Q3 2024 Affirm Holdings Inc Earnings Call
Operator: Good morning, and welcome to the Affirm Holdings third quarter fiscal 2024 earnings call. Following the speaker's remarks, we will open the line for your questions. As a reminder, this conference is being recorded, and a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call. I'd now like to turn the call over to Zane Keller, Director of Investor Relations. Thank you. You may begin.
Good morning, and welcome to the affirm holdings third quarter fiscal 'twenty 'twenty four earnings call.
Following the speakers remarks, we will open the line for your questions. As a reminder, this conference is being recorded and a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call.
I'd now like to turn the call over to Zane Keller director of Investor Relations. Thank you you may begin.
Zane Keller: Thank you, operator. Before we begin, I would like to remind everyone listening that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our investor relations website. Actual results may differ materially from any forward-looking statements that we make today.
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: 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 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. 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: 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.
Zane Keller: In addition, todays call may include non-GAAP financial measures.
Zane Keller: These measures 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.
Zane Keller: Hosting today's call with me are Max Levchin, Affirm's Founder and Chief Executive Officer, and Michael Linford, Affirm's Chief Financial Officer. In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into Q&A. On that note, I will turn the call over to Max to begin. Thank you, Zane. Thank you for joining us today. As you can tell, we're trying something new, a pre-market open earnings call. Live from New York in our awesome, remote, or be damned, very well-attended office in Manhattan.
Max Roth Levchin: Hosting todays call with me are Max luncheon firm's founder and Chief Executive Officer, and Michael Linford Friends, Chief Financial Officer.
Max Roth Levchin: We're excited to see some of you in person later this week. But for now, as you can tell, we had another excellent quarter. I think it's all in our notes. So let's jump straight into Q&A. Back to you, Zane. Thank you, Max. With that, we will now take your questions. Operator, please open the line for our first question.
Max Roth Levchin: In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into Q&A on.
Max Roth Levchin: On that note I will turn the call over to Max to begin.
Max: Thank you Dan Thank you for joining us today.
Max Roth Levchin: Interesting.
Max Roth Levchin: And our mission.
Max: We're trying something new a pre market open earnings call.
Max: Live from New York and are awesome for remote work be damned, very well attempted office in Manhattan.
Speaker Change: Excited to see some of you in person later this week, but for now as you can tell we had another excellent quarter.
Max: In our note.
Max: Let's jump straight into Q&A back to you, saying.
Speaker Change: Thank you Max with that we will now take your questions. Operator. Please open the line for our first question.
Speaker Change: Alright.
Operator: Thank you. Our first question comes from the line of Rob Wildhack with Autonomous Research. Please proceed with your question. Good morning, guys. Maybe.
Robert Henry Wildhack: Thank you. Our first question comes from the line of Rob Why pack with Autonomous Research. Please proceed with your question.
Robert Henry Wildhack: Morning guys, maybe one on the quarter and then one bigger picture question too, but near term, the slides called out that the majority of the benefit from pricing initiatives will be realized by the end of this fiscal year. That'll make sense. But wondering if you could quantify how much the pricing initiatives have been helping volume growth in recent periods.
Robert Henry Wildhack: Good morning, guys, maybe one on the quarter and then one bigger picture question too, but nearer term the slides I called out that the majority of the benefit from pricing initiatives will be realized by the end of this fiscal year.
Rob Why: That all makes sense, but wondering if he could.
Rob Why: Quantify how much the pricing initiatives have been helping volume growth in recent periods.
Speaker Change: So it's hard to quantify to be completely honest.
Michael A. Linford: It's hard to quantify, to be completely honest. We don't couple these measures super tightly because it's very dangerous to decide that one thing leads to the other.
Speaker Change: We don't couple these.
Speaker Change: Measures Super tightly cause it's very dangerous to decide that one thing leads to the other so we have a wider EPR range, obviously serve as well.
Michael A. Linford: So we have a wider EPR range, obviously serving as well in the world of increased rates. But we still underwrite every transaction, we still decide which transaction... nod, etc. And so I would struggle to put a distinct number on it, certainly wouldn't want to make any prognostications about the future impact.
Speaker Change: In a world of increased rates.
Speaker Change: We still underwrite every transaction, we still decide which transactions limit.
Speaker Change: Not et cetera, and so.
Speaker Change: I would struggle to put a distinct number on it certainly wouldn't want to make any prognostications about the future impact.
Michael A. Linford: Obviously, we are very keen on growing. We're still growing really well, www.youtube.com.uk, Risk Measurement and Management Business here, and so we will first and foremost do no harm to that. Maybe I'll hit add. If you look at the letter, we bridge for you the year over year change in our revenue less transaction cost measure, and you can see that the revenue growth roughly offsets the increase in funding costs, other transaction costs, and the incremental provision costs.
Speaker Change: Obviously, we are very keen on growing we're still growing very well.
Speaker Change: We benefit from the pricing quite nicely, but ultimately we are in the.
Speaker Change: Risk measurement and management business here and so we will first and foremost do no harm to that that'd be great.
Michael A. Linford: And the real governor here for us is making sure that we post positive unit economics. And so the way I think about it is that revenue was what we needed to offset the change in rates in the business. And we feel like we've done that allows us to be back to more business as usual.
Speaker Change: Maybe if I could add if you look at the letter we bridge for you the year over year change in our revenue less transaction cost measure.
Speaker Change: And you can see the revenue growth roughly offsets the increase in funding cost of the transaction cost and the incremental provision cost.
Speaker Change: The real Governor here for Us is making sure that we posted positive unit economics.
Speaker Change: And so the way to think about it as the revenue was but we did offset the the.
Speaker Change: The change in rates and in the business and we feel like we've done that allows us to be back to more business as usual.
Max Roth Levchin: Okay, thanks. And then, bigger picture, Max, you've talked a lot about unbundling the credit card, but elsewhere in the industry, you've got Capital One tying up with Discover and kind of a rebundling of the credit card. So I'd love to get your thoughts on how you think that could impact the industry more broadly and also if you see this kind of rebundling as a new or unique competitor to a firm in any way.
Speaker Change: Okay. Thanks, and then bigger picture Max you've talked a lot about.
Speaker Change: Unbundling, the credit card, but elsewhere in the industry, you've got capital one tying up with discover and kind of a re bundling of the credit card. So I'd love to get your thoughts on how you think that could impact the industry more broadly and also if you see this kind of re bundling as a new or unique competitor to affirm in anyway.
Max Roth Levchin: First of all, I think that it's singularly the most impactful and interesting thing that's happened in financial services in the last 10 years. So a huge kudos to Capital One for seeing the opportunity and executing on it with nothing but extreme respect for the leadership team there for, being, you know, having a hospital to go do this. I think creating another network, given Discover's reach is especially powerful and Ansel.
Speaker Change: Well first of all I think that is singularly the most impactful and interesting thing that's happening in financial services.
Speaker Change: Probably in the last 10 years so.
Speaker Change: Huge kudos to capital one foreseeing the opportunity and executing on nothing but extreme respect for.
Speaker Change: The leadership team there for.
Speaker Change: Being having that was supposed to go through this.
Speaker Change: I think creating another network.
Speaker Change: Given this coverage reach is especially powerful and.
Max Roth Levchin: Lots of good things from their point of view, I think, to do that. Uh, I think any incremental network building, whether it's open or not entirely open, is a good thing for us because it just creates more plurality in the market. It validates the idea, frankly, with even our investors that there's still a chance to build another giant network. That's certainly the business we're trying to... have here. I'm not sure the products that are intended to run on top of the, you know, newly, whatever the name is going to be Discover Kappa One Network are meant to be any different from what happens currently on Visa and MasterCard.
Speaker Change: Lots of good things too.
Speaker Change: From their point of view I think to do that.
Speaker Change: I think.
Speaker Change: Any incremental network building, whether its open or not entirely open.
Speaker Change: It's a good thing for us because just creates more plurality in the market.
Speaker Change: Validates the idea frankly with our.
Speaker Change: Our investors that there is still a chance to build another giant network that certainly the business we're trying to.
Speaker Change: Javier.
Speaker Change: Yes.
Speaker Change: I'm not sure.
Speaker Change: That are intended to run on top of the.
Javier: Newly whatever the name is going to be discover cap.
Speaker Change: Cap one network.
Speaker Change: Meant to be.
Speaker Change: Be any different from what happens currently on visa and Mastercard.
Max Roth Levchin: As you know, ours is fundamentally different. We look at SKU-level data and integrate directly with merchants at a much richer degree of bandwidth to make sure that we can underwrite transactions and, equally importantly, offer. APR Subsidies to Consumers to Motivate Purchasing. I think the network itself is a little bit of the same, but I do think that the actual deal is a profoundly interesting thing, certainly from the Capital One point of view.
Speaker Change: As you know are just fundamentally different we look at the SKU level data and integrate directly with merchants at a much richer degree of bandwidth.
Speaker Change: To make sure that we can underwrite transactions and equally importantly offer.
Speaker Change: Our subsidies to consumers to motivate purchasing so.
Speaker Change: The network itself is a little bit more of the same but I do think that the actual deal.
Speaker Change: Not only interesting thing certainly from the capital one point of view.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Operator: Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Jason Cooper for Berg with Bank of America. Please proceed with your question.
Jason Kupferberg: Morning guys, thanks. So just coming off a very strong GMV growth performance here in the quarter, obviously well ahead of your guide, up 36%. I think the midpoint for the fourth quarter is implying more like 25%. Year-over-year comes a little bit harder, but I think from a seasonal perspective, you might expect typically stronger quarter-over-quarter growth in GMV and Q4 than what's implied in the guide. So just wondering if there's any particular call-outs or any plans to tighten underwriting or a more cautious view on the consumer, or just any additional color there would be great.
Jason Kupferberg: Good morning, guys. Thanks, So just coming off very strong GMB growth performance here in the quarter, obviously, well ahead of your guide up 36% I think the midpoint for the fourth quarter is implying more like 25% year over year comps, a little bit harder, but I think from a seasonal perspective.
Jason Kupferberg: Active you might expect typically stronger quarter over quarter growth in <unk> in Q4 than whats implied in the guide. So just wondering if there is any particular call outs or any plans to tighten underwriting or more cautious view on the consumer or just any additional color there would be great.
Max Roth Levchin: I'm sure Michael will have some words in a second, but let me tell you how I feel. We don't run the business on a quarter by quarter basis. It's just a fundamentally wrong way to look at a payments company that wants to be around 100 years from now. Like, what do you do next quarter?
Speaker Change: I'm sure Michael will have some some words in a second but.
Speaker Change: Let me tell you how I feel.
Speaker Change: We don't run the business on a quarter by quarter basis.
Speaker Change: Fundamentally wrong way to look at a payments company that wants to be around 100 years from now what do you do next quarter. We're trying to grow we're trying to make sure that we grow really well yet carefully we take risk.
Max Roth Levchin: We're trying to grow. We're trying to make sure that we grow really well, yet we take risks. But most importantly, the fact that we have a forecast to share with you or guide to share with you for next quarter has fairly little impact on our planned growth initiatives at some randomly chosen time boundary that is not measured in quarters. So I think it's just really important to know that I certainly do not think of Q4 numbers from the growth point of view. Like you definitely care about other numbers like risk, et cetera; that's really important.
Jason Kupferberg: But most importantly, the fact that.
Jason Kupferberg: We.
Jason Kupferberg: Have a forecast to share with you our guide to share with you for next quarter has fairly little impact on our.
Jason Kupferberg: Planned growth initiatives.
Jason Kupferberg: On some randomly chosen time boundary, but it is not measured in quarters. So I think it's just really important to know that I certainly do not think.
Jason Kupferberg: Q4 numbers.
Jason Kupferberg: Through from.
Jason Kupferberg: From a growth point of view I definitely hear about other numbers like risk et cetera, that's really important but growth is measured in years and that's really how we think about it from a product point of view.
Michael A. Linford: But growth is measured in years, and that's certainly how we think about it from the product. Yeah, and then just a couple of things about the quarter. So fiscal Q4 is a seasonally stronger quarter. We see strength in categories like travel and ticketing, and you see that reflected in our guide.
Jason Kupferberg: And then just a couple of things about the quarter. So fiscal Q4 is a seasonally stronger quarter.
Jason Kupferberg: We see strength in categories like travel ticketing and you'll see that reflected in our guide.
Michael A. Linford: Our guide at the high end does imply faster year-on-year growth in Q4 of this year than we had last year, so it's a year-on-year acceleration in growth. And of course, last year, Q4, as you point out, was a pretty tough cop because it grew quite quickly from Q3. Some context there is that, as we called out in our shareholder letter last year, we did have some new deals with travel merchants like Cafe Pacific and Booking.com, and we had some expansion projects with merchants like Royal Caribbean.
Jason Kupferberg: Our guide at the high end does imply faster year on year growth in Q4 of this year than we had in last year. So that's a year on year acceleration and growth.
Jason Kupferberg: And of course last year, the Q4, Bob as you pointed out with a pretty tough comp because it grew quite quickly from Q3, some context, there as we called out in our shareholder letter last year, we did.
Jason Kupferberg: It has some new deals with travel merchants like Cathay Pacific and booking Dot com and we had some expansion projects with merchants like Royal Caribbean.
Michael A. Linford: And yes, we also launched the adoption of 36% APR caps in many merchants. All those things contributed to a really strong Q4 last year, making the comp quite hard. If you look at a two-year growth rate, the high end of our guide implies about 58% growth, which is a slight decline from Q3, but really isn't all that mature.
Jason Kupferberg: And yes, we also launched the adoption of <unk>.
Jason Kupferberg: 36% APR cap to many merchants.
Jason Kupferberg: All of those things contributed to a really strong Q4 last year, making the hard look at it two year growth rate the higher the high end of our of our guide implies about 58% growth, which is a slight <unk> from Q3, but really isn't all that material.
Jason Kupferberg: Okay, no, that's good. That's a good color.
Speaker Change: Okay No. That's good that's good color.
Speaker Change: I wanted to also ask just on a firm card I think I've said in the shareholder letter that the recent cohorts are actually using the product more than some of the initial cohorts I think conceptually we might have thought that the early adopters would kind of be the the heaviest users, but just curious to get your take on that Max and then just any.
Max Roth Levchin: I wanted to also ask about Affirm Card. I think it said in the shareholder letter that the recent cohorts are actually using the product more than some of the initial cohorts. I think conceptually, we might have thought that the early adopters would kind of be the heaviest users, but just curious to get your take on that, Max, and then just any thoughts you guys might have on how Card GMV might trend in Q4. Thank you.
Max: Thought you guys might have on how card GMB might trend in Q4.
Max: Yes.
Max Roth Levchin: So great question. And that is definitely something I keep a much closer eye on than even quarterly measures. This is day by day, week by week.
Max: So great question.
Max: And that is definitely something that I keep a much closer eye on then even quarterly measure. If this is a day by day week by week My last conversation before I walked into this one was with one of our card leaders right outside this room just to give you a sense for where I spend my time.
Max Roth Levchin: My last conversation before I walked into this one was with one of our card readers right outside this room, just to give you a sense of where I spend my time. So, you're totally right. It would stand to reason that early adopters would just convert and put their card, our card, on top of their wallet and go, go, go. But that has not happened.
Speaker Change: So you're totally right. It would seem to reason that early adopters would just convert and put their card or card top of their wallet and go go go and you should see some normalization that does not happen I didn't necessarily predict it that way, but the reason for it is simple.
Max Roth Levchin: I didn't necessarily predict it that way, but the reason for it is simple. I think I didn't say it's because one of the analyst notes said it, but it's a unique product. Every time you launch a new product, you are teaching the market, or teaching the consumer, anyway, a bunch of new modalities that they have not experienced yet, which is, you know, for some people, a fool of error, and for some people, you know, a vision that they're trying to pursue. And I hope I'm in the latter category, but, you know, perhaps sometimes in the former category, too.
Speaker Change: Yes.
Speaker Change: I didn't I didn't say, it's one of the analysts notes at it but it's a unique product every time, you're launching a new product you are teaching the market. We're teaching the consumer anyway, a bunch of new modalities that they have not experienced yet.
Speaker Change: Which is for some people a fool's errand for some people.
Speaker Change: Vision that theyre trying to pursue and I hope I'm in the letter but.
Speaker Change: Perhaps sometimes in the former category too.
Max Roth Levchin: As you offer the product to the market, you get consumer feedback. And we have, you know, a million cards out there now with lots and lots of feedback. And some people love it, and some people have issues, which we're very attentive to.
Speaker Change: As you offer the product to the market you get consumer feedback and we have.
Speaker Change: A million cards out there now with lots and lots of feedback and some people love it and some people have issues with.
Speaker Change: We are very attentive to the last quarter, we launched uncountable number of tweaks and fixes to the user interface and most importantly, and just made the card more and more comprehensible and easy to use and easier to understand and just eliminating surprise user experiences and so as we do that.
Max Roth Levchin: In the last quarter, we launched an uncountable number of tweaks and fixes to the user interface, most importantly, just making the card more and more comprehensible, and easy to use, and easier to understand, and just eliminating surprise user experiences. And so as we do that, we find another point, another three points of usage where people say, oh, okay, so now I understand what I'm supposed to do at a gas station, or now I'm supposed to do this in a restaurant.
Speaker Change: We find another point another three points of usage, which you'll say oh, okay. So now I guess, what I'm supposed to do at a gas station or announced supposed to do this in a restaurant in these.
Max Roth Levchin: Like, these are real examples, like a restaurant. Pay later mode is a little bit trickier because you might leave a tip, and so the number you see on your bill is not the same number, et cetera.
Speaker Change: These are real examples like a restaurant.
Speaker Change: P. Later mode is a little bit trickier, because you might be with chip and so the number you see on your bill is not the same number et cetera, and so as we just go and make the card smoother and smoother, we find new usage Thats why we think that usage increased one interesting stat, we were roughly 6% pay now.
Zane Keller: And so as we just go and make the card smoother and smoother, we find new usage. That's why we think the usage has increased. One interesting stat, we were roughly 6% pay now last quarter. We are closing in on 10% pay now this quarter. Still, incidentally, those are not top of wallet numbers, like that's still climbing, but that's a really good clip, and we're going to keep growing until we get more. We think there's a lot more consumer spend to capture from the card, and that's certainly what we are aiming for. Thanks, Max. Thank you. Our next question comes from the line of.
Speaker Change: Last quarter, we are closing in on 10% pay now this quarter still incidentally those are not top of wallet numbers like that thats still climbing, but thats a really good clip and we're going to keep growing until we get more we think there's a lot more consumer spend to capture from a card and that's certainly what we are aiming for.
Speaker Change: Sure.
Speaker Change: Thanks Max.
Speaker Change: Okay.
Operator: Thank you. Our next question comes from the line of Dan Dolev with Mizuho. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Dan Deauville with Mizuho. Please proceed with your question.
Dan Dolev: Hey, guys. Thank you for taking my question I just have one question.
Dan Dolev: With rising interest rates I'm actually surprised to see how resilient gmg is and margins are going up like what is what is driving this resiliency I mean, it's pretty amazing to see that thank you.
Dan Dolev: Thank you. That's a very nice compliment.
Speaker Change: Thank you that's a very nice complement.
Speaker Change: So we said it before sometimes tweet about it but I'm not sure people are maybe a good thing.
Speaker Change: Higher for longer.
Speaker Change: Okay with us we are not super rate sensitive so long as rate rates move in.
Speaker Change: Subtle increments 25 bps up or down just doesn't change our cost of capital in a dramatic way.
Speaker Change: And our resilience does not.
Speaker Change: Secret, it's just the fact that the business isn't ultimately all that sensitive to minor rate movements.
Speaker Change: I think other lending businesses speed differently ours has this really nice property, where we are just not that rate sensitive and we're very very comfortable operating the business at this growth at the rates that the fed has set for us and we will continue grow.
Max Roth Levchin: So we've said it before, I sometimes tweet about it, but I'm not sure people read my tweets. Maybe a good thing. Hiring for longer is okay with us.
Max Roth Levchin: We are not super rate sensitive so long as interest rates move in subtle increments.
Max Roth Levchin: 25 bips up or down just doesn't change our cost of capital in a dramatic way. And our resilience is not a secret; it's just a fact that the business isn't ultimately all that sensitive to minor rate movements. I think other lending businesses behave differently. Ours has this really nice property where we are just not that rate sensitive, and we are very, very comfortable operating the business at this growth rate at the rate that the Fed has set for us, and we'll continue growing, with or without rate cuts.
Speaker Change: <unk>.
Speaker Change: With or without rate cuts.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.
Speaker Change: Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.
Bryan Connell Keane: Hi, good morning. Max, I just want to ask about the Affirm Card. I know it was down a little bit sequentially, but it sounds like that was mostly seasonality. And just as we think about the longer-term trajectory of the card and the adoption of the card, how do you think about volume growth on a firm card? You know, just trying to get a sense of what the trajectory will look like, given you probably have a pretty good idea what the pipeline looks like.
Bryan Connell Keane: Hi, good morning.
Bryan Connell Keane: Max I just wanted to ask about our firm card.
Bryan Connell Keane: I know it was down a little bit sequentially, but it sounds like that was mostly seasonality and just as you think about the longer picture trajectory of the card and the adoption of the card how do you think about volume growth on affirmed card.
Bryan Connell Keane: Just trying to get a sense of what the trajectory will look like given you probably have a pretty good idea of what the pipeline looks like.
Max Roth Levchin: It is entirely seasonal. That's certainly the correct assumption. I think we talked about it last quarter, so it should not be in any way a surprise. I'm very happy with the clip. We're still not... Promoting it nearly as aggressively as we feel. We could, because as I just said, we have a bunch more to do just on the user interface and Product Improvements. Unknown Speaker, I am not sure I will offer a specific shape of the curve for card growth just now, given that it's still in this hyper growth stage.
Bryan Connell Keane: It is entirely seasonal that's certainly the correct assumption I think we talked about last quarter. So it should not be in any way surprise very.
Bryan Connell Keane: Very happy with the clip, we're still not promoting it nearly as aggressively as we feel.
Bryan Connell Keane: We could because as I just said we have a bunch more to do just on the user interface.
Bryan Connell Keane: And process improvements.
Bryan Connell Keane: I'm not sure I will offer a specific shape of the curve for the card growth just now given that it's still in this hyper growth stage so easy.
Bryan Connell Keane: Easier to be wrong than right.
Max Roth Levchin: So [inaudible] But we have a huge number of things to ship there. We're still experimenting very actively with various kinds of rewards. Obviously, you want to be careful with margins, but it's a product that we're very excited about. We feel that it just has lots and lots of room to grow. I think you want sort of a good measure like we really started to offer it widely. Just, you know, if you wanted to stretch it two years ago, if you wanted to sort of take it a little bit more narrowly a year ago, it's now very squarely trending towards a multi-billion dollar business. So just from a pure curiosity, like, where have you been? Where are you going?
Bryan Connell Keane: But we have a.
Bryan Connell Keane: Huge number of things to ship there, we're still experimenting very actively with various kinds of rewards.
Bryan Connell Keane: Obviously, you want to be careful with margins, but it's a it's a product that we're very excited about we feel that it's just have lots and lots of room to grow.
Bryan Connell Keane: I think.
Bryan Connell Keane: One sort of a good measure like we really started to offer it widely.
Bryan Connell Keane: Just.
Bryan Connell Keane: If you wanted to stretch it two years ago. If you wanted to sort of ticket a little bit more narrowly a year ago.
Bryan Connell Keane: Very squarely trending towards multibillion dollar business just from a pure like where have you been where are you going not sure. There are any other financial services companies I can stick a finger at that launch a card product for the first time and end up in multi billion dollars.
Max Roth Levchin: I'm not sure there are any other financial services companies I can stick a finger at that launch a card product for the first time and end up in multi-billion dollars within 12 to 18 months. And so we have a lot of features to roll out. I promise myself I'll never pronounce pronounce words on these calls, so I won't, but we've got some really cool stuff coming. And the only thing that Brian said, if you look at spend on a trailing 12 month basis to capture or cancel out some of that seasonality, we actually saw spend per user increasing at a pretty healthy clip from Q2 to Q3. So we feel very, very good about the engagement on the project right now.
Bryan Connell Keane: Within 12 to 18 months and so we have a lot of a lot of features to rollouts.
Bryan Connell Keane: I promised myself I'll never pre announce things on these calls so I won't but we've got some really cool stuff coming.
Speaker Change: And the only thing I'd add Brian is if you look at spend on a trailing 12 month basis to capture or cancel out some of that seasonality, we actually saw spend per user increasing at a pretty healthy clip from Q2 to Q3. So we feel very very good about the thin gauge on the product right now.
Michael A. Linford: Got it, got it. And the adjusted operating margin keeps kind of beating expectations. And I think in the fourth quarter, we're guiding between 15 and 17%. Can you just talk about what you're seeing on the margin and is that a good jumping off point as we go into next year, or are there some other puts and takes to think about?
Speaker Change: Got it got it.
Speaker Change: And the adjusted operating margin keeps kind of beating expectations and I think in the fourth quarter, we're guiding to 15% to 17% can you just talk about.
Speaker Change: What youre seeing on the margin and is that a good jumping off point as we go into next year are there. Some other puts and takes to think about.
Speaker Change: That's a great question, Yes, I think this year has been a real.
Michael A. Linford: It's a great question. Yeah, I think this year has been a real year where we've been able to drive pretty meaningful operating leverage in the business. That's a function of us really driving strong growth in our unit economics, with revenue minus transaction costs growing very quickly, and our, even our flat, reducing fixed operating costs. We would expect some of those trends to play out. However, we do still feel very optimistic about the opportunities ahead of us.
Speaker Change: Year, where we've been able to drive.
Speaker Change: Pretty meaningful operating leverage in the business.
Speaker Change: It's a function of us really driving strong growth and our unit economics with the revenue less transaction costs growing very quickly.
Speaker Change: And are are flat or even reducing fixed operating expenses.
Speaker Change: Expect some of those trends to play out. However, we do still feel very optimistic about the opportunities ahead of us. So there's lots of exciting things. We're working on that will need resources and so we're definitely not want folks to think that we're going to be much above our framework that we gave investors in November.
Michael A. Linford: There are lots of exciting things that we're working on that will need resources. We definitely do not want folks to think that we're going to be much above our framework that we gave investors in November. We think we continue to have revenue growth rate numbers that are well above our 20% threshold that we put out there in November, and we expect us to live within the adjusted operating income framework that we put out in November. Okay, thanks.
Speaker Change: We continue to have revenue growth rate numbers that are well above our 20% threshold that we put out there in November.
Speaker Change: <unk>.
Speaker Change: To live within the operating adjusted operating income framework that we put out in November.
Unknown Attendee: Okay, thanks for the call.
Speaker Change: Okay. Thanks for the color.
Speaker Change: Thank you.
Operator: Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.
Speaker Change: Our next question comes from the line of James <unk> with Morgan Stanley. Please proceed with your question.
James Faucette: This morning, Thanks for doing this this morning. Appreciate the call out on increasing exposure given the credit performance and the yields that you're generating right now, which seems like it could create some potential for near-term delinquency increases, but I'm wondering, is there a framework of how we should be thinking about GMB versus credit right now? It seems like, you know, if we look at the 30-day plus DQs on some of your prior deals, that there's still a fair ways to go to a higher watermark, so just how should we think about that balance of driving volume growth versus where some of these other delinquency measures and credit measures may move?
James: Good morning, Thanks for joining us this morning.
James: Appreciate the call out on increasing exposure.
James: Given the credit performance and the yields that youre generating right now, which it seems like could create some potential for near term delinquency increases but.
James: I'm wondering is there a framework of how we should be thinking about GMB versus credit right now.
James: It seems like if we look at the 30 day plus <unk> on some of your prior deals that there's still a fair ways to go to a high watermark. So just how should we think about that balance of driving volume growth versus where some of these other delinquency any measures in credit measures may move.
Max Roth Levchin: question. Thank you, James.
Christian: Christian Thank you James.
Max Roth Levchin: So, what I meant in my... Note is that we are over earning, as Michael would put it, which means that we have Capital to invest in growth. That does not necessarily mean loosening.
Christian: So what I meant in my <unk>.
James: Note.
Christian: Is that we are over earning as Michael liquidity.
James: Which means that we have.
Speaker Change: Capital to invest in growth.
Speaker Change: Not necessarily mean loosening in fact summer in particular is a seasonally high delinquency rate time, and so there will be undoubtedly seasonal fluctuations in delinquencies more likely up and down we're very very concerned with delinquencies at any given time just because of that.
Max Roth Levchin: In fact, summer in particular is a seasonally high delinquency rate time. And so there'll be undoubtedly seasonal fluctuations in delinquencies, more likely up than down. We're very, very concerned with delinquencies at any given time, just because that, you know, is the single most important part of the job here.
Speaker Change: The single most important part of the job here.
Max Roth Levchin: But having a little extra money on hand to invest doesn't always mean, so let's take a little bit more risk. What it does mean, for example, that you could invest that in APR subsidies, which go towards higher-credit quality borrowers and create positive selection bias in the credit portfolio. And so we'll definitely reinvest the extra gains and will still maintain an extremely vigilant watch over credit. As we've always said, and we'll continue to say and behave. We don't use credit as a growth driver or limiter. Credit is a thing we manage entirely discreetly.
Speaker Change: But having a little extra money on hand to invest doesn't always mean, so let's take a little bit more risk what it does mean for example, that's also you.
Speaker Change: You can invest in EPR subsidies, which go towards the higher credit quality borrowers and create positive selection bias in the credit portfolio and so we will definitely reinvest the extra gains.
Speaker Change: We will still maintain an extremely vigilant watch over credit.
Speaker Change: As we've always said and we will continue to say and behave.
Speaker Change: We don't use credit as a growth driver or limited credit.
Speaker Change: Credit is anything we manage entirely discretely theres not a conversation about well if we just tightened a little bit the growth will slow down and we don't want that we won growth as much as we can responsibly handle but not before we have credit results that we like and most importantly, our capital markets partners like and so well.
Max Roth Levchin: There's not a conversation about, well, you know, if we just tighten the rules a little bit, the growth will slow down. We don't want that. We want growth as much as we can responsibly handle, but not before we have credit results that we like, and, most importantly, our capital markets partners like. And so we'll look at that, and we'll manage that entirely separately, and we'll find all the intelligent ways that we can possibly grow. And I don't think we're supposed to offer a framework for that, but I just want to double stress that there's no coupling there, and there should not be coupling.
Speaker Change: We will look at that and we will manage that entirely separately and we will find the old the old intelligent ways that we can possibly grow in I don't think were supposed to offer a.
Speaker Change: Framework for that but I just wanted to double stress theres no coupling there and there should all be coupling there.
James Faucette: Great. That's a great answer there, Max.
Speaker Change: Great Great answer there Maxim and then I wanted to ask as a follow up on a firm card and clearly a lot of work going into the user interface and points, where you can reduce friction.
Speaker Change: In previous comments, you've talked about some of the things that youre doing on the customer service side and I think have also called out even using AI assistance to help improve those customer support costs just want to hear.
Max Roth Levchin: And then I wanted to ask a follow-up question on AffirmCard, and clearly, a lot of work is going into the user interface and points where you can reduce friction. You know, in previous comments, you've talked about some of the things that you're doing on the customer service side, and I think you have also called out using AI assistance to help improve those customer support costs. I just want to hear from you where we are on that process and, you know, kind of what are the additional things that can be done to bring down the cost of support versus reducing upfront usage friction and where you feel like you're at on that process.
Speaker Change: From you.
Speaker Change: Where we're at on that process.
Speaker Change: And.
Speaker Change: Sure.
Speaker Change: <unk>.
Speaker Change: What are the additional things that can be done to bring down cost of support versus reducing upfront usage friction and where do you feel like youre right on on that process.
Max Roth Levchin: Great complex question.
Max Roth Levchin: Great, complex question; spend the next 30 minutes diving into all that stuff. That's what I like talking about. So on the card, I think I mentioned this before, so it shouldn't come as a surprise, but we have a whole. We've been getting these things in workstreams, so we have a workstream called Sucks Surprise User Experience.
Speaker Change: The next 30 minutes diving into all of that stuff Thats, what I like talking about.
Speaker Change: So on the card I think I mentioned this before so it shouldn't come as a surprise, but we have a whole.
Speaker Change: We think of these things and work streams, so where it works from Goldman Sachs surprise user experience and the car to the new product that I mentioned, just now and plenty of surprises that we do not want our consumers to have with the carton. So we've been very very busy just polishing the rough edges and.
Max Roth Levchin: And the cart is a new product, as I mentioned just now, and there are plenty of surprises that we do not want our consumers to have with the cart. And so we've been very, very busy just polishing the rough edges. That's a long list, and if you use the card, you will see what we've done there. Some of it is very apparent, some of it is a little bit more sophisticated, but just to give you a glimpse into this. Because the card sometimes runs over Visa's rails, sometimes runs over our own, there are situations where you have to match a transaction when somebody, for example, wants a partial refund, etc.
Speaker Change: That's a long list.
Speaker Change: Use the card you will see.
Speaker Change: What we've done there.
Speaker Change: Some of it is very apparent in some of it is a little bit more sophisticated but just to give you a glimpse into this.
Speaker Change: Cause the card sometimes runs over visa rails, sometimes runs over our own there are situations, where you have to match a transaction when somebody for example, once a partial refund et cetera, and so just the logic around transaction matching going back sometimes 30 days et cetera, it's fairly complicated and more intelligent.
Max Roth Levchin: And so just the logic around transaction matching, going back sometimes, you know, 30 days, etc., is fairly complicated. And the more intelligent you are in transaction matching, the better you can serve somebody, somebody who calls you or chats with you and says, hey, this transaction I have to cancel. It showed up not as described, I have a chargeback, whatever. If you know exactly what it is, the call will go faster, and the consumer will be happier.
Max Roth Levchin: And transaction matching the better you can serve somebody somebody who cause your cats with you and saying Hey, this transaction I have to cancel it showed up not as described.
Max Roth Levchin: Back whatever.
Speaker Change: If you know exactly what it is the call will go faster and the consumer will be happier and so.
Max Roth Levchin: And so that sounds like a small thing, but it's a major cost reducer, for example, and there are three dozen more where they came from. I'm thinking about a lot of things. Because I'm always terrified of sounding like too much of a nerd because I am. We try to make sure our AI strategy is technology. That is, you know. Real versus PR, which is what we're encountering a lot in the industry right now, or at least pure PR. And so we've been, generally speaking, fairly quiet and dismissive about it.
Speaker Change: That sounds like a small thing, but it's a major cost reducer for example.
Three dozen more where that came from.
AI side of things.
Max Roth Levchin: Because I'm always.
Speaker Change: Terrified of sounding like too much of a nerd because I am we try to make sure our AI strategy is technology.
Max Levchin: That is.
Max Roth Levchin: But we've been investing really heavily in this idea that, certainly, Gen Z consumers really love chatting versus calling, and they have no problem chatting with an AI, especially if the AI is intelligent. There are lots and lots of really complex things. You know, one is obviously hallucination is a thing in AI, and you have to be very careful. But there's a bunch of really smart solutions that can help us, It's very early.
Max Roth Levchin: Real versus PR, which is what we're encountering a lot in the industry right now or at least pure PR and so we've been generally speaking fairly quieting dismissed without it.
Max Roth Levchin: But we've been investing really heavily and this idea that <unk>.
Max Roth Levchin: Most certainly gen Z consumers really love chatting versus calling and they have no problem chatting with an AI, especially at the <unk> intelligence, there's lots and lots of really complex things. One is obviously everybody sort of knows hallucination is a thing in AI and you have to be very careful but there is a bunch of really smart solutions that.
Max Roth Levchin: People in the industry have come up with us, including where origination is not a problem.
Max Roth Levchin: We can very very quickly satisfy a quarry certainly around a question what do you do or whats your policy or what do I do as a consumer if I have an issue or problem et cetera.
Max Roth Levchin: And that's been working really really well and.
Max Roth Levchin: The.
Max Roth Levchin: We expect to do a lot more there. Meanwhile, no one has yet lost their job to be replaced by a robot at Affirm, so that's not a short-term cost savings. But in terms of our ability to scale our customer service and their base as we employ AI more and more, that's certainly going to be a saving over the next one, two, three years. We expect consumers to always be able to reach a human.
Max Roth Levchin: It's very early like we expect to do a lot more there.
Max Roth Levchin: No one has yet to lose their job to be replaced by a robot at our firm. So that's not a short term cost savings, but in terms of our ability to scale, our customer service and their.
Max Roth Levchin: Base as we employ AI more and more that's certainly going to be a saving over the next one to three years, we expect for consumers to always be able to reach a human I think that's really important but by the time they get to the human they want to hear someone who is an expert who has a really deep understanding of what's happening with that particular accounts.
Max Roth Levchin: I think that's really important. But by the time they get to that human, they want to hear someone who's an expert, who has a really deep understanding of what's happening with that particular account, that transaction, whatever dispute or question they may have. And you can pre-work a lot of that with AI. And so that's where we're spending a lot of our cycles. And we're super excited about that. Again, we try not to talk too much about it because it's just the cacophony of everybody being AI-powered is a little too loud right now. But it's a really exciting tech, and we're super thrilled to deploy it.
Max Roth Levchin: Transaction, whatever dispute or questions. They may have and you can pre work a lot of that with AI and so that's where we're spending a lot of our cycles and super excited about that again, we try to not talk too much about it because the company up everybody being AI powered is a little too high right now, but it's a really exciting tech and we're super thrilled.
Max Roth Levchin: <unk> deployed.
Speaker Change: Thanks for that.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Reginald Smith with J.P. Morgan. Please proceed with your question.
Max Roth Levchin: Our next question comes from the line of regional Smith with Jpmorgan. Please proceed with your question.
Reginald Smith: Hey, good morning, and congrats on the quarter. I had two questions. The first, and I'm not sure if we have to disclose this, but I was curious if there's a way to talk about like where you're seeing the Affirm card or the type of customers responding within your base. So thinking about income or credit band, is there a way to kind of talk about that where you're seeing traction in particular in any given segment? And then I have follow-up questions. Thank you.
Reginald Smith: Hey, good morning, and congrats on the quarter I have two questions first.
Reginald Smith: And I'm not sure if we got to disclose this but I was curious.
Reginald Smith: As a way to.
Reginald Smith: Talk about like where you see EMEA RM card or the type of customers are resonating with within your base, So thinking about E com credit.
Reginald Smith: And is there a way to kind of talk about that what you're seeing.
Reginald Smith: <unk> in particular.
Reginald Smith: Given segment and then I have a follow up question. Thank you.
Max Roth Levchin: Two questions. Obviously, this is essentially a transaction card or a transactor card for a habitual revolver. I think that's probably the best way to describe the near perfect.
Reginald Smith: Two question.
Reginald Smith: Yeah.
Reginald Smith: Obviously.
Reginald Smith: This is essentially a transaction card or transact ricard four habitual revolver, I think thats, probably the best way to describe the.
Max Roth Levchin: The near perfect.
Max Roth Levchin: Product Market Fit. We have all the expectations and designs to address many other bans of credit, but the idea of someone saying, I don't want to be in debt in a way that I can't predict, I like the ability to finance some things and to not finance others very explicitly. That is the purpose of the card. That's the marketing message. That's the story we tell to our consumers when they say, why do I need another card?
Max Roth Levchin: Product market fit in.
Max Roth Levchin: And with the card we have all the expectations and designs to do just to address many other bands of credit, but the idea of someone saying I don't want to be in that in a way that I can't predict.
Max Roth Levchin: I like the ability to finance, some things and two not finance others very explicitly that is the purpose of the card marketing message Thats. The story, we tell to our consumers when they say why do I need to have the card.
Max Roth Levchin: And so that is the user. The user says, hey, some things need to be paid for over time, and some things need to be paid for right now, and I don't want to commingle the two. I'm not going to pay interest on a cup of coffee. And that is the buyer. And that's what we have today. And you can see it in all the stats.
Max Roth Levchin: That is the user the user says hey, some things need to be paid over time and something ETP for right now.
Max Roth Levchin: You don't want to co mingled to I'm not going to pay interest on a cup of coffee.
Max Roth Levchin: That is that as the buyer.
Max Roth Levchin: That's what we have today and you can see it.
Max Roth Levchin: Yes.
Speaker Change: Okay. That's helpful. And then thinking about you guys break out quarterly the number of kind of new transact.
Reginald Smith: Okay, that's helpful. And then thinking about when you guys break out quarterly, the number of kind of new transactors, you also give like a mix of volume. I was curious, and my guess is that it probably doesn't track your volume mix, but if you were to think about where your new customers are coming from, whether they're paying for core zero or installment, like what's that mix? And then the second piece of that question is, in cases or instances where you're not the only BNPL solution on a website, how does that impact, I guess, new user adoption? Is there any... Libra is your impact from being, I guess, the exclusive DMPL provider on certain platforms in terms of acquiring new customers, if that makes sense.
Max Roth Levchin: He also gave like a mix of volume I was curious.
Reginald Smith: My guess is that it probably doesn't tracking volume makes it but if you were to think about where your new kind of new customers that come in whether it's paying for coke zero or installment like what's that mix.
Reginald Smith: And then the second piece of that question is.
Reginald Smith: In cases, or instances, where youre not the only be NPL solution on a website how does that impact.
Reginald Smith: I guess, new user adoption is there any.
Reginald Smith: Slippage or impact from being I guess, the exclusive <unk> provider on certain platforms in terms of acquiring new customers if that makes sense.
Max Roth Levchin: That's a good question; there is a lot of depth to this. I'll start. My guess is Michael will have some stats that he is willing to share, maybe not. In terms of exclusivity versus not, we don't need exclusivity to win. We are very, very comfortable being right alongside other BMPL providers because we offer products that are quite unique, wherever we have to check how it shows up. That is, generally speaking, what that particular customer base needs. And so our ability to predict what might be best for that user is really good, et cetera, et cetera. We also have underwritten 50 million people in the United States alone.
Speaker Change: Yes, good question.
Speaker Change: To this I'll start my guess as Michael will have.
Max Roth Levchin: Some staff that he is willing to share or maybe not.
Max Roth Levchin: In terms of exclusivity versus not.
Max Roth Levchin: Don't need exclusivity to win.
Max Roth Levchin: We are.
Max Roth Levchin: Very very comfortable being right alongside other be NPL providers, because we offer products that are quite unique and so.
Max Roth Levchin: Wherever.
Michael: I'd have to check out shows up.
Max Roth Levchin: That is generally speaking.
Max Roth Levchin: That particular customer base needs and so our ability to predict what might be best for that users really goods and.
Max Roth Levchin: Et cetera et cetera, we also have underwritten 50 million people in United States alone. So the brand speaks for itself, we are unique or mostly unique at this point, which is actually good that we don't charge late fees. We don't compound interest, we don't have deferred interest et cetera, and so our customer knows who we are they seek us out and even the ones who don't have a firm account yet.
Max Roth Levchin: So the brand speaks for itself. We are unique, or mostly unique at this point, which is actually to the good, because we don't charge lessees, we don't compound interest, we don't have deferred interest, et cetera. And so our customers know who we are, yet haven't had an Affirm account yet. There's now a meaning to what Affirm stands for, and I think that it took a long time to persuade the market that we really are. Applying or not, not getting it when we're saying there are no hidden fees, but it seems to be working at this point.
Max Roth Levchin: <unk>.
Max Roth Levchin: There is now a meaning to what our firm stands for and I think thats it.
Max Roth Levchin: As a longtime to persuade the market that we really are.
Max Roth Levchin: And so in terms of exclusivity, it's not a hugely important thing. I'm confident that people who love their brand X competing product probably will go through that door. So I'm sure we are not alone in the feeling that our users love us, but our users do seem to love us. And if you read my letter, I have a little bit of a melodramatic story from a recent store trip where this woman was just, couldn't have scripted it better.
Max Roth Levchin: Not flying or not not kidding, when we're saying there are no hidden fees, but it seems to be working at this point and so in terms of exclusivity.
Max Roth Levchin: <unk> got a hugely important thing.
Max Roth Levchin: I'm confident that people, who love their brand X competing product probably go through that door. So I'm sure we are not.
Max Roth Levchin: She was gushing about us and comparing us to all the competitors, saying, Oh, my God, you're so much better than everybody else. And like, so you're very familiar with the market, and you've made a choice. So I think, from sort of anecdotally and in the numbers, we don't suffer from being side-by-side with anybody.
Max Roth Levchin: Alone in the fueling of our users love US, but are you going to do seem to love Us and if you read my letter I have.
Max Roth Levchin: A little bit of electromagnetic story from a recent store trip, where this one it was just we.
Max Roth Levchin: Couldnt have scripted a daughter she was she was gushing about us and compare us to all the competitors, saying Oh My God, you're so much better than everybody else. So you're very familiar with the market and you've made a choice.
Max Roth Levchin: From sort of anecdotally and in the numbers, we don't suffer from.
Max Roth Levchin: From being side by side with anybody.
Michael A. Linford: I don't know if Michael has anything to add on the specifics of where we pick up the newest users. No, I think it definitely tracks where we currently have distribution and the products that we have distributed there. Every time we're shown on a product display page, every time we see a checkout, it's a chance to acquire a user but also a chance to re-engage new users. The only thing I would add is that there is a case where when we are launched side by side, maybe as a second or third BNPL product on an existing merchant site, we do see higher repeat rates there.
Max Roth Levchin: Kind of Michael have anything to add on the specifics of where we pick up the new theaters.
Max Roth Levchin: No I think it definitely tracks, where we currently have distribution in the products that we have distributed there.
Michael: Every time were shown on our product display page every time, we're seeing a checkout at the chance to acquire user but also a chance to re engage users.
Michael A. Linford: And I think that's the power of our network on display. And oftentimes, merchants really quickly understand that adding us is incremental because of that. Actually, one other thing that I should have said earlier.
Michael: The only thing I would add is that is it.
Speaker Change: Case that when we launch side by side.
Michael A. Linford: As a second or third NPL product on the merchant side, we do see higher repeat rates, there and I think thats the power of our network on display and oftentimes merchants really quickly understand that adding up with incremental because of that.
Speaker Change: Actually one other thing that I should have said earlier.
Max Roth Levchin: One of the niceties of being as large as we are is our ability to sort of barge into some of the checkouts that used to be the exclusive property of another player and say, hey, we're not telling you what to do, but we do have 50 million people. We've underwritten that at least a large percentage of really, really like this, you probably should add us alongside the competitor. And I've said it before, and I'll say it again, the first fundraising deck that I ever put together for this company featured a mock-up, obviously, of a convenience store door that showed Visa, MasterCard, Amex, and Affirm. The ultimate goal of this company is to be a brand that everybody just expects at a grocery store door.
Michael A. Linford: One of the nice lease up being as large as we are.
Speaker Change: Is our ability to serve barge into some of the checkouts that used to be exclusive property of another player and say hey.
Max Roth Levchin: Im telling you what to do but we do have 50 million people, we've underwritten that at least a large percentage of really really liked us.
Max Roth Levchin: You probably should add us alongside the competitor.
Max Roth Levchin: I've said, it before and I'll say it again, the first fund raising deck that I've ever put together for this company featured eight a mockup, obviously of a convenient store door that showed visa Mastercard amex affirm that the ultimate goal of this company is to be a brand that everybody just expect on a grocery store door.
Max Roth Levchin: We're starting to get there, but we're not quite there yet. I don't know if we're going to be there, certainly not next quarter, just to go back to the we don't run a business by quarters thing. That is the future we're trying to get to. And we're now in a place where merchants say, Well, yeah, I probably should add you guys because there are a lot of people who want to use a hard. Now, that makes it up that pre-requisite.
Max Roth Levchin: We're starting to get there we're not quite there yet.
Max Roth Levchin: I don't know if were going to be they're certainly not next quarter just to go back to that we don't run the business by quarters thing but.
Max Roth Levchin: That is the future, we're trying to get to and we're now in a place where merchants and well, yes, I probably should have you guys because there's a lot of people who want either.
Reginald Smith: Now that's up, and I appreciate that. The reason I asked is, you know, obviously, we've got a lot of questions about Walmart and them introducing their own thing. And I think it's good to hear how you guys compete, you know, how viable the product is, even with a competing brand of button. So I appreciate the color there. Thank you.
Speaker Change: Got it that makes it up and I appreciate that the reason I asked is as.
Max Roth Levchin: So he's got a lot of questions about Walmart and then introducing their own thing and I think it's good to hear you.
Reginald Smith: You guys compete.
Reginald Smith: How viable the product and even with.
Reginald Smith: <unk>.
Reginald Smith: But I appreciate the color there. Thank you.
Operator: Thank you. Our next question comes from the line of John Hecht with Jeffries. Please proceed with your question.
Reginald Smith: Thank you. Our next question comes from the line of John Hecht with Jefferies. Please proceed with your question.
John Hecht: Morning, and thanks very much for taking my questions. Just looking at AOV now, I know AOV has been really impacted over the last several quarters by kind of a mixed shift from some of the larger transaction partners that you've had. But I'm wondering what you're seeing at the point of sale now and if you're seeing any trends for what users are using buy now, pay later for now relative to where they have been in recent quarters and what that tells you about usage in the future.
John Hecht: Good morning, and thanks, very much for taking my questions.
John Hecht: Just looking at <unk> now I know <unk> been really impacted over the last several quarters by kind of a mix shift from some of the.
John Hecht: A larger transaction.
John Hecht: <unk> that you've had.
John Hecht: But im wondering what youre seeing at the point of sale now and if youre seeing any trends for what the users are.
John Hecht: Using a.
John Hecht: Buy now pay later for now relative to order in recent quarters and what that tells you about usage in the future.
Max Roth Levchin: on this one. I don't know if I have any pithy observations to offer, but it's important to note that, first of all, AV trends are pretty stable, like the ebb and flow based on where we are. And, you know, outliers, if you wanted to segment it, which we obviously do, you'd see it correlate to things like who launched was on a 0% sale and what new something is being sold where. And so it's a bit of a ratio to compute, but it's not a metric, that is.
Speaker Change: I'm going to disappoint you on this one.
John Hecht: I don't know if I have any teeth.
John Hecht: The observations to offer.
Max Roth Levchin: It is important to note that.
Max Roth Levchin: First of all AAV trends are pretty stable.
Max Roth Levchin: Ebb and flow based on where we are and.
Max Roth Levchin: Outlier, if you wanted to segmented, which we obviously do.
Max Roth Levchin: You'd see it correlate to things like who launched was zero percent sale and what new something is being sold we're in so it's a bit of a.
Max Roth Levchin: The ratio to compute but it's not a.
Max Roth Levchin: It's not a metric that is.
Max Roth Levchin: Profoundly important to our business, obviously. Generally speaking, I think AOB's trending down, somewhat down, is a good thing. That suggests that people are using us for more and more. Things that look like daily purchases, obviously with Affirm Card, we would want the AOV to be, you know, approaching your typical debit transaction. That's sort of the most I think I have to say.
Max Roth Levchin: Profound.
Max Roth Levchin: So our business obviously.
Max Roth Levchin: Generally speaking I think AAV trending down somewhat down is a good thing that suggest that people are using us for more and more.
Max Roth Levchin: Things that look like daily purchases, obviously would affirm card, we would want that to be.
Max Roth Levchin: Approaching your typical debit transaction.
Max Roth Levchin: That's sort of the most I think I have to say.
Michael A. Linford: Okay, that's helpful. And I guess maybe product mixes or anything going on there that was transcribed by https://otter.ai. So, not really, I think.
Speaker Change: Okay. That's.
Speaker Change: That's helpful and I guess, maybe product mix is there anything going on there.
Max Roth Levchin: <unk>.
Michael A. Linford: Evolving over the recent quarters that gives you a sense of changing customer dynamics.
Michael A. Linford: So, not really. I think that we continue to have a lot of ambition to serve as many transactions as possible. I think clearly we have a strong position in higher average order values, more considered purchases. The trend downward that Max is alluding to is a function of a lot of intentional effort. Some of that shows up in products like the card, where we want to serve as many transaction types, including pay now.
Speaker Change: No not really I think we continue to have.
Michael A. Linford: A lot of ambition to serve as many transactions as possible.
Michael A. Linford: I think clearly we have.
Michael A. Linford: Our strong position in the higher average order value more considered purchases.
Michael A. Linford: The trend downward and Mac are alluding to is it a function of a lot of intentional effort.
Michael A. Linford: Some of that shows up in products like the card, where we want to serve as many transaction types, including pay now some of that shows up in the kind of distribution that we're pursuing which allows us to serve lower average order value higher frequency transactions.
Michael A. Linford: Some of that shows up in the kind of distribution that we're pursuing, which allows us to serve lower average order values and higher frequency transactions. I think it's not a surprise that as the AOV has moderated a little bit downward, you've seen frequency rising quite steadily. And so we know that the higher, more consistent purchases are ones where we have a really strong position, and we have some continued opportunity to serve up the smallest.
Michael A. Linford: Not a surprise that as the EOG has moderated a little bit downward <unk> seen frequency rising quite extensively.
Michael A. Linford: We know that.
Michael A. Linford: Higher working through their purchases are are ones, where we have a really strong position and we have some continued opportunity and serving up the smaller transaction sizes.
Speaker Change: I appreciate that thanks.
Operator: Thank you. Our next question comes from the line of Andrew Bauch with Wells Fargo. Please proceed with your question.
Michael A. Linford: Thank you. Our next question comes from the line of Andrew Bock with Wells Fargo. Please proceed with your question.
Andrew Thomas Bauch: Hey guys, thanks for taking the question. It's Lamar on for Andrew.
Andrew Thomas Bauch: Hey, guys. Thanks for taking the question this Lamar on for Andrew.
Andrew Thomas Bauch: I have a follow up on the affirmed card and.
Lamar: This one is specific to kind of like.
Lamar: Penetrate than offline commerce, I'm kind of like some of the improvements that you've been making to the card over time.
Unknown Attendee: I have a follow-up question on the Affirm card, and this one is specific to kind of like penetrating offline commerce and kind of like some of the improvements that you've been making to the card over time. Is there any update that you can provide on, I guess, specific usage as it relates to certain vertical segments, maybe some color on where you're seeing sustained strength, and then maybe increasing strength over time from a use case perspective as you continue to make its improvements?
Lamar: Is there any update that you can provide on.
Lamar: And I guess specific usage as it relates to certain verticals segments, maybe some color on where youre seeing sustained strength and then maybe increasing strength over time from a use case perspective as you continue to make improvements.
Unknown Attendee: Sure.
Speaker Change: So <unk>.
Max Roth Levchin: Generally speaking, as I mentioned just now, we're seeing a steady increase in PayNow, which is good. That's just that people are comprehending the product better. There are obviously three different modalities to the fully connected card, which is a pre-planned transaction, swipe to PayNow, and swipe and split later.
Unknown Attendee: Generally speaking.
Unknown Attendee: As I mentioned, just now we're seeing a steady increase in pay now which is good thats just the people are comprehending the product that Arthur obviously, three different modalities to be fully connected card, which is pre planned transaction swipe to pay now and swipe and split later P&L.
Max Roth Levchin: Pay Now Increasing suggests that more people are connecting their accounts, they are maybe opening up money accounts, etc., so that's all kind of to the good. The thing that we're pretty focused on is making sure the card is really, really useful and valuable to you as a consumer in day-to-day transactions, be it groceries, gas, and restaurants, etc. And so there's a lot of just subtle work to do there to make sure that we are. Very close to a fire and forget type transaction device, which is what you expect to work in a multi-lane checkout environment, etc.
Max Roth Levchin: P&L increasing suggests that.
Max Roth Levchin: More people are connecting their accounts. They are maybe opening up for money accounts et cetera. So that's all.
Max Roth Levchin: Good.
Max Roth Levchin: The thing that we're pretty focused on is making sure that card is really really useful and valuable to you as a consumer in day to day transactions be it.
Max Roth Levchin: Groceries, and gas and restaurants et cetera, and so there's a lot of subtle work to do there to make sure that we are.
Max Roth Levchin: Our.
Max Roth Levchin: Very close to firing forgets type transaction device, which is what do you expect it to work in a multilane checkout et cetera.
Max Roth Levchin: So that's what we're working on. We are seeing, I think I took that out of the letter, but we were trying to flash a stat on how restaurant usage is picking up a little bit. And so these are not sort of headline-changing results, but we're quite happy with the way things are trending in that domain. But again, it's just really important to understand that this is very, very early. I know we've been talking about it for a long time, but it takes a long time to invent a new type of card. It's neither credit nor debit.
Max Roth Levchin: So that's what we're working on.
Max Roth Levchin: We are seeing I think I took that out of the letter, but we were trying to flash a stat.
Max Roth Levchin: How the restaurant usage is picking up a little bit and so these are not sort of headline changing results, but we're quite happy with the way things are trending in that domain.
Max Roth Levchin: But again.
Max Roth Levchin: It's just really important to understand that the card is very very early I know, we've been talking about it for a long time.
Max Roth Levchin: It's a long time to invent a new type of card, it's neither credit nor debit. It takes a long time to spec. It took us a long time to build it took us a long time to make sure.
Max Roth Levchin: It took us a long time to spec it, and it took us a long time to build it. It took us a long time to make sure, but we're comfortable with the various risk modalities that we're introducing with it. It's going really well now, although we're still very early. We have a lot of room to grow and a lot of features to add. And that's probably the most important thing. Like I would just judge the card in terms of what it's doing when it's no longer in the first part of the S-curve.
Max Roth Levchin: We're comfortable with the various risk modalities that we're introducing with it now going really well.
Max Roth Levchin: We're still very early we have a lot of room to grow.
Max Roth Levchin: <unk>.
Max Roth Levchin: Lot of features to add and Thats, probably the single most important thing Mike I would just judge the card.
Max Roth Levchin: In terms of.
Max Roth Levchin: What its doing when it's no longer in the first part of the S curve.
Max Roth Levchin: Okay.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Operator: Our next question comes from the line of Ramsey El Assal with Barclays. Please proceed with your question.
Max Roth Levchin: Our next question comes from the line of Ramsey El <unk> with Barclays. Please proceed with your question.
Ramsey Clark El: Hi, thanks for taking my question this morning. As you look to roll out into more international markets, is your current funding model agnostic when it comes to operating outside the U.S.? Do you have to find, you know, geographic-specific partners? And then, I guess, on top of that, what about credit performance as you roll out these markets? Is there a period where models will need to season in sort of new geographies? Or is a lot of the intelligence in your U.S. models sort of transferable as you move into different geographies?
Speaker Change: Hi, Thanks for taking my question this morning.
Speaker Change: As you look to rollout into more international markets.
Ramsey Clark El: Your current funding model agnostic when it comes to operating outside the U S. Do you have defined geographic.
Ramsey Clark El: Geographic specific partners and then I guess on top of that what about credit performance. As you rollout. These markets is there a period, where models will need to season and sort of new geographies. There is a lot of the intelligence in your U S models sort of transferable.
Ramsey Clark El: As you move into different geographies.
Max Roth Levchin: We'll take it in reverse order. So yes, we absolutely expect to be, in a period of learning, one of our earliest venture capitalists. Call it paying tuition, where you put out some loan volume, and you see how it pays back. Obviously, our next announced market is the UK; the credit behaviors and performance there have some similarities to the United States. It's a Western democracy that's built around credit reporting, both positive and negative. The same credit bureaus work there. Similar data types and data formats work there. Similar regulations apply to what you can and cannot use for underwriting.
Speaker Change: Well take it in reverse order.
Ramsey Clark El: So, yes, we absolutely expect to be.
Max Roth Levchin: In a period of learning.
Max Roth Levchin: One of our earliest venture capitalists.
Max Roth Levchin: Called the paint tuition.
Max Roth Levchin: You put out some loan volume and you see how it pays back.
Max Roth Levchin: Obviously, our next announced market in the U K, the credit behaviors and performance there.
Max Roth Levchin: Has some similarities to United States or Western democracy, that's built around credit reporting both positive and negative the same credit bureaus workday or similar data types data formats work. There similar regulations apply what you can and cannot use for underwriting and so our success in Canada, which is really good suggests that we are able to transport the models.
Max Roth Levchin: And so our success in Canada, which is really good, suggests that we are able to transport the models across the border. The UK will be another good test. We'll be careful. We're not going to roll out a trillion dollars of volume and hold our breath to see what happens. It'll be gradual.
Max Roth Levchin: Across the border.
Max Roth Levchin: U K will be another good test, we will be careful we're not going to rollout a trillion dollars of volume and hold our breath to see what happens it will be gradual but we feel very good about our ability to operate in the United Kingdom.
Max Roth Levchin: But we feel very good about our ability to operate in the United Kingdom in terms of credit performance, and we'll still take the time to make sure that it's right. Beyond that, we've said nothing as to where we're going to go. But wherever we might show up next, you should expect us to. Part of why we will never presumably guide you to some huge Volume Growth Internationally in Year One is because credit takes time too, to yourself out, and we will never skip that step back.
Max Roth Levchin: In terms of credit performance and we will still take the time to make sure that it's good.
Max Roth Levchin: Beyond that we said nothing as to where we're going to go but wherever we might show up next you should expect us to and part of why we will.
Max Roth Levchin: Never presumably guides to some huge <unk>.
Max Roth Levchin: Volume growth internationally on year, one is because credit taken onto two.
Max Roth Levchin: Hey herself out we will never skipped that step.
Max Roth Levchin: And then, as for funding, yes, I think it will require that we localize funding. We want to do that anyway to make sure that we've got some currency matching with the local market, but also just getting through all the different funding sources, credit postures will require some localization. I think there are global synergies. The institutions we work with have a global footprint, and that really will help us, but it will require some localized funding sources as we get to launching, for example, in the UK later this year.
Max Roth Levchin: And then as for funding yes.
Max Roth Levchin: It will require that we localized funding we want to do that anyway to make sure that we've got some currency matching with the local market.
Max Roth Levchin: But also just getting through all of the different funding sources.
Max Roth Levchin: Credit postures will require some localization I think there are global synergies the institutions, we work with have a global footprint and that really will help us.
Max Roth Levchin: It will require some localized funding sources as we get to watching for example in the UK later this year.
Ramsey Clark El: Great. And a quick follow up from me. New Merchant Editions went up nicely this quarter. They've gone up nicely in prior quarters. Can you give us any further commentary about where you're seeing success there? Are it particular verticals? You know, digital versus in-store? What is the driver? Or is it just a general, you know, rising tide type of situation with the new Merchant Edition? It's more of a rising tide.
Speaker Change: Great and a quick follow up for me.
Max Roth Levchin: New merchant additions went up nicely this quarter, they've gone up nicely in prior quarters.
Ramsey Clark El: Can you give us any further commentary about.
Ramsey Clark El: Where youre seeing success there is it particular verticals.
Ramsey Clark El: Digital versus in store what are what is the driver or is it just a general rising tide.
Ramsey Clark El: Type of situations with new merchant additions.
Ramsey Clark El: Yes.
Max Roth Levchin: It's more of a rising tide. We sort of stopped the practice of calling out a bunch of brands because I felt like I was letting people down when I didn't flash some cool name brand in the next shareholder letter. So we always have a couple, but, as I'm sure you can understand, it takes effort and time to convince them to use their name in a Herald letter. So I stopped.
Ramsey Clark El: It's more rising tide, we sort of stopped the practice of calling out a bunch of brands because I felt like I was letting people down what I didnt flashed some cool name brand into Nextera holder letter. So we always have a couple but.
Max Roth Levchin: As I'm sure you can understand it takes effort and time to convince them to use their name of the shareholder letter so I stopped.
Max Roth Levchin: We are still.
Max Roth Levchin: We're still chasing down great logos and adding them quite a lot. If you do some sleuthing in our app, you will probably find them through search. But frankly, where I'm most excited is – everybody has a different acronym for it, but mid-sized businesses, businesses that have $10 to $15 million in GMV, are awesome because they are very growth-centric businesses. And when merchants grow, we grow faster. One of the things that we've noticed, independent of economic times, independent of interest rates, independent of almost any variable, when merchants have a posture to grow their GMV, and they sign up for a firm, our growth within that merchant always exceeds theirs.
Max Roth Levchin: Chasing down great logos, and adding them quite a lot.
Max Roth Levchin: If you see some smoothing in our App, you will probably find them through search.
Max Roth Levchin: But.
Max Roth Levchin: Frankly, where I'm. Most excited is when everybody has a different acronym for it but mid sized businesses businesses that have $10 million to $15 million in JV are awesome, because they are very growth centric businesses.
Max Roth Levchin: And when merchants grow we grow faster one of the things that we've noticed in independent of economic time dependent or interest rate independent of almost any variable when merchants have a posture to grow their GMB and they sign up for a firm our growth.
Max Roth Levchin: Within that merchant always exceeds theirs and that's exactly what majority of midsize merchants want to do they want to become larger sized merchants and so.
Max Roth Levchin: And that's exactly what the majority of mid-sized merchants want to do. They want to become larger-sized merchants. And so we are always looking for both direct and indirect business there. We're always competing. A little bit for their advertising budgets, as well as kind of their growth budget. And so just figuring out how they think, you know, don't discount use a firm offer subsidized EPRs offer 0% sales, like all of that is really, really important to us. And so that's where I spent a lot of my time.
Max Roth Levchin: We are always looking for both direct and channel based sales to those folks spend a lot of my time talking to those Ceos trying to understand what they really need how are they thinking about.
Max Roth Levchin: There are always competing.
Max Roth Levchin: A little bit for their advertising budgets as well as kind of their growth budgets and so just figuring out how they think.
Max Roth Levchin: On discount you as a firm offer subsidized <unk> offers you a percent sales like all of that is really really important to us and so that's where I spend a lot of my time, that's where the company is spending a fair amount of time.
Michael A. Linford: That's where the company spends a fair amount of time. That said, there's always some cool logo we can probably flash if they would give us permission for it. Yeah, I just want to re-emphasize something Max said that's really important. In addition to our direct sales, which we continue to invest in acquiring new logos, we are also partnering more with people who can help distribute our product for us. And that has been a really successful strategy, again, distribution in some of the pockets that are harder to get to with the small sales force that we have.
Max Roth Levchin: That said there is always some cool logo, we can could probably flash if they give us permission for it.
Speaker Change: Just want to reemphasize any next said it's really important.
Michael A. Linford: In addition to our direct sales, which we continue to invest in acquiring new logos we are.
Michael A. Linford: We're also partnering now more with people, who can help distribute our product for us.
Michael A. Linford: That has been a really successful strategy gained distribution.
Michael A. Linford: And some of the pockets that are harder to get to with a small sales force that we have.
Speaker Change: Great. Thank you.
Zane Keller: Thank you. If there are no further questions at this time, I'd like to turn the floor back over to Zane Keller for closing comments.
Speaker Change: Thank you.
Michael A. Linford: There are no further questions at this time I'd like to turn the floor back over to Zane Keller for closing comments.
Operator: Thank you everybody for joining the call today. We look forward to speaking with you again next quarter. Bye. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Zane Keller: Thank you everybody for joining the call today, we look forward to speaking with you again next quarter.
Zane Keller: Okay.
Operator: This concludes today's teleconference. You may disconnect your lines at this time.
Operator: You for your participation.
Operator: Okay.
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