Evercore TMT Global Conference

Thanks. We're going to get started here with the firm, Rob O'Hare, CFO, Adam Frisch from Evercore ISI, doing this as well. Thank you very much for being here. Thanks for having me. This is being broadcast, so everybody out there, I hope you enjoy and can hear everything well. We're going to cover a bunch of stuff today with Rob. Obviously, growth, downside scenario, credit facility, all the stuff you would expect us to ask about with a few others as well. So let's start off beyond buy now, pay later. I asked a question at the investor forum.

Max really laid into it. We're not just buy now, pay now.

Okay, Matt. But with the launch of a firm bank, it's clear that you have bigger ambitions out there. So let's talk a little bit about how you think the long-term vision is going to shape out a little bit and where you think all this is going to add as you diversify away from just consumer transactions.

And maybe I'll just use the opportunity to clarify a little bit on the bank charter that we're pursuing. I think it's really important to remember that we're creating a subsidiary bank that's going to be a part of a firm. A firm itself is not becoming a bank, right? And just in terms of our ability to continue to innovate and to continue to grow at rapid rates, we think that's a really important distinction. And so in the short run here, assuming the bank charter is approved, we would be collecting deposits as a way to diversify our funding base and potentially lower the cost of our funding base as well the charter that we're pursuing is an industrial loan company and so there are going to be some limitations around how closely we can engage with the consumer and the sorts of consumer products that we can put in the hands of that consumer base so really in this first number of years the bank is really going to do more i think on the funding side than it's going to going to do in terms of deepening the relationship with the consumer. That said, there are several products today where we utilize a partner bank to offer those products to consumers, and I think having the charter will allow us to sort of vertically integrate a bit more and to bring some of those workflows in-house and rely less on some of our bank partners, not necessarily turn them off, but potentially bring some of those flows in-house as a way to diversify.

What kind of products would those be?

think about like even just the basic buy now pay later loans that we originate today we utilize um a partner a bank partner to originate those loans and over time we would expect um the originations to to come more from the affirmed bank versus our partner bank so um i think you know pretty much everything we do there's probably a bank partner somewhere in the product even virtual virtual cards and some of the issuances that we do there we rely on a third party bank partner so I think over time we're looking to bring those in-house but it's more of a an infrastructure and a diversification play than it is you know becoming a financial super app or something like that I think over time we definitely have big ambitions to touch more of the consumers financial life and this bank charter is I think a good first step but it's not the end-all be-all in the next couple of years.

So is the right way to frame it, I asked the question, other competitors out there are trying to do lots of things, whether it be the core account and then add EWA and add buy now, pay later, eventually. Is that something that is more of a, I don't know, I'll put a number on it, three to five year kind of endeavor as opposed to right now, you still got to launch outside the US, you're still chasing lots of verticals, you're still growing user base, You're still growing, accelerating GMV, so it's not like you're in a jam on growth. Is it more like, hey, we got a lot to execute on what we're doing today, and then we can diversify over time? Is that the mindset?

I think we have a right to win more of the consumer's wallet. I think the consumers that we work with, which are 27 million predominantly Americans today in the last year, they come to us for fair and honest financial products. And I think it's on us to make sure that we continue to widen the aperture and do as much with the consumer as possible. But right now, the killer app within a firm is fair and honest financing. And that's why consumers are coming to us. That's why they're opting into a firm card to be able to get that same suite of financing products at merchants that accept Visa, right? Almost anywhere in-store e-commerce. So I think right now we're seeing just the strength of the product offering we have is really, really resonating with consumers. And we're continuing to deepen the relationship with our existing base through products like Affirm Card.

Yeah. Do you feel like some people, I'm going off script a little bit here, but do you feel like some people miss or underestimate the growth potential for what you're doing today? It's like, okay, well, last year was, this year will be somewhere around 40%. Next year, it'll be 35, and then 30, and then 25, and that's it. Where I look at three secular tailwinds, it's geography, it's vertical, and it's more users. Could this be a much more multi-year kind of growth cycle that you don't expect to see deceleration?

We think the opportunity here is immense. I mean, you know, I think the addressable market that we're attacking first and foremost is the $1.3 trillion of revolving credit card balances just in the U.S. alone, right? So, yes, geographic expansion should be an accelerant to our current growth and a new growth vector for us in the medium to long term here. But even just the U.S. opportunity alone, it still feels like we're incredibly early in that opportunity.

I would agree with that. I think people underestimate that a little bit, to be honest with you. Okay, so let's switch gears a little bit. Talking about the operating environment, inflation is kind of heating up a little bit. We're seeing mixed reviews, economy strong, lower end struggling a little bit more. And that's kind of the definition of the lower end. I think they're always on the verge of a recession anyway. so so let's talk about how the current backdrop influences your decision and your your decisioning and your your your growth and all that and which indicators are you watching most closely yeah I mean I think the most important

thing for us at like a super high level is that our underwriting models are able to rank order risk and by being able to rank order risk we should be able to to predict repayment rates. Ultimately, that's our job, is to predict repayment rates and make sure that we set the aperture or the approval rate in such a way that we're going to drive predictable outcomes and that the losses that we'll incur for a cohort of new loans is in line with our expectations. And so that's true in a good market. I know you want to talk a bit about some downside scenarios and some hypotheticals there. But honestly, it's kind of the same calculus in a stressed environment. We want to make sure that our models are current on where the consumer is and that when we originate a new loan cohort, which for us is about $100 million a day, that the repayment rates we're going to see against that $100 million of issuance is in line with expectations. Again, the expectation is never that there's zero losses for a cohort. We do take risk in our business, but that we're able to size that risk in advance and we're able to drive predictable outcomes against those expectations.

Yeah, total sense. Anything change materially on the consumer health front in the last hour?

Yeah, nothing today. No, I mean, again, I think it all comes down to us. Like you mentioned it, there's one of the metrics that we track very closely is something called first payment delinquency so again for a new origination cohort when they get to that first repayment event which typically is about 30 days in to the life of the loan cohort what are the repayment rates and in turn what are the delinquency rates and are those in line with expectations and if we see frankly deviation in either direction if losses are or delinquencies rather are too high or too low that would cause us to do an investigation and make sure that the model is is sort of fitting to where the consumer is today and we can make adjustments to the underwriting posture if if we feel like the model for whatever reason isn't tracking as closely as we'd like so yeah the short answer though is we still see a really healthy consumer and we haven't seen any any sort of turn for the negative in the last weeks so the macro side you're

watching unemployment and wage growth on your particular on your business you're watching first repayment.

Yeah. I think we're obviously aware of the macroeconomic environment that we're in, but because the loans that were originating are so short-dated, the average term length is roughly a year. The weighted average life is even shorter. It's closer to five months. That fact alone allows us to be really nimble. It's also important to remember we're not giving consumers an open-to-buy or a line of credit. you know, we're sort of extending credit in like $250 increments. And so if there is a change for the worse or the better, frankly, in the macroeconomic environment, and we start to see stress on the consumer side, we can be really nimble, and we can sort of course correct and change our aperture really in a matter of days. You talked about your average duration is about

five months that's obviously because the interest bearing and zero percenter is making up 85-ish percent of the book right for uh paying x it would be shorter than a month yeah probably closer to three weeks yep um and your average loan take your average size is was it 250 is that 250 275 yeah somewhere in that range okay um so let's talk about i think before i go into a downside scenario I think investors take your customer base and say, people making less than $75,000, terrible cohort, if you're about to enter a down cycle. And I think that's largely true if you're talking about traditional open-to-buy credit products. And what I'm talking to more and more investors about, and because I've done this before in the company that I ran, we were micro-duration. time we get a matter of like 18 hours for until we could pull the funds out of the consumer's account but it's a specific transaction at a specific moment in time for a specific consumer and that's a completely different model than an open to buy and so do you do you find this tug of war of trying to educate investors about why this is different yes it's the same cohort of or demographic of less than 75 grand that doesn't make them bad credit risk it makes them bad credit risk if they have the bad product but if they have the right product this demographic you it's fine right it's a good fit and i think that's what you guys found yeah and again i wouldn't say that we

skew high income or low income i think we skew sort of median income and and really our consumer base that we have today is a function of honestly the merchant relationships that we've built over the last several years and we're kind of everywhere that american shop and so we look a lot like a cross-section of the u.s um so yeah so i mean again i think there's a lot of value in being current with the consumer and we underwrite every loan every single time and you know more than 95 of our transactions in a given quarter are coming from repeat borrowers and if you look at the The empirical data, the amount of risk loss that is in a loan does step down with each subsequent transaction that a consumer takes out with us, right? We are building a relationship here. Now of course, if we're in a stressed environment, that could change and we can see good payers go to bad payers. And again, I think that's where it's important that we have a really short dated book, we're giving loans out in very small increments and we can course correct really, really quickly if we need to.

Average income is, have you disclosed average income, average FICO scores?

It's in roughly the $75,000 a year range. Average FICO can fluctuate a little bit, but it's in sort of the $650,000, $660,000 range. Okay. Cool. So, you know, it's sort of a prime to near-prime borrower if you sort of put brackets around the medians.

Yeah. Okay, cool. downside scenario so everything is going really well now fairly steady kind of feels like we should say we should be speaking more negatively just given the macro but it's like the data is not showing it yeah it's not you're not seeing it chimes not seeing it cash apps not seeing all the peers are saying we're not seeing it right so but let's just say you know tomorrow morning someone walks into your office and say hey rob we're seeing some data here that's we need to talk about we don't know what it is let's just go through a scenario of we are about to enter a consumer-led recession or the consumer is about to take a major downtick whether it's oil prices or some other thing that has that we don't know about yet let's go through that how do you manage that downside scenario right what do you see first which says hey we need a meeting on this right and then how does that progress through the through the system yeah you know the analogy that we've

used historically is that we always have our hands on the steering wheel right so even in benign times which i would classify today frankly as a pretty benign consumer and credit environment even in benign times the entire executive team is looking at the weekly credit report that the risk team is pulling together as i mentioned first payment delinquencies at both the four-day mark and the 30-day mark those are really really um important and primary internal kpi that we manage the business to and that as i mentioned that really is um that sort of check on for the most recent cohorts when they get to that first repayment event did we get the underwriting right for for where the consumer you know is today in terms of being stressed or not stressed and so um you know as much as you know the macro is of course important to our business headlines about the cost of oil or rising unemployment rates if it's not showing up in the delinquency rates internally we're probably not actioning change proactively to be honest we we can do some things on the margin to shorten durations a bit more or potentially increase the the level of down payments that we're asking a consumer. Both of those take risk out of the system. And we can do that in a really lightweight or small way if we want to. But honestly, in terms of actioning a company-wide change in our underwriting posture, we would really have to see it show up in the first payment delinquency data. I mean, putting aside something like maybe COVID, where it just was sort of this black swan event that company action very quickly there but um if it's if it's sort of a typical the stress is starting to creep into the to the consumer's financial lives then it'll show up in our data because again i think we we originate enough loans that that it's going to show up there and and we'll start to work on um getting the models to sort of fit where the consumer uh is and and it may mean that um we take some risk out of the system we can do that in several different ways we talk a lot about you know loosening or tightening it's so much more nuanced than that i think you know the ir team does a bit of a disservice to the incredible risk team that we have internally but yeah we can you know we can raise the minimum credit score for um a given merchant you know that's typically the bar that the the transaction has to clear to be approved we can be incredibly fine-grained you know some of our programs run it 92.6 is the score that you need to clear we can go to 92.7 or 92.75 so we can be incredibly fine grained there if we need to take risk out of the system I already mentioned you know increasing the down payments for sort of the marginal borrower if the if historically if the consumer has some skin in the game with the transaction via down payment we tend to see better credit outcomes there better repayments we can shorten the the length of the loans that takes risk out of the system for us too we can increase the APRs if we if we wanted to or needed to there there's just there's several things that we can do to take risk out of the system and the good news is we can action them all you know really quickly I think we've got a really well-defined playbook for how to roll this out across the merchant base and the change is gonna be gradual right

it's not like Wednesday afternoon everything's fine and then Thursday morning, like everything explodes, right? This is going to happen really gradually. So where would you see if you were to, this is the other thing we should talk about. Everyone says, well, firm really hasn't seen a down cycle yet. Yeah. You could say, well, late 22, early 23 was kind of sort of, it was short-lived. But when would you, how long would it take for you to start saying, okay, our rates are starting to look like they're forming a trend? Is it a week or a month? I would

typically if if the new cohort of first payment delinquencies comes in and there's you know there's an elevation in terms of delinquencies versus expectation that's all it takes to prompt an investigation and and you know when we do the investigation internally we want to make sure that we really understand what's driving the the deviation right sometimes there can be a messaging bug or sometimes something could have changed with a merchant's configuration and so we're typically looking to understand is is the stress that we're seeing in the data is it limited to one merchant is it geographic or is it broad based and so you know the the answer to that question will sort of inform how we triage the the remedy and again we can be really quick in terms of raising the underwriting approval thresholds and about other other sort of levers we have to take risk out of the system.

Yeah. And so we were in the company that I ran, that's how we ran risk as well, right? There like there was one merchant where a few locations were driving our loss rates through the roof so we just turned off those locations and everything was fine, right? Okay, so you look at all that data and this happens gradually over a few weeks week slash months, depending on what you're seeing in the data.

Yeah, but again, it's like, you know, really that first payment delinquency tells us a lot about... That's the case. Is the underwriting right? You know, like, is the model set up properly to predictably drive credit outcomes? And if we see drift, we take that really seriously.

Yeah. Is it a foregone conclusion that in a macro slowdown, you guys automatically have lower growth? Is it definitely a foregone conclusion or could you say, hey, if the traditional lenders pull back, more people are going to want to go to buy now, pay later. We could actually see steady growth in a downturn even though we're scaling back on our risk.

Is it possible? Yeah. I think it's definitely possible. I do think both the firm and buy now, pay later broadly are continuing to take meaningful share within U.S. consumer wallets. So it's not out of the question that we could continue to grow through a downturn. But again, I think the most important thing is that we're driving predictable credit outcomes. That's important to a firm, but it's also really important to our funding partners. And frankly, we're so aligned with the consumer. We think it's good for the consumer too. We don't want to put loans in the hands of consumers that can't afford them and won't be able to pay them back. We don't profit from that. It's not good for the consumer. It's not good for their financial lives. it erodes trust right with between the consumer and a firm so really again we want to we want to get it right and we have every incentive to to get the underwriting right let's go through the

let's continue on this track of the down cycle whenever it'll happen you guys perform well i'm assuming margin stays relatively flat right you you manage to the margin um maybe growth fluctuates maybe it's down maybe it's steady maybe it's up a little bit depending on on how the market's changing but on the other side of this of if we kind of look forward people are gonna say you guys managed through the cycle pretty well because of the you are underwriting a specific transaction at a specific point in time your algorithms are terrific on the risk side and so the margin stayed flat you didn't have any major losses or provisions or anything like that like the traditional creditors will have and yeah maybe growth fluctuates it's down a little it's up a little bit ever but you guys sell through and now we're back Back to business. I think that's right.

Every recession is different, of course, so it's hard to be precise in this hypothetical. But I think what's important to remember is that we set up our financing programs, and the other important thing is every merchant is different. Every merchant has a different cutoff because there's just different product mix, there's different economics in each of our merchant relationships. But in theory, we're setting every merchant relationship up and every financing program with a merchant such that the last loan that we approve is break-even or better and so if you do introduce stress into the system what are we doing we're raising the threshold for approval and we're taking sort of marginally profitable or probably break-even loans out of the system and so it should not be a significant drag from a profitability perspective we are giving up growth of course that's the KPI that we're gonna see potentially soften but again, we think that's important. We think that's important for the brand promise that we have to consumers. We think it's really important to the funding ecosystem that we've built as well, that if there is stress, we're going to course correct and we're going to manage through

whatever credit environment we're in. Okay. All right. I'm done with the downside. Talk about happy stuff. Did I kill that enough? Did I beat that one good enough? Let's talk about underwriting. I was fascinated that you guys aren't really leveraging cash flow underwriting at all up till now which is for those of you who aren't familiar with cash flow underwriting it's getting 90-day transaction data from a third-party data aggregator where you can see inflows and outflows and in the underlying account the fact that you guys were able to do what you do without seeing that data is fascinating to me in my business we wanted that data and we couldn't get it because we didn't qualify in the transaction type but talk to me about cash flow underwriting and how much better you think this could make your system could you actually see could it are people underestimating the impact it could have to volume growth just because you're gonna have much better data yeah addition to the algorithms that are already top of class yeah look

I mean there's a there's a whole team at a firm focused on developing and then testing and ultimately graduating the next underwriting model and things like cash flow underwriting are just one ingredient that go into sort of the incremental gains that we see every time a model rolls out i think we're on po we call it pos point of sale model i think we're on 13 now around for about 15 years so it's a huge effort it takes about a year for us to develop these models sufficiently test these models and prove to ourselves that the models are going to do better in terms of conversion rate for the merchant credit outcomes for us you know approval rates like there's a whole bunch of criteria that are that are often you know diametrically opposed here to make sure that you know that the model is truly better for everybody involved so it's a really high bar again cash flow underwriting is part of that we ultimately we want to find a way to get to a yes with the consumer if we can right and so down payments are a part of that internally we call them step ups you know asking for more information that's where cash flow underwriting would come in we really want to make sure that we have the fullest possible picture of the consumers financial health before we get to that ultimate decision so yeah I mean I think it's it's really the early results are promising and it's a really interesting way to sort of step up and try to get to that that marginal approval where we can in your mind

what's the optimal percentage of transactions that would go through

cash flow underwriting. You know I think the other thing to keep in mind is just most of our consumer transactions today are what we call repeat borrowers right meaning it's not their first affirm loan so we tend to over a consumer's life cycle we tend to rely more and more on the consumer's repayment history with us like their affirm file starts to matter a lot so I think I think where it helps us is just in some of the growth areas around you know acquiring new users at a new merchant maybe so you know it can be really can be really compelling there because sort of the early days of a merchant program are really critical to get on that yeah that's deep trajectory of growth yeah I

know that firsthand yeah so cash flow won't necessarily be applied to

everybody but in certain use cases yeah and again I think for certain

populations it can be really compelling yeah totally love that let's talk about credit we've done a lot of work post the post post the the controversial not controversial I forgot the name of Ridge well the one of your creditor people in the crowd Stone Ridge thank you it was a middle-aged moment Rob thanks for bailing me out so when Stone Ridge came out we really delved into it and and your creditors love you they love the paper and you take the same risk that they're taking and I think one of the things that stood out to me early on was You guys said, like, look, we will forego growth to make sure that our creditors are happy, because that's our lifeline for the next, as far as the eye can see in terms of growth. So we don't really see a problem there. The ABS deal you just did was really great. The agreements you have with all your people in the credit facility are terrific. It's kind of like that concern has kind of come and gone. Do you still get a lot on that, or is it?

I think we still get questions there, especially for investors that are maybe new to the story. Just wanting to understand all the mechanics and sort of the broader funding ecosystem. But yeah, if you asked me for one KPI on the health of our funding ecosystem, I would say the terms that we get in the most recent or the next ABS deal is probably the best leading indicator of just the health of that environment and that market. And right now, I mean, honestly, we're seeing spreads at all-time lows on a like-for-like basis across recent deals. And so it feels like, you know, the market's really healthy today.

And they like quality. And if things go south, they're going to flock more to quality. And if you guys are viewed as that quality paper, then I think that's okay. I think that's a good outlook for you. Let's talk about guidance a little bit, switching gears. From the investment forum, you've built a great reputation for kind of beating and raising, guiding conservatively you make it look easier than it is I know you guys it ain't it ain't as easy as you guys make it look but if the 25% medium-term GMV growth target proves to be conservative over time at least you forgot it you forgot two words there at least 20 at least yeah I have that I have a greater than sign in my question yeah it's important sorry there's a lot yeah my glasses to get that one so if the at least 25% growth people are gonna love

that correct by the way I'm just thinking about all the investors on the

call here they're gonna love that correction where did the upside comes

from gosh I mean if you if you look at sort of the drivers of our growth today today right at both point-of-sale and the direct-to-consumer businesses are both growing far in excess of the at least 10% we've all doubt for both of those programs so again like if we outperform that it's because we're sort maintaining what we're doing today right and then we've got sweeteners on top that we called out with international becoming a bigger part of the story over the next several years and then we've also got I think really good irons in the fire around both the firm edge and agentic too so look I think we've got two programs and projects that could be meaningful in the medium term that we're not ascribing any sort of growth to in the in that at least 25% target in a Gentic and a firm edge so I think those could be contributors to our performance and again just the base business today you know both both sides POS and DTC are both growing you know significantly more than 10% today so I don't think we're we're not asked we're not like envisioning a world that doesn't already exist I think it's just about continuing to execute and continuing to sort of grow with the primary drivers that that

have fueled us to date it's worth reiterating that the agentic and edge aren't really in the numbers yet yeah they're not in your that's all and I

think that's appropriate right yeah you know hopefully you've seen from us over the years that we tend to be pretty measured about signing up for big numbers for new programs we have a lot of confidence that we've got the right playbooks and tools to make these programs large where we can but we do take a pretty balanced view and a pretty conservative view on new things generally. It doesn't mean we're not excited about them, but just in terms of

how we guide. I think that's the right way to do it. No sense to setting up for failure and false expectations, right? Okay, so it's everything you're seeing today plus a couple of other things that could be more meaningful, etc. Okay, cool. And you did say at least 25. At least 25. That could be the title of the note right here. Maybe we'll do that. Okay, let's switch to RLTC guidance. I thought you'd go to like three and a half to four and kind of, but 375 to four, that's a tight range for RLTC. You and I have had this conversation offline. I think RLTC was viewed as kind of like an all-in measure about consumer health, but there are so many factors in there, like gain on sale and all. There's so many factors in RLTC, it's not really a proxy, a pure proxy for consumer health. The 3-7-5-4, is there a message that you're trying to send folks with that narrow range?

I think that maybe the broadest message would just be that we feel like we have good visibility into the business. And I think that's rooted in the fact that we've been really active on the ABS side from a funding perspective. Same on the forward flow side as well. And so we have a pretty good sense for where the funding is going to come from. Of course, we're going to grow and we're going to need more funding along the way. But just the sort of layers that we've been able to put into the funding base, you know, we've done three-year ABS deals that are at fixed costs of borrowing. So it does insulate us against a movement upwards and, you know, an upwards rate environment. Similarly, with the trajectory that we're on with Affirm Card and also just where we are with both Shopify and Amazon, our two largest merchant programs, we just feel like we've got really good line of sight into how those programs should perform over the next several years, certainly from a profitability perspective. And that gives us confidence that some of the error bars, the error bar being a point wide it just that felt like more room than we needed for these next several

years of operating okay so it's a it's a tight range which I think is good because it almost like removes that from the equation kind of thing yeah right so even though people will probably still have a stroke if they see a three handle but somewhere around four I think is is is great I remember the comment we made at a group lunch I said Rob if you do three nine you suck before you

But if you do 4.1, you walk on water. And you looked at me like, seriously? And again, coming in, we're at the tail end of our budgeting cycle for next year. And just as we think about all the leverage, as we think about all the building blocks for growth and profitability in a given year, again, it just feels like the error bars we have on those are just a lot smaller than maybe they were five years ago when we established in the 3% to 4% range.

And I think it's good. It's good for the narrative, too, because it pushes everything to GMV growth and margins. And that's really what you at this stage of your development. That's really what the story is about. How fast are you growing and are you increasing your profitability? Yeah, doesn't need to be more complicated than that. Okay, let's switch gears again. We got a little under 10 minutes left. As CFO, how do you think about capital allocation? We need to over the next couple of years, you seem focused obviously very heavily on organic growth as you should. GMV is accelerating year over year ex Walmart. How do you think about M&A? how do you think about buybacks how do you think about dividends maybe you know talk about how you

rank all these yeah i mean i i think just maybe pointing to some of the things that we've done historically um you know we've been pretty active around buying back the convertible issuance that that we did in 2021, that first convertible bond that we did is going to mature in Q4 of 2026. So we've been chipping away at that, especially there was a period of time where those bonds were trading at a pretty meaningful discount. And we felt like that was kind of a no-brainer move in terms of capital allocation, was sort of buying those back, buying back that future liability at a pretty meaningful discount. And so I think that's served us well. And so when there's been opportunities to allocate capital to something that we think has a really, really high return, we've done it. You know, I think we're still very early, though, in generating cash. I'm really proud of the cash that we generated in the last year, but it's still early days there. And, you know, we spent a lot of time today just right here talking about recession planning and recession scenarios. And we do stress testing ourselves within the capital team and the treasury team to make sure that if that rainy day comes, that we feel good about the balance sheet that we've built and our ability to fund the business in any environment and through the cycle. So it's, you know, cash is an important part of how we think about stress testing and scenario planning for a downside scenario. So it's a high bar for us to sort of distribute cash externally. That's true with M&A. It's true with buybacks. It's true with dividends. I would say, you know, we are, we do have a team that fields both inbound calls on the M&A side as a potential acquirer. And we also, you know, are out trying to meet people in our industry and in adjacent industries. So it wouldn't surprise me if in the next five years we did something on the M&A front. But, you know, there's a really high bar for those opportunities given our own internal development chops. And, you know, it's going to have to be the right opportunity. And it's really hard to predict the timing of that. It's going to be idiosyncratic, I think. So, you know, look, I think over time, buybacks are probably, you know, potentially a way that we could return capital to shareholders, but I think it's just, it's early enough for us today that we haven't, we haven't made a commitment there.

I mean, personally, I'd rather see M&A, because it'll drive the growth story. I think buybacks and dividends, I think dividends at your stage are not really appropriate. Buybacks, you could argue when the stock is down, but the stock is so volatile. It's like, it was 83, then 43, then now it's back up. It's like, you're not a hedge fund. But let's talk about M&A to bring us into the exec committee meeting when when M&A is being discussed. And is there what would make sense for you guys to do? Would it be, hey, this company has a product that we think would go really well and a bunch of users and active members that we think we is it? Is it that? Is it something tangential? Is it to take us like into that conversation about what you just generically?

Sure. I think it's more likely to be something tangential. And I think tangential for us can either mean tangential in terms of a product category or tangential in terms of a geographic market. If you look at arguably the best M&A deal that we've done to date, it was probably the acquisition of Paybrite in Canada, where we had an opportunity to acquire and merge with, frankly, the market leader for Buy Now Pay Later in Canada. and it was a business that looked a lot like a firm they thought you know really deeply around how they treated the consumer they were winning you know an incredible roster of merchants they had just won Apple's first party hardware business in Canada right so I think it's something like that where we look at the business and we feel good about how they how they've treated the consumer you know that we're not looking for revenue models that are overly dependent on fees right that's a that's a huge part of our promise to the consumer so yeah I think it's a really high bar but I think you know ultimately the corporate development team they should be expanding our product development efforts right they should be able to you know to sort of get to the two or three things that are maybe below the line for internal development but still you know long-term valuable to the overall strategy to the business okay

that's great color let's focus the last couple of minutes we have on on AI you guys touched on the shareholder letter how it's driving productivity remind us how it's doing that from the cost side yeah which is a kind of table stakes at this point but how it's how you see a kind of driving growth as well yeah I

mean you know we're we're still at a point in our in our development where we just the only shortage is capacity to get these ideas built right and where there's no shortage of ideas and so we we've really pushed the the product and engineering teams to utilize AI more in their development cycles and we actually did an AI tooling week in late January where we sort of shut down development at the company for a week to to let some of the the early sort of leaders in terms of utilizing ai at a firm um work with the rest of the engineering team to sort of show and share wins and it's actually been incredible the the uptake of ai usage um we shared in the letter a table that showed the percentage of our our pull requests so sort of the software features that that are being shipped and integrated into the code base. I think we're now up to like more than 60% of a week's pull requests coming from AI aided development. So the team has really embraced these tools and it's a meaningful step function change in terms of the throughput of development that we've seen. And then if you double click and go a level deeper, you know, for me as a CFO, we're also seeing really nice efficiency, like our cost per pull request is actually going down, even though we have brought on some new vendors and there's some new cost in terms of tokens, the rate at which we're using these tokens to ship software means that we're still more efficient in terms of the cost to develop a feature or a piece of software. So I think that's really important. I think that all said, we've done a pretty good job of getting our arms around the spend early, I think we have the right tracking in place and so there is of course still work to be done around optimizing you know I think one of the things we're starting to to do a bit more around is just making sure that the model or the token type that we're using is right-sized for the job right we don't want we don't need the the cutting-edge cloud token to to sort of check the weather right you know so like making sure that we're we're using the right model for the right job that'll be another layer of optimistic optimization that will do but yeah it's been it's been really awesome to see the

acceleration in development internally are you monitoring the cost of tokens of course I mean yeah the answer is yeah yeah like is it is it a is it a big piece of the growing piece of the Pino we were like hmm that's a big that's getting to be a much bigger number and that's good because we're offsetting that cost with not hiring as much in certain areas and things like that so So the efficiency of a token versus a human is obvious, right?

Yeah, and again, I think we've got a really robust roadmap internally. And so we are continuing to add to the team. We're doing it, I think, in a pretty measured way in terms of headcount growth. But right now we're adding the token costs and we're growing the size of the team as well. And that's working for us. I think we're really happy with the throughput we're seeing. But yeah, we need to build financial plans that are aware of all these things. I think we've done a good job of that, and all of the token costs are factored into our near-term guide and our medium-term guide as well.

We could end it on this one. I think at the last lunch we held, it was right around the time one of your kind of, sort of, not competitors made a major headcount reduction. And you said, hey, if you look at your gross profit per employee, it would be what they would be post-RIF. So you run really efficiently. It's obviously a really incredible management team. So do you see AI more as a continuous growth driver as opposed to a cost reduction, or is it a combination of both?

We do. I think right now it's very much more the former. Like I said, yeah, we are still continuing to add human beings to help develop more software, and they're using AI tools to get there faster and more efficiently. But we haven't done sort of AI driven layoffs.

Okay. All right. I have a bunch more questions, but we're out of time. but we're out of time. All right, thanks Adam. Great, thanks Rob, appreciate it. Thanks everybody.