Q2 2025 Earnings Call Transcript

Good afternoon. Welcome to Affirm Holdings, Inc. Second Quarter Fiscal 2025 Earnings Call. Following the speakers' remarks, we will open up the lines for your questions.

As a reminder, this conference call is being recorded, and a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call. I would now like to turn the call over to Zane Keller, Director of Investor Relations. Thank you. You may begin.

Thank you, operator. Before we begin, I would 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 that we make today.

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 a substitute for GAAP financial measures. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in our earnings supplement slide deck, which is available on our investor relations website.

Hosting today's call with me are Max Levchin, Founder and Chief Executive Officer, Michael Linford, Affirm's Chief Operating Officer, and Rob O'Hare, Affirm's Chief Financial Officer. In line with our practice in prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into questions and answers. On that note, I will turn the call over to Max to begin.

Thank you, Zane. Another great quarter. So I do not feel a strong need to expound at any length on the numbers. They speak for themselves.

I do want to take a moment to thank my frequent partner in crime and our president, Libor. Whose name is not, in fact, pronounced Libar. So that would make for an epic joke. He's been here at Affirm for ten years.

And he and I met over thirty years ago, both studying computer science at University of Illinois at Urbana Champaign. Affirm isn't even our first rodeo together, but be remiss in not taking a moment to thank him for not only putting up with me for ten years, but more importantly, keeping our engineering product operations and perhaps most importantly, credit efforts humming along with his typical Eastern European grumpy call. Thank you, Liber. Here's to many more years together.

Back to you, Zane.

Thank you, Max. With that, we will now take your questions. Operator, please open the line for our first question.

Thank you. If you would like to ask a question, please Our first question is from Ramsey El-Assal with Barclays. Please proceed.

Hi. Thanks for taking my question this evening. Terrific. Results. I wanted to ask about the noticeable increase in zero percent loans and just ask you about how you're deploying those. Are you opening new merchant doors with them? Are there particular verticals you're targeting? Is it for existing partners? Like, is there a sort of a strategy behind it or is it just more broad-based?

The very short answer is all the above, but it's a great question. You, Ramsey, for asking it. First of all, these are programs where merchants and sometimes manufacturers donate, if you will, parts of their margin to our borrowers to give them essentially interest-free or sometimes reduced interest loans. And it's very careful for a good reason, not paying interest at all, obviously, is a compelling reason for someone to pull the trigger on buying.

What our merchants turn towards growth, like they frequently do in calendar fourth quarter, they look for ways to do promotions. There are a handful of well-understood ways of doing it. One such way is discounts, sort of, you know, your typical ten, twenty percent off. Compromises pricing integrity and teaches consumers to wait for the next ten percent sale.

Channeling the same promotional dollars into reduced APRs or zero APRs is very powerful because on one hand, allows them to say, Hey. Here's a reason to buy. I'm Naomi. At the same well, at the same time saying the price is the price.

We're not discounting. And so our long-time merchants know this really well. Some of our earliest merchants really pioneered this practice. We've since really industrialized this by creating tools where they can do this essentially with very little work on our part.

And so that's what's on display. And we'd said, I think, in the last quarterly call that that's a thing we're going to lean into and we've delivered on that very strongly. Thing that's really worth highlighting here that's maybe it sort of doesn't mean the I immediately, we now have a very sizable audience that Yes. Fuel direct to consumer in our app and with our card, In for a long time, these promotions were largely available On our merchants' points of sale online.

We have now offered them an opportunity to bring these promotions, essentially syndicate them across the entire of Affirm's surfaces. Which is to say they're available in our app on our card, and across many of the wallets where we're integrated. So you can see to the beginning of Affirm network syndication strategy really play out where the offers that we negotiate with merchants on our consumers behalf are available across all the programs. And you'll see this narrative repeated in things universal financing programs that I'm sure we'll talk about in a second.

But it's really, really important to us. Us. The network is valuable because it is aware of the SKUs, aware of the transactions, and delivers great unique reasons for people to buy for consumers to buy on every surface where we play. So we we'll see more of this.

You'll see things that are not immediately visible to the naked eye as we lead into the strategy. Thank you.

Thank you for that. One follow-up from me. You came in above your three percent to four percent RLTC guide this quarter. And I think you've indicated in the past you'd move to reinvest that excess RLTC rather than just letting it flow through to profits.

What does that look like right now? Does that mean opening up the credit box a bit more, maybe subsidizing some of these zero percent loans? Does that then flow through to higher volumes? Like, what should we be looking out for in terms of the P and L impact of that reinvestment?

The excess ROTC.

Yeah. I think, certainly, leaning into zero percents and in some cases, subsidizing zero percent. And even even the zero percent product is slightly lower margin for us than our interest-bearing products. So taking a program that historically has been interest-bearing and introducing some zero percent into that program, you know, would be slightly margin dilutive, but we think a great thing for our network in terms of what it does for reaching a broader cross-section of consumers.

So, yeah, I think, you know, the growth in zero percent in a quarter where we had really, really strong RLTC margins. I mean, that's not a coincidence. That's that's something that we're actively trying to do more of.

Got it. Thanks so much.

Our next question is from William Nance with Goldman Sachs. Please proceed.

Hey. I appreciate you taking the question. Wanted to kinda follow-up sort of on the last two questions combined. I know, you know, you're talking about leaning into zero percent loans.

I'm wondering if you could talk a little bit about just the ROTC margin profile of some of that incremental growth. And I I know that's a lever that you guys have to manage the margin. Just I guess where are you in that strategy and you know, how you know, obviously, there were some kind of I think you caused out a couple benefits to the margin from some of the loan sales this quarter. But just kind of where do you kind of see a tipping point from perspective where you start to lean in a lot harder?

And are are you doing that or was the ramp in zero percent more a function of some of these kind of merchant-driven promotions this quarter.

Yeah. I'll start, and then Rob can pile on. I think we definitely think long term we wanna be in between three and four percent. That doesn't mean that we would do things that we don't think are are good for the business.

And so we think about investing dollars or or or trying to drive incremental growth we we still wanna do it in a way that that makes good financial sense. So we think about the credit question that was asked earlier, it's important to us that we don't dilute our performance on credit overall as that's thing that's allowed us to execute so well in the capital markets, and we We've learned how important that is over the past several years and and really have come to value the capital markets appreciation for our execution there. And so we're really thoughtful about things that we do wanna do. The the framework of three to four percent remains the long term doesn't mean a quarter might be above and the bar for investment inside of a quarter is still really high.

We think it's really important that we're putting dollars to work in ways that make sense. That you know, for example, investing in expanding really compelling APR offers, like zero percent and fixed APR offers, is because of the positive selection that we do get from credit. So as Rob mentioned, those are actually a lower tied lower. Profile overall, but with with also a lower credit profile, lower credit loss profile.

Which is, obviously, attractive to the overall portfolio. Yeah. And also, I think we're still fine-grained in terms of where we can set cutoffs for zero percent that we don't need to make a huge or long-term bet. We can iterate on setting the right approval thresholds to make sure that we're attracting the sorts of consumers that we want to attract and that we're we're running these programs at the margin profile we wanna run at.

Got it. Appreciate your time with the question, guys.

Our next question is from Matthew O'Neill with FT Partners. Please proceed.

Thanks so much for the question. I was just curious, entering the quarter, I believe you were pointing to a three point eight percent RLTC margin. And this quarter benefited from sixty million collectively between the securitization and loan sales. Did did that did those two amounts kind of come and and contribute together as a two I'm just trying to sort of parse the the expected versus realized impact to the margin in the quarter.

Yeah. Thanks for that question. I think it's really important to to be really clear on this. When we gave the guidance, We talked in November.

We we talked about the the capital markets pipeline as being a key part of our confidence in that guide, if you recall. And and that was in reference to the deals that we were working on. And had and had confidence we would execute. So not all of those deals were incremental to our outlook.

It is the case that the pricing we were able to execute at was better. Than than we thought, but not all of the benefit that we had associated with those deals was unexpected. We we planned on doing those transactions, and we had a certain know, meaningful portion of that already in the number. But it helps explain why we were we were ahead of our our goals, which were already set, we think, on the high end of the range.

Thank you so much. And and as a follow-up, I I know it's a it's always a delicate subject on wallet partners, it was mentioned in the release. So I figured I would ask with there anything there that came in better than for the expectation or plan or any sort of revised outlook as we turn into calendar twenty five here with respect to all partners. Thank you. And appreciate the movie quotes.

Finally, someone who cares. So generally speaking, very pleased with the wallet integrations They're shipping up to be a really meaningful part of the business Across the board, the metrics on these integrated wallets are really strong. Like, we see good repeats. They add to the transaction per user averages, they add to conversion metrics that we track internally.

They are accretive on the credit quality side of the equation. So all in all, we're quite happy with what's happening there. A really important piece of our work sort of echoing a little bit to the answer to Randy's question We've been quietly busy making sure that our consumer offers are harmonized across wallets, and not wallet integrations. And that's really been Just driving.

Quite a lot of nice engagement. We're and the the purpose of that, of course, is to make sure that consumers understand that whatever door they choose, if there's an Affirm logo on that door, gonna get the same quality of service, they're gonna get the same offers, same rates, etcetera. And so that that's been a really important, although kind of Somewhat behind the scenes effort that also contributed to the the bullet efforts. I'm I don't think we are at liberty to offer any updates to the forecast or models related to this thing, but we're certainly quite pleased with what what's happening so far.

Thank you.

Our next question is from Dan Dolev with Mizuho. Please proceed.

Hey, guys. Amazing quarter. As always, can you maybe map and team, can you give us an update on the UK launch specific neither. So given that your product is know, much more diverse than just paying for, you know, how how do you think the share market share evolution can go there over time and how much share can you take from incumbent over time in Europe. Thank you.

I guess it's a little early to prognosticate share taking. I will note that by all public sources, we do share in the US from our various competitors here quite nicely. So at least past experience bodes well. You're totally right.

We do have a diverse array of term offerings and the ability to deliver these really sophisticated subsidized APRs even for longer terms, There's definitely very real market pull One of my meetings today was actually with a prospective merchant that's quite a meaningful player in the UK, and it's very clear that the market is hungry for things like twenty four month loans and thirty six month loans because the incumbent banks who provide that sort of product are just not really willing to approve from what I can tell. At all, but I'm sure some people get a loan, but most don't. And our pure play competitors are just not in that space in any kind of a meaningful way.

And we're coming in loaded for that effort and excited to deliver our value, and it seems like the merchants are impatiently asking us not will you, but how quickly and much can we do together. So very excited about the opportunity. I think last we talked, I joked that we have dozens and dozens of transactions at this point It's still dozens and dozens, but many. So that's that's better.

And more than a handful of merchants now. So we're we're we're still in the testing phase. We're seeing all the metrics. That we need to track to feel confident rolling it out widely.

In the letter, you'll note that I mentioned that Shopify is our first Major enterprise scale integration that's gonna be live in the UK relatively soon. So we're definitely the right time to check-in on uptake with a wide group of merchants as soon as that goes I don't preannounced, maybe, but I I can I can speak to it freely now? Sorry.

Thank you, Max. Amazing results again.

Our next question is from Kyle Peterson with Needham and Company. Please proceed.

Hi. Great. Thanks for taking the question and and nice results here. Wanted to ask on the funding mix moving forward.

Are you guys looking to expand and add more of these deals kinda like the the sixth Street partnership? Seems like a really you know, good win. Are are you guys looking at more deals kinda similar to this, or or, you know, how should we think about the mix funding moving forward between, you know, warehouse, ABS, and some of these forward flow agreements.

Yeah. We we are really proud of the the progress that we've made in capital markets this quarter, our team has has really executed very well out there. The partnership with sixth Street is is really an incredible leap forward our program, It's a big it's a big program, though. So I I wouldn't expect us to do the super near term, a bunch more like that in that size and scale.

It's it's a pretty big partnership, and we spent a lot of time thinking about who and how we were gonna gonna partner there. Now that being said, I think it is reflective of a very constructive market that Really does. Value the asset that we create. And so we're gonna continue to take advantage of that.

We are very thoughtful around scaling our capital program. We think about where we'll be in three and five and maybe even ten years. And make decisions that are constructive towards enabling the kind of scale that we're building to. So at the investor forum, Last November a year and a half ago, we talked about getting to fifty billion dollars in GMV, and so the team is hard at work in enabling that that the capital program is scaled.

To allow us to deliver against that goal. And that'll be here before we know it. And when it is, we'll take an eye towards the next milestone, continue to scale the capital program. And to to get to those kind of scale points, it's important that we are are thoughtful, that we aren't leaning towards the the flavor of the year.

Respect to the capital markets in our are are designing a program that is durable and and can survive multiple economic scenarios and conditions. And and that what it means is, yes, the foreclo market, in particular, are partner with private credit and insurance companies are really attractive right now, and we're gonna continue to take advantage of those as much as we can. But we're we're also thoughtful around making sure that we have a a good reputation and and good execution in the ABS markets consistently. And the two really do work with one another.

About the only program for us that is less a piece of of real scale enablement is our warehouse business. And that's mostly because of the attractive financing that we get in the ABS market combined with obviously the good economics we have in the workflow world.

Great. Thank you. And then I guess just quick follow-up on sixth Street in particular. So on the shareholder letter, you guys mentioned that's expected to start ramping up in second half of of twenty five.

Is that, like, a phased launch that, you know, those start smaller and the volumes will ramp? Or or is once they the volume start, it should be is that a fairly steady run rate, or how should we think about, you know, the contribution and and the ramp time with sixth Street?

Yeah. It it should ramp over over the course of the next year. So we're not planning on turning it up all the way to its maximum levels overnight. We'll be very very thoughtful about scaling it carefully. Over the course of next year.

Thank you very much for the call.

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

Hey, guys. Active customers were up twenty-three percent year over year. I think you noted in the letter. That's four quarters of accelerating growth. I wanted to ask, a, where that is coming from, the how much it benefits from things like the zero percent APR growth and then see, I guess, how sustainable do you think that is in the in the twenty percent plus range?

I think the root causes of these accelerations are multiple quarters, maybe even multiple years in the making. We were actually quite focused on increasing our active consumers, and it's gratifying to see the results compound. Probably the most impactful project In that effort, we're our focus on direct to consumer. So the card, obviously, is a great product to increase engagement, be awakened, if you will, dormant consumers that have transacted with us sometime in the past but haven't used this in a while.

So bringing them back is a really important effort. It also does not hurt to continue expanding ecommerce coverage, the more counters, if you will, the more checkouts were on the better the probability that someone who used Affirm before will say, hey. I remember that product. It was great.

It's better than my credit card. I should use them again. So all those things add up to just a little bit more conversion, just a little bit better For the ones of doubt, it is not a some sort of a dramatic credit machinations behind the scenes, which people always suspect. Wait a second.

You just opened up the box and should be apparent in the credit results. But for the avoidance of doubt, we have been very steady-handed. On credit Yeah. I I the best I can offer is it it was a very deliberate prioritization on our part about a year ago.

To focus on active consumers and like everything else we do here, when we focus on something, it typically takes a little while, but the results compound.

Okay. Thanks. And then on the non-GAAP operating expenses, sales and marketing in particular, it looks like that was up quite a bit sequentially. Typically not done a lot of direct sales and marketing. So just wondering what the driver was there and if you expect non-GAAP sales and marketing to stay at that, like, thirty million dollar level going forward. Thanks.

Yeah. We we did, Rob, we did make some investments in the quarter to support some new program launches, but the the marketing spend that we had to to Max's earlier point it really wasn't focused on direct user acquisition. We continue to see most of the user acquisition coming from point of sale as Max alluded to. So really not a change in strategy.

In terms of the go forward spend, we we haven't broken out the OpEx into the various cost centers, but you can see from the guide, we we do expect OpEx to be roughly in line with Q2 in both Q3 and Q4. So it's it's gonna be a pretty similar OpEx envelope as we look ahead to the next two quarters.

Okay. Thank you.

Our next question is from Reginald Smith with JPMorgan. Please proceed.

Hey, guys. Congrats on the quarter. I was hoping to dig in a little bit on some AI You mentioned, I guess, the chatbot and the and the shareholder letter, I was curious, you know, how you guys are thinking about AI and whether it can be used for more commercial purposes. I don't know products that face off against consumers.

And then the second piece of that question is how AI has changed your thinking on headcount in which you can get done with your current size of your staff. And if that's changed over the last twelve months. Thank you.

Thank you, Reggie. Good questions both. So we we try to I mean, we're we're we're all contrarians here. So when the industry zig z zag, we we don't talk that much about AI, but we've been using machine learning and artificial intelligence since inception.

All of our underwriting and broad finding is all built on what is now called AI We have a lot of really cool stuff that doesn't meet the eye that we just don't brag about too much, but for what it's worth, a lot of the most modern transformer architecture approaches to model building is something we're actively investing in internally for all the same all the same things we accomplish with more traditional machine learning and even some sort of really innovative stuff. And it's a kind of thing where I I'd love to dig into it and probably have to call would get very bored. Of of my rants. But I I literally spent part of my morning looking at a completely novel transformer architecture design that we think we're gonna pick up some really interesting results from in fighting fraud.

So that's entirely. In terms of, you know, actually, the the the underwriting and Anti fraud type stuff. We are engaged in deploying AI tools for productivity purposes Which is absolutely a product to video or operating leverage enhancer across the team, thereby giving us choices in hiring and allowing us to focus on hiring specialists sort of higher caliber versus more entry level jobs not just in customer service, but in things like engineering, etcetera, etcetera. And so pretty excited about that.

We're you know, I fine example, I think I may have given before, but one of my favorite ones, We have three hundred and something thousand active merchants. The total number of merchant contracts we have signed is in hundreds of thousands. Anytime we're asking ourselves, we launch this new product? Do our merchant contract allow us to do that?

So some human somewhere is gonna open up three hundred thousand documents and that's not gonna be easy if you ask the equivalent of a well-trained LLM, you can answer that question in seconds. And so that that's a fine example of where our legal team benefits from Generative AI without the need to expand the headcount. So we're we're doing that in legal. We're doing that in compliance.

We're doing it in in accounting. Marketing, etcetera. So all of that is exciting and happening. And then on the consumer side, I'm gonna bite my tongue and not pronounce anything.

But, obviously, the tools that or the the opportunity that come out of Genai are pretty awesome and we'll we'll have our say and and products to show for it when when we're ready.

And I guess if I can just kinda follow-up and get a finer point on it. You guys gave just an operating leverage target this year. I guess you know, how how much and even if you're able to say, like, how much AI is kinda baked into that leverage? Is there still you know, did you contemplate that fully or or should we think about that? You follow my question?

Think so. Rob, do you wanna apply?

Yeah. Again, I think you know, what we're doing with AI has has sort of been inherent part of how we've operated the business and as Max said since inception. And so you know, we we really did take a hard look at driving efficiency in the business that was over two years ago now and We've we've asked and demanded for operating leverage in every operating plan that we've built. And so I think, you know, finding ways to do more with less is just part of how we've been operating.

So it's it's hard to really quantify, Reggie, but always looking to sort of be as efficient as we can and to to scale the business without adding tons of employees.

Perfect. No. That sounds great. Great quarter. Appreciate taking the questions.

Our next question is from Andrew Bauch with Wells Fargo. Please proceed.

Hey. Thanks for taking the question and nice set of results here. You know, in the shareholder letter, you talk about the redesign of the firm apt and and focusing on the utility. Know, maybe if you can just give us a little bit more color on what you've learned about the redesign and how Affirm is becoming more of a marketplace and and what kind of other opportunities that's that's kind of leading to when we think about the Affirm card longer term, you know, getting to that level of an average use and scale that that you talked about in the past.

Sure. And it got edited a little bit in the final hours of the letter writing but many of the changes we built last quarter, which is what the letter is referring to, have only rolled out now for this one and are still rolling out. Like, we we don't change UX willy nilly, and so you'll see a few more Like, the app will look different, for example, at a while. It still looks almost the same today, but some bits are different.

More obvious changes will happen on the UX front. If you sort of follow the app carefully, you'll see that we're leaning in more and more into the notion that the Affirm network is this really rich collection of merchants that at any given time are offering these staggering zero percent deals either funded by the retailer or the manufacturer or both. And our consumers have come to expect that the Affirm app is a place where they can find these deals. And for a while, it was kind of an organic thing that we sort of put together because people ask I I used to go on Reddit and read people asking the question, hey.

Where can I find an Affirm zero percent deal? At the point, it gave me the idea. And we're really should be able to find the Affirm zero percent deals, you know, maybe in the Affirm app. That'd be a good place.

So so we we started there with the catalog, and our deal tab in the app is a little bit of that and we're now fielding close to you know, hundreds of thousands of searches per week. And rising rapidly in the app. Looking for these zero percent deals, obviously, naturally leads to an opportunity to say, hey. You know, someone will want to be featured there, and we're very careful not to know, god forbid, pit our merchants against each other.

It's not a know, comparison shopping engine or anything like that. It's really a place to showcase the exciting offers that our retailers are bringing out to Affirm shoppers. And so we keep on leaning to that. We keep on seeing better conversion.

I think a quarter or two ago, I rattled off that the search to transaction initiation rate is twenty-five percent. Last I looked, it's clipped thirty. So people are using this really effectively to find reasons to say yes to buying. And so we'll keep doing that.

There's a couple more things coming coming into the app that are probably better experienced than described by me, so I'll stop myself from reeling too much, but it it's entirely about just making the card a more convenient thing. Like, I and you know, I I've talked about in the past that as as much as I love my favorite child, the card, there's still so much to do in terms of user interface improvements. We just updated a little bit of the transaction planning flow so you can really quickly figure out what your purchasing power is and what will have if you swipe the card without asking for a loan upfront, etcetera.

So all of that is a it's a long list of features that we're building, but all of it is all about just finding one, two, three more points of growth for the carton. It's already obviously growing really well, but we're not gonna be I I wouldn't be happy if it slows down. So we we just have to keep working on it.

Yeah. Really excited stuff and congrats on the GAAP EPS.

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

Well, thank you guys. I know, Max, you said at the outset, the numbers kinda speak for themselves, which they do. So I'm curious, like, with things are going well on credit and funding and volume growth and profitability. Really, what are the one or two biggest items that you're spending the bulk of your time focusing on driving improvement?

That list is long. You can give me more than one or two, though. I I was trying to prioritize. Let's see.

I mean, we're ultimately live and die by conversion and uptake. And up to a point, you can do this by having blanket sort of great terms and more zero percent etcetera. At some point, you have to personalize where it's not enough to say, to someone your purchasing power increased. You have to speak to your purchasing power Any particular merchant is waiting for you, etcetera.

And so there's always opportunity to find that efficient frontier of offering someone access to credit without overextending them. Can one thing that again, I'm I'm sure I'm repeating myself at this point, but we're not in the business of making consumer Spend more money. In fact, we're in a business of Hopefully. Helping consumers pay less for access to credit But we are more than excited to take over more of our consumer spend.

In the last letter, I think I said that we want to get the card to twenty million cardholders averaging seventy-five hundred dollars per year of spend Those are somewhat arbitrary numbers. They're just you know, they multiply out to a big number, and we we're hoping to get bigger and bigger. So anything we can do to personalize the experience to give people a chance to feel like this is the best alternative they have to their debit or their credit card is what we're busy with. That that's in the US.

Internationally, obviously, there's more than a little to do. In the UK, we are doing well there. They're know, there's lots to do, but Initial results. Our really So Please but not satisfied, I think.

It's the the internal terminology I used. And etcetera. So I I think that those are kind of the Maybe things that are top of mind. At any given time, there's always something exciting going on here.

There's Definitely some pretty fascinating things happening just answered Ray's question was Gen AI that I spent a little bit of my time on. Again, not not in the service of anything, but have set out to do, you know, build build good financial products. So there's just a lot to build in new product categories.

Right. And maybe just a follow-up on card. I mean, now it's up to eight percent or just a great percent of total GMV. I'm wondering if you've seen any change in consumer behavior with the product in terms of pay now versus pay later or any newer merchant categories that you're seeing in increased traction in terms of usage of the card?

No. We have not. But we're very actively working on expanding it. The card is really great for some of the transactions that it covers today, and it's not optimal at all or not not as good as it should be anyway.

For other kinds. And so I spent a a meaningful amount of my time trying to answer the question of how do we get to that seventy-five hundred dollars per user? And, obviously, there's only so many couches and Bicycles you're gonna buy per year. There's a lot of other kinds of transactions.

And so everything we do here is in the service, for the card in particular, of answering the question, how else can we be useful to you? Where else can we have an financial product that doesn't charge you late fees, doesn't compound all the good things we do, you know, doesn't charge you any interest at all if the merchant's interested in getting you to say yes. So That's a one way to answer this question is how can we be useful to you in groceries? How can we be useful to you when you're buying medicine?

And that we just launched with GoodRx, and it's in the letter, I think. That that's a category that we really think is very important. Helping people buy what is a professionally more expensive part of their life is something that we're quite proud about and and excited to do more. And so each one of these categories is something that you have to think through and the modalities of purchase can be different.

Imagine easily what it looks like to use a FIRM card at a a restaurant versus a general merchandise store or versus a specialty electronic store. So those are the areas of possible impact and we are seeing at this point, the card is big enough where we can observe usage Find areas where conversion is not as high as it is in other and ask ourselves, what can we do to improve the experiences? That that's actually probably one of the areas that I'm most excited about and spending a lot of my time on. So I anticipate How can we improve conversion, improve I'll take in places where it's not as high as it can be.

Good stuff. Thanks, Max.

Our next question is from Vincent Caintic with BTIG. Please proceed.

Hey, good afternoon. Thanks for taking my questions. Max, you spoke earlier about taking share in the US this quarter. And I think it's interesting when I contrast, you know, Affirm's strong growth and your RLP margin versus some of the credit cards, for instance, that I cover.

Providing maybe weak weaker twenty twenty five guidance in GMV and calling for tighter credit underwriting. I'm wondering, what you are seeing in terms of being able to capture maybe even more share through the course of twenty twenty five, You know, are you seeing opportunities with merchants and maybe different behaviors from customers as these other lenders pull back? And what are you expecting? How how will this out over the course of calendar twenty twenty five?

Definitely not the easiest thing in the world to predict. Right? These things are little bit. They're both slow moving and quite dynamic.

Especially as seen through the lens of things like credit reporting, Obviously, any time lenders pull back in a credit card space at least as often related to their forward-looking view as it is about them dealing with mistakes of their past. So anytime somebody offers a conservative guidance on credit issuance, they may be speaking about their overall view of the consumer, thinking that people are gonna spend less money or they're maybe overextended. But as often as not, they're also speaking to the fact that they overextended that consumer in their portfolio and are now dealing with having to average into reasonable Yielden.

Loss rate. Because of how our product works, we have much less of a concern in that damage. We underwrite every transaction. Typical term is much shorter.

We get to assess the consumer's financial health in the moment and do our best to help them. But if we think that they're over sending themselves, the answer can't be sure. Just put it all into the big bucket and revolve away. So because we have this discipline and we try to extend it to our it's a lot easier for us to feel good about the state of the consumer given our numbers, you know, they're we're we're not apologizing for mistakes in the past because we've been past a hook in.

So I do think that as you know, if the reports and the the forecast are to be believed, Some of these lenders will call back and we'll be there to help these customers because we should be. It's our job. Again, I if I sound like I'm hesitating, not that I don't have the confidence in our ability, It's always very difficult to figure out what's gonna happen next, and we pick this business and this structure of our product specifically so that we can react very quickly to whatever macroeconomic wins might bring. Right now, US consumers really healthy.

They're shopping They are paying their loans back. The economy is basically fully employed, which is really solid. We're not afraid of hire for longer because able to operate at these rates quite successfully. So everything looks good.

We'll continue lending because It seems like a really good business decision for us. Should things change, we will be there to call back smartly. We we don't grow based on credit. We issue credit based on our needs to print healthy credit results for our capital partners.

Okay. Great. That's very helpful. Thank you.

And, actually, a follow-up on that. You said for instance, you're not afraid of hiring for longer. You know, it seems like every day we get some new macro or political news to think about, whether it's, you know, the CFPB director departure or tariffs or or interest rates for hire for longer. Wanted to get your thoughts on maybe what's important and impactful to Affirm from what's coming out of Washington.

Thank you.

I think we are sufficiently self-aware to know that we are on the receiving end of what's coming out of Washington. And so our job is to help consumers buy and merchand sell and pretty good at that job. The rates don't faze us and I again, I think we've shown that we we will thrive In just about any rate environment we've seen so far. Regulatorially, we have not helped back nor do we expect to do something new and unnatural based on the administration because we are guided by a mission and a sense of right and wrong that's internal to who we are.

Versus to what's on the latest headlines, and we'll continue lending. We'll continue not charging late fees and not compounding interest, and raging against deferred interest and things like that. And so none of that is gonna change and there's absolutely no need to for us to reexamine any of our core values. Things like tariffs are super hard to predict.

But Thank tend to have inflationary Impact on the economy and when inflation was raging, we were there to help our customers afford things that they needed to buy, and we'll continue to be there for them. Etcetera. So I I think, if if I and I'm I I don't mean to sound overly sanguine because every day is a new day and we keep our eyes and on the on the dials and hand firmly on the steering wheel, but we lend in Democratic and Republican administrations in red and blue states all the time and so certainly have no No plans to change any of that.

Okay. Very helpful. Thanks very much.

Our next question is from John Hecht with Jefferies. Please proceed.

Afternoon, guys. Congratulations, and thanks for taking my questions. You you did talk about the the the go some of the goals within the card segment and but I guess what I'm wondering is what have you learned so far when when it comes to customer interaction and kind of overall RevPAR per customer when it comes to that product layered upon the buy the buy now pay later's products that might have brought them into the network.

I think I said it before, and It's bears repeating. Card is not in and of itself e booster. To our usage. It's a filter in a sense that people that will eventually become our best consumers, people that really buy into the value proposition of Affirm, the zero percent The deals, the the discounted APRs, the no fees, like, all everything we stand for if you opt into the card, You're leaning into Affirm and choosing to become essentially what do we think is gonna be a lifetime relationship.

And so the card is this, do you want to embrace Affirm fully? Here it is. Please please go for it. And so I don't think it's for everyone, but it is our best customers choosing to do more with us.

And good news is that we have we see no shortage of those, and maybe eventually, it'll be just all of our customers but or consumers. But that's that's a an important thing. So as we look at the card stats, they're all staggeringly strong. It's our best economics.

It's our best margin. It's our best engagement. It's our best transactions per year. So all of that is really strong.

But it's also not a surprise. It's not like like, oh, we discovered that these card people are amazing. Like, they were already on track to be our best customers. Now they're just becoming our best customers that much faster.

So I think that's a it's an important background to understand about that consumer. We are leaning in very heavily into making sure that they never regret their choice. So there will be more and more things to like about the card program We have other variants of products that are available in a cart in mind. We think we have another type of program to offer types of program to offer to folks that are slightly different than today's consumer that takes up the card.

So the the the journey is just beginning. Like, there's many more things to build. But generally speaking, these are the best consumers We didn't necessarily know we have them. As soon as they take up the card, we know they're here for a long time and excited to serve them.

Okay. That's very good context and helpful. Second question is related to expense. I mean, you scaled a ton on expenses in the past year, especially the tech side and the g and a side.

Yeah. And now margins are better than than I think anybody would have expected. How do we think about the trajectory of scaling in the next few quarters given the fact that margins are better, so you have an opportunity to reinvest maybe in some longer-term growth initiatives. Yeah.

I guess just a question of how we think about the trajectory of that scale.

Yeah. Thanks for the question, John. You know, we have made investments, of course, to support launches, like the UK, for example. And so, typically, what you'll find with a firm is that the work that goes into getting a product or a program live happens several quarters before that product reaches public availability.

So, yeah, that was definitely the case with the UK. I feel like we've done a really good job of investing ahead of these programs to make sure that we maintain really healthy growth rates in the in the medium and long term know, I I would also just say I mean, I I put you to a couple things. I mean, the the guy that we gave both for q three and q four, you can see the implied non-GAAP operating expenses, they're pretty consistent with the level of spend that we had in the second quarter. So in terms of the trajectory going forward, we do expect it to to be relatively flat from the Q2 levels.

There is a portion of our fixed operating expenses that Is variable with transactions and or GMV just sort of general activity in the business. So I think it does make sense that some of the operating expenses will will scale a bit with GMV growth. So those are good spend. We're we're happy to spend a bit more as the business grows to to support customers and to make sure all of our infrastructure for the sites and for our merchants is up and running.

So, yeah, that that that's how we're thinking about it.

Okay. Thanks very much.

Our next question is from Andrew Jeffrey with William Blair. Please proceed.

Good afternoon. Appreciate you taking all the good questions. I wanted to ask a little bit about durability of the funding cost improvements you're seeing. Obviously, it's a good environment, and you've made comments and and demonstrated Affirm's ability to improve loan sale execution and overall funding costs.

How much do you think what we're seeing today is structural In other words, you know, what would carry through through the next consumer recession or or economic recession and recession. How much is sort of cyclical sort of the sign of where we are currently in the economy?

Yeah. I think humbly, we're we're definitely the beneficiaries of the market. Conditions. And so definitely can't We we can't ignore that the the environment's very favorable for what we do.

But we do think we're we're differentiated. We think that the performance that we've been able to demonstrate on credit has has really changed the the both the tone and and depth of conversations with all stripes of capital partners, and we think that's very durable. The commitment we've made to our investors, both debt and equity, around our focused execution on credit, and our commitment to to deliver against those commitments And job number one, as Max always says, that commitment and and the the results that it generates that's that's who we are. It's how we're gonna operate.

You know, through any cycle, any any macro volatility. And what you're seeing right now is Is that kind of credit for the results that we're delivering combined with the favorable market conditions resulting in just really excellent conditions for us execution wise. And so it is the case that we're beneficiaries, but I I don't wanna be dismissive of the advantages that we get because of of the good work, and we think that's pretty durable. For this work, I will note specifically in our fiscal q two we do benefit a little bit in terms of the average funding cost numbers that we show our materials just from the timing of some originations, and so I don't I don't I wouldn't expect the the the calculation as we do it there to be the same in the in the future quarters.

But, really, the the the fundamental trends, you know, ignoring just kind of the the math in the quarter, the fundamental trends are are very real and and we think we can continue to to sustain those. We get a question a lot about how much is actually just truly rate driven, and I think we're not seeing any of of the impact of rates right now in the business. And I think it's it's much more about spreads and and credit execution and the overall favorability of the asset.

Alright. That that's super helpful. And then Max, if I could ask one on your your baby on the firm card, which is performing very well. I appreciate, the you know, the the comments on efforts to expand use cases.

And can you talk about sort of as a percentage I know it's still early, but as a percentage of those one point seven million cardholders or so, how many of those are sort of primary banking relationships for a firm, I guess, as measured by direct deposit. I'm trying to get a sense of kinda what the lift is potentially there too.

Not many right now. It's a I guess, the good news, bad news. I'm not sure which one are you looking for, but there's plenty of room to to add to the services we offer to the consumer because majority of them do not really have a Depository relationship with us. We're not a bank.

We're not particularly busy or engaged in gathering deposits from the consumers. That said, the ones that are willing to trust us with some of their money especially in a form of direct deposit. Benefit from us understanding their total financial state that much better and their ability to borrow goes up. So it's a natural Thing we do where we you know, we we'll we'll take your money if you'd like to deposit it with us and we'll understand you that much better, and we'll be able to expand your access to credit with that understanding.

So there's definitely more to do there, and we're a little bit remiss in updating the street on the progress we're doing there, but that that's that's going to change in the next few quarters.

Okay. Appreciate it. Thank you.

Our next question is from Timothy Chiodo with UBS. Please proceed.

Great. Thank you for taking the question. Often, investors look at the list of really, really strong partners that you have, obviously, Apple. Amazon, Shopify, Walmart, Expedia, it really doesn't get much better than that.

And there's this question of who could be next, and often the answer is it's more the international opportunity with many of those large enterprise partners and customers. And realize you you're likely not able to discuss your constructive discussions that you might be having with some of them. But if you could maybe just some context around that opportunity in terms of there are any limiting factors, if there's any maybe exclusive agreements or anything else that would preclude you from longer term being able to go outside the US with many of those in addition to the the start you already have with Shopify.

I am sure I cannot speak to exact contracts and and such. Just because these things are understandably frequently confidential. The short answer is I don't think this is or sorry. To flip it around, is currently a target rich environment to use a military term.

I think we have lots of opportunity. Internationally, but also domestically. We're still not at a hundred percent of ecommerce, and we aspire to get to, you know, dangerously close to that number. And we are on precious few offline checkouts, and we certainly aspire to be a meaningful player in both.

Obviously, the card consumers benefit from a firm online and offline because the card works just about anywhere Visa accepted. But there's more we can do there and we will. But internationally, the pipelines of our sales team are are currently quite well filled, and we feel very good about a lot of the conversations we have.

Yeah. And and maybe I'd add a small thing. I don't think we think there's anything that limits our ability to go get those relationships except and get them. And as much as we have really good relationships and do something really unique for those partners, the the reality is we're today really only live and just fairly so in the UK.

And there's lots of other geographies that they our partners are talking to us about going into. We have to get there. We have to get live. We have to prove that we're we can deliver the same experience we do in the US.

But I would I would answer your question directly that there is no limiting factor on our ability to scale with with that with those kind of partners everywhere.

Perfect. Thank you for both of us. Appreciate it.

Our next question is from Jamie Friedman with Susquehanna. Please proceed.

Hi. Did you share what percentage of the GMV is now made up off offline, like, face to face?

I don't think we break that out.

Okay. So maybe we'll wait for that for a future time. I wanna ask about market share. So periodically though, you you do max share your own observations about market share? I think you had shared one I don't know six months ago. Do you have that number now? And if not, maybe qualitatively, if you could talk to Haya saw a market share shift in the in the quarter?

Yeah. Why why don't I grab that one? We don't we did not break it out qualitatively. We we do share our estimates from time to time.

As as you probably know, it's It's a it's a bit of a difficult number to pin down. And that being said, we, you know, we we do believe we're Taking share this market. We think we are the fastest growing of all of our large competitors We think that we had real traction versus versus the competitors who break down break out their their North American businesses where we were able to grow much more quickly with them. Think it's a function of number of factors, but not least of which is is something I think Tim alluded to, which is when you partner with the best who have good holiday periods.

You you are the beneficiary of that in terms of market share, and our distribution really did help us quite a bit last quarter and I think stand out you know, versus our our competition in North America.

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

Great. Thank you so much. I wanted to ask quickly, and I appreciate you guys have answered a lot already. Owing to your approach to these calls, so appreciate that.

Looking at the delinquency improvement in December, that that seems to be seasonal and you expect to get some continued benefit through the tax return season or at least that would also be typical. You've also been clear that you intend to increase risk exposure at least some, but how should we be thinking about your target high watermark or, like, a KPI, like, delinquency rate, and how much incremental GMV you think you can unlock along the way to to whatever that target is?

So probably bears to start by saying the targets we look at internally for delinquencies etcetera. Are more than anything about our capital relationships. Like, we we understand what our partners require of us to feel good. There are always two numbers.

Right? There's yield the idea for us or for them doesn't matter. And then there's delinquencies and defaults that Okay. The signal of safety and certainty.

And both those numbers are fundamentally determined by us and our partners in concert and in constant con and so we don't really think ever in terms of, hey, let's take a little bit more risk and grow a bit more. The risk we take is determined by those conversations. The settings are very clear. The conversations are entirely in the context of credit frankly, because our capital partners just don't care how fast we grow.

They are here for the yield and for the safety of our returns and the stability of the numbers. Full stop. They don't care if we grew thirty-five percent or twenty-five percent so long as they're able to deploy capital successfully, they feel great about our stewardship of their money. And so that's that entirely independently of our growth.

And I it's exactly how it should be. I think many a company got in trouble in the past by saying all we need to do to grow is just be a little bit looser with our credit standards. That's the first step down into the proverbial hell of bad credit management, and we won't let that ever happen here. So You're totally right that there's a seasonality to credit improvements and Just you you can see it in the typical supplement chart that we show as sort of the DQs fluctuate up and down as the year goes.

We keep our hands on the wheel and we move that number up and down or approvals up and down based on what we're seeing in the numbers, how we feel the seasonality is going, seasonality can be delayed, which is sort of this last year was a little bit weird. In that sense, But, again, like, the two are separate conversations. Our growth internally is a major topic and it's entirely in the context of what merchants can we do a grade zero percent program with. Where can we get into checkout where we aren't, who can launch sooner, who wants to run a program in our app, who wants to extend a zero percent deal they ran through the holidays all the way through January.

Those are growth initiatives that we really love and enjoy doing and pushing and selling and all that. It is never ever in the conversation that, oh, by the way, shouldn't we get a little bit looser with credit because that'll help our growth? Like, the day that happens, I am failing at my job. Libre is failing at his.

Just doesn't does not happen. So I I strongly encourage everyone to not contemplate the two in concert just because it creates a false correlation where there isn't one.

We have reached the end of our question and answer session. I would like to turn the conference back over to Zane for closing remarks.

Well, thank you all for joining the call today. We look forward to speaking with you all again next. Talk to you then.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.