SEC Filing | Affirm Holdings, Inc.

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afrm-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-39888

Affirm Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware									84-2224323
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

650 California Street
San Francisco, California									94108
(Address of Principal Executive Offices)									(Zip Code)

(415) 984-0490

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.00001 per share	AFRM	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding

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12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 7, 2021, the number of shares of the registrants Class A common stock outstanding was 147,578,989 and the number of shares of the registrant's Class B common stock outstanding was 117,514,310.

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						Page
Cover						1
Table of Contents						3
Part I - Financial Information						6
Item 1. Unaudited Financial Statements						6
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)						6
CONDENSED CONSOLIDATED BALANCE SHEETS, CONT. (Unaudited)						7
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)						8
CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Unaudited)						9
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)						12
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT. (Unaudited)						13
1. Business Description						14
2. Summary of Significant Accounting Policies						14
3. Interest Income						22
4. Loans Held for Investment and Allowance for Credit Losses						22
5. Business Combination						24
6. Balance Sheet Components						26
7. Leases						28
8. Commitments and Contingencies						29
9. Transactions with Related Parties						30
10. Funding Debt						30
11. Notes Issued by Securitization Trusts						31
12. Debt						33
13. Variable Interest Entities						33
14. Fair Value of Financial Assets and Liabilities						34
15. Redeemable Convertible Preferred Stock and Stockholders' Deficit						43
16. Equity and Cash Incentive Plans						45

17. Income Taxes						48
18. Net Loss per Share Attributable to Common Stockholders						48
1 9 . Segments and Geographical Information						50
20. Subsequent Events						50
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations						52
Item 3. Quantitative and Qualitative Disclosures About Market Risk						77
Item 4. Controls and Procedures						78
Part II - Other Information						80
Item 1. Legal Proceedings						81
Item 1A. Risk Factors						82
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						126
Item 3. Defaults Upon Senior Securities						126
Item 4. Mine Safety Disclosures						127
Item 5. Other Information						128
Item 6. Exhibits						129
Signatures						130

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Form 10-Q"), as well as information included in oral statements or other written statements made or to be made by us, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "anticipate," "believe," "continue," "could," "design," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "project," "should," "will," “would,” or the negative of these terms or other similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

•our expectations regarding our future revenue, expenses, and other operating results and key operating metrics;

•our ability to attract additional merchants and retain and grow our relationships with our existing merchant partners;

•our ability to attract new consumers and retain and grow our relationships with our existing consumers;

•our ability to compete successfully in a highly competitive industry;

•our ability to successfully engage new originating bank partners;

•the availability of funding sources to support our network;

•our ability to effectively price and score credit risk using our proprietary risk model;

•the performance of loans facilitated through our platform;

•our expectations regarding product launches;

•the future growth rate of our revenue and related key operating metrics;

•our ability to achieve or sustain profitability in the future;

•our ability to remain in compliance with laws and regulations that currently apply or become applicable to our business;

•our ability to protect our confidential, proprietary, or sensitive information;

•past and future acquisitions, investments, and other strategic investments;

•our ability to maintain, protect, and enhance our brand and intellectual property;

•litigation, investigations, regulatory inquiries, and proceedings;

•the impact of macroeconomic conditions on our business, including the impact of the COVID-19 pandemic; and

•the size and growth rates of the markets in which we compete.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Form 10-Q. Other sections of this Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

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You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, events, or circumstances. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Form 10-Q and the documents that we have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (investors.affirm.com), our filings with the Securities and Exchange Commission, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website. The contents of our website are not incorporated into this filing. We have included our investor relations website address only as an inactive textual reference and do not intend it to be an active link to our website.

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Part I - Financial Information

Item 1. Unaudited Financial Statements

AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except shares and per share amounts)


	June 30, 2020		March 31, 2021
Assets
Cash and cash equivalents	$	267,059	$	1,623,672
Restricted cash	61,069		183,330
Loans held for sale	4,459		12,774
Loans held for investment	1,034,312		2,195,394
Allowance for credit losses	(95,137)		(113,754)
Loans held for investment, net	939,175		2,081,640
Accounts receivable, net	59,001		66,080
Property, equipment and software, net	48,140		53,444
Goodwill and intangible assets	3,751		279,198
Commercial agreement assets	—		246,383
Other assets	19,597		219,868
Total Assets	$	1,402,251	$	4,766,389
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Liabilities:
Accounts payable	$	18,361	$	29,005
Payable to third-party loan owners	24,998		36,523
Accrued interest payable	1,860		3,891
Accrued expenses and other liabilities	27,810		291,428
Convertible debt	74,222		—
Notes issued by securitization trusts	—		1,241,126
Funding debt	817,926		760,395
Total liabilities	965,177		2,362,368
Commitments and contingencies (Note 8)
Redeemable convertible preferred stock, $0.00001 par value, 124,453,009 and 30,000,000 shares authorized as of June 30, 2020 and March 31, 2021, respectively; 122,115,971 and no shares issued and outstanding as of June 30, 2020 and March 31, 2021, respectively; liquidation preference of $809,032 and nil as of June 30, 2020 and March 31, 2021, respectively	804,170		—
Stockholders’ (deficit) equity:
Common stock, $0.00001 par value, 232,000,000 and no shares authorized as of June 30, 2020 and March 31, 2021, respectively; 47,684,427 and no shares issued and outstanding as of June 30, 2020 and March 31, 2021, respectively	—		—
Class A common stock, par value $0.00001 per share: no shares authorized, issued and outstanding as of June 30, 2020; 3,030,000,000 shares authorized, 147,773,275 shares issued and outstanding as of March 31, 2021	—		2
Class B common stock, par value $0.00001 per share: no shares authorized, issued and outstanding as of June 30, 2020; 140,000,000 shares authorized, 116,884,843 shares issued and outstanding as of March 31, 2021	—		1

Additional paid in capital	80,373		3,134,145
Accumulated deficit	(447,167)		(734,873)
Accumulated other comprehensive (loss) gain	(302)		4,746
Total stockholders’ (deficit) equity	(367,096)		2,404,021
Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity	$	1,402,251	$	4,766,389

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS, CONT.

(Unaudited)

(in thousands, except shares and per share amounts)

The following table presents the assets and liabilities of consolidated variable interest entities (“VIEs”), which are included in the interim condensed consolidated balance sheets above. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. The liabilities in the table below include liabilities for which creditors do not have recourse to the general credit of the Company. Additionally, the assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs only and exclude intercompany balances that eliminate upon consolidation.


	June 30, 2020		March 31, 2021
Assets of consolidated VIEs, included in total assets above
Restricted cash	$	28,788	$	138,656
Loans held for investment	935,085		1,914,979
Allowance for credit losses	(87,467)		(103,390)
Loans held for investment, net	847,618		1,811,589
Accounts receivable, net	8,146		8,209
Other assets	3,345		4,238
Total assets of consolidated VIEs	$	887,897	$	1,962,692
Liabilities of consolidated VIEs, included in total liabilities above
Accounts payable	$	492	$	1,772
Accrued interest payable	1,732		3,762
Accrued expenses and other liabilities	565		4,648
Notes issued by securitization trusts	—		1,241,126
Funding debt	817,926		701,231
Total liabilities of consolidated VIEs	820,715		1,952,539
Total net assets	$	67,182	$	10,153

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended March 31,				Nine Months Ended March 31,
	2020		2021		2020		2021
Revenue
Merchant network revenue	$	67,350	$	97,999	$	171,503	$	290,894
Virtual card network revenue	5,930		13,809		16,641		30,587
Total network revenue	73,280		111,808		188,144		321,481
Interest income	52,372		94,530		137,613		222,624
Gain on sales of loans	9,866		16,350		20,329		47,344
Servicing income	2,755		7,977		10,110		17,235
Total Revenue, net	$	138,273	$	230,665	$	356,196	$	608,684
Operating Expenses
Loss on loan purchase commitment	$	43,519	$	62,054	$	106,141	$	195,690
Provision for credit losses	82,216		(1,063)		137,238		40,389
Funding costs	8,204		14,665		24,499		37,077
Processing and servicing	13,678		21,335		35,025		51,635
Technology and data analytics	33,654		98,728		90,634		174,130
Sales and marketing	7,108		57,549		19,978		119,243
General and administrative	31,399		146,853		89,791		220,042
Total Operating Expenses	219,778		400,121		503,306		838,206
Operating Loss	$	(81,505)	$	(169,456)	$	(147,110)	$	(229,522)
Other income, net	(4,022)		(77,773)		(19)		(48,088)
Loss Before Income Taxes	$	(85,527)	$	(247,229)	$	(147,129)	$	(277,610)
Income tax expense (benefit)	93		(70)		282		105
Net Loss	$	(85,620)	$	(247,159)	$	(147,411)	$	(277,715)
Excess return to preferred stockholders on repurchase	—		—		(13,205)		—
Net Loss Attributable to Common Stockholders	$	(85,620)	$	(247,159)	$	(160,616)	$	(277,715)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments	$	(874)	$	2,829	$	(864)	$	5,048
Net Other Comprehensive Income (Loss)	(874)		2,829		(864)		5,048
Comprehensive Loss	$	(86,494)	$	(244,330)	$	(148,275)	$	(272,667)
Per share data:
Net loss per share attributable to common stockholders for Class A and Class B:
Basic	$	(1.80)	$	(1.06)	$	(3.35)	$	(2.27)
Diluted	$	(1.80)	$	(1.06)	$	(3.35)	$	(2.48)
Weighted average common shares outstanding:
Basic	47,435,554		233,309,590		47,974,768		122,161,508
Diluted	47,435,554		233,309,590		47,974,768		123,329,359

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ DEFICIT

(Unaudited)

(in thousands, except share amounts)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Deficit
	Shares	Amount		Shares	Amount
Balance as of June 30, 2019	122,653,704	$	798,074	47,078,208	$	—	$	54,824	$	(318,238)	$	—	$	(263,414)
Issuance of common stock	—	—		213,770	—		743		—		—		743
Repurchases of common stock	—	—		(63,719)	—		—		(865)		—		(865)
Issuance of redeemable convertible preferred stock, net of issuance costs of $20	1,175,872	15,481		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		9,323		—		—		9,323
Foreign currency translation adjustments	—	—		—	—		—		—		25		25
Net loss	—	—		—	—		—		(30,795)		—		(30,795)
Balance as of September 30, 2019	123,829,576	$	813,555	47,228,259	$	—	$	64,890	$	(349,898)	$	25	$	(284,983)
Issuance of common stock	—	$	—	1,485,298	—		478		—		—		478
Repurchases of common stock	—	—		(1,385,879)	—		(2,123)		(15,467)		—		(17,590)
Repurchases of redeemable convertible preferred stock	(1,713,605)	(9,385)		—	—		(13,205)		—		—		(13,205)

Stock-based compensation	—	—		—	—		9,155		—		—		9,155
Foreign currency translation adjustments	—	—		—	—		—		—		(15)		(15)
Net loss	—	—		—	—		—		(30,996)		—		(30,996)
Balance as of December 31, 2019	122,115,971	$	804,170	47,327,678	$	—	$	59,195	$	(396,361)	$	10	$	(337,156)
Issuance of common stock	—	$	—	249,861	—		552		—		—		552
Repurchases of common stock	—	—		(45,500)	—		(400)		—		—		(400)


Stock-based compensation	—	—		—	—		8,462		—		—		8,462
Foreign currency translation adjustments	—	—		—	—		—		—		(874)		(874)
Net loss	—	—		—	—		—		(85,620)		—		(85,620)
Balance as of March 31, 2020	122,115,971	$	804,170	47,532,039	$	—	$	67,809	$	(481,981)	$	(864)	$	(415,036)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ DEFICIT, CONT.

(Unaudited)

(in thousands, except share amounts)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Deficit
	Shares	Amount		Shares	Amount
Balance as of June 30, 2020	122,115,971	$	804,170	47,684,427	$	—	$	80,373	$	(447,167)	$	(302)	$	(367,096)
Issuance of common stock upon exercise of stock options	—	—		388,246	—		1,741		—		—		1,741
Repurchases of common stock	—	—		(115,625)	—		(584)		—		—		(584)
Issuance of redeemable convertible preferred stock, net of issuance costs of $440	21,824,141	434,434		—	—		—		—		—		—
Vesting and exercise of warrants for common stock	—	—		5,074,398	—		67,645		—		—		67,645
Stock-based compensation	—	—		—	—		7,175		—		—		7,175
Conversion of convertible debt	4,444,321	88,559		—	—		(42,124)		—		—		(42,124)
Effects of adoption of new accounting standards	—	—		—	—		—		(9,980)		—		(9,980)
Foreign currency translation adjustments	—	—		—	—		—		—		405		405
Net loss	—	—		—	—		—		(3,946)		—		(3,946)
Balance as of September 30, 2020	148,384,433	$	1,327,163	53,031,446	$	—	$	114,226	$	(461,093)	$	103	$	(346,764)
Issuance of common stock upon exercise of stock options	—	—		6,220,024	—		21,676		—		—		21,676
Repurchases of common stock	—	—		(12,100)	—		(199)		—		—		(199)
Issuance of redeemable convertible preferred stock, net of issuance costs of $143	12,546	108		—	—		—		—		—		—

Stock-based compensation	—	—		—	—		6,774		—		—		6,774


Foreign currency translation adjustments	—	—		—	—		—		—		1,814		1,814
Net loss	—	—		—	—		—		(26,610)		—		(26,610)
Balance as of December 31, 2020	148,396,979	$	1,327,271	59,239,370	$	—	$	142,477	$	(487,703)	$	1,917	$	(343,309)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ DEFICIT, CONT.

(Unaudited)

(in thousands, except share amounts)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Deficit
	Shares	Amount		Shares1	Amount
Balance as of December 31, 2020	148,396,979	$	1,327,271	59,239,370	$	—	$	142,477	$	(487,703)	$	1,917	$	(343,309)
Conversion of redeemable convertible preferred stock	(148,396,979)	(1,327,271)		148,396,979	2		1,327,269		(11)		—		1,327,260
Issuance of common stock upon initial public offering, net of issuance costs of $6,746	—	—		28,290,000	1		1,305,301		—		—		1,305,302
Issuance of common stock upon exercise of stock options	—	—		4,721,033	—		19,819		—		—		19,819
Issuance of common stock upon exercise of warrants	—	—		15,577,185	—		203,511		—		—		203,511
Issuance of common stock for acquisition	—	—		6,209,806	—		117,023		—		—		117,023
Vesting of restricted stock units	—	—		2,225,411	—		—		—		—		—
Repurchases of common stock	—	—		(1,666)	—		(3)		—		—		(3)
Stock-based compensation	—	—		—	—		146,314		—		—		146,314
Tax withholding for stock-based compensation	—	—		—	—		(127,566)		—		—		(127,566)
Foreign currency translation adjustments	—	—		—	—		—		—		2,829		2,829
Net loss	—	—		—	—		—		(247,159)		—		(247,159)
Balance as of March 31, 2021	—	$	—	264,658,118	$	3	$	3,134,145	$	(734,873)	$	4,746	$	2,404,021

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

1 The share amounts listed above combine common stock, Class A common stock and Class B common stock.

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AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine Months Ended March 31,
	2020		2021
Cash Flows from Operating Activities
Net Loss	$	(147,411)	$	(277,715)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for credit losses	137,238		40,389
Amortization of premiums and discounts on loans, net	(20,668)		(60,705)
Gain on sales of loans	(20,329)		(47,344)
Changes in fair value of servicing assets and liabilities	(706)		(2,733)
Changes in fair value and extinguishment of convertible debt derivative	—		(30,106)
Change in fair value of residual trust certificates	—		(350)
Change in fair value of contingent consideration	—		78,499
Amortization of commercial agreement assets	—		50,097
Amortization of debt issuance costs	1,661		3,675
Stock-based compensation	24,589		152,471
Depreciation and amortization	7,421		12,092
Income tax expense (benefit)	282		105
Impairment of right of use assets	—		11,141
Loss on disposal of property, equipment and software	—		4,563
Other	(862)		2,354
Purchases of loans held for sale	(1,635,950)		(1,640,672)
Proceeds from the sale of loans held for sale	1,575,767		1,599,554
Change in operating assets and liabilities:
Accounts receivable, net	(4,013)		(6,461)
Other assets	24,475		(208,798)
Accrued interest payable	793		2,535
Accounts payable	1,564		4,064
Accrued expenses and other liabilities	7,054		128,602
Payable to third-party loan owners	6,240