Affirm Holdings, Inc. (AFRM) Q2 2022 Earnings Call Transcript

Affirm Holdings, Inc. (AFRM -0.90%)
Q2 2022 Earnings Call
Feb 10, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Affirm Holdings fiscal year 2022 second quarter earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded, and a replay of the call will be available on your investor relations website for a reasonable period of time after the call.

I'd now like to turn the call over to Ron Clark, vice president of investor relations. Thank you. You may begin.

Ron Clark -- Vice President, Investor Relations

Thanks, operator. Before we begin, I'd like to remind everyone listening that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our investor relations website. Actual results may differ materially from any forward-looking statements we make today.

These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call may include non-GAAP financial measures. These measures should be considered as a supplement to, but not as a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our investor relations website.

Hosting today's call are Max Levchin, Affirm's founder and chief executive officer; and Michael Linford, Affirm's chief financial officer. With that, I'd like to turn over the call to Max to begin.

Max Levchin -- Founder and Chief Executive Officer

Hello, and thank you for joining us on this earnings call. Affirm is just a handful of days away from its 10th anniversary, and this earnings report also marks the first anniversary of our public debut. While the road ahead of us is significantly longer than the one we've traveled so far, the occasion does warrant a moment of reflection on the execution of our strategy during the last 12 months. We feel great about our progress.

We remain quite unpivoted and focused on delivering long-term compounding value to all our stakeholders, consumers, merchants, employees and shareholders. As we introduce ourselves to the public markets a year ago, we talked about several key themes. First and foremost is our mission, which is to deliver honest financial products to improve lives and to do so while delighting the people we get to serve every day. Because the opportunity embedded in our mission is still so vast and open, consumer growth is very important to Affirm.

We've done very well. Indeed, our active consumer growth accelerated, growing by 150% to provide well north of 11 million people with a smarter way to pay. Growth for us is never just about getting the next million consumers. It's also about the impact we can have on the financial well-being of the folks who rely on Affirm.

We also talked about our other all-important constituent, the merchant. Affirm is as much a safe and transparent pay-over-time option for the buyer as it is the ultimate marketing tool for the seller. We help our partners drive meaningful incremental sales without needing to resort to gimmicks or discounting. The number of active merchants on our platform is another key measure for Affirm, and over the last year, we've significantly expanded our reach.

There too, we accelerated with a more than 20 times  increase from a year ago and a 64% increase from the rolling 12-month tally we reported just 90 days ago. As a company founded by engineers, we focused early on investing heavily in technology, scalable enough to economically support the smallest of businesses, all the way up to the world's largest retailers. We've continued this policy of investment and development in pursuit of technological competitive superiority. The strategy is working and delivering results.

In fact, our technology is what has enabled us to work with tech savvy giants such as Walmart, Shopify, Amazon and Target. We estimate that this year, Affirm processed 1.6% of all U.S. outline transaction volume for the Black Friday, Cyber Monday period, another triple-digit increase from last year. Simultaneously a momentous number and a signifier of just how early we are in this market.

Even a decade in, the ramp-up to the holiday shopping rush is an intense yet exhilarating exercise in scalability preparedness. Each year's Black Friday weekend brings by far the greatest number of concurrent transactions we've ever experienced. I'm very proud of our engineering teams for delivering another flawlessly executed record-breaking Black Friday weekend and I'm also grateful to our friends at Shopify engineering who had lent some of their technical expertise to us as we prepped in the days before. It is an oft-repeated adage that product innovation slows down as companies go public.

I'm pleased to report that we were able to accelerate our product delivery since the IPO. We've rolled out cash back rewards for participating merchants, delivered the unique Adaptive Checkout, launched the Affirm SuperApp and the Affirm Chrome extension and introduced the beta version of super simple, consumer-friendly crypto savings. You may have noted the announcement of Visa being the launch partner for Debit+, which is now in the initial waitlist rollout. Though I will continue to caution you to not yet give crazy forecasting this product's impact on our P&L at scale, I do have fun insight to share.

On average, the number of weekly transactions by Debit+ consumer, excluding our own employees, is greater than an order of magnitude above that of a regular Affirm user. Of course, these are enthusiastic early adopters, and we fully expect the number to normalize, but it's exciting to see first glimpses of what Affirm as a daily instrument might look like. We remain very excited about the future of this product and expect to talk a lot more about it this year. We had said last year that BNPL is an international phenomenon and we intend to bring Affirm's unique no late fees, no gotchas, no regrets approach well beyond our home borders.

Over the last 12 months, we've solidified our industry leadership with PayBright by Affirm in Canada and launched in Australia, our first non-North American market and the growth of our business continues to accelerate. Affirm had more than 160,000 active merchants on the platform as of the end of calendar 2021, largely thanks to our partnerships with online commerce platforms. In aggregate, Affirm is now present on sites that account for more than half of all U.S. e-commerce, and that number continues to march higher every day.

In our second quarter year-over-year GMV growth accelerated to 115% from 84% in the first fiscal quarter. Moving beyond the testing phase of our collaboration with Amazon before the holidays was a significant driver of this growth. However, if you exclude Amazon, our GMV still doubled year over year. We are highly cognizant of the fact that over 80% of commerce is still conducted offline.

Our recently announced partnerships with Verifone and Adyen are just two of the numerous investments we're making with our partners to bring honest financial products to consumers at the physical point of sale. We're also expanding the ability to use Affirm in-store with our own products like Debit+. Our focus on using exceptional technology to drive growth and improve efficiency has been a winning strategy for Affirm, and we never stopped finding ways to optimize and deliver even more value. This shows up in our results in a number of ways from new partnerships to long-standing relationships.

For example, iterating over the last three years, our relationship with Walmart has grown as we prove the value of our products. We expect similarly great things from our other major partnerships with time. As we develop with and learn from each customer, we are excited to bring these learnings and the products they engender to all merchants, big and small. The strength of our network is measured in merchant coverage and repeat consumer engagement, both of which are rising rapidly.

We grew total transactions by 218% and transactions per active user by 15% year over year even as we added a tremendous number of new consumers. Our momentum is strengthening. Our strategy is working and we are extending our lead. We intend to double down on the three key things that got us here: one, deliver unique and delightful financial products that align fully with our mission; two, continue to be the partner of choice for merchants that care about intelligent growth, scalability and reliability; and three, deepen our underwriting advantage.

Speaking of underwriting. We manage risk, though we are an easy-to-understand tool to maximize one's personal capital and the retail marketer's best friend. At our core, Affirm is ultimately a risk-managing business. We facilitate the transaction, settled with the merchant soon thereafter and bill the buyer over a predetermined period of time.

But wait, there's more. When we charge interest, which we don't always do, we don't compound it into principal. Moreover, we don't compound interest after it reaches the amount we communicated to the consumer at purchase time. We refund interest when the buyer prepays.

We don't even charge late fees. These are all deliberate choices made in the first few days of our company's life. We meant to align ourselves with our consumers in this manner, avoiding the moral hazard of capitalizing on their mistakes for revenue opportunities. These decisions are as on mission and moral as they are self-serving.

These policies are an important part of why our consumer satisfaction is so high, and we only wanted to go up. With the self-imposed guardrails exceptional underwriting and risk management frameworks are a requirement. That's why we underwrite every transaction before making a credit decision, unlike some of our competitors in the BNPL space who readily admit they do no underwriting at all. It is also important to understand that unlike many players in our industry, we do not treat delinquencies or defaults as an outcome of our business decisions.

Indeed, we choose acceptable delinquency rates as an input into our decision-making, based on the pricing our products command with our customers, our view of the macroeconomic conditions and the demand for our loan volume in the capital markets. This distinction may seem subtle, but I think it really helps understand our approach to risk. We spent the last decade building what we believe to be one of the best-in-class credit underwriting ecosystems, data, tools, processes and teams that deliver underwriting models with some of the very best results in the industry. Today, I'll pull the curtain back a little and while I will keep it very high level in part to avoid giving out trade secrets, feel free to tune out for a few minutes while I nerd out.

Affirm's underwriting advantage begins before any of our models are interrogated for a decision with our product design. Because Affirm is predominantly offered at the point of sale, we have a natural opportunity to explain our value and transparent approach to the consumer. As a result, we avoid much of the adverse selection that often comes with traditional lending. Coupled with SKU-level data we receive from our partners, our models tend to split the risk far better than those used in traditional consumer loans.

Another fundamental structural advantage Affirm has is its total separability of transactions. Unlike providers of lines of credit, we underwrite transactions individually, modeling a consumer's ability to pay us back, as well as their propensity to do so. This notion of separability is also recursive, a consequence of our product because repayment schedules are highly predictable, our models operate at an individual installment level. This separability is a powerful tool for modeling, as well as managing risk.

We're able to deliver a reliable forward-looking picture of both consumers and our own cash flow. Our proprietary network of directly integrated merchants, as well as other sources of nontraditional underwriting data offers us a significant raw data advantage into feature engineering. We maintain a library of over 500 features that we select from as we create new models or update existing ones, while continuously looking for and eliminating any potential for disparate impact in our decisioning, both at individual variable and model levels. We train our models using academically well-understood gradient boosting technique with significant proprietary modifications we've invented that help us improve results.

Because from the very beginning, we focused equally on consumer and merchant information, we ended up with a large number of models that are specific to our products and merchants who use them. Moreover, as we launch new products with new and existing partners, we acquire new types of data that we incorporate into the models and over time, give incremental weight, too. Underwriting models decay over time as macroeconomic conditions and consumer behaviors change. Even the very best performing ones can lose a few percentage points of their area under the curve every few months.

Over the years, we've built special-purpose models that track model decay, the machine learning equivalent of a canary in a coal mine. Our proprietary software and processes allow us to rapidly retrain, retest and redeploy models where the performance has deteriorated in a matter of days. To illustrate this, let's take a side-by-side look at ITACs, one of our longest-serving proprietary models, versus a traditional credit scoring system like FICO. Using ITACs, reducing originations by 10% would eliminate a third of all delinquencies in dollars, while using the traditional credit scoring system would only reduce delinquencies by a mere 13%.

Let's take it a step further. If we were to reduce originations by 30% using ITACs, we would remove 70% of all delinquencies, while the traditional score would only catch 36%. So needless to say, this model slopes a lot better than the traditional industry standard. These achievements may sound quite abstract, but they have a very real impact.

With our superior underwriting capabilities, Affirm can approve many more college students buying tickets to see family after months of pandemic isolation and young parents picking up their first stroller. And because Affirm's average loan duration at origination by design is very short at just 5.2 months, the exceptional precision and recall of our credit models give us great confidence that our portfolio, both retained and sold will continue to perform well in the future. Any use of advanced technology has both advantages and risks associated with it. As we push our model performance further in pursuit of expanding our offerings, we work just as diligently on ensuring that our models are both compliant with all applicable laws and rules and that our model decisions are both reasonable and are understandable by consumers.

We regularly audit our models to avoid correlation with prohibited basis and have them audited externally. We also invest heavily in explainability of model outcomes so that both consumers and regulators can understand our decisions quite easily. None of this, of course, would exist without the extraordinary team of people that make it all possible. I am truly fortunate to have been able to start this company with a group of brilliant minds who in turn, attracted more and more talented folks to join our mission and bring their mathematical and other talents to bear.

It is this embarrassment of riches among my teammates that makes me so optimistic about the next decade of Affirm. Large as some of these numbers might be, Affirm still accounts for around 1% of U.S. e-commerce, and both consumers and merchants are genuinely excited to get more value from Affirm. And we are excited to deliver it.

As usual, I want to thank my team for all their amazing work. And even during some pretty volatile moments for our stock price, for staying truly focused on the long-term value creation for all our stakeholders and on our mission. Now on to Michael for the numbers.

Michael Linford -- Chief Financial Officer

Thanks, Max, and good afternoon, everyone. Our second quarter results demonstrated a massive step change in our network scale, driven by our partnership with the largest enterprises and our technology advantage. Growth accelerated on both sides of our network, as active consumers more than doubled while active merchants increased more than 20 times. Frequency increased alongside that explosive user growth.

Total transactions grew 218%, the fastest rate since our Series D private funding round. We grew GMV 115% in revenue by 77%. In November, we completed the rollout of our initial offering at Amazon in the United States. And even excluding Amazon's contribution, we significantly exceeded our outlook for both GMV and revenue.

Unit economics were also strong. Revenue less transaction costs grew faster than revenue at 93% from the prior year. And even as we accelerated network growth, we continue to operate with efficiency, reducing the equity capital we used to fund our loans by 17% versus last year. With the accelerating growth of our business and the early traction with our enterprise partners, we are raising our outlook for fiscal year '22, which I'll share more about in a moment.

Before I do that, let's walk through the second quarter results. Unless stated otherwise, all comparisons refer to our second fiscal quarter of 2022 versus Q2 of fiscal '21. We had another great quarter for consumer growth. Active consumers increased 150% to 11.2 million and increased 2.5 million sequentially from fiscal Q1.

Despite adding users at this aggressive pace, we grew transactions per active consumer by 15% year to year and more than tripled the number of transactions. More merchants, platforms and brands are leveraging the power of Affirm to grow their businesses. In the second quarter, active merchants grew to more than 168,000 from just 8,000 last year, thanks in large part to the scaling of our partnership with Shopify. On a sequential basis, active merchants, which we calculate over a trailing 12-month time frame, grew 64% from the September-ending quarter.

Turning to GMV. We grew GMV to $4.5 billion in our second quarter, a $2.4 billion increase from last year. The 115% increase includes the volume from our partnership with Amazon. We completed the launch of our interest-bearing program at Amazon in November, ahead of Black Friday.

And while the program is still in its infancy with a long road map of optimizations to work on, we've seen rapid consumer adoption. We look forward to years of growth in this collaboration. We have strong momentum across our business. Excluding Amazon, GMV doubled with growth across all products and verticals.

I would also note that our business with Peloton, our second largest merchant partner by GMV in the quarter, was up against an unusually strong prior year comp, following the launch of a new product slate and boosted by COVID tailwinds. As a testament to the increasing depth and breadth of our network, no single merchant accounted for more than 10% of Q2 GMV. One year ago, we discussed how we would expand into higher frequency purchase areas and diversify our merchant partnerships. A year later, I'm really proud of how our team has delivered on these objectives for our shareholders.

Shifting to industry vertical. We have phenomenal holiday season. We more than doubled our volume from Black Friday, Cyber Monday, and we believe we took significant market share from both traditional incumbents and BNPL pure plays. As Max shared, we estimate that Affirm facilitated 1.6% of total online transaction volume for the Black Friday, Cyber Monday period in the U.S., and we saw particular strength in key holiday categories in Q2.

Travel and ticketing increased, up 314% from last year, topping last quarter's high mark, even despite the emergence of the Omicron variant. General merchandise grew 368% above last year driven by our deepening partnership with the industry's leading retailers and the launch of our offering at Amazon in the U.S. Consumer electronics, which grew 209% year to year, was another great story, driven by strong demand for TVs, laptops and gaming consoles. Our results this holiday season hide our ability to take share and grow in any environment.

And importantly, why we're so different from the competition. Outside the U.S., we had another outstanding quarter. Our Canadian business more than tripled in size, thanks to existing and new partnerships, including Apple, which launched in the fall to brisk consumer demand. In the second quarter, we also entered the Australian market with Peloton and look forward to growing our business with them there.

This quarter, our interest-bearing program, which includes our initial offering at Amazon, grew significantly, up 124% year on year to $1.4 billion. Before I jump into the financials, let me walk through the mechanics of this offering to illustrate the impact on the income statement. On the revenue side, we monetize these loans by either holding them to maturity or selling them to third parties. When we hold the loans, we primarily earn interest income, which we recognize over the duration of the loan.

Hence, this quarter's revenue reflects just a portion of the total yield we will ultimately see from the GMV we generated in Q2. We will recognize the balance over the subsequent quarters. As an illustrative data point, we sold 59% of the interest-bearing loans generated in the U.S. this quarter and retained the remainder.

On the expense side, we provision for credit losses upfront. For loans we hold, this means that the margin profile is back-end weighted. Our partnerships with key enterprise merchants are unlocking more opportunities for our business every day, and we are investing today to realize the full long-term potential. While we are just in the beginning stages in scaling these partnerships, we are already seeing them drive network expansion, and we expect to deliver strong unit economics when they reach scale.

Now turning to the financials. The strong GMV growth also drove strong revenue growth. Net revenue grew 77% to $361 million, well above our outlook. Total network revenue grew 39%, while interest income increased 87%, and gain on loan sale rose fourfold.

Revenue as a percentage of GMV contracted 170 basis points to 8%, driven by product mix. Split Pay grew over four times year on year and accounted for more than 20% of GMV in the second quarter from just 11% last year. In our earnings supplement posted to our investor relations website, you will see that merchant revenue take rates have remained relatively constant for each of our offerings. On the expense side, we continue to grow revenue faster than transaction costs, delivering real leverage.

Total transaction costs of $177 million grew 63% year over year, compared to revenue growth of 77%. And excluding provision for credit losses, transaction cost as a percentage of GMV declined 190 basis points to 2.8%. Given the mix shift from longer duration 0% APR loans, loss on loan purchase commitments declined 4%, while improvements in our capital programs helped limit the growth of funding cost to 47%. Provision for credit losses grew from $13 million one year ago to $53 million, as the year-ago figure included a $39 million release of excess COVID-related loan allowance, while this year's figure reflects the intentional normalization of credit that we've discussed over the past several quarters.

Over the first half of the fiscal year, we have managed delinquencies of 30 days or more to remain below the same periods of fiscal 2019 and 2020, even as we have expanded the credit box to a more normalized level compared to the early days of the pandemic. Our strong top line growth and leverage we achieved on transaction costs drove a 93% increase in revenue less transaction costs to $184 million, above our outlook range or 4.1% of GMV. Looking at opex beyond transaction costs, we continue to invest in building our team and elevating our brand. We doubled headcount to more than 2,000 Affirmers and increased marketing around the holidays.

Our teams have delivered a torrent of exciting new offerings while our brand campaign drove greater awareness across all age cohorts and helped us reach the highest aided awareness among BNPL providers at 45%. Growing our team resulted in higher personnel costs and stock-based compensation. In Q2, total operating expenses exclusive of transaction costs, grew $258 million, of which $158 million was related to D&A, stock-based compensation, foreign expense and onetime expenses related to our IPO and acquisitions. Excluding these items, nontransactional operating expenses grew 109%.

On a GAAP basis, operating loss was $196 million, which compares to a loss of $27 million last year. Adjusted operating loss was $8 million in the quarter, compared to a $3 million of income in the prior year. Now turning to our balance sheet. We fortified our cash position and delivered accelerating GMV growth while continuing to manage our capital with discipline and efficiency.

In November, we issued $1.7 billion in zero coupon senior convertible notes with a five-year maturity, which has significantly increased the capital we have to invest in growth at an extremely attractive long-term borrowing costs while minimizing dilution. Our effective capital markets program and different approach helped to reduce equity capital used to fund our business from $277 million last year to $230 million, even as loans on the balance sheet grew by more than $500 million. As a percentage of total platform portfolio, equity capital required declined to 3.6% from 7.5% last year. Total platform portfolio grew 72% from $3.7 billion to $6.3 billion at the end of Q2, and we increased our overall funding capacity in line from $4.7 billion last year to $8.8 billion.

Over the past year, we brought on $1.9 billion in new loan buyer commitments from both new and existing capital partners. Our balances held by third-party loan buyers from our forward flow program grew 129% to $3.7 billion, while our securitization program grew 83%. Our health balances declined 24% as we continue to focus on more efficient funding vehicles. Before I move to our outlook, I want to touch on an important topic that has been top of mind for investors, interest rates.

While potential interest rate hikes have dominated headlines, we remain confident in our ability to continue to grow rapidly while delivering strong economics as rates rise. Our financial outlook already reflects a roughly 180 basis point increase embedded in the three-month LIBOR forward curve and our current long-term model, which caused a revenue less transaction cost of 3% to 4%, also assumes rate normalization. We have significant advantages to help us mitigate the impact of rising rates, including broad and diverse funding partnerships that allow us to shift funding to less rate-sensitive counterparties, sophisticated underwriting and risk management infrastructure that allows us to manage unit economics with changes to our cost environment and high turnover, short-term assets that make our portfolio inherently nimble and able to react quickly to changing market conditions. At a constant product and funding mix, we estimate that a 100 basis point increase beyond the increase implied by the current yield curve would only result in a 10 to 20 basis point impact to revenue less transaction cost as a percentage of GMV for the remainder of fiscal year '22.

Looking out to fiscal '23, we believe that a further 100 basis point rate increase again, beyond current expectations would only result in approximately 20 basis point impact to revenue less transaction cost as a percentage of GMV based upon our current funding and GMV mix. And that is before we apply any of the numerous offsets we have, including consumer and merchant pricing, funding strategies and credit optimizations. Looking beyond fiscal year '23, at our current funding and product mix, we estimate the impact to revenue less transaction costs as a percentage of GMV to be approximately 40 basis points for every 100 basis points of rate movement beyond the current forward curve. And again, that is before applying any cost, credit and revenue optimization.

Now turning to the outlook. Our business has never been stronger. And as we look through the remainder of our fiscal year, we are raising our financial outlook to reflect the robust second quarter results, accelerating momentum in the business, and we are now including Amazon's expected contribution to the outlook. For fiscal year '22, we now expect GMV to be between $14.58 billion and $14.78 billion, representing a 76% to 78% increase from fiscal year '21.

Given the strong traction we're seeing with Shopify, we now expect our Split Pay offering to comprise 15% to 20% of total GMV for the fiscal year. We expect revenue of $1.29 billion to $1.31 billion, representing year-over-year growth of 48% to 50%. We expect transaction costs of $705 million to $715 million, resulting in revenue less transaction cost of $585 million to $595 million. This reflects the continued mix shift we are seeing in the business.

We expect an adjusted operating loss as a percentage of revenue of 12% to 14% as we continue to invest in the long-term growth of our business and weighted average shares of approximately 285 million. Consistent with Max's remarks, our outlook does not assume a material impact from the rollout of Debit+. We also expect a very strong fiscal third quarter with GMV of $3.61 billion to $3.71 billion, total revenue of $325 million to $335 million, transaction costs of $187 million to $192 million and revenue less transaction costs of $138 million to $143 million. Adjusted operating loss as a percentage of revenue of 19% to 21% and weighted average shares outstanding of 290 million.

In closing, we just posted an incredible quarter of growth and our team is seizing this momentum to continue to deliver on our mission. I'd like to add my thanks to the great work of all Affirmers this quarter. Max and I will now open the line for questions.

Questions & Answers:

Operator

[Operator instructions]

Ron Clark -- Vice President, Investor Relations

Before we open it up for Q&A, I want to briefly address the earlier than customary issuance of our earnings press release today. Due to human error, a small portion of our Q2 results were inadvertently tweeted from Affirm's official Twitter account earlier today. And because of that, we felt it was appropriate to release our full financial results as promptly as possible thereafter rather than waiting until after the market closed. With that, I'll turn it over to Doug to begin the Q&A session.

Operator

Thank you. Our first question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.

James Faucette -- Morgan Stanley -- Analyst

Great. Thank you very much. I guess my first question is, obviously, the December quarter was massive for you guys. But the outlook doesn't seem as comparatively strong, especially the March quarter and particularly if we're now incorporating more Split Pay from Shopify and Amazon, etc.

Can you walk us through kind of that dynamic, especially on a sequential basis? I mean is this seasonality more than expected drag from Peloton, impact of revenue timing on Amazon and others. Just kind of help us understand the sequential evolution of the business.

Michael Linford -- Chief Financial Officer

Yeah. I'll grab that one. And I think to start off, we're very happy with the pace of scaling in the network. The Q4 results, as you said, were pretty spectacular -- sorry, calendar Q4 results were pretty spectacular and it was indeed a special quarter.

We are reiterating our guidance and taking it up. And so our outlook continues to improve for the balance of the fiscal year. And we're still well in excess of the high growth phase. We're in the hyper growth phase for the stock.

And so we feel really good about the scaling that we're doing. Yes, there are impacts of seasonality. Calendar Q4 tends to be heavier with holiday shopping and as I shared in my remarks, we had a really strong holiday season. So there's a little bit of sequential impact there.

And yes, the growth in interest-bearing will tend to create some back-endedness to both the revenue and margin profile of those originations. But again, I think we're very happy with the pace of which we're scaling, and we're certainly not focused on or concerned with the next quarter. We're really looking about where this network will be over the next decade.

James Faucette -- Morgan Stanley -- Analyst

And then, Michael, this is probably also for you, but -- and I think both of you and Max highlighted that there's been a lot of questions around interest rates. But a lot of the other questions have to do with delinquencies, etc. And as you said, is that you're kind of close to your target. But we noticed that the most recent update, at least in the supplemental, indicated that the percentage of 30-day delinquencies started to turn down and away from kind of your 2% target in recent weeks.

Is that purely because of the nature of the incremental mix from the likes of Amazon or better consumer repayments? Or are you tightening the credit standards? And how should we expect that to evolve in coming quarters?

Michael Linford -- Chief Financial Officer

Yeah, very good question. If you look at the chart that we have in the supplement, you can see the seasonality curve of delinquencies. There's actually quite a bit of seasonality tied to both the shopping seasons and the repayment schedules have happened. And we're back to a more normalized seasonality curve with respect to what you see in delinquencies.

And to reiterate the point, I mean, we're very happy with the credit outcomes we're driving right now. And we take a very intentional approach here, and we have intentionally been losing the credit box over the past year. We're still below '19 and '20 numbers, fiscal '19 and '20, and feel really good about the level of delinquency in light of the total unit economics that we're driving. And the only other thing I'd add is that we really do manage to a total portfolio number here.

There's a bit of a misunderstanding, we think, out there with folks looking at not the portfolio delinquencies, but looking at one securitization vehicle or one particular slice of our business. We are very thoughtful about portfolio construction that goes into any one of our funding vehicles. And each one has a unique profile based upon market demand and our needs. For example, the Split Pay content may change.

We made pledge loans that have some sort of delinquency, etc. And so no one securitization data set can really represent the portfolio and would really encourage everybody to look at our investor supplement to see a real view of portfoliowide DQs.

James Faucette -- Morgan Stanley -- Analyst

That's great, Michael. Thank you very much.

Operator

Our next question comes from the line of Timothy Chiodo with Credit Suisse. Please proceed with your questions.

Timothy Chiodo -- Credit Suisse -- Analyst

Great. Thank you for taking the question. Michael, you touched on this a little bit in your prepared remarks in terms of Slide 13, which has the merchant fee rates. And you're right, overall, most of the lines are pretty stable.

I wanted to see if we could just touch on a few of them that are moving around a little bit, specifically the dark blue, which is the Split Pay seems to be ticking up a little bit in terms of the take rate. I was thinking maybe that could be related to Shopify. Also, the purple line, which is the core IB, just ticking down a hair, maybe related to Amazon? And then if you could help us maybe elaborate on either of those and also the green, the nonintegrated virtual card, could really appreciate that context.

Michael Linford -- Chief Financial Officer

Yeah. The last we have the least amount of control over that really is a function of the network interchange that we earn. And I think you nailed it. The line that you see on Split Pay merchant fee rates up versus Q1, we were promotional with Shopify in particular, in Q1, but really up even year on year back to the fiscal Q2 in '21.

So we feel really good about our resiliency with respect to the most competitive space, which is the Split Pay product set. The IB line that you point out is a function of the growth that we have in our largest enterprises. We would earn less there than we would everywhere else. And part of the reason we're so confident in how we're growing is those two things mix in our favor, where you've got a lot of growth in the Split Pay offering with really high merchant fees and you have a lot of user growth that comes along with that, combined with these enterprise scale offerings that will drive tremendous processing volume, as well as in the long run, we think really strong economics.

So we feel really good about the mix. Really want investors to understand that when you average -- when you have the sort of major shifts in the mix in the portfolio, it will shake out differently in the income statement.

Timothy Chiodo -- Credit Suisse -- Analyst

Thank you. Point well taken there on the various mix dynamics. I appreciate it. Quick follow-up is on processing costs.

So I fully appreciate that the Shopify revenue share will hit in that line item, which could cause a little bit of upward pressure on that specific expense line, but a potential offset could be reduced card mix within their loan repayment. Is there any potential for you to work with someone like a Plaid or a Finicity to help increase the mix of direct bank account repayment?

Max Levchin -- Founder and Chief Executive Officer

Yes, there is the potential. I was just starting to fall asleep because you guys are asking Michael excellent questions, and he's doing a great job answering them. Sorry, the long story of it is, it's exactly right. The way I think, and it goes back many years now, the way we look at our transactional economics is in incredible for dimensions, one is, of course, lifetime value for consumer, kind of managing credit side of it.

But if you -- on the ROA basis, you have to look at the charge-offs that you incur. And once you -- Michael touched this really well, and it's kind of allover in my script, but basically, we manage it to a number. We decide what that's going to be, and we drive that to 8 basis points that we like per product, per merchant, etc. After you're done with that, you look at your other costs and servicing is the one where we're always really hesitant to mess too much because you want the consumer experience to be amazing.

And obviously, over time, we'll optimize that to a perfect number for the sort of the high-touch wide web services have created is really, really valuable to us. We're completely ruthless on the rest of it. The repayment cost is something that just screams 80 basis points away. And you're totally right, there's lots and lots of opportunity.

The repayment devices or vehicles are not all created equal. There's some really interesting innovation happening even sort of beyond ACH, which is currently kind of the most popular/cheapest one. And so we will absolutely do a lot of things there. It is more important and in this whole story of this quarter we're reporting and going forward, we're still taking enormous amounts of white space.

The growth of the network is what we are grading ourselves on right now. We are paying attention to cost and at scale will be the real dollars, and we'll invest in a reduction of these costs involved. And you guessed pretty well where opportunities are.

Timothy Chiodo -- Credit Suisse -- Analyst

Excellent. Thank you, Michael and Max.

Operator

Our next question comes from the line of Ramsey El-Assal with Barclays. Please proceed with your question.

Ramsey El-Assal -- Barclays -- Analyst

Hi guys, thank you so much for taking my question this evening. I wanted to ask about the spread between volumes and revenue less transaction costs and just kind of get your expectations about where those kind of yields should sort of trend and shake out over the next few quarters? Where do they exit the year? What should we think about in terms of next year modeling them out? If you could comment on that that would be very helpful.

Michael Linford -- Chief Financial Officer

Yeah. We're not ready to give guidance for '23, so I'll avoid that one. But I think the guide that you see and the results we just posted, we talk a lot about the long-term economics of the business being somewhere between 3% and 4% on a revenue less transaction cost basis. And we're on the higher end of that last quarter and inside the guidance for the back half of the year as well.

While I think there -- it is changing quite quickly with respect to the product level economics, if you're taking on a Split Pay product with 5% to 5.5% merchant fees, you're not going to be making 4 points of margin. And so you do expect a little bit of compression on a percentage of GMV basis on the Split Pay business. And yet the opposite is true on our interest-bearing business where we're able to earn even higher total revenue less transaction costs, but over time. And I think as we continue to scale some of our enterprise partnerships, you're going to see some, again, back-endedness to the timing of those things.

So our guidance reflects the mix that we expect over the next six months. And we'll update everybody with '23 back when we talk later this year. But we're not at all concerned with our long-term guidance of staying in the 3% to 4% range, which we believe is still materially better than our competition.

Ramsey El-Assal -- Barclays -- Analyst

OK. And I guess more broadly on profitability, can you kind of give us your updated view on the sort of longer-term multiyear path to profitability? Has ramping up any of these larger, significantly larger partners like the Amazons of the world, maybe faster than expected the ramp-down of Peloton? Has there been any change to your view or approach or ability to kind of solve for profitability at the same pace over the longer term?

Michael Linford -- Chief Financial Officer

No. I mean, Max's line in the setup today, is what I'd like to reiterate, which is our strategy hasn't changed. We talked about the financial model and framework in September, and that remains true no matter the macro conditions changing. While we have the opportunity to grow at this pace with what we think are industry-leading unit economics, we're not going to take our foot off the gas, and we're going to keep scaling up the network.

And the path toward profitability, the long-term financial profile of the business remains the same, and it is a function of us, we're achieving scale greater than where we're adding human capital. Human capital is what's driving all of these, we think, fantastic results, and we're still well prepared to keep investing into what we think is an incredible growth opportunity.

Ramsey El-Assal -- Barclays -- Analyst

Great. I appreciate it. Thank you so much.

Max Levchin -- Founder and Chief Executive Officer

Just one more, like one more way of thinking about it that, I guess, utilize. And fundamentally, just from going back to my experience 20-odd years ago, pricing power of a payments network is directly proportionate to the number of active users it has. Like ultimately, when you come to market and say, I have a product and I would like you to buy my way of delivering tender, the price this product is able to command is inevitably a function of how many people are using that product prefer it, would like to use that to check out whatever way you want to call it. And so the reason we are so consumer growth and coverage obsessed isn't for some sort of a vanity number, but the fact that ultimately, we intend to come to market and say, we are the largest network.

We are the most active network. We would like you to pay for that appropriately. And so this growth is a direct tie to the path to profitability.

Ramsey El-Assal -- Barclays -- Analyst

I see. Great. So not too much has changed since your prior view despite other businesses evolve. I appreciate it.

Thanks for your answers.

Operator

Our next question comes from the line of Dan Perlin with RBC Capital Markets. Please proceed with your question.

Dan Perlin -- RBC Capital Markets -- Analyst

Thanks and good evening, guys.I wanted to ask a question around the kind of frequency of repeat customers versus the first-time users. You have a slide on that a little bit. And the question is really the interplay there between your customer acquisition model, and how we should be thinking about that influencing cost into the second half of the year and maybe even into next year?

Michael Linford -- Chief Financial Officer

Yeah, so -- I'll start and then Max can add on. I mean, I think we're actually -- we included that slide in the supplement because we're really proud of what's going on underneath the surface, where we have a step change in the number of users, 150% growth and increasing frequency when you have that much user growth is actually really challenging. And if you look at a chart and look at just the total transactions from repeat users and the growth there alongside the net new user growth. It is a really -- which feels like a really good spot for the business.

There is some impact with respect to the rate of new user growth on unit economics. First time use tends to be slightly less profitable than the lifetime value of the consumer. And so you do have a little bit of start-up costs associated with that user growth. But as Max mentioned before, long term, that's much more important to us.

So we're going to keep adding users at a very aggressive clip. We're going to stay focused on that. And part of the reason we have so much confidence in the long-term economics is that's happening right alongside tremendous growth in repeat usage on the platform. When we talk about network effects in the business, that's what that means.

And in the long run, it gives us all the confidence in the world around where the economics will ultimately be.

Dan Perlin -- RBC Capital Markets -- Analyst

Yeah. No, I thought that was a pretty impressive set of numbers as you think about growing the network that quickly to have that level of frequency so quickly. So the other question I have, do you have any insight that you could share with us around kind of January trends, in particular around the health of maybe some of the lower income cohorts that might be coming into the portfolio. I know some players out there have some concerns around what that dynamic is looking like.

So if you could share any of those, that would be great. Thank you.

Michael Linford -- Chief Financial Officer

Yeah. I think what you saw in the disclosure around the delinquency trend is similar to -- I think you should think about it, which is to date, our credit outcomes are still a function of the decisions we've taken with respect to approval rates. There's obviously any number of seasonal effects that do require taking a fine-tooth comb over, but not seeing the broader weakness that others have seen in our overall credit performance. And feel really good about where we're at, and that's what gives us, again, the confidence to give the guide that we have for this quarter.

Dan Perlin -- RBC Capital Markets -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey. Thanks, guys. OK. So I just wanted to come back to this kind of general topic of we're adding $1.5 billion of GMV to the full year guide, but we're basically not changing revenue less transaction expense.

I know you're talking about the interest-bearing loans and kind of the revenue recognition dynamics there. I mean how long is that lag typically? I mean I think this is a dynamic that's kind of throwing people off a bit? And how much of this sort of dynamic is due to Amazon?

Michael Linford -- Chief Financial Officer

Yeah. So the Amazon is part of it. But while the growth rate in Amazon -- well, the addition of Amazon is great for us. As we communicated, we still double the GMV excluding Amazon.

And so we know there's a lot of growth happening across the whole portfolio, so it's not just limited to Amazon. But the interest-bearing portfolio is growing quite quickly, and that does tend to have that effect that you talked about. The other obvious impact with respect to the revenue less transaction cost as a percentage of GMV is the mix toward Split Pay, again, as it does run lower. Again, it's a repeated theme with us, but product mix really does shake out with respect to the take rates on both revenue and the revenue less transaction costs.

And again, I think the only other thing to repeat is we feel like we're operating at the higher end of the range that we've given folks in that 3% to 4% range and have a lot of confidence, again, in our long-term unit economics here. And again, would put ourselves up against anybody in our space with respect to the rates at which we're delivering here.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

OK. And then I guess just for the back half of the year, how should we be thinking about GMV growth, excluding Peloton? Like has your full year expectation on Peloton changed at all, just given some of the challenges that they're having.

Michael Linford -- Chief Financial Officer

Yeah. Our current guidance reflects all of our current thinking on where they're at. We had, frankly, a good quarter in Q2, above our internal expectations and feel like they're still delivering an incredible amount of volume for us. And we admire their brand and we admire the loyalty that they have among their consumers, and we'll keep partnering with them.

We launched with them in Australia this past quarter, and we're going to keep helping them grow their business.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

OK. Thank you.

Operator

Our next question comes from the line of Andrew Jeffrey with Truist Securities. Please proceed with your question.

Andrew Jeffrey -- Truist Securities -- Analyst

Hi, guys. I appreciate you taking the question. Maybe as it relates to Shopify, I'm still trying to sort of reconcile James' question a little bit, too. I think you said it's -- it will be 15% to 20% Split Pay will be about 15% to 20% of GMV this year.

I guess the first question would be, where do you think that can go? It's a pretty quick ramp, although not totally out of line with our expectations. And then the follow-up would be, it kind of implies, based on your guidance that the rest of the business is growing about 45% volume-wise, which might be a little bit lower than we might have thought. Can you just address those two points?

Max Levchin -- Founder and Chief Executive Officer

I'll start and I'll let Michael finish. And so I don't think we'll break out exactly what percentage of Shopify, Split Pay and someone's is, but it's obviously growing very well. The merchant adoption has been excellent and yet there's no shortage of demand. And so I'm confident it can go up more.

We -- I don't think we're breaking that out in our guidance, or Michael can correct me if I'm wrong here. But there's an enormous amount of growth there. Just if you take a quick look at Shop Pay, shopping installments doesn't even support interest-bearing loans today. But that alone as a headline should give you a pretty good idea that the service has been scratched but with not a lot more.

Michael Linford -- Chief Financial Officer

Yeah. And so 15% to 20% is a good number, how big could it be? It could be very big. Just like we have launched interest bearing on Shopify, we haven't launched Split Pay with either of our two largest enterprise merchants. So I have a lot of confidence that that number can continue to go up.

I think the only other point with respect to the rest of the portfolio growth is just we are up against continued elevated levels in our, call it, a long-term zero financed business. And we would continue to expect some of that to be a drag on the balance of the portfolio, but not something that we're trying to, again, target a Q3 growth number. We're thinking about how this network scales and then how those network effects show up with repeat usage across the whole portfolio.

Andrew Jeffrey -- Truist Securities -- Analyst

OK. All right. Well, I appreciate it. Thank you.

Operator

Our next question comes from the line of Andrew Bauch with SMBC Nikko Securities America. Please proceed with your question.

Andrew Bauch -- Nikko Securities America -- Analyst

Hey, guys. I wanted to ask a question about the CFPB buy now, pay later. And from whatever you can share, is there anything you've garnered from those initial discussions that kind of give us a sense of how they're looking at the offering going forward?

Max Levchin -- Founder and Chief Executive Officer

Sure. First of all, it's obviously not for us to comment on their work there. The thing that's been true for us over the last 10 years is that we have a very, very high moral ground approach to this entire business to the way we conduct ourselves to the way we treat consumers, the way we deal with disputes, etc., etc. And so openings kept equal.

We've been at the forefront of the industry, suggesting to the regulators that they should have a look and a set of clear rules and just a good guidance around the conduct of all the players. And so in that sense, it's a positive news. That's a -- the regulatory relationship is both a very, very important thing, a very serious thing. We're interacting with them.

There's a fairly detailed request for information. Obviously, we will reply to that. But all else being equal, I think regulatory attention to the space is great. I was a little bit glib when I pointed out that in a public record of the information demand, there was quite a lot of space dedicated to asking for the information around fees charged, the late fees or deferred interest or all sorts of other things.

And we filled that out with zeros because we don't charge any of those things to consumers. We took a small amount of pride in that we stuck to our mission and stuck to our approach to treating consumers right. That said, I'm confident, over time, there will be more regulatory attention and we will comply with all the necessary rules, and we'll do well there. So too early to tell what the future looks like.

It's certainly for them to determine, but we're very happy to engage.

Andrew Bauch -- Nikko Securities America -- Analyst

Helpful. Thank you. My follow-up would be, is there any kind of guidepost that you're going to give us from a macro perspective, what you're embedding in the outlook for unemployment, inflation and rates? And I appreciate the color on the interest rate moves to the impact of the model, but just kind of thinking about what a baseline number that you're embedding in your assumption would be?

Michael Linford -- Chief Financial Officer

Yeah. So again -- go ahead.

Max Levchin -- Founder and Chief Executive Officer

Sorry, I'll -- this time I get to take the picture last. The last one was yours, but -- so -- and I'm sure we'll have macro views as well. But just the thing that I think people really misunderstand about our products, maybe because it is more popular outside of high finance perhaps, when the interest rates go up and the prices go really -- when prices go up, our product is more useful. If you try to make ends meet and you're trying to pay for a couch and your credit card is confusing you and the rates just went up and it ends, Affirm gives you clarity and a way to pay for things and a clear schedule and then you're done and there are no late fees.

And half the time, plus or minus, the seller will sponsor a new payment interest. Just here are the basic thought experiment. If the card rates that you paid went up 5%, for example, how do you feel about the 0% rate that a seller at a homeware shop is offering you powered Affirm, like it's 5% more compelling. And so as inflation happens, the product that we provide is actually more powerful and more useful, has significantly better bearing on sort of the consumer demand side of it.

On the flip side of course, the government addresses inflation, raises rates, etc. I'll stop now and Michael can tell you what we've done about it, but all things get equal at that top line, this is generally a tailwind, not a headwind.

Andrew Bauch -- Nikko Securities America -- Analyst

Got it. I appreciate it, guys.

Michael Linford -- Chief Financial Officer

Yeah. Just the total avoidance of doubt, all of our outlook reflects the forward curve. And so there's roughly 180 basis points of rate increases. We take that into all of our models when we give guidance.

It's consistent with the market expectation of rate movement. And so we talk about rising rates. That's not a problem for us at all. That's already reflected in the guidance.

Andrew Bauch -- Nikko Securities America -- Analyst

Appreciate the color.

Operator

Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your questions.

Bryan Keane -- Deutsche Bank -- Analyst

Hi, guys. Thanks for taking the questions. Just two clarifications, I guess, just because it's come up a few times. But the implied revenue transaction cost take rate, when you gave guidance for Q2, it was almost about 5%.

And so I think one of the surprises was that it came in at 4.1%. So -- and you talked about mix. So was that just that you didn't realize that the Shop Pay business was going to grow that much and it had that much of a factor on it? Just trying to make sure the guidance versus the actual.

Michael Linford -- Chief Financial Officer

Yeah, that's right. The mix impact of the business, the growth that we saw, which was obviously well in excess of the guidance that we had given in the quarter tended to mix toward either lower revenue less transaction costs, take rates as a percentage of the total or tend to be a little bit more back-end weighted. And both those two effects caused the percent to go down despite the fact that we did, of course, beat the guidance on a dollar basis.

Bryan Keane -- Deutsche Bank -- Analyst

Got it. And then the follow-up question we get often is the profitability on those larger contracts like in Amazon or Shop Pay. How do we think about that? Because those -- obviously, those terms are with some larger merchants, typically in merchant acquiring, the larger merchants push pricing the hardest. And so it's really all pricing is made on SMB.

So just trying to think about that relationship. Thank you so much.

Michael Linford -- Chief Financial Officer

Yeah. If you look at the merchant take rate slide again in the supplement, you'll see that we're doing quite well on the Split Pay business with respect to our ability to continue to earn good fees. We're not breaking out profitability by partner. But I think a key part of the reason we were able to deliver these exceptional enterprise experiences to the largest merchants is the fact that we're not just reliant on merchant fees.

The fact that we do have consumer interest in the economic model does allow us to get to the merchant fee clearing rates that work for largest enterprises while still delivering really strong unit economics.

Bryan Keane -- Deutsche Bank -- Analyst

Got it. Thanks for the clarifications. 

Operator

Our next question comes from the line of Dan Dolev with Mizuho. Please proceed with your question.

Dan Dolev -- Mizuho Securities -- Analyst

Hey, thank you for taking my questions. I just have a question regarding kind of where you are in terms of GMV and what's implied in the guidance? I'm still trying to get my head around the massive beat in the quarter. And then you seem to be guiding kind of in terms of a sequential basis a much lower GMV. I just want to make sure that this is hopefully a sign of conservatism and that there's the question we're getting a lot from investors this evening is that there's maybe something else that got weaker.

So we just want to reassure ourselves and investors that this is simply being conservative given the strong results. And Thank you very much for this.

Max Levchin -- Founder and Chief Executive Officer

First of all, I think Michael already mentioned this, the seasonality is a significant components of this business. And so that's an important piece of the puzzle. I'm not sure exactly what you're asking about in terms of something may have gotten weaker, not from our point of view. I think we've done fine and not anticipating weakness.

But we try to make sure that we promise and deliver as opposed to promise and hold our breath and see what happens. That's probably a philosophical approach to guide out there.

Dan Dolev -- Mizuho Securities -- Analyst

Got it. Yeah. Sorry, I didn't mean to sort of harp on it. If I look at sort of pre-COVID kind of trends on a GMV basis, it doesn't look like at least like Q3, Q4 weaker.

That's why I asked the question, but --

Max Levchin -- Founder and Chief Executive Officer

Again, in kind of all honesty, the quarter we just exited, just an absolutely monster. And so no matter what you sort of say for the next one, it will look like, well, that's what happened here. But our transaction volume, I'm going to remember here, so I may be wrong, Michael, correct me, but I think we've tripled year-on-year of Black Friday, Cyber Monday transaction counts. That should -- we haven't tripled any metric of that class with a Series B or Series C company.

And so the growth of GMV and transactions accelerated quite a lot. We'll digest and grow some more.

Dan Dolev -- Mizuho Securities -- Analyst

Appreciate it. Thank you so much, guys. Appreciate it.

Operator

Our next question comes from the line of Vincent Caintic with Stephens. Please proceed with your question.

Vincent Caintic -- Stephens Inc. -- Analyst

Hey, thanks for taking my question. And thanks for all the details on the credit trends, all the slides there. I just wanted to follow up on that. I guess there's this concern about credit normalization and how it impacts the business, if at all.

And so looking at the slides, the delinquencies still below 2019, but getting there, the net charge-off as well. Just wondering, as you're thinking if credit is normalizing, how does that impact the business? And if you can describe some of the offsets that you mentioned earlier, like the optimizations, the merchant pricing and so on, that would be helpful. Thank youo.

Max Levchin -- Founder and Chief Executive Officer

I'll start and let Michael chime in as well. So I'll never tired of repeating it, but we choose the delinquency number we post, module compensating or a completely unexpected events, our job/goal/approach is to drive to a number that we like here. And we feel that we were probably, retrospectively, unnecessarily careful or necessarily tight for lack of a better term. And then so we've loosened quite deliberately.

And as you noted, we've also -- or someone else actually already noticed that we have now gotten to roughly the range that we like and we'll continue managing the number. And so in that sense, they're inevitably ups and downs in consumer behavior and stimulus winding up and all the other versions of microeconomic events impacting the business. But we have an enormous number of transactions sort of -- think of it as a curve that's differentiable at every point basically -- I'm sure it's not infinite number of drivers, but it's a high number of derivatives in terms of ability to differentiate, which means at any given time, we have control, both at a product level and at the consumer level and also not being a line of credit allows us to differentiate a specific point of purchase to the type of transaction. And so we'll consider driving to the outcomes that we need, we want for our margin and our numbers.

And the macroeconomic realities or -- is our read of it is what shapes our willingness to sort of bet into the gray zone. And as we read the macroeconomic numbers, we'll become less or more willing to -- I'll allow into the system. But it's something that is a tweak -- in that sense, it's always hard for me to react to what is the macroeconomic -- what is the wider consumer trend doing? There's a lot more demand for our product than we are approving in many cases because it's just a [Inaudible] for the consumer to borrow, certainly borrow from us given our loss of guardrails, no late fees, etc. So in that sense, this demand for our product significantly outstrips our willingness to take the risk, and we'll continue managing sort of the right thoughts there.

Vincent Caintic -- Stephens Inc. -- Analyst

OK. Great. Thank you. I mean, I guess, following up on that, your -- so it's -- you have credit -- the credit variables as an input of your decision making.

I mean, I guess, if there is kind of a macro credit issue, is that -- doesn't sound like that's really going to impact volumes or merchant pricing that should stay the same because your product becomes more valuable in that situation? Or maybe if you could talk about, I don't know, like the inputs and outputs there?

Max Levchin -- Founder and Chief Executive Officer

So I'll tell you a little bit of a color-generating anecdotes. In the earliest days of the pandemic, we actually went to our merchants and said, look, we believe the macroeconomic conditions are going to worsen before they get better. We don't really know. there's a lot of uncertainty.

For those of you who are very focused on the bottom line, we are going to adjust credits, which means that approvals will go down a little bit. We're dealing on the margin here, so this is points up or down. But for those focused on the top line, and it all depends on the margin embedded in the merchant's product, right? And some people manufacture their own, others resell, something they buy and then resell it again. But the margin content that they have is usable to increase our accrual and allow us to bet in the ability to repay sort of gray zone where the model say, our ability is not 100%.

And we, generally speaking, were able to command a significantly -- significant price increases at the merchant base during the early days of the pandemic because the products that we provide to the consumer in the moments of uncertainty is just so damn powerful. And so yes, generally speaking, I mean there's lots of sort of asterisks to add there. And macroeconomic issues can be described as all kinds of things. But as the economy ebbs and flows, if consumers need more access to credit, many, many, many of our partners are very happy to pay more for that consumers to complete transactions because the certainty and sense of control that we provide is what helps them move merchandise off the shelves.

And so in that sense, it's a little glib, but macroeconomic uncertainty is actually a driver of business like ours. If everybody was just swimming in government stimulus money, maybe just buy everything for cash. And so the discontinuation of various stimuli is on net, a positive driver for the business, both on the consumer demand side and the merchants' willingness to pay for our services.

Vincent Caintic -- Stephens Inc. -- Analyst

OK. Perfect. That's a very helpful commentary. Thank you.

Operator

Our next question comes from the line of Chris Brendler with D.A. Davidson. Please proceed with your question.

Chris Brendler -- D.A. Davidson -- Analyst

Hi. Thanks, good afternoon. Thanks for taking my questions.  I will start a little bit more boring on the expense side. Pretty big sequential increases in all the non-GAAP expenses, technology, sales and marketing.

I just wanted to get a sense, is that related to some of the ramp-up in some of these partnerships? Or should we think about expense growth as a run rate? And obviously, I know you have the operating income guidance out there for the near term, but just thinking about expense growth slow, and maybe giving a characteristic as to mix, expense growth would be great as well.

Michael Linford -- Chief Financial Officer

Yeah. Characteristic is mostly human capital, combined with marketing investments on the non-GAAP side. On the GAAP side, there's also the impact associated with stock-based compensation, the D&A and the other noncash items. I think we will stand by our long-term guidance that we gave in September around the profitability of the business being a function of the growth rate.

So while we're growing like this, we are going to keep investing in that human capital to build great products and delight consumers. And when and if that growth rate ever starts to slow down, you'll see us grow expenses much slower and begin to deliver positive adjusted operating income. I think of the profitability or bottom line measures that we really manage to the adjusted operating income number is what we intend to hit. It's where we have the guidance out for you for this period, and that's the number that, we think, will become scaling up and down as growth rates change.

Chris Brendler -- D.A. Davidson -- Analyst

OK. Thank you. And I guess another boring question, Michael, is the -- just the health of the debt markets, I know you continue to use securitization both on and off balance sheet. It looks like you sold some more whole loans this quarter.

Balance sheet growth actually came in a little bit below our estimates. Just is it still as healthy as it was given your increasing traction among fixed income investors? Or has there been a bit of pullback given the macro conditions?

Michael Linford -- Chief Financial Officer

No, I think we still continue to have very well-received deals in the market, both single counterparty deals and our forward flow relationships. As I mentioned in the script, we had a great deal of capacity by adding new partners and upsizing existing ones. And we still continue to receive a lot of demand for the assets. And our securitization activity has also been very successful.

And you're going to see us continue to be very, very active there in both of those two markets and levers to continue to grow our business and deliver, we think, again, excellent capital efficiency.

Operator

[Operator signoff]

Duration: 76 minutes

Call participants:

Ron Clark -- Vice President, Investor Relations

Max Levchin -- Founder and Chief Executive Officer

Michael Linford -- Chief Financial Officer

James Faucette -- Morgan Stanley -- Analyst

Timothy Chiodo -- Credit Suisse -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

Dan Perlin -- RBC Capital Markets -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Andrew Jeffrey -- Truist Securities -- Analyst

Andrew Bauch -- Nikko Securities America -- Analyst

Bryan Keane -- Deutsche Bank -- Analyst

Dan Dolev -- Mizuho Securities -- Analyst

Vincent Caintic -- Stephens Inc. -- Analyst

Chris Brendler -- D.A. Davidson -- Analyst

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