Michael Linford: Yes. The timing initiatives that we took last year started in the early summer and through the early fall, so summer time to early fall. So we’re kind of in the midst of lapping a lot of those actions. I would say by the time we get to our second quarter is when we have a pretty normalized comparison for the biggest changes. But I do think it’s important to reiterate what you said there. We changed our credit decisions a lot all the time. So it’s not a decision where we make — get together when we decide to tighten or loosen in a pretty broad steeping way. We’re very tactical and surgical with how we go through and optimize where and when we want to take risk. But the specific decisions that we took in response to the consumer stress that we saw, we will have lapped by the time we get through Q2.
Andrew Jeffrey: Okay. Appreciate that. Thank you.
Operator: Our next question comes from the line of Rob Wildhack with Autonomous Research. Please proceed with your question.
Robert Wildhack: Hi, guys. I wanted to unpack some of the earlier commentary on the margin. The guidance is for fiscal ’24 revenues as a percentage of GMV to be similar to ’23, ’24 RLTC is the same as ‘23. That would imply transaction costs are also similar to ’23 as a percentage of GMV. And then within that, I would assume funding costs are going to be higher. So a, is that right? And then b, is there something that’s offsetting that on the cost side in terms of keeping overall transaction costs flat as a percentage of volume this year.
Michael Linford: Yeah. It’s exactly right. And we do expect funding costs to be higher, but we also have some continued changes in the mix of the business, both in terms of the largest platforms, we’ll continue to take share, which will change the shape of the timing and how we earn it. The balance sheet will also be very different this year to last year. which again will change the shape quite a bit. There’s a lot of different factors that caused that go into that, that assessment. But the top line is right. Those things will net out to being largely flat from a revenue standpoint and an RLTC standpoint as a percentage of GMV.
Robert Wildhack: Got it. Thanks. Could you just give some more detail or color on what you mean by the balance sheet is going to be different from this year to next year?
Michael Linford: Yeah. So you saw the loans on the balance sheet were obviously higher in Q4 versus the prior year and also up sequentially. We talked about an equity capital require ratio being higher as well. And we would expect there or there would be a lot more dollars sitting on the balance sheet this year than last year, which just changes the shape of the earning of the loans.
Robert Wildhack: Okay. Thanks.
Operator: Our next question comes from the line of Reggie Smith with JPMorgan. Please proceed with your question.
Reginald Smith: Hey, guys. Thanks for taking the question. I’ve got two actually. one, I guess, a point of clarification. I guess previously, you guys talked about sustainable profitability beginning in 2024. And I guess I just wanted to check the language and see if there’s been any change to your guidance. Now you’re talking about annually profitably. And I’m curious if that was always the expectation or is that a minor change?
Michael Linford: No, it was always the expectation. We talked about sustainable profitability. We were always thoughtful around our second quarter being a time win. The timing of GMV within the quarter as well as the sequential build from Q1 to Q2, always being distortive. And so we’re careful to say that, that may be a trough, and we reiterated that in our letter while we do expect full year profitability, we may have a quarter that may fall outside of that. Clearly, you see our Q1 guidance suggests that, that won’t be in Q1 and the full year guidance being where it is, suggests, I think we’re – certainly feel pretty good about that overall. But we won’t be disappointed if we have a quarter of negative adjusted operating income.
Reginald Smith: Got it. Understood. And if I could squeeze one more follow-up. There is a slide that you guys have in your presentation that shows the merchant discount rate for different products. And it’s hard to notice that the rate for year zero interest loans, both short and long term, hasn’t changed materially in the last two years. And I’m curious if that’s — what’s driving that? Is that — is it a competitive dynamic? Is it strategic? Is it mix? Like why have you not been able to or have been unwilling to kind of raise your discount rates that given what’s happening in the interest rate and the funding environment? Thanks.
Michael Linford: Yes. It’s a good question. The — one of the things that is an important piece of backdrop as you have a rising rate environment, you’ve also had a lot of the retail sector having a lot of pressure on their margin structure. And so one of the challenges we’ve worked through over the past year is finding ways still serve as many transactions as we can for those retailers without substantial increases in their MDRs. And so for example, we’ve introduced fixed APRs, which have low fixed APR amounts that are still subsidized by the merchant, but don’t look like the same sort of pure zero percent. And so as a result, you don’t see by product a substantial increase in that even though we’ve changed the economic offer that ultimately the merchant consumer to get to see.
Additionally, this view is super helpful to understand actually what the merchants are paying for a product. But it is into a complete view as we’re able to think about changing down payment or credit approval thresholds, all these things factor into how we think about the total pricing with the merchant. And so you may not see the results of us getting the right value for Affirm that relationship showing up in the seat of the merchant pace.
Reginald Smith: Understood. And I guess, Max, you mentioned some higher gross margin merchants. And I think a previous analyst had asked about whether you’re seeing any increased interest there. Is the right way to read that, that you guys haven’t pushed on some of those higher margin merchants that may be a little less price-sensitive? Or like what’s the takeaway from that?
Max Levchin: So again, I think it’s — we have a market-leading product in a very competitive space that’s really exciting and a lot of entrants into the space. I think we’re very proud of the fact that we’ve been able to hold pricing in that competitive environment, macro notwithstanding, I think that we do think about the merchants being very different depending upon their margin structure, their promotional intensity and all that factors into how we think about what MDR is make sense. But again, I think MDR is only one small part of the total pricing equation, which is — takes into account a lot more than just the MDR being paid because it’s obviously, to take into account the cost of the program as well. And when you think about all of these together, we think about the profitability of a particular merchant, not just the MDR that they pay.
Reginald Smith: Thank you.
