Affirm Holdings, Inc.

Good day, ladies and gentlemen, and thank you for joining us for this Affirm Fiscal Holdings first quarter 2025. Getting started, all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. Please note this session is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the floor over to Mr. Zane Keller. Please go ahead, sir.

Thank you, 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 that 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 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 our earnings supplement slide deck, which is available on our investor relations website. Hosting today's call with me are Max Levchin, Affirm's founder and chief executive officer, Michael Linford, Affirm's chief operating officer, and Rob O'Hare, a firm's chief financial officer. In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into Q&A. On that note, I will turn the call over to Max to begin.

Thank you, Zane. It was another killer quarter, as you all can see. I will stick to the tradition of having fewer comments so long as the results are good. We're firing all pistons. We're getting ready for a really good holiday season. Everything looks very nice, revving the engines to fly across the Atlantic, etc., etc., Back to you, Zane.

Great. Thank you, Max. With that, we will now take your questions. Operator, please open the line for our first question.

Ladies and gentlemen, at this time, if you would like to signal for a question, a reminder that is star and 1 on your telephone keypad. To remove yourself from the queue if your question has been asked, it is simply star and 2. We'll take our first question today from Andrew Bock at Wells Fargo. Please go ahead.

Hey, guys. Nice set of results here, and thanks for the question. Could you unpack the uplift to revenue as a percentage of GMV for the full year and then RLTC coming up nice from 10 to 20 basis points? And what are the drivers of that?

Yeah, thanks for the question.

The business continues to have really strong unit economics. We're able to earn more through both the interest income From the pricing initiatives, I think that benefit has largely played through. We continue to enjoy benefits in the capital markets, so impacting things like gain on sale. And, of course, we have further upside with merchant fees in the form of improvements like what you're seeing with the Visa flexible credentials. And those flow through. Those all flow through to the bottom. So, you know, you think about the revenue improvements flowing through to the margin as well.

Yeah, I understand. I thought, I would assume that you guys were planning on reinvesting some of the excess RLTC back in for growth. So maybe if you just kind of expand upon the thought there.

We still want to do that. I think we're still in a position where we've got a healthy amount of margin that we can invest in. And we will do that. And we'll do that in the form of foregone revenue, you know, 0% or APR incentive offers. We'll also do that in the form of operating expense investments if we want to make down the PML. But overall, there's still a healthy amount of benefits flowing through. Great. Thank you, Michael.

Next, we'll hear from Jason Kupferberg at Bank of America.

Hi. This is actually Nate on for Jason. But I saw results here. I think, Max, you previously talked about RLTC margins above 4% means you're not approving enough people. Below 3%, it's not great enough leverage. Just looking at 2Q here, the guide implies a margin of about 3.8% on RLTC, and 2Q is typically a low point in terms of margins. So I'm just curious, can I get some more color on your current underwriting posture and where you expect RLTC margins specifically to trend?

Great question. Thank you. Our posture is largely unchanged. We obviously monitor the results all the time and on any given week we are tuning settings in that way, but there's not been a major movement upwards or downward from the approval standpoint. You're exactly right. We were able to enjoy some very healthy consumer growth in the numbers from in Q1 because we found ourselves with capital to put forward towards some incremental approvals. We'll continue tuning that as we go forward. And you're right, Q2 is typically a low point. We feel good about what we're seeing in front of us right now. But again, we always dance from the point of view of having really strong credit results, and everything else kind of falls out of that. We won't compromise on that. Everything else is driven by goals versus numbers. Michael, certainly.

Thank you. Look, I think we actually are pretty optimistic on the margin in the back half of the year as well. I don't want to skip that point. The results in Q2 are going to be strong. The 3.8, as you suggested, we're going to have good unit economics this quarter, we believe. But we're also going to have strong performance in the back half of the year as well. I just want to double-click a little bit on the capital side. I do think there's really constructive capital markets out there for us right now. And that does cause certain quarters, including Q2, to maybe a little bit outperform what we consider to be more of a run rate quarter for Q2. But again, for the full year, this is where we want the business to be in the higher end of the 3% to 4% range.

Thank you, sir.

Our next question today will come from the line of John Hecht at Jefferies.

Afternoon, guys. Congratulations on another good quarter. I guess one of the trends we're seeing out there now is a pretty big pickup in secondary market activity. I think that's tied to interest rate movements and credit trends and so forth. How does that impact your thinking about balance sheet management, retention versus sale, and so forth, given those trends?

Yeah, so the market for Ford Flow whole loan purchasers is really, really strong right now. The credit performance that we've delivered over the past year and a half, combined with the real understanding of the value of the short-duration asset and the discipline managers that we have at Affirm, has put us in a really strong position and where we think at or near the top of the pack of producers of these assets. Alongside that, the dynamics on the supply side of that capital with trends like the private credit trend have created an environment that's very, very good for us. And so we will continue to benefit from that. But like when the whenever we have one funding channel that that is in high demand or we can maybe benefit from in the near term, we're still very careful to make sure that we create a stable funding base across all of our channels. You've seen our ABS execution also be very consistent and that has served us very well. And in fact, our ABS execution helps our forward flow execution, the two work together. And I would not read the very constructive forward flow market as a suggestion that we don't want to continue to grow our ABS business as well. which, of course, for our revolving deals are still consolidated onto the balance sheet. What I do think is true is that the warehouse funding channel for us is a channel that we can continue to maintain but not grow as a percentage of total platform portfolio given the robust forward flow and ABS market reception. Perfect. Thanks.

James Fawcett with Morgan Stanley. Please go ahead with your question.

Great. Thank you very much. I wanted to just quickly touch base on kind of the outlook for 0% promotions as we go into the holiday season. Typically, this would be where we'd see some strength. And I'm wondering, kind of tying that back to the RLTC commentary, a lot of times because of the MDR differences, that can provide some RLTC benefit as well. So just help us think through that potential as a driver and promotion for the holiday season? Thanks.

Sure.

We're certainly no strangers to leveraging zeros, and we are seeing really great excitement from the merchants as we head into the holidays. Don't really want to give any numerical guidelines here, but to say feel very good about it, seeing a lot of demand. See what else can I share? Certainly successfully using it as a way of enticing new consumers to give us a try. I think that that's an important lever that we have been quite successful in. Obviously, there's plenty of surfaces where merchants are excited to advertise that they have a gimmick-free, late fee-free promotion where you also pay no interest. And so we expect to draft behind our best merchant partners advertising campaigns, which are always beneficial to our cause. So lots of goodness to come. I think we'll also see, I alluded to that in my letter, we are in a process of harmonizing our financial programs, which is the fancy term we use for various promos, both fixed APRs, reduced APRs, 0% APRs. You will see consistency across multiple channels, card and digital wallets included, which is going to be very exciting because those are higher frequency. At least some of them are. Card, obviously, a huge outlier there. And then with all those things combined, we just expect more of that volume.

And I'll maybe add, I think the strong unit economics in the business right now, combined with a pretty favorable outlook that we have on the next quarters to come, puts us in a position where we get to be pretty aggressive. I do think we were constrained over the past couple of years where we had a little bit of catch-up to do. We're very front-footed right now in our ability to meet those merchants where they are, to price very competitively, and to be very aggressive. And that's a really good position to be in. We're obviously very mindful about the economics of these promotions, and so we're careful about them. But we're in a very different spot than we were a couple years ago where we actually feel like we can be pretty aggressive here right now.

Great, thanks. Vincent Caintick at BTIG.

Please go ahead with your question.

Hi, good afternoon. Thanks for taking my question. I wanted to go back to the discussion about margins. So it was nice to see the guidance for the adjusted operating income margin now above 20%, and then the guidance for the fiscal second quarter of the 21% and 23%. So I wonder if you could maybe discuss, so what are you – expecting in terms of longer-term operating margins where you think it can operate? It seems like, you know, the 21% to 23% is sort of in that mid-to-high 3% RLTC. What do you think that can get in the run rate going forward? Thank you.

So we're not updating our long-term outlook, and it's really not going to touch the 3% to 4% framework that we've had up there forever. So, like, just know that those are still as they were. But it is obvious that we're running above the margin framework that we put out just about a year ago at the investor forum, and that's not lost on us. We think part of that's because the pace at which we were able to drive operating leverage in the business exceeded our own expectations. And part of that's because we now have our eyes set on achieving the next financial milestone, which is profitability down the PML. And we still feel like we're in a really good position to do that, and I think Once we do, I think we'll be in a position to update where we would expect the business to be longer term. But I would also reiterate a statement that we made last summer, and I think we're going to repeat it on the Q1 call. We expect to continue to grow margins from here. We think there's still more operating leverage in this business and believe that we can continue to grow margins from here.

Okay, great. Very helpful. Thank you.

Our next question will come from Dan Dolev at Mizuho. Please go ahead, sir.

Hey, guys. Thanks for taking my question. Great results, as always. Max, you know, we noticed that active consumer growth accelerated again. You know, can you maybe touch a little bit on the factors behind the acceleration? Thank you.

Hi, Dan. Thank you for your question. Consumers love a firm. Just more are coming our way. The probably most important lever, jokes aside, is we had the margin. Obviously, you saw the outsized print last quarter. This quarter is no slouch either. We feel great about the bottom line economics, and we're able to reinvest them in deeper approvals, more compelling new consumer deals. We're also just getting smarter and smarter about reengaging consumers that had one transaction a year, two transactions, three times a year, or you saw we clipped five transactions a year, which is a new front digit for us on that one. So many different efforts. We focused very deliberately on active users this quarter, and I keep repeating this, but every time a firm team decides to do something, it is rarely overnight, but it is never not successful. We have a very good track record of delivering on a goal we set in front of us. We're never the... zero to 60 in half a second, but once we get going, there's no stopping us. And so this quarter's explicit goal was we want more users, we want more active users, we want higher frequency, and all of that has happened, and we're not stopping. We'll have a lot more of that in store. Cool.

Amazing. Thanks, Max.

Rob Wildtack at Autonomous Research.

Please go ahead with your question.

Hi, guys. Maybe just to start, I wanted to get your certainly early thoughts on the UK launch. I mean, how have the conversations there gone with merchants? And I'm curious why you think or what you think is your right to win in that already pretty competitive market.

Yeah.

So it was actually, if I do say so myself, a little unbelievable. So we went to the – so we've been pre-selling in the UK. I think I'm now allowed to say that word for a long time. We were, on offense, the right word to use. But we've been in the markets. initially quietly and then less quietly talking to merchants. That includes the folks we know from the U.S. and Canada markets, bringing them or bringing us really along for the ride in the U.K. And then, of course, we built a sales team in the U.K. We have an amazing leader in the U.K. market named Ruth, who has been with us for over a year now, leading the sales effort. And she was just really, really instrumental to the initial reception we're getting, which is very strong. And the merchant's that talked to us, both of those groups, basically bring out two key reasons why they can't wait for us to get very active in the U.K. market. One, the longer-term monthly payment products, so six months on, not the paying for 45-day product, but three months, six months, 12 months, on and on and on, it's just not well-served. It is not really a well-addressed need in the U.K., and people there need their prams and their couches and their TVs just as much as they do in the U.S., Right now, the only competitor in that space really are banks, and no comment on how well-liked that is. And so we're very excited to deliver, although it doesn't hurt to be fee-free and not compounding interest and all that good stuff. So we expect a lot of demand for our longer-term products. In fact, that's what we're really focusing on when we go to the UK. The other, maybe slightly more subtle version of what's happening in the UK market, we are very clear about our business model. We're just trying to help folks buy things and not confuse them with other things. The market may be well-developed, but there's a lot of innovation, the kind that merchants don't necessarily enjoy. We're coming in as a pure player that is just going to be helpful for more sales and merchants are unequivocally excited about that. So very early, very excited. I just spent some time with our launch partner, managing director at a company called Alternative Airlines. And we're processing dozens and dozens of transactions, and they're quite pleased with what they're seeing. And it hits exactly that need where it's longer terms, higher tickets, people need a little bit more time to pay, et cetera. So we're quite excited about UK. Big Anglophile. Can't wait to ride my bike outside London.

So I'll be spending a lot more time in London.

And a reminder, bigger picture, Max, and relatedly, I wanted to ask about the competitive landscape more broadly. Appreciate your thoughts on the UK. At the same time, you have players from overseas who are showing up on Apple Pay and may be drifting into some longer duration products. I mean, it seems like the competitive boundaries of the last couple of years might be shrinking and Would you agree with that characterization? And then how would you think about, you know, sustaining growth and expansion without igniting some kind of competitive race to the bottom?

You know, I will needlessly remind you that in an extremely competitive U.S. market, we are over a third of the volume and more than half the revenue. There's a reason for that. What we do is really, really hard, and it also turns out to be really, really valuable. these longer terms aren't just a, you know, what we should give people more time to pay. It'd be great to do it without late fees. It's a huge competitive moat. Underwriting is a very difficult thing to do. You have to have massive infrastructure to mine the data that you get. It's not enough to have and store the data. You actually have to know what to do with it. You have a huge machine learning team. You have to have a compliance team that makes sure the machine learning team uses the data in the ways that are permissible versus not and so on and so forth. And so our, Moat has been our willingness to do the hard, difficult thing without compromise, and we're bringing that to other markets. The battle has been brought to us in the U.S. We've held off the onslaught better than I think anybody expected and continue to do so. We're bringing the battle to them in Europe and in the U.K., not the other way around. I can't wait to ride my bike or at least watch some quality Tour de France racing there.

Sorry, the bike memes are a little...

And a reminder to our phone audience today, that is star and one, if you would like to ask a question. We'll hear from Reggie Smith at J.P. Morgan.

Hey, guys. Congrats on the corner. Hey, two questions. One is super quick. I wanted to make sure, I guess it's your process that talked about increased scrutiny on sponsor banks. I wanted to make sure that that would not impact the growth of the Affirm card. That should be a quick answer. But then, I think, bigger picture, I'm curious if there are any, like, nuances in terms of underwriting consumers in the U.K. versus the U.S. and how you guys go about, you know, kind of building out your underwriting knowledge there as you kind of enter that new market.

Great. The short answer to your question is no, it will not. We're very excited about rolling out of the card and are accelerating it, of all things. I think regulatory scrutiny increasing is a thing you experience if you're small and unknown to the regulators. We've been big and getting much bigger quarter after quarter. We're very familiar with all our regulators. We engage with them regularly. We have invested in compliance appropriately, and regulatory scrutiny on us is what it is, and it will continue doing, and frankly, we're proud to... to have the engagement that we have. And so that part, we're going to be just fine. We're not dependent on any one provider, incidentally, so we're quite careful to ensure that no matter what sort of ups and downs, regulatory or otherwise, appear on the horizon for our providers, we have ways to make sure that we're unaffected. On the UK underwriting, It's going to be great. We have the infrastructure, we have the people, we have the knowledge, and we have a decade of building an underwriting engine from nothing to something very, very powerful. We're coming in very prepared, a lot of experience. Our machine learning team, I think the tenure of the folks in it is the longest at a firm. The guy who runs our underwriting and machine learning, Tesh, has been with the company almost as long as I have, and he's seen the build-out of the baby little Affirm iTax 1.0 and is now sitting on POS the 12th launch, if I remember correctly. He's just had an enormous amount of experience and the folks around him are trained by him and it's a brilliant team. UK is a little bit different. It's not enormously different. We spend a lot of time consulting with the local equivalents of the credit reporting agencies. We know a lot of people who have lent money in the market to get the knowledge primed, but ultimately we will build the engine the same way we did it in the US by scaling our loan book, looking at the results and fine-tuning and gathering proprietary data that we can continue squeezing incremental value under the curve from.

Is there anything you can talk about in terms of the nuance in that market that anecdotally consumers are different from American consumers in any way, payback, spending, anything you can share?

Empirically, not yet. It's been like, I don't know, eight days of transactional data live or something along those lines. The first payment defaults haven't hit yet, so we'll speak to that probably towards next quarter. But as always, we measure seven times cut once, so we'll be deliberate, we'll be very careful. We very cautiously rolled out, you know, our merchant rollout timeline is not, or timeline slash pipeline is not accidental. We know exactly what we'll do next. So far, so good. Obviously, we have a lot of early signals that we monitor. Most importantly, in fraud and abuse, we feel good about that. Again, it's exactly the sort of thing that prognosticating now is pointless, but in 34 days from the first loan, we'll tell you exactly how the very first cohort is doing, and we'll certainly be watching it like hawks and continue tracking all these metrics.

Perfect. Thank you.

And Jill Shea with UBS.

Please go ahead. Your line is open. Jill Shea, your line is open. You may have us on mute.

Sorry. Sorry about that. Thanks for taking the question. You've noted in the shareholder letter that as it relates to funding that declining benchmark rates will be a tailwind to RLTC. Can you just touch on your view on the path of funding costs in light of the current interest rate outlook and maybe help us think about the magnitude and pacing of the benefit as we move through the year?

Yes. So the way to think about rate impacts on our business on the way down was really the same way on the way up. The kind of full benefit or full impact on the P&L is about 40 basis points for every 100 basis points of rate movement. But that takes about a year to a year and a half to play through. You know, we were really experiencing still the rising rate, the impact of rising rates through the first part of this calendar year, even though rates had stopped moving well before that. And so we would expect the declining rates to be tailwinds, but to be tailwinds marginally and take the time to flow through the P&L. But a good rule of thumb is 40 basis points of benefit in terms of cost. for every 100 basis points of rate movement. That being said, we do think because we're able to operate in the higher end of our margin structure right now, we would not anticipate flowing that through to margin. We would anticipate that to be part of what we're able to reinvest back in really compelling consumer and merchant offers.

Very helpful. Thank you.

And that was our final question from our audience. Gentlemen, I'll turn it back to you for any additional or closing remarks that you have.

Thank you all for joining today. We appreciate your time and look forward to speaking with you again next quarter.

This does conclude today's teleconference, and we thank you all for your participation. You may now disconnect your line.