Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Affirm Holdings Fiscal Year 2022 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'll open the lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the call over to Ron Clark, Vice President of Investor Relations to begin.

Thanks, 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 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, but not as a substitute for, GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release, which is available on our Investor Relations website. Hosting today's call are Max Levchin, Affirm's Founder and Chief Executive Officer, and Michael Linford, Affirm's Chief Financial Officer. And with that, I'd like to turn the call over to Max to begin.

Welcome everyone and thanks for joining us on today's call. Q1 was yet another record quarter for Affirm as we continued to rapidly grow both sides of our network. We increased GMV to more than $2.7 billion during the period which we closed with some really great momentum. We achieved our first ever billion-dollar GMV month in September and had over 102,000 active merchants and 8.7 million active consumers at the end of the first fiscal quarter. That said, we measure Affirm's result and impact in years and decades, not months and quarters. This allows us to think strategically about delighting consumers and delivering value to our merchant partners while building an exciting brand on a foundation of trust. The seeds we planted years ago are just beginning to bear fruit. The growth of our network is accelerating and my confidence in Affirm's market position has never been stronger. Deep, tech powered partnerships with exceptional partners form a key part of our multiyear growth strategy. These are beginning to scale up and we are continuously investing in delivering even more value for our partners with new ideas and products. Our partnership with Shopify is showing really strong signs of scale and impact. We'll touch on the exact numbers in a moment, but glance at the active merchant number to get a good sense for how that is starting to take shape. We continued to rapidly expand our partnership with Walmart. As recently announced, Affirm is providing Walmart's consumers an efficient alternative to layaway for the holiday shopping season. In November, Walmart and Affirm will be marketing together across a variety of digital and physical channels, including TV walls in over 3900 Walmart stores. Our deep engagement with this all-important partner helped meaningfully accelerate our GMV with Walmart over the last…

Thanks, Max. And good afternoon, everyone. Our Q1 results demonstrate the powerful impacts that our team and our investments in technology are having on our business. But before I get into the results for the quarter, I want to share some details about our expanded agreement with Amazon. Although we just announced our original relationship with Amazon at the end of August, the results we've seen have enabled us to expand beyond our task that began earlier this year. We are now ramping towards general availability, which we expect to achieve by the end of the calendar year. Our expanded agreement makes Affirm the only credit card alternative in the space in the United States through January 2023. We are also excited to announce that Affirm will be embedded as a payment method in Amazon Pay at all eligible U.S. merchants. The initial term of our amended agreement will go through January 2025. Together with a team at Amazon, we crafted an agreement that aligns our interest with equity grants tied to our growth. Amazon will receive an initial grant of 1 million penny warrant, and an additional 6 million that vest over the initial term of the contract, when certain performance conditions are met. Given the Amazon's massive consumer base, we expect this partnership to help create a step change in our network's scale. To ensure continued alignment on that goal, Amazon has the opportunity to vest up to an additional 15 million warrants with a $100 strike price tied to the scale up of our user network over the next 7 years. We're excited to deepen our relationships with Amazon to deliver an exceptional consumer experience while delivering shareholder value. This deal is another proof point in our leadership as the enterprise partner of choice. Enterprises pick Affirm…

We will now begin the question-and-answer session. To join the question queue, . The first question comes from James Faucette with Morgan Stanley. Please go ahead.

Thank you very much. I'm wondering, Michael, you talked about previously expanding the credit box and the benefits that you get. You seem to be repeating that. Can you just talk about how that progressed thus far and how we should anticipate that impacting on things like reserves, etc. going forward? Thank you.

So again, consistent with as we talked about it at the Investor Forum, we ran the business at a very tight level coming out of COVID and have been on a path, over the past year, of slowly relaxing in the credit box. We've also seen the impact of mix in our business that would show up as well, but the governor for us is always that, revenue less transaction costs. We think about credit as a thing that we control and choose, not something that happens to us. That being said, we're generally very conservative in how we think about provisioning and the allowance that we maintain. We always want to be careful here and we do expect that some of that conservatism may show up in the Q2 guidance we've given for revenue less transaction costs. Where we do think that we're probably on the more conservative end of the allowance, as we sit here today.

Got it. Makes sense. And then Max, I wanted to ask you. When you look at the growth in the messaging and availability of Affirm and you look at all the merchants that you're reaching now, how are you thinking about measuring that in terms as it relates to transactions per active user and how you would like to see that track, and what kind of expectations should we be having as investors? Thanks.

Great question. So, for a little while, as much as I enjoy setting obnoxious goals and trying to beat them, I think we should expect the denominator to overwhelm the numerator. We signed a bunch of really powerful partnerships with massive distribution, tailwinds built into them. And so, no matter how good we are at rolling out products that drive huge repeats, I suspect the second derivative there is going to get overwhelmed by the second derivative opposite the share user growth. So, for a time the transactions per user, my guess is it will be hard to predict, simply because the ramp-up of things like Amazon and even Shopify, which is still quite early, will be a little bit tricky to predict. That said, we want the transactions per users to be up and to the right as much as possible. I think that the real step change, and Michael will probably not let me talk about this next quarter, but I hope to start talking about a little later, there's going to be a very -- in my opinion at least, there's going to be very different number of transactions per user for those that take on our Debit+ product, and the ones that haven't yet. The Debit+ consumers are -- we expect them, we ask them, we welcome them to use the product daily. And the idea there is to really start tracking into as often as easy or debit card. Obviously, that won't be a 100% of our user base for quite some time, especially as the user base itself grows, but we'll start talking about our super users, our power users and what they are really experiencing as an important metric for us. But those are the ones that we really expect to just have outsized numbers.

Thanks for that, Max. Thanks, Michael.

The next question comes from Bryan Keane from Deutsche Bank. Please go ahead.

Hi guys. Congrats on the results and the progress. What about -- asking about the amazon extension here, just want to be clear, what is new from previous? It looks like the exclusivity for one year in the warrants. And then secondly, just trying to think about timing, but it sounds like Amazon will happen this holiday season. So, are we just being conservative, not putting it into the quarterly numbers because we don't know how big it will be? Just a little thought process around that. Thanks.

Thank you. So, I think we are the sole h by partner through Gen 23. That's important and powerful. Our last 8-k, I think said very So, explicitly, this is a non-exclusive pilot so the most important quality to change here is Amazon had their pick obviously in partners in the space. They tested us. We pass the test. We passed with flying colors and better. And so, I think that's a very important qualitative matter here. The Amazon Pay and setting is new. That was not in the last conversation which is important so we said it before and I'll say it again.

The war for wallet placement to be a tender inside the important wallets is really kind of the next page in the history of financial services form of payments and it's important for us to be embedded in important wallets. And so, frankly, the fact that we are ramping pretty quickly to this holiday season is -- was not explicit in our last announcement. I think at the time we made it, may have classified it as a hope and not a strategy, which should be live in this holiday season presently. That's the qualitative matters. Michael can describe the details of the financial arrangements with them.

Yes, the warrants are new, meaning it's an important piece of aligning incentives. If you think about the posture of the relationship, you're dealing with someone as large and within much scale as Amazon, it's a good thing to have them invest it in the outcomes that are good for you and that's how we thought about it as we worked on that amendment. In terms of why not have it in the forecast, yes, it's exactly right. Our approach to building forecasts and giving guidance is we need to see it before we commit to it. We're just now beginning the process of fully ramping this out to. Over the next couple of weeks and then throughout the rest of the holiday season we'll have a pretty good read and be prepared to give you some pretty clear guidance coming into the next quarter.

Excellent. And just one follow-up on the Shop relationship. How much further do we have to go before we get to a full run rate by quarter or maybe some of the things that might happen to get us there? Obviously, it's off to a great start, but trying to figure out how much more room there is to grow, just to get to a run rate. Is that a quarter or two or is that going to be a several year process?

I'll give a qualitative answer as is my custom and Michael may or may not is going to add a little bit more. But probably the most important thing to understand about us as a Company, we don't build a thing and start selling it and roll it out, and that's it. The reason Shopify partnered with us, the reason all these great enterprises look at us and say, "This is the right partner for us, " is because we come into a relationship with a plan to build more stuff. If you look at the pace of growth at Walmart, which has been a partner for numerous years, it's growing in a -- and accelerating quick. It's not because somehow, things have ripened on a tree and now they're ready to pick. It's because we continued to invest in relationship and build new code (ph). It's like the whole sort of DNA of Affirm is let -- build things that help us grow faster. So, we are in control of that growth. It makes it a little harder to predict too, but if we do it right, it will accelerate. That's probably the most important takeaway. And Michael wants to commit to a forecasting schedule, but I just want to make sure that that part is clear.

I would just add on the call to your comment that we're not yet fully optimized there. We're really excited with the traction that we are seeing, but there's a lot of work left to do. I think that we've got many precedence here as we think about enterprise ramps. They don't happen in weeks and months, they happen in quarters, and oftentimes even years. That's the horizon with which we're investing effort to optimize this program. So, we think there's still a lot of work to do and we're definitely not near the peak.

Great. Thanks for the color.

The next question comes from Jason Kupferberg from Bank of America. Please go ahead.

Hey, thanks, guys. Yeah. I just want to start on Amazon as well. Should we expect that you will monetize the Amazon volume more on the consumer side than the merchant side? Will these mostly be interest-bearing loans? And is there the opportunity to perhaps use the third-party manufacturer model that you used with Walmart? And then, just on the exclusivity element, was just wondering if Affirm is anyway subject to that as well in terms of doing business with any of Amazon's competitors? I didn't see anything about that in the 8-K, but just wanted to check.

Yeah. On your first question, the product that is currently live on Amazon.com is an interest-bearing product which is skewed towards consumer monetization. Although of course, we will monetize that either by keeping on the balance sheet or selling it to capital partners on a 4-12 basis. And so won't necessarily hit the interest income line on the income statement. That's the part of life today. However, we have the opportunity and desires to eventually broaden the whole portfolio for Amazon.com But also importantly, with inside of Amazon Pay where that relationship is going to start with a wide set of products. As for the questions around the nature of our unique relationship, we are not obligated to not serve any partner. We generally don't agree to that any context. I think it's very important for our network to remain open.

Great. Then just as a follow-up, I wanted to see if we can get an update just on the non-Peloton GMV growth guidance for the year. I wasn't sure if the -- all of the GMV raise is coming on the non-Peloton side. I think previously you were talking about 70% to 75% for the Fiscal year, and I wanted to see what that looks like now. Thanks.

Yeah. We're not going to update any forward-looking number for Peloton, except to say that the Q1 results for us on Peloton did exceed our internal estimates, and there's certainly nothing that we've seen to suggest that we should be changing our outlook overall in light of where that business is at.

Okay. Great. Well, congrats on the results.

The next question comes from Ramsey El-Assal from Barclays. Please go ahead.

Hi. Thanks for taking my question this evening. I also wanted to ask a clarifying question on Amazon. Is the use of Affirm on the platform for baskets over $50 or for individual products on Amazon that are priced higher than $50? It's a bit of a nuance, but it actually makes a difference when we try to put pen to paper and model it out.

Initially it will be for baskets over $50. The way that integration works today is it's -- is at the checkout and as we work to get the up-funnel presentment, that will probably be limited to a more narrow set up of items.

I see. Okay. And I wanted also to ask about Travel and Ticketing as a percentage of total GMV. It looked like it fell this quarter to about 10% versus about 14% last quarter. I'm figuring a lot of that problem may have to do with mix and the Shopify ramp, but I'm just trying to figure out whether there's also some kind of delta impact in there. And then, what expectations around the travel recovery are included in your guidance?

The travel business did have a slight sequential decline period-on-period, which probably is a result of COVID, but there is also really strong seasonality in that business, and of course that seasonality has been heavily impacted by all of the COVID trends. The year-on-year growth of course, it's still extremely strong, given the low baselines. I think we've been pretty careful not to put too much risk in the guidance around travels, so we don't -- we're not really assuming any further resurgence in travel. We talked about, last year that travel at 10% was a good number for us and we think that's still probably the case.

Got it. Thank you so much.

Our next question comes from Tim Chiodo from Credit Suisse. Please go ahead.

Thanks a lot for taking the question. I want to dig in a little bit on Shop Pay installments, just wanted to see if you could give us some context on the pricing dynamic there. When you're offering the product into Shopify merchants, are they being presented a different price based on their size or their AOV or a specific vertical or category they're in? Are the larger Shopify merchants able to negotiate this? Just wanted to see if you could bring to life how that works. And then I have a quick follow-up also related to Shop Pay installments.

Obviously, there's quite a lot of nuances for merchants' relationship with Affirm and Shopify as they get up in scale. So generally speaking, there is a rate that merchants encounter as we bring your product to market, depending on some of the sort of the other parts of the relationship with the shop. They may or may not see changes to it, but generally speaking, it's reasonable to expect that the largest merchants on Shopify probably have a human that talks about the prices, and some of the smaller ones have a price that they can click to accept and everything.

Perfect. Thank you, Max., The follow-up is more around the GMV guide. I apologize if I missed it, but I know that last quarter, when you gave the initial guidance for the year, you mentioned that split pay, including the shop would be roughly 10% to 15% of the total mix of GMV. Is that still roughly the portion that we should be expecting or did that maybe move a little higher?

We're not updating the guide for that number, but what we will say is that in Q1 we were right in the middle of that range for split Pay offering.

Great. Thanks a lot, Michael. I appreciate it.

The next question comes from Andrew Jeffrey from Truist. Please go ahead.

Hi, this is Gus (ph), stepping on for Andrew. Generally, thinking about the industry, is it moving -- in your view, is it moving more towards direct integrations? And related to that, how do we think about Mastercard 's announcement today, launching an open loop BNPL products?

So, I think, generally speaking, it's a fairly varied landscape out there. So, if you are a platform hosting numerous merchants or serving merchants, as an -- for example on the back-end, whether it's processing or other types of merchant services. Those are national points for direct integration for Affirm. And that's -- I think that's something that you can expect to continue. Obviously, we pride ourselves on our engineering chops. So, when we come to these partnerships, we come in with a view to make it more efficient, make it faster, introduce new transactional semantics, which may be essential for consumers and merchants, and I think all of that is just something that -- we certainly intend to continue doing. In terms of MasterCard's announcement, it doesn't really change our world at all to be honest, in a sense that our network -- our network differentiation, is ability to see and benefit from the skews embedded in transactions, being able to utilize some end-to-end connectivity that we have being both the . To map it to traditional networks issue or acquire and then we're all 3 at all times, in which allows us to build some pretty unique products and services. I think the national announcement and before that were all targeted at bringing along other credit issuers that may want to play in the BNPL space, which I think is good advice. In general, moving away from revolving credit towards installments, ended loans is just healthier for the consumer. So, positive for the industry, I'm glad that Mastercard is stepping up to support it. We'll continue building our unique thing and I'm glad to see the industry moving towards products that we find here.

The next question comes from Andrew Bauch from SMBC. Please go ahead.

Hey, guys. Thanks for taking my question. Active customer growth continues to trend pretty strongly quarter-over-quarter. So maybe I was just wondering, is anything evolved in your strategy? Still word of mouth or are you guys being a little bit more aggressive on the customer acquisition front? Thanks.

By far, the most important growth of consumers for us comes from our merchant partners. I think they've just -- we've said it before and I'll say it again. Our number 1 growth strategy is signing best, most popular, most successful merchants in delivering conversion and uplift for them so that they, and affirm can benefit together. So that's what we continue doing. Our growth is -- that budget is largely represented in our engineering budget, to put it in financial terms, perhaps. You'll see us step out a little bit of our comfort zone. That is to say, it was never done, a national -- regional marketing campaign and . Very uncomfortable territory for me, maybe 3 or 4 years ago, something that we had to learn a couple years ago. And now look at us, we're taking out pretty things like TV commercials. And so, you'll see us do more of that. That is fundamentally about teaching the end consumer that BNPL is here. It's important half of Americans we surveyed and we do survey all time have now expressed interest in using products like ours and the other half doesn't know what it is, which means that it's on us to educate the market and explain what this is and how it's fundamentally different from your credit card. It's less scary much more on your side. And then within that narrative how Affirm is unique in the sense that we don't charge late fees, we could do nasty things like deferred interest and all the various other gimmicks. And so that is something that we'll continue doing, and one thing that we've learned in the context of understanding how to tell our own story, perhaps where we learn it, is as we got larger, more sophisticated, we…

Then I just wanted to touch upon Debit+. I was one of the lucky ones to be a part of the beta program. I noticed that that program is upwards of 0.5 million people now. I thought that number was ultimately going to be a little bit less before the end of the year. Should we take that as an indication of stronger demand for Debit+ than when you had originally anticipated or is there some other variable a that we should be considering?

I was literally bracing myself for you to say something like, and then I got declined or something like that. I'm glad I use my Debit+ 4 to 5 times a day and I haven't been the declined since the early alpha, but I'm still in the nightmare of being declined for a card swipe, comes to me from my teenage years, and also in the canals of Affirm's history. So, it's hard to decide whether the pretty overwhelmingly positive support for Debit+ that we've gotten from our users is more or less than we expected. We ran another email to our entire unit base saying, hey, Debit+ is actually real. If you're on a waiting list, sit tight it's coming, and if you're not on the waiting list, maybe you should. And then it moved the waiting list itself grew by another double-digit percentage is just going to string the single announcement within our own user base. So, we're going against the 0 cards, 1 year ago, so it will be infinite growth no matter how we slice it. So, I think it'll be great asking again in a few quarters how well we're doing. But all signs’ points to it will be good, but I will channel my inner Michael, say, put your Excel spreadsheet down and forecast nothing. We will not know what this thing will look like for a while. We're not budgeting any volume, any revenue in. It's a product that we're bringing out there because -- it's unique. There's really nothing like it out there forecasting into the full there. We think it's awesome. I literally swiped my card buying a bag of beans yesterday and the guy next to me in line said, whoa, that was so focus. First, on purpose, I split a transaction right in front of them on my phone and it's like, whoa man, what was that? And so, when we have a few millions of those happening, I'll be able to forecast how many more we'll have.

So, sit back and enjoy the experience.

Yeah, thanks guys.

Actually, Can I ask you a question?

Yeah absolutely.

Are you liking the card? Do you like the card, do you like the user experience?

Yeah, the experiences are pretty seamless. The feature to pay back and forth is pretty intuitive and I feel like the overall smoothness of the app and moving from place to place is pretty easy.

Nice. Excellent. If you're on the 1099 version, which may or may not have been pushed to you yet, you'll see like a Forex improvement in the loading speed of a transaction list on the prompting. It's really embarrassing what it was until the 1099. But once you get to 11, it'll be super-fast. Sorry.

I will keep on that. All right. Thanks, Max.

Customer research moment.

Our last question comes from Chris Brendler from DA Davidson. Please go ahead.

Hi, thanks for taking my question. Michael, it seems like the bigger issue, given all the success, is going to be how you fund all this growth. And I just love to hear an update on how you're thinking about the funding picture. And also on the off-balance sheet securitizations, that tends to create some challenges, potentially, on the balance sheet, I don't see the securitization asset on there anymore. So how are you modeling that? And even as you open the credit box to it, do you expect the securitizations to be as successful as credit losses are subject to normalize? Thanks so much.

Your first question first. We grew total platform portfolio by about $2 billion. We added about $820 million on the Balance Sheet, made up of about 100 -- or of $1.1 billion that we securitized on the Balance Sheet, and about $250 million reduction in the warehouse funding, which is probably a little bit tighter even than we'd like to run it, that's what drove the really efficient equity capital required number that we posted this quarter. And of course, the rest of it grew off the Balance Sheet with the biggest piece being forward flow. I think that strategy is going to continue to be in play. Today, we closed another zero-coupon securitization, or 0% financing programs or securitization and continue to have real success in that market despite the rate movements and the loosening of the credit box, so we're not convinced that we're going to have a real struggle there. And yet, as we've always discussed, our approach to capital is to ensure that we've got multiple sources to fund the business and we're not going to be wed to any one funding model or lever and continue to invest in growing capacity across all of our funding types.

What about the opportunity to grow deposits as an alternative funding source as you go? Maybe fast-forward 3 or 5 years ago, and it would be wholesale funded, obviously, so it seems like a huge opportunity and a potential solution to this problem of having too much growth.

I certainly appreciate the too much problem. Our capital team works really hard to ensure that we've cut adequate capacity. They wake up every day ensuring that we can fund the business. Today our deposits are held by cause of a bank, and not outsourced funding for the business. But we will always keep an eye on other alternative methods as we scale this business at a pretty rapid clip.

Thank you so much. Congratulations.

Ladies and gentlemen. This concludes today's call. You may disconnect your lines. Thank you for participating and have a pleasant day.