Is Affirm now profitable?

Not on a GAAP basis. Affirm reported a GAAP operating loss of $161M and a net loss of $134M for the quarter. However, adjusted operating income, a non-GAAP measure that excludes stock-based compensation, enterprise warrant expense, depreciation and amortization, and restructuring costs, was positive at $79M (13.6% margin). The gap is largely driven by $112M of enterprise warrant and share-based expense, so investors should weigh both measures.

What drove the revenue growth, and is it sustainable?

Revenue growth of 51% was driven almost entirely by interest income, which rose 120 bps as a percentage of GMV, reflecting a larger loans held for investment balance and pricing initiatives implemented in FY2023 and early FY2024. Management expects the substantial majority of pricing benefits to be realized by the end of fiscal 2024, so the pace of margin expansion from pricing may moderate going forward. Continued growth depends on loan balances and consumer demand.

How exposed is Affirm to interest rates and credit losses?

Higher benchmark rates raised funding costs by about 30 bps and provision for credit losses by about 50 bps as a percentage of GMV, and transaction costs rose roughly 90 bps overall. Management said the majority of its funding debt has absorbed the rate increases and that the year-over-year headwind should diminish over the remainder of the year based on the forward curve. Credit performance was described as stable, with 30+ day delinquencies (ex-Pay in 4 and Peloton) declining slightly year over year, but the allowance for credit losses rose to 5.3% of loans held for investment from 4.7%.

How is Affirm managing its convertible debt and liquidity?

Affirm had $2.1B in total liquidity (cash plus securities available for sale) against $1.4B of convertible senior notes at quarter end. Under an $800M repurchase authorization for calendar 2024, it had bought back about $77M of face value for $63M in cash, realizing a $13M gain, leaving $723M available. Management said it will evaluate further repurchases subject to market conditions. Funding is also supported by ABS issuance, with more than 120 unique institutional buyers since the program began.

What is the Affirm Card's contribution and how is it trending?

Affirm Card generated $374M in GMV in the quarter, versus $18M a year earlier and $397M in the prior quarter, which management said was consistent with the seasonal holiday peak in the December quarter. Active cardholders grew more than 30% quarter over quarter and crossed one million shortly after quarter end. Pay Now rose to nearly 10% of Card GMV from 5% in FQ1 2024, indicating increased use for smaller everyday purchases.

AFRM 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed May 8, 2024. Cited figures are marked; the original filing is the authoritative source.

Affirm Holdings (AFRM) reported fiscal third-quarter 2024 results (quarter ended March 31, 2024) that showed meaningful operating leverage and top-line acceleration.

GMV grew 36% year over year to $6.3 billion^a, marking the fourth consecutive quarter of accelerating GMV growth. Total revenue rose 51% to $576 million, with revenue as a percentage of GMV increasing to 9.2% from 8.2%, driven almost entirely by higher interest income. Revenue Less Transaction Costs (RLTC) grew 38% to $231 million, or 3.7% of GMV, remaining within management's 3–4% long-term target range despite higher funding costs and credit provisions.

Profitability improved substantially. Adjusted operating income swung to $79 million^b (13.6% adjusted operating margin) from a $6 million loss a year earlier, while GAAP operating loss narrowed to $161 million from $310 million. GAAP net loss was $134 million, or $(0.43) per share, versus $(206) million a year earlier.

The GAAP loss includes $112 million^c of enterprise warrant and share-based expense tied to partner warrants. Management attributed the operating expense reduction to the February 2023 restructuring and efficiency work, particularly in technology and data analytics spending. Balance sheet and funding metrics were broadly healthy.

Funding capacity rose to $15.6 billion^d, the fifth consecutive quarterly increase, and Affirm issued $500 million in ABS during the quarter, bringing fiscal year-to-date issuance to $2.6 billion upon closing of a subsequent $635 million deal. Total liquidity was $2.1 billion against $1.4 billion of convertible debt, and the company repurchased about $77 million of face value of converts for $63 million, with $723 million remaining under its $800 million 2024 authorization.

Management's fiscal 2024 Q4 outlook calls for revenue of $585–605 million, RLTC of $250–260 million, adjusted operating margin of 15–17%, and GMV of $6.75–6.95 billion. Investors should note that the letter is non-GAAP heavy, that the company's cost of funds and credit provisions remain sensitive to interest rates, and that the 8-K itself is furnished rather than filed.

02—Key points

Key Highlights

GMV grew 36% YoY to $6.3B, the fourth consecutive quarter of accelerating growth; general merchandise (+49%) was the largest category and biggest growth contributor.
Total revenue rose 51% YoY to $576M; revenue as a percentage of GMV expanded to 9.2% from 8.2%, driven by a 120 bps increase in interest income as a percentage of GMV.
RLTC grew 38% YoY to $231M (3.7% of GMV), still within the company's 3–4% long-term target range despite transaction costs rising about 90 bps as a percentage of GMV.
Adjusted operating income turned positive at $79M (13.6% margin) versus a $6M loss a year earlier; GAAP operating loss narrowed to $161M from $310M.
GAAP net loss narrowed to $134M ($0.43 per share) from $206M, including $112M of enterprise warrant and share-based expense.
Funding capacity reached $15.6B, up $4.2B YoY and rising for a fifth consecutive quarter; $500M ABS issued in the quarter, with fiscal YTD issuance expected at $2.6B after the April 2024-X1 deal.
Q4 FY2024 outlook: revenue of $585–605M, RLTC of $250–260M, adjusted operating margin of 15–17%, and GMV of $6.75–6.95B; the company also repurchased $77M face value of convertible notes for $63M, leaving $723M under its authorization.

03—Questions

Frequently Asked Questions

Is Affirm now profitable?
Not on a GAAP basis. Affirm reported a GAAP operating loss of $161M and a net loss of $134M for the quarter. However, adjusted operating income, a non-GAAP measure that excludes stock-based compensation, enterprise warrant expense, depreciation and amortization, and restructuring costs, was positive at $79M (13.6% margin). The gap is largely driven by $112M of enterprise warrant and share-based expense, so investors should weigh both measures.
What drove the revenue growth, and is it sustainable?
Revenue growth of 51% was driven almost entirely by interest income, which rose 120 bps as a percentage of GMV, reflecting a larger loans held for investment balance and pricing initiatives implemented in FY2023 and early FY2024. Management expects the substantial majority of pricing benefits to be realized by the end of fiscal 2024, so the pace of margin expansion from pricing may moderate going forward. Continued growth depends on loan balances and consumer demand.
How exposed is Affirm to interest rates and credit losses?
Higher benchmark rates raised funding costs by about 30 bps and provision for credit losses by about 50 bps as a percentage of GMV, and transaction costs rose roughly 90 bps overall. Management said the majority of its funding debt has absorbed the rate increases and that the year-over-year headwind should diminish over the remainder of the year based on the forward curve. Credit performance was described as stable, with 30+ day delinquencies (ex-Pay in 4 and Peloton) declining slightly year over year, but the allowance for credit losses rose to 5.3% of loans held for investment from 4.7%.
How is Affirm managing its convertible debt and liquidity?
Affirm had $2.1B in total liquidity (cash plus securities available for sale) against $1.4B of convertible senior notes at quarter end. Under an $800M repurchase authorization for calendar 2024, it had bought back about $77M of face value for $63M in cash, realizing a $13M gain, leaving $723M available. Management said it will evaluate further repurchases subject to market conditions. Funding is also supported by ABS issuance, with more than 120 unique institutional buyers since the program began.
What is the Affirm Card's contribution and how is it trending?
Affirm Card generated $374M in GMV in the quarter, versus $18M a year earlier and $397M in the prior quarter, which management said was consistent with the seasonal holiday peak in the December quarter. Active cardholders grew more than 30% quarter over quarter and crossed one million shortly after quarter end. Pay Now rose to nearly 10% of Card GMV from 5% in FQ1 2024, indicating increased use for smaller everyday purchases.

04—Continue

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