Affirm : Q1 2022 Earnings Transcript

Affirm Holdings, Inc.

First Quarter 2022 Earnings Conference Call

November 10, 2021

Affirm Holdings, Inc. - First Quarter 2022 Earnings Conference Call, November 10, 2021

C O R P O R A T E P A R T I C I P A N T S

Ronald Clark, Vice President, Investor Relations

Max Levchin, Founder, Chief Executive Officer and Chairman of the Board of Directors

Michael Linford, Chief Financial Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

James Faucette, Morgan Stanley

Bryan Keane, Deutsche Bank

Jason Kupferberg, Bank of America Merrill Lynch

Ramsey El-Assal, Barclays Investment Bank

Tim Chiodo, Credit Suisse

Gus Galà, Truist Securities

Andrew Bauch, SMBC

Chris Brendler, D.A. Davidson

P R E S E N T A T I O N

Operator

Welcome to Affirm Holdings Fiscal Year 2022 First Quarter Earnings Conference Call.

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ron Clark, Vice President, Investor Relations, to begin.

Ronald Clark

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

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Affirm Holdings, Inc. - First Quarter 2022 Earnings Conference Call, November 10, 2021

today. These forward-looking statements speaks 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, 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.

And with that, I'd like to turn the call over to Max to begin.

Max Levchin

Welcome everyone and thanks for joining us on today's call.

Q1 was yet another record quarter for Affirm as we continued to rapidly grow both sides of our network. We increased GMV to more than $2.7 billion during the period, which we closed with some really great momentum. We achieved our first-everbillion-dollar GMV month in September and had over 102,000 Active Merchants and 8.7 million Active Consumers at the end of the first fiscal quarter.

That said, we measure Affirm's results and impact in years and decades-not months and quarters. This allows us to think strategically about delighting consumers and delivering value to our merchant partners while building an exciting brand on the foundation of trust. The seeds we planted years ago are just beginning to bear fruit: the growth of our network is accelerating, and my confidence in Affirm's market position has never been stronger.

Deep tech-powered partnerships with exceptional platforms form a key part of our multi-year growth strategy. These are beginning to scale up, and we are continuously investing in delivering even more value for our partners with new ideas and products:

Our partnership with Shopify is showing really strong signs of scale and impact. We'll touch on the exact numbers in a moment but glance at the Active Merchant number to get a good sense of how that is starting to take shape.

We continued to rapidly expand our partnership with Walmart. As recently announced, Affirm is providing Walmart's consumers an efficient alternative to layaway for the holiday shopping season. In November, Walmart and Affirm will be marketing together across a variety of digital and physical channels, including TV Walls in over 3,900 Walmart Stores. Our deep engagement with this all-important partner helped meaningfully accelerate our GMV with Walmart over the last year. We see even more opportunities to serve Walmart and its consumers in the year ahead.

On the strength of our test results, we are also deepening our relationship with Amazon to help accelerate the growth of our network. Affirm will now serve as Amazon's only credit card alternative in the buy-now,pay-later space through the next two Holiday seasons in the United States. Eligible Amazon customers in the United States will have the opportunity to use Affirm at checkout on Amazon, providing them a transparent and flexible way to pay at their own pace. Affirm will also be embedded as a payment method

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Affirm Holdings, Inc. - First Quarter 2022 Earnings Conference Call, November 10, 2021

in Amazon Pay's digital wallet and become available to all consumers and merchants that use Amazon Pay at checkout in the U.S.

Finally, we continued to close, launch, and expand our enterprise partnerships. We launched American Airlines and Apple Canada, re-signedthree-year deals with Priceline and Signet, launched a deeper integration with Target-which more than doubled our current Target business-and closed brand new partnerships with Newegg and Michael's.

Platform and merchant partnerships, and the strong growth of our consumer platform represent an incredible opportunity to expand the potential reach of our mission to hundreds of millions of people, and we are excited to bring them access to our honest financial products.

On a lighter note, I'm excited to share that we've launched our consumer holiday campaign just this week. You might catch it on social media, while streaming TV, and on billboards in several markets. The campaign explores the stupid and stressful things that can happen around the busy holiday season-from questionable gifts to regrettable behavior-and juxtaposes that with Affirm: the smart choice for paying at your own pace, with no late fees, no gotchas, and no regrets.

There is a lot to be proud of this quarter and even more to be excited about in the years to come.

Affirm's core strengths lie in risk management, capital markets execution, and putting our ability to solve hard technical problems toward building great products and creating consumer delight.

With the context of the Great Unbundling of the credit card, we gave you a sneak peek into parts of our product roadmap at our Investor Forum in September. Let me update you on the progress we've made on these products since.

After being put through its paces by hundreds of Affirmers, our Debit+ card is out in the wild, being further tested by consumers as we make our way through our waitlist and get it ready for gen-pop launch in the New Year.

We also shipped the first version of our SuperApp-while it's still very early days, and many versions will follow this one, I am excited to see the meaningful increase in consumer engagement that it has driven across products, particularly our Shopping platform.

Cashback rewards and Crypto Savings are both live in a pilot mode, which you may have seen in your Affirm app already or will soon.

We also launched Affirm in Australia last week with our long-time enterprise partner Peloton. Extending our international reach by partnering with our merchants wherever they do business is an important facet of our growth strategy, and we see many more markets to come. Stay tuned.

Finally, Adaptive Checkout, the reinvention of our core business, is fully live in the market, has delivered an over 25% conversion lift, and has already been adopted by 44% of eligible merchants.

Let me go back to something I touched on briefly a moment ago. Affirm's core strength can be summed up to one thing: our extraordinary team. It's hard to overstate just how much of our success to date is rooted in the exceptional level of talent and sheer grit of our people.

The key strategic insight leading to the creation of the Great Unbundling thesis was the fear and loathing of the credit card by the millennial generation as they came of age after the financial crisis.

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Affirm Holdings, Inc. - First Quarter 2022 Earnings Conference Call, November 10, 2021

Related to this was the dramatic rerouting of the flow of intellectual capital. In the prior decade, the best and brightest technical minds flocked to Wall Street to learn and earn. Suddenly, they craved something else professionally: they needed a mission, a chance to fix the problems of the financial systems that had failed their families.

Our mission is at the very core of who we are. And the purity of our purpose (combined with a firm belief that any solution to societal problems must be self-sustaining and profitable to stand the test of time) has allowed us to attract amazing talent since the very early days of Affirm... many of whom are still here today, a decade later.

The output of our engineering team is a key reason why we have become the partner of choice for so many giants of commerce. Our partners rely on us to show up with solutions for scale, speed, and reliability, and to work tirelessly and intelligently to deliver results.

Our risk and data science teams were founded on the belief that traditional credit scoring excluded far too many people from access to credit and the conviction that alternative data sources can be utilized in creative and compliant ways to dramatically expand this access without compromising risk performance.

A very similar origin story is alive and well today in our Legal and Compliance team. Several of them hail from key supervising regulators like FDIC, the Fed, and the CFPB. Our commitment to winning the right way-with no fine print and no late or hidden fees-is what brought them to Affirm.

This update will become prohibitively long if I were to properly highlight each team and their contributions to our many successes so far, so I hope you will indulge me with just one anecdote featuring a great many Affirmers.

As we readied the rollout of ShopPay Installments (powered by Affirm!) in the late spring of this year, we needed a way to onboard several hundred thousand Shopify merchants: to review them for eligibility, identify and solve corner cases, vet them for regulatory and compliance issues. Of course, eventually, this would all be done by machine learning models examining the site content and scoring it. But to build this type of model, you need reasonable prior knowledge from previously approved merchants, and we hadn't yet accumulated enough of that at the time. At their regular reviewer capacity, Merchant Ops would take several months, and we wanted to launch in three weeks.

We had about 1,300 employees at the time. If a large percentage would manually review a few hundred shops each, we would be ready to launch within the time allotted and collect an excellent training set of data to build the models for automated approvals.

Within a day we had organized robust online training classes for our quote-unquote "volunteer" reviewers, a leaderboard (for those competing on review productivity) appeared, and Operation Shopapalooza was up and running. Execs and interns alike would finish their already busy workdays, pick up their next batch of Shopify merchant URLs, and get reviewing! Meanwhile, our machine learning team shipped new software tools every day to help automate more and more of the reviewer tasks.

I maintained a respectable top-20ish position on the productivity leaderboard but got completely overrun by Michael and his team a few days before the wrap…only to watch him get left hopelessly behind by the machine learning folks who had automated the review process after two weeks. We had the data, we'd built the models, and we were ready to launch.

It's easy to dismiss this episode as a pandemic-eraZoom-addled startup antic, but I think it is very revealing. We have assembled perhaps the most formidable fintech team ever. And, in addition to talent,

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ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

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