Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Affirm Holdings Fiscal Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following the speakers’ remarks, we’ll open your lines for your questions. As a reminder, this conference call is being recorded. I’d now like to turn the call over to Ron Clark, Vice President of Investor Relations to begin.

Thanks, operator. Before we begin, I’d like to remind everyone listening that today’s call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website. Actual results may differ materially from any forward-looking statements we make today and these forward-looking statements speak only as of today, and the Company does not assume any obligation or intent to update them, except as required by law. In addition, today’s call may include non-GAAP financial measures. These measures should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today’s earnings press release, which is available on our Investor Relations website. Hosting today’s call are Max Levchin, Affirm’s Founder and Chief Executive Officer; and Michael Linford, Affirm’s Chief Financial Officer. With that, I’d like to turn the call over to Max to begin.

Welcome, everyone, and thank you for joining us in today's call. Before we get into the results, I want to start by talking about what we're actually building at Affirm. Around 10 years ago, we founded Affirm with a simple mission to deliver honest financial products that improve lives. We started by reinventing payments to make them transparent, simpler, smarter, and more delightful. Our core insight was that the generations coming of age after the financial crisis of 2008 were no longer willing to tolerate getting into permanent debt by putting it all in the card, or getting burned by late fees and deferred interest. These young consumers and many likeminded older ones, grew fundamentally suspicious of credit and retreated into the simplicity of their debit cards. This created no less than a once in a generation opportunity to transform credit, and thus, began the great unbundling of the credit card. The credit card was the ultimate buying bundle, a single product allowing you to put purchases of all sizes together in a one basket with the freedom to pay for them later. Unfortunately, if you couldn't pay for them later, and in full, endless debt became nearly inevitable and that credit card could quickly become the financial equivalent of a ball and chain. That's where Affirm came in. We deconstructed rather we unbundled the credit card, starting with the largest purchases. We made these easier, more transparent and helped consumers be smarter about buying now and paying later. In order to do all of this, we built proprietary technology from the ground up and developed sophisticated capital markets expertise. Our game plan was always simple, obsessed over consumer happiness, and use superior tech to give more people confidence to buy without resorting to the kind of dirty tricks the…

Thanks, Max, and good afternoon, everyone. We delivered another set of strong results to close out our fiscal year. In the fourth quarter, we accelerated year-over-year growth rate both GMV and revenue for the second consecutive quarter to 106% and 71%, respectively. Excluding our largest merchant Peloton, which saw GMV growth of over 328% in the fiscal fourth quarter of 2020, our fourth quarter GMV grew 178%. We also delivered strong unit economic, excluding the provision for credit losses revenue less transaction costs reached 7% of GMV. And even as we delivered these strong results, we continue to improve the capital efficiency of our business. The equity capital used to fund our loans decreased by another 19% to $178 million, despite more than doubling GMV and nearly doubling total platform portfolio. We also continue to deliver excellent credit performance. Our allowance as a percentage of loans held for investment declined to just 5.8% down from 9.2% last year, even as we expanded credit availability within our monthly installment in slip pay loan offer. And while we are pleased with the progress we've made in the fourth quarter, we are even more excited about how our product roadmap and recent merchant partnership set us up for another year of effective strong growth in the fiscal year ahead. I will discuss our financial outlook for the fiscal year ‘22 in a moment, but let me walk you through the key highlight of the fourth quarter first. Unless stated otherwise, all period to period comparative data refers to our fourth fiscal quarter of 2021 compared to our fourth fiscal quarter of 2020. Fourth quarter GMV grew 106% to $2.5 billion, exceeding our outlook. The momentum in GMV was stronger than categories leveraged to the reopening of the economy, while we began to anniversary…

[Operator Instructions] Our first question is for Ramsey El-Assal with Barclays. Please proceed.

Hi, thanks for taking my question this evening, and congratulations on these impressive results. I wanted to ask about your Shopify relationship. And in terms of signing new merchants I mean, the quarter saw such a huge step up in active merchants. How far penetrated do you think you are at this term in terms of the merchant base available to you? Sort of what inning are you in with the process of rolling out Shopify?

Asking me about innings will immediately highlight…

Any sports metaphor you want to…

I'm only good for one. We're like the day before the rest day – the first week of Tour de France, the only sport I'm good for. I have no idea how many innings exists in any base first, if I’m honest. I would say early. So just to give you a sense how the process actually works. So you first have to educate the merchant base, then you have to onboard them, then you start activating them both for marketing and just exposure to consumers and then eventually start processing volume. And so you can kind of think of it in these four stages. The number we highlighted in both Michael’s remark and mine is the tens of thousands of actives across our territories, but obviously Shopify question here. If you look at the on boarded, which is the stage before that number is in the hundreds of thousands now. And so we will start ramping the next stages of that process for the merchants, but it will take time. So it's early, very happy with how it's going. Lots more to cover.

Okay. And then I wanted to ask you a kind of a higher elevation question about all the M&A we’ve seen in the space over the last few months. It seems like there's kind of an accelerating trend towards bundling buy now pay later and with other financial services. And I know you guys are sort of embarking on that from sort of the other direction, but can you give us your thoughts on industry consolidation what maybe the end state of the industry looks like and sort of the different strategic paths available to you guys?

I can certainly try. I think if we want to speculate. So first of all, just to level set, the e-commerce is $800 billion in the U.S. or so. And I think, buy now pay later, and the various names I’ll refer to, in my mind unbundled credit card, because we're really trying to make that point in my little speech. But the whole idea here is the industry is very rapidly unbundling the credit card product into a bunch of different connected services. All that said, it's still like in the 3% to 4% of the overall e-commerce and then of course, non e-commerce part, and so long road to go. But that's really, really important to understand. So I think companies like Affirm that have a vision that extends past handful of years, really does have a lot of growth and a lot of product building to do. So from that point of view, we are very keen observers of the industry. We think ourselves, great technologists, obviously, really careful risk managers, manager and really thoughtful builders of things. And we're not bad at all markets. Those are kind of the key notes in our chord that we're trying to strike with the industry, wherever we can build, or buy more merchant services that speaks to those strengths. That's what we're looking for. And Returnly is kind of great highlight, it's just a beautiful, complimentary service that fits into all those strengths, instantly benefited from cross sell to merchants, instantly benefitted from our depth of capital markets. They're not bad risk managers themselves. But obviously, we have to share those now. So that you will see us do more and more often, and we think there is just a lot to do there. Not necessarily always buying, but…

That’s hugely helpful. Thanks so much.

Our next question is from Jason Kupferberg with Bank of America. Please proceed.

Hey, thanks, guys. Congrats on the numbers here. I wanted to start with a question just on the revs transaction expenses for ‘22 is going to be 4.5% of GMV. And I know that that's materially higher than the low to mid 3% range that I think you had historically targeted. So should we think of the mid 4%s as kind of a new normal? Or are there some anomalies that you would call out for fiscal ‘22? I mean, I know the number was even higher the last couple of quarters, but just wanted to see how we should think about it on a more normalized basis.

Yeah, I think there's a couple things to think about here. It has been higher recently, although we have benefited from continued improvement and credit outlook that has contributed nicely. When you look forward, as you model out the split pay low AOV business, you will see numbers coming down there just a start to the much smaller revenue base. So as a percentage of GMV you do have revenue less transaction costs of those transactions. We've indicated that we expect 10% to 15% of next year's number to be there. Over the longer term, we do expect that to continue to grow faster. And so I think we'd like to maintain the kind of longer term indication we've given everybody.

Okay. So we should still think about that really mid 3% just based on mix over the longer term.

That's right.

Okay. And then, just following the Amazon announcement how your pipeline works for other potential large merchant wins. And then maybe as part of that, can you just talk a little bit about the availability on Amazon? I think press releases that kind of upcoming month, but would you encourage us to think about that, as you know next quarter or is it more like two to three quarters out?

So I think we try to be as disclosive and as careful as we can be, when we talk about such large important partnerships. The testing is ongoing, literally day in out, we're in that phase of a partnership. And I think the opportunity to offer is enormous, the exact contours availability, both where and when, a little bit beyond the scope of this particular conversation. In terms of enterprise pipeline, what I want to do my own horn too much here, but we have become sort of the undisputed provider of the service to the enterprises, because we are really that good. We think that any enterprise thinking about offering buy now pay later, or pay monthly looks at Affirm as the gold standard. And we intend to provide those services to people like them. Always a terrible idea to pre-announce deals or pre announce deals that aren’t closed, shouldn't really be coming to the pipeline. But certainly have extreme conviction that what we built resonates with folks that care about technology, scalability, availability, delivery of full suite of products, or the postal port solution. So in essence, I think the market is meeting us where we are with our suite of services.

Okay. Well, thank you. Appreciate it.

Our next question is from Dan Perlin with RBC Capital Markets. Please, proceed.

Thanks. And let me add my congratulations, as well. Max I wanted to maybe dive in a little bit onto that last question a bit. And the question really, is the nature of which Amazon chose you guys. You threw off a couple things there. But I mean, is it ultimately the breadth of product? Is it that you solve kind of the sweet spot for them and helping them convert? And is it also that there's this parallel kind of roadmap that you might share with them, but just any, I think incremental color in terms of maybe why that relationship was born would be very helpful. Thanks.

Again, I think it is important to say that as announced it is a test we are working very hard to make sure the test is successful. The reason companies have the scale and customer obsession, which, by the way, one reason why companies of this type, perhaps to this. Everything I said technology, risk management, conversion all of that is true, but at the very core it is with the end consumer. We want to deliver the best possible service. Sorry, I'm getting feedback that it's very hard to hear me. Is this any better?

I can hear you fine.

Sorry. I'll try to add more microphones too. So the punchline is we are obsessed with consumer delight. We want to make sure that we are driving sales, increasing conversion, improving the size of cards, all of that while being on the consumer side, without charging them late fees, without burying gotchas and fine print and things like that. And I think that is typically the cornerstone of our most successful partnerships. That is where these enterprise merchants that expect to live for hundreds of years and have lots of repeat transactions, they want to know that we will treat their consumers right that their consumer doesn't become just a footnote in chase for revenue, et cetera. So I think that that's really, really important. And that's where a lot of the relationships are forged, that's what we bring in. That's we take that very seriously. And certainly as do they. Sorry, I'll stop ranting. But the other thing, perhaps worth noting, I think that's the important thing here is I think the wave of the industry that I highlighted is what's driving a lot of these widgets as well. We are divested technology, we are really the most scalable provider here, as these very, very large retailers say, you know what, this isn't going away. It's not a cool feature. It's a real product. They look to us to provide.

And then my follow-up just briefly, kind of as an extension to that, as you aptly noted, you're winning a lot of these enterprise platform deals. The question I guess, longer term is, how do you think about and this is a high quality problem, obviously, but how do you think about the potential concentration risk that a company like shop and Amazon Peloton will come back and you probably will win other large scale enterprise relationships? I'm just wondering how you think about that? And what are those discussions like internally about how to mitigate some of those risk concerns? Thank you.

It's a great question. I'm honest, I think our job is to build exceptional product and maintain our leadership, both intellectually and at the product level. Enterprises, you inevitably run some level of concentration risk. I think we've demonstrated simply looking at Peloton that we're quite good at diversifying those concentration risks. So I can say, we don't know what to do about risks in general. But at the very core, our success depends on our ability to build great products and run it successfully at great unit economics, et cetera. So that’s what we will do.

Thank you.

Our next question is from James Faucette with Morgan Stanley. Please proceed.

Great. Thank you very much. Max, I want to kind of build on the theme of adding new merchants, et cetera. In our own research, we saw a bit slower growth among the largest online merchants, which is probably understandable and largest online ones outside of Amazon. But that's understandable, given the push to bring shop merchants on et cetera. How should we think about just more generally merchant growth dynamics going forward? And I think this builds a little bit on the last question, should we expect a lot more bigger merchants near-term? Or is it still like building up a broader base just kind of help us think through what you're targeting, and where you're putting effort?

Yeah, we think this product makes a lot of sense for consumers, first and foremost. And, at this point, the premier provider of the services to platforms of various kinds, we intend to bring products to market with them. And that is really important to us. But that's fueling a fair amount of our excitement here. That said, we very much care about smaller merchants. In fact, we are investing in areas of merchants self-service, making sure that we can bring someone live from near interest in Affirm to accepting transactions as quickly as possible. One of the core metrics we review literally every week is hey, how long did it take to go from an interested Affirm to take in first transaction and that's something that we are concentrated, minimize. It really matters for these little shops that do not have a legal team, and so on, and so forth. So we see ourselves as providers, not just to the very largest, but also to everyone, mid tail, long tail. All those are great customers. And frankly, the impact that we have on the long tail base is really staggering. That's where you can have share of cards that can number in sort of the staggering high double digit numbers. Now, we're so interested and so invested in these platinum partnerships, because a lot of them carry enormous amount of long tail. So building our service in a way that consumable and installable really easy, really high converting both at the consumer end, but at the really small merchant is really important to us. Merchants' self-service pipeline works really well by way of integrating with all the platforms, all the e-commerce platforms out there at this point. I can think of one where we're not supportive, but it also through these partnerships. And so we intend to go after every imaginable merchant out there, both online and also we have our design to offer.

That's great. And just as a quick follow-up, this is for you, Michael. Can you give a little bit more color on, I guess, kind of the activity mix during the quarter. I asked, because number of users was a lot better than we had modeled and things like virtual card network revenue was better as well as gain on sale. But on the flip side, like the merchant network revenues were a little less. So just wondering how we should think about like, what caused that during the course of the quarter perhaps, and then how we should kind of think about that next volatility, if you will, going forward?

Yeah. So the change in which income statement lines the revenue hits is very much a function of the product. So as we mix away from longer term 0% loan, you'll see loans that are coming into the interest bearing side, as we talked about, we did have a higher maximum interest bearing this quarter. And, when we put those on our balance sheet, we are an interest income. And when we tell them, we get the gain on sale, and you saw that big growth and gain on sale there. And the underlying reasons are related to the segments that saw the strongest growth. And so we had segments like travel and ticketing, which obviously, as early stages of the reopening saw explosive growth. But also we had our direct to consumer virtual card product, Affirm Anywhere, grow substantially. And that product has a little bit of virtual card network revenue, and then obviously, interest bearing activity behind it. And so really, it's the mix of products that shows up with driving those results. And as we've said many times before, we really don't look at or try to manage those deadlines, we target a total revenue number and try to deliver that. And we keep a keen eye on that revenue, less transaction cost number to make sure we're delivering really strong unit economics, that we can generate the revenue and generate the unit economics, the rest of itself sorts it out.

That's really good context. Thanks, Michael.

Our next question is from Andrew Jeffrey with Truist Securities. Please proceed.

Good afternoon. Appreciate you taking the question. Max, I'm intrigued by the Affirm Debit+ product and recognizing that you're not including any GMV or revenue in your guidance. I wonder if you could just flush out a couple things for us. One, what do you think is the most likely use case mix of Affirm split a purchases or Affirm loan purchases versus sort of broad use. And then also, how do you think that product affects repayment tender? Does it definitionally results in a debit based loan repayment? Or is there more of an ACH characteristic? I'm just trying to think through the dynamics as this product takes hold and gains traction?

That's a great question. Sure, I can hit them all. But this is like, this was going to be awesome. It’s a great set of questions. But I am tempering my excitement for the product because I know our lawyer watching. But it is hard to tempering, it’s a great product. First of all, the use cases are that we envisioned is the one I've been testing the product more or less daily for the last month or two. And I bought an incredible amount of coffee, public service announcement do not buy pre ground beans. I buy all beans only, but it's in the tens of pounds at this point. That is my closest walk through for recognizing the debit card. And it's pretty cool. It works with my existing checking accounts. So when I do nothing, it just settled against that period of time. And when I feel like swiping left, turning into a pay-over-time transaction, that's what it does. And it's super smooth, very quick to physical card. So no different from one that your bank gave you. The expectation and the intent that we have for this product is that it really takes place as your top of wallet, primary transacting device, stepping back further and I'll allow myself a little bit of storytelling. One way of analyzing this whole BNPL revolution is actually is – there was like 100 million plus people that basically said, I'm just going to use my debit card because I don't understand credit cards, but I know they're good partners. And, those people can disagree, but I generally think decide that you put it all on a piece of plastic and then revolve then you pay interest on your lot size and your coffee beans. And your more expensive purchases,…

Appreciate it. Thank you.

Our next question is from Moshe Orenbuch with Credit Suisse. Please proceed.

Great. Thanks. Maybe to follow-up on that and some of the previous questions. As you expand, as a Affirm is able to expand its marketplace and the consumers that shop there and now with the debit card, can you talk about how I mean the expansion of the TAM, that that would provide essentially and how often can you earn affiliate Bs? How often not? Like, how do we think about the underlying economics perhaps, as you're able to expand in those ways?

That's a really good question. So, again, without -- I realized I'm sounding a little bit like a child high in a pile of sugar, but I think this bed is busting it's pretty awesome. And we wanted to be the primary transactional device for our consumers. So the TAM is they're spend, 20 times a month on food and things like that. So it's shopping, or it's purchasing, whatever you call it. In that sense, we have infinite ambition. In terms of affiliate fees, I think the important thing there is, obviously we've done pretty well, we can sort of see that in our numbers or at least from our numbers there. We are not yet focused on that to be completely transparent. We're trying to build an amazing experience. We’re trying to convince our consumers that this is a far better way of buying things. Over time, obviously, a tremendous value for our merchant partners or whoever our consumers choose to go to and shop, if we brought that customer to them, it's a service that we bundle, if you will, with the transaction itself. There's plenty of sort of advertising or marketing revenue to compete for there. But it served the -- that's part two. Part one is we want the consumer that picks up that across to say this is the best thing ever. I don't really need to use my real debit card anymore because this is better and I certainly don't have to touch my credit card ever again. That assuming we hit that – I was just going to say hit that out of the park, but I realized that I know what I'm talking about, again. Assuming we deliver on that I think affiliate fees will come. We'll start forecasting that as we measure the actual penetration. But the TAM itself is enormous.

Thanks. And just as a quick follow-up on the Amazon relationship or test. Could you talk about how that will be presented to the consumer, like, because there are multiple products that Amazon does offer, from a payments standpoint, and anything that you can kind of tell us as to whether how Amazon is going to be choosing to do that or how that process works? Thanks.

I'm afraid that's what tests are for to figure out the best presentation, best user interface and ultimately, we all know what works best. And then we're all here.

Thanks very much.

Our next question is from Rob Wildhack with Autonomous Research. Please proceed.

Hey, guys, thanks for fitting me in. Just a question on funding. Michael, you called out drivers in gain on sale for this quarter. But just wanted to get your latest outlook for the demand and pricing trends on home loans from here? And how that could potentially flow through to the level of equity capital required going forward?

Yeah, so we fund our business with now four different funding tools, securitizations that both get consolidated, and then our non-consolidated board flow and on the warehouse side. In our earning supplement, we show a pretty good breakdown of the funding mix by channel. And, the growth that you saw this quarter was predominantly in securitizations, but not consolidated and consolidated. When the securitization is consolidated, it does show up on the balance sheet as an asset, but it's really efficient. If you look at the last two deals we've done, we're kind of borrowing 97% or 98%, on average of the consumer balances, which is obviously just an extremely efficient way to fund it with respect to equity capital. But to answer your question, specifically around the market and the reaction and pricing around forward flow, it remains very strong. I think the demand for Affirm Paper in the market is really high. They desire the asset type, which is really short in duration. And they acknowledge that we've been really good at underwriting, and so they really liked the credit quality we can generate.

Okay. Thank you.

We have reached the end of our question-and-answer session. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.