00:00SoFi reporting second quarter results before the opening bell. The company posted record revenue,
00:05$1.2 billion, but also raised its full-year revenue outlook. The bit that's unchanged is
00:10the earnings guidance. Look at shares, down 8.4% right now, on track as it stands for its biggest
00:16drop since late April. There had been a deeper decline earlier in the session. Joining us now
00:22is SoFi CEO, Anthony Noto. Record revenue and the outlook for the balance of this year,
00:28it's really interesting, like projects a lot of confidence. Let's just address the stock move
00:34and the story of the quarter. Maybe the street felt like you needed to take the bottom line with you
00:39in your confidence. Yeah, I think you're right. The quarter was incredibly strong. It was our 19th
00:45consecutive quarter of more than a rule of 40. It was actually a rule of 70 with 40% revenue
00:50growth
00:50to $1.2 billion and over a billion dollars of cash revenue. And our EBITDA margin was 30% and
00:57we had
00:57a really strong net income margin. I think the street likes the trend in the business today.
01:02Credits performed well. Our new products are getting great adoption. We're seeing the flywheel
01:07of being a one-stop shop driving success and increased products per member. So really positive
01:13story fundamentally in Q2. In Q3, we expect that fundamental story to remain intact and continue
01:20strong member growth, product growth, and product per member growth with good profitability.
01:25We did raise our revenue expectations for the year and the back half of the year, but we left
01:30earnings unchanged primarily because we want to make sure that we keep investing in the business
01:35to maintain these high levels of revenue growth for a longer period of time. And in addition to that,
01:41we're also now anticipating two rate increases as opposed to the beginning of the year when we
01:46anticipate two rate decreases. And that creates some uncertainty. And so we decided to have a little bit
01:51of a cushion as it relates to earnings if something like that unfolds. But we couldn't be more confident
01:56in the business and the long-term profitability of the business. It's just we're not going to take
02:01earnings up in the near term to try to drive market favorability that will be short-term beneficial,
02:06but not long-term prudent.
02:10Right. Let's talk about the Fed. Why not? It's Fed Day. No one wants to talk to the tech guy
02:15on Fed
02:15Day, Anthony, to be honest with you. And I just want to partake in it like everyone else. So you
02:20explained it. Your assumption reflects one to two hikes rather than cuts. Put the numbers and
02:27monetary policy jargon to one side. How does that change how you think about the world, about how the
02:33economy grows, about the consumer in the back half of this year? Yeah. I mean, if the Fed is raising
02:38rates, that means we have a strong economy and we're trying to maintain stable inflation.
02:44In an environment in which rates going up one to two percent will perform very well on the revenue
02:49line, which is why we're still forecasting strong revenue. And I think ultimately we'll perform really
02:54well on the bottom line. We're already in our guidance in providing guidance of a net income margin
03:00on an incremental basis of 30 percent, which is our long-term profile where we can get to. So
03:06it doesn't really change that much. It just eliminates some of the upside that one may have
03:11called today compared to a different environment. I think a stable economy with unemployment below five
03:18percent, inflation around two to three percent is a great backdrop for our business. An even better
03:24backdrop for our business is if rates were declining.
03:28Final question on the economic side, what does the health of your customer look like? And not just
03:34the health, but what are the behaviors of your customers in this environment? We've gone over in
03:38the past, you and I, the demographics and who you're serving. So how are they behaving?
03:44Their customers' behavior is very strong. We see very strong levels of spending. We annualize at about
03:50$30 billion of debit spending a year. We're seeing very strong trends in credit, which were reported
03:56continuing. We're seeing good inflows into our invest business assets under management standpoint,
04:02and we're seeing people take out more products. There definitely is a desire to reduce the cost
04:08of debt, and we saw record levels of origination across our unsecured personal loans, our student
04:15loan refinancing, and our home equity lines of credit and home equity loans. And that's a secured loan that
04:21has a lower interest rate. And we recently launched small, medium business, and we see a lot of demand
04:26for small, medium business loans as well. So from our vantage point, the economy looks very strong.
04:31Inflation isn't causing consumers to hold back. We're not seeing an uptick in unemployment.
04:36We're not seeing any deviation on the credit side.
04:39Let's talk about AI. When we went through the big bank earnings, there's debate, right,
04:43on how much AI is really reshaping financial services and the investment that's required.
04:48For SoFi today, where is AI having an impact across underwriting, customer service, fraud detection,
04:56something that's real right now?
04:58Yeah. The first thing where it's having an impact is actually on code production.
05:03We have a unit of work within our engineering group called a squad. And historically, a squad
05:08consists of seven people. Today, a squad is going to consist of four people that can produce the same
05:14amount of code as seven people. So that's a huge productivity savings from AI capabilities. It
05:20also helps with testing. On the cost side of the equation, we're using it to automate fraud
05:25investigations. We're using it to automate dispute resolutions. We're using it to help with customer
05:30service. On the underwriting side, we're not really using it to predict the ability for people
05:36to pay because we underwrite to their actual cash flow based on their actual income and their
05:40expenses. I do think that AI is helpful in verifying some potential outliers or finding them
05:47that could be fraudulent activity, first party fraud, where an individual has no intent to repay
05:53their obligations. And then on the overall value prop of SoFi side of the equation, we've launched
05:59something called SoFi Coach, which is a chat bot that's driven all by AI. You can ask any question about
06:05your financial life and it'll help you get your money right. You could ask if you should refinance your
06:09mortgage, where you should invest, how do you lower your costs and your expenses? Should you be
06:13investing more? And it's a super powerful engine based on the data that we uniquely have. Because
06:19we're a one-stop shop, we have data across checking and savings accounts, across loans, across mortgages,
06:25across investing, across credit cards, and across insurance. So we have not just a great engine of
06:30information that can drive great AI solutions, but the data is a huge differentiator and we're seeing
06:36really positive effects of that. SoFi CEO Antonio, a great picture on digital finance
06:42in the real world. Appreciate that a lot. Thank you very much.
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