News and resources on payments systems, innovations and initiatives worldwide.

Affirm raises guidance on Q3 and FY results

Source: Affirm

Affirm Holdings, Inc. (NASDAQ: AFRM) (“Affirm” or the "Company”), the payment network that empowers consumers and helps merchants drive growth, today provided an update on its business performance, including its current funding capacity and availability, and raised the Company's third quarter and full year fiscal 2022 financial outlook.

Updated Business Performance and Financial Outlook

The Company’s fiscal quarter-to-date financial performance has exceeded expectations, putting the Company on track to exceed the third quarter financial outlook it provided on February 10, 2022. Gross merchandise volume (GMV) growth remained strong, driven in particular by the Company’s enterprise partnerships. Revenue less transaction costs has exceeded expectations driven by outperformance in both network revenue and transaction costs, including provision for credit losses. Excluding transaction costs, the Company’s operating expenses have trended below expectations for the quarter, resulting in a better-than-expected adjusted operating loss as a percentage of revenue thus far.

Given this strong performance, the Company is raising its financial outlook for both its third quarter and full year fiscal 2022.

Funding Capacity and Availability

Affirm’s diversified funding strategy--which leverages multi-year committed warehouse credit facilities, forward-flow arrangements, and asset-backed securities (ABS) issuances--is designed to enable the Company to fund its business efficiently and effectively, without reliance on any single funding channel. For example, in the current volatile market environment for pricing ABS issuances, the Company’s diversified funding strategy allows it to maintain discipline by leveraging other sources of liquidity with attractive economics.

Affirm partners with diverse counterparties ranging from banks to pension funds and asset managers for its warehouse credit facilities and forward-flow arrangements. As of February 28, 2022, Affirm had approximately $9.3 billion in fully committed funding capacity, providing the Company with the ability to fund more than $20 billion in annual GMV. The company remains in compliance with all applicable funding covenants, and its expectations relating to future funding covenant compliance are unchanged. For example, for substantially all of its funding, the most restrictive of the Company’s delinquency covenants is a three-month average 30+ day delinquency rate of less than or equal to 6%.

The Company added over $400 million of additional funding capacity in the first two months of calendar year 2022, after adding $4.2 billion of capacity during calendar year 2021. In addition to its approximate $9.3 billion in funding capacity as of February 28, 2022, the Company also had cash and cash equivalents of over $2.5 billion as of December 31, 2021, with an additional $700 million of restricted cash and securities available for sale at fair value.

Definitions of Key Operating Metrics and Non-GAAP Financial Measures

Key Operating Metrics

Gross Merchandise Volume (GMV) - The Company defines GMV as the total dollar amount of all transactions on the Affirm platform during the applicable period, net of refunds. GMV does not represent revenue earned by the Company. However, the Company believes that GMV is a useful operating metric to both the Company and investors in assessing the volume of transactions that take place on the Company's platform, which is an indicator of the success of the Company's merchants and the strength of that platform.

Non-GAAP Financial Measures

Revenue Less Transaction Costs - The Company defines revenue less transaction costs as GAAP total revenue less the sum of loss on loan purchase commitment, provision for credit losses, funding costs, and processing and servicing expense. The Company believes that revenue less transaction costs is a useful financial measure to both the Company and investors of the economic value generated by transactions processed on the Company's platform.

Adjusted Operating Loss - The Company defines adjusted operating loss as its GAAP operating loss, excluding: (a) depreciation and amortization; (b) stock-based compensation expense included in GAAP operating loss; (c) the expense related to warrants and share-based payments granted to enterprise partners; and (d) certain other costs. Adjusted operating loss is presented because the Company believes that it is a useful financial measure to both the Company and investors for evaluating its operating performance and that it facilitates period to period comparisons of the Company's results of operations as the items excluded generally are not a function of the Company's operating performance.

Use of Non-GAAP Financial Measures

To supplement the Company's condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company presents certain non-GAAP financial measures, including revenue less transaction costs and adjusted operating loss. Definitions of these non-GAAP financial measures and summaries of the reasons why the Company believes that the presentation of these measures provides useful information to the Company and investors are included under "Definitions of Key Operating Metrics and Non-GAAP Financial Measures" above. In addition, the Company uses these non-GAAP financial measures in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of its annual operating budget, and for evaluating the effectiveness of its business strategy. However, these non-GAAP financial measures are presented for supplemental informational purposes only, and these non-GAAP financial measures have limitations as analytical tools. Some of these limitations are as follows:

Revenue less transaction costs is not intended to be a measure of operating profit or loss as it excludes key operating expenses such as technology and data analytics, sales and marketing, and general and administrative expenses;

Adjusted operating loss excludes certain recurring, non-cash charges such as depreciation and amortization, although the assets being depreciated and amortized may need to be replaced in the future, and stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense and an important part of the Company's compensation strategy; and

Other companies, including companies in the same industry, may calculate these non-GAAP financial measures differently from how the Company calculates them or not at all, which reduces their usefulness as comparative measures.

Accordingly, investors should not consider these non-GAAP financial measures in isolation or as substitutes for GAAP financial measures, and these non-GAAP measures should be considered along with other operating and financial performance measures presented in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and not rely on any single financial measure to evaluate the Company's business.

Comments: (0)