Earnings Call Transcript - SOFI Q2 2021

Operator, Operator

Welcome to today's SoFi Q2 2021 Earnings Conference Call. My name is Jordan and I'll be coordinating your call today. I am now going to hand over to Andrea Prochniak, Vice President of Investor Relations, to begin. Andrea, please go ahead.

Andrea Prochniak, Vice President, Investor Relations

Thank you, operator. And thank you all for joining us today for SoFi’s Second Quarter 2021 Earnings Call. I'm Andrea Prochniak, SoFi’s VP of Investor Relations, and I'm thrilled to be here kicking off SoFi’s quarterly reporting process as a public company. Joining me today are Anthony Noto, SoFi's Chief Executive Officer, and Chris Lapointe, SoFi's Chief Financial Officer. They will share prepared remarks regarding the quarter’s results, and then take your questions at the end. Just after market close today, we issued a press release announcing SoFi’s second quarter 2021 financial results. Our 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 for 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 could 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 reconciliations, you should refer to the financial data contained within our press release, which is also posted to the IR page of our website. While today's discussion will focus primarily on the second 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.

Anthony Noto, Chief Executive Officer

Thank you, Andrea. Welcome all to SoFi's first earnings conference call as a public company. We're excited to speak with you today about our second quarter results. I want to start by providing you with a short overview of our mission, our strategy, our job to be done, which is more commonly referred to as our value proposition and our points of differentiation. Our mission is to help our members — predominantly made up of what we call high earners that we serve — achieve financial independence to realize their ambitions. Our strategy is to offer a comprehensive suite of products and services so that we are there for every major financial decision in our members' lives, and all the days in between. My passion for SoFi increases every day, driven by the impact that we have in our members' lives. That impact is driven by our focus on a unique value proposition: one job to be done, which is helping our members get their money right by giving them a one-stop shop to borrow better, save better, spend better, invest better and protect better. And second, not only do we strive to make each of these products best-in-class, we also obsess over how to make them work better when they're used together. When we do both of these things right, we not only deliver a unique SoFi experience to our members that improves with each new product they choose, but we can also create the best unit economics across our business. As we get more efficient at serving our members, we can invest those savings in offering members the best rates, no fees, the best prices, terms and selection. This in turn drives more engagement, more data and our ability to help our members use more products to get their money right. We call this the financial services productivity loop, and it's working. We see it in the numbers: accelerating year-over-year growth in members and products, increasing member lifetime values, declining member acquisition costs, superior revenue growth, and improving margins. Today, to the best of our knowledge, SoFi is the only company providing a comprehensive solution set in one easy-to-use, mobile-first digital platform. Many companies have talked about it, but only SoFi has done it. Now let's get into the quarter. I'll take you through a few high-level takeaways, and then Chris will take you through the results in more detail. The second quarter proved to be a very strong quarter full of milestones. We want to highlight four key points from the results. First, our strategy execution is driving record results. Second, we are constantly striving to learn and iterate in order to compound innovation and differentiate our products. Third, we are hitting an inflection point in our financial services productivity strategy, with a number of financial services products used by members reaching nearly three times the number of running products during the quarter versus about equal one year ago. And fourth, we continue to invest aggressively to ensure we're driving compounding growth while still delivering profitability. Let's take these one-by-one, starting with our strategy and execution driving record results. Specifically, we achieved record adjusted net revenue of $237 million despite our student loan refinancing business operating at less than 50% of pre-COVID levels due to the CARES Act, which is a great testament to the diversity of our business. Total members grew 113% year-over-year, which is our eighth consecutive quarter of accelerating year-over-year growth. Total products held by our members increased 123%, our fourth consecutive quarter of year-over-year growth of more than 100%. We demonstrated continued strong cross-buying trends with cross-bought products up 1.7x versus a year ago. Galileo, our technology platform business, doubled its total client accounts to 79 million and just crossed $100 billion of annualized payment volume in July. We delivered our fourth consecutive quarter of positive EBITDA. In our financial services segment revenue had a breakout quarter of 2.5x versus Q1 2021. This brings me to the second key takeaway. In the quarter, we demonstrated our commitment to constantly iterate across four factors: fast selection, constant experimentation to drive compounding innovation. Here's just a few examples of what we did in the quarter. Our products are 100% digital, and there are infinite ways to tailor them to specific members' needs. To ensure our members get the right loan for them, we launched a next-generation credit model and reengineered our fraud and income verification processes. This drove a 30% higher approval rate with the same credit box, leading to a 60% increase in funnel conversion and improved Net Promoter Score, all with zero negative impact on credit quality. Across lending, we continue to invest in automation to make the loan application process easier, faster and lower touch. In Q2, more than 50% of personal loans processed were 100% automated. That compares with less than 30% one year ago, which drove lower cost per loan and shortened time to fund to two days from four days last year and nearly a week a few years ago. In student loans, we worked to align with members' individual needs throughout the pandemic, specifically by introducing this snooze feature. The snooze feature allows borrowers to lock in a low rate on a student loan today while delaying the start of payments until the CARES Act loan deferral program ends in January 2022. In SoFi Money, we enhanced our direct deposit offering by adding two-day early pay in addition to earlier enhancements like free overdraft protection, AutoSave and roundup features. And SoFi Invest members asked for more cryptocurrency selection, so we added 16 cryptocurrencies to the offering. We also have the ability to redeem SoFi reward points earned on all SoFi products into cryptocurrency. And we were one of the first to offer access to IPOs with our new IPO investment center. Also in Invest, we added to our already strong SoFi ETF offering by launching a new equity ETF that pays weekly dividends, and a joint SoFi fixed income ETF which pays a dividend every Friday. At Galileo, we neared completion on a 15-month project to build out a new cloud computing environment to replace the on-premises environment, and are now in Q3 focused on the migration of existing clients to the cloud, while onboarding new clients straight to the cloud. We also continue to grow the Galileo partner base, signing up 22 new partners in the first half of 2021, with 12 of those in Q2, including some focused on enterprise and cryptocurrency. Finally, we continue to iterate and innovate on our unique rewards program by adding additional reward triggers when members set up recurring purchases or recurring deposits, in SoFi Invest or direct deposit in SoFi Money, or when members use the app to take actions that make their financial life better. Since launch, rewards is contributing meaningfully to cross-buy and engagement. Already members have earned 450 million points with new ways to earn in the works. This is just a sample of all the innovation introduced this quarter. But we have much more in the pipeline, so stay tuned. The third message I want to hit on today is the inflection point we have reached with the financial services productivity strategy. We worked hard to scale our financial services offering, which includes products like SoFi Money, SoFi Invest, SoFi Relay and the SoFi credit card, as these products have a much broader appeal, lower customer acquisition costs and greater daily engagement compared to lending products, which are used less frequently and by fewer people. Driving greater scale in the top-of-funnel with financial services products drives two crucial benefits. First, it results in more members, more usage and more data across a set of products with extremely attractive standalone characteristics. And second, this drives greater volume of cross-bought products at lower overall acquisition costs, leading to superior economics and lifetime value. We are seeing our efforts pay off. In Q2, a number of financial services products held by SoFi members totaled nearly 2.7 million, almost three times the number from a year ago; SoFi Money products are almost 1 million. A year ago there were about equal numbers. The 3x greater scale is helping drive a 1.7x increase in the number of products that were cross-bought in the quarter versus Q2 2020. The profitability of our lending products is already at industry highs, and increases dramatically when loans are cross-bought because there is no additional cost from acquisition. This further solidifies our superior lifetime values, leading to our ability to offer unmatched value to our members. The last point I'd like to drive home today is that we continue to invest aggressively in our business to fuel compounding growth while still delivering profitability to our shareholders. This combination is not easy, but we are committed to contributing around 30% of incremental revenue to the bottom line and reinvesting the remaining 70% in bolstering our product innovation to drive decades of compounding growth. Even as we invest aggressively in technology, marketing and people, we continue to realize cost efficiencies, which is beginning to drive real operating leverage. By leveraging cross-buying and better data realization and targeting we've reduced sales and marketing as a percentage of revenue and customer acquisition cost meaningfully year-over-year. We have also improved our Member Services capabilities, reduced onboarding friction points via implementation of more streamlined processes, including leveraging data and improved communications, all to drive down operating expenses and improve efficiencies. All the while we've worked to improve product NPS, with better products and greater automation, which in turn reduces contacts and frees up resources to focus on product. In summary, we had record results with accelerating growth and a lot of milestones heading into the second half of the year. But rest assured, we are committed to running faster, reaching higher and achieving more every day. With that, let me turn it over to Chris to run through the results in detail.

Chris Lapointe, Chief Financial Officer

Thanks, Anthony, and good afternoon, everyone. We had a great quarter with strong growth trends across all of our businesses. We exceeded our financial outlook while achieving record revenue and our fourth consecutive quarter of positive EBITDA. We're excited about these trends, and are focused on building on this momentum as we move into the back half of the year. 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 in all period-to-period comparisons, which refer to our second quarter of 2021 versus second 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, our adjusted net revenue grew 74% year-over-year to $237 million, a new record that exceeded the midpoint of our $215 million to $220 million guidance by 9%. We also delivered $11 million of adjusted EBITDA, which is up $35 million year-over-year and exceeded the midpoint of our negative $8 million to positive $2 million guidance by $14 million. Our incremental EBITDA margin, which is the change in EBITDA versus the year-ago period divided by the change in revenue for a given period, and a good indicator of our long-term margin potential, was in the 30% range year-over-year. As we've discussed over time, we intend to reinvest 70% of incremental revenue back into the business in order to drive sustainable growth for years to come. We continue to make great strides on an annual basis as well despite the ongoing environment of significant uncertainty and macro volatility. Over the last 12 months, we generated $852 million of adjusted net revenue, and that includes the negative impact of interest on corporate debt, as well as the small charge we took related to our prior investment in APEX. Excluding these two non-recurring items, last 12 months adjusted revenue is closer to $885 million, or 89% higher than in 2019, our last full year of pre-COVID results. From a profitability perspective, we generated $61 million of positive EBITDA over the last 12 months, a significant improvement from the $149 million of losses we took in 2019. Before I get into the details of our performance in the quarter, I want to quickly remind everyone that we look at and manage our business across three segments. First, our lending segment includes student loan refinancing, personal loans, home loans, and in-school loans. This segment is primarily a gain-on-sale model, whereby we originate loans and recognize the gain when we sell them via whole loan or securitization channels. We also generate net interest income by holding these loans on the balance sheet prior to sale. Second, our technology platform includes Galileo, and we generate revenue on a per-transaction basis when customers swipe their cards, make deposits and withdrawals, or when API calls are made. And then finally, our financial services segment includes Money, Invest, Credit Card, Lantern, Protect, Relay, At Work and our new equity capital markets and advisory business. These revenue streams are dependent on business activity, but are primarily driven by member assets on the platform and engagement. Now on to the segment-level performance. Our lending businesses grew 47% to $172 million in adjusted net revenue, driven by 66% growth in funded volume across all products to $2.9 billion in total. The largest contributor of that growth in funded volume was our personal loans business, which grew 188% to $1.3 billion. We also saw material growth in gain-on-sale revenue across both our student loan refinancing and personal loans businesses, which speaks to the quality of the loans we are underwriting. It's worth noting that we achieved this revenue growth despite significant headwinds in our student loans business, where the $859 million in origination volume in the quarter was less than half of pre-CARES levels. The lending business delivered $89 million of contribution profit at a 52% margin, up from $49 million a year ago at a 42% margin. Margin improvement was driven by efficiencies in marketing and operations that have brought cost per funded loan down meaningfully across both our personal loans and student loan refinancing businesses, as well as success in executing against our financial services productivity loop strategy. Switching into our tech platform, which delivered net revenue of $45 million in the quarter, this was driven by 119% year-over-year Galileo account growth to 79 million in total. The tech platform delivered $13 million of contribution profit at a 29% margin. Margins are down year-over-year due to our significant investments in technology capabilities overall, our migration from on-premises to the cloud, as well as ongoing investments in new products and geographies, something that we highlighted during our roadshow. I'll also remind you that our Q2 2020 contribution included our equity investment in APEX, which was a 100% margin revenue stream. That contribution ended in January of this year. Overall, we believe the appropriate long-term margin for this business is around 30%, but we will continue operating in the 20% to 30% range to set the stage for compounding growth for years to come. Onto our financial services business, which really hit an inflection point in the second quarter with revenues of $17 million, up 7x versus the prior year quarter, and 2.6x sequentially. That growth is driven by exponential growth in products, which more than tripled year-over-year to 2.7 million from the 780,000 in Q2 of 2020. Every one of our financial services products grew by triple digits year-over-year. We hit the million-product mark: Invest surpassed 950,000, Money almost 1 million, and Relay 600,000. We also launched a new equity capital markets and advisory business in the second quarter. Excluding this new initiative, revenue is still up 5x year-over-year and 2x sequentially. Financial Services generated a $25 million contribution loss during Q2, an improvement of $6 million from a loss of $31 million a year ago, and an improvement of nearly $10 million if you exclude acquisition marketing. As in our lending segment, this margin improvement was driven by efficiencies across both marketing and operations. The next thing I want to address is our balance sheet. Overall, we're very well capitalized after receiving the $2 billion of proceeds in June. Our current book value is $4.5 billion and our capital leverage ratios are extremely strong. We also have access to nearly $6 billion of warehouse capacity to help fund the operations of our lending businesses. We're 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. Looking ahead, we are encouraged by how our various growth initiatives are driving the momentum of our business as we head into the back half of the year. For Q3, we expect continued strong growth with $245 million to $255 million of adjusted net revenue, up from the $237 million we've just reported in Q2. This is despite the fact we no longer expect a rebound in our student loan refinancing business in September of 2021. Specifically, we had factored that the CARES Act would end on September 30 into our original guidance. But with last Friday's announcement that CARES will definitively expire on January 31, 2022, we have shifted our planning stance. Despite this shift, we believe the ongoing momentum in our other businesses will offset the absence of the previously expected growth in student loan refinancing demand to drive quarter-over-quarter growth to the $245 million to $255 million range. Our expected adjusted EBITDA range is negative $7 million to positive $3 million. For the full year, we're maintaining our original guidance of $980 million in adjusted net revenue and $27 million of adjusted EBITDA despite the negative impact of the following unanticipated factors. First, I just covered the CARES Act extension, which has an estimated $40 million negative revenue impact to our original guidance. Second, we originally included $12 million of 2021 revenue in our guidance from our equity investment in APEX. As I mentioned earlier, contribution from that investment ended in January, and we will not have the $12 million in 2021. In summary, we expect to be able to offset this $52 million in previously unanticipated revenue headwinds through the strong momentum we're seeing across the business. Overall, we're thrilled with our Q2 results. We've made a ton of progress and are very well capitalized to continue pursuing our longer-term objective of being a leading financial institution serving every one of our members' needs throughout their lives. With that, let's begin the Q&A.

Operator, Operator

Our first question comes from Sean Horgan of Rosenblatt Securities. Sean, the line is yours.

Sean Horgan, Analyst (Rosenblatt Securities)

Thanks. Hey, guys, thanks for taking my question. I wanted to start on the Financial Services, that's a very high point, I think, for the quarter. So can you talk about the behavior we're seeing there maybe across by rate at the product level for incremental financial services products? And also, I'm just wondering, on the lending side, personal loan origination saw a strong uptick. So can you talk about the drivers there and then just touch on your thoughts on buy-now-pay-later as a potential future product offering?

Anthony Noto, Chief Executive Officer

Great, thank you for the questions. In terms of the financial services segment, we're seeing really strong growth, as Chris mentioned, across all the products there with triple-digit growth in SoFi Money, SoFi Invest as well as the recently launched SoFi credit card. We're also seeing nice contributions from our product-comparison property called Lantern, in addition to great leverage from our distribution and platform capabilities in the enterprise channel, which is called At Work. So really pleased with the way we've executed across the board. As we mentioned on the call, the business really saw a key inflection point in the quarter with revenue up 2.5x Q2 versus Q1, as we're now starting to monetize all that activity. It's a critical element of our overall strategy, because these products are much lower customer acquisition cost products; they do provide great lifetime value, but it pales in comparison to the lending products. And so we leverage them at the top of our funnel. So the bigger these products get, the bigger the top of our funnel gets. And it feeds to the bottom of the funnel, where we make really, really high lifetime value on the loan products, which have great variable profit margins. And so we're starting to see that continue. We've seen really strong cross-buying rates both from the top of the funnel and from the bottom, as well as within the funnel across the products. We shared when we were going through the public process that our cross-buy rates were continuing to increase, and we're in the mid-20% range, and they continue to be very strong. So we're really happy with the overall strategy. And the key inflection point now at the top of the funnel is meaningfully larger than the bottom of the funnel; we expect those trends to continue. As it relates to the overall environment for personal loans, I will turn it over to Chris to give you some perspective on how our business operates in different rate environments, and what we saw in the quarter.

Chris Lapointe, Chief Financial Officer

Yes, thanks, Anthony. And thanks, Sean, for the question. In terms of our overall lending business, one of the things that we're really excited about is that it benefits across different macro environments and interest rate environments. In high interest rate environments, our personal loan products perform very well; in low interest rate environments, our student loan refinancing and home loan businesses do better with higher demand. What you saw coming out of the end of Q2 was a rising rate environment, and our personal loans business did extremely well. We ended up originating about $1.3 billion in originations, which is up 188% year-over-year, and significantly up from pre-COVID levels when we were originating between $800 million and $1 billion. So we're really enthusiastic about the trend lines that we're seeing in personal loans. And then as it relates to buy-now-pay-later, for those that are familiar, we have four different lending products today: we have in-school loans for those going after undergraduate college, we refinance student loans, we also have home loans, which are primarily refinance today, and then in addition to that we have personal loans and revolving credit with a credit card. We'll continue to look at new loan products to provide to our members. There's a lot of enthusiasm in the marketplace right now for buy-now-pay-later; we do think we'll participate at retail with a number of different products. And we will continue to find ways to innovate across the range of winning products that we have. The great thing is we're vertically integrated in loans from top to bottom, which makes us a low-cost operator. And we have a great platform that can add other products without a lot of incremental fixed cost.

Sean Horgan, Analyst (Rosenblatt Securities)

Great, thanks for the answers, guys. So the next one, I wanted to see if we could get an update on the bank charter process. Curious, has it been a cooperative process or have there been any pain points? And do you still expect the process to conclude before year-end? And then lastly, I've been getting some questions on Golden Pacific and the involvement there. I think there was a release by the Fed that mentioned Golden Pacific in the release. Would you guys mind touching on that and clearing that up? Thanks.

Anthony Noto, Chief Executive Officer

Yes. We've been really encouraged. Just to give people some history, I'll walk back in time on where we’ve been with the bank application process and where we are now. But to answer your question upfront, we're really encouraged by the process. It's been great to work with the Federal Reserve and the OCC. They've been incredibly constructive, and it's been a really good process for us. They've been really clear in what they expect. We've been able to provide them that feedback and that information and give them access to our team and our processes. In cases where there were additional questions, we've been able to respond in a constructive way. For perspective, we applied for a national bank charter license in July of 2020 with the OCC and received preliminary conditional approval in October of 2020. We hadn't applied at that point to the other regulatory bodies because we needed to convert our capital structure from our preferred equity capital structure to a common equity capital structure, and we were able to accomplish that by going public. In addition to going public to make that transition, we announced a proposed acquisition of a small existing bank called Golden Pacific. At that time, we refiled with the Federal Reserve and the OCC in March of 2021 in a change-of-control application process versus our original application in July of 2020, which was a de novo process. Since that time, we've been going through exams and reviews with both the OCC as well as the Federal Reserve. And as I mentioned, it's been a very constructive process. We've enjoyed working with both regulatory bodies; there's not a definitive timeline to the process itself. We keep going through each step in the process with them. We're encouraged about the outlook. We think we have the right type of company to be a national bank. It is a matter of continuing to work with them through the process, and we'll give you updates as we have them. But we remain encouraged about the process.

Chris Lapointe, Chief Financial Officer

And just to clarify, are you referring to Golden Pacific? Our crypto business partners mostly with Coinbase, so I want to make sure I'm answering the right part of your question.

Sean Horgan, Analyst (Rosenblatt Securities)

Yes. So there's a release from the Federal Reserve Bank of San Francisco that states SoFi and Social Capital Merger Sub Inc. plan to become bank holding companies by acquiring Golden Pacific. I just wanted to confirm that's the reference.

Chris Lapointe, Chief Financial Officer

Yes, that reference is actually Golden Pacific.

Sean Horgan, Analyst (Rosenblatt Securities)

Got it. Okay. Thank you. Thanks for taking the question.

Anthony Noto, Chief Executive Officer

Thank you, Sean.

Operator, Operator

Our next question comes from Dominick Gabriele of Oppenheimer. Dominick, the line is yours.

Dominick Gabriele, Analyst (Oppenheimer)

Great. Congrats on your first conference call. And thanks so much for the updated disclosures in the press release and slides. If we — obviously, in the quarter, there was really good member growth, there was really good revenue growth across the lending segment, as well as the financial services segment. I guess if we think about the technology platform and the revenue growth there, and how your original expectations are across, through basically '25, is there anything that's changed in that platform as far as where you think your ultimate revenue mix may hash out in 2021 and through your original expectations?

Anthony Noto, Chief Executive Officer

Thank you. The answer to your question upfront is we couldn't be more encouraged by our acquisition of Galileo, the progress that we've made with the business and the integrations across the overall company; we're seeing really strong growth. Let me give you a few highlights. We saw 190% growth year-over-year in partner accounts — reaching 79 million accounts enabled by the Galileo platform, up from 36 million accounts when we closed the deal in Q2 of 2020. So really strong growth on accounts; we've also continued to grow the partnership base. We added 22 new partners on Galileo in the first half of 2021: 10 in Q1 and 12 in Q2. Those are announced deals and they take a while to implement. We added 22 new partners to our partner list so far in 2021, compared to 41 new partners in 2020 with 7 in the fourth quarter. Our expectations for the business and its ability to capture the sector transition of physical payments to digital payments has only been reinforced by the last 15 months of owning the business. The point-in-time results have also been very positive. One more thing about Galileo and where we're headed: we've made a significant investment in the technology over the last year. Our first priority was to ensure that we developed stability, reliability and responsiveness in their current on-premises platform for the current partners, and at the same time build out an entire cloud environment over the last 15 months. That cloud environment is now built and we've begun transitioning partners over. Once we complete that transition to the cloud from on-prem, we'll have a significant cost savings that we can reinvest back in the business. We will also be more agile in our ability to develop new products and deploy them to our partners. We have a really robust product pipeline on top of the products that Galileo has historically offered. That will not only increase the revenue and partnerships with our existing partners but it will also allow us to reach a broader set of new partners and continue to expand the partner list that I mentioned. That transition will take place over the next six months and in addition to that, we'll be onboarding our new partners that we've announced straight into the cloud as opposed to on-prem. Let me turn it over to Chris to talk about the specifics on revenue in the quarter for the platform and then our outlook for Q3 as it relates to revenue. Then I'll come back about the longer-term outlook.

Chris Lapointe, Chief Financial Officer

Thanks, Dominick, for the question. So in terms of the overall revenue for the quarter, we're really excited about the trends that Anthony mentioned. From a transaction perspective, we saw strong revenue growth year-over-year. The $45 million of revenue we reported for the quarter was impacted by an intentional delay of our migration to the cloud by one quarter, which resulted in a one-time lower-than-normal payment from one of our clients, negatively impacting revenue for Q2. If you were to exclude the impact of that item, you would have seen solid sequential growth in revenue. The only other thing I would note as it relates to tech platform revenue is that in Q1, we benefited meaningfully from the two stimulus checks that were issued by the U.S. government, which also made it a tough comp. Overall, while we're not guiding at the segment level from a revenue perspective for the rest of the year, I would say that we are expecting to see stronger quarter-over-quarter growth into Q3. Specifically, we expect to be in the mid-to-high single-digit percentage growth range compared to Q2 of 2021. And then the only other thing I would note as it relates to guidance change for the segment overall in our long-term outlook: our original five-year model and guidance that we had given included the impact of our equity investment in APEX, which was about $12 million of revenue that was embedded in our original 2021 plan. APEX called their investment back at the beginning of the year, and we're no longer going to see that $12 million embedded in revenue for 2021, and that was in tech platform.

Anthony Noto, Chief Executive Officer

But separate from that, our outlook for Galileo is unchanged.

Dominick Gabriele, Analyst (Oppenheimer)

Excellent, thanks so much for all that color. That's great. And then, the numbers in the member acquisition, the revenue per product and the cross that you're seeing is obviously much better than we were expecting this soon. Can you just talk to the mix of your products and how that can translate into a better revenue curve per product over time? And then maybe you can talk about, on average, how many products over your horizon here through 2025, how many products on average your clients are expected to have. That'd be really great. Thank you so much.

Chris Lapointe, Chief Financial Officer

Yes. In terms of the monetization of the products in the financial services segment, monetization is very early, so I'll run through some of the drivers and how that will continue to improve over time. We've benchmarked each of these businesses versus industry standards and we see ourselves at or better than what others have seen at similar points in time. For the SoFi Invest business, we uniquely have single stocks, fractional shares and ETFs. We also have robo accounts and cryptocurrency; each one of them generates revenue in different ways, but it is largely tied to some level of assets under management and the activity against those assets under management. As you bring on a new account and that account funds, the AUM for that account starts to grow over time. Today we'll continue to see strong cohort trends in AUM driving toward long-term benchmarks, but we're still very early because we're growing so fast at triple-digits. So we're not at the AUM-per-account levels that others would be at steady state because we're adding so many new accounts that have to go through that transition of funding and building assets. In addition to the AUM build, we're not monetizing all the AUM the way others have and we will over time. For example, we currently do not offer margin or options in the single-stock area. The ETF business has two of our ETFs that are low-cost ETFs that generate fees and we're seeing nice trends in AUM there as well. In robo accounts, they have a very similar profile. In cryptocurrency we generate commissions or fees based on trading activity. So it's still very early days in AUM per account in addition to new revenue streams against those AUM in investing. We are seeing obviously a big acceleration there — 2.5x versus Q2 in total revenue — but there's still a lot of room to grow per account. For SoFi Money today we primarily generate revenue as interchange; there's not much NIM in that business given where rates are. As we become a bank there will be a big opportunity in SoFi Money to generate not just interchange, but even in this rate environment, a healthy NIM margin based on the ability to use insured deposits to fund our lending business. That would be attributed to the bank and to the SoFi Money business. So we're very early days in that product as well in terms of deposits per account and spending levels, but we're seeing the trends you'd expect. The other element of SoFi Money that's really important is driving direct deposit growth, and we're seeing triple-digit growth year-over-year in direct deposits, and that's accelerated for the last few quarters. As we drive a higher percentage of direct deposits it drives more deposits, more spending and improves the overall economics of the business directly in revenue, but also has a big indirect benefit to credit underwriting: when we have a primary account through direct deposit, we see what bills are being paid, especially loans like student loans or mortgages, and we can use that information to provide compelling offers to our members. We can also see how much they're saving and whether they're able to invest that money, or whether they're overspending and they run to a deficit and we can help them potentially refinance some of the revolving-rate debt. So that's how we think about the SoFi Money business. The SoFi credit card, which we launched in the fall of last year, is off to a really strong start. It's a very unique value proposition; we tailored it specifically for our members and they get twice the reward points if they redeem into cryptocurrency or stocks or invest, and generally they get double the reward points if they redeem into Money or into our lending products. And so we're really encouraged by that. Lantern, which is a price-comparison platform, benefits in a couple of ways: it benefits from demand that we get to SoFi for loans, and if a SoFi applicant gets turned down by our credit model and is open to an affiliate offer, we can monetize that offer through Lantern partnerships. The same is true with other types of products that we don't offer at SoFi but that we do have at Lantern, like small and medium business products; we're seeing a nice ramp in that as well. So really good trends across all the businesses, but it's super early days in terms of monetization.

Dominick Gabriele, Analyst (Oppenheimer)

Excellent, and maybe just one last one on the competitive landscape. Maybe you could talk to how the competitive landscape for the various products within the financial services segment has perhaps changed over the last year and how SoFi continues to position itself against some of the peers in the market, as some other companies have come public and some M&A has happened. When you think about the long-term positioning of the company, maybe you could talk to your competitive advantages when you go to market. Thanks so much, I really appreciate it.

Anthony Noto, Chief Executive Officer

Yes. The biggest competitive advantage we have is that we have a superior lifetime value. We have that superior lifetime value for a couple of factors. First and foremost, we're a one-stop shop and so we're building best-of-breed products. When someone needs a product, we're there for them, whether that's a big financial decision or something they do on a daily basis. When they use that first product, we build trust and reliability, and they want to use a second product with us. When that happens, it generates more revenue from that relationship but we have compounding profitability benefits because we're not paying a second customer acquisition cost. In our loan business, as an example, we've had variable profit in the range of $800 per loan. When that product gets cross-bought, that $800 doubles, which we outlined in our management presentation during the roadshow, because we're not incurring a second acquisition cost. That lifetime value is really unmatched by many of our competitors because one, they don't have the range of products that we have, and two, many are not in the lending business. Because we have that superior lifetime value, we can then reinvest the excess profit compared to our competitors in better rates, better prices, no fees, better service, better selection, and it just drives the overall flywheel of our business. As we scale, we are seeing lower customer acquisition costs, lower sales and marketing as a percent of revenue overall. As you saw, significant acceleration in the number of products we have and the number of members. In terms of the competitive landscape, no one else is really doing what we're doing at the scale we are. Everyone's talked about it. When I arrived in January 2018, many talked about trying to become a one-stop shop, but no one has gotten there. There are a lot of reasons for that, but our team has really executed and worked our way to the point that we have this one-stop shop with this range of products. We'll continue to add to it. Our biggest long-term opportunity remains the hundreds of millions of accounts tied to legacy FDIC banks. We see that as a huge opportunity and that's what we're going after. We want the tide of digital-first incumbents to continue to rise and for us to capture that market share from legacy players.

Dominick Gabriele, Analyst (Oppenheimer)

Thank you.

Anthony Noto, Chief Executive Officer

Next question, please.

Operator, Operator

Our next question comes from Robert Napoli of William Blair. Robert, the line is yours.

Robert Napoli, Analyst (William Blair)

Thank you. Good afternoon, Anthony. This question, I'd maybe like to dig in a little bit more into Galileo, the 36 million to 79 million accounts: what is the mix of that business? I know you have a big neobank business, but what is the mix of those accounts? And is there any concern with your banking strategy, that you're essentially going to be competing with some of those Galileo customers?

Anthony Noto, Chief Executive Officer

Yes. The vast majority of the partnerships are what we would call business-to-consumer relationships. There are business-to-business relationships where we're providing payment capabilities to non-consumer facing businesses, and increasingly we have more enterprises coming to us looking for digital payment capabilities both in the U.S. as well as in LATAM. We've had great success in Mexico and we'll expand into other LATAM countries. In the LATAM market there is opportunity not just in B2C, but also enterprise areas like buy-now-pay-later and supplier payments. This year we've seen more activity from enterprise customers among the accounts we've signed so far. Of the 22 partners we signed in the first half, several were enterprise-focused or focused on different types of payment flows. As it relates to longer-term growth of that business, there's an opportunity for us to expand beyond just debit and ACH payments into other functionality, which will support additional revenue streams. We haven't lost any major partners; there was one partner that announced moving off of Galileo that predated our acquisition of the company several years ago, and that transition has not had material impact on our business. Our relationships are pretty sticky and as long as we continue to build value for our partners, they will continue to work with us. Our focus is on making sure our partners have the best possible experience for their customers so they continue to partner with us.

Robert Napoli, Analyst (William Blair)

Thank you. And just a follow-up: is M&A an important part of your strategy going forward? I mean, you have a decent amount of capital. If so, what areas would you look to add — geographically or different products or technology?

Anthony Noto, Chief Executive Officer

Yes, we'll be first and foremost great stewards of capital and be very prudent in how we deploy it, whether it's funding our businesses, reinvesting in growth or M&A. M&A has been incredibly valuable and strategic for direct-to-consumer technology businesses for the last few decades and can create tens of billions of dollars of value over time. I believe our acquisition of Galileo will prove to be a similar strategic value creator. We prioritize vertical integration because it gives us the ability to be agile, deploy technology and innovation faster than anyone else and makes us a low-cost operator. It also allows us to create ancillary revenue streams that help fund the technology investments for the industry. We're vertically integrated in loans, which has been a great competitive advantage with high variable profit margins that we've disclosed have been 40% to 50% since 2018, as we've focused on quality and driving the economics across our businesses. Within our financial services businesses, the acquisition of Galileo allows us to vertically integrate with SoFi Money and that provides advantages in innovation speed, lower costs and helps the industry to become more reliable and trustworthy, accelerating the transition from traditional banks to new digital-first banks. Our credit card will be well-integrated as well. We may consider opportunistic horizontal M&A primarily outside the United States, for example our small acquisition in Hong Kong was strategic: we acquired a company with a strong management team and technology, licenses and a product we can use to expand Invest in Asia. Internationally for Galileo, we're primarily focused on LATAM where the competitive environment is favorable and opportunities are substantial, and we could accelerate that through M&A as well. But again, we'll be prudent stewards of capital and pursue deals that strategically fit.

Robert Napoli, Analyst (William Blair)

Thank you, I really appreciate it.

Anthony Noto, Chief Executive Officer

Thank you.

Operator, Operator

Our next question is a follow-up from Sean Horgan of Rosenblatt Securities. Sean, the line is yours.

Sean Horgan, Analyst (Rosenblatt Securities)

Hey guys, thanks for taking my call. I wanted to ask you on crypto: some of your peers have seen a lot of success monetizing and driving engagement with crypto trading, but I'm particularly interested in the crypto rewards. I think we're starting to see it pop up more and more. It's something that intuitively would drive a lot of the same kind of behavior. Can you talk about any early feedback there, and any aspirations to move into a product like earning yield on a crypto balance?

Anthony Noto, Chief Executive Officer

Thank you, Sean. Our approach to innovation is member-driven. When we were designing SoFi Invest we asked members what assets they wanted for more selection. Cryptocurrency was one of the most requested assets. There was a lot of internal debate about whether it was appropriate to add, but we decided to provide it while educating members about volatility and risk — which we do every time they place a buy order. Clearly it was an asset our members wanted, so we added selection. The rewards program is a great example of how our one-stop-shop strategy makes products better together. Our rewards platform can trigger rewards off any activity a member does on SoFi. Today you get rewarded when you use your credit card, but we allow you to redeem rewards into other products. For example, if you redeem into SoFi Money, or use rewards to make principal payments, or redeem into Invest, you can get enhanced rewards. When we first enabled rewards redemption into cryptocurrency, members wanted it and it quickly became one of the top three most popular redemption options across our products. That's a great example of how our products work better together and drive engagement. Another example is personal loans: when you apply, you'll get a base interest rate if you get approved, but if you're willing to set up direct deposit with us, the interest rate can be lower. That helps the borrower get a better price and helps us build a primary relationship with them. We're constantly challenging ourselves to add selection and capabilities, and yield-on-crypto or similar products are absolutely something we'll evaluate as we consider member demand and regulatory considerations.

Sean Horgan, Analyst (Rosenblatt Securities)

Okay, great. Maybe one modeling question for Chris. Can you just walk us through the EPS numbers and clarify how to get there?

Chris Lapointe, Chief Financial Officer

Yes, sure. Thanks for the question. In terms of our overall net loss, we reported losses of about $165 million. What's important to call out is that embedded in that number are non-cash items related to stock-based compensation as well as fair market value changes to warrants attributable to our business combination with Social Capital, in addition to one-time transaction expenses related to the business combination. In total, those three items total about $144 million of non-cash and one-time expenses. If you were to exclude those items from our net loss, net loss would have been closer to $21 million, and EPS would have been closer to $5.8 of loss per share.

Sean Horgan, Analyst (Rosenblatt Securities)

Perfect. Thank you.

Anthony Noto, Chief Executive Officer

Operator, we have time for one last question.

Operator, Operator

Our next question comes from an unidentified analyst. Please go ahead.

Unidentified Analyst, Analyst

Great. Thanks for taking my question. Given the growth and success particularly in mortgage and personal lending, how should we think about the efficiency of your marketing spend? Is it getting better? Is it getting worse? What's implied in forecasts over time, and what have you seen in the recent results as we look forward?

Anthony Noto, Chief Executive Officer

Yes, we've definitely seen efficiency improvements in marketing spend across the company. We saw a meaningful year-over-year decline in sales and marketing as a percent of revenue, which is an aggregate reported result. Within the personal loan business, our marketing expense per new loan also came down meaningfully on a sequential basis, benefiting from cross-buying and better data utilization and pricing. Home loans have been the gold standard for cross-buying: as we shared earlier, we've been in the mid-60% to high-60% to 70% range each quarter for the percentage of our home loans purchased by our existing members, and that hasn't changed. When you have that high of a percentage — two-thirds of home loans bought by existing members — there's great marketing efficiency relative to products that don't have that level of cross-buying. So it's been a huge benefit. The home loan business will cycle, personal loans will cycle, but we've had great efficiencies in home loans and improving efficiencies in personal loans.

Chris Lapointe, Chief Financial Officer

And we're really encouraged about our long-term cash flow relative to our long-term margin targets of around 30%. We're on track to deliver that.

Anthony Noto, Chief Executive Officer

I'd like to end the call with a few closing remarks, and thank everyone for joining us on our first conference call as a public company. I want to emphasize how critical our team is to our success and the importance of building a durable culture of diversity and a place people love to work. At SoFi, our products and services are digital; there's no storefront to walk into or teller at a window. Without technology or service, our offerings do not exist. But more critically important are our people. There's a saying I heard more than 30 years ago that I love to repeat: the tanks don't roll, the planes don't fly and the ships don't sail without the people. Our people are our number one critical success factor because they build the technology and our services keystroke-by-keystroke, data point-by-data point, iteration-by-iteration, step-by-step that turns our vision into real impact in our members' lives. I could not be more thankful for the people at SoFi for their resilience, their grit, and most importantly, their passion to impact our members' lives in profound ways. We'll chat again in Q3. Take care and be safe. Thank you for joining us.

Operator, Operator

Thank you for joining. You may now disconnect your lines.