Affirm(AFRM) - 2025 Q4 - Annual Results

Shareholder Letter Introduction and Strategic Overview Affirm achieved operating profitability in FQ4'25, with a core strategy focused on expanding its merchant network, increasing transaction frequency, and maintaining strong unit economics - Affirm achieved operating income profitability in FQ4'25, delivering on a commitment made a year prior[6] - The core strategy for FY'25 focuses on expanding reach through a best-in-class merchant network (377,000 active merchants, +24% YoY), increasing transaction frequency via direct-to-consumer products (+20% YoY in transactions per active consumer), and maintaining strong unit economics by prioritizing superior credit performance (4.0% RLTC in FY'25)[5] - Future goals include sustaining positive operating income while maintaining aggressive growth, investing in future products, and improving operating leverage[9] Productivity and AI Innovation Affirm nearly doubled GMV and RLTC from FY'23 to FY'25 with a flat headcount, driven by a focus on productivity and the adoption of generative AI tools - From FY'23 to FY'25, Affirm nearly doubled its GMV and RLTC while maintaining a flat headcount[11] - Revenue per employee reached approximately $1.5 million in FY'25, with the adoption of generative AI tools serving as a powerful accelerator[11] - Affirm views AI through three lenses: AI products for internal use, AI products to build and sell, and AI as an opportunity catalyst[14] - Initial results from early AdaptAI deployments show an average GMV increase of 5% for adopting merchants[15] Future of Shopping and Affirm Card Generative AI is expected to reshape e-commerce, creating opportunities for Affirm's composable products, while the Affirm Card showed strong FQ4'25 growth - Generative AI is deconstructing traditional e-commerce, creating new opportunities for Affirm's composable products like Adaptive Checkout in digital wallets, browsers, and chatbots[19] - The company anticipates a significant shift toward transparency in consumer finance, with AI agents helping consumers avoid industry pitfalls and gimmicks[20][21] Affirm Card FQ4'25 Key Metrics | Metric | Value | YoY Growth | | :----------------------- | :---------- | :--------- | | Card GMV | $1.2 billion | 132% | | Active Cardholders | 2.3 million | 97% | | Card In-Store Spend | - | 187% | | Card 0% APR GMV | ~14% of Card GMV | >2x Growth | | Attach Rate | 10% | +1 ppt QoQ | FQ4'25 Performance Highlights FQ4'25 Operating Highlights Affirm delivered strong operational growth in FQ4'25, with GMV increasing 43% to $10.4 billion, driven by key merchant partners and significant growth in D2C volumes FQ4'25 Key Operating Metrics | Metric | Value | YoY Growth | | :----------------------- | :---------- | :--------- | | Gross Merchandise Volume (GMV) | $10.4 billion | 43% | | Top 5 Merchant GMV | - | 41% | | 0% APR Monthly Installment Loan GMV | - | 93% | | Direct-to-Consumer GMV (D2C GMV) | $3.1 billion | 61% | | Affirm Card GMV (within D2C) | $1.2 billion | 132% | | Active Consumers | 23 million | 24% | | Active Merchants | 377,000 | 24% | FQ4'25 Financial Highlights FQ4'25 total revenue grew 33% to $876 million, and the company achieved operating profitability of $58 million, driven by strong RLTC growth and operational leverage Revenue Analysis FQ4'25 Revenue Composition | Revenue Component | Value | YoY Growth | | :-------------------- | :---------- | :--------- | | Total Revenue | $876 million | 33% | | Interest Income | - | 24% | | Network Revenue | - | 37% | | Servicing Income | - | 23% | | Gain on sales of loans | - | 67% | - Revenue as a percentage of GMV decreased by 64 basis points[38] - - Gain on sales of loans: Increased by 16 bps due to selling more loans at improved pricing[41] - - Interest income: Decreased by 62 bps as loans held for investment grew slower than GMV and the 0% APR GMV mix increased to 29% in FQ4'25 from 25% in FQ4'24[41] - - Network revenue: Decreased by 13 bps as the average term of 0% APR monthly installment loans declined approximately 20% both QoQ and YoY[41] - - Servicing income: Decreased by 5 bps, but the average annualized yield on the off-balance sheet platform portfolio remained stable at approximately 2%[41] Revenue Less Transaction Costs (RLTC) FQ4'25 RLTC Performance | Metric | Value | YoY Change | | :------------------------------------ | :---------- | :--------- | | RLTC | $425 million | +37% | | RLTC as % of GMV | 4.1% | -17 bps | | Average annualized funding cost | 6.8% | -90 bps YoY, -30 bps QoQ | - RLTC as a percentage of GMV decreased by 17 basis points, primarily due to a 64 basis point decline in revenue, partially offset by a 29 basis point improvement in funding costs and an 11 basis point improvement in provision for credit losses[43] - 0% APR product GMV grew 93%, and Pay-in-X transaction volume grew 50%[48] - - Strategic value of 0% APR loans: On average, they can lift GMV by over 20%, attract a higher proportion of new users (about half of new users in FQ4 transacted first with a 0% APR product), and have lower credit risk (provision rate is ~60% lower than interest-bearing loans)[51] - - Approximately 95% of 0% APR GMV is merchant-funded with stable pricing[52] Operating and Adjusted Operating Income FQ4'25 Operating Income Performance | Metric | FQ4'25 | FQ4'24 | YoY Change | | :-------------------------- | :---------- | :---------- | :--------- | | Operating Income | $58 million | ($73 million) | +$132 million | | Operating Margin | 7% | (11%) | +18 ppts | | Adjusted Operating Income | $237 million | $150 million | +$87 million | | Adjusted Operating Margin | 27% | 23% | +4 ppts | - The improvement in operating income was primarily driven by a $116 million increase in RLTC and a $16 million decrease in other operating expenses[54] - Non-GAAP other operating expenses grew 18% ($29 million), driven by a 17% increase in technology and data analytics costs and a 53% increase in sales and marketing expenses[55][57] Credit Quality Credit quality improved in FQ4'25, with 30+ day delinquency rates declining due to a portfolio shift towards lower-risk 0% APR products and shorter loan terms - 30+ day delinquency rates (excluding Peloton and Pay-in-X loans) decreased by 15 basis points QoQ and 18 basis points YoY[58] - The improvement in delinquency rates is attributed to a portfolio shift towards 0% APR products and a reduction in the average loan term for these products[58] - Recent vintages of monthly installment loans are expected to have a final net charge-off rate of approximately 3.5% of GMV, consistent with historical performance[61] - Loss rates for all recent vintages of Pay in 4 loans continue to be below 1% of GMV[62] Capital and Funding Affirm increased its funding capacity to $26.1 billion by the end of FQ4'25, supporting over $60 billion in annualized GMV, while maintaining strong liquidity - Funding capacity increased to $26.1 billion at the end of FQ4'25 (up from $23.3 billion at the end of FQ3'25), supporting over $60 billion in annualized GMV[65] - Total liquidity was approximately $2.2 billion at the end of June 2025, an increase of $81 million YoY[66] - Net cash was approximately $1.1 billion at the end of June 2025, an increase of approximately $270 million YoY[67] - - ABS: Priced AFFRM 2025-X1 in May, the largest static ABS issuance to date at $756 million; priced a second revolving transaction, AFRMT 2025-2, upsized to $750 million in June[72] - - Forward Flow: Increased capacity by approximately $1 billion from FQ3'25, expanding the partnership with PGIM and upsizing existing capacity with two alternative asset managers[72] - - Warehouse and Other Funding Debt: Increased capacity by approximately $500 million from FQ3'25 through a new warehouse partner and upsizes with existing partners[72] - The Board of Directors has authorized the repurchase of up to $200 million of its 2026 convertible notes between July 1, 2025, and December 31, 2025[70] Financial Outlook Fiscal Q1 2026 and Fiscal 2026 Guidance Affirm provides financial guidance for the first quarter and full fiscal year 2026, projecting continued growth in GMV and revenue alongside improved operating margins Fiscal Year 2026 Financial Outlook | Metric | Q1 FY2026 | Full Year FY2026 | | :-------------------------------- | :---------------------- | :------------------ | | GMV | $10.1B - $10.4B | >$46 billion | | Revenue | $855M - $885M | ~8.4% of GMV | | Revenue less transaction costs | $405M - $420M | ~4% of GMV | | Operating Margin | 1% - 3% | >6.0% | | Adjusted Operating Margin | 23% - 25% | >26.1% | | Weighted-average basic shares | 330 million | 335 million | | Weighted-average diluted shares | 348 million | 352 million | Assumptions embedded within the outlook The financial outlook is based on several assumptions, including an increased mix of 0% APR GMV, a shift in volume from a key enterprise merchant, and a moderate decline in interest rates - - Product Mix: The mix of 0% APR GMV (including Pay-in-X products) is expected to increase YoY[74] - - Enterprise Partnership: An enterprise merchant is expected to transition the majority of its "buy now, pay later" volume to its own wallet solution by FQ2'26[75] - - Enterprise Warrant Expense: FQ1'26 is expected to be similar to FQ4'25, and FY'26 is expected to decline by at least 30% from FY'25[76] - - Interest Rate Environment: Short-term benchmark rates are expected to moderately decline during FY'26, based on the forward curve embedded in the outlook[77] - - Funding: The Equity Capital Required (ECR) Ratio is expected to remain below 5% of the Total Platform Portfolio[78] - - Product and Go-to-Market Initiatives: International expansion is not expected to be a significant growth contributor during FY'26[79] Company Information and Definitions Conference Call and Investor Relations Affirm will host a conference call on August 28, 2025, to discuss FQ4'25 results and will participate in several investor conferences in September 2025 - Affirm will host a conference call and webcast on August 28, 2025, at 2:00 PM PT to discuss its fiscal fourth quarter 2025 financial results[81] - - Upcoming Investor Conferences: - - Goldman Sachs Communacopia + Technology Conference (September 9, 2025, San Francisco) - - Barclays 23rd Annual Global Financial Services Conference (September 10, 2025, New York)[82] About Affirm Affirm's mission is to deliver honest financial products that improve lives by building a payment network based on trust, transparency, and putting people first - Affirm's mission is to deliver honest financial products that improve lives[82] - The company is building a payment network based on trust, transparency, and putting people first, empowering consumers to spend and save responsibly while helping businesses grow[82] - Unlike most credit cards and other installment options, Affirm never charges late or hidden fees[82] Key Operating Metrics, Non-GAAP Financial Measures and Supplemental Performance Indicators This section defines Affirm's key operating metrics, non-GAAP financial measures, and supplemental performance indicators, explaining their utility and limitations - This section provides definitions for key operating and supplemental performance indicators such as Gross Merchandise Volume (GMV), Active Consumers, Transactions per Active Consumer, Active Merchants, and Funding Capacity[85][86][87][102][103][104][105][106][107][108][109][110][111][113][114] - This section also defines non-GAAP financial measures including Transaction Costs, Revenue Less Transaction Costs (RLTC), Adjusted Operating Income, Adjusted Operating Margin, Total Platform Portfolio, and Equity Capital Required[88][89][90][91][92][93][94][95][96][97][98][99][100] - The company believes these non-GAAP measures are useful for evaluating its operating performance, but they are not a substitute for GAAP results and should be considered alongside them[115][116][117][118] Cautionary Note About Forward-Looking Statements This document contains forward-looking statements involving risks and uncertainties that could cause actual results to differ materially from expectations - This document contains forward-looking statements regarding the company's future operations, products, growth, and financial performance, which are subject to known and unknown risks and uncertainties[119] - Risk factors include attracting and retaining merchant partners and consumers, industry competition, funding capacity, credit risk management, adoption of AI solutions, and macroeconomic conditions[120] - Investors should not place undue reliance on these forward-looking statements, and the company does not undertake any obligation to update them[121] Financial Statements and Reconciliations CONDENSED CONSOLIDATED BALANCE SHEETS As of June 30, 2025, Affirm's total assets grew to $11.15 billion, driven by an increase in loans held for investment, with total liabilities and stockholders' equity also increasing Condensed Consolidated Balance Sheets (in thousands of U.S. dollars) | Metric | June 30, 2025 | June 30, 2024 | Change | | :-------------------------------- | :-------------- | :-------------- | :------- | | Total assets | $11,154,929 | $9,519,619 | +17.18% | | Loans held for investment, net | $6,628,606 | $5,360,959 | +23.64% | | Total liabilities | $8,085,919 | $6,787,630 | +19.13% | | Notes issued by securitization trusts | $4,833,855 | $3,236,873 | +49.35% | | Total stockholders' equity | $3,069,009 | $2,731,989 | +12.34% | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (loss) Affirm reported a net income of $69.2 million in FQ4'25, a significant improvement from a net loss in FQ4'24, driven by a 33% YoY increase in total revenue Condensed Consolidated Statements of Operations and Comprehensive Income (loss) (in thousands of U.S. dollars, except per share amounts) | Metric | FQ4 2025 | FQ4 2024 | FY 2025 | FY 2024 | | :-------------------------- | :--------- | :--------- | :--------- | :--------- | | Total revenue, net | $876,417 | $659,185 | $3,224,412 | $2,322,999 | | Income (loss) from operations | $58,064 | ($73,460) | ($87,273) | ($615,847) | | Net income (loss) | $69,244 | ($45,136) | $52,186 | ($517,757) | | Net income (loss) per share, basic | $0.21 | ($0.14) | $0.16 | ($1.67) | | Net income (loss) per share, diluted | $0.20 | ($0.14) | $0.15 | ($1.67) | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For fiscal year 2025, net cash provided by operating activities was $793.9 million, contributing to an end-of-period cash and restricted cash balance of $1.756 billion Condensed Consolidated Statements of Cash Flows (in thousands of U.S. dollars) | Metric | FQ4 2025 | FQ4 2024 | FY 2025 | FY 2024 | | :-------------------------------- | :--------- | :--------- | :--------- | :--------- | | Net cash provided by operating activities | $74,637 | $68,763 | $793,909 | $450,138 | | Net cash used in investing activities | ($454,516) | ($537,633) | ($1,083,064) | ($1,325,149) | | Net cash provided by financing activities | $387,258 | $145,969 | $751,425 | $913,149 | | Cash, cash equivalents, and restricted cash at end of period | $1,756,423 | $1,295,399 | $1,756,423 | $1,295,399 | RECONCILIATION OF NON-GAAP FINANCIAL MEASURES This section provides detailed reconciliations of non-GAAP financial measures, such as RLTC and adjusted operating income, to their most directly comparable GAAP counterparts Reconciliation of Non-GAAP Financial Measures (in thousands of U.S. dollars, except percentage data) | Metric | FQ4 2025 | FQ4 2024 | FY 2025 | FY 2024 | | :------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Transaction costs (Non-GAAP) | $451,343 | $349,787 | $1,742,247 | $1,328,525 | | Revenue less transaction costs (Non-GAAP) | $425,074 | $309,398 | $1,482,165 | $994,474 | | Adjusted operating income (loss) (Non-GAAP) | $237,000 | $149,807 | $778,083 | $380,864 | | Adjusted operating margin (Non-GAAP) | 27.0% | 22.7% | 24.1% | 16.4% | | Non-GAAP general and administrative | $86,819 | $78,579 | $326,400 | $294,236 | | Non-GAAP technology and data analytics | $74,568 | $63,567 | $280,902 | $248,337 | | Non-GAAP sales and marketing | $26,900 | $17,595 | $97,774 | $74,594 | | Equity capital required (Non-GAAP) | $568,871 | $596,310 | $568,871 | $596,310 | SUPPLEMENTAL DELINQUENCY INFORMATION This section presents historical delinquency rate data for monthly installment loans from fiscal 2019 through fiscal 2025, illustrating recent credit quality trends - Provides detailed historical data on 30+, 60+, and 90+ day delinquency rates for monthly installment loans (both total and excluding Peloton) for each quarter from FY'19 to FY'25[130][131] - In FQ4'25, the 30+ day delinquency rate for monthly installment loans was 2.3% (total) and 2.3% (excluding Peloton)[130][131]