Affirm Holdings Inc Q2 2025 Earnings Call Transcript

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

Question: Ramsey El-Assal - Barclays - Analyst : Hi. Thanks for taking my question this evening. Terrific results. I wanted to ask about the noticeable increase in 0% loans and just ask you about how you're deploying those. Are you opening new merchant doors with them? Are there particular verticals you're targeting? Is it for existing partners? Like is there a sort of a strategy behind it or is it just more broad-based?

Question: Ramsey El-Assal - Barclays - Analyst : Thank you, thank you for that. One follow up from me. You came in above your 3% to 4% RLTC guide this quarter. I think you've indicated in the past you'd move to reinvest that excess RLTC rather than just letting it flow through to profits. What does that look like right now? Does that mean opening up the credit box a bit more, maybe subsidizing some of these 0% loans? Does that then flow through to higher volumes? What should we be looking out for in terms of the P&L impact of that reinvestment of the excess RLTC?

Question: William Nance - Goldman Sachs - Analyst : Hey, I appreciate you taking the question. I wanted to kind of follow up sort of on the last two questions combined. I know you're talking about leaning into 0% loans. I'm wondering if you could talk a little bit about just the RLTC margin profile of some of that incremental growth. I know that's a lever that you guys have to manage the margin. I guess where are you in that strategy and how -- obviously, there was some kind of, I think you called out a couple benefits to the margin from some of the loan sales this quarter. But just kind of where do you kind of see a tipping point from a margin perspective where you start to lean in a lot harder? And are you doing that? Or was the ramp in 0% more a function of some of these kind of merchant-driven promotions this quarter?

Question: Matthew O'Neill - FT Partners - Analyst : Thanks so much for the question. I was just curious, entering the quarter, I believe you were pointing to a 3.8% RLTC margin, and this quarter benefited from $60 million collectively between the securitization and loan sales. Did those two amounts kind of come and contribute together REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 10:00PM, AFRM.OQ - Q2 2025 Affirm Holdings Inc Earnings Call as expected? Or was that a bigger-than-expected benefit? I'm just trying to sort of parse the expected versus realigned impact to the margin in the quarter.

Question: Matthew O'Neill - FT Partners - Analyst : Thanks so much. And as a follow-up, I know it's a delicate subject on wallet partners, but it was mentioned in the release. So I figured I would ask, is there anything there that came in better than sort of expectation or plan or any sort of revised outlook as we turn into calendar '25 here with respect to wallet partners? Thank you, and appreciate the movie quotes.

Question: Dan Dolev - Mizuho Securities USA - Analyst : Hey, guys. Amazing quarter, as always. Can you maybe -- Max and team, can you give us an update on the UK launch, specifically, you're moving into a territory where your incumbent is a market leader. So given that your product is much more diverse than just paying for, how do you think the share, market share evolution can go there over time? And how much share can you take from the incumbent over time in Europe? Thank you.

Question: Kyle Peterson - Needham & Co. - Analyst : Great. Thanks for taking the question and nice results here. Wanted to ask on the funding mix moving forward. Are you guys looking to expand and add more of these deals? Kind of like the Sixth Street partnership seems like a really good win. Are you guys looking at more deals kind of similar to this or how should we think about the mix of funding moving forward between Warehouse, ABS, and some of these forward flow agreements?

Question: Kyle Peterson - Needham & Co. - Analyst : Great. Thank you. And then I guess just a quick follow-up on Sixth Street, in particular, sort of the shareholder letter, you guys mentioned that's expected to start ramping up in second half of '25. Is that like a phased launch that they will start smaller and the volumes will ramp? Or once the volume start, should we -- is that a fairly steady run rate? Or how should we think about the contribution and the ramp time with Sixth Street?

Question: Robert Wildhack - Autonomous Research - Analyst : Hey, guys. Active customers were up 23% year over year. I think you noted in the letter that's four quarters of accelerating growth. I wanted to ask, A, where that is coming from; B, how much it benefits from things like the 0% APR growth; and then C, I guess, how sustainable do you think that is in the 20%-plus range.

Question: Robert Wildhack - Autonomous Research - Analyst : Okay, thanks. And then on the non-GAAP operating expenses, sales and marketing, in particular, it looks like that was up quite a bit sequentially. You've typically not done a lot of direct sales and marketing. So just wondering what the driver was there and if you expect non-GAAP sales and marketing to stay at that like $30 million level going forward. Thanks.

Question: Reginald Smith - JPMorgan - Analyst : Hey, guys. Congrats on the quarter. I was hoping to dig in a little bit on some AI. You mentioned, I guess, the chatbot and the shareholder letter. I was curious how you guys are thinking about AI and whether it can be used for more commercial purposes, I don't know, products that face off against consumers. And then the second piece of that question is how AI has changed your thinking on headcount in which you can get done with your current size of your staff and if that's changed over the last 12 months. Thank you.

Question: Reginald Smith - JPMorgan - Analyst : Got it. And I guess if I could just kind of follow up if you get a final point. You guys gave some operating leverage targets this year. I guess how much -- and even at your Analyst Day, like how much AI is kind of baked into that leverage? Is this still -- did you contemplate that fully? Or how should we think about that? Do you follow my question?

Question: Andrew Bauch - Wells Fargo Securities, LLC - Analyst : Nice set of results here. In the shareholder letter, you talk about the redesign of the Affirm app and focusing on the utility. Maybe if you can just give us a little bit more color on what you've learned about the redesign and how Affirm is becoming more of a marketplace. And what kind of other opportunities that's kind of leading to when we think about the Affirm Card longer term, getting to that level of reuse and scale that you talked about in the past?

Question: Jason Kupferberg - BofA Global Research - Analyst : Well, I know, Max, you said at the outset, the numbers kind of speak for themselves, which they do. So I'm curious, like with things are going well on credit and funding and volume growth and profitability, really, what are the one or two biggest items that you're spending the bulk of your time focusing on driving improvement in?

Question: Jason Kupferberg - BofA Global Research - Analyst : You can give me more than one or two.

Question: Jason Kupferberg - BofA Global Research - Analyst : Right. And maybe just a follow-up on card. I mean now it's up to 8% or just over 8% of total GMV. I'm wondering if you've seen any change in consumer behavior with the product in terms of Pay Now versus Pay Later or any newer merchant categories that you're seeing increased traction in terms of usage of the card? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 10:00PM, AFRM.OQ - Q2 2025 Affirm Holdings Inc Earnings Call

Question: Vincent Caintic - BTIG - Analyst : Hey, good afternoon. Thanks for taking my questions. Max, you spoke earlier about taking share in the US this quarter. And I think it's interesting when I contrast Affirm's strong growth and your RLTC margin versus some of the credit cards, for instance, that I cover providing maybe weaker 2025 guidance in GMV and calling for tighter credit underwriting. I'm wondering what you're seeing in terms of being able to capture maybe even more share through the course of 2025. Are you seeing opportunities with merchants and maybe different behaviors from customers as these other lenders pull back? And what are you expecting? How will this play out over the course of calendar 2025?

Question: Vincent Caintic - BTIG - Analyst : Okay, great. That's very helpful. And actually, a follow-up on that. You said, for instance, you're not afraid of hire for longer. It seems like every day we get some new macro or political use to think about whether it's the CFE director departure or tariffs or interest rates were higher for longer. Wanted to get your thoughts on maybe what's important and impactful to Affirm from what's coming out of Washington.

Question: John Hecht - Jefferies - Analyst : You did talk about some of the goals within the Card segment and debt. But I guess what I'm wondering is, what have you learned so far when it comes to customer interaction and kind of overall RevPAR per customer when it comes to that product layered upon the Buy Now, Pay Later products that might have brought them into the network?

Question: John Hecht - Jefferies - Analyst : Okay. That's very good context and helpful. Second question is related to expenses. I mean you scaled a ton on expenses in the past year, especially the tech side and the G&A side. and now margins are better than I think anybody would have expected. How do we think about that trajectory of scaling in the next few quarters given the fact that margins are better, so you have an opportunity to reinvest maybe in some longer-term growth initiatives. I guess just the question is how do we think about the trajectory of that scale?

Question: Andrew Jeffrey - William Blair - Analyst : I wanted to ask a little bit about durability of the funding cost improvements you're seeing. Obviously, it's a good environment and you've made comments and demonstrated a firm's ability to improve loan sale execution and overall funding costs. How much do you think what we're seeing today is structural? In other words, what would carry through, through the next consumer recession or economic recession. How much is sort of cyclical sort of a sign of where we are currently in the economy?

Question: Andrew Jeffrey - William Blair - Analyst : All right. That's super helpful. And then, Max, if I could ask one on your baby, on the Affirm Card, which is performing very well. I appreciate the comments on efforts to expand use cases. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 10:00PM, AFRM.OQ - Q2 2025 Affirm Holdings Inc Earnings Call And can you talk about sort of as a percentage, I know it's still early, but as a percentage of those 1.7 million card holders or so? How many of those are sort of primary banking relationships for Affirm, I guess, as measured by direct deposit? I'm trying to get a sense of kind of what the lift is potentially there, too.

Question: Timothy Chiodo - UBS Equities - Analyst : Often, investors look at the list of really, really strong partners that you have, obviously, Apple Amazon, Shopify, Walmart, Expedia. It really doesn't get much better than that. And there's this question of who could be next. And often, the answer is it's more the international opportunity with many of those large enterprise partners and customers. And I realize you're likely not able to discuss your constructive discussions that you might be having with some of them. But if you could maybe just put some context around that opportunity in terms of if there are any limiting factors, if there's any maybe exclusive agreements or anything else that would preclude you from longer term being able to go outside the US with many of those in addition to the start you already have with Shopify?

Question: Jamie Friedman - Susquehanna International Group, LLP - Analyst : Did you share what percentage of the GMV is now made up offline like face to face?

Question: Jamie Friedman - Susquehanna International Group, LLP - Analyst : Okay. So maybe we'll wait for that for a fewer time. I wanted to ask about market share. So periodically, though, you do Max share your own observations about market share. I think you had shared one, I don't know, six months ago. Do you have that number now? And if not, maybe qualitatively, if you could talk to how you saw a market share shift in the quarter?