WEBVTT - SoFi CEO Anthony Noto Talks Second Quarter Earnings

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>So fine out with earnings that well look strong today,

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<v Speaker 2>but the forecast is what people are worrying about. The

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<v Speaker 2>shares falling after the fintech company provided second quarter nuance

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<v Speaker 2>here with adjusted net revenue and adjusted ebit DA that

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<v Speaker 2>perhaps fell short of some consensussessments out there. We want

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<v Speaker 2>to dig into that nuance with SOFI CEO Anthony Noto.

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<v Speaker 2>Thank you for joining us, Anthony, And look, we've got

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<v Speaker 2>to focus on the fact that your full year guidance

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<v Speaker 2>was raised. You're feeling positive about the way in which

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<v Speaker 2>you're steering the company. You say you're in an inflection point.

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<v Speaker 2>But why the second quarter being below expectations? What can

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<v Speaker 2>you add to what you're seeing here right here, right now.

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<v Speaker 3>Get we had a great first quarter, as we reported

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<v Speaker 3>twenty six percent year of year of growth, and it's

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<v Speaker 3>in line with the transformation that we talked about, which

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<v Speaker 3>is our combined tech platform business and our financial services

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<v Speaker 3>business would grow.

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<v Speaker 1>Fifty percent or more.

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<v Speaker 3>It grew fifty four percent year of year and that

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<v Speaker 3>combined with flat revenue for lending, and that was part

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<v Speaker 3>of the plan. And we had our second consecutive quarter

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<v Speaker 3>of gap positive EPs. In addition to growing our book

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<v Speaker 3>value on a tangible basis per share by about sixteen

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<v Speaker 3>percent sequentially, we also guided the full year, as you

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<v Speaker 3>mentioned above, not just our beat, but also above our

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<v Speaker 3>prior guidance, so that's a positive overall outlook.

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<v Speaker 1>We had not given Q two guidance before.

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<v Speaker 3>We typically give the full year and then the current

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<v Speaker 3>quarter that we're in, so at the end of twenty

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<v Speaker 3>four we gave guidance for the full.

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<v Speaker 1>Year and Q one, not Q two.

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<v Speaker 3>The analysts atarted using their own estimates for that and

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<v Speaker 3>because we're taking a conservative you on lending, lending will

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<v Speaker 3>be down sequentially in Q two, while our tech platform

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<v Speaker 3>revenue and our financial services revenue will continue to have

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<v Speaker 3>strong year year growth, but also strong sequential growth and

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<v Speaker 3>continue profitability as well.

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<v Speaker 1>So we feel really.

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<v Speaker 3>Great about the business and the transformation we've made over

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<v Speaker 3>the last six years. The fact that we can grow

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<v Speaker 3>revenue twenty six percent on flat lending revenue real testament

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<v Speaker 3>to the diversity of our business.

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<v Speaker 2>Hey Darson, you can't feel great about the share reaction.

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<v Speaker 3>You know, any given day, it's hard to predict what's

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<v Speaker 3>going to happen with the shriffes. But what I can

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<v Speaker 3>say is the business is doing incredibly well, the strategy

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<v Speaker 3>is working, and we're really happy about the trend we do.

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<v Speaker 3>We are taking a conservative you on lending, but that's

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<v Speaker 3>given how uncertain the environment is. If the environment becomes

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<v Speaker 3>more stable, we'll be more aggressive on lending, but right

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<v Speaker 3>now there's no need to and the environment remains as

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<v Speaker 3>uncertain as it has for the last six months.

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<v Speaker 4>On rates, Misster noto, good morning, It's Edin San Francisco.

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<v Speaker 4>A lot of the questions I got from our audience

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<v Speaker 4>for you were about the capital you raise and your

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<v Speaker 4>strategy going forward. There was convertible in one queue, a

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<v Speaker 4>lot of interest in that. I actually am not clear why,

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<v Speaker 4>but the people want to know, so that's the question.

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<v Speaker 3>Yeah, I think people misunderstand the share count. First, we

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<v Speaker 3>did two things in Q one. First, we issued a

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<v Speaker 3>convertible note at one point two five percent interest that

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<v Speaker 3>allowed us to redeem a preferred security that we're paying

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<v Speaker 3>twelve and a half percent interest on. So that is

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<v Speaker 3>going to provide an interest savings for us, and we've

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<v Speaker 3>already noticed all of the holders of that preferred instrument,

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<v Speaker 3>and so that's being redeemed sooner than expected. We also

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<v Speaker 3>bought back an existing convert that was trading well below

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<v Speaker 3>its face value, and that was a creative to book

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<v Speaker 3>value and it was basically neutral on tangible book value

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<v Speaker 3>per share. So there's some perception that it was diluted.

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<v Speaker 3>It's not diluted on a tangible book value per share.

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<v Speaker 3>And I think there's just a misunderstanding on what the

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<v Speaker 3>total ending share count will be in the future.

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<v Speaker 4>My colleague at Bloomberg Intelligence, Herman Chan, has a very

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<v Speaker 4>clear thesis for you guys. You have a brilliant app,

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<v Speaker 4>strong user interface, one stop shop, and you're targeting young professionals.

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<v Speaker 1>That's what they think.

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<v Speaker 4>But the story really is this higher interest rates for

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<v Speaker 4>longer environment narrative. How does that thesis work in that

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<v Speaker 4>rate environment?

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<v Speaker 3>Anthony, Yeah, Well, first of all, your colleagues said it

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<v Speaker 3>very well, and so we should consider having them being

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<v Speaker 3>one of our spokespeople. But I'd say is higher for

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<v Speaker 3>longer is going to create challenges for financial institutions.

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<v Speaker 1>We are very well capitalized.

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<v Speaker 3>We have a seventeen point one percent risk based capital ratio,

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<v Speaker 3>so we have ample cushion or capital ratio relative to

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<v Speaker 3>where we have to operate from a regulatory standpoint, and

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<v Speaker 3>we have plenty of liquidity. That said, as we saw

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<v Speaker 3>today another regional bank was very challenged. We're also benefiting

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<v Speaker 3>from really strong deposit growth. We had our record growth

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<v Speaker 3>and deposits three billion dollars of new deposits and ninety

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<v Speaker 3>percent of our deposits are from direct deposit customers, which

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<v Speaker 3>means we're their primary account and it's very very sticky,

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<v Speaker 3>but higher for longer. We'll put stress on other people's

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<v Speaker 3>balance sheets if they're not hedging.

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<v Speaker 1>Appropriately the way we do.

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<v Speaker 3>We hedge our loans once we grant them, so we

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<v Speaker 3>don't have that interest rate exposure. We can also match

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<v Speaker 3>what we're giving it as an apy to our SOFI

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<v Speaker 3>money member against the loans that we're offering in the

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<v Speaker 3>rates that they have to maintain a very high NIM

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<v Speaker 3>and we've been able to do that consistently. In addition

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<v Speaker 3>to that, we also the tech platform business, which is

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<v Speaker 3>not tied to interest rates. And then in the financial

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<v Speaker 3>services business, we have the invest platform that's growing very nicely,

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<v Speaker 3>good aum growth, good member growth, and another source of

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<v Speaker 3>diverisfied revenue for US.

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<v Speaker 2>Where technology show we want to go into the specifics

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<v Speaker 2>of your technology, Anthony, but I want to bring our

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<v Speaker 2>audience that macro flavor that you so brilliantly give, because

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<v Speaker 2>why are you more cautious on the US economy? Why

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<v Speaker 2>are you seeing five percent excess of unemployment? Why are

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<v Speaker 2>you seeing these interest rate cuts that you've now basically

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<v Speaker 2>halved in your expectations for twenty twenty four.

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<v Speaker 3>Yeah, our balance sheet has grown quite meaningfully. It's about

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<v Speaker 3>a thirty billion dollars bounce sheet now. So as we

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<v Speaker 3>came into twenty twenty four, we had a choice. Could

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<v Speaker 3>we come up with our own expectations for twenty twenty four?

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<v Speaker 3>Could we use consensus expectation. Let's just take up planning

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<v Speaker 3>stanch that's really conservative. And the planning stance that we

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<v Speaker 3>took then was that there would only be four rate cuts.

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<v Speaker 3>The market was factoring in six rate cuts at the time.

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<v Speaker 3>We also took up planning stance on unemployment that would

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<v Speaker 3>be more than five percent, the market was well below that.

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<v Speaker 3>And we also took a stance on GDP contraction that

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<v Speaker 3>was modest. Well, here we sit today three months later,

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<v Speaker 3>and the market's only factoring in one to two rate cuts.

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<v Speaker 1>So I'm really thankful we took a conservative.

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<v Speaker 3>Stance going into the year, and I'm really thankful we

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<v Speaker 3>still have a conservative stance. I couldn't feel better about

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<v Speaker 3>the underlying trends of our strategy and execution of our business.

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<v Speaker 1>But I don't think we're an.

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<v Speaker 3>Environment where anyone has a really strong high conviction level

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<v Speaker 3>and where rates will be.

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<v Speaker 1>There's still a debate whether it be any rate cuts whatsoever.

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<v Speaker 3>So we just can't put the business at risk hoping

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<v Speaker 3>that we can figure it out.

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<v Speaker 1>So we're going to a conservative point of view.

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<v Speaker 4>But with short time, anthy, you're moving away from this

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<v Speaker 4>kind of trademark student loans and REFI business.

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<v Speaker 3>Why Well, the strategy when I came in twenty eighteen

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<v Speaker 3>was to create a once stop shop for all your

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<v Speaker 3>fincial services needs. There was no one providing all the

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<v Speaker 3>products that you need for the big moments in your

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<v Speaker 3>life and all the days in between.

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<v Speaker 1>So we offer home.

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<v Speaker 3>Loans, student loans, personal loans, in school loans, checking and

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<v Speaker 3>savings called SOFI, money investing insurance, small meat and business

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<v Speaker 3>loan lead generation in addition to the tech platform business.

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<v Speaker 3>So the strategy was always about building a one stop

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<v Speaker 3>shop for all your financial services needs, and that's actually

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<v Speaker 3>resulted in diversified business that allows us to make choices

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<v Speaker 3>on what we grow versus what we take.

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<v Speaker 1>A conservative view

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<v Speaker 4>On SOFI CEO Anthony Notto, great catch up, great heavy

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<v Speaker 4>back on the program.