Affirm Holdings, Inc. (NASDAQ:AFRM) Q4 2023 Earnings Call Transcript

Affirm Holdings, Inc. (NASDAQ:AFRM) Q4 2023 Earnings Call Transcript August 24, 2023

Affirm Holdings, Inc. beats earnings expectations. Reported EPS is $0.69, expectations were $-0.86.

Operator: Good afternoon. Welcome to the Affirm Holdings Fourth Quarter and Fiscal Year 2023 Earnings Call. Following the speakers’ remarks, we will open the line for your questions. 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, 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 is — 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 Founder and Chief Executive Officer; and Michael Linford, Affirm 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. Max?

Max Levchin: Thank you, Zane. Thanks, everyone, for joining, and I hope you’ve had a chance to read our quarterly letter as it includes lots of great information. I mentioned 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 them. Dear to my product developing heart, we’re finally able to brag about the Affirm Cards 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 breathy 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 14 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. 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.

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Q&A Session

Operator: Thank you. Again, at this time, we will be conducting a question-and-answer session. [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 looking 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 to the guide for the upcoming year. If we take the GMV guide and the ROTC 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 added 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 (ph) 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 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 an — 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 Holdings Card seems to be inflecting. How should we think about those three forces kind of what’s more important to drive growth going forward?

Max Levchin: It’s a great question. Thank you, as always. So that 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, et cetera., that’s where kind of high, high leverage for every line of code, you get some number of billions 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 sign-ups 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, 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 but differently, expanding our share of card with them. But that’s roughly the order where we concentrate our energy [indiscernible] my time is largely spent figuring out what next five moves. So 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 but, 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. So we don’t expect it to be something that just happened to 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 I the student loan repayment restarts. And I won’t comment on exact numbers, but I have to say directionally, we’re in agreement with what they found in the research. So 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. I just want to ask you about your loan delinquency rate, 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 in ’24.

Max Levchin: Seasonality. We know our borrower as well. We know when they have improvements to their personal cash flow, and we know when they struggle a little bit, and we are kind to be in front of that. But it’s — credit is always job number one. We’re in control of what’s happened and what will happen.

Rayna Kumar: Got it. Okay. And then I just want to ask you about the CFPB and the credit reporting bureaus They, of course, continue to push for greater reporting of purchases financed through the NPL. And you’ve been a proponent of greater reporting transparency. But this could also be at odds with your strategy of increasing the frequency and usage of your financing solutions. Do you think greater credit reporting will drive down consumer usage of NPL or if you can just talk about your thoughts on that. Thank you.

Max Levchin: Three (ph) question. Obviously, we’re strongly engaged with CFPB. We consider them to be our regulator because we are financial services company of scale. And I happen to — and my team as well happens to believe that credit reporting is a really important piece of the puzzle. We want to make sure that consumers benefit, those that pay us back on time anyway, from their timely repayment in their credit reporting. Part of the work we have done and will do with the bureaus and with our competitors and peers in the industry is actually making sure that the way this is reported is reflective of the factual usage of the product of course, but also does not unduly punish or reward consumers through [indiscernible] idiosyncratic sort of outcomes of the scores.