Affirm Holdings, Inc. (NASDAQ:AFRM) Q1 2024 Earnings Call Transcript

Affirm Holdings, Inc. (NASDAQ:AFRM) Q1 2024 Earnings Call Transcript November 8, 2023

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Affirm Holdings Financial Year 2024 First Quarter Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following the speakers’ 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 Affirm’s 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, Investor Relations. Thank you. You may begin.

Zane Keller: Thank you, 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 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. Before we begin today’s call, we would like to remind investors that we will be holding an investor forum next Tuesday, November 14th, from 2 to 5 pm Eastern Time. Both the livecast of the forum as well as a replay are open to the public. Additional details about the forum, including registration information, are available on our Investor Relations website. 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, everybody, for joining us today. I keep it very brief. We had a very strong fiscal Q1, exceeded our outlook across all metrics. GMV growth accelerated sequentially. We significantly exceeded our own outlook for revenue less transaction costs. We continued to gain market share, kept our already strong economics quite good, drove positive credit outcomes, which matters to us the most, and added some funding capacity. Our plans now include continuing to invest in risk management, technology and product development, and to turn our attention to growing Affirm faster. 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.

See also 11 Best Organic Food and Farming Stocks To Buy and 12 Best Asian Stocks To Buy Now.

Q&A Session

Operator: [Operator Instructions] Our first question is from Bryan Keane of Deutsche Bank. Please go ahead.

Bryan Keane: Yes. Hi. Good afternoon. And congrats on the solid results. Just thinking about — we head into the second quarter here, given the outperformance in the first, especially in GMV and volume. What kind of led to the outperformance? And then, it looks like the growth rate will decelerate back a little bit after accelerating this quarter in the second quarter, maybe you can just help us with that? Thanks.

Max Levchin: I think, I’ll take the why the growth. I think we’ve just been executing really well. As you saw just the overall operating leverage, we are firing in all pistons of the Company, which it feels very good. We’re able to deliver a couple of really key initiatives on the product side. Our friends in Ottawa, in particular, we had several really strong ideas that played out very well for us there. And so Shopify volume accelerated again, which sort of speaks to maybe the way we operate the business. It sometimes seems like you signed a great partner and that’s the burst of volume. But in reality, it takes us years to fully realize the opportunity for us when partnerships are this rich and with this much potential.

So that’s one example. Card grew quite well as well and so we’re happy with those results. There’s not one thing that I can stick a finger at and say that this is the core reason for the GMV growth. But the other thing is that the demand for the product remains strong. We are still declining quite a number of applicants, because we’re trying to remain as thoughtful and productive in our credit outcomes, but the consumer demand for what we have to offer is continuing to pull it forward.

Michael Linford: The only thing I’d comment on for Q2 is, it’s our largest quarter of the year. And so, we just have a lot more math in the comparable period. And we do expect that some of our programs, our largest enterprise partner programs are continuing to mature in a way that we just expect a little bit less growth this year than we had in the last quarter.

Bryan Keane: And then just as a quick follow-up, Michael, maybe you can talk a little bit about adjusted operating profit came in quite a bit ahead of expectations. Is that some timing of expense items that even out throughout the year, or anything to call out there for the margin in the first quarter versus for the quarters for the rest of the year?

Michael Linford: Yes. The adjusted operating income did come in well ahead of where we thought it was going to be for the quarter. And I think it shows the power of us and our technology orientation. When we are able to control expenses and drive a little bit of extra growth, the growth and profitability is very, very strong. And to put it in context, we have 28% GMV growth or 37% revenue growth and our non-transaction operating expenses reduced on an absolute basis by $50 million year-on-year. When that happens, obviously, you can print pretty strong results. I think due to our outperformance, we did raise the outlook for the full year. We’re now expecting closer to 5%. And I think that we were driving leverage really across all three lines, G&A, sales and marketing, and tech data and analytics.

And those lines are all very leverageable in our business. We’ve been saying this for quite some time. And yet that’s also the area we invest in, primarily in human capital. We want to make sure we maintain the ability to invest in the back half of the year, which is why we wouldn’t expect to run at this level. But no, there really wasn’t any sort of timing benefit. We will expect sales and marketing to creep up a little bit in Q2 as we invest into the holiday season. But other than that, we feel like Q1 was very close to run rate before we again maintain some — bring to make some investments in the back half of the year.

Operator: The next question is from Michael Ng of Goldman Sachs. Please go ahead.

Michael Ng: I just have two. First, as a follow-up to the first question around Shop Pay Installments GMV growth acceleration. I was just wondering if you could talk a little bit about what functionally changes or ramps up over time that allows you to drive this acceleration in GMV over two years since the initial partnership? And what can that tell us about how you approach some of these enterprise partnerships? And then, I have a quick follow-up.

Max Levchin: I’m known to give long winded answers, so I’ll actually try to keep this one shorter. The very short hand answer is optimization. Both companies are very numerically driven. We spend an incredible amount of energy just EV testing, various forms of presentation of the products we offer to consumers, try to simplify things, try to fine-tune everything from how do we explain interest if there’s interest to pay. How do we make sure people understand that there is no interest in products like paying for. Just all of that. And if you have a — one of the sort of obvious truisms if you will is if you have a significant amount of volume already, even 1% or 2% increase in end to end conversion just creates millions or tens of millions of dollars of incremental GMV.

So it’s never a — sometimes it is sort of a brilliant unlock where we say, oh, we forgot this thing we can try and it works, but 9 out of 10 times it’s really just optimizing existing consumer experience, finding ways of presenting the offer a little bit more up funnel so consumer understands there is a budget perhaps more than the budget they realize because we can tell them here’s what we are willing to approve you for et cetera. And then, just doing that over and over again has compounding effects. So, there’s not a — the secret sauce is in the work, not in secret.

Michael Ng: And then maybe just a quick one on Affirm Card, $224 million of GMV, accelerating from the $130 million last quarter. Could you just talk a little bit about how you’re approaching driving growth there? The user growth seemed like it was steady at that $75,000 per month? And anything you could tell us around the mix of Affirm Card GMV and how that may have changed relative to last quarter? Thanks.

Max Levchin: So I don’t want to steal too much of Libor’s show next week, to quote my favorite movie, I’d love all of you to come and give me notes when we do investor forum a week from now. But the shorthand is, the mix remained largely in line with what we said last quarter. It’s still more split pay — or split transactions versus paid in full. We’ll talk a lot about things like cohort retention and usage over time and a little bit about lifetime value next week. So, there’s a lot to share, and I don’t want spoil the party too much. The growth is quite strong. It is managed to the number that we want. We have internal goals that we are driving card numbers to. We won’t run out of opportunities there for some time.