Affirm Holdings, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Affirm Holdings Fiscal Year 2022 Third Quarter Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded and a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call. I'd now like to turn the call over to Rob O'Hare, Senior Vice President of Finance. Thank you. You may begin.

Thanks, Operator. Before we begin, I would 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 intend 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, and not a substitute for, GAAP financial measures. For historical non-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, a firm's founder and chief executive officer, and Michael Linford, a firm's chief financial officer. With that, I'd like to turn the call over to Max to begin.

Thanks, Rob, and thank you everyone for listening in. We delivered excellent results in fiscal Q3. Active merchants grew by more than 16-fold year over year. Active consumers grew by 137% year-over-year with greater frequency and engagement. Our total transactions increased by 162% year-over-year. Highlighting the trust we're building with consumers, 81% of all transactions were from repeat-affirmed users. This is the highest repeat rate that we've ever reported. We accomplished this while another 1.5 million consumers joined our movement to replace confusing, outdated financial products with new, honest ones. Our GMV was up to $3.9 billion, growing 73% year over year and almost doubling, excluding Peloton. Total revenue was $355 million, a 54% increase year over year, and revenue-less transaction costs, a key measure of our unit economics, was $182 million, or 4.7% of GMV. We continue to grow with our existing partners and add new ones. just a couple of operating highlights since the beginning of Q3. The travel and ticketing segment has been outperforming expectations and volume more than doubled year over year. Our long-time partners, Expedia, Vrba, and Priceline, were all in the top 10 by volume in Q3. The quarter also marked the general availability of Affirm on American Airlines and the launch of our very first Canadian travel merchant. We are excited to continue growing our network of relationships in this segment. Affirm continues to be the strategic partner of choice for enterprises and platforms. Adding to existing collaborations with Verifone and Andean, we partnered with Fiserv and Global Payments to make signing and launching new merchants frictionless. We're also excited to announce a new agreement with Stripe, unlocking streamlined distribution of a firm's honest financial product to millions of merchants. Since the launch of our partnership with Shopify just a year ago, we have seen significant uptake of SplitPay, our biweekly pay-in-four product. We have expanded our agreement with Shopify to bring a firm's monthly offering to the platform. We plan to start rolling out adaptive checkout and simple interest bearing installments by the end of our 22 fiscal year. As part of this expansion, I'm also pleased to report that we have extended our exclusive relationship with Shopify. Lots more details in the press release that we have just filed. This marks our fifth straight beat quarter and proud we are of all of them. That said, we operate a firm with a longer horizon in mind. Our goals are to deliver value for our customers and improve the lives of consumers. And ultimately, in doing so, generate cash flow to reinvest in our business and create value for our shareholders. As you will see in Michael's report, we have already delivered profits on an adjusted operating income basis, and this quarter makes it three out of the last five. You'll see in our guide that we still expect to invest in the next quarter, but let me make something very clear. Our plan is to achieve a sustained profitability run rate on an adjusted basis by the end of the next fiscal year. That is to say, we expect to generate revenue that consistently exceeds our adjusted operating expense starting July 1st, 2023. We do not expect our plan for reaching profitability to compromise growth, just as we demonstrated this quarter. We also do not plan to raise any new equity capital because we believe a firm is fully funded to profitability. We will share our full fiscal year 23 outlook and full year guidance in our next earnings report. But to say a little more here, we do not see network and revenue growth and margin as quantities in conflict with each other. Indeed, our growth combined with strong unit economics is what propels us towards profitability. Consumer demand for our products is significant, and we only expect it to increase, and the value we create for our customers goes directly to their bottom line. Meanwhile, the market penetration in the US is still in a low single digits. And at the growth scale we have already achieved, the increasing rate of repeat transactions at 81% today affords us several advantages. Most importantly, economies of scale and fixed and transactional costs, meaningful underwriting improvements, and opportunities to deliver new products to our consumers and merchant partners at a very low marginal cost. This is why the bookends of this quarter's results are so important. We nearly doubled our network volume ex peloton while managing our unit economics to 4.7% of GMV. This is well ahead of our long-term model of 3% to 4%. We grow our network GMV responsibly and deliberately with unit economics always firmly in mind. This is especially so because as a vertically integrated network, we manage the risk embedded in our transactions. We covered our approach to credit underwriting in the past, but I'd still like to speak briefly about our credit risk management. Every time you want to use Affirm to buy something, you have to apply to be approved for that specific transaction. We make it easy and convenient for you to apply, but we will still look at the state of your finances at that very moment, including, among other things, your recent credit usage, and then decide. If we believe you won't be able to pay off your loan, we will in fact decline your application with compassion and transparency without fail. As a reminder, we do not charge late fees or allow revolving. In other words, we have a structural incentive to decline a transaction that we believe to be a bad financial decision for you because approving it is guaranteed to be a bad financial decision for us. And at our scale of transactions, over 10 million last quarter alone, the dials we get to turn to control credit risk are highly fine-grained. Another key structural advantage is the very short-weighted average life of our loans, which is about five months. As the economic cycle changes, the loans we made in the past will have a rapidly diminishing impact on a firm's future financial performance. Given our structural incentives to engage in responsible lending, deep commitment to strong network unit economics, and a high degree of control over risk, we strongly believe we are well positioned for success in a downturn. During the very brief recession of 2020, we saw applications nearly quadruple at many of our merchants. We believe paying overtime without late fees and gotchas will be in greater demand during a downturn. It is our mission to improve people's lives, and we will be prepared to meet this demand. But again, our approach is only to extend credit that we believe can and will be repaid. The multi-billion dollar business we have today is the result of years of trial and error, ideation and execution. One of the many attractive properties of operating a network at scale is that it can be very cost effective to deliver new products and services to a large, active audience. Not all of our new offerings will result in our next billion dollar revenue line, but we are committed to finding the ones that do. Last September, we shared some of our product plans with you. We've continued to execute on this roadmap, so let me briefly run through some of what shipped in Q3. Throughout the quarter, we delivered several iterations of the Affirm Super App, the single platform for the growing family of Affirm consumer offerings. Each such iteration delivered results, improving user engagement by about 3% and adding over 1% to our in-app transaction volume. These numbers may seem trivially small in comparison to some of our headline growth metrics, but obsessing over user experience compounds. And we have many more iterations planned. We also rolled out a Chrome browser extension, a convenient way to pay with Affirm at online stores where we're not yet directly integrated using a single use Visa card while shopping in your desktop browser. We brought adaptive checkout to many new transactional services, including our own Affirm Anywhere product, Chrome browser extension, and as I mentioned, it will be available on Shopify. We also added Bitcoin interest to the popular Affirm savings account, a super simple way for our savings account holders to hold cryptocurrency by choosing to receive their savings yield in Bitcoin. Debit Plus. By now, I suspect some of you might actually have the Debit Plus app and the companion card that comes with it, So you have already seen what the first version can do. You can split lower value transactions into four payments after the swipe and use the automagic pre-approval button to plan larger transactions and feel confident in your spending power. There are many more features coming over the summer and beyond. Most importantly, longer term and interest bearing loans and affirm rewards. but the V1 of DebitPlus is here and ready. We know it is because even with this minimalist version, we are seeing an order of magnitude higher engagement among DebitPlus users as compared to non-DebitPlus-affirmed users, an average of more than two transactions per week. And the DebitPlus experience will continue to improve as we release regular updates to our growing user base. We are inviting tens of thousands of users per day to get their cards and expect to exhaust our now sizable waiting list, we appreciate your patience, and open DebitPlus to all eligible Affirm users in fiscal Q4. Eligible here means a certain level of usage history and good standing with Affirm. It is super early, and I am still neck deep in UX optimizations, but I'm truly thrilled to begin what we think will be the era of DebitPlus. the simplicity of debit, and a flexibility to pay at your own pace with no late or hidden fees. Affirm continues to succeed because of our exceptional team. I've said it before and I'll say it again, it is a privilege to lead this company, and I would like to thank all Affirmers for marking another waypoint in our journey, and to thank you, our shareholders, for your continual support. As you can see, we remain focused on what ultimately matters, results. Now over to Michael to review those in detail.