Earnings Call Transcript - AFRM Q2 2024

Operator, Operator

Good afternoon. Welcome to the Affirm Holdings, Inc. Second Quarter Fiscal 2024 Earnings Call. Following the speakers' remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded, and a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call. I’d now like to turn the call over to Zane Keller, Director, Investor Relations. Thank you. You may begin.

Zane Keller, Director, Investor Relations

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 Investor Relations website. Hosting today's call with me are Max Levchin, Affirm's Founder and Chief Executive Officer; and Michael Linford, the firm'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 questions and answers. On that note, I will turn the call over to Max to begin.

Max Levchin, CEO

Thank you, Zane. Thank you all for joining us today. We're excited to share the results of another great quarter. As is our custom, the better the results, the fewer words we use to comment on them. This time around, I feel good enough to go directly to the Q&A. Back to you, Zane.

Zane Keller, Director, Investor Relations

Thank you, Max. With that, we will now take your questions. Operator, please open the line for our first question.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Ramsey El-Assal with Barclays. Please proceed with your question.

Ramsey El-Assal, Analyst

Hi. Thanks for taking my question this evening. I was wondering, if you could help us think through RLTC for the remaining two quarters of the year. Sort of what are the drivers, puts and takes, variables that could impact our RLTC and drive underperformance or outperformance. How should we think about those kinds of variables?

Michael Linford, CFO

Certainly. If you consider the percentage of GMV, various factors like mix and macro conditions are crucial. When looking at total dollars, GMV on our platform will significantly impact the results. Regarding the RLTC rate, which is the take rate as a percentage of GMV, it really comes down to the mix of businesses among our merchants and the products we provide. On a macro level, consumer trends and interest rates play a role as well. We are optimistic about the current environment, which is reflected in our updated full-year guidance, and we feel positive about the second half of the year. We are confident about RLTC margins in relation to GMV, largely due to the macro conditions we’re experiencing. As usual, we factor in current macro signals, such as unemployment rates and future projections into our assumptions, though it is important to note that changes in these factors could alter our outcomes.

Ramsey El-Assal, Analyst

Okay. And a follow-up for me. On Slide 10, where you list out your GMV vertical mix, it looks like general merchandise has picked up quite a bit from travel and ticketing or travel and ticketing has gone down and general merchandise gone up. Are there any drivers to call out there? And I guess, more broadly, can you just comment on performance across key verticals in there?

Michael Linford, CFO

So, travel and ticketing is a very seasonal category. So a lot of folks book summer vacation travel in the first two calendar quarters, the last two fiscal quarters of our year, and it tends to be lowest in terms of bookings in calendar quarters like Q2. And so we think there's a huge seasonality factor there. And for general merchandise, some of our largest merchant enterprise partners fall in that bucket. And as we continue to scale those, we will see lots of purchases there, and it's not unusual for that to be a category that spikes in and around holiday season as a lot of holiday shopping is done in those channels.

Ramsey El-Assal, Analyst

Got it. Makes perfect sense. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Andrew Jeffrey with Truist Securities. Please proceed with your question.

Andrew Jeffrey, Analyst

Hi. Appreciate you taking the question. Max, brevity is indeed the sister of talent, I'll make that very clear. So I've got a couple of questions just on GMV growth and tender share. As I recall, you've tightened the credit box about a year ago, and obviously, the back half of the fiscal year looks strong. Can you comment either Max or Michael, just on kind of how underwriting and risk are factoring into that strength? And then the corollary, I guess, or the follow-on would be around tender share of your enterprise customers, and it appeared to be elevated during the holidays, and I just wonder if that's a sign of accelerating tender share to come or aspirational end or share growth?

Max Levchin, CEO

Thank you for your comments. The most significant change we've made to our Box was actually about a year and a half ago, around April 2022, when we noticed real stress on consumers. We responded within the next 60 days. Since then, we haven't made any major adjustments. We continuously tweak the cutoffs on a merchant and product basis and adjust terms like durations and down payments. We have been actively managing credit since we started, but there hasn't been a substantial change in our approach in the last year and a half. The numbers we just reported were not a coincidence; we worked hard to achieve those results. I want to emphasize that we are very hands-on in this process. We have specific expectations with capital markets that we aim to meet. Our share of wallet has performed well over the holidays, and while we are seeing varying stories by category and merchant, overall, we feel good about the announcements we've made. We've recently become a more prominent player in the offline space with both cards and self-checkout kiosks. Notably, Shopify has shown exceptional growth, continuing to excel in our partnership after three years, with its product growth outpacing the average for Affirm. We still have a lot of opportunities to scale, and we are excited about Shopify's offline ambitions. The key for us is being present where consumers shop, and increasing our tender share follows from meeting diverse consumer needs effectively.

Michael Linford, CFO

And the only thing I'd add is we did with the 36% APR cap that we were able to get in place, we were able to be more expansionary in a number of places that is completely done now. And so we wouldn't expect any more volume benefit there, although there is still some margin benefit, we think that will come as the program continues to roll out and scale but we wouldn't expect any more volume there because of 36%.

Andrew Jeffrey, Analyst

Thank you. Appreciate it.

Operator, Operator

Thank you. Our next question comes from the line of Reggie Smith with JPMorgan. Please proceed with your question.

Reginald Smith, Analyst

Good afternoon and congrats on the quarter. I guess you kept your comments short. But I guess where were you most surprised and this is a pretty big beat. And then I had a follow-up after that.

Max Levchin, CEO

We try to run a tight ship, so surprises are rarely a welcome thing and if they are to the good. I think, I already called that out, but I thought Shopify as a company, years to have done a fantastic job with their products, and we stand to support our partners there and have done it all together. Let's see what other surprises. Don't like surprises, Reggie. I feel like, anytime somebody surprise me, I'm not going to like the outcome. Actually, I'll give you one very surprising fact, which is a little bit of an inside view, but we had very noticeably accelerated our ability to ship software and I had anticipated some of that, but I'm quite surprised about how productive the teams have been on the engineering side, on the product side and design side, and that sort of percolates down to revenue. So generally speaking, I expected that we would rally around the goals, especially from sort of the low point of this time last year. But if it's a turnaround, it's a much faster and more aggressive turnaround than I expected.

Reginald Smith, Analyst

Got it. The seasonal patterns of your margins indicate that the second half of the year is typically stronger than the first half. When I examine your full year guidance for operating margin, it suggests a significant sequential increase in expenses in the third quarter, particularly below the RLTC line. What is driving this increase, and where should we expect to see it manifest? Is it related to marketing or technology? My rough estimate indicates an increase of around $20 million sequentially, though I'm not certain. Any insights on this would be appreciated.

Michael Linford, CFO

Yeah. We don’t provide a specific guidance number for there. So sometimes the way in which we build our guidance can lead to a little bit of exaggeration on that as you calculate it. But that’s right. And there’s a couple of factors to think about. Firstly, we – and this will sound very trivial, but I promise you it does actually end up becoming pretty big. We do expect there to be a lot more payroll tax associated with stock-based compensation in our first quarter, both because people have reset their tax obligations to – with the new year, but also because the share price is higher. And both those two things will create a little bit of the sequential bump from quarter-to-quarter. And then we remain really excited about the opportunities that are ahead for us. And so we’re continuing to be thoughtful around where we should be adding resources to go build new products and chase the new opportunities. And I think the strength in this quarter’s results with respect to our unit economics and operating efficiency, gives us license to be willing to add a little operating expense, whereas I think we’ve been very cautious to do that until we could demonstrate it.

Reginald Smith, Analyst

Understood. Congratulations. Great quarter.

Michael Linford, CFO

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Dan Dolev with Mizuho. Please proceed with your question.

Dan Dolev, Analyst

Hey, everyone. Fantastic results. Congratulations to Max, Mike, and the team. I have a couple of questions. The first is about the guidance. Some are viewing the GMV guidance as conservative, which we don't agree with. You exceeded expectations by $700 million and are now raising the guidance by $1 billion. You seem very positive about the macroeconomic situation. Is this just a matter of being conservative?

Michael Linford, CFO

Yeah. I mean, just like we have all year long for the full year, we're only providing a floor or our full year guide. And so we did take our floor up by $1 billion, which we think is a pretty big step up in what we would expect for the year. We remain very upbeat and excited about the opportunity.

Dan Dolev, Analyst

Got it. Yeah. No, that's what it seems like. And then maybe one other question on kind of the direct deposit opportunity. You've had tremendous success with the card. Can you maybe talk a little bit about what you're seeing in terms of the usage and frequency for the people that are doing the direct deposit into the card or into the Affirm app?

Max Levchin, CEO

A little early. We gave the future name about 60-something days ago. So it's a little early to brag about the results. But we feel very good about it. It's done in the early versions that it is about as well as we could hope for. We have a lot more things coming for that product, working on a couple of very specific things that are just required before you can really call yourself an account. But feel great. It’s definitely – and I think I mentioned this before, but there’s kind of three stages of Affirm usage. If you are a non-cardholder, regular user, frequency is 4.5 transactions a year and grew again 20% plus year-on-year. But if you have a card that goes up quite a lot, is about 4x, and then it grows again, fairly significantly if you are an account holder. So I'm very excited to give more accounts to people because that’s ultimately a frequency driver for us as well.

Dan Dolev, Analyst

Got it. Well, it sounds like a huge opportunity. Congrats again.

Max Levchin, CEO

Thank you.

Operator, Operator

Our next question comes from the line of Rob Wildhack with Autonomous Research. Please proceed with your question.

Robert Wildhack, Analyst

Hey, guys. May I ask a question on volume in a different way. I think the shareholder letter called out three quarters of accelerating volume growth and then within the December quarter each month, accelerated to the updated outlook for the rest of the year seems to point to a pretty healthy slowdown in the second half, half over half. So I wanted to get your thoughts on what might be driving that slowdown if there's anything specific that you're seeing?

Michael Linford, CFO

So again, I believe our full year outlook is just a baseline. We haven't provided a range or an upper limit for our expectations. Any calculations for Q4 probably won't reach a midpoint, and any estimations including our Q3 range may be overly optimistic. On another note, we had a really strong Q2. While we appreciate the success of the second quarter, we don't view it as a fundamental shift in our business. We are pleased with it, yet we remain cautious in projecting our outlook for the remainder of the year and are aware of all the influencing factors. However, we have no indications in our business that suggest a slowdown is occurring right now.

Robert Wildhack, Analyst

Okay. Thanks. And then your picture, and I appreciate this may not be in play for this fiscal year, but how would you expect potential interest rate cuts to flow through to funding costs? And then strategically, would you want to drop those savings to the bottom line via higher RLTC margin or do something different?

Michael Linford, CFO

That's a great question. Whenever we consider changes in rates, it's important to understand the reasons behind the movement. If the rates are changing due to economic stress, particularly related to employment, it doesn't directly translate to a corresponding benefit. However, if we assume other factors remain constant, a decrease in rates would positively affect our RLTC line. We aim to maintain our business within the 3% to 4% range that we've mentioned since going public. If we can operate at the higher end or exceed that, we plan to reinvest those earnings into products to attract and reengage users.

Robert Wildhack, Analyst

Okay. Thanks, guys.

Operator, Operator

Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Jason Kupferberg, Analyst

Thank you. So you highlighted in the shareholder letter, I think that two-thirds of the revenue growth in the quarter was from interest income. Is it fair to say that's also the revenue line item that surprised you most to the upside relative to your guidance? And just curious how much of the revenue guidance range for the fiscal year is coming from the interest income line, you guys have obviously been doing a really good job on that side of the equation.

Michael Linford, CFO

No. Certainly, we're happy to have the unit economics we do have, but I think we're probably more surprised with the healthy merchant fee growth. Whenever merchant fees outpaced GMV growth, it creates pretty good flow through to the full P&L in a way that's outsized. I think some of the strong performance we had above our expectations around RLTC and the flow-through for the full P&L was actually driven by the really healthy merchant line. Yes, the total aggregate revenue growth wasn't there. But remember, against that, interest income growth is a pretty steep rise in funding costs, and that's driven by both the balance sheet growth as well as the higher benchmark rates that we're in this year. And in fact, interest funding costs grew faster than interest income. And so while that was important for us to be able to get the business where it is, it's also the case that we don't see that as the real tailwind here. We're still managing through a rate environment that's substantially lower last year than this year. And as those things abate, then we will begin to see the benefit end of the future.

Jason Kupferberg, Analyst

Okay. No, that makes sense. And then just like a two-part question on GMV. What's your latest expectation for Affirm card GMV this fiscal year? And then any comments you might have around January GMV trends. I'm kind of curious because we heard from others that card-present volumes suffered because of the severe weather. So just wondering if your business benefited at all from that? Thank you.

Michael Linford, CFO

So we've not given any outlook for the card, and I won't now. What I would say in the letter, we talked briefly about the seasonality of the card, and I think this is a really important thing for everybody to pay attention to, which is the card had really strong growth from Q1 to Q2. We would estimate that about half of that growth in card volume was actually underlying seasonality and the other half was growth in the card which just means as you think through where the volume should be for the card in the balance of the year. Just keep in mind the Q2 starting point has benefited from a pretty big step up from Q1 to Q2 from seasonality as consumers do spend more in the holiday season. And we’re still early enough with the card. Fortunately, we’re not seeing things like weather impact our card performance.

Operator, Operator

Thank you. Our next question comes from the line of Jill Shea with UBS. Please proceed with your question.

Jill Shea, Analyst

Good evening. Thanks for taking the question. I was wondering if you could provide us an update on the Shopify partnership and any stats that you could share with us, that would be great. Thanks.

Max Levchin, CEO

Hi. It's one of the highlights of this last quarter is going unbelievably strong. It accelerated for the fourth consecutive quarter. The program is over three years old and the fact that it's still picking up steam is just great, and they've been extraordinary partners to us and nothing but wonderful things to say about Tobi and the team in Arlington there, and there's just been nothing but excellent in both our execution and the partnership that we had. I think I already dropped that stat. But the program at Shopify grew twice the speed of the overall Affirm growth on the GMV side of things. They have aspirations offline that they're going after quite strongly and there's still a lot of synergies and what we're doing now there. We have a whole host of programs we're contemplating going forward. So lots of good feelings there, feeling very good. The fact that it's accelerating suggests that there's just more growth to be had for both of us.

Jill Shea, Analyst

Very helpful. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.

James Faucette, Analyst

Great. Thank you very much this afternoon, guys, for all the time. I wanted to ask on 0% promotions. It seemed like, at least anecdotally, those increase some, particularly towards the end of the December quarter. And I think in your supplement, you showed that 0% long duration merchant rates had picked up. Can you talk a little bit about what's driving that merchant rate tick up? Is it just longer duration generally within that long group? And how should we think about that both in terms of impact on RLTC margin, but also in terms of the type of customer and that you're bringing in with those promotions? Just wondering if that's enough to move the needle on some of these other metrics.

Michael Linford, CFO

It's a good question. As rates have increased, our longer-term 0% programs have required higher merchant fees, and there's not much more to it than that. It's related to the mix and benchmark rates. The customers we attract tend to skew slightly higher on the credit spectrum with those products. However, due to high levels of repeat business, this won't significantly affect the average at Affirm. We've been very active, working with our merchant partners to offer promotional support in the second quarter, and we will continue to do so. However, there wasn't a considerable change from the previous quarter regarding the total mix. Therefore, I don't believe there's a fundamental trend in that area.

James Faucette, Analyst

Got it. And then I wanted to ask, maybe it's a little bit convoluted question, but you're obviously growing the Affirm card really nicely kind of that run rate that you talked about seems to be around 100,000 cards a quarter or I'm sorry, a month. How should we think about is, a, I'm wondering how we should think about the availability or the credit pool available and how that's growing by comparison, right? Because as you send out cards, people will use it, you said most of it of that is interest bearing. So some of that available credit gets absorbed, but then there's new credit growth in that pool as you add more cards. So just how should we think about that potential to buy pool growing vis-a-vis the growth in cards? Hopefully, that question makes sense.

Max Levchin, CEO

I'm going to try to answer, but feel free to tell me if I'm addressing your questions. So I think you're asking if the availability of the card to consumers creates new opportunities for transactions. The answer is yes. Our usage of the card offline compared to without it is significantly different. All of those transactions are additional. It's not surprising that transactions from cardholders are much higher than those of non-cardholders because cardholders show more commitment by requesting a card and they take it to stores, expanding our opportunities. Regarding underwriting and credit exposure, there's no change in our approach. We have been using an internal transactional credit score called ITAC for precise underwriting at a transactional level. Some time ago, we added a user credit score, allowing us to assess both individual transactions and the overall consumer. We still evaluate every transaction and retain the right to deny lending. However, we now feel confident in our ability to determine a consumer's capacity and willingness to repay us. We lend on the card and off the card based on the same criteria and limits. You can borrow from Affirm through an integrated point-of-sale solution or on the card, but everything relies on the same set of variables and observed behaviors that influence our transaction approval. The card enhances convenience in various shopping environments, leading to greater opportunities without increasing our risk appetite. I think that answers your question, but I'm happy to provide more details if needed.

Michael Linford, CFO

I think the other thing to say is I don't think we're anywhere near the limits on what we think we would think about exposure limits for these users and we're nowhere near some sort of cap there for the population. We think there's a lot of frequency that we can drive with the existing users.

James Faucette, Analyst

Yeah. Great. Appreciate that. Thanks, Michael.

Operator, Operator

Thank you. Our next question comes from the line of John Hecht with Jefferies. Please proceed with your question.

John Hecht, Analyst

Afternoon, guys. Thanks for taking my questions. Like, just thinking about kind of the appetite for selling versus retaining the loans that you guys generated this year, I mean, you have interest rate, at least the curve is going down. It looks like sales execution is getting better, but you guys had an ABS transaction, I think, yesterday and the execution there was good. So how do we just think about kind of balance sheet movement versus marketplace movement over the course of the year?

Michael Linford, CFO

Yeah. Thanks for the question. So we did price an ABS deal, and we did so at an all-in cost of capital, 100 basis points lower than a deal we did in December. So in a very short period of time, you're seeing the market really give us credit for that. And that, we think, is a really healthy sign for the capital system and ecosystem overall. And we think is a reflection of both an improved macro outlook for everybody, but for us more specifically, the disciplined approach to credit that we've taken over the past year is getting valued we think, in the debt capital markets. And so we feel very strong about that. When we do the revolving ABS deals like the one we just did our 248 (ph) deal, those do end up on the balance sheet. And so while we do think about that as a really important funding channel, it isn't off balance sheet. Our off-balance sheet strategies involve mostly selling whole loans, although we do some non-revolving some term securitizations. With respect to the whole loan sales, we feel really excited about both the existing partners expanding and the pipeline of new opportunities that we have. Those conversations have gone very well. I think very consistent with the reaction that the ABS market has had. There's real value being given to us for the kind of credit outcomes that we've driven. And frankly, the yield that we put into the asset has allowed us to continue to be able to sell at prices that aren't really good for us. As is always the case, and we've said since day 1, we don't have one strategy that's better than the other. The things that we do are first and foremost enable the growth in the business, and I'm extremely proud of the way the team has been able to support the capital program over the past year through all the volatility remaining enabling all the growth that we've delivered. The second priority is to deliver our unit economics. Clearly, if we’re running the 3% to 4% range like we did this past quarter, we feel very strong about that. And then we begin to want to manage the capital efficiency of the program. That’s the third piece. And obviously, whole loan sales are more efficient but it’s the third of the three priorities. And so we wouldn’t really want to overuse that lever. And then the last comment is each of our capital strategies really exists and reinforce one another. And so you really won’t see us pivot to one or the other. We’re going to continue to scale all of our channels. That means continued ABS execution, continued forward flow and continued use of our warehouse lines.

John Hecht, Analyst

Okay. My other question was asked and answered, and I appreciate the color. Thanks very much.

Operator, Operator

Thank you. Our next question comes from the line of Kevin Barker with Piper Sandler. Please proceed with your question.

Kevin Barker, Analyst

Thanks for taking my questions. So there was a little bit of a tick up in the net charge-off rate in the quarter. It seems like you built reserves last quarter that may have preempted the charge-off coming through or could be partially seasonality as well. Is there anything to point out there? And would you expect that charge-off rate to drift lower just given you're seeing a larger portion of GMV being driven by Affirm card? Thanks.

Michael Linford, CFO

No. I don't think the card is going to drive different credit outcomes for the whole portfolio. I think the level of repeat usage might where you do see better credit outcomes on repeat users overall, but I don't think the card is big enough really to affect the total portfolio numbers yet. Obviously, when it gets much larger, it will begin to have a more material impact. But for now, I think it's small enough and yes, there's really nothing to point to specifically on the charge-offs. Again, I think about our charge-off policy, we charge off at 120 days. Delinquencies once they get past 60 or 90 days are overwhelmingly likely to go towards charge-offs. So we have a pretty good sense of that and full allowance at all times to handle the future charge-offs that we estimate.

Kevin Barker, Analyst

I think you mentioned that you were leaning in a little bit last quarter. Are you opening up the credit box to attract more users? It seems like it's an opportune time to do that just given your acceleration here and profitability that's being generated?

Michael Linford, CFO

Yeah. I think the strong units give us permission to do that more than anything. So we talked about 3% to 4% in the revenue less transaction cost as a percentage of GMV. That’s the real constraint for us. And so if we’re in that range, we can continue to be very aggressive on acquiring and reengaging new users. And that’s really the constraint much more so than anything else.

Kevin Barker, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Michael Ng with Goldman Sachs. Please proceed with your question.

Michael Ng, Analyst

Hey. Good afternoon. Thanks for the question. I just have two. First, a housekeeping question. Could you just help explain the uptick in the merchant fee rates for the long core zeros and are there any initiatives or mix dynamics that may affect that going forward? And then second, just a bigger picture question. Transactions per active have obviously been growing 4.4% this last quarter. You're also seeing really strong repeat customers. What does that tell you about the loyalty or engagement of customers and the durability about the installed base of users? Are these customers using this because it's become more habitual and it's a better experience or is it out of a necessity of credit? Thank you.

Michael Linford, CFO

In response to the first question, the changes are primarily due to the mix within our business, which has always influenced merchant rates. That's why we began detailing this in our supplementary information. The slight increase you observe in one category is mainly attributed to the mix in that category. Additionally, as duration increases, so does the pricing, particularly in the current rate environment where pricing is sensitive to duration. I don't believe there is a significant trend to note from this. As for the frequency question, I will defer to Max to address that.

Max Levchin, CEO

I think it's a reflection of the fact that the product is becoming more widely available more than anything. I think as we sign up some of the partnerships and expand them, the Shopify reference I made earlier, it does result in wider availability. The product is popular. It's well liked by the users. One of our top questions in customer service is why isn't Brand X supporting Affirm right now, and we work very hard to make sure there are fewer and fewer of those. And so as we become more available, also as we become available offline in the form of the card as well as some of the integrations that we've done, you'll naturally see more transactional velocity and frequency increase. The product is a better product in my highly biased opinion than that of a credit card and credit utilization goes up broadly, I think we are the under beneficiaries of that usage given the chance or choice, consumers opt in for more Affirm spend than private card spend and they're rewarded by having no late fees, no compounding interest, all the good things that would bring.

Michael Ng, Analyst

Thanks, Max. Thanks, Michael.

Operator, Operator

Thank you. Our next question comes from the line of Andrew Bauch with Wells Fargo. Please proceed with your question.

Andrew Bauch, Analyst

Hey. Thanks for taking the question. Excuse me, if this has already been asked, but I just want to get an update on what you've seen with the Affirm card usage. And anything that surprised you another three months into its evolution around behaviors or categories? Just anything broadly around that would be great.

Max Levchin, CEO

It's going really well. You can see in the supplement that we are continuing to grow it. From my point of view, we're growing it cautiously for several good reasons. First, it's a new mode of operation, which means that the downstream services such as customer service, dispute resolution, and merchant disputes also need to scale. So we're going to grow it deliberately for a bit longer until we feel that we've learned how to effectively handle the various conflicts that arise in commerce. We feel very good about the growth and have many more opportunities for potential increases. In terms of surprises, everything has generally gone to plan, but there is still much to do to encourage more frequent card usage. We mentioned at last year's investor event that we were close to achieving this. We have reward programs planned to incentivize people to use the card for all transactions, not just significant purchases. There is still a lot to do regarding the tight integration between the Affirm card and Affirm account. While we have implemented some features, more are on the way. From my perspective, the card is still in its early stages, with a long roadmap ahead for both increasing usage frequency and ensuring that consumers fully understand its capabilities. Once we believe we have everything figured out, there will be significant growth opportunities to pursue at the right time.

Andrew Bauch, Analyst

Is the next phase of growth dependent on receiving approval to invest additional sales and marketing resources into the card and the overall solution, or is it about expanding further into the marketplace?

Max Levchin, CEO

I do not expect any marketing funds to be allocated for distributing the card in the near future. That is not part of the budget or the growth strategy. Currently, to obtain the card, a user must have previously transacted with Affirm and must be in good standing, having progressed fairly far along the Affirm journey. They need to respond to visible advertisements encouraging them to use the Affirm card, emphasizing that they are eligible. Our marketing efforts are somewhat restrained, targeting a higher credit quality standard than the overall Affirm user base. This means that the consumers receiving card offers are held to a slightly different qualification standard. This represents one clear opportunity for expansion. However, a more aggressive strategy could involve making the card more favorable compared to taking out a loan with a virtual card number. Removing that option would likely increase card applications. There are several meaningful growth strategies we haven't pursued yet. Ultimately, if someone signs up for Affirm, they will need to get a card eventually, which represents a significant shift in our approach, although it’s not something we will implement immediately.

Andrew Bauch, Analyst

So it still sounds like it's going to be pretty targeted for a while here. Great. Thank you.

Max Levchin, CEO

Not forecasting any time that stops or goes, but I feel very good about the card growth for now.

Operator, Operator

Thank you. There are no further questions at this time. And I would like to turn the floor back over to Zane Keller for closing comments.

Zane Keller, Director, Investor Relations

Well, thank you, everybody, for joining the call today. We look forward to speaking with you again next quarter.

Operator, Operator

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