Affirm Holdings, Inc. — Form 10-Q Summary
Business context and period. Affirm provides buy-now, pay-later financing through merchant partnerships, virtual cards, and consumer loans. This quarterly report covers the three months ended September 30, 2021 (fiscal 2022 first quarter), compared primarily with the three months ended September 30, 2020. Balance-sheet comparisons are with June 30, 2021. Amounts below are in U.S. dollars.
Key financial results
| Metric | Quarter ended Sep. 30, 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue, net | $269.4 million | $174.0 million | +55% |
| Operating loss | $166.1 million | $33.3 million | Loss increased |
| Net loss | $306.6 million | $3.9 million | Loss increased substantially |
| Operating margin | (61.7%) | (19.1%) | Weakened |
| Net margin | (113.8%) | (2.3%) | Weakened |
| Operating cash flow | $365.2 million | $(2.3) million | Improved |
| Investing cash flow | $(629.5) million | $(357.8) million | Greater outflow |
| Financing cash flow | $244.0 million | $817.8 million | Lower inflow |
Revenue growth reflected GMV growth of 84% to $2.713 billion. Active consumers reached 8.7 million, and active merchants reached 102,217. Revenue mix shifted: interest income was $117.3 million (+116%), virtual-card network revenue $19.4 million (+226%), loan-sale gains $31.0 million (+89%), and servicing income $9.5 million (+132%). Merchant network revenue edged down 1% to $92.2 million despite higher GMV, as shorter-term, lower-average-order-value products grew and the share of long-term 0% APR loans declined. 0% APR plans were 43% of GMV versus 46% a year earlier.
Total operating expenses rose 110% to $435.5 million. General and administrative expense reached $136.2 million, including $93.2 million of stock-based compensation across operating expense categories; this included $42.3 million related to the CEO’s performance-based award. Other expense, net was $140.4 million, principally reflecting a $141.6 million increase in the fair value of PayBright contingent consideration, associated with the increase in Affirm’s share value. These items were major drivers of the larger net loss.
Financial position, credit, and funding
- At September 30, cash and cash equivalents were $1.440 billion and restricted cash was $236.3 million. Total assets were $5.402 billion; total liabilities were $3.025 billion; stockholders’ equity was $2.377 billion.
- Loans held for investment, net, were $2.093 billion, up from $1.905 billion at June 30. The allowance for credit losses rose to $152.0 million from $117.8 million, or 6.8% of loans held for investment versus 5.8% at June 30. Quarterly provision for credit losses was $63.6 million, compared with $28.9 million.
- Delinquent balances increased from June 30: loans 30–59 days past due were $26.5 million versus $17.3 million; 60–89 days were $17.6 million versus $12.0 million; and 90–119 days were $13.8 million versus $6.8 million. Management attributed the higher allowance rate partly to product-mix changes, growth in newer products, and credit normalization.
- Notes issued by securitization trusts were $1.622 billion and funding debt, net of issuance costs, was $484.8 million. Warehouse facilities had $1.617 billion of capacity available; Canadian facilities had $141.9 million available. The $185 million unsecured revolving credit facility had no borrowings outstanding. Affirm reported compliance with applicable debt covenants.
- Operating cash flow was positive, but included $411.2 million of net cash inflows from changes in operating assets and liabilities, substantially reflecting timing of accounts payable, including $395.2 million of employee option-exercise taxes payable. Investing outflows included $1.848 billion of loan purchases and $443.6 million of securities purchases. Cash, cash equivalents, and restricted cash declined by $16.8 million during the quarter.
Material changes, outlook, and risks
- Management said existing cash, available funding capacity, and expected operating cash flows should meet operating, working-capital, capital-expenditure, and planned-growth needs for at least 12 months. It cautioned that future cash generation and access to funding are not assured. No specific revenue, earnings, or margin guidance was provided.
- Management expects continued investment in growth, including higher headcount and sales and marketing spending. It noted that product and merchant mix can affect revenue per GMV and margins; greater use of shorter-duration, lower-AOV offerings may lift engagement while reducing revenue as a percentage of GMV.
- Revenue concentration in one merchant declined to approximately 10% from 30% a year earlier, but merchant retention, partner relationships, and the execution of large-partner integrations remain important risks. Management also flagged changing consumer spending trends following COVID-19, competition, credit performance, and access to capital markets.
- Affirm’s loan portfolio and funding model expose it to borrower defaults, changing economic conditions, and interest-rate changes. Warehouse facilities and certain other funding sources use variable reference rates; management stated that a hypothetical 10% relative change in interest rates would not materially affect the quarter’s financial statements.
- On November 10, 2021, after quarter-end, Affirm amended its Amazon commercial agreement and issued warrants for up to 7 million shares at $0.01 and 15 million shares at $100 per share, subject to vesting terms. The potential share issuance and agreement terms are relevant to dilution and execution risk.
- The filing corrected previously issued financial information for errors in contingent-consideration valuation and stock-based compensation, which management deemed immaterial to the affected prior periods. The correction did not affect the current quarter’s results. Management reported disclosure controls were effective and no material control changes occurred during the quarter.
Most important facts for investors to verify
- Whether rapid GMV and consumer growth can translate into improved operating economics, particularly given the decline in merchant revenue per GMV and higher operating expenses.
- Credit-loss and delinquency trends, the adequacy of the allowance, and the impact of product mix and economic conditions on future charge-offs.
- The drivers and potential future remeasurement of PayBright contingent consideration, along with stock-based compensation, including the CEO award and expected unrecognized compensation expense.
- The quality and sustainability of reported operating cash flow, given the substantial contribution from working-capital timing and employee option-exercise tax payables.
- Available funding capacity, facility conditions and covenants, refinancing needs, and exposure to variable interest rates.
- Execution and dilution implications of the amended Amazon agreement and warrants, and continued dependence on major merchant relationships.