I don't know. Hey-
Someone asked.
Yes.
Okay.
Can you hear me too?
Yes.
Can you hear us?
Okay.
Well,
should we start?
Let's do it.
Morning. I am Dan Dolev. I am the research analyst here covering payments and IT services. Not alone. Sean covers IT services with me, and I am very pleased to have Chris Lapointe, the CFO of SoFi, with me, my friend. And Chris joined SoFi from Uber-
Oh, I didn't know that.
where he was a global head of FP&A, corporate finance, and fintech prior to Uber. Chris was Vice President, TMT Investment Banking at Goldman Sachs. So, thank you, Chris, for joining. This will be very interesting.
Thanks for having me, Dan. Really appreciate it.
Yeah, of course. So, all right, so we have about 24 minutes for questions. So, you know, SoFi's been very successful in executing a challenging and constantly changing macro backdrop as a public company. Can you give us a little bit of background about SoFi's progress since becoming a public company, maybe some pre-bank charter and post-bank charter kind of examples, and, and you know, where, you know, where are we today in that journey? So-
Yeah, absolutely. So what I would say is we set out to create SoFi as a one-stop shop for financial services, and our business has evolved dramatically over the course of the last four to five years since before we became public. We have a much more diverse product set, and our revenue base shows that. We're taking share in virtually every single product in which we're operating. We've consistently grown our top-line revenue and member and product base quite meaningfully over the course of the last four to five years. We reached GAAP profitability, and we have a very, very robust balance sheet. You know, now, when stepping back and thinking about what got us here in the journey that we've taken, there are a few key milestones that I would point out.
First, if you look back to 2020 and 2021-
Mm-hmm
... we raised $3.6 billion of capital through our IPO, through our private round with T. Rowe Price, and through our large $1.2 billion, 0% convertible note offering that we did. That provided us with ample capital to continue to grow our member base and to invest quite meaningfully in our financial services, services. The second key milestone was getting our bank charter in 2022. If we rewind back to 2018, 2019, 2020, you know, we were forced to turn over the balance sheet 4x-5 x a year because we were constrained and limited by the amount of equity capital that we had on our balance sheet, as well as the access to our warehouse capacity that we had.
So we were turning over the balance sheet quite frequently and selling loans, much more, much more quickly than we otherwise wanted to. What the bank provided us was a low-cost, sticky funding source. 90% of our member deposits today are coming from direct deposit members. And that's provided us with the ability not only to get great interest expense savings, we're saving about $500 million of interest expenses annually today as a result of having that lower cost lending and not having to rely solely on warehouse funding. But it's also allowed us to hold on to loans for a longer period of time on our balance sheet and realize the true economic benefit of, of that asset base. So we're, we're really happy and excited that we were able to get the bank charter, when we did.
It has provided a tremendous amount of competitive differentiation for us. The third key milestone was acquiring our Technisys and Galileo businesses, which collectively are our tech platform. And we aspire to be the AWS of fintech. You know, that product offering is as diverse as our consumer offering, and it helps serve large financial institutions who are looking to modernize their tech stack or modernize their payment processing, or larger brands who are looking to get into financial services. And we're, you know, kind of at the core and one of the few providers that are able to provide those types of services in a cloud-based and dynamic way. And then the fourth milestone I would call out is the fact that we became profitable in our financial services segment recently.
If you look back, prior to 2023, that business collectively was funded by our lending and tech platform business in order to scale. We're now generating $600 million annually of revenue. That business is expected to grow over 75% in 2024, and we're delivering 25% contribution margins in that business, so self-sustaining and growing, quite meaningfully. So if you put all of those milestones and facts together, you know, we feel like we have all of the ingredients to become a top 10 financial institution, and we're really proud of the progress that we've made over the course of the last 4-5 years.
Well, you definitely have my money.
I love it.
You know, we're going, I'm going all the way. So just really quick, maybe we can just jump into your... You've provided long-term guidance through 2026. And maybe we can, like, you know, parse out a little bit to the components of the guidance. So if we can talk about, like, the tech platform, you're talking about mid-20s CAGR through 2026.
Mm-hmm.
You know, how do you expect to achieve this growth? And then—you know, what kind of clients are coming to you from that Galileo, Technisys offering? So how do you—and then we can maybe talk about financial services-
Yep
... and GAAP EPS. So let's maybe, like, parse them out one by one.
Perfect. Yeah, so I'll hit on tech platform first. So what I would say is why we're confident in our guide and what we expect in terms of the mid-20s percent growth is we have a large installed base of customers that are growing quite nicely already today, over 150 million accounts on the Galileo platform. We have dozens of customers that are in various stages of integration or in early stages of revenue monetization that you could expect to see continued momentum and growth over the course of this next several quarters and years.
And then, as we've talked about over the course of the last several quarters, we're targeting partners that are large financial institutions who need to modernize their tech stack, or large brands that have big install bases who want to get into financial services. On the latter part, we're seeing very robust demand and are in great conversations with a number of top banks in the U.S. and top banks in Latin America. I think part of that is a function of obviously our product offering and differentiation, but what you're seeing in the broader banking sector of the severe need for these financial institutions to have much better real-time visibility into managing their assets and liabilities. And as importantly, they need all of their products to work better when they're used together.
So we're in a prime position to be able to offer that type of solution. You know, we're in RFPs discussions with many of the top U.S. banks right now. Those conversations are going extremely well. Obviously, as we're focused on larger customers that have more durable revenue potential for us down the road, the sales cycle is a little bit longer. It can take one to three quarters to sign up a client, then integration takes longer than that, and then you start generating revenue. But what I would say is, with these larger, more established businesses, we're getting to meaningful scale of revenue much faster than we used to when we were focused primarily on neobanks and fintech. So very robust demand. We're really excited about the opportunity ahead of us, and a very large installed base that's growing nicely.
You mentioned GAAP EPS. Obviously, that's a huge achievement. I think $0.55-$0.80 in GAAP EPS in 2026. Like, what are the main levers that you can pull to ensure that you're, you know, meeting or beating those expectations?
Yeah, absolutely. So in terms of GAAP EPS, what gives us confidence there is that the guide assumes no incremental investment in new products, new services, no new acquisitions, et cetera. As you can imagine, our product pipeline is pretty robust, and you shouldn't expect us to sit around and not come out with new products and services over the next several years. But this assumes no incremental investment or new product launches. What we're assuming is 20%-25% compounded annual growth of revenue over the course of the next three years. In financial services, we're expecting that to be 50% compounded annually every single year. What's gonna drive growth in financial services specifically is we're really excited about the fact that more and more people are using SoFi as their primary bank.
In addition to that, they're deepening their relationships with us through incremental products. One stat that we haven't talked about, but it's worth noting here, is if you look at the last several cohorts of new members that have come onto the platform, approximately 30% of those new members are taking out a second product within 30 days of being on the SoFi platform. So it speaks to, you know, our product offering and how our products are better when they're used together, and how we're building that trust and loyalty with our member base. In addition to that, we're seeing meaningful growth. We expect meaningful growth in the deposit franchise. We've been generating over $2 billion of deposits each and every quarter over the course of the last year plus.
We expect that to continue and to drive, you know, meaningful growth in our net interest income. In addition to that, on the non-interest income side, on interchange, we're seeing really good trends as well. If you look at Q1, we saw $1.9 billion of spend on the platform. That was up from $1.5 billion in Q4 and $1.2 billion in Q3 of last year. And that $1.9 billion of spend on the platform drove $50 million of annualized interchange revenue, which was up 60% year-over-year. So as we continue to see increased deposits and increased primacy, with our Money product, you could expect to see incremental growth in interchange.
In addition to that, we're seeing really good momentum in our Invest business, both on new members, asset, net flows, as well as new monetization opportunities. We recently rolled out alts and mutual funds. Those are driving a meaningful portion of our overall net flows this past quarter. So we feel really good about that. In the credit cards business, still tiny. It's only a few $100 million of balances, but we've intentionally slow-rolled that business because we wanted to ensure that we have all of the fraud capabilities, and loss capabilities in place.
What we are seeing is really good signs that our entry rates, charge-offs, and delinquencies are getting to a more meaningful or a better spot for us, where we can start putting more investment dollars behind that business, and be more innovative and start to drive more revenue growth there. And then the last piece that we don't often talk about is our lending-as-a-service business, which, similar to interchange, was $50 million of annualized revenue in Q1. That's a function of, you know, the growth that we're seeing in declines on the personal loans front. So right now, in our personal loans business, we're declining 80% of all applicants that are coming through the funnel. And that's serving as a really good addressable market for our lending-as-a-service business in financial services.
As we continue to be cautious and thoughtful about how we're expanding our lending business, you can expect to see our lending-as-a-service business to continue to grow. In addition to that, we'll be rolling out new products in that area and signing up new partners. So net-net, we're really excited about the growth that we expect to see in financial services. We talked about tech platform, mid-20s percent CAGR, and then lending is mid-teens CAGR. On the profitability front, bridging down to GAAP EPS, we expect to generate 30% EBITDA margins by 2026, and 20% GAAP net income margin by 2026, and stock-based compensation is expected to be high single digits as a percentage of revenue.
So you put all of those CAGRs and the profitability targets into place, and that gets you to your $0.55-$0.80 of GAAP EPS that we're really confident about.
Very impressive. Maybe let's shift gears a little bit more to 2024. I'm gonna use my favorite word, the credit box. I just learned it this year. So you've been conservative on your outlook for personal loan growth this year. I think last time we met, you mentioned some, you know, green, you know, green lights and red lights. So internally, everything is green. Externally, you're looking at some things that make you want to be more conservative. Maybe we can kind of-
Mm-hmm
... talk a little bit about the decision to not, you know, you know, open the credit box even more.
Yeah. I think one of the things that's most important, just stepping back away from everything, is 2024 is going to be a year of meaningful growth for us as an overall business. It's gonna be a year of increased diversification and revenue, and it's gonna be a year of meaningful book value generation. With respect to lending specifically, we are taking a cautious approach for two reasons. One is the broader macro signals that we're seeing out there. Look at rates. There's so much rate volatility. If we rewind back to when we first started setting the plan for 2024, everyone was talking about rates staying higher for a longer period of time. Fast-forward two, three months when we actually established our 2024 plan, there were six rate cuts baked into the consensus. Fast-forward another few months, three rate cuts.
Where are we today? One to two rate cuts. This morning, rates are rallying 15 basis points off the CPI print. So there's just a ton of volatility with respect to rates. There's geopolitical risk, there's liquidity concerns. So that, coupled with the fact that we have two very large segments in our financial services and tech platform businesses that are growing meaningfully and delivering meaningful profit, gives us the ability to be flexible and not unnecessarily grow our lending business when we don't need to and when we can take a conservative approach. So that's why we're doing it. We feel really good about the underlying credit trends that we're seeing in our business. But from a broader macro perspective, there's too much volatility to grow that business more than we need to.
What I would say is we're still originating $4.5 billion per quarter of originations across the platform today, which is still quite sizeable, despite the conservative approach that we're taking. Now, what would change our outlook on opening up or scaling the lending business? I think the macro would have to change. We'd have to get much better visibility. Rates would have to stabilize. We'd have to have much better visibility into what's happening with fears of a recession, unemployment, etcetera, or rates would have to come down. Our capital ratio, total risk-based capital ratio today is 17.3%. So we have plenty of headroom above and beyond where the regulatory minimum is at 10.5% to scale the lending business if and when we choose to do so. We're being cautious today.
If rates come down, that will open up the gates for our student loan refinancing business, and our home loans business, which is really small right now.
And maybe kind of talking about the other side of it, like what it—maybe a little bit of an update on the capital market activity. Like, how do you feel vis-à-vis the loan—you know, the loan buyers?
Yeah, you know, demand, demand is as strong as it's been, you know, since I've been in this seat. We ended up doing $1.9 billion of sales in Q1 of this year. That was the most sales that we've done over the course of the last two years. We have more demand than we are willing to fulfill right now at execution levels that are, you know, really favorable to us. So we feel great about the demand.
I think part of it is due to, one, the fact that we have been in this business for 11, 12 years, underwriting high-quality credit paper, and we're one of the very few providers, if not the only provider, who can provide these types of assets to investors at scale and on a recurring basis, and we've demonstrated that time and time again. I think in addition to that, you know, a lot of folks expect rates to come down over the course of the next 12, 18, 20, 24 months. And buyers are trying to lock in forward flows with these higher-yielding assets, as quickly as they can, to take advantage while rates are where they are and while the weighted average coupon of these assets are where they are.
So I think that's part of what's driving the overall demand. We have a robust balance sheet and the capability to meet buyers where they are from a structuring perspective, and feel really good about the demand. Like I said, $1.9 billion of sales just last quarter at really favorable execution levels, and you can expect to see, you know, continued demand and execution going forward.
Thank you. And if I think about your three kind of main lending business side-
Yeah.
or, you know, on the lending side-
Mm-hmm.
- which is like personal, student, and home, like, what should investors be most excited about if you're looking at, like, 12-18 months in terms of, in terms of the opportunity on these three subsegments?
Yeah, so I'll start with the one that probably has the largest opportunity for us, which is our home loans business. Right now, our overall market share is less than 0.1% of the overall market. What I would say, though, is we're really excited about the opportunity ahead of us. We recently acquired a business called Wyndham Capital, which shored up our back-end fulfillment capabilities. Historically, relied on a partner, but we realized how critical it was to own the back-end fulfillment capabilities and technology. That's now established, fully integrated, so we're ready to go. In addition to that, we recently rolled out some new products with VA loans, with home equity lines of credit, with home equity loans, which will serve and help to drive incremental growth in that business.
So even despite where rates are today, we expect to be able to start taking meaningful share as a result of having our fulfillment capabilities shored up, as well as, you know, all of the table stakes products out there. Another interesting stat that's important to note is that only 1% of all SoFi members who have a mortgage are taking the mortgage or have the mortgage with SoFi. So we have a huge installed base of our own existing members that we don't actually have to pay meaningful marketing dollars to go out and acquire or originate to that will serve meaningful growth for us going forward. Switching gears to student lending, in-school loans is a really good opportunity for us. It's a $12 billion origination opportunity per year in the market.
You saw a few key players drop out recently, so that should serve as a, as a meaningful tailwind for us. It's a really small business today, but, we're making really good strides. We're in 1,000 schools right now, which has taken some time, but we're there, and you can expect that business to continue to grow. Student loan refinancing, obviously, the rate environment, as well as some of the uncertainty with the Department of Education, is driving where originations are today. We're right around $650 million-$700 million of originations. You know, once we get through an election, the election cycle, and if rates drop, there's meaningful opportunity to, to grow that business.
And then on the personal loans front, we target, you know, prime borrowers who have average FICO scores in the 750 range with average incomes of $160,000. We have about a 10% market share of that business in our credit box, so 680 and above. We've grown that market share quite meaningfully over the course of the last few years, and there's a ton of headroom to continue to grow it. We're obviously taking a conservative and pragmatic approach to that business, so I wouldn't expect that to grow meaningfully. But there is meaningful headroom, and we have the capacity to be able to do that from a capital ratio perspective if the macro changes.
Got it. And maybe, we're almost out of time, so maybe one last question on my end. There's been some, I would say some discussion around, the ability to maintain the 7%-8% life of loan losses-
Mm-hmm.
- and the confidence around it. Can you maybe touch a little bit about the, like you said, lumpiness in NCOs and how that mechanism where... I think there's been a lot of misunderstanding about timing and duration.
Mm-hmm.
We're certainly getting a lot of questions about it from investors, so it would be great to maybe have some clarity on that.
Yeah, absolutely. So what I would say is what gives us confidence in that 7%-8% life of loan loss level is. We have over a decade of experience in underwriting high-quality credit. In addition to that, we're seeing really favorable trends in some of our more recent cohorts. So I mentioned this during our Q1 earnings call, but just to provide a little bit of incremental detail, if you look at our Q1 through Q3 cohorts of 2023 and compare that to Q3 2022 cohort at similar levels of unpaid principal balance on the balance sheet, you would see that our losses of recent vintages are 20%-40% better than Q3 2022.
If you take that a step further and rewind back to 2017, the last time we saw lifetime loan losses that even came close to 8%, it was still below 8%, but nonetheless, it was the highest cohort that we had. Our losses, again, comparing to similar levels of unpaid principal balance remaining on these loans, are performing 40%-50% better than 2017 levels. So we feel really optimistic and comfortable and increasingly confident in our 7%-8% lifetime loan loss guide that we provided, and we're really optimistic about the underlying trends that we're seeing. In terms of the lumpiness on the NCO rate, what I would say there is, there's a ton of things that drive the net charge-off rate on a quarter-to-quarter basis. It's based on new originations.
It's based on sales that we do in the quarter. It's based on runoff on the existing book. It's based on the tenor or the term of the loan that our borrowers are taking out at a given point in time and what that looks like in the overall portfolio. One of the things that we're seeing right now is that given where rates are and the expectation that rates are gonna come down, people are taking out shorter-term loans with the expectation that they can refi, you know, in one, two, three years when rates start to come down. So we're seeing a shift towards shorter duration, loans being taken out, which is resulting in losses happening at an earlier stage in a loan's life cycle, which is creating some of this lumpiness that we see in the NCO rate as well.
So I think some of those are the things are the factors and why it's important to understand the key drivers. To your question about, you know, how we should think about NCO versus CDR, what I would say is they offer investors and readers of our financials two different things. The NCO rate is backwards-looking and reflects the losses of the collateral that just charged off and can be impacted by all the things that I just talked about. The CDR is a representation of what's remaining on the book and the losses that are expected to happen over the life of the remaining of the loans on that book if a buyer were to buy those loans today and hold them until maturity. So, they're two different things.
There's a lot of lumpiness in the NCO rate, but at the end of the day, we're really excited about the trends that we're seeing from a entry rate, delinquency rate, charge-off rate on, you know, vintages since the beginning of 2023.
Well, thank you, Chris. I'm actually planning to send more money to SoFi, so-
We appreciate it.
It's been a good experience, so thank you.
Thank you very much. Really appreciate it.