Affirm Holdings Inc at MoffettNathanson Technology, Media, and Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : I wanted to start at a high level. So you have a long career in kind of consumer credit. I think you worked in different areas. And you talked a little bit about in terms of the mission. But talk about your view of what Affirm brings to the consumer credit market? I think my fundamental question is, there's a lot of consumer credit products out there. It's not like consumer credit market doesn't exist, right? We have credit cards. We have different kinds of finance and personal loans, et cetera. Point-of-sale financing is not a new thing. From like a credit professional expert perspective, how do you think about what is Affirm bringing to the table that's new and needed?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. Okay. (Operator Instructions) Great. So maybe diving a little bit deeper into the financing strategy. So you already mentioned Affirm is not a bank. So it doesn't have kind of a large balance sheet. So you have a relatively diverse and, I'd say, complicated financing strategy. Can you give us an overview of the different types of financing that Affirm uses?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. Okay. Okay. Well, I want to talk about these different types of financing, maybe in a little bit more specificity. First, with the question, so you mentioned you kind of balance between holding risk on balance sheet and taking risk off balance sheet. Think -- I was looking at about half of your kind of funding is on balance, I think, 46% last quarter. And that number varies a bit. So talk -- I'm always curious, how do you decide at what level of risk they want to be keeping on the balance sheet? Because that seems like a fundamental question to kind of your model basically. Are you holding risk? Or are you basically selling it off? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 18, 2023 / 6:00PM, AFRM.OQ - Affirm Holdings Inc at MoffettNathanson Technology, Media, and Telecom Conference

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : But maybe -- kind of maybe strategically, philosophically, is kind of that 50% on, 50% off, is that the general marker that Affirm has and we should be expecting? Or is that more an outcome of the current financing environment that might significantly change?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Yes. Got it. Okay. Okay. So let's talk about your outside financing. And so I'd be curious, maybe to start with hearing your thoughts on when you go out to the market, whether it be ABS, maybe forward flow agreements may be a little different, may be the same. What differentiates Affirm? What do third-party investors like about Affirm paper or opportunity to get exposed to Affirm?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. Okay. Okay. So maybe then now since we've lived through a lot of volatility over the last couple of years, I'd be curious if you can give us a little bit of a kind of historical [timeline]. I think you've been there for 2 years, if that's right. So maybe since the time you came, I guess, right, we went through hot period kind of at the end of 2021, the markets were open, then starting to close out, then into the crisis that we have the spring. Would be very helpful to hear as you interacting day-to-day with kind of third-party providers, how has that evolved? How has that changed there?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Their willingness, their demand. Their willingness to -- how difficult it is for you to basically get them interested?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. On the -- as you're doing this work to generate demand, especially over the past kind of 12 months, we've gone through volatility, what changes did you need to make to the actual product, meaning to the actual loans? So I'm thinking, for example, the pricing changes that have been implemented, like how much of that was the requirement that basically came from the financing markets, where you need it basically to raise the prices on your interest-bearing loans to get demand?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. And does that -- did that move help generate demand for your ABS product, the price increase?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Makes sense. Okay. Great. Last question on this topic, and then I wanted to hit a couple of other ones. Forward-looking. So yes, I guess, as you sit here and you're kind of looking at the current environment, obviously, nobody has the crystal ball, and who knows about the economy. But yes, how do you assess the current environment? And your job, I think, is very forward-looking because you're trying to make sure that the capital is available. Yes, what's your outlook? And what actions are you taking to make sure that Affirm kind of remains in a strong position there now?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Yes. Got it. Okay. Okay. Brooke, so you mentioned you also oversee the bank relationships. I just want to spend a couple of minutes on that. First, maybe to level set, what is the -- what's the needs for bank partnership, just for those who are maybe not as familiar with the model? What -- I mean you're not a bank, but why do you need a bank to do what you do?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. And so you mentioned you're adding -- I think the 2 major ones you have is Cross River South Bank, right? And I think you're about adding a third one? And is your relationship with these 2 remains strong as well. Are you using both of them? Where is it shifting around?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. Any possibility that Affirm would move together banking license and become a bank? Or is that kind of fundamental counter to your long-term strategy [in the last year]?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Sure. Got it. Okay. Okay. Great. Well, this is a very interesting discussion on the funding. I do have a number of other questions that I did want to hit. So I'll start going through them. Maybe taking us back to one of the short-term issues, so your earnings report from a couple of weeks ago, a lot of interesting developments. But two things I specifically wanted to ask about that are kind of top of mind for me. One is just GMV growth. So in the quarter, it decelerated to about 20% year-over-year, which I know there's a lot of factors that are influencing it. But kind of taking a step back as all of us are watching BNPL industry and really wondering what's the gross trajectory of the overall -- like are people actually interested in this product? And so when we're seeing a deceleration, that's a little bit of a an alarming sign that, "Hey, is the interest in BNPL industry decelerating?" So I was curious if, Rob and Brooke, you can talk a little bit about how you're thinking about it? What's caused this deceleration? And what do you believe is trajectory to maybe reacceleration? I'm talking about not necessarily next quarter, but kind of over the next 12 months.

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. Okay. Okay. And then the second kind of metric that we are watching very close, I know you guys as well and all investors are, is your revenue less transaction cost yields, it's a mouthful, or [C] yield? But again, a lot of factors go into it, but it's an important metric of your unit economics at a kind of variable level. So that actually has done very well this quarter. It was up to about 3.5%. But then your guide, I think, for the fourth quarter indicated that it's going to dip below 3%, if I have done math correctly. Again, and kind of 3% to 4% is your is the level that you set for the medium term. So when it kind of -- we're seeing a dip again below 3, some questions. But my question actually -- maybe you can help us understand what causes the volatility of it because that's a thing -- one of the things folks aren't comfortable with. Why is it [3.6] one quarter and then down to [2.9] just a quarter after? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 18, 2023 / 6:00PM, AFRM.OQ - Affirm Holdings Inc at MoffettNathanson Technology, Media, and Telecom Conference

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. So for investors in Affirm and folks who are watching the company closely, would your recommendation be to pull away maybe from really looking at the quarterly level of [RLTC] and start looking over like a 12-month period? what's the right way to approach?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Yes. Got it. Okay. Okay. Well, pulling back up a little bit more to ask a couple of key strategic questions I have on my list. So one kind of hot [but miss] competition, I think, in BNPL. And of course, you have your kind of specialist competitors like of the world. But you also have Apple coming out with a BNPL solution. You have PayPal that have a BNPL solution. You have Walmart that's getting into consumer finance and potentially talking about maybe something like that. So I think the competitive question is top of mind for folks who are watching the space. maybe say a couple of words about what's your current view of Affirm's kind of positioning against this big set of competitors? What still differentiate -- what gives you confidence that you can still win when the environment is getting so competitive and players like Apple are getting into it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 18, 2023 / 6:00PM, AFRM.OQ - Affirm Holdings Inc at MoffettNathanson Technology, Media, and Telecom Conference

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Yes. Got it. Makes sense. Okay. A question came in from the audience, so I have to be true to my iPad here and ask it. So it's related -- it's a kind of follow-up to my competition question, and I think the premise of the question is, look, some of your competitors are humongous enterprises, Apple, PayPal, et cetera. You can argue some of the banks are indirectly competing with you. Frankly, direct question is how confident that -- what gives you confidence that you can survive as a kind of stand-alone company in this environment? And could there be an interesting possibility for you to, let's say, merge with somebody or become part of a larger entity that would preserve the enterprise that you built, but make you stronger through that?

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Yes. Got it. Okay. And now the key strategic topic I wanted to hit is direct-to-consumer that was highlighted in a big way last quarter. Max talked about it a lot. Obviously, you've been working on the Debit+ offering for a while. That's a big topic that we're not going to hit over the next 2 minutes. But two kind of highlight questions I wanted to ask. One is, yes, give us a little bit of like what should we expect on that in terms of the timeline? What should we look for, the kind of milestones as investors as this product develops? And two, how important it is to the -- to your strategy and to Affirm? Like how important is the success of

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Got it. Okay. Okay. Okay. Great. Well, we're within 5 minutes. I wanted to just ask both you kind of the same lightning-round question, which is as you think about the next 12 months, let's say, in your role, both Brooke and Rob, what are the couple of critical priorities for you personally in the areas that you're working to kind of further Affirm's mission and to make sure that the company is successful.

Question: Eugene M. Simuni - MoffettNathanson LLC - Analyst : Great. Well, we'll look forward to that. Awesome. Well, thank you very much. Brooke and Rob, really appreciate it.