SEC Filing | Affirm Holdings, Inc.

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afrm-20221231

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 December 31, 2022


☐			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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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.


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 February 3, 2023, the number of shares of the registrant’s Class A common stock outstanding was 233,906,114 and the number of shares of the registrant’s Class B common stock outstanding was 60,088,662.

Table of Conten t s

TABLE OF CONTENTS


						Page
Cover						1
Table of Contents						2
Part I - Financial Information						5
Item 1. Unaudited Financial Statements						5
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)						5
CONDENSED CONSOLIDATED BALANCE SHEETS, CONT. (Unaudited)						6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)						7
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)						8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)						10
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT. (Unaudited)						11
1. Business Description						12
2. Summary of Significant Accounting Policies						12
3. Revenue						14
4. Loans Held for Investment and Allowance for Credit Losses						16
5. Acquisitions						18
6. Balance Sheet Components						20
7. Leases						23
8. Commitments and Contingencies						24
9. Transactions with Related Parties						25
10. Debt						26
11. Securitization and Variable Interest Entities						28
12. Investments						31
13. Fair Value of Financial Assets and Liabilities						35
14. Stockholders’ Equity						45
15. Equity Incentive Plans						46
16. Income Taxes						49
17. Net Loss per Share Attributable to Common Stockholders						50
18. Segments and Geographical Information						51
19. Subsequent Events						52
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						53
Item 3. Quantitative and Qualitative Disclosures About Market Risk						70
Item 4. Controls and Procedures						72
Part II - Other Information						73
Item 1. Legal Proceedings						74
Item 1A. Risk Factors						75
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						79
Item 3. Defaults Upon Senior Securities						79
Item 4. Mine Safety Disclosures						79
Item 5. Other Information						79
Item 6. Exhibits						80
Signatures						81

Table of Conten t s

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 new merchants and commerce partners and retain and grow our relationships with existing merchants and commerce partners;

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

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

•our expectations regarding the development, innovation, introduction of, and demand for, our products;

•our ability to successfully engage new and existing originating bank partners;

•the availability of funding sources to support our business model;

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

•the performance of loans facilitated and originated through our platform;

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

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

•the impact of any reduction in our workforce, including our ability to realize certain cost savings anticipated as a result of the reduction and our ability to continue to attract and retain highly skilled employees;

•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 impacts of inflation, a rising interest rate environment and increasing recessionary concerns; 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 and our most recently filed Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (the “Annual Report”). 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, heavily regulated and rapidly changing

Table of Conten t s

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.

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 such as “we believe” and similar statements reflect our current 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 (“SEC”), webcasts, press releases, conference calls, and social media. 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 as an inactive textual reference and do not intend it to be an active link to our website.

Table of Conten t s

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)


	December 31, 2022		June 30, 2022
Assets
Cash and cash equivalents	$	1,440,333	$	1,255,171
Restricted cash	424,460		295,636
Securities available for sale at fair value	914,923		1,595,373
Loans held for sale	344		2,670
Loans held for investment	3,655,504		2,503,561
Allowance for credit losses	(182,100)		(155,392)
Loans held for investment, net	3,473,404		2,348,169
Accounts receivable, net	201,622		142,052
Property, equipment and software, net	248,939		171,482
Goodwill	527,630		539,534
Intangible assets	63,755		78,942
Commercial agreement assets	220,082		263,196
Other assets	289,259		281,567
Total Assets	$	7,804,751	$	6,973,792
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable	$	28,974	$	33,072
Payable to third-party loan owners	127,378		71,383
Accrued interest payable	11,971		6,659
Accrued expenses and other liabilities	220,619		237,598
Convertible senior notes, net	1,708,779		1,706,668
Notes issued by securitization trusts	1,314,212		1,627,580
Funding debt	1,882,670		672,577
Total liabilities	5,294,603		4,355,537
Commitments and contingencies (Note 8)
Stockholders’ equity:
Class A common stock, par value $0.00001 per share: 3,030,000,000 shares authorized, 232,003,118 shares issued and outstanding as of December 31, 2022; 3,030,000,000 shares authorized, 227,255,529 shares issued and outstanding as of June 30, 2022	2		2
Class B common stock, par value $0.00001 per share: 140,000,000 shares authorized, 60,088,662 shares issued and outstanding as of December 31, 2022; 140,000,000 authorized, 60,109,844 shares issued and outstanding as of June 30, 2022	1		1
Additional paid in capital	4,716,385		4,231,303
Accumulated deficit	(2,179,608)		(1,605,902)
Accumulated other comprehensive loss	(26,632)		(7,149)
Total stockholders’ equity	2,510,148		2,618,255
Total Liabilities and Stockholders’ Equity	$	7,804,751	$	6,973,792

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

Table of Conten t s

AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS, CONT.

(Unaudited)

(in thousands)

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.


	December 31, 2022		June 30, 2022
Assets of consolidated VIEs, included in total assets above
Restricted cash	$	248,612	$	164,530
Loans held for investment	3,153,253		2,179,026
Allowance for credit losses	(148,125)		(124,052)
Loans held for investment, net	3,005,128		2,054,974
Accounts receivable, net	8,196		8,195
Other assets	17,554		14,570
Total assets of consolidated VIEs	$	3,279,490	$	2,242,269
Liabilities of consolidated VIEs, included in total liabilities above
Accounts payable	$	2,801	$	2,897
Accrued interest payable	11,937		6,525
Accrued expenses and other liabilities	17,045		15,494
Notes issued by securitization trusts	1,314,212		1,627,580
Funding debt	1,704,812		514,033
Total liabilities of consolidated VIEs	3,050,807		2,166,529
Total net assets	$	228,683	$	75,740

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

Table of Conten t s

AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Revenue
Merchant network revenue	$	134,019	$	127,087	$	247,168	$	219,331
Virtual card network revenue	29,117		26,558		55,825		45,953
Total network revenue	163,136		153,645		302,993		265,284
Interest income	155,321		138,355		292,123		255,657
Gain on sales of loans	59,607		57,690		123,202		88,669
Servicing income	21,494		11,321		42,864		20,786
Total Revenue, net	$	399,558	$	361,011	$	761,182	$	630,396
Operating Expenses
Loss on loan purchase commitment	$	38,422	$	65,265	$	74,032	$	116,943
Provision for credit losses	106,689		52,640		170,939		116,287
Funding costs	43,751		17,700		68,817		34,453
Processing and servicing	66,508		41,849		120,867		67,050
Technology and data analytics	156,747		94,989		301,708		173,002
Sales and marketing	188,334		143,476		352,207		207,436
General and administrative	158,639		141,292		319,611		277,496
Total Operating Expenses	759,090		557,211		1,408,181		992,667
Operating Loss	$	(359,532)	$	(196,200)	$	(646,999)	$	(362,271)
Other income (expense), net	35,527		36,741		71,545		(103,632)
Loss Before Income Taxes	$	(324,005)	$	(159,459)	$	(575,454)	$	(465,903)
Income tax (benefit) expense	(1,568)		276		(1,748)		447
Net Loss	$	(322,437)	$	(159,735)	$	(573,706)	$	(466,350)
Other Comprehensive Loss
Foreign currency translation adjustments	$	4,522	$	2,341	$	(17,024)	$	(1,461)
Unrealized loss on securities available for sale, net	3,069		(657)		(2,459)		(936)
Net Other Comprehensive Loss	7,591		1,684		(19,483)		(2,397)
Comprehensive Loss	$	(314,846)	$	(158,051)	$	(593,189)	$	(468,747)
Per share data:
Net loss per share attributable to common stockholders for Class A and Class B
Basic	$	(1.10)	$	(0.57)	$	(1.96)	$	(1.70)
Diluted	$	(1.10)	$	(0.57)	$	(1.96)	$	(1.70)
Weighted average common shares outstanding
Basic	293,683,331		281,533,888		292,306,300		273,588,094
Diluted	293,683,331		281,533,888		292,306,300		273,588,094

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

Table of Conten t s

AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share amounts)


	Common Stock		Additional Paid-In Capital			Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
		Shares			Amount
Balance as of June 30, 2022		287,365,373	$	3		$	4,231,303	$	(1,605,902)	$	(7,149)	$	2,618,255
Issuance of common stock upon exercise of stock options		215,949	—			1,192		—		—		1,192
Forfeiture of common stock related to acquisitions		(243,384)	—			—		—		—		—
Repurchases of Common Stock		(12,437)	—			(109)		—		—		(109)
Vesting of restricted stock units		2,166,715	—			—		—		—		—
Vesting of warrants for common stock		—	—			108,742		—		—		108,742
Stock-based compensation		—	—			141,012		—		—		141,012
Tax withholding on stock-based compensation		—	—			(27,311)		—		—		(27,311)
Foreign currency translation adjustments		—	—			—		—		(21,546)		(21,546)
Unrealized loss on securities available for sale		—	—			—		—		(5,528)		(5,528)
Net Loss		—	—			—		(251,269)		—		(251,269)
Balance as of September 30, 2022		289,492,216	$	3		$	4,454,829	$	(1,857,171)	$	(34,223)	$	2,563,438
Issuance of common stock upon exercise of stock options		300,903	—			1,372		—		—		1,372
Issuance of common stock, employee share purchase plan		500,443	—			5,921		—		—		5,921
Vesting of restricted stock units		1,798,218	—			—		—		—		—
Vesting of warrants for common stock		—	—			128,054		—		—		128,054
Stock-based compensation		—	—			144,218		—		—		144,218
Tax withholding on stock-based compensation		—	—			(18,009)		—		—		(18,009)
Foreign currency translation adjustments		—	—			—		—		4,522		4,522
Unrealized loss on securities available for sale		—	—			—		—		3,069		3,069
Net Loss		—	—			—		(322,437)		—		(322,437)
Balance as of December 31, 2022		292,091,780	$	3		$	4,716,385	$	(2,179,608)	$	(26,632)	$	2,510,148

Table of Conten t s

AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share amounts)


	Common Stock		Additional Paid-In Capital			Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
		Shares			Amount
Balance as of June 30, 2021		269,358,104	$	3		$	3,467,236	$	(898,485)	$	6,773	$	2,575,527
Issuance of common stock upon exercise of stock options		7,403,503	—			37,470		—		—		37,470

Issuance of common stock in acquisition		183,733	—			10,000		—		—		10,000
Vesting of restricted stock units		772,653	—			—		—		—		—
Repurchases of common stock		(821)	—			(4)		—		—		(4)
Stock-based compensation		—	—			104,879		—		—		104,879
Tax withholding on stock-based compensation		—	—			(39,817)		—		—		(39,817)
Foreign currency translation adjustments		—	—			—		—		(3,802)		(3,802)
Unrealized loss on securities available for sale		—	—			—		—		(279)		(279)
Net Loss		—	—			—		(306,615)		—		(306,615)
Balance as of September 30, 2021		277,717,172	$	3		$	3,579,764	$	(1,205,100)	$	2,692	$	2,377,359
Issuance of common stock upon exercise of stock options		4,689,973	—			21,674		—		—		21,674
Vesting of restricted stock units		803,263	—			—		—		—		—
Vesting of warrants for common stock		—	—			198,383		—		—		198,383
Stock-based compensation		—	—			101,920		—		—		101,920
Tax withholding on stock-based compensation		—	—			(72,963)		—		—		(72,963)
Foreign currency translation adjustments		—	—			—		—		2,341		2,341
Unrealized gain (loss) on securities available for sale		—	—			—		—		(657)		(657)
Net Loss		—	—			—		(159,735)		—		(159,735)
Balance as of December 31, 2021		283,210,408	$	3		$	3,828,778	$	(1,364,835)	$	4,376	$	2,468,322

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

Table of Conten t s

AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Six Months Ended December 31,
	2022		2021
Cash Flows from Operating Activities
Net Loss	$	(573,706)	$	(466,350)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for credit losses	170,939		116,287
Amortization of premiums and discounts on loans, net	(68,853)		(87,678)
Gain on sales of loans	(123,202)		(88,669)
Changes in fair value of assets and liabilities	(11,035)		104,900
Amortization of commercial agreement assets	43,114		43,885
Amortization of debt issuance costs	1,752		9,568
Amortization of discount on securities available for sale	(14,923)		—
Commercial agreement warrant expense	236,796		64,854
Stock-based compensation	241,583		181,726
Depreciation and amortization	43,886		22,505
Other	1,136		(5,198)
Change in operating assets and liabilities:
Purchases of loans held for sale	(3,323,750)		(2,614,002)
Proceeds from the sale of loans held for sale	3,428,673		2,607,759
Accounts receivable, net	(63,416)		(48,117)
Other assets	(13,727)		65,422
Accounts payable	(4,098)		(12,169)
Payable to third-party loan owners	55,995		21,436
Accrued interest payable	5,903		(131)
Accrued expenses and other liabilities	(10,400)		8,868
Net Cash Provided by (Used in) Operating Activities	22,667		(75,104)
Cash Flows from Investing Activities
Purchases and origination of loans held for investment	(6,535,457)		(4,652,346)
Proceeds from the sale of loans held for investment	702,987		780,276
Principal repayments and other loan servicing activity	4,628,825		3,563,123
Acquisition, net of cash and restricted cash acquired	—		(5,999)

Additions to property, equipment and software	(65,401)		(38,159)
Purchases of securities available for sale	(105,629)		(511,724)
Proceeds from maturities and repayments of securities available for sale	798,149		59,126
Other investing cash inflows (outflows)	1,588		(13,870)

Net Cash Used in Investing Activities	(574,938)		(819,573)
Cash Flows from Financing Activities
Proceeds from issuance of convertible debt, net	—		1,704,300
Proceeds from funding debt	3,367,729		1,497,674
Payment of debt issuance costs	(4,773)		(8,151)
Principal repayments of funding debt	(2,147,035)		(1,527,568)
Proceeds from issuance of notes and residual trust certificates by securitization trusts	250,000		499,640
Principal repayments of notes issued by securitization trusts	(559,383)		(102,467)



Proceeds from exercise of common stock options and warrants and contributions to ESPP	8,246		59,569
Repurchases of common stock	(109)		(4)
Payments of tax withholding for stock-based compensation	(45,320)		(112,780)
Net Cash Provided by Financing Activities	869,355		2,010,213
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,098)		6,635
Net Increase in Cash, Cash Equivalents and Restricted Cash	313,986		1,122,171
Cash, Cash equivalents and Restricted cash, Beginning of period	1,550,807		1,692,632
Cash, Cash Equivalents and Restricted Cash, End of Period	$	1,864,793	$	2,814,803

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

Table of Conten t s

AFFIRM HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT.

(Unaudited)

(in thousands)


	Six Months Ended December 31,
	2022		2021
Reconciliation to amounts on consolidated balance sheets (as of period end)
Cash and cash equivalents	1,440,333		2,567,401
Restricted cash	424,460		247,402
Total Cash, Cash Equivalents and Restricted Cash	$	1,864,793	$	2,814,803


	Six Months Ended December 31,
	2022		2021
Supplemental Disclosures of Cash Flow Information
Cash payments for interest expense	$	55,900	$	23,143
Cash paid for operating leases	8,244		8,232
Cash paid for income taxes	212		80
Supplemental Disclosures of Non-Cash Investing and Financing Activities
Stock-based compensation included in capitalized internal-use software	43,647		25,073
Issuance of common stock in connection with acquisition	—		10,000
Additions to property and equipment included in accrued expenses	—		107

Right of use assets obtained in exchange for operating lease liabilities	494		—

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

Table of Conten t s

1. Business Description

Affirm Holdings, Inc. (“Affirm,” the “Company,” “we,” “us,” or “our”), headquartered in San Francisco, California, provides consumers with a simpler, more transparent, and flexible alternative to traditional payment options. Our mission is to deliver honest financial products that improve lives. Through our next-generation commerce platform, agreements with originating banks, and capital markets partners, we enable consumers to confidently pay for a purchase over time, with terms ranging from one to sixty months. When a consumer applies for a loan through our platform, the loan is underwritten using our proprietary risk model, and once approved, the consumer selects their preferred repayment option. Loans are directly originated or funded and issued by our originating bank partners.

Merchants partner with us to transform the consumer shopping experience and to acquire and convert customers more effectively through our frictionless point-of-sale payment solutions. Consumers get the flexibility to buy now and make simple regular payments for their purchases and merchants see increased average order value, repeat purchase rates, and an overall more satisfied customer base. Unlike legacy payment options and our competitors’ product offerings, which charge deferred or compounding interest and unexpected costs, we disclose up-front to consumers exactly what they will owe — no hidden fees, no deferred interest, no penalties.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying interim condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), disclosure requirements for interim financial information, and the requirements of Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended June 30, 2022. The balance sheet as of June 30, 2022 has been derived from the audited financial statements at that date. Management believes these interim condensed consolidated financial statements reflect all adjustments, including those of a normal and recurring nature, which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

Our interim condensed financial statements have been prepared on a consolidated basis. Under this basis of presentation, our financial statements consolidate all wholly owned subsidiaries and variable interest entities (“VIEs”), in which we have a controlling financial interest. These include various business trust entities and limited partnerships established to enter into warehouse credit agreements with certain lenders for funding debt facilities and certain asset-backed securitization transactions. All intercompany accounts and transactions have been eliminated in consolidation.

Our variable interest arises from contractual, ownership, or other monetary interests in the entity, which changes with fluctuations in the fair value of the entity’s net assets. We consolidate a VIE when we are deemed to be the primary beneficiary. We assess whether or not we are the primary beneficiary of a VIE on an ongoing basis.

Use of Estimates

The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts in the interim condensed consolidated financial statements and the accompanying notes. Material estimates that are particularly susceptible to significant change relate to determination of variable consideration for revenue, the allowance for credit losses, capitalized internal-use software development costs, valuation allowance for deferred tax assets, loss on loan

Table of Conten t s

purchase commitment, the fair value of servicing assets and liabilities, discount on directly originated loans, the fair value of assets acquired and any contingent consideration transferred in business combinations, the evaluation for impairment of intangible assets and goodwill, the fair value of available for sale debt securities including retained interests in our securitization trusts, the fair value of residual certificates issued by our securitization trusts held by third parties, and stock-based compensation, including the fair value of warrants issued to nonemployees. We base our estimates on market-based inputs, historical experience, current events, and other factors we believe to be reasonable under the circumstances. These estimates are subjective in nature and to the extent that there are differences between these estimates and actual results, our financial condition or operating results in future periods may be affected.

These estimates are based on information available as of the date of the interim condensed consolidated financial statements; therefore, actual results could differ materially from those estimates.

Significant Accounting Policies

There were no material changes to our significant accounting policies as disclosed in Note 2. Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, which was filed with the SEC on August 29, 2022.

Recently Adopted Accounting Standards

Financial Instruments - Credit Losses

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments— Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosure” which addresses areas identified by the FASB as part of its post-implementation review of the current expected credit losses model or “CECL” previously issued in ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326)”. The amendments in this ASU eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing the disclosure requirements for loan refinancing and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases in the vintage disclosures. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2016-13. Amendments in this ASU should be applied prospectively except for the transition method related to the accounting for troubled debt restructurings in which an entity has the option to apply a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. We early adopted the new standard effective July 1, 2022 on a prospective basis. The adoption of the guidance did not have a material impact on our interim condensed financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Business Combinations

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires contract assets and contract liabilities, such as deferred revenue, acquired in a business combination to be recognized and measured in accordance with Topic 606 (Revenue from Contracts with Customers). ASU 2021-08 is expected to reduce diversity in practice and increase comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The ASU is effective for fiscal years beginning after December 15, 2022 and should be applied prospectively to acquisitions occurring on or after the effective date. Early adoption is permitted, including for interim periods, and is applicable to all business combinations for which the acquisition date occurs within the beginning of the fiscal year of adoption. We are in the process of evaluating the impact of adopting this accounting standard update on our consolidated financial statements and disclosures.

Table of Conten t s

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification accounting under existing U.S. GAAP, to address the expected phase out of the London Interbank Offered Rate (“LIBOR”). In January 2021, the FASB also issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope”, which provides additional optional expedients and exceptions applicable to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, to extend the temporary accounting rules under Topic 848 from December 31, 2022 to December 31, 2024. These ASUs are effective for all entities upon their respective issuance dates through December 31, 2024. We have reviewed all our financial agreements that utilize LIBOR as the reference rate and determined there is no impact to our interim condensed consolidated financial statements as of December 31, 2022. Throughout the remaining effective period for ASU 2020-04, ASU 2021-01 and ASU 2022-06, we will continue to evaluate the available relief measures within each of these amendments and will determine any impact on our consolidated financial statements and disclosures, as applicable.

3. Revenue

The following table presents the company’s revenue disaggregated by revenue source (in thousands):


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021

Merchant network revenue	$	134,019	$	127,087	$	247,168	$	219,331
Virtual card network revenue	29,117		26,558		55,825		45,953

Interest income	155,321		138,355		292,123		255,657
Gain on sales of loans	59,607		57,690		123,202		88,669
Servicing income	21,494		11,321		42,864		20,786
Total Revenue, net	$	399,558	$	361,011	$	761,182	$	630,396

Merchant Network Revenue

Merchant partners (or integrated merchants) are generally charged a fee based on gross merchandise volume (GMV) processed through the Affirm platform. The fees vary depending on the individual arrangement between us and each merchant and on the terms of the product offering. The fee is recognized at the point in time the merchant successfully confirms the transaction, which is when the terms of the executed merchant agreement are fulfilled. We may originate certain loans via our wholly-owned subsidiaries, with zero or below market interest rates. In these instances, the par value of the loans originated is in excess of the fair market value of such loans, resulting in a loss, which we record as a reduction to merchant network revenue. In certain cases, the losses incurred on loans originated for a merchant may exceed the total network revenue earned on those loans. To the extent we do not expect to recover the losses in future periods, we record the excess loss amounts as a sales and marketing expense.

A portion of merchant network revenue relates to affiliate network revenue, which is generated when a user makes a purchase on a merchant’s website after being directed from an advertisement on Affirm’s website or mobile application. We earn a fixed placement fee and/or commission as a percentage of the associated sale. Revenue is recognized at the point in time when the performance obligation has been fulfilled, which is when the sale occurs.

Table of Conten t s

For the three and six months ended December 31, 2022, there were no merchants that exceeded 10% of total revenue. For the three and six months ended December 31, 2021, approximately 11% and 10% of total revenue, respectively, was driven by one merchant.