SoFi Technologies, Inc. Q3 FY2021 Earnings Call

Welcome to today's SoFi Q3 2021 Earnings Conference Call. My name is Jordan and I will be coordinating your call today. I'm now going to hand over to Andrea Prochniak, VP of Investor Relations, to begin. Andrea, please go ahead.

Thank you, Jordan. And thank you all for joining us today for SoFi third quarter 2021 Earnings Call. Joining me today are Anthony Noto, SoFi CEO, and Chris Lapointe, SoFi CFO. They will share prepared remarks regarding the quarter's results, and then take your questions at the end. Just after market closed today, we issued a press release announcing SoFi's third quarter 2021 financial results. A discussion of our results today is complementary to the press release, which is available on the Investor Relations page of our website investors.sofi.com. This conference call is being webcast live with accompanying slides on our IR page as well, and will be available as a replay for 30 days beginning about one hour after the conclusion of this call. During the course of this conference call, we may make forward-looking statements based on current expectations, forecasts, and projections as of today's date. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that can cause actual outcomes to differ materially from those indicated in the statements. We discuss these factors in our filings with the SEC including our upcoming Form 10-Q which can be found on the IR page of our website or the SEC filings website, sec.gov/edgar. As a reminder, we are not required to update our forward-looking statements. In our presentation today, unless otherwise noted, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the Company's performance. For detailed disclosures on these measures and the GAAP reconciliation, you should refer to the financial data contained within our press release, which is also posted on the IR page of our website. Today's discussion will focus primarily on the third quarter results. We encourage you to evaluate SoFi's performance on an annual basis as quarterly results can be affected by unexpected events that are outside our control. Now, I'll turn the call over to Anthony.

Thank you, Andrea. And thank you all for joining us for our third quarter earnings conference call. The results we're reporting today demonstrate three things. First, our ability to continue to deliver record financial results, which is a testament to our diversified business mix and our ability to execute on our long-term strategy. Second, our commitment to consistently iterate and innovate to create products that are both best-in-breed on a standalone basis and work even better when used together. And third, our ability to leverage data and learnings to drive more effective marketing and brand building as we strive to make SoFi a trusted household brand name. Collectively, these things are driving strong continued growth in members, products, and cross-buy. Let's take these areas one-by-one. I've said many times that the benefit of our unique and diversified business model is that our three distinct business segments behave differently in varying economic and operating environments. This allows us to shift focus and resources as conditions evolve. Diversifying beyond our core student loan business into personal loans and home loans allowed us to weather the storm when the global pandemic cut industry-wide student loan origination volumes in half virtually overnight for the last 20 months. Building out a broad suite of financial service offerings has created exciting new opportunities for us to help people get their money right across online investing and spending via SoFi Invest, SoFi Money, and SoFi credit card. And acquiring Galileo not only allows us to innovate faster on our products, but also positions us prominently among integrated tech platforms that service financial and non-financial institutions. Diversification across our platform has allowed us to achieve record financial results in the third quarter, even in a continuing volatile environment. Our third quarter adjusted net revenue of $277 million marks another record, beating both our previous record of $237 million for Q2 2021 and the high end of our quarterly guidance. Even with the extension of the CARES Act, the lending segment adjusted net revenue hit a record of $215 million driven primarily by record revenues from our personal loans business. Our technology platform segment contributed $50 million in the quarter, or 18% of total revenue, representing 29% year-over-year and 11% sequential growth. We achieved this despite difficult comparisons from last year's stimulus benefits. In our Financial Services segment, third quarter revenue of $12.6 million nearly quadrupled from last year's $3.2 million, driven by meaningful contributions from five businesses: SoFi Invest, SoFi Money, Lantern by SoFi, Protect, and SoFi credit card. This broad-based revenue growth coupled with the benefits of cross-buying and our ongoing focus on realizing new operating efficiencies resulted in third quarter adjusted EBITDA of $10 million, our fifth consecutive quarter of positive EBITDA. Achieving record results allows us to invest in the new products and features necessary to position SoFi for long-term sustainable growth. We're sticking to our commitment to reinvest $0.70 of every incremental revenue dollar and drop $0.30 to the bottom line as we scale our business. Here are some new product improvements and features from the quarter that are already making an impact in lending. We launched a next-generation underwriting model in student loan refinancing that drove an increase in approval rates within our risk parameters. In personal loans, we launched a new partnership with Pagaya to capture revenue opportunities from loan applicants we may not otherwise lend to. This allows us to serve a broader audience without additional credit risk while maintaining our stringent approval guidelines. In home loans, we made additional investments in marketing and fulfillment capabilities to better capture purchase volumes. In financial services, we launched after-hours quotes in SoFi Invest and introduced seven new crypto coins, bringing our total to 28. That's up from five at the beginning of the year. We also earned recognition for our growing robo-advisory business from Barron's, which just named SoFi the best Robo-Advisory for 2021. And in credit card, we launched in-app balance transfers and implemented soft-pull pre-approvals which reduces credit score impact on the applicants. At Galileo, our significant investment to build a new cloud-based, modern card issuing and payment platform is resonating with both existing and prospective clients. Having the best offering is not enough. We need to market our products and the SoFi brand in ways that engage members in order to make SoFi a trusted household brand name. Our reiteration on marketing efforts over the last four years is significantly improving the effectiveness of our brand-building efforts. The third quarter was a game changer for SoFi's visibility and reach and the impact on our growth. Here are just a few examples of our success. In September, we launched our new SoFi "Money Moves" brand campaign during the U.S. Open tennis tournament and at the start of the NFL regular season. Leveraging television, social and digital influencers, along with TV commercials that aired during the nationally televised games from SoFi Stadium, the impact has been immediate and dramatic. SoFi TV sports drove more than 500 million impressions during the biggest moments in fall sports, and our unaided brand awareness doubled to a new high during the launch week. By working with some of the biggest digital influencers across social media, we've driven an additional 400 million impressions and 775 thousand engagements with SoFi content. Our hashtag SoFi Money Moves campaign on TikTok has driven more than 8 billion views and more than 1 million uses of our branded hashtag so far. The reopening of SoFi Stadium to sold-out crowds, with great media coverage across the full array of sports and entertainment events, has validated our decision to invest in naming this iconic destination for sports and live entertainment. Nationally televised NFL games from SoFi Stadium this season have averaged 20 million TV viewers per game. That compares with the 15 million total TV viewers we previously reached in an entire year between all of our SoFi sports sponsorships. As a result, when our TV ads run during SoFi Stadium NFL games, we consistently see a significant uptake in brand awareness, member and product growth, and SoFi app downloads. We're also getting better at leveraging our highly engaged member base to drive product adoption via cross-buy. Let me share three examples from the quarter. First, by iterating on referrals, continuing to scale our top-of-funnel products, leveraging in-app communication, and expanding our popular SoFi personal loans and SoFi Money offers to 100% of our members, we drove a 65% sequential increase in cross-buy volume amongst SoFi Money members. Second, we had eight new ways to earn points to our unique SoFi rewards program, the only program that allows members to earn points for both transactions and responsible financial behaviors, bringing our total earn and redeem options across the SoFi platform to 33. SoFi Rewards contributed 15% of the quarter's new product growth. Third, we launched promotions around our new refer-in-the-app and SoFi Money referral programs, which drove 18% of member growth in the quarter and significantly increased our app downloads and our rank in app stores. Our product enhancements plus more effective marketing were instrumental in driving member, product, and cross-buy growth. The third quarter was our second highest ever for both member and product growth. Total members grew 96% year-over-year to 2.9 million. We added 377,000 new members, which is an amazing 35% increase versus the 279,000 new members we added in the second quarter. Total products grew 108% year-over-year to nearly 4.3 million. We added 600,000 new products, which is a 24% increase versus the 483,000 new products in the second quarter. The scale we are achieving in Money, Invest, and Credit Card, which are at the top of our product funnel, is having a dramatic impact on cross-buy volumes. The third quarter was a record for cross-buy products with SoFi Money, SoFi Invest, and SoFi credit card-first members accounting for 73% of total cross-buying, demonstrating that as the top of our funnel scale increases, so will cross-buying and the benefits of our financial services strategy. As importantly, when a bottom-of-the-funnel loan is cross-bought, the lifetime value of the member doubles from already industry-high levels to more than $1,600 versus just a loan-only member. Our momentum continues at Galileo as well. We signed 13 new clients, bringing our year-to-date total to 35, and finished the quarter enabling our clients to serve 89 million accounts, up 80% year-over-year. Today, we are in our strongest position ever to fund and execute on our ambitious long-term growth strategy. The $1.2 billion we raised in a zero-coupon convertible debt offering in October brought our total capital raises over the past year to $3.6 billion and our total capital to $4.6 billion. Our pending application for a bank license represents a potential new source of funding and flexibility for us. I am proud of this impressive list of accomplishments for the quarter, especially in a continuing volatile economic and financial markets environment. As we head into the final weeks of 2021 and turn our focus to 2022, I am honored and humbled by all the SoFi team has been able to accomplish this year, and I'm thrilled for our next chapter in 2022. Now, I'll turn it over to Chris for a discussion of the quarter's financials.

Thanks, Anthony. And good afternoon, everyone. We had a great quarter with strong growth trends across the entire business. We exceeded our financial outlook while achieving record revenue and our fifth consecutive quarter of positive EBITDA, despite facing a number of headwinds in the quarter. Our results further validate the durability and long-term growth potential of the diverse and differentiated business model we've built. I'm going to walk you through some key financial highlights for the quarter and then share some color on our financial outlook. Unless otherwise stated, I'll be referring to adjusted results for the third quarter of 2021 versus the third quarter of 2020. Our GAAP consolidated income statement and all reconciliations can be found in today's earnings release and in our upcoming 10-Q filing. For the quarter, we delivered record adjusted net revenue of $277 million, up nearly 20% from the prior sequential quarter's record of $237 million and $22 million above the high end of our guidance of $245 million to $255 million. We also delivered $10 million of adjusted EBITDA, which came in $7 million higher than the high-end of our guidance of negative $7 million to positive $3 million. We continue to make great strides on an annual basis as well. We've generated $912 million of adjusted net revenue over the last 12 months, an 82% increase from the same prior year period. We also generated $37 million of positive EBITDA over the last 12 months, a significant $195 million improvement from our $157 million loss in the same prior year period. Our incremental EBITDA margin for the last 12 months was some 40%, but as we've discussed previously, we intend to reinvest 70% of incremental revenue back into the business on average and deliver incremental margins of 30% to drive sustainable growth for years to come. Now on to the segment level performance. Our record lending segment adjusted net revenue of $215 million was driven by a 49% increase in funded volume to $3.4 billion in total. The largest contributor of the funded volume growth was our personal loans business, which grew 167% or $1 billion year-over-year to $1.6 billion in originations for the quarter, a new high for us. Not only that, personal loans funded volume grew sequentially by 27% even as we stuck to our stringent credit standards, finishing the quarter at 105% above Q4 2019 pre-pandemic origination levels. This growth was driven by our ability to capture increased demand from borrowers looking to remodel homes and refinance variable-rate debt into attractive fixed-rate products as interest rates increased. In addition, increased net interest margins and strong gain-on-sale margins drove material year-over-year growth in net interest income and loan sales revenue. Strong growth in originations and record lending revenue are a testament to the success we've had in diversifying our lending segment beyond student loan refinancing, which remained at 50% of pre-CARES levels, and in our ability to navigate the evolving credit and interest rate environment. The lending business delivered $118 million of contribution profit, and a 55% margin, up from $103 million a year ago. Shifting to our tech platform, we delivered net revenue of $50 million in the quarter, up 29% year-over-year versus a tough comparison driven by stimulus benefits in the same prior year period. Overall, growth was driven by 80% year-over-year Galileo account growth to 89 million in total and contribution profit of $16 million represented a 31% margin. As discussed previously, we are committed to investing in the platform to ensure that Galileo is well-positioned to capitalize on the secular shift from physical to digital payments and the rising overall demand for more FinTech services. Accordingly, margins are down from 61% a year ago due to our significant 2021 investment in technology capabilities overall, our migration from on-premise to the cloud, as well as the ongoing investments in new products and geographies. It's worth noting as well that Q3 2020 included the 100% margin contribution of our equity method investment in Apex which was called earlier this year. We will continue operating our tech platform business from a 20% to 30% contribution margin range for the foreseeable future to set the stage for compounding long-term growth. Onto our financial services segment, which continues to benefit from strong product growth across our broad and diversified suite of offerings. This segment delivered revenue of $12.6 million, nearly four times the prior year quarter at $3.2 million. The sequential decline from $17 million of revenue in Q2 of 2021 reflects the absence of episodic revenues recognized that quarter from our Advisory and IPO underwriting services totaling about $4.5 million. Excluding these Q2 specific items, revenues were essentially flat. Within the segment, year-over-year revenue growth was particularly strong in SoFi Invest, Lantern, credit card, SoFi Money and Protect. Product growth, which grew 2.8x to 3.2 million from 1.2 million in Q3 of 2020, drove our strong performance. Every one of our Financial Services products grew by triple digits year-over-year. We had 1.2 million products in SoFi Money, 1.2 million in SoFi Invest, and 750,000 in Relay and continue to see good momentum in credit cards. While we're starting to see a more meaningful contribution to consolidated revenue from this segment, it will remain in investment mode, focused on creating the right unit economics for each business to drive long-term sustainable growth. You can see this investment reflected in our Q3 financial services contribution losses of $39 million, which were up $2 million from a loss of $37 million a year ago. Excluding acquisition marketing, contribution profit improved by $2 million. The next thing I want to address is our balance sheet. Overall, we're very well-capitalized. Over the last year, we have raised $3.6 billion of capital, $2.4 billion of which came through a combined private placement led by T. Rowe Price in our IPO, and $1.2 billion of which came through a zero-percent convertible debt offering that closed in October. The strength of our balance sheet has provided us with significant flexibility and helped lower our overall cost of capital, resulting in strong net interest income in the last two quarters. Our current book value is $4.6 billion, and our capital and leverage ratios are extremely strong. In addition, we still have access to nearly $6 billion of warehouse capacity to help fund the operations and growth of our lending segment. We are excited about the strength of our balance sheet and we'll continue to make choices that ensure the most efficient cost and use of capital. All right. I'll finish up with guidance. Over the last several quarters, we have demonstrated the benefits of our uniquely diversified business model by delivering strong financial and operating growth. For Q4, we expect an acceleration in growth with $272 to $282 million of adjusted net revenue, up 49% to 55% year-over-year, and $2 to $5 million of adjusted EBITDA as we continue to invest to drive growth. We now expect to deliver $1.002 to $1.012 billion in adjusted net revenue, exceeding our original 2021 full-year guidance of $980 million, and adjusted EBITDA of $28 to $31 million, above our original full-year guidance of $27 million. This is despite facing previously discussed headwinds estimated to be $52 million of negative impact from the CARES Act extension on our SLR volumes and our prior equity investment in Apex being called earlier this year, which we mentioned during our Q2 earnings call. Switching to non-cash items below our adjusted EBITDA, we announced last week that we will be redeeming the $28 million SoFi Technologies public and private warrants that were issued as part of our IPO process. Warrant holders have the option to exercise on a cash or cashless basis up until December 6. Q4 share issuance associated with these exercises will be in the range of 10 million to 28 million shares depending on exercise methodology, and the Q4 non-cash P&L impact will be determined based on the change in fair market value of the warrant as of the redemption date relative to the end of Q3 2021. Finally, we forecast stock-based compensation expense to be $80 to $85 million in Q4. Overall, we're thrilled with our performance in Q3, where we delivered more than $1 billion of annualized revenue, and our fifth consecutive quarter of positive EBITDA. We continue to make great progress and remain very well-capitalized to continue pursuing our longer-term objective of ultimately becoming a top financial institution. With that, let's begin the Q&A.

As a reminder, if you'd like to register a question, press the appropriate key. If you change your mind, press the key again and please ensure you're unmuted when speaking. Our first question comes from Betsy Graseck of Morgan Stanley. Betsy, the line is yours.

Hey, thanks so much. Good evening, everyone. Can you hear me okay?

Okay.

Yes.

All right. Great. I had two questions to kick off here. One was just understanding in financial services how you see the impact of the new coins that you launched this quarter and if you could update us on how you're thinking about additional coins from here. Really the underlying question is, you were flat Q2 ex the one-time item as you called out. So, help us understand how you're thinking about the trajectory in that line as we move forward. Am I right in thinking that coins might be part of it, or would you direct focus elsewhere? Thanks.

Yes, I'll answer the question from a consumer value standpoint, and then Chris can get into the numbers in more detail. We endeavor to differentiate our products on four macro things: fast, selection, content, and convenience. And then we want each of our products to work better when our members use them together. As it relates to selection, we're the only invest product that has single stocks, fractional shares, six of our own ETFs uniquely built for our members, robo-advisory accounts, as well as cryptocurrency. Within each one of those, we're trying to add more and more selection as well as driving horizontal selection. You're right — we added a number of core coins in the quarter. Actually, throughout the year we started with five coins; we're now up to over 25 coins, and we'll continue to look for opportunities to add selection both within cryptocurrency and outside cryptocurrency. We hear from our members every day what they want, and we want to give them the opportunity to buy what they would like, but to do it in a responsible, diversified way, so educating them on the risks of cryptocurrency, and also dollar-cost averaging, and setting up recurring investing capabilities. We're really encouraged by the trends we're seeing in our investments overall. We had strong growth in both new members and Invest and have really strong growth in AUM. I'll turn it over to Chris to talk about the differences between Q2 and Q3 as well as how we see the momentum going into Q4, which is quite strong for Invest overall.

Yes. Hey Betsy. In terms of Q2 versus Q3 and crypto revenues specifically, we don't disclose crypto revenue in detail in our filings, but you'll see in our 10-Q that we do disclose brokerage revenue, and that was down by about $2.7 million sequentially as a result of lower trading activity. However, the headwind that I just mentioned and the decline in brokerage revenue were offset by sequential strong growth in our SoFi Money, Lantern, and credit card businesses, which allowed us to generate that flat revenue you talked about quarter-over-quarter when excluding those items. This speaks to the benefits of the diversification within Financial Services. In terms of the fourth quarter and our guidance, we are guiding for an acceleration on a year-over-year basis to 49% to 55% year-over-year growth, which is faster than what we had in Q3 on a year-over-year basis. When you think about sequential growth, the vast majority of that sequential growth will come from Tech Platform and from Financial Services, which will be materially faster sequentially. Into Q4, we're seeing really positive trends in both those businesses and really benefiting from the initiatives in Q3 flowing into Q4 from a revenue standpoint.

Got it. Thanks. And then separate question is on the bank charter. I know you have that application outstanding. The question has to do with the recent OCC acting head's speech where they indicated there might be a need for holding company level regulation for institutions that are seeking a charter outside of the regular bank channels. I'm wondering if you saw that speech, and if you have any thoughts or comments as to whether or not that would change your plans as to how you're thinking about moving forward with the potential for a bank-like structure and part of your business?

Yes, I was very encouraged by that speech. We're watching it very closely. Some people may not realize this, but we applied for the exact license that our current acting head Michael Hsu mentioned. We applied for a national bank charter with a bank holding company structure, which would be regulated by the Federal Reserve as a bank holding company and by the OCC as a bank. Both of those would be our two primary regulators in addition to the FDIC. We're really fortunate in that we've built the business for durable long-term growth. Our lending business originally is built on the back of licenses in 50 states — these are our licenses, not borrowed or rented licenses. Same thing with our home loan business, and in cryptocurrency we have money transmitter licenses. We've taken the harder path rather than the easier path, applying for the full national bank charter instead of an ILC, a FinTech charter, or a crypto charter. We applied for exactly what the acting head indicated everyone should be applying for if they're taking deposits or taking cash. We're really encouraged by the progress we've made with our regulators in the exam process since March; the feedback has been constructive. The timeline is not specific, and there are more steps beyond just the exam, but we're encouraged by the constructive feedback we've gotten and are working with them as real partners. We look forward to finishing this last mile and reaching that milestone for the Company that we think will be a huge competitive advantage, especially in light of last week's comments.

Okay. Thanks so much, Anthony. Appreciate that.

You're welcome.

Our next question comes from Moshe Orenbuch of Credit Suisse. Moshe, the line is yours.

Great. Thanks. I was hoping you could talk a little bit about the underwriting process changes that have allowed you to expand originations. I think there's a little bit of a discussion with that in the student part. And then also some additional context on the relationship with Pagaya and what that could do for SoFi.

I want to be super clear on our lending business. We have not changed our credit model and we haven't changed our target focus. Our average FICO scores are high-quality prime FICO scores that are still well into the 700s. What we're doing is we're constantly testing all the different variables that influence where we end up on loan size, pricing, losses, and delinquencies. It's continued iteration to make sure that we're being efficient on both the credit spectrum and the pricing spectrum. We developed next-generation models that are based on data and analysis, but we haven't changed our philosophy or approach to the credit that we're willing to underwrite. Is there anything else to that? Was there a second part tied to Pagaya?

Yes, Pagaya.

Pagaya is the extension of a strategy we started two years ago. We're able to meet about 30% of the demand that we get for our unsecured personal loans, what we call PL, and what we found is that if we're only meeting 30% of our demand, we are missing opportunities to capture more value beyond that if we don't want to change our approach to credit. We built Lantern Credit by SoFi as part of that approach. Our first step was to take some of the people that we would not otherwise lend to and send them to our Lantern partners and generate lead revenue from that. The partnership with Pagaya is an extension of that approach and we're integrating their credit model into our decision engine along with the SoFi credit model, running both simultaneously. Pagaya allows us to serve a broader set of people than we otherwise fund, but we're not taking the credit risk. We're not changing our credit profile. Pagaya and our other partners take that paper, underwrite it, price it, and take on the credit risk, and we maintain the servicing and the relationship with that member so we can continue to offer them other products and services and, quite frankly, improve their credit and be able to serve them well and help them get their money right. It was de minimis in the quarter, but it's a bigger opportunity for us to add additional high-margin revenue against all the investments that we're making. So it's part of a broader strategy.

Got it. Thanks. That's extremely helpful. Maybe you could just talk a little bit about your expectations on marketing costs and how you see them trending as you go forward. You talked — I think Chris talked — about the reinvestments to drive future growth. What are you actually seeing and how will that be reflected over the next several quarters?

We saw a real game changer in our marketing as I mentioned in my prepared remarks. The elements that we've worked hard to build over the last couple of years — multilayered marketing, television, the stadium, our direct marketing, our digital marketing, social influencer marketing — it's all coming together to drive really strong performance. We're achieving our long-term customer acquisition costs by product, which is allowing us to drive the level of scale that we're driving sequentially, and we're seeing good efficiencies there. Each of our businesses is challenged to build over the long term the best of the product based on the differentiators I mentioned, and best-of-breed unit economics. Those unit economics are tied to very specific targets across each of the cost line items as well as their customer acquisition costs. They're all operating with long-term customer acquisition cost targets, and we're still operating in that range, which is what's really helping us drive the scale that you see. Cross-buying was a record for the quarter. One of the things that may not be obvious is that when we say 73% of the cross-buying was driven by Money, Invest, Credit Card first members, we're not paying that second customer acquisition cost. We hit 2.9 million members in the quarter; when we went through the public process and did a presentation in January of this year we had a year-end target of 3 million members. We ended the quarter at 2.9 million and we're over 3 million now, and we're seeing good strong trends there. If you think about our total cost-per-member, which went down sequentially, we should have significantly greater marketing costs but we're driving member growth through lower-cost vehicles like referrals and other programs that are unique to SoFi. It's allowing us to achieve out-sized growth in members relative to expectations while still delivering on profitability.

Thank you very much.

You're welcome.

Our next question comes from Dominick Gabriele of Oppenheimer. Dominick, please go ahead.

Great and great results. If you think about the launch — I believe this quarter — of SoFi financial planning, could you just walk through some of the dynamics that you're looking to gather among your customer base with launching that product in particular? I still have a follow-up. Thanks.

Sure. I think what you're referring to is our partnership with the FPA. It's not a new program; it's an extension of what we call SoFi at Work. SoFi at Work is our approach to enterprises and companies where we offer them a suite of products and services and a portal for their employees to take advantage of unique offers from SoFi that are driven for us through their employee communications.

The FPA is an association that has a significant number of financial planners. The program that we brought to them has the ability to get those same benefits for their customers and it's a new distribution relationship for the At Work program, which contributes to all of our products and also has a revenue stream itself from a proceeds basis. So it's not a building of financial planning at SoFi; it's really a new relationship with the FPA. One thing we do provide for our members directly is free certified financial planners already. In addition to that, we also have the Relay product which gives us a significant amount of information from their other financial accounts so we can better personalize offers to them.

Often we'll see that someone through Relay has a number of credit cards that are fully utilized and we can offer that person a lower-cost term loan through our personal loan business, or we could see someone with a lot of excess cash in their SoFi Money account and we could offer that member a free certified financial planner session to help them invest that money and have it compounding over years. We can also see someone that is paying a student loan that we could refinance at a lower cost. We're in the business of financial planning every day, helping our members answer three questions: what must they do that day in their financial life? What should they do? What can they do? It's a holistic experience at SoFi, not just one particular thing.

Great. And then if you could talk about the technology segment margin being in the range of, I believe, 20% to 30%. It obviously came in above that range this quarter. Maybe you could talk about the cadence of how that margin reacts over the next number of quarters and how your progress is overall in moving your clients to the cloud. That would be great. Thank you very much.

We're really happy with the addition of Galileo to the Company 18 months ago. The team has done a phenomenal job of upgrading the on-premise technology capabilities as well as completing the core cloud build-out. We're currently onboarding all new partners into the cloud directly and we're building a detailed plan to migrate existing customers into the cloud that will take place throughout 2022. Now that we have on-premise upgraded and the cloud built, and migration is the focus, we can reallocate our resources more offensively and launch new products and services. We already launched a new disputes product which the team re-engineered and reintroduced for our clients, and that was a big win. There will be a series of other products that unfold in 2022 that will drive incremental revenue against the existing 89 million accounts that we enable, not to mention allowing us to capture new partners — we added 13 new partners in the quarter, which brings us to 35 for the year. They'll start contributing new accounts in 2022 as well. In terms of the investing, we are committed to staying in that 20% to 30% margin range. There could be a quarter where revenue comes in and we can't spend enough, and the margin is a little higher, but there's no change in our desire to invest aggressively in that business while being prudent to remain in the 20% to 30% contribution margin range. We think the growth opportunity here is enormous and we don't want to under-invest in it. We want to drive durable compounding growth over time.

Thanks again.

Our next question comes from John Hecht of Jefferies. John, please go ahead.

Afternoon, guys. Thanks for taking my questions. First, general yield relative to originations in the lending segment was stronger this quarter than prior quarters, and I'm wondering, is that gain-on-sale execution or are there other fee accruals we should be aware of? Also maybe the mix of whole loan sales to other financial companies versus the sales and securitizations and how the execution worked out there.

Yeah, sure. Hey John. In terms of what drove some of the growth there, we saw good sequential and year-over-year growth both in net interest margin revenue as well as loan sales and originations, which was driven by our overall gain-on-sale margins. You'll see this in the 10-Q that gets filed in a few days. Gain-on-sale margins remained very healthy in our business and improved in both personal loans and home loans. In personal loans, gain-on-sale margin was 4.5% in the quarter, up from 4.2% last quarter. Student loan refinancing remained at a healthy level at 4%, and our Home Loans business was at 3.1% in the quarter, up from 2.7% last quarter. In addition, the things driving the strong NIM margin were overall reduced cost of capital as we deployed some of our IPO proceeds towards paying down warehouse debt in the quarter, which helped drive some of that yield. In terms of the mix of whole loans and securitizations, it was in line with what we've seen historically — about a 50/50 split in each of personal loans and student loan refinancing.

Okay. And then you had really strong customer acquisition. I know you talked about different marketing channels particularly in the SoFi Money product. I'm wondering, has there been a change given the increase in personal loans versus student loans and does that mean anything in terms of the unit level economics in the future?

Yeah. We've definitely seen efficiencies in the personal loan marketing line from cross-buy. We've had real strong cross-buying from both personal loans and student loan refinancing. We've shared some of those rates during the IPO process and they've continued to be strong in that range. Home Loans has always been very high in the 60% to 70% range and that's stayed consistent. The marketing efficiencies on personal loans have been the greatest. The unit economics are very attractive and not paying that second customer acquisition cost results in more variable profit, but we're trying to reinvest all those benefits back into the business because we know what the response is to the spend. It's a good return but return takes place over time on the financial services products while the loans pay back right away. We want to capture the growth in front of us versus driving to really high margins and not capturing the opportunity in front of us. On the entry points, the top of the funnel — Money is at the very top of the funnel and is a big driver of cross-buying. Money-first members drove 65% of the cross-buying in the quarter given how much more data we have and the activity on a day-to-day basis from that product. Invest contributes as well and credit card contributes. Another product, Relay, would add another 10 percentage points to the contribution of cross-buy to Money/Invest/Credit Card first members. So instead of 73% of our cross-buy being driven by Money/Invest/Credit Card-first members, it would be closer to 85% if we added Relay. There are a lot of different levers driving it and we're seeing the benefits, but we're spending back to maximize member and product growth. That will lead to revenue in the future because it takes a while for those members and products that come on outside our loans to build up balances, AUM, or start to spend on their credit card before it hits the revenue line. We do think we're going to have strong momentum going into Q4 versus Q3 in the financial services line.

Appreciate that. Thanks.

Thank you.

Our next question comes from Dan Dolev of Mizuho. Dan, please go ahead.

Hi, Anthony, hi, Chris. Great results and great quarter. I had a question on the personal loans and maybe on the partnership with Pagaya. How much of a competitive advantage is this relationship for SoFi and what is still unique about it? I'm hearing more about it elsewhere. Thank you, and I have a follow-up.

They're a great company. They have strong technology and great partnerships that allow them to drive their lending business. We attempted over the last four years — we've probably attempted two other times to integrate a partner so that their credit model would run simultaneously with ours in our decision engine, and we never got to the point where it was working really well. Now it is working well with Pagaya from a technical standpoint. The team is iterating and learning how to improve the conversion from the offer through funding. It's a unique opportunity. As I mentioned, we're capturing about 30% of demand that comes in for personal loans, which means we're missing 70% of it. This type of relationship, along with what we're doing with Lantern, allows us to capture more. I really like that we recapture economically on day one but also capture the member as part of the SoFi family so we can help them with other products like investing, SoFi Money, SoFi credit card, Relay, Protect and our other lending products as well. It's an important economic relationship. It takes unique technology to make it happen. We found the right technology partner and lending partner. It also has a longer-term benefit beyond what we'll report in any one quarter.

Totally cool, very strong. My quick follow-up: I'm looking at products per member and it's looking really strong and improving sequentially. Where are we headed? This seems to be the dream of the one-money app and you're moving toward that quickly. What can you share about those metrics which look really strong this quarter? Thank you.

Yes. We are growing really fast, so we're growing the numerator and the denominator in terms of members and products, and both. That can mask some cohort trends.

Generally, what we're seeing is our strategy playing out and older cohorts having more products per member than newer cohorts, and you see the weighted average math by just dividing products by members. We have a good understanding of the types of information we can use to come up with personalized recommendations for our members and serve them in our member home feed, which is driving additional product adoption. Referrals are a unique product that allows us to build trust with one member and then they refer friends and family who look demographically similar; that's working well. Our rewards program contributes as well. We built a rewards platform that will be hard for others to match because they'll either not have all the products or they won't have the technology. We built a technology platform that allows our product managers and general managers to trigger rewards off any activity they want, and we redeem into all of our products regardless of where it's triggered. People get points if they use the credit card and can redeem into Invest, crypto, or SoFi Money where they can pay down loans with those rewards; we double the points in certain cases. We target points not just off the credit card but also off recurring investments, direct deposits, bill pay, and app engagement. That's starting to have an impact. Each product enhancement that leverages our unique strategy is contributing to product growth. That's why you see 600,000 new products versus 377,000 new members. It's hard to drive both so fast, and we now have the data, the logic, and the approach to do it. We're looking forward to seeing it at the next level in 2022.

Amazing results. Congrats again.

Thank you.

Our next question comes from Sean Horgan of Rosenblatt Securities. Sean, please go ahead.

Hey, guys. Thanks for taking my questions. I wanted to dig into the cross-buy rates. I appreciate the additional disclosure you gave. I think you said cross-buy for SoFi Money-first members increased 65% sequentially. Can you expand on the products that comprise this cross-buy volume? In other words, what's the typical second product for the average SoFi Money-first member?

I would say we're not going to get into that precise level of detail, but we'll answer the spirit of your question. We're not trying to steer members to particular combinations; we're trying to serve them relative to the opportunity to get their money right. Someone might come in through student loan refinancing and then take out a personal loan — we're equally happy if they come in through SoFi Money and go into Invest. We're building each product to be best-of-breed across the value propositions I mentioned, and best-in-class on economics. We want to use the data we have to make the right suggestions for them at the right moment and be there for major decisions in their lives and everything in between. We measure NPS scores and reactions to offers in the member home feed to make sure we're meeting satisfaction levels. Each product drives cross-buy to others at different percentages. Generally, the more data we have for one product, the more cross-buying we can derive from it.

That makes sense. In a quarter where personal loans did really well, I guess incremental growth overall is a fair assumption. Just switching gears to my follow up: you provided helpful metrics around your brand and influencer campaigns, e.g., the 8 billion views on TikTok. Can you discuss how these metrics are translating to new users and what the customer acquisition costs are? How has your allocation of marketing spend to these channels increased given recent data privacy changes that have weighed on customer acquisition costs in more traditional performance marketing channels?

I'll answer the last part first. We really haven't seen an impact to our customer acquisition costs from the data privacy changes that others have seen. Our customer acquisition costs by product are within the range of our long-term targets to ensure the right LTV to CAC relationship. About 60% of our sales and marketing spend is true customer acquisition cost marketing as opposed to fixed costs. If you take total sales and marketing and divide by new members, you'll see that marketing cost per member went down sequentially, I believe about 8%, which shows the efficiency of our growth. It's rare to increase spend and drive greater efficiency. We're encouraged by the impact our marketing has had and its integration into the product experience. We'll continue to reinvest in the channels I mentioned. Another point to reinforce: revenue from loans comes day one, while revenue from the financial services products unfolds over time. A new Money member that comes in could drive lending revenue immediately if they take a loan, while revenue from Invest, Money balances, or credit card spending builds over time. The momentum we see in financial services and what we're guiding to is a reflection of the growth over the last couple of quarters starting to kick in from a revenue standpoint.

Same thing with credit card — members have to start spending and momentum in financial services is starting to show. Sequentially, financial services revenue was up materially year-over-year, nearly fourfold. But don't miss that financial services members that come in through the top of the funnel can drive lending revenue on day one. We don't have to wait for them to build up balances or AUM to see lending revenue benefits.

We have no further questions on the phone line, so we'll hand back to Anthony Noto, CEO.

Thank you very much. I'd like to finish today's call with what I told our SoFi team at our all-hands meeting when Q3 ended. We've accomplished more at SoFi this year than many other companies will achieve in a lifetime. I'm incredibly proud of these accomplishments and the additional progress we made during the third quarter, which marks a yearlong sprint of incredible company milestones. Now, the only thing that stands between where we are today and our long-term aspirations for SoFi is us. I have absolutely no doubt that we have the right strategy, the right team, and the right goals to deliver on these aspirations and more. Thanks for joining us today and we look forward to talking to you when we report fourth quarter results. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.