Affirm Holdings (AFRM) Q1 2027 earnings call transcript

Thank you. You may begin. Thank you, operator. Before we begin, I would like to remind everyone listening that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website.

Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them except as required by law. In addition, 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 IR website.

Posting today's call with me are Max Levchin, a firm's founder and chief executive officer, Michael Linford, a firm's president, and Rob O'Hare, a firm's chief financial officer. In line with our practice and prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into your questions.

With that, I will turn the call over to Max to begin.

Thank you, Zane. We had a blue tsunami on Tuesday and a red wedding today. We are not hanging out the white flag, though, so thank you for tuning into our call. Hopefully we'll provide some balm for your minds and some mirth for humors. get to your questions. Over to you, Zane.

Okay. Thank you, operator. Let's go ahead and begin the Q&A session.

I think you're asking me to make a forward-looking statement. I'm telling the team all day every day that we are not to grow less than a free handle it doesn't necessarily mean that we're guaranteed to do it just because I will it so but I think a key part of my job is finding a way to grow at 30 plus percent as far as I'm concerned for a very long time we are less than 4% of e-commerce. We are a spec on the overall commerce adjusted in the US. We're live in four markets. We're going to be live in a few more.

So there's not really a reason why this can't continue for a very long time. Like, it's ours to screw up. And there's a lot of really interesting things we're working on that are not in the picture. So, yeah, I think we have lots of outs in the game.

You know, there's a reason why we keep on counting the number of quarters We've been growing up at 30-plus percent consecutively. Just trying to make a point. And obviously, Adam, we've tried to reflect that in the full-year guide. You know, we've set a floor for growth. That floor now starts with a three as well. We're signing up for at least 30 percent growth this year.

So, you know, we're doing what we can. We've seen really good momentum in the business. Even in the first month of Q2, the business is growing at a high 30s rate today.

I think there's a lot to be bullish about from a growth perspective.

We're definitely spending a lot of time in Agentec. So that's certainly accurate. We are in really productive conversations with some folks, maybe more than that with others. So directionally, very important. We care a lot about it. The 0% better than not 0% is a slightly simplistic way of cutting it. If you are looking at someone who is likely on the skull, the answer is an unequivocal yes, because you're getting free money, especially in the world of slightly rising interest rates. If you are a salaried employee and are managing your cash flow month to month, you care a lot more about a monthly affordability metric versus a true interest number you're looking at. And so there are plenty of consumers that we serve at a lower income level who are apparently at great risk, by the way, that will gladly pay you back and do so time and time again, but they really care about longer terms.

And at some point, zero has become uneconomical at longer terms, and they are completely okay with that. And, of course, retailers are excited to subsidize to compel them to transact anyway, but they may not care about a 0% loan as much as they care about less than $100 a month. If it becomes a 50% APR instead of a 25% APR, they're excited. But even a 25% APR, if it fits into their monthly budget, they're excited. I think the thing about this is agents are reliably going to pick the right instrument for that consumer.

For a lot of people, it will be zero is better than not. For a lot of people, it's going to be the longest term possible is great, and there's plenty of in-between too. So I think in general, agente shopping will optimize for the most rational transaction pricing. We're the only game in town, broadly speaking, that knows how to price every transaction at an individual level in real time every time. So we think we're going to benefit significantly in the world of agente shopping.

Yes. Okay, great.

Yeah, I mean, there's seasonality, right, in terms of how the balance sheet is composed from quarter to quarter. So I guess I would point towards the year-on-year declines in funding costs as a percentage of loans on the balance sheet. So we're pretty proud of that fact that we're down at 6%. I think that's a really, really healthy level for the business, and that's frankly showing up and helping us drive to the 4.3% RLTC take rate that we posted in Q1. So I think funding costs, you know, they continue to be something that we feel like we have really good line of sight into. We did call out in the letter that of the on-balance sheet funding, more than 70% of that funding was fixed rate in nature.

So I wouldn't read too much into the sequential uptick in terms of that being a pure flow through of rising benchmark rates. I don't think that's the right read here. So, you know, we've done a lot to, frankly, make sure that we take advantage of what has been a really compelling ABS environment for us. We've been in the market with several deals. And, you know, the good news about the ABS market is those deals are on the revolving side, on the on-balance sheet side. Those are fixed-rate deals in nature. And we've even gone out to three- and now five-year deals recently here in the market. So I think the combination of all of that is that we feel like we have really good line of sight into funding costs, and that's being reflected in, you know, all the guidance that we set, obviously, both for Q2 and probably more importantly for the full year.

So there's actually an excellent research, a firm technical blog. I think that's the headline. You'll get like a 2,000-word essay on the exact architecture design, almost exact. We took care to remove some trade secrets from it, but it's a pretty disclosed document describing both the process of building this thing and how it really works. So if you want real details, they're all there.

The extremely shortened version is there's a bunch of information, both in external data sources and our own, that encodes really subtle patterns or that represents really subtle patterns in particular repayment, but also just other relevant metrics. And when you're designing features, like the thing that you actually used to predict off a model up until recently. The only way is you have really smart humans, and they sit around, and they're like, so if we look at the patterns of when this person may have been paid, we don't really know exactly. So you do a lot of hypothesizing, and then you say, all right, we think we see a pattern, and we're going to try to encode it in a feature.

And then you put it through a bunch of things, including things like, well, would this possibly correlate to prohibited bases? is this too close to something that could correlate to race or where you live? And so you do a lot of manual work. And that's eventually enough of the model that predicts risk can be backtested, et cetera.

And so we build this really cool transformer model that learns, figures out how to learn these subtle patterns without any human involvement at all, and then produces essentially feature candidates and then trains on that all entirely in a single pipeline. And so, one, you're picking up information value that may be just too subtle for a human to detect to begin with, But more importantly, you're just doing it a lot faster. And again, I'm oversimplifying if my AI people are listening because they're rolling their eyes and like, my God, this guy's an idiot. But I promise you, we have much, much better people who actually design this thing. And the net result is it improves our approvals roughly twice better than the next additive in a traditional.

So we have a family as a model that we've been training for 15 years now almost. Every time we launch a new model, we initially compare it in its ability to separate good risk from bad versus the prior candidate. And so when we look at the traditional model and this new architecture, compared to performance of the future candidate and this new idea, the new idea performed twice as well. It doesn't mean we're approving twice as many people at all. It means we're approving probably two, three points more people. But those are people who are able to lend essentially with no incremental loss whatsoever. And that is an enormous booster to, like, how do we get to this 30% growth?

One way, build new features, new products. The other way, find better risks without taking incremental loss or incremental delinquencies. And that's exactly what this model does with a whole pipeline of more models in that family coming out. We're pretty excited about them.

Yeah. And by the way, I strongly encourage you to read the blog post. It does a better job than I can in five minutes explaining this.

Yeah, you can see in the supplements that by far the outperforming growth segments of the ones that we break out, other than the nondescriptive other segments, the best one is services. And that's exactly what the brands are just saying. And so that's going really well. It's still super early. Like that is a major, every time we launch a new vertical, it takes us a bunch of quarters to figure out the perfect product market fit. You have to do it carefully. You can't just show up with a, you know, please borrow money from me sign and see what happens. But that one way to irresponsibly end and we don do that So we still learning but we very excited about the progress We seeing really good uptake It unlocks things like home improvement which we were never really a player in It unlocks access to offline services, which is really just a hard thing to access unless you have these platform partnerships, which we now do.

So doing really well there. We are always looking for more. I learned not to pre-announce, but this is not the last segment we're going to go into in a big way.

The short answer, John, is this is Rob. The short answer is yes, it does. Most of our D2C program runs on either a physical card or a virtual card, and so in most cases we're collecting interchange, and that interchange is going to be a function of the merchant where the transaction occurs and, you know, in some cases the industry for the transaction as well. So on average, the interchange that we collect is probably lower than the average merchant discount rate that we would have to an integrated merchant.

And so there is a little bit of downward pressure on that network revenue line. The good news is our direct-to-consumer business is very interest-bearing heavy. Affirm Card, for example, has historically run north of 80% interest-bearing loans. And so the all-in compensation to a firm is, on average, much higher than the business at large. But it's that mix of merchant revenue or network revenue, in this case, that is going to be a bit lower. But, you know, we think that that product still works really, really well for us, and we're really proud of the growth and the profitability that it's thrown off.

Just to sort of – I'm sorry.

Sorry. Sorry.

I'll add a little bit to this just because I think it's important to kind of see the long-term version of this as well. As we integrate with more and more merchants, we're able to do what we internally call universal financing programs, where the financing programs we offer to consumers at the point of sale, which sometimes is 0% financing, sometimes longer terms, but inevitably subsidized by the merchant or the brand they're selling, is also available to consumers on the cart. So we can almost think of the card and really all of our direct-to-consumer product as a little bit of a trailblazing device. We go to a merchant. I mean, this is a very, very true story.

I personally and our sales team goes to retail and says, hey, we have already driven a couple hundred million dollars of volume for you using a firm card. But this is just half the story. We can do amazing things for you. We can double your volume if you start participating in the 0% deals that we have and all the other tools that we've built like Boost. ai, et cetera, that allow you to optimize your basically marketing dollars. And the way to do that is in direct integration. As soon as the direct integration happens, you will see those 0% deals show off not just as a point of sale but also on the card. And we're investing in the card even more, making exclusive card deals happen.

You'll see a bunch of that in this quarter that we're in now. so today what Rob described is exactly how it goes over time each version where card gets a lot of useful get a call from one of us saying hey you really should integrate directly you will get the other half of our product that's amazing and we're more than successful in doing ourselves absolutely that all makes total sense and then just I'm wondering what you've learned so far in terms of the card usage?

The fraction of in-store transactions I think remain pretty stable around 30 percent. The frequency is a lot higher but we'll know that. It remains quite high. The pre-planned so you create a payment plan before you swipe, before you tap, it's still the dominant use case so consumers are using us with a card similar to the way we use at the sale.

But there's definitely a non-zero element of post-transactional splitting where you first transact with a card using it as a debit card, which is what it is underneath, and then choosing to turn it into a line of plus facto, which we support as well. So it's a little bit more, let's call it, diverse usage pattern, but fundamentally it's access to a firm product and a firm programs with a piece of plastic.

Yeah, sure. I'll take them in order. I think in terms of the provision dollars in the quarter, we were in a position where we did choose to run some experiments within the approvals and the origination. And we made the decision to keep those loans on balance sheet. And the experiment itself was pretty localized to the month of September. So, you know, those loans are on the balance sheet. They're showing up in the allowance.

Because they're experimental, I think they're more than properly accounted for in terms of allowance. So that did have the impact of driving a little bit more provision expense, a little bit more allowance in the quarter. But when we look at the profitability and the revenue-less transaction cost take rate that we were able to drive in Q1 of 4.3%, we felt like that was the right thing for us to do, and it was overall accretive to the network and helped strive on the new user front particularly. So we feel good about that decision, and the byproduct of that was a little bit more provision expense in the quarter. But again, that felt very comfortable just given the profitability we were seeing in the first couple of months a quarter and then on the gap operating income on the guide relative to external expectations I mean obviously I think on our side some of the some of the gap only expenses that you know would be the drivers between adjusted operating income and gap operating income I think as I've looked at some of the external models.

I think maybe there's a little bit of under-modeling around the warrant expense in particular. As most folks know, we have a program with a large partner where there's a performance component, and that partner earns warrants through new-to-program users. We're seeing actually a nice trajectory of growth in new users through that program, partly driven by some international expansion that's happened. So I think that's an area where our internal forecast is maybe a bit heavier on expense than the external estimates. I think ultimately that's a really good thing for the business.

We really are excited about getting this toehold in the UK, and I hope that it's the beginning of several successful international markets. So again, I think that's the one area I would point to that maybe the street has undermodeled for us in terms of expense, I think that's driving most of the delta in the gap operating income margin.

I think the seasonality probably looks a bit like retail. And then there is also this maybe added complexity where in a new market, we see a higher rate of new users than we would in a more mature program or a mature market. So I think it's a combination of those two things. But yeah, there's definitely some holiday period seasonality.

what have been the learning so far from the rollout as well thanks yeah I mentioned the down payment with a CH a little bit in the same context as the AI gateway like there's a lot to save still inside our system we're fairly well optimized in terms of managing operating expenses but at our scale serious fire engines going by hopefully you cannot hear it they're clearly very so today so these are and I guess one way to think about the we can analyze the easy thing is the approach in anyway every time you switch from a real-time network to a non real-time network you are introducing an element of risk. We are very good at risk management.

At a certain scale, you have enough data where you can essentially self-insure using debit card networks to take down payments. You get a little bit of an insurance of good funds, but you're paying interchange. By switching to ACH, you are introducing a delay. You don't necessarily know you're getting good funds at all times, but if you have a really good underwriting model or you're able to build a specialty model for that particular form of payment, you are saving money and effectively just putting it towards giving consumers better deals and saving on OpEx. So that's kind of the general thrust. And I mentioned one, but there's many such initiatives going on. And they're always going on.

This one wasn't just a particularly dear to my heart because it was a long time of making. And then on the wallet side of things, you know, we are – we were trying to And not to talk in too much detail about any one particular product, so I'll keep it general.

It's been a, generally speaking, it's been very creative. We find that folks that prefer digital wallets really stick to them. So having a direct integration is a great unlock for repeat usage. We definitely get some new users through those integrations as well, but the most compelling kind of benefit for those deals is always just being there when the consumer is. If you look at some of our merchant partnerships, you'll find our logo. You'll see many digital wallets right next to us. And any door you go through, you will find a firm available. And some folks love going through our flows. Others like to do that inside a digital wallet provider, and we see it as an important part of our business to be in all these places.

And so that's been kind of the most important thing. And that strategy was something we said. We sometimes said we've embraced channel conflicts, sort of a shorthand for this, and we've embraced it for a little while, and it's paid dividends. We're seeing those users come back through those doors over and over again, and they become accustomed to finding a permit exactly where they prefer to shop.

Anything you could talk about just on kind of user experience and kind of things on the roadmap there Thank you Never pre the roadmap It takes longer than you think I bite but I try to keep it not overly explosive So there's a lot of work being put in right now into the card. We really think it's the best way to use a firm or it should be the best way to use a firm. We think it already is. There's so much more we can do. Like a card should be unequivocally the best, most protective, least difficult. It should be the thing that you prefer. And the reason I'm so excited on that is because it fits naturally into both kind of a normal waste, quote-unquote, point-of-sale integration to the medical process of your cards.

It also fits natively into all the digital wallets. And so we're very, very focused on that product, just continuously adding benefits to that. And so there's a lot of work being done. You'll see some of it actually launching literally in days, not weeks. So you'll see the answer and answer to this question in a very immediate future.

There are some card-specific financing programs coming. There's a card-specific firm offers that are going to start appearing that will make the firm card the preferred way, kind of just through the pure financial benefits of consumers.

I'll stop there, but I think that's kind of the thrust. Some of this is, by the way, what we internally call the mainline development, and then there's even more coming a little bit later from the ZT1 team where we're really thinking in the sort of the next iteration of the card.

I'll start by I think Michael is the one who's going to give you the really eloquent answer, but I'm going to steal a line from him before we get anywhere. So I'll tell you story. In May of 2020, we were not a public traded company. We did not have a lot of cash. And we had no idea what this COVID thing was going to be all about. The stimulus check hasn't arrived yet. And Michael and I were staring at our book, asking the question, if the world goes fast with hell of a handbasket, no one can pay their bills. What are we going to do? And he gave a very piffy line that remains true to this day full six and a half years later.

This was in May. Whatever happens by August it won't matter because the entirety of the book at risk will have been paid off. We lend very, very short weighted average term. I'll leave it to Michael to repeat. I think actually Rob is the one who explained that a lot of the delinquency changes are entirely seasonal. The year-over-year changes are irrelevant.

The provision of take has to do with some, we think it's very intelligent, but it's all entirely in our control. But the bigger point, if you don't believe any of the eloquence that I bring to my storytelling around modeling and risk management, just know that the average term is still very, very short. we get to deal with whatever overexposure we might take on today in less than 90 days. So that should give a lot of people, I think, great comfort in our ability to recover from whatever mistakes we might make. That said, like a third of the company is involved in some form or another of managing credit. Credit is job number zero. It used to be my call sign in every one of these letters until I got tired of repeating myself.

But it hasn't changed the way we run the business. So if that's the reason the market misunderstands us, let it stop its misunderstanding.

And then just two things to add. First is, you know, the credit outcomes that we are getting now and have gotten over the past six years of our public life have been in line with what we wanted to have. Our credit outcomes are a choice point that we make in our business about where we want them to be. Everything we do is intentional with respect to credit.

And we can do that because we're looking at hundreds of millions of decisions every quarter when we're making underwriting decisions. And you can tune those models to the appropriate amount of losses you'd like to have based upon that just incredible volume of decisions that you're making in a quarter. The second is the capital markets have spoken very loudly on this topic. Whether it's the ABS markets who both understand and appreciate and have the first risk in a ton of our loans, But also the forward flow market, really sophisticated, world-class blue-chip loan buyers who understand the credit losses in our business exceptionally well, continue to be extremely interested in exposure to our assets.

These folks are honestly some of the smartest credit investors in the world, and they are still extremely excited to participate in our assets. The ABS deal that we are in market right now on in price today was over four times described, despite doing it in one of probably the worst macroeconomic, certainly in the equity capital market studies we've had since COVID.

To be able to price a deal like that without volatility, you can't do that without that market giving you two big thumbs up on your related control.

Sorry about misrecognizing you, Rob. It's a compliment. If you've been tuning in for a while, you know how we feel about Christ and how much we care.

It sometimes frustrates us that not everybody has gotten the message yet, but we'll just keep compounding at 30% and keeping that DQs in the right range, and at some point we'll become parents.

Sure. And I know some of them are listening. Shout-out to my CD1ers. They are a genuine delight of my daily grind here. So, I guess some sense for what we're actually working on. So, I'll give you a – this is maybe a true look behind the curtain. So, the MO that I set with ZC1 roughly, trying to remind us what we're here for every quarter or so, is to work on projects that have either a risk-adjusted work, probability to adjust this path to a billion dollars in revenue in a span of five years from launch, or to move the needle to the tune of 15 to 20 percent on an existing line of business that is already a billion dollars.

In other words, we either want to take a bet on an existing thing that we believe a firm proper is misprioritizing and we have both the audacity and the capacity to try to move the needle there, or just frequently back. More frequently, we actually want to go into kind of the dream big approach where we build something, and we have no idea if it's going to work or not, but we're going to try. And if we see a heartbeat, we go all in and build it until it gets to a point where we hand it off to the main development team, and then they pick it up. So one practical thing, this is not a big reveal because we've talked about this product before.

So every once in a while I mention BSPs or brand sponsor promotions. This is the idea that if you are a multi-skew general merchant seller, you're probably selling a lot of things that you are not marking up more than 10%, maybe 15%. And so when a firm comes in and says, hey, you ought to do a 0% sale, being nothing is a great idea.

Black Friday is coming up, 0% drives the volume. Let's do this. If you are a vertically integrated seller, like, of course, sounds like a great idea. Here is my 6.5% to 9.5% MDR. Let's give lots of people access to 0%. You're a general merchandiser and you're reselling a branded product that someone else manufactured. Your markup is basically the ask that we're making of you for the MDR. The 0% is not going to happen unless you're just trying to have empty calories. However, the original equipment or the original item manufacturer receives a lot of margin. Many of them are motivated to put their marketing dollars to work. In fact, they already have existing relationships with the retailer.

And so helping the retailer and the brand tie all those funds, which are typically plentiful. There's a lot more margin to go around, which usually gets spent in sort of silly promotions like driving. Did you know there's a 20% sale at retailer X on brand Y? That is an extremely, extremely sophisticated way of doing it. A much better way is did you know that this particular SKU is on a 0% loan at exactly retail price? There's no discounting, but this retailer has this brand at 0% available right now.

So all of this sounds kind of obvious. It's braided that nobody's done it. The reason no one's done it is because it's really hard to scale. This actually happens in retail today. We didn't invent the genre. If you talk to any major player, any general merchandiser, they'll tell you, oh, yeah, we do this all the time. It's called vendor promotion, vendor-funded promotion. So you go to the vendor and say, hey, give a couple hundred thousand dollars. I want to put you into my circular. It's going to go out to people. and it works okay, but it's run off of spreadsheets and people have to make phone calls and it's quite a lot of manual labor.

So they do this maybe once or twice a year and it's generally speaking applicable to every item or a brand and it's very, very undifferentiated. We've been building a system that allows for all of this to be managed basically entirely electronically where you can really have a large number of SKUs at any given time with these brand-sponsored promotions. This requires things like budget management because nobody wants to run these promos forever. They need to be launched and blown down at exactly the right times. They have to hit at the same time as marketing promotions that happen. Typically within the general merchandisers, retail media networks, all of them now have their own advertising arm, so this has to echo through that and reach the consumers that way.

So plumbing all of that together and making sure it's still very profitable for the retailer is just an incredible amount of work. That's what we've been building at ZT1. If you want to see what that looks like, if you actually play with the Affirm app, you will find that we've scaled BSPs out very significantly. I'm not going to drop any names.

This call will be a good scavenger hunt. But there's about a million different SKUs in the Affirm app that are brand-sponsored funded. So that's very real.

It's not anyone's forecast to discount heavily everything I say here, but I'm personally very excited with what this will do for Christmas sales. and hopefully we'll scale it out to hundreds of millions of SKUs before too long.

Thank you, Max. Hopefully half of this made sense. If you want to flavor what you'd like to work with me, these are ends of current DT1 on a regular basis.

Yeah, I mean, obviously, we've given a floor for growth for the full year at about 30%. So it's not a range. There's no ceiling to growth. We're doing everything we can to grow the business responsibly. we're seeing growth rates early in Q2 and certainly in September as well that were, you know, much north of what we posted in Q1. So no reason to – nothing to point to specifically in terms of a deceleration in the business. We just wanted to set, you know, a responsible floor for growth for the full year, and that's what we did with the FI 27 Guide.

Hey, I'll take this one. This is Michael. We're really excited about Edge. It's a chance for us to distribute what we know is a better way for consumers' access credit to a really very wide audience. by partnering with the issuers of debit cards across banks of all sizes. It is also really early. We've been hard at work working to develop the product. I feel like we're really close to being wrapped up with some of the development work. And then we will need to figure out the right set of partners to get live with. Nothing to announce here today. But I think patience is the code word here. We have a set of partners, both the platform partners as well as the end customers here who don't move exceptionally fast.

And we have to be really mindful of just the pace at which they can move, and we have to pace ourselves to them, and they're going to govern that. So it's going to take a little bit of time. Don't have a list of partners, but are and continue to remain very excited about the products.

I've written it better myself. Yes, they should. And part of why we've been so hard at work on things like BSPs is to create programmatic APIs. So initially humans with calendars and tools, but soon enough agents on their own can deploy dollars to compel a buying agent from their side to say yes. Agents are going to be shopping on your behalf. They'll certainly be looking for good deals on your behalf. The firm is really the only scaled player that's capable of managing longer-term zeros that are differentiated, that are driven by SKUs, that are driven by targets or targeting.

And we should expect at some point, like this is very, very early. I just heard Dara talk about how there have been very few agentic rides booked on Uber. So it's all very, very early days. But it is coming. It is coming. It's exciting. I'm sure all of you have tried all the various agents, and some of them are really, really compelling now, each one of these will be programmed to find you the best financial transaction. That is going to be a combination of costs, which is going to matter, and 0% is going to be the best cost because there's no cost to borrow. It's also going to matter that they are fully disclosive, that the price doesn't change if you are somehow a day late, that it doesn't compound, so you can estimate it in a dollar.

So all the things that we've talked about has really, really important. A high percentage of our consumers picks us because of those features. Some pick us because we're there and they don't necessarily grasp the full kind of value that they're getting by choosing a firm. 100% of all agents will grasp exactly the value they're getting. We do offer the best credit product there is. That's actually true. And so as agents find us, it will help merchants sell more. Merchants can help merchants sell more by funding more promotions. And so I expect 0% volume to go up a lot in the GenZic. I expect agents to care about the ever-changing catalog of 0% loans or 0% deals inside the Affirm ecosystem.

I think that's a really important service that we're going to provide to every GenZic shopper tool out there. So there's a lot to like about where this is headed. But again, I would just caution anyone to create a spreadsheet that shows going to the moon Thank you so much.

It's a great question. So on the cybersecurity side of things, obviously we take it super seriously. This is not, and by the way, so should everyone. If you just, you know, there's a meme going around, I wake up, there's another vulnerability. That is the life of our security team and every security team who, you know, has a job right now.

And so I think we're all constantly watching out for use closures. We're trying to keep up with all the patches, trying to make sure that we're keeping our data safe, our users' data safe, et cetera. And this will be a... I'm generally speaking quite bullish, by the way. We're definitely not in security, but it is a little bit of my past life, so I have strong opinions.

I think defenders are getting access to better models quicker than attackers, and so we will go through an unpleasant period of hashing and fixing and learning how to write better software. But in some fairly short period of time, we're going to just be better software builders with AI and, generally speaking, better protected. So we're in a little bit of a shooting war right now with these bugs that are being discovered every day, but it will end, hopefully, relatively quickly, and then we're all going to be better for it. So not unconcerned, not even a little bit. In fact, I text our security team in all kinds of hours saying, have you guys seen business closure yet?

Like, what are we doing to make sure we're not affected? So that's the daily lives right now. But we're technically very, very strong and we're definitely benefiting from the excellence of our engineering and security engineering teams. On the fraud and liability side, that is a fantastic question. Generally speaking, you can expect agentic commerce to be more than a little bit messy in the early days. your agent will hallucinate, you must have said yes, and here's an 85-inch screen TV for your tiny one bedroom apartment, and you don't care what you're going to do with it. You bought it, and it's yours. And you'll have to return, but the headaches and the hassle will be there.

So as all of that gets figured out, and by the way, AI is improving very quickly, your agent is going to learn, the models that power your agent is going to learn very quickly, including from the space your agent is being. So all of that is also going to resolve itself in a reasonably short term, but the messiness of consumer interaction with agentic purchases, unwanted purchases, not as described, and then, as you very aptly pointed out, agentic fraud is going to be a thing.

Generally speaking, if there's risk to manage, we like that world better than the world where there isn't. We are very good at it. We're very good at capturing the right data. We're very good at rapidly scaling model building and training things that allow us to mitigate price and ultimately manage risk. And so I don't want to say I'm excited for the new challenges or common worries, but to some extent, every time there is a disturbance in the force of payments, whether in a form of risk or rates or fraud or credit or new modalities, new channels, we tend to win because the solutions are inevitably engineering and AI and ML based, and we have very strong advantage in the rest of the industry in that space.

I applaud your attentive read of my Lebowski references. That's one. There are several more. No one ever asks how many there are. There are many in this list. Some of them are very deep cut, so that's a good homework assignment if you want to take your mind off the bloody market.

You know, I think most of you really understand the business pretty well, and we're always happy to engage in these calls because it gives the chance to brag a little bit to the questions I've gotten that are better and smarter over the years.

I don't know, Michael and Rob, if you guys have something that should have been asked.

I feel like this is the last few quarters. If you want any feedback out of this community, you've done it really well. We look forward to these conversations. We like the questions. We feel appropriately challenged, and we don't roll our eyes at any of them.

I mean, our large-ticket items, large-ticket bills, services included is our bread and butter. There's no one else in the industry that's figured out how to do that at scale in a differentiated manner. So we're always excited for more of that volume. You're totally right. There's a really healthy demand. And I remember when I answer, you know, the largest transaction we ever written was $7,000. And that was like, oh, my God, I can't believe I said that out loud. And that is not even close to our largest transaction. So we are carefully, carefully increasing our aperture for risk for only the deserving borrower, only the, you know, typically quite high credit quality. But there's definitely room there.

it's actually hard for me to immediately reason about MDR changes because there's two opposing forces. The merchant is, you know, if you're selling an HVAC system, so making it up as I go, but a typical HVAC is like $20,000, $29,000 range. That's a typical sort of replacement for a single family home. A merchant trying to move that merchandise is more than excited to pay a substantial MDR to make the answer as compelling as possible. You don't want me to come back and shop at Gethseed. You just want me to buy this thing. And so MDRs are naturally easier to get from merchants because they understand that they're only going to sell a dozen of these per quarter.

One of them not being sold makes a huge difference to their bottom line. So specialty shops that sell these things are particularly drawn to 0% promotion. So all of that is really, really good for MDR. On the flip side, the buyer, given the size of the transaction, is actually typically very low risk. And so from our point of view, to extract a reasonable margin of safety on the loan, the requirements are meaningfully lower. So you kind of have two-directional pressure in each direction, and I don't know if I can instantly handicap whether this means the net result is higher or lower. It feels like it goes a little bit higher, but maybe not quite as high as, you know, a four-year 0% loan would compel or something like that.

Yeah, and I think, you know, for a larger ticket transaction, James, this is Rob, we would also go longer on duration. And so in terms of the overall total revenue quantum that we would get from the transaction, because it is going to be a longer duration loan, it's probably on the higher end of the spectrum for us as well, just given there's going to be more funding costs associated with that loan on our side.

Well, thank you everyone for joining today. Apologies again for the technical difficulties at the beginning of the call. And thank you for your time and we'll talk to many of you again shortly. See you then. Talk to you.