Affirm Holdings, Inc. — Form 10-Q Summary
Reporting period: The supplied filing is for the fiscal quarter ended March 31, 2022 (Affirm fiscal Q3 2022), not 2021 Q3 as indicated in the request metadata. Amounts below are U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Business context
Affirm provides buy-now-pay-later installment loans through merchant partnerships, its consumer app and virtual cards. It earns merchant and card-network fees, interest on loans, gains from loan sales, and servicing income. Loans are funded through bank partners, Affirm’s balance sheet, warehouse facilities, securitizations and third-party loan sales.
Key financial and operating metrics
| Metric | Three months ended March 31, 2022 | Prior-year quarter | Nine months ended March 31, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Revenue, net | $354.8 million | $230.7 million | $985.2 million | $608.7 million |
| Operating loss | $(226.6) million | $(209.3) million | $(588.8) million | $(269.4) million |
| Net loss | $(54.7) million | $(287.1) million | $(521.0) million | $(317.6) million |
| Net loss margin | Approximately (15.4)% | Approximately (124.5)% | Approximately (52.9)% | Approximately (52.2)% |
| Operating cash flow | Not separately presented for the quarter | $(103.1) million | $(173.2) million |
- Quarterly revenue rose 54%; quarterly GMV increased 73% to $3.9 billion. For the nine months, revenue grew 62% and GMV grew 91% to $11.1 billion.
- Quarterly revenue included $144.2 million of network revenue, $134.6 million of interest income, $52.5 million of gains on loan sales and $23.5 million of servicing income.
- Quarterly operating expenses were $581.3 million. Credit-loss provision was $66.3 million, compared with a $1.1 million provision benefit in the prior-year quarter. The allowance was $159.5 million, or 6.4% of loans held for investment, versus 5.2% a year earlier.
- At March 31, cash and cash equivalents were $2.262 billion and restricted cash was $413.6 million. Loans held for investment, net, were $2.343 billion.
- Total liabilities were $4.456 billion, including $1.706 billion of net carrying value for 0% convertible senior notes, $1.448 billion of securitization notes and $901.2 million of funding debt. The company reported $1.273 billion of remaining availability under warehouse facilities and $246.8 million under PayBright facilities; its $165 million revolving facility was undrawn. Affirm reported more than $9 billion in overall funding capacity, including multiple funding channels.
- Active consumers reached 12.7 million, active merchants 207,049, and transactions per active consumer 2.7. 0% APR products represented 43% of GMV.
Material changes and notable items
- Quarterly revenue growth was driven by higher GMV, more consumers and merchants, and increased loan-sale and servicing activity. Merchant network revenue grew more slowly than GMV; revenue as a share of GMV declined amid a shift toward shorter-duration, lower-average-order-value products.
- Quarterly operating loss widened despite the lower net loss. The net loss benefited substantially from $172.1 million of other income, including a $136.2 million gain from a decrease in the fair value of PayBright contingent consideration, primarily reflecting a decline in Affirm’s share price. The nine-month period included a $28.7 million gain from that liability remeasurement.
- Amazon warrant-related expense was $102.4 million for the quarter and $173.0 million for the nine months, contributing to higher sales and marketing expense. The filing says the agreement includes exclusivity and performance provisions and that some warrants vest subject to conditions.
- Affirm issued $1.725 billion principal amount of 0% convertible senior notes due 2026 in November 2021, netting approximately $1.704 billion. The notes are senior unsecured obligations and may require cash or share settlement upon conversion or specified events.
- Management corrected prior-period amounts it assessed as immaterial. The 2021 comparative interim results were adjusted to increase stock-based compensation and operating expenses by $39.9 million; management also corrected specified June 2021 balance-sheet amounts.
- After quarter-end, Affirm completed a Fast transaction on April 19, 2022 for $10 million cash and forgiveness of a $15 million secured note; initial purchase accounting was incomplete at filing.
Outlook, risks and contingencies
- The filing provides no specific numerical revenue, earnings or GMV guidance. Management stated that cash, available funding capacity and expected operating cash flows should cover operating, working-capital and capital needs and planned growth for at least 12 months, while warning that future cash generation and financing availability are not assured.
- Key risks include consumer delinquencies and defaults, changes in the economy and interest rates, access to capital and loan-sale funding, dependence on bank and merchant partners, competition, and the ability to integrate and grow major relationships such as Amazon and Shopify. Management noted that greater adoption of lower-AOV products may increase repeat transactions while reducing revenue as a percentage of GMV.
- Affirm estimated that a hypothetical immediate 100-basis-point rise in interest rates would adversely affect annual financial results by less than $30 million over the next 12 months, after its hedging program. Rising rates may also affect consumer repayment, funding costs and loan-sale economics.
- Legal matters include a putative securities class action filed in February 2022 over a company tweet about quarterly results and a related derivative action filed in April 2022. The filing does not state a clear quantified loss estimate. The company also disclosed loan repurchase obligations for specified breaches of representations and warranties.
Important facts for investors to verify
- Whether loan credit performance, delinquencies, charge-offs and the 6.4% allowance remain consistent with management’s assumptions as the portfolio and product mix change.
- How much revenue and merchant growth are attributable to durable transaction growth versus loan-sale gains, servicing changes and fair-value estimates.
- The future expense and vesting impact of Amazon warrants, other share-based compensation and the PayBright contingent consideration liability.
- Actual availability and terms of funding facilities, securitizations and loan-sale arrangements, including covenant compliance and refinancing needs.
- Developments and potential financial exposure from the disclosed litigation, the Fast transaction, and the convertible notes’ conversion and repayment provisions.