SoFi Technologies, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Durable Growth: Q3 was the strongest quarter in SoFi's history. Adjusted net revenue reached a record $689 million, up 30% YOY. Financial Services segment makes up over a third of total revenue, growing 102% YOY. Non-lending segments grew 64% YOY, making up 49% of total revenue. Added 756,000 new members in Q3, total members 9.4 million; grew products by over 1 million to 13.7 million.
• Innovation and Brand-Building: SoFi's unaided brand awareness reached 7%, up nearly 40% YOY. Innovations include new alternative assets in SoFi Invest, record deposits and spending in SoFi Money, new credit cards, and improvements to SoFi Plus. Loan platform business evolved into an integrated experience with just-in-time lending. Signed first two direct insurance carriers for SoFi Protect.
• Financial Performance: GAAP net income reached nearly $61 million, a $327 million improvement YOY. Adjusted EBITDA was $186 million at a 27% margin. Tangible book value increased $236 million to $4.4 billion. Total capital ratio 16.3%, well above regulatory minimums.

Segment Performance

• Financial Services: Achieved $238 million in net revenue, up more than 2x year-over-year. Reached nearly 11.8 million products in the quarter, up 33% year-over-year (40% excluding crypto accounts). Annualized revenue per product was $81, up 52% year-over-year. Net interest income increased 66% year-over-year, non-interest income grew 235% to $84 million. Loan platform business generated $56 million in fees in Q3.
• Tech Platform: Delivered record net revenue of nearly $103 million in the quarter, up 14% year-over-year and 7% sequentially. Segment delivered a record contribution profit of $33 million, representing a 32% margin. Galileo accounts grew 17% year-over-year to $160 million.
• Lending: Achieved record adjusted net revenue of $392 million, with a record $239 million of contribution profit at a 61% adjusted margin. Originations grew 23% year-over-year to over $6.3 billion, driven by personal loan originations. Credit trends improving, with personal loan 90-day delinquency rate decreasing, and student loan delinquency rate flat.

Guidance

• Full-year 2024 adjusted net revenue revised to $2.535 billion to $2.550 billion, up from prior guidance of $2.425 billion to $2.465 billion, implying 22%-23% annual growth.
• Adjusted EBITDA expected to be $640 million to $645 million, above prior guidance of $605 million to $615 million.
• Full-year GAAP net income expected $204 million to $206 million, above prior guidance of $175 million to $185 million, and GAAP EPS $0.11 to $0.12 per share.
• Expect to add at least 2.3 million new members in 2024, representing 30% growth.

Risks

• Macroeconomic conditions and outlook could impact business performance.
• Competitive landscape may affect market share and growth.
• Regulatory changes could pose challenges to operations and profitability.

Question and Answer

Q: Can you give us some more color on the loan platform deals, like how do you make money here and how does this differ from the prior quarters?

A: So, overall, this is a great fee-based and capital-light revenue source. Ways to make money include sending qualified borrowers to platform partners for referral fees, originating on behalf of partners with upfront cash fees and retaining servicing, originating on behalf of third-party investors for upfront fees, and servicing assets held by others. These deals are incremental and not zero-sum.

Q: How do you think about originations and lending growth for your own balance sheet versus maybe originating for some of your big partnerships?

A: Overall outlook for balance sheet originations is modest growth. We are happy with the current balance sheet size and net interest income. There's excess demand for unsecured personal loans, fulfilled through loan platform business. Expect modest growth on balance sheet in Q4, with uptick in student loan refinancing and home loans in lower rate environment.

Q: How do you guys think about the performance trend of current vintages versus the 2017 vintage and its contribution to return on capital?

A: Current vintages are performing better than 2017 vintage. All-in returns on recent vintages projected to be meaningfully higher, driven by lower life alone loss rates, higher pricing beta, funding cost efficiencies, and origination fees. Expected ROEs above 30% for newer vintages.