowed us to do really precise underwriting other transactional level. Some number of quarters ago, we have augmented that with a user credit score, which allows us to underwrite both sort of a more holistic consumer in addition to every individual.
Speaker Change: We still underwrite every transaction, we still reserve the right to say, we cannot lend money to you.
Speaker Change: But we have a score that we feel very good about our ability to say whats the overall capacity to borrow and pay us back and willingness to do so and.
Speaker Change: We lend on the card and off the card using the same set of scores and the same set of variables and limits and so we can borrow from a firm using an integrated point of sale solution you can bar on the card.
Jill Shea: And we're still early enough with the card, fortunately. We're not seeing things like weather impact our card performance. This question comes from the line of Jill Shea with... Good evening, thanks for taking the question. I was wondering if you could provide us with an update on the Shopify partnership and any stats that you could share with us. That would be great.
Speaker Change: Two different modalities of borrowing on a card, but all of it goes against the same set of variables and the same set of observed behaviors that governs our ability to approve the next transaction. The thing Thats great about the card is that it's optimized for convenience and everything like Multilane checkout environments, all the way too.
Speaker Change: On line shopping so it's an expansion of opportunity, but not an expansion of.
Our willingness to take on more risk.
Max Lebshin: It's one of the highlights of this last quarter, going unbelievably strong. It accelerated for the fourth consecutive quarter. The program is over three years old, and the fact that it's still picking up steam is just great. They've been extraordinary partners to us. You know, nothing but wonderful things to say about Toby and Kaz and Harley and the entire team there.
Speaker Change: I think that answers it but I'm happy to provide lots more detail just like when I think the other thing to say is I don't think were anywhere near the limits on what we think.
Speaker Change: We would think about exposure limits for these users and we're nowhere near as some sort of tap there for the population, we think theres a lot of frequency that we can drive with the existing users.
Speaker Change: Yes.
Speaker Change: I appreciate that Max Thanks, Michael.
Speaker Change: Thank you. Our next question comes from the line of John Hecht with Jefferies. Please proceed with your question.
John Hecht: Afternoon, guys. Thanks for taking my question, just thinking about kind of the appetite for selling versus retaining.
John Hecht: The loans that you guys generate this year.
Max Lebshin: And they've just been nothing but excellent in both their execution and the partnership that we had. I think I've already dropped that stat, but the program at Shopify grew twice the speed of the overall Affirm growth on the GMV side of things. They have aspirations offline that they're going after quite strongly, and there's a lot of synergies. And what we're doing now there, we have a whole host of programs we're contemplating going forward, so lots of wood to chop, and feeling very good. The fact that it's accelerating suggests that there's just more growth to be had for both of them. Very helpful.
John Hecht: Interest rate at least.
John Hecht: Curve is going down it looks like sales execution is.
John Hecht: It's getting better but that you guys had an ABS transaction I think yesterday and the execution. There was good so how do we just think about kind of balance sheet.
John Hecht: <unk> met versus marketplace movement over the course of the year.
Yes. Thanks for the question. So we did price an ABS deal and we did so at an all in cost of capital of 100 basis points lower than the deal. We did in December so in a very short period of time, you are seeing the market really give us credit for that.
John Hecht: And that we think is a really healthy sign for the capital system ecosystem overall.
Jill Shea: Thank you. Great. Thank you very much this afternoon, guys, for all the time.
John Hecht: And we think is a reflection of both.
John Hecht: An improved macro outlook for everybody, but for us more specifically the disciplined approach to credit that we've taken over the past year is is getting valued.
Michael Linford: I wanted to ask about 0% promotions. It seemed like, at least anecdotally, those increased some, particularly towards the end of the December quarter. And I think in your supplements, you showed that 0% long-duration merchant rates had picked up. Can you talk a little bit about what's driving that merchant rate pickup? Is it just longer duration generally within that long group?
John Hecht: We think in the debt capital markets and so we feel very strong about that when we do the revolving ABS deals like the one we just did our 'twenty for a deal does do end up on the balance sheet.
John Hecht: So while we do think about that as.
John Hecht: And there are really important funding channel it isn't off balance sheet.
John Hecht: Our off balance sheet strategies involve mostly selling whole loans, although we do some some non revolving some term securitizations.
John Hecht: With respect to the whole loan sales, we feel really excited about both the existing partners expanding and the pipeline of new opportunities that we have.
Michael Linford: And what should we think about that, both in terms of impact on RLTC margin but also in terms of the type of customer that you're bringing in with those promotions? Just wondering if that's enough to move the needle on some of these other metrics. Yes, that's a good question. You know, as rates have gone up, any of our longer-term 0% programs have needed higher merchant fees, and I really think there's really not much more to it than that. So it's the mix and is tied to benchmark rates. In terms of the customers that we bring in, it does skew a little bit higher on the credit spectrum when you do those kind of products, but given the high levels of repeat, it's not really going to change the average as much at Affirm. We, of course, have been very active. We're meeting our merchant partners where we can in providing anything promotionally in the second quarter, and we've continued to do that, but it didn't change an awful lot from the prior quarter in terms of its total mix, so I don't really think there's a fundamental trend there. Got it. And then?
John Hecht: Those conversations have gone very well I think very consistent with the reaction that the ABS market has had there is real value being given to us for the kind of credit outcomes that we've driven.
John Hecht: And frankly, the yield that we've put into the asset has allowed us to continue to be able to sell at prices that are really good for us.
John Hecht: As is always the case and we've said since day, one we don't have one strategy thats better than the other the things that we do are first and foremost enable the growth in the business and I'm extremely proud.
John Hecht: The way the team has been able to support the capital program over the past year through all the volatility remaining.
John Hecht: Enabling all of the growth that we've delivered the second priority is to deliver our unit economics, clearly if we're running in the 3% to 4% range like we did this past quarter, we feel very strong about that.
John Hecht: And then we begin to want to manage the capital efficiency of the program. That's the third piece and obviously whole loan sales are more efficient.
John Hecht: But this is the third of the three priorities and so we wouldn't really want to overuse that lever and then the last last comment is each of our capital strategies really exist and reinforce one another and so.
John Hecht: You really won't see us pivot to one or the other we're going to continue to scale all of our channels that means continued ABS execution continued forward flow and continued use of our warehouse lines.
Michael Linford: Wanted to ask, maybe it's a little bit of a convoluted question, but you're obviously growing the Affirm card really nicely, you know, kind of that run rate that you talked about seems to be around 100,000 cards a quarter, or, I'm sorry, a month. How should we think about that?
Speaker Change: Okay. My other question was asked and answered and I appreciate the color thanks very much.
Speaker Change: Our next question comes from the line of Kevin Barker with Piper Sandler. Please proceed with your question.
Kevin James Barker: Hi, Thanks for taking my questions.
Kevin James Barker: So there was a little bit of a tick up in the net charge off rate in the quarter. It seems like you've built reserves last quarter that may have preempted the charge offs coming through.
Max Lebshin: I'm wondering how we should think about the availability of credit or the credit pool available and how that's growing by comparison, right? Because as you send out cards, people will use them. You said most of that is interest-bearing, so some of that available credit gets absorbed, but then there's new credit growth in that pool as you add more cards. So just how should we think about that? potential to buy pool growing vis-a-vis the broken cards, but feel free to tell me that I'm answering the wrong questions. I think you're asking, I guess the way I'm interpreting this, or I'll at least try to answer is, does the card.
Kevin James Barker: Or it could be partially seasonality as well is there anything you'd point out there and would you expect that charge off rate to drift lower just given you are seeing a larger portion of GMB being driven by a firm card.
Kevin James Barker: No I don't think the card is going to drive different credit outcomes for the whole portfolio I think the level of repeat usage, my where you do see better credit outcomes on repeat users overall, but I don't think the card is big enough really to effect the total portfolio numbers yet obviously.
Kevin James Barker: When it gets much larger.
Kevin James Barker: We're going to have a more material impact, but for now I think it's small enough.
Kevin James Barker: And yes, there is really nothing nothing to point to specifically on the charge offs again to think about our charge off policy, we charge off at 120 days.
Max Lebshin: Availability to Consumers, create new pools of available transactions for us to take on, and the answer is yes, R. Yes, our offline usage with the card versus without the card is drastically different. And so all of those transactions are entirely incremental. It's not really all that magical why transactions of the cardholders are significantly higher than average transactions for non-cardholder firm users. It's because these people are, first of all, more committed because they requested a card. And two, they're bringing it to the source.
Kevin James Barker: He is once they get to past 60, or 90 days are overwhelmingly likely to go towards charge offs. So we have a pretty good sense of that in full allowance at all times to handle the future charge offs.
Kevin James Barker: We estimate.
Kevin James Barker: Okay.
Kevin James Barker: I think you mentioned that you were.
Kevin James Barker: Leaning in a little bit last quarter are you.
Kevin James Barker: Opening up the credit box to attract more users. It seems like it's an opportune time to do that just given your acceleration here in profitability that's being generated.
Kevin James Barker: Yes, I think the strong units give us permission to do that more than anything so we talked about three months to 4% in the revenue less transaction cost as a percentage of DMV, that's the real constraint for us and so if we're if we're in that range. We can continue to be very aggressive about acquiring and re engaging new users.
Max Lebshin: It just touches a larger, open field of opportunity. In terms of underwriting and sort of, you know, our exposure on the credit side, et cetera, there's no change in the sense that we, and we've talked about this before, but for the longest time, our sort of calling card in the underwriting world was this thing called ITAX, which is the internal transactional firm credit score. And that allowed us to do really precise underwriting at the transactional level. Some number of quarters ago, we augmented that with a user credit score, which allows us to underwrite both a sort of a more holistic consumer in addition to every individual transaction. We still underwrite every transaction. We still reserve the right to say we cannot lend money to you.
Kevin James Barker: And that's really the constraint much more so than anything else.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Minder, if he would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Our next question comes from the line of Michael <unk> with Goldman Sachs. Please proceed with your question.
Michael Linford: Hey, good afternoon. Thanks for the question I just have two.
Michael Linford: First a housekeeping question.
Michael Linford: Could you just help explain the uptick in the merchant fee rates for the <unk>.
Michael Linford: Long core zeroes and.
Michael Linford: Are there any initiatives or mixed dynamics that may affect that going forward and then second just a bigger picture question.
Michael Linford: Transactions per active have obviously been growing four four this last quarter Youre also seeing really strong repeat customers.
Michael Linford: What does that tell you about the loyalty engage or engagement of customers and the durability about the installed base of users.
Max Lebshin: But we have a score that we feel very good about in our ability to say what the overall capacity is to borrow and pay us back and the willingness to do so. We lend on the card and off the card using the same set of scores and the same set of variables and limits. And so you can borrow from a firm using an integrated point of sale solution; you can borrow on the card with two different modalities of borrowing on a card, but all of it goes against the same set of variables and the same set of observed behaviors that governs our ability to approve the next transaction. The thing that's great about the card is that it's optimized for convenience in everything like multi-lane checkout environments all the way to online shopping. So it's an expansion of opportunity, but not an expansion of... our willingness to take on more risk. I think that answers it, but I'm happy to provide lots more details if you feel like it.
Michael Linford: Or are these customers.
Michael Linford: Using this because it's become more habitual and it's a better experience or is it out of a necessity of credit. Thank you.
Speaker Change: So on the first question.
Speaker Change: He is just a function of the mix in our business.
Speaker Change: And.
Speaker Change: That's always been true for merchant fee rates, we always talk about merchant fee rates as being mixed driven thats why we began breaking it out in the supplement the slight tick up you see on one of the categories is really just a function of mix within that category, but also as duration goes up so does the price, especially in this rate environment, where it's pretty duration sensitive in terms of the price of that charge.
Speaker Change: Again, I don't think there is a broader trend to be read into there.
Speaker Change: And on the frequency of question I'll, let <unk> answer that.
Speaker Change: I think.
Speaker Change: It's a reflection of the fact that the product is becoming more widely available more than anything I think as we sign up some of the partnerships and expand them. The shopify reference I made earlier.
Speaker Change: It does result in wider availability the product is popular it's well liked by the users.
Speaker Change: One of our top.
Speaker Change: Questions and customer service is why Brant why isn't brand X supporting a firm right now.
Michael Linford: I think the other thing to say is I don't think we're anywhere near the limits of what we think. We would think about exposure limits for these users, and we're nowhere near some sort of cap there for the population. We think there's a lot of frequency that we can drive with the existing users. Great, great. Appreciate that, Max. Thanks. Afternoon, guys.
Speaker Change: We worked very hard to make sure.
Speaker Change: Fewer and fewer of those and so as we become more available.
As we become available offline.
Speaker Change: When the form of the card as well as some of the integrations that we've done you'll naturally see more transaction velocity and frequency increase.
Speaker Change: The.
Speaker Change: Product is.
Speaker Change: A better product and my highly biased opinion than that of a credit card and credit utilization goes up broadly I think we are the unfair beneficiaries of that usage.
Michael Linford: Thanks for taking my questions. Like just thinking about kind of the appetite for selling versus retaining, you know, the loans that you guys generate this year. I mean, you have an interest rate, and at least the curve is going down. It looks like sale execution is getting better. But then you guys had an ABS transaction, I think yesterday, and the execution there was good. So how do we just think about this kind of balance sheet? movement versus marketplace movement over the course of the year. Yeah, thanks for the question.
Speaker Change: Given the chance our choice consumers opt in for more affirm spend that spend.
Speaker Change: They're rewarded by having no late fees no compounding interest all the good things that we bring.
Speaker Change: Thanks, Max Thanks, Michael.
Speaker Change: Thank you. Our next question comes from the line of Andrew <unk> with Wells Fargo. Please proceed with your question.
Andrew Jeffrey: Hey, Thanks for taking the question.
Excuse me if it's already been asked but just wanted to get an update on what you've seen with affirmed card usage and anything that surprised you.
Andrew Jeffrey: Another three months into its evolution around behaviors or categories.
Michael Linford: So, we did price an ABS deal, and we did so at an all-in cost of capital 100 basis points lower than a deal we did in December. So, in a very short period of time, you're seeing the market really give us credit for that. And that, we think, is a really healthy sign for the capital system and the ecosystem overall. And we think it's a reflection of both an improved macro outlook for everybody, but for us more specifically, the disciplined approach to credit that we've taken over the past year is getting valued, we think, in the debt capital markets. And so, we feel very strong about that. When we do the revolving ABS deals, like the one we just did, our 24A deal, those do end up on the balance sheet.
Andrew Jeffrey: Broadly around that would be great.
Speaker Change: It's going really well.
Speaker Change: You can see in the supplement that we are continuing to grow it.
Speaker Change: From my point of view for what it's worth we're growing it cautiously for a couple of good reasons one.
Speaker Change: It's a new mode of operation, which means that the downstream services such as customer service dispute resolution merchant disputes et cetera also has to scale. So we're going to grow deliberately.
Speaker Change: For a little while longer before we feel that we've learned all the <unk>.
Speaker Change: Important muscle memories of how to handle <unk>.
Speaker Change: <unk> conflicts that inevitably occur in commerce et cetera, and so feel very good about the growth.
Speaker Change: We still have many many more turns on.
Speaker Change: Potentially increasing that in terms of surprises.
Things will generally gone to plan.
Speaker Change: There is plenty more to do on reasons to use the card more often we talked about.
Michael Linford: And so, while we do think about that as a really important funding channel, it isn't off-balance sheet. Our off-balance sheet strategies involve mostly selling whole loans, although we do some non-revolving, and some term securizations. With respect to the whole loan sales, we feel really excited about both the existing partners expanding and the pipeline of new opportunities that we have. Those conversations have gone very well.
Speaker Change: The investor event last year.
Speaker Change: Dangerously close to actually making good on it we have reward programs in mind that give people reasons to use the card for all transactions not just considered purchases.
Speaker Change: Plenty to do with tighter integration between our firm card and affirm account, which we've done a couple of things with but there is still more and more features to come so far.
Michael Linford: I think this is very consistent with the reaction that the ABS market has had. There's real value being given to us for the kind of credit outcomes that we've driven. And frankly, the yield that we've put into the asset has allowed us to continue to be able to sell at prices that are really good for us. As is always the case, and we've said since day one, we don't have one strategy that's better than the other.
Speaker Change: From my point of view the card is still very very early there is just a long roadmap of things to do there both on the frequency of use basis as well as modalities, we're making sure that consumers really understand the full power that it brings and then once we feel that that's really all figured out.
Speaker Change: We have a lot more growth to enable there when we see that that has the right to do it.
Speaker Change: Is that next leg of growth just a function of.
Michael Linford: The things that we do are, first and foremost, enable growth in the business. And I'm extremely proud of the way the team has been able to support the capital program over the past year through all the volatility remaining, enabling all the growth that we've delivered. The second priority is to deliver our unit economics.
Speaker Change: And then you finally get the Green light.
Speaker Change: The the extra leg sales and marketing dollars into the.
Speaker Change: Card into the.
Speaker Change: Really the solution in order to kind of find that an excellent <unk> or is it just moving further into that.
Speaker Change: Today.
Speaker Change: It's really there's I don't anticipate any marketing dollars allocated towards distributing the card.
Michael Linford: Clearly, if we're running in the 3% to 4% range like we did this past quarter, we feel very strong about that. And then we begin to want to manage the capital efficiency of the program. That's the third piece.
Speaker Change: In any foreseeable future sounded any budget that is not how it's going to get growth. So today to get the card you have to have been a firm transact here before you have to be in good standing you have to.
Speaker Change: Be fairly far down the affirm journey and then you have to react to one of the fairly visible.
Michael Linford: And obviously, whole loan sales are more efficient, but it's the third of the three priorities. And so we wouldn't really want to overuse that lever. And then the last comment is that each of our capital strategies really exists and reinforces one another. And so you really won't see us pivot to one or the other.
Speaker Change: Sort of adverts when we say hey, do you want to use their from card. We really think you should try it you're eligible so we've marketed it.
Speaker Change: Without too much restrained, although it's still being kept to a higher credit quality standard than the overall the firms. So we're still tilting the <unk>.
Speaker Change: Scale, a little bit in our favor in terms of consumers who would get the card offers are.
Speaker Change: <unk> not quite at the same level of cutoff as everybody else.
Speaker Change: And so that's one obvious way of opening up the funnel, but you can imagine and much more aggressive approach where for example.
Michael Linford: We're going to continue to scale all of our channels. That means continued ABS execution, continued forward flow, and continued use of our warehouse line. Okay, my other question was asked and answered, and I appreciate the color. Thanks very much.
Speaker Change: Right now you have a choice between taking out a loan on a one time virtual card number or you can go down the rabbit hole of applying for card obviously, taking away the former will naturally increase the water. So there are several.
Kevin James Barker: Your next question comes from the line of Kevin Barker with... Thanks for taking my questions. You know, there was a little bit of a tick up in the net charge-off rate in the quarter. It seems like you built reserves last quarter that may have preempted the charge-off coming through, or it could be partially seasonality as well.
Speaker Change: Non dramatic but meaningful levers of growth that we have chosen not to pile on just yet and then ultimately if you sign up for firm at some point and just kind of get a card and that's certainly not not a thing we are going to do tomorrow, but.
Speaker Change: That does.
Speaker Change: A meaningful trajectory changer.
Speaker Change: So it still sounds like it's going be pretty targeted for a while here great.
Speaker Change: Great. Thank you.
Speaker Change: Not forecasting any anytime that stops or goes but.
Michael Linford: Is there anything to point out there? And would you expect that charge-off rate to drift lower, just given you're seeing a larger portion of GMV being driven by Affirm Card? Thanks.
Speaker Change: Feel very good about the card growth for now.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I would like to turn the floor back over to Zane Keller for closing comments.
Zane Keller: Well. Thank you everybody for joining the call today when you look forward to speaking with you again next quarter.
Zane Keller: This.
Michael Linford: No, I don't think the card is going to drive different credit outcomes for the whole portfolio. I think the level of repeat usage might, where you do see better credit outcomes on repeat users overall, but I don't think the card is big enough yet to really affect the total portfolio numbers yet. Obviously, when it gets much larger, it will begin to have a more material impact, but for now, I think it's small enough.
Todays teleconference. You may disconnect your lines at this time.
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Michael Linford: And yeah, there's really nothing to point to specifically about the charge-offs. Again, I think about our charge-off policy; we charge off at 120 days. Delinquencies, once they get to past 60 or 90 days, are overwhelmingly likely to go towards charge-offs.
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Michael Linford: We have a pretty good sense of that and full allowance at all times to handle the future charge-offs that we estimate. I think you mentioned that you were leaning in a little bit last quarter. Are you, you know, opening up the credit box to attract more users? It seems like it's an opportune time to do that, just given your acceleration here and the profitability that's being generated. Yeah, I think the strong units give us permission to do that more than anything.
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Michael Linford: So we talked about 3 to 4% of revenue-less transaction cost as a percentage of GMV. That's the real constraint for us. And so if we're in that range, we can continue to be very aggressive about acquiring and reengaging new users. And that's really the constraint, much more so than anything else. Thank you. As a reminder, if you would like to... star wonder. Our next question comes from the line of Michael Ng with Goldman Sachs. Hey, good afternoon. Thanks for the question. I just have two.
Michael Ng: First, a housekeeping question. Could you just help explain the uptick in the merchant fee rates for the long core zeros? And, you know, are there any initiatives or mixed dynamics that may affect that going forward? And then second, just a bigger picture question: transactions per active user have obviously been growing, 4.4 this past quarter. You're also seeing, you know, really strong repeat customers. What does that tell you about the loyalty or engagement of customers and the durability of the installed base of users? Are these customers using this because it's become more habitual and it's a better experience, or is it out of a necessity for credit? So on the first question, it really is just a function of the mix in our business.
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Michael Ng: And that's always been true for merchant fee rates. We always talk about merchant fee rates as being mixed-driven. That's why we began breaking it out in the supplement. The slight tick up you see on one of the categories is really just a function of mix within that category, but also, as duration goes up, so does the price, especially in this rate environment, where it's pretty duration-sensitive in terms of the price that you charge. Again, I don't think there's a broader trend to be read into there. And on the frequency question, I'll let Max answer that.
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Michael Linford: You know, I think... It's a reflection of the fact that the product is becoming more widely available, more than anything, I think, as we sign up some of the partnerships and expand them, like the Shopify reference I made earlier. It does result in wider availability because the product is popular. It's well-liked by users. One of our top questions in customer service is, "Why isn't Brand X supporting Affirm right now?" We work very hard to make sure there are fewer and fewer of those.
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Max Lebshin: And so as we become more available, also as we become available offline, in the form of the card, as well as some of the integrations that we've done, you'll naturally see more transactional velocity and frequency increase. The card is, in my highly biased opinion, a better product than that of a credit card. And as credit utilization goes up broadly, I think we are the unfair beneficiaries of that usage. Given a chance or choice, consumers opt for more affirmed spend than credit card spend. And they're rewarded by having no late fees, no compounding interest, and things that would bring.
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Michael Ng: Thanks, Max. Thanks, Michael. Hey, thanks for taking the question. And excuse me, this has already been asked, but just want to get an update on what you've seen with Affirm card usage and anything that surprised you, you know, another three months into its evolution around behaviors or categories, just anything broadly around that. It's going really well.
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Max Lebshin: You can see in the supplement that we are continuing to grow it. From my point of view, for what it's worth, we're growing it cautiously for a couple of good reasons. One, it's a new mode of operation, which means that the downstream services such as customer service, dispute resolution, merchant disputes, etc. also have to scale. So we're going to grow deliberately, or for a little while longer before we feel that we've learned all the important muscle memories of how to handle the various conflicts that inevitably occur in commerce, etc. And so he was very good about the growth.
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Max Lebshin: You know, we still have many, many more turns on, potentially increasing that. In terms of surprises. I think until generally gone to plan, there is plenty more to do on reasons to use the card more often. We talked about it at the investor event last year, where we were dangerously close to actually making good on it. We have reward programs in mind that give people reasons to use the card for all transactions, not just considered purchases. There's plenty to do with tighter integration between Affirm Card and Affirm Account, which we've done a couple of things with, but there's still more features to come. So, and from my point of view, the card is still very, very early.
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Max Lebshin: There's just a long roadmap of things to do there, both on the frequency of use basis, as well as the modalities. We're making sure that consumers really understand the full power that it brings. And then once we feel that that's really all figured out, we have a lot more growth to enable when we see that it's the right time to do it. And is that next leg of growth just a function of, you know, then you finally get the green light?
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Max Lebshin: put the extra leg of sales and marketing dollars into the card and into the really the solution in order to kind of find that next level of growth? Or is it just moving, you know, further into that type of customer? It's really, I don't anticipate any marketing dollars allocated towards distributing the card in the foreseeable future. It's not on any budget.
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Max Lebshin: That is not how it's going to grow. So today, to get the card, you have to have been an Affirm transactor before, you have to be in good standing, you have to be fairly far down the Affirm journey, and then you have to react to one of the, no, fairly visible, sort of adverts when we say, hey, do you want to use the Affirm card? We really think you should try it.
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Max Lebshin: You're eligible. So we've marketed it without too much restraint, although it's still being kept to a higher credit quality standard than the overall Affirm. So we're still tilting the scale a little bit in our favor in terms of consumers that get the card offers are not quite at the same level of cutoff as everybody else. And so that's one obvious way of opening up the funnel, but you can imagine a much more aggressive approach where, for example, Right now, you have a choice between taking out a loan on a one-time virtual card number, or you can go down the rabbit hole Obviously, taking away the former will naturally increase the latter. So, there are several non-dramatic but meaningful levers of growth that we have chosen not to pull on just yet.
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Max Lebshin: And then ultimately, if you sign up for Affirm, at some point, you're just going to get a card. And that's certainly not a thing we're going to do tomorrow, but that is a meaningful trajectory change. So it still sounds like it's gonna be pretty targeted for a while.
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Max Lebshin: Great, thank you. Not forecasting any time when that stops or goes, but I feel very good about the car growth for now. www.affirm.com No further. And I would like to turn the call over to. Well, thank you, everybody, for joining the call today. We look forward to speaking with you again next quarter.
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Operator: You may disconnect, www. MosheOrenbuch.com, Oh! Oh! Oh! Oh! Oh! Moshe Orenbuch, Jason Kupferberg, Rayna Kumar, Kevin Barker, Raynald Smith, Affirm Holdings, And Jethro Tullis. Bye! and, Thank you, and others. This is a test. This is a test. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
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