Affirm : Q4 2023 Earnings Transcript

Affirm Holdings, Inc.

Fourth Quarter and Fiscal Year 2023 Earnings Conference Call

August 24, 2023

Affirm Holdings, Inc. - Fourth Quarter and Fiscal Year 2023 Earnings Conference Call, August 24, 2023

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

Zane Keller, Director of Investor Relations

Max Levchin, Founder and Chief Executive Officer

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

Tim Chiodo, Credit Suisse

Ramsey El-Assal,Barclays

Rayna Kumar, UBS

Dan Dolev, Mizuho

James Faucette, Morgan Stanley

Eugene Simuni, MoffettNathanson

Dan Perlin. RBC Capital Markets

Bryan Keane, Deutsche Bank

Andrew Jeffrey, Truist Securities

Rob Wildhack, Autonomous Research

Reggie Smith, JPMorgan Chase

Jason Kupferberg, Bank of America Merrill Lynch

John Hecht, Jefferies

Michael Ng, Goldman Sachs

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

Operator

Good afternoon. Welcome to the Affirm Holdings Third Quarter 2023 Earnings Conference Call.

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Affirm Holdings, Inc. - Fourth Quarter and Fiscal Year 2023 Earnings Conference Call, August 24, 2023

(Operator Instructions)

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 Zane Keller, Director of Investor Relations. Thank you. You may begin.

Zane Keller

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; and Michael Linford, Affirm'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 questions and answers.

On that note, I will turn the call over to Max to begin.

Max Levchin

Thank you, Zane. Thanks, everyone, for joining.

I hope you've had a chance to read our quarterly letter as it includes lots of great information. As I mention in the letter, we're very proud of the team's accomplishments this quarter, closing out the fiscal year on a high note. In our fiscal Q4, we exceeded our outlook across all key metrics, were profitable on an adjusted operating income basis, improved our already great credit metrics while accelerating growth, and launched with some amazing brands on the platform. Some of these brands are so cool we can't even say their names. You just have to go shopping to find out.

Dear to my product-developing heart, we're finally able to brag about the Affirm Card's progress. We're energized by the momentum we're seeing and are investing significant energy into making the card the top- of-wallet choice for our consumers. We also expect to deliver annual profitability on an adjusted operating income basis going forward. And our disciplined performance over the last several quarters has earned us the right to return to a more aggressive pace of network growth, while maintaining discipline.

I tried hard to make my letter a breezy read this quarter so I hope you have a chance to peruse it, if you haven't yet. For a deeper dive into our numbers, please have a look at the one from Michael. He's a good man and thorough. But in case you would like even more investor information about Affirm, we're pleased to announce that we will be holding an investor forum on November 14th in New York.

At the event, you will hear from several of our management team members and we will provide an update on our commercial and product initiatives, as well as our financial framework. Please look for additional information, including registration details, on our Investor Relations website as we get closer to the event.

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Affirm Holdings, Inc. - Fourth Quarter and Fiscal Year 2023 Earnings Conference Call, August 24, 2023

Back to you, Zane.

Zane Keller

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

Operator

Thank you. (Operator Instructions)

Our first question comes from the line of Tim Chiodo with Credit Suisse. Please proceed with your question.

Tim Chiodo

Great. Thank you for the introduction there, and look forward to the investor day. Max, I believe you were just saying around the right to reaccelerate investment, I just want to make sure I have this right though, in terms of what's implied for the guide for the upcoming year. If we take the GMV guide and the RLTC as a percentage of GMV and think about the 2% operating margin, it seems to imply that there's only sort of a low single-digit growth in your OpEx base for this year. One, is that investment under the hood with some savings elsewhere and maybe just provide a little kind of context around that. It seems to imply not a whole lot of expense growth.

Max Levchin

That is accurate. Some sort of a lean and mean code writing machine joke comes to mind, but I'm not capable of those. But we have been more productive than perhaps ever in our history over the last six months or so. Certainly the last three we've really just built a lot of great stuff and we have no intention of slowing down, looking for efficiencies.

Tim Chiodo

Okay. Thank you for the confirmation. Appreciate it.

Max Levchin

You are correct.

Operator

Our next question comes from the line of Ramsey El-Assal with Barclays. Please proceed with your question.

Ramsey El-Assal

Hi. Thanks for taking my question this evening. You guys called out growing merchants at a good year- over-year clip and also some new partner signings and expansions. Can you give us your updated thought on the growth algorithm of the business in terms of what you're expecting from existing customers versus new logos, and maybe there's a new category which is sort of product now that Affirm Card seems to be inflecting. How should we think about those three forces? What's more important to drive growth going forward?

Max Levchin

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Affirm Holdings, Inc. - Fourth Quarter and Fiscal Year 2023 Earnings Conference Call, August 24, 2023

It's a great question. Thank you, as always. As should be already apparent in some of the writing we did, the highest efficiency way for us to grow-kind of what constitutes the existing business is growth through and with our platform partners, and that's where we really can invest the way we know how to do our best work - building products, building features, figuring out how to partner holistically across very, very large surface areas, Shopify, Walmart, etc. That's where kind of high, high leverage, for every line of code you get some number, billions of dollars or something like that.

That's the growth vector for the existing business. You saw the sort of near vertical line we're seeing in the signups with the card, but it's coming from a tiny base. And so, at some point it's going to be, at this point I can say that with some amount of confidence, a massive business for us and we have all the confidence and all the investment to back that confidence up. But in the very immediate future, the majority of the growth of GMV will certainly come from existing partnerships with platforms.

We're still quite actively signing up new merchants. We're still figuring out ways of expanding programs with those merchants, put differently, expanding our share of cart with them. But that's roughly the order where we concentrate our energy. For the avoidance of doubt my time is largely spent figuring out what the next five moves for the card looks like. I think the core business is a fairly well-oiled machine. We've got some extraordinary partners. We've done well for them. They're quite happy with how we're doing together and we'll continue doing lots of great work there too.

Ramsey El-Assal

Okay. Really quick follow up for me. Are you worried or what do you expect from the student loan repayment restarting coming up here? There's been a little bit of media about it, I'm just curious what your view is in terms of how that would impact the credit environment in the U.S.

Max Levchin

So we've included that in our forecast. We don't expect it to be something that just happens in a different galaxy. We expect it to be a modest headwind for us, or at least we're prepared for that and it's priced in, if you will, to our numbers. I have to give a little bit of credit where it's due. I read Mizuho, Dan Dolev's colleagues wrote a nice piece describing what they think will happen to BNPL industry, vis-à-vis the student loan repayment restarts. I won't comment on the exact numbers but I'd have to say directionally we're in agreement with what they found in their research. I think it's a good place to look for thoughts on that. But we don't think it's nothing, we don't think it's very significant either.

Ramsey El-Assal

Got it. Thanks so much.

Operator

Our next question comes from the line of Rayna Kumar with UBS. Please proceed with your question.

Rayna Kumar

Hi. Good evening. Thanks for taking my question, and good quarter. Just want to ask you about your loan delinquency rates. It came in better than expected in the fourth quarter. You saw a sequential decline in 3Q versus 4Q. What makes you think that there will be an increase in the first half of '24?

Max Levchin

Seasonality. We know our borrowers well. We know when they have improvements to their personal cash flow and we know when they struggle a little bit and we are trying to be in front of that. But credit is always job number one. We're in control of what's happened and what will happen.

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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.

1-888-562-02621-604-929-1352www.viavid.com