Affirm : Q4 2021 Earnings Transcript

Affirm Holdings, Inc.

Fourth Quarter and Full Year 2021 Earnings Conference Call

September 9, 2021

Affirm Holdings, Inc. - Fourth Quarter and Full Year 2021 Earnings Conference Call, September 9, 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

Ramsey El-Assal, Barclays Investment Bank

Jason Kupferberg, Bank of America Merrill Lynch

Dan Perlin, RBC Capital Markets

James Faucette, Morgan Stanley

Andrew Jeffrey, Truist Securities

Moshe Orenbuch, Credit Suisse

Rob Wildhack, Autonomous Research

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

Operator

Welcome to Affirm Holdings Fiscal Fourth Quarter and Fiscal Year 2021 Earnings Conference Call.

As a reminder, this conference call is being recorded.

I would now like to turn the call 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 today, and these forward-

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Affirm Holdings, Inc. - Fourth Quarter and Full Year 2021 Earnings Conference Call, September 9, 2021

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 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.

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. Before we get into the results, I want to start by talking about what we are actually building at Affirm.

Around ten years ago, we founded Affirm with a simple mission: to deliver honest financial products that improve lives. We started by reinventing payments to make them transparent, simpler, smarter, and more delightful. Our core insight was that the generations coming of age after the financial crisis of 2008 were no longer willing to tolerate getting into permanent debt by "putting it all on the card" or getting burned by late fees and deferred interest. These young consumers-and many like-minded older ones-grew fundamentally suspicious of credit and retreated into the simplicity of their debit cards.

This created no less than a once-in-a-generation opportunity to transform credit and thus began the great unbundling of the credit card.

The credit card was the ultimate buying bundle-a single product allowing you to put purchases of all sizes together in one basket with the freedom to pay for them later. Unfortunately, if you couldn't pay for them later-and in full-endless debt became nearly inevitable, and that credit card could quickly become the financial equivalent of a ball and chain. That's where Affirm came in. We deconstructed, or rather we unbundled, the credit card starting with the largest purchases. We made these easier, more transparent, and helped consumers be smarter about buying now and paying later. In order to do all of this, we built proprietary technology from the ground up and developed sophisticated capital markets expertise.

Our game plan was always simple: obsess over consumer happiness, and use superior technology to give more people the confidence to buy, without resorting to the kind of dirty tricks the credit card industry is infamous for-late fees, fine print, and deferred interest to name a few. We believed this would earn the right to partner with the best, most important online and offline retailers.

After creating (in my personal opinion!) the best imaginable alternative to using a credit card for the kind of larger purchases that are most likely to get you into long-term, revolving debt-such as plane tickets, homewares, sporting goods, and auto parts-we sought to bring the convenience and flexibility of our longer-term"pay-over-time" solutions to shorter-term,lower-priced transactions. Consumer demand for simpler, more transparent payments was growing rapidly in new segments, such as fashion and apparel. These purchases naturally happen more frequently and are great opportunities to meet consumers where they shop and offer them a smarter alternative.

By partnering with merchants and e-commerce platforms to offer these solutions, Affirm is able to deliver meaningful incremental sales volume via increased cart sizes, improved checkout conversion, and new

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Affirm Holdings, Inc. - Fourth Quarter and Full Year 2021 Earnings Conference Call, September 9, 2021

customer acquisition, thus enabling our partners to achieve more predictable and sustainable revenue growth.

Today, we offer both the longer-term"pay-monthly" and shorter-term"pay-later" solutions to our merchant partners, often as a bundle. And, unlike our competitors that only offer the latter, we are neither constrained by the amount the consumer wants to spend nor the time they need to pay us back, thanks to our investments in technology and capital management. We leverage this technology as well as our deep merchant partnerships to bring forward the best options to a consumer-always with an eye towards the fact that we will never offer a loan that we don't believe can be repaid. Our breadth of offerings enables our partners to offer their specific shoppers the right payment solution...for the right item...at the right moment.

Our consistent results, the culture of engineering excellence, focus on intelligent risk management, depth of capital markets execution, and relentless search for opportunities to delight our shared consumers have earned us the trust and partnership of some of the world's largest commerce platforms. These businesses depend on having the best technology to support their needs, and it's why they overwhelmingly choose Affirm. Our technology enables superior experiences, provides unrivaled flexibility and customization, and can address the most complex requirements. And, we're constantly adding to those services...

In fact, Affirm's roadmap for new merchant services is very long.

We see natural product expansion opportunities wherever access to capital, risk, or complex engineering requirements prevent merchants from delighting their consumers. Our acquisition of Returnly and its unique returns management capabilities is a great example of one such idea.

Another is the merchant Marketplace, built directly into the Affirm app and site. Purchases originating on these Affirm "owned-and-operated" surfaces amounted to nearly one-third of the transactions we facilitated in the fiscal year 2021, and these transactions are particularly valuable to our merchant partners. Merchants love our marketplace because their reach can be highly targeted and effective in driving conversion. In this use case, Affirm is both the provider of purchasing power to the consumer and the demand-generation platform for merchants.

We expect to continue to find many more opportunities like these to build, buy, and offer these high-value services for our merchant partners.

Meanwhile, the great credit card unbundling continues to accelerate in both the U.S. and internationally. The next frontier of unbundled payments is daily spend: groceries, restaurants, incidental purchases. This is why we are so excited to be rolling out the very first card of its kind: the Affirm Debit+ card. I will tell you a lot more about that in a moment.

As we speed into our Fiscal Year '22, I believe Affirm is strongly positioned to capture much more of the vast opportunity in front of us. We will do that by remaining obsessively focused on our two constituents: the merchant and the consumer, and by leveraging our core strengths to continue building products that delight both sides of our network.

As we look back upon our fiscal year 2021, we made great progress on executing our strategy:

We facilitated purchases for more than seven million consumers, nearly twice the number of consumers we served in the prior fiscal year.

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Affirm Holdings, Inc. - Fourth Quarter and Full Year 2021 Earnings Conference Call, September 9, 2021

At the same time, we delivered a five-fold increase in our active merchant base-that is, merchants that transacted on our platform over the prior twelve months-thanks to several large partnerships-including Williams Sonoma, Dick's Sporting Goods, Neiman Marcus-as well as the launch of Shop Pay Installments, all of which helped add over twenty-three thousand Active Merchants to our platform.

We also expanded our product offerings. The Savings product we introduced at the start of the fiscal year demonstrated the power of our platform to drive consumer engagement. By simply adding Savings to the Affirm app, we have attracted total deposits of approximately three-hundred million dollars...with no fanfare and no promotion, simply through organic engagement and a great offering. Many of Affirm's savers have gone on to use our platform to also discover great deals with our affiliate partners and manage their financial lives. On the merchant side, our recent acquisition of Returnly has meaningfully expanded our addressable market. Not only does Returnly solve one of merchants' most critical pain points, it also provides us with another unique offering for higher-velocity merchants, especially in categories such as fashion and apparel, where returns are quite frequent.

And of course, we extended our presence in North America by closing the acquisition of a leading pay- later brand in Canada, PayBright, in January. PayBright has not only expanded our presence in Canada, it is also winning exciting new business with powerful consumer brands and delighting Canadian consumers.

And, we are developing deep connections with consumers. Brand awareness increased approximately 70% in fiscal year 2021, and was particularly strong among Gen Z and Millennial consumers, whose awareness increased 94% and 68%, respectively.

All of these wins help us create a more valuable two-sided network for our consumers and merchants, as we facilitated more than 16 million transactions totaling more than $8 billion in GMV in fiscal year 2021.

So what comes next?

We have an ambitious plan for the fiscal year, and, more importantly, for the decade ahead. To fuel the expansion of our business and to increase our share of the growing market, we are focusing on three key areas for fiscal year '22:

●increasing our consumer reach and frequency, ●growing our merchant and partner network, and ●extending our product offerings.

Our partnerships with enterprise merchants, and platforms like Shopify, introduce more consumers and high-velocity merchants to Affirm's honest and transparent offerings.

In our current fiscal year, we have continued to ramp merchant activation of Shop Pay Installments. When we reported earnings back in May, we shared with you that we had onboarded 12,500 Shopify merchants at that time, and today, that number stands at hundreds of thousands. Our focus now is to drive more consumers to experience Shop Pay Installments. To do so, we are activating both Shopify and Affirm's consumer networks via a range of marketing channels.

Through our host of integrated partnerships with the largest merchants in e-commerce and brick-and- mortar retail, Affirm will be offered as a payment option for merchants representing more than half of U.S. e-commerce, which we believe will ultimately enable us to demonstrate Affirm's powerful value proposition to millions of new-to-Affirm consumers and grow Active Consumers meaningfully in fiscal year 2022.

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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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