SEC Filing | Affirm Holdings, Inc.

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afrm-20230331

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, 2023


☐			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 May 5, 2023, the number of shares of the registrant’s Class A common stock outstanding was 235,833,709 and the number of shares of the registrant’s Class B common stock outstanding was 59,851,818.

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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						21
7. Leases						25
8. Commitments and Contingencies						26
9. Transactions with Related Parties						27
10. Debt						28
11. Securitization and Variable Interest Entities						31
12. Investments						33
1 3 . Derivative Financial Instrume nts						37
1 4 . Fair Value of Financial Assets and Liabilities						39
1 5 . Stockholders’ Equity						49
1 6 . Equity Incentive Plans						50
1 7 . Restructuring						53
1 8 . Income Taxes						54
1 9 . Net Loss per Share Attributable to Common Stockholders						55
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						56
Item 3. Quantitative and Qualitative Disclosures About Market Risk						74
Item 4. Controls and Procedures						76
Part II - Other Information						77
Item 1. Legal Proceedings						77
Item 1A. Risk Factors						77
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						79
Item 3. Defaults Upon Senior Securities						80
Item 4. Mine Safety Disclosures						80
Item 5. Other Information						80
Item 6. Exhibits						81
Signatures						82

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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 (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 maintain our relationship with Celtic Bank as an originating bank partner and engage additional originating bank partners;

•our ability to maintain, renew or replace our existing funding arrangements and build and grow new funding relationships;

•the impact of any of our funding sources becoming unwilling or unable to provide funding to us on terms acceptable to us, or at all;

•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, including in the manner and timeframe we have previously communicated;

•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;

•developments in our regulatory environment;

•the impact of macroeconomic conditions on our business, including the impacts of inflation, a rising interest rate environment and corresponding increases in negotiated interest rate spreads, increasing recessionary concerns and the instability of financial institutions; 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,

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uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Form 10-Q, in our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2022, and in 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 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.

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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)


	March 31, 2023		June 30, 2022
Assets
Cash and cash equivalents	$	972,477	$	1,255,171
Restricted cash	409,015		295,636
Securities available for sale at fair value	1,059,031		1,595,373
Loans held for sale	122		2,670
Loans held for investment	3,775,542		2,503,561
Allowance for credit losses	(176,336)		(155,392)
Loans held for investment, net	3,599,206		2,348,169
Accounts receivable, net	135,816		142,052
Property, equipment and software, net	277,156		171,482
Goodwill	537,126		539,534
Intangible assets	48,267		78,942
Commercial agreement assets	198,994		263,196
Other assets	270,639		281,567
Total Assets	$	7,507,849	$	6,973,792
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable	$	30,022	$	33,072
Payable to third-party loan owners	44,187		71,383
Accrued interest payable	13,826		6,659
Accrued expenses and other liabilities	192,360		237,598
Convertible senior notes, net	1,413,345		1,706,668
Notes issued by securitization trusts	1,788,853		1,627,580
Funding debt	1,514,120		672,577
Total liabilities	4,996,713		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, 234,561,926 shares issued and outstanding as of March 31, 2023; 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 March 31, 2023; 140,000,000 authorized, 60,109,844 shares issued and outstanding as of June 30, 2022	1		1
Additional paid in capital	4,918,756		4,231,303
Accumulated deficit	(2,385,285)		(1,605,902)
Accumulated other comprehensive loss	(22,338)		(7,149)
Total stockholders’ equity	2,511,136		2,618,255
Total Liabilities and Stockholders’ Equity	$	7,507,849	$	6,973,792

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)

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.


	March 31, 2023		June 30, 2022
Assets of consolidated VIEs, included in total assets above
Restricted cash	$	251,964	$	164,530
Loans held for investment	3,382,808		2,179,026
Allowance for credit losses	(149,430)		(124,052)
Loans held for investment, net	3,233,378		2,054,974
Accounts receivable, net	8,196		8,195
Other assets	14,506		14,570
Total assets of consolidated VIEs	$	3,508,044	$	2,242,269
Liabilities of consolidated VIEs, included in total liabilities above
Accounts payable	$	2,817	$	2,897
Accrued interest payable	13,826		6,525
Accrued expenses and other liabilities	14,119		15,494
Notes issued by securitization trusts	1,788,853		1,627,580
Funding debt	1,358,666		514,033
Total liabilities of consolidated VIEs	3,178,281		2,166,529
Total net assets	$	329,763	$	75,740

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 INCOME (LOSS) (Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
Revenue
Merchant network revenue	$	119,013	$	121,054	$	366,181	$	340,385
Virtual card network revenue	29,469		23,169		85,294		69,122
Total network revenue	148,482		144,223		451,475		409,507
Interest income	178,270		134,599		470,393		390,256
Gain on sales of loans	32,813		52,484		156,015		141,153
Servicing income	21,413		23,456		64,277		44,242
Total Revenue, net	$	380,978	$	354,762	$	1,142,160	$	985,158
Operating Expenses
Loss on loan purchase commitment	$	31,224	$	46,853	$	105,256	$	163,796
Provision for credit losses	66,438		66,294		237,377		182,581
Funding costs	51,188		15,824		120,005		50,277
Processing and servicing	65,229		43,371		186,096		110,421
Technology and data analytics	161,792		110,291		463,500		283,293
Sales and marketing	140,942		156,214		493,149		363,650
General and administrative	139,266		142,466		458,877		419,962
Restructuring charges, net	34,934		—		34,934		—
Total Operating Expenses	691,013		581,313		2,099,194		1,573,980
Operating Loss	$	(310,035)	$	(226,551)	$	(957,034)	$	(588,822)
Other income, net	103,522		172,139		175,067		68,507
Loss Before Income Taxes	$	(206,513)	$	(54,412)	$	(781,967)	$	(520,315)
Income tax (benefit) expense	(836)		259		(2,584)		706
Net Loss	$	(205,677)	$	(54,671)	$	(779,383)	$	(521,021)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments	$	31	$	5,406	$	(16,993)	$	3,945
Unrealized gain (loss) on securities available for sale, net	4,520		(2,105)		2,061		(3,041)
Unrealized gain (loss) on cash flow hedges	(257)		—		(257)		—
Net Other Comprehensive Income (Loss)	4,294		3,301		(15,189)		904
Comprehensive Loss	$	(201,383)	$	(51,370)	$	(794,572)	$	(520,117)
Per share data:
Net loss per share attributable to common stockholders for Class A and Class B
Basic	$	(0.69)	$	(0.19)	$	(2.65)	$	(1.86)
Diluted	$	(0.69)	$	(0.19)	$	(2.65)	$	(1.86)
Weighted average common shares outstanding
Basic	297,204,715		285,641,820		293,915,268		279,570,015
Diluted	297,204,715		285,641,820		293,915,268		279,570,015

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 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
Issuance of common stock upon exercise of stock options		185,225	—			716		—		—		716
Vesting of restricted stock units		2,373,583	—			—		—		—		—
Vesting of warrants for common stock		—	—			93,922		—		—		93,922
Stock-based compensation		—	—			125,902		—		—		125,902
Tax withholding on stock-based compensation		—	—			(18,169)		—		—		(18,169)
Foreign currency translation adjustments		—	—			—		—		31		31
Unrealized gain on securities available for sale		—	—			—		—		4,520		4,520
Unrealized loss on cash flow hedges		—	—			—		—		(257)		(257)
Net loss		—	—			—		(205,677)		—		(205,677)
Balance as of March 31, 2023		294,650,588	$	3		$	4,918,756	$	(2,385,285)	$	(22,338)	$	2,511,136

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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 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
Issuance of common stock upon exercise of stock options		1,258,865	—			8,171		—		—		8,171
Repurchases of Common Stock		(9,472)	—			(80)		—		—		(80)
Vesting of restricted stock units		1,318,524	—			—		—		—		—
Vesting of warrants for common stock		—	—			92,169		—		—		92,169
Stock-based compensation		—	—			113,005		—		—		113,005
Tax withholding on stock-based compensation		—	—			(54,162)		—		—		(54,162)
Foreign currency translation adjustments		—	—			—		—		5,406		5,406
Unrealized loss on securities available for sale		—	—			—		—		(2,105)		(2,105)
Net loss		—	—			—		(54,671)		—		(54,671)
Balance as of March 31, 2022		285,778,325	$	3		$	3,987,881	$	(1,419,506)	$	7,677	$	2,576,055

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 CASH FLOWS

(Unaudited)

(in thousands)


	Nine Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities
Net Loss	$	(779,383)	$	(521,021)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for credit losses	237,377		182,581
Amortization of premiums and discounts on loans, net	(103,468)		(129,714)
Gain on sales of loans	(156,015)		(141,153)
Gain on extinguishment of debt	(89,841)		—
Changes in fair value of assets and liabilities	(10,017)		(38,821)
Amortization of commercial agreement assets	64,202		72,804
Amortization of debt issuance costs	13,198		13,215
Amortization of discount on securities available for sale	(23,711)		968
Commercial agreement warrant expense	330,718		157,023
Stock-based compensation	348,372		280,113
Depreciation and amortization	91,355		35,607
Other	294		(5,725)
Change in operating assets and liabilities:
Purchases of loans held for sale	(4,719,789)		(3,869,327)
Proceeds from the sale of loans held for sale	4,838,250		3,868,919
Accounts receivable, net	(1,784)		(42,467)
Other assets	(3,292)		28,018
Accounts payable	(3,618)		(8,773)
Payable to third-party loan owners	(27,196)		(14,117)
Accrued interest payable	8,028		240
Accrued expenses and other liabilities	(45,288)		28,545
Net Cash Used in Operating Activities	(31,608)		(103,085)
Cash Flows from Investing Activities
Purchases and origination of loans held for investment	(