AFFIRM HOLDINGS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the interim condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q ("Form 10-Q") and our audited consolidated financial
statements and the related notes and the discussion under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the fiscal year ended June 30, 2022 included in our Annual
Report on Form 10-K. Some of the information contained in this discussion and
analysis, including information with respect to our planned investments to drive
future growth, includes forward-looking statements that involve risks and
uncertainties. You should review the sections titled "Cautionary Note Regarding
Forward-Looking Statements" and "Risk Factors" of this Form 10-Q and our most
recently filed Annual Report on Form 10-K for a discussion of forward-looking
statements and important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis. For the periods
presented, references to originating bank partners are to Cross River Bank and
Celtic Bank.

Overview

We are building the next generation platform for digital and mobile-first
commerce. We believe that by using modern technology, the very best engineering
talent, and a mission-driven approach, we can reinvent payments and commerce.
Our solutions, which are built on trust and transparency, make it easier for
consumers to spend responsibly and with confidence, easier for merchants to
convert sales and grow, and easier for commerce to thrive.

Our point-of-sale solutions allow consumers to pay for purchases in fixed
amounts without deferred interest, late fees, or penalties. We empower consumers
to pay over time rather than paying for a purchase entirely upfront. This
increases consumers' purchasing power and gives them more control and
flexibility. Our platform facilitates both true 0% APR payment options and
interest-bearing loans. On the merchant side, we offer commerce enablement,
demand generation, and customer acquisition tools. Our solutions empower
merchants to more efficiently promote and sell their products, optimize their
customer acquisition strategies, and drive incremental sales. We also provide
valuable product-level data and insights - information that merchants cannot
easily get elsewhere - to better inform their strategies. Finally, our consumer
app unlocks the full suite of Affirm products for a delightful end-to-end
consumer experience. Consumers can use our app to manage payments, open a
high-yield savings account, and access a personalized marketplace.

Our company is predicated on the principles of simplicity, transparency, and
putting people first. By adhering to these principles, we have built enduring,
trust-based relationships with consumers and merchants that we believe will set
us up for long-term, sustainable success. We believe our innovative approach
uniquely positions us to define the future of commerce and payments.

Technology and data are at the core of everything we do. Our expertise in
sourcing, aggregating, and analyzing data has been what we believe to be the key
competitive advantage of our platform since our founding. We believe our
proprietary technology platform and data give us a unique advantage in pricing
risk. We use data to inform our risk scoring in order to generate value for our
consumers, merchants, and capital partners. We collect and store petabytes of
information that we carefully structure and use to regularly recalibrate and
revalidate our models, thereby getting to risk scoring and pricing faster, more
efficiently, and with a higher degree of confidence. We also prioritize building
our own technology and investing in product and engineering talent as we believe
these are enduring competitive advantages that are difficult to replicate. Our
solutions use the latest in machine learning, artificial intelligence,
cloud-based technologies, and other modern tools to create differentiated and
scalable products.

We have achieved significant growth in recent periods. Our total revenue, net
was approximately $361.6 million and $269.4 million for the three months ended
September 30, 2022 and 2021, respectively. We

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incurred net losses of $251.3 million and $306.6 million for the three months
ended September 30, 2022 and 2021, respectively.

Our business is designed to scale efficiently. Our partnerships with banks and
other funding relationships have allowed us to remain equity capital efficient.
Since July 1, 2016, we have processed approximately $37.4 billion of GMV on our
platform. As of September 30, 2022, we had over $11.1 billion in funding
capacity from a diverse set of capital partners, including through our warehouse
facilities, securitization trusts, and forward flow arrangements, an increase of
$0.5 billion from $10.6 billion as of June 30, 2022.

Through the diversity of these funding relationships, the equity capital
required to build our total platform portfolio has declined from approximately
3% of the total platform portfolio as of June 30, 2022, to approximately 2% as
of September 30, 2022. This metric measures the equity intensity of our business
or the amount of capital used in relation to the scale of our enterprise. We
define our total platform portfolio as the unpaid principal balance outstanding
of all loans facilitated through our platform as of the balance sheet date,
including both those loans held for investment and those loans owned by
third-parties. This amount totaled $7.3 billion and $7.1 billion as of
September 30, 2022 and June 30, 2022, respectively. Additionally, we define the
equity capital required as the balance of loans held for investment plus loans
held for sale less funding debt and notes issued by securitization trusts, per
our interim condensed consolidated balance sheet. This amount totaled $175.3
million and $206.1 million as of September 30, 2022 and June 30, 2022,
respectively. Equity capital required as a percent of the last twelve months'
GMV was 1% as of both September 30, 2022 and June 30, 2022.

We believe that our continued success will depend on many factors, including our
ability to attract additional merchant partners, retain our existing merchant
partners, and grow and develop our relationships with new and existing merchant
partners, help our merchants grow their revenue on our platform, and develop new
innovative solutions to establish the ubiquity of our network and breadth of our
platform.

Our Financial Model

Our Revenue Model

From merchants, we earn a fee when we help them convert a sale and facilitate a
transaction. While merchant fees depend on the individual arrangement between us
and each merchant and vary based on the terms of the product offering, we
generally earn larger merchant fees on 0% APR financing products. We have two
loan product offerings: Pay-in-4 and Core loans. Pay-in-4 is a short-term
payment plan with four biweekly 0% APR installments, while Core loans include
all interest bearing installment loans and 0% APR monthly installment loans. For
the three months ended September 30, 2022, Pay-in-4 and Core 0% loans
represented 18% and 19%, respectively, of total GMV facilitated through our
platform. For the three months ended September 30, 2021, Pay-in-4 and Core 0%
loans represented 15% and 28%, respectively, of total GMV facilitated through
our platform.

From consumers, we earn interest income on the simple interest loans that we
originate or purchase from our originating bank partners. Interest rates charged
to our consumers vary depending on the transaction risk, creditworthiness of the
consumer, the repayment term selected by the consumer, the amount of the loan,
and the individual arrangement with a merchant. Because our consumers are never
charged deferred or compounding interest, late fees, or penalties on the loans,
we are not incentivized to profit from our consumers' hardships. In addition,
interest income includes the amortization of any discounts or premiums on loan
receivables created upon either the purchase of a loan from one of our
originating bank partners or the origination of a loan.

In order to accelerate our ubiquity, we facilitate the issuance of virtual cards
directly to consumers through our app, allowing them to shop with merchants that
may not yet be fully integrated with Affirm. When these virtual cards are used
over established card networks, we earn a portion of the interchange fee from
the transaction.



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Our Loan Origination and Servicing Model

When a consumer applies for a loan through our platform, the loan is
underwritten using our proprietary risk model. Once approved for the loan, the
consumer then selects his/her/their preferred repayment option. The substantial
majority of these loans are funded and issued by our originating bank partners.

A portion of the loan volume facilitated through our platform are originated
through our originating bank partners: Cross River Bank, an FDIC-insured New
Jersey state-chartered bank, and Celtic Bank, an FDIC-insured Utah
state-chartered industrial bank. These partnerships allow us to benefit from our
partners' ability to originate loans under their banking licenses while
complying with various federal, state, and other laws. Under this arrangement,
we must comply with our originating bank partners' credit policies and
underwriting procedures, and our originating bank partners maintain ultimate
authority to decide whether to originate a loan or not. When an originating bank
partner originates a loan, it funds the loan through its own funding sources and
may subsequently offer and sell the loan to us. Pursuant to our agreements with
these partners, we are obligated to purchase the loans facilitated through our
platform that our partner offers us and our obligation is secured by cash
deposits. To date, we have purchased all of the loans facilitated through our
platform and originated by our originating bank partners. When we purchase a
loan from an originating bank partner, the purchase price is equal to the
outstanding principal balance of the loan, plus a fee and any accrued interest.
The originating bank partner also retains an interest in the loans purchased by
us through a loan performance fee that is payable by us on the aggregate
principal amount of a loan that is paid by a consumer. See Note 13. Fair Value
of Financial Assets and Liabilities for more information on the performance fee
liability.

We are also able to originate loans directly under our lending, servicing, and
brokering licenses in Canada and across various states in the U.S. through our
consolidated subsidiaries. For the three months ended September 30, 2022, we
originated approximately $169.1 million or 4% of loans in Canada compared to
approximately $136.3 million or 5% of loans for the three months ended
September 30, 2021. For the three months ended September 30, 2022, we directly
originated $704.7 million or 16% of loans in the U.S. pursuant to our state
licenses, compared to approximately $386.3 million or 14% of loans for the three
months ended September 30, 2021.

We act as the servicer on all loans that we originate directly or purchase from
our originating bank partners and earn a servicing fee on loans we sell to our
funding sources. We do not sell the servicing rights on any of the loans,
allowing us to control the consumer experience end-to-end. To allow for flexible
staffing to support overflow and seasonal traffic, we partner with several
sub-servicers to manage customer care, first priority collections, and
third-party collections in accordance with our policies and procedures.

Main operating parameters

We focus on several key operating metrics to measure the performance of our
business and help determine strategic direction. In addition to revenue, net
(loss) income, and other results under U.S. GAAP, the following tables set forth
key operating metrics we use to evaluate our business.

                                                   Three Months Ended
                                                      September 30,
                                                  2022                    2021          % Change
                                               (in thousands, except per consumer data)
Gross Merchandise Volume (GMV)        $      4,389,417                $ 2,712,939           62  %
Active Consumers                                14,722                      8,692           69  %
Transactions per Active Consumer                   3.3                          2.3         39  %


GMV

We measure GMV to gauge the volume of transactions taking place on our platform. We define GMV as the total dollar amount of all transactions on the Affirm Platform during the applicable period, net of refunds. GMV

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does not represent revenue earned by us. However, the GMV processed through our
platform is an indicator of the success of our merchants and the strength of our
platform. For the three months ended September 30, 2022, GMV was $4.4 billion,
which represented an increase of approximately 62% as compared to $2.7 billion
for the three months ended September 30, 2021.

Active consumers

We assess consumer adoption and engagement by the number of active consumers
across our platform. Active consumers are the primary measure of the size of our
network. We define an active consumer as a consumer who engages in at least one
transaction on our platform during the 12 months prior to the measurement date.
As of September 30, 2022, we had 14.7 million active consumers, representing an
increase of approximately 69% compared to 8.7 million as of September 30, 2021.

Transactions per active consumer

We believe the value of our network is amplified with greater consumer
engagement and repeat usage, highlighted by increased transactions per active
consumer. Transactions per active consumer is defined as the average number of
transactions that an active consumer has conducted on our platform during the
12 months prior to the measurement date. As of September 30, 2022, we had
approximately 3.3 transactions per active consumer, an increase of approximately
39% compared to September 30, 2021.

Factors affecting our performance

Expand our network, diversity and mix of funding relationships

Our capital efficient funding model is integral to the success of our platform.
As we scale the number of transactions on our network and grow GMV, we maintain
a variety of funding relationships in order to support our network. Our
diversified funding relationships include warehouse facilities, securitization
trusts, forward flow arrangements, and partnerships with banks. Given the short
duration and strong performance of our assets, funding can be recycled quickly,
resulting in a high-velocity, capital efficient funding model. We have continued
to reduce the percentage of our equity capital required to fund our total
platform portfolio from approximately 3% as of June 30, 2022, to approximately
2% as of September 30, 2022. The mix of on-balance sheet and off-balance sheet
funding is a function of both how we choose to allocate loan volume and the
available supply of capital, both of which may also impact our results in any
given period.

Mix of activities on our platform

The mix of products that our merchants offer and our consumers purchase in any
period affects our operating results. In addition, shifts in volume among
merchants in any period also affects our operating results. These mix impacts
affect GMV, revenue, our financial results, and our key operating metric
performance for that period. Differences in product mix relate to different loan
durations, APR mix, and varying proportion of 0% APR versus interest-bearing
financings.

Product and economic terms of commercial agreements vary among our merchants.
For example, our low average order value ("AOV") products generally benefit from
shorter duration, but also have lower revenue as a percentage of GMV when
compared to high AOV products. Merchant mix shifts are driven in part by the
products offered by the merchant, the economic terms negotiated with the
merchant, merchant-side activity relating to the marketing of their products,
whether the merchant is fully integrated within our network, and general
economic conditions affecting consumer demand. Our revenue as a percentage of
GMV in any given period varies across products. As such, as we continue to
expand our network to include more merchants, revenue as a percentage of GMV
will vary. In addition, our commercial agreement with Shopify to offer Shop Pay
Installments powered by Affirm and our Pay-in-4 offering will continue to impact
the mix of our shorter duration, low AOV products. Differences in the mix of
high versus low AOV will also impact our results. For example, we expect that
transactions per active consumer may increase while revenue as a percentage of
GMV may decline in the medium term to the extent that a greater portion of our
GMV comes from Pay-in-4 and other low-AOV offerings.

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Seasonality

We experience seasonal fluctuations in our revenue as a result of consumer
spending patterns. Historically, our revenue has been the strongest during the
second quarter of our fiscal year due to increases in retail commerce during the
holiday season. Adverse events that occur during these months could have a
disproportionate effect on our financial results for the fiscal year.

Operating results

The following tables set forth selected interim condensed consolidated
statements of operations and comprehensive loss data for each of the periods
presented in dollars:

                                           Three Months Ended September 30,                            Change
                                              2022                    2021                    $                      %
                                                                 (in thousands, except percentages)
Revenue
Merchant network revenue              $         113,149          $     92,244          $     20,905                      23  %
Virtual card network revenue                     26,708                19,395                 7,313                      38  %
Total network revenue                           139,857               111,639                28,218                      25  %
Interest income (1)                             136,802               117,302                19,500                      17  %
Gain on sales of loans (1)                       63,595                30,979                32,616                     105  %
Servicing income                                 21,370                 9,465                11,905                     126  %
Total Revenue, net                    $         361,624          $    269,385          $     92,239                      34  %
Operating Expenses (2)
Loss on loan purchase commitment      $          35,610          $     51,678          $    (16,068)                    (31) %
Provision for credit losses                      64,250                63,647                   603                       1  %
Funding costs                                    25,066                16,753                 8,313                      50  %
Processing and servicing                         54,359                25,201                29,158                     116  %
Technology and data analytics                   144,961                78,013                66,948                      86  %
Sales and marketing                             163,873                63,960                99,913                     156  %
General and administrative                      160,972               136,204                24,768                      18  %
Total Operating Expenses                        649,091               435,456               213,635                      49  %
Operating Loss                        $        (287,467)         $   (166,071)         $   (121,396)                     73  %
Other (expense) income, net                      36,018              (140,373)              176,391                    (126) %
Loss Before Income Taxes              $        (251,449)         $   (306,444)         $     54,995                     (18) %
Income tax expense (benefit)                       (180)                  171                  (351)                   (205) %
Net Loss                              $        (251,269)         $   (306,615)         $     55,346                     (18) %




(1)Upon purchase of a loan from our originating bank partners at a price above
the fair market value of the loan or upon the origination of a loan with a par
value in excess of the fair market value of the loan, a discount is included in
the amortized cost basis of the loan. For loans held for investment, this
discount is amortized over the life of the loan into interest income. When a
loan is sold to a third-party loan buyer or off-balance sheet securitization
trust, the unamortized discount is released in full at the time of sale and
recognized as part of the gain or loss on sales of loans. However, the
cumulative value of the loss on loan purchase commitment or loss on origination,
the interest income recognized over time from the amortization of discount while
retained, and
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the release of discount into gain on sales of loans, together net to zero over
the life of the loan. The following table details activity for the discount,
included in loans held for investment, for the periods indicated:

                                                                 Three Months Ended September 30,
                                                                    2022                    2021
                                                                          (in thousands)
Balance at the beginning of the period                       $         

42,780 $53,177
Additions from loans purchased or granted, net of repayments 70,394

               77,270
Amortization of discount                                              (38,969)             (38,445)
Unamortized discount released on loans sold                           (15,174)             (38,345)
Impact of foreign currency translation                       $         (1,554)         $         -
Balance at the end of the period                             $         57,477          $    53,657



(2) Amounts include stock-based compensation as follows:

                                                                   Three Months Ended September 30,
                                                                       2022                    2021
                                                                            (in thousands)
General and administrative                                     $          67,340          $    67,742
Technology and data analytics                                             43,428               20,067
Sales and marketing                                                        8,128                5,024
Processing and servicing                                                     912                  356
Total stock-based compensation in operating expenses                     119,808               93,189
Capitalized into property, equipment and software, net                    21,204               11,690
Total stock-based compensation expense                         $         

141,012 $104,879

Comparison of the three months ended September 30, 2022 and 2021

Total income, net


Total Revenue, net increased by $92.2 million or 34% for the three months ended
September 30, 2022, compared to the same period 2021, primarily attributable to
an increase of $1.7 billion in GMV on our platform, from $2.7 billion for the
three months ended September 30, 2021 to $4.4 billion for the three months ended
September 30, 2022. The increase in GMV was driven by the strong network effects
of the expansion of our active merchant base from 102,217 as of September 30,
2021 to 244,920 as of September 30, 2022, an increase in active consumers from
8.7 million as of September 30, 2021 to 14.7 million as of September 30, 2022,
and an increase in average transactions per consumer from 2.3 as of
September 30, 2021 to 3.3 as of September 30, 2022.

Merchant network revenue increased by $20.9 million or 23% for the three months
ended September 30, 2022 compared to the same period 2021. Merchant network
revenue growth is generally correlated with both GMV growth and the mix of loans
on our platform as different loan characteristics are positively or negatively
correlated with merchant fee revenue as a percentage of GMV. In particular,
merchant network revenue as a percentage of GMV typically increases with the
term length and AOV of our loans, and typically decreases with shorter duration
and higher APR loans. Specifically, long-term 0% APR loans typically carry
higher merchant fees as a percentage of GMV and have higher AOVs.

The increase in merchant network revenue over the three-month period was primarily due to an increase in GMV, partially offset by reductions in long-term loan concentration at 0% APR, our largest merchant fee category. higher, which decreased by 13% of the total GMV. in the three months ended
September 30, 2021 at 5% during the three months ended September 30, 2022. About 2% of the total turnover was generated by our

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largest merchant partner by merchant network revenue for the three months ended
September 30, 2022, for which we facilitate long-term 0% APR loans with higher
merchant fees, compared with 10% of total revenue in the comparative period.
More broadly, for the three months ended September 30, 2022 and 2021, loans with
term lengths greater than 12 months accounted for 17% and 20% of GMV,
respectively, and AOV was lower at $331 and $402 for the three months ended
September 30, 2022 and 2021, respectively, primarily as a result of the
increased adoption of our Pay-in-4 product during the period.

Additionally, during the three months ended September 30, 2022, there was a
reduction of merchant fee revenue of $1.7 million associated with the creation
of discounts upon directly origination of loans with par values in excess of the
fair value of such loans. For the three months ended September 30, 2022, we
directly originated $0.9 billion of loans, an increase of 67.3% compared to $0.5
billion during the three months ended September 30, 2021. While the discounts
created upon the origination of a loan reduce merchant network revenue at the
time of origination, the discounts are amortized into interest income over the
life of the respective loans when retained on the balance sheet and any
unamortized discount is reflected in the cost basis when determining gain on
sale of loans.

Virtual card network revenue increased by $7.3 million or 38% for the three
months ended September 30, 2022, compared to the same period 2021, primarily
driven by an increase in GMV processed through our issuer processor as a result
of increased activity on our virtual card-enabled mobile application, as well as
growth in existing and new merchants integrated using our virtual card platform,
growing from 859 merchants as of September 30, 2021 to 1,120 merchants as of
September 30, 2022. Virtual card network revenue is also impacted by the mix of
merchants as different merchants can have different interchange rates depending
on their industry or size, among other factors.

Interest income increased by $19.5 million or 17% for the three months ended
September 30, 2022 compared to the same period 2021. Generally, interest income
is correlated with the changes in the average balance of loans held for
investment, as we recognize interest on loans held for investment using the
effective interest method over the life of the loan. The average balance of
loans held for investment increased by 22% to $2.6 billion for the three months
ended September 30, 2022, compared to the same period 2021.

Gain on sales of loans increased by $32.6 million or 105% for the three months
ended September 30, 2022, compared to the same period 2021, mainly driven by
increased loan sale activity to third-party loan buyers. We sold loans with an
unpaid balance of $2.0 billion for the three months ended September 30, 2022 and
$1.1 billion for the three months ended September 30, 2021, for which we
retained servicing rights. This increase was driven by higher loan sale volume
to third-party loan buyers and off-balance sheet securitizations, favorable loan
sale pricing terms, and optimizing the allocation of loans to loan buyers with
higher pricing terms.

Servicing income increased by $11.9 million or 126% for the three months ended
September 30, 2022 compared to the same period 2021, driven primarily by an
increase in the average unpaid principal balance of loans owned by third-party
loan owners, which increased from $2.6 billion during the three months ended
September 30, 2021 to $4.6 billion during the three months ended September 30,
2022. Additionally, during the three months ended September 30, 2022, an
increase of $2.4 million related to the changes in fair value of servicing
assets and liabilities contributed to the overall increase in servicing income,
compared to the same period 2021.

Loss on loan purchase commitment

We purchase certain loans from our originating bank partners that are processed
through our platform and our originating bank partners put back to us. Under the
terms of the agreements with our originating bank partners, we are generally
required to pay the principal amount plus accrued interest for such loans. In
certain instances, our originating bank partners may originate loans with zero
or below market interest rates that we are required to purchase. In these
instances, we may be required to purchase the loan for a price in excess of the
fair market value of such loans, which results in a loss. These losses are
recognized as loss on loan purchase commitment in our interim condensed
consolidated statements of operations and comprehensive loss. These costs are
incurred on a per loan basis.

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Loss on loan purchase commitment decreased by $16.1 million or 31% for the three
months ended September 30, 2022 compared to the same period 2021. This decrease
was due to a decrease in the volume of long-term 0% APR loans purchased from our
originating bank partners compared to the prior period, which are purchased
above fair market value. The difference between fair value and purchase price
for our loans is generally correlated with the term length. As such, the
reduction in long term 0% loans purchased from our bank partner contributed to
the decline in loss on loan purchase commitment. During the three months ended
September 30, 2022, we purchased $396.6 million of long-term 0% APR loan
receivables from our originating bank partners, representing a decrease of $61.5
million or 13% compared to the same period 2021.

Provision for credit losses

Provision for credit losses generally represents the amount of expense required
to maintain the allowance for credit losses on our consolidated balance sheet,
which represents management's estimate of future losses. In the event that our
loans outperform expectation and/or we reduce our expectation of credit losses
in future periods, we may release reserves and thereby reduce the allowance for
credit losses, yielding income in the provision for credit losses. The provision
is determined by the change in estimates for future losses and the net
charge-offs incurred in the period. We record provision expense for each loan we
retain as loans held for investment, whether we originate the loan or purchase
it from one of our originating bank partners.

Provision for credit losses expense remained relatively comparable period over
period with a slight increase of $0.6 million for the three months ended
September 30, 2022, compared to the same period 2021, primarily due to growth in
the volume of loans held for investment, offset by improvements in the credit
quality of loans outstanding and updates to the assumptions used in our credit
loss valuation model, including a refinement to the application of our stress
loss multiple. Total loans held for investment was $2.7 billion and $2.2 billion
as of September 30, 2022 and 2021, respectively. The allowance for credit losses
as a percentage of loans held for investment decreased from 6.8% as of
September 30, 2021 to 5.7% as of September 30, 2022.

Funding costs

Financing costs include interest expense and amortization of fees for certain borrowings, including on-balance sheet VIEs and sale and repurchase agreements, and other costs incurred in financing purchases and loan origination.

Funding costs increased by $8.3 million or 50% for the three months ended
September 30, 2022, compared to the same period 2021. Funding costs for a given
period are correlated with the sum of the average balance of funding debt and
the average balance of notes issued by securitization trusts. The increase was
primarily due to increased interest rates and the increase of notes issued by
securitization trusts during the current fiscal year, which bear interest at
fixed rates. Additionally, the increase is attributable to a larger volume of
on-balance sheet loans being retained during the period. The average balance of
notes issued by securitization trusts during the three months ended
September 30, 2022 was $1.7 billion compared with $1.4 billion during the same
period 2021. The average balance of funding debt for the three months ended
September 30, 2022 was $732.6 million compared with $582.7 million during the
same period 2021. Combined, average total debt for the three months ended
September 30, 2022 increased by $424.9 million or 21% compared to the
three months ended September 30, 2021, while the average reference interest rate
during each period increased by 239 basis points. The average loan balance
on-balance sheet was $4.6 billion and $2.6 billion for the three months ended
September 30, 2022 and 2021, respectively.

Treatment and maintenance

Processing and servicing expense consists primarily of payment processing fees,
third-party customer support and collection expense, salaries and
personnel-related costs of our customer care team, platform fees, and allocated
overhead.

Processing and servicing expense increased by $29.2 million or 116% for the
three months ended September 30, 2022, compared to the same period 2021. This
increase was primarily driven by a $14.5 million or 101% increase in payment
processing fees related to increased payment volume, and an increase of $8.1
million in processing fees paid to our platform partners due to platform
integrations as well as short term promotions during

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the previous period. In addition, during the three months ended September 30, 2022third-party loan management and collection expenses increased $4.7 million or 66%, compared to the same period of 2021 due to increased lending volume and transaction growth during the period.

Technology and data analysis

Technology and data analytics expense consists primarily of the salaries,
stock-based compensation, and personnel-related costs of our engineering and
product employees as well as our credit and analytics employees who develop our
proprietary risk model and internally-developed software.

Technology and data analytics expense increased by $66.9 million or 86% for the
three months ended September 30, 2022, compared to the same period 2021. This
increase is primarily due to an increase of $35.1 million or 69% in
employee-related costs resulting from increased headcount as we continue to
support our growth and technology platform as a whole. Additionally, data
infrastructure and hosting costs increased by $15.8 million or 106%, compared to
the same period 2021, due to increased capacity requirements of our technology
platform driven by increases in active users and transactions per active
consumer.

Furthermore, amortization of internally-developed software increased by $8.3
million or 230%, compared to the same period 2021, primarily as a result of an
increase in the number of capitalized projects during the period due to our
ongoing investment in software development. Capitalized projects grew by 136%
from 141 projects to 333 projects for the three months ended September 30, 2022,
compared to the same period 2021.

Sales and Marketing

Sales and marketing costs consist of the expense related to warrants and other
share-based payments granted to our enterprise partners, salaries and
personnel-related costs, as well as costs of general marketing and promotional
activities, promotional event programs, sponsorships, and allocated overhead.

Sales and marketing expense increased by $99.9 million or 156% for the three
months ended September 30, 2022, compared to the same period 2021, primarily
driven by $119.1 million of increased expense related to warrants granted to
Amazon in the second quarter of fiscal 2021. The increase was partially offset
by, a $8.4 million or 72% decrease in brand and consumer marketing spend during
the three months ended September 30, 2022 compared to the three months ended
September 30, 2021, associated with our brand-activation, holiday shopping,
lifestyle, and travel marketing campaigns, as well as a $4.5 million or 74%
decrease in business-to-business marketing spend compared to the three months
ended September 30, 2021. The decreases were primarily due to reduced number of
marketing and brand partnerships, as well as reduced spending on existing
partnerships.

General and administrative

General and administrative expenses consist primarily of expenses related to our
finance, legal, risk operations, human resources, and administrative personnel.
General and administrative expenses also include costs related to fees paid for
professional services, including legal, tax and accounting services, allocated
overhead, and certain discretionary expenses incurred from operating our
technology platform.

General and administrative expense increased by $24.8 million or 18% for the
three months ended September 30, 2022, compared to the same period 2021
primarily due to an increase of $18.1 million related to employee-related costs
resulting from increased headcount during the period compared to the same prior
period. Additionally, professional fees increased by $6.1 million or 76% during
the three months ended September 30, 2022 compared to the same period 2021 to
support our international expansion, and regulatory compliance programs.

Other (expenses) income, net

Other (expense) income, net consists primarily of interest earned on our money
market funds included in cash and cash equivalents and restricted cash, interest
earned on securities available for sale, gains and losses incurred on derivative
agreements, amortization of convertible debt issuance cost and revolving credit
facility issuance costs, and fair value adjustments resulting from changes in
the fair value of our contingent consideration liability, primarily driven by
changes in the market price of our Class A common stock.

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Other (expense) income, net increased by $176.4 million or 126% for the
three months ended September 30, 2022, compared to the same period 2021. This
increase was largely due to changes in the fair value of our contingent
consideration liability associated with our acquisition of PayBright of $138.8
million during the period compared to the same period 2021, driven by changes in
the value of our common stock. Additionally, a gain of $30.7 million on
derivative instruments contributed to the overall increase of other (expenses)
income, net due to additional derivative instruments being entered into during
the period, and increases in their fair value associated with upward shifts in
forward curves and higher market volatility.

Cash and capital resources

Sources and uses of funds

We maintain a capital-efficient model through a diverse set of funding sources.
When we originate a loan directly or purchase a loan originated by our
originating bank partners, we often utilize warehouse facilities with certain
lenders to finance our lending activities or loan purchases. We sell the loans
we originate or purchase from our originating bank partners to whole loan buyers
and securitization investors through forward flow arrangements and
securitization transactions, and earn servicing fees from continuing to act as
the servicer on the loans. We proactively manage the allocation of loans on our
platform across various funding channels based on the market environment and our
ability to access capital markets. With rising interest rates and inflation, our
excess funding capacity and committed and long-term relationships with a diverse
group of existing funding partners help provide flexibility as we optimize our
funding to support the continued growth of originations.

Our principal sources of liquidity are cash and cash equivalents, available for
sale securities, available capacity from warehouse and revolving credit
facilities, revolving securitizations, forward flow loan sale arrangements, and
certain cash flows from our operations. As of September 30, 2022, we had $2.8
billion in cash and cash equivalents and available for sale securities, $2.6
billion in funding capacity remaining across our primary funding channels and
$205.0 million in borrowing capacity available under our revolving credit
facility.

The following table summarizes our cash, cash equivalents and investments in debt securities (in thousands):

                                                              September 30, 2022           June 30, 2022
Cash and cash equivalents (1)                               $         1,530,132          $     1,255,171
Investments in short-term debt securities (2)                           957,915                1,295,811
Investments in long-term debt securities (2)                            279,376                  299,562
 Cash, cash equivalent and investments in debt
securities                                                  $         2,767,423          $     2,850,544




(1)Cash and cash equivalents consist of bank accounts, money market funds,
certificates of deposits, other commercial paper, and government bonds with
maturities less than three months.
(2)Securities available for sale at fair value primarily consist of certificates
of deposits, corporate bonds, commercial paper, and government bonds. Short-term
securities have maturities less than or equal to one year, and long-term
securities range from greater than one year to less than five years.

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Available Credit and Funding Debt

Our available capacity as of September 30, 2022 primarily include warehouse
credit facilities, convertible senior notes, revolving credit facilities and
repurchase liabilities. A detailed description of each of our borrowing
arrangements is included in Note 10. Debt in the notes to the interim condensed
consolidated financial statements.

The following table summarizes our funding credit facilities as of September 30,
2022. The funding debt consists of warehouse credit facilities, revolving credit
facilities, and repurchase liabilities:

Maturity Fiscal Year        Borrowing Capacity       Principal Outstanding
                                            (in thousands)
2023                       $           182,550      $              170,991
2024                                 1,400,805                     342,631
2025                                   400,000                      46,579
2026                                   582,550                     164,145
2027                                   250,000                      29,853
2028 and thereafter                    600,000                      50,544
Total                      $         3,415,905      $              804,743


Warehouse Credit Facilities

Our warehouse credit facilities, which allow us to borrow up to an aggregate of
$3.4 billion, mature between 2023 and 2029 and, subject to covenant compliance,
generally permit borrowings up to 12 months prior to the final maturity date. As
of September 30, 2022, we have drawn an aggregate of $770.7 million on our
warehouse facilities. As of September 30, 2022, we were in compliance with all
applicable covenants in the agreements. Refer to Note 10. Debt in the notes to
the interim condensed consolidated financial statements included elsewhere in
this Form 10-Q for further details on our warehouse credit facilities.

Senior Convertible Bonds

We closed on the issuance of $1.7 billion aggregate principal amount of a
convertible senior note which does not bear regular interest, and will mature on
November 15, 2026 unless earlier converted, redeemed, or repurchased in
accordance with their terms. Refer to Note 10. Debt in the notes to the interim
condensed consolidated financial statements for further details on our
convertible debt note.

Revolving credit facility

In February 2022, we entered into a revolving credit agreement for a $165.0
million unsecured revolving credit facility, maturing on February 4, 2025, which
was subsequently amended to increase the unsecured revolving commitments to
$205.0 million. The facility contains certain covenants and restrictions,
including certain financial maintenance covenants. As of September 30, 2022, we
were in compliance with all applicable covenants in the agreements. To date,
there are no borrowings outstanding under the facility. Refer to Note 10. Debt
in the notes to the interim condensed consolidated financial statements for
further details on our revolving credit facilities.

Securitizations

In connection with asset-backed securitizations, we sponsor and establish trusts
(deemed to be VIEs) to ultimately purchase loans facilitated by our platform.
Securities issued from our asset-backed securitizations are senior or
subordinated, based on the waterfall criteria of loan payments to each security
class. The subordinated residual interests issued from these transactions are
first to absorb credit losses in accordance with the waterfall criteria. We
consolidate securitization VIEs when we are deemed to be the primary beneficiary
and therefore have the power to direct the activities that most significantly
affect the VIEs' economic performance and a variable interest that could
potentially be significant to the VIE. Where we consolidate the securitization
trusts, the loans held

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in the securitization trusts are included in loans held for investment, and the
notes sold to third-party investors are recorded in notes issued by
securitization trusts in the interim condensed consolidated balance sheets.
Refer to Note 11. Securitization and Variable Interest Entities.

Factors Affecting Liquidity

We believe our current levels of cash, cash equivalents, marketable debt
securities, available borrowing capacity under our revolving credit facilities
and other liquidity actions currently available to us are sufficient to meet our
liquidity requirements for at least the next 12 months. However, we cannot
provide assurance that our business will generate sufficient cash flows from
operations or that future borrowings will be available to us in an amount
sufficient to enable us to fund our liquidity needs in the long-term. Our
ability to do so depends on prevailing economic conditions and other factors,
many of which are beyond our control.

The principal factors that could impact our liquidity and capital needs are
customer delinquencies and defaults, a prolonged inability to adequately access
capital market funding, declines in loan purchases and therefore revenue, and
fluctuations in our financial performance. If our available cash balances are
insufficient to satisfy our liquidity requirements, we will seek additional
equity or debt financing. In a rising interest rate environment, our ability to
issue additional equity or incur debt may be impaired and our borrowing costs
may increase. Additionally, we may be subject to restrictions and covenants in
the agreements governing these transactions that may place limitations on us,
and we may be required to pledge additional collateral as security. If we are
unable to raise additional capital or generate the necessary cash flows, our
results of operations and financial condition could be materially and adversely
impacted.

Cash Flow Analysis

The following table provides a summary of cash flow data during the periods
indicated:

                                                                                Three Months Ended
                                                                                   September 30,
                                                                        2022                          2021
                                                                                  (in thousands)
Net Cash Provided by (Used in) Operating Activities                       51,215                       365,150
Net Cash Provided by (Used in) Investing Activities                      117,273                      (629,510)
Net Cash Provided by Financing Activities                                199,542                       243,953


Cash flow from operating activities

Our largest sources of operating cash are fees charged to merchant partners on
transactions processed through our platform and interest income from consumers'
loans. Our primary uses of cash from operating activities are for general and
administrative, technology and data analytics, funding costs, processing and
servicing, and sales and marketing expenses.

For the three months ended September 30, 2022, net cash used in operating
activities of $51.2 million stemmed from a net loss of $251.4 million and change
in our operating assets net of operating liabilities of $13.4 million, partially
offset by favorable change in net proceeds from sale and purchase of loans of
$52.6 million and a positive adjustment for non-cash items of $236.5 million.
The change in operating assets net of operating liabilities was primarily a
result of our purchase and sale of loans held for sale activities. We purchased
loans of $1.7 billion, which was largely offset by proceeds from loan sales of
$1.7 billion. The positive adjustment for non-cash items was primarily driven by
commercial agreement assets of $108.7 million which increased compared to the
first quarter of the prior year as a result of our commercial agreements with
Amazon, gain on sale of loans of $63.6 million which increased by $32.6 million
compared to the first quarter of the prior year as a result of improved loan
sale economics and increased loan sales, and stock-based compensation of $119.8
million which increased by $26.6 million resulting from incremental compensation
recognized from award modifications and increased headcount.

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For the three months ended September 30, 2021, net cash provided by operating
activities was $365.2 million stemmed from a net loss of $306.6 million,
partially offset by a favorable change in our operating assets net of operating
liabilities of $403.0 million and a positive adjustment for non-cash items of
$268.8 million. The change in operating assets net of operating liabilities was
primarily a result of changes in accounts payable of $368.1 million. The changes
in non-cash items was primarily driven by changes in fair value of assets and
liabilities of $139.9 million related to increase in the fair value of our
contingent consideration liability, driven by changes in the value of our common
stock.

Cash flow from investing activities

For the three months ended September 30, 2022, net cash provided by investing
activities of $117.3 million was primarily attributable to purchases and
origination of loans held for investment of $2.7 billion, partially offset by
repayments of loans of $2.5 billion. During the period we originated loans of
$0.8 billion and purchased loans of $1.9 billion, representing an increase of
$0.9 billion compared to the first quarter of the prior year, due partly to
continued growth in GMV. The repayments on loans of $2.5 billion during the
period, represented an increase of $0.9 billion, compared to the first quarter
of the prior year, due to a higher average balance of loans held for investment
and generally increasing credit quality of the portfolio. The additional offset
during the three months ended September 30, 2022 related to the net proceeds
from maturities of securities available for sale of $0.4 billion, representing
an increase of $0.8 billion compared to the first quarter of the prior year.

For the three months ended September 30, 2021, net cash used in investing
activities of $629.5 million was primarily attributable to purchases and
origination of loans held for investment of $1.8 billion and purchases of
securities available for sale of $0.4 billion, offset by repayments on loans and
proceeds from maturities of securities available for sale of $1.7 billion. We
originated loans of $0.5 billion and also purchased loans of $1.3 billion.

Cash flow from financing activities

For the three months ended September 30, 2022, net cash provided by financing
activities of $199.5 million, was primarily attributable to net cash sources
from funding debt and notes and residual trust certificates for the
securitization trusts of $1.4 billion. These were partially offset by our debt
repayments related to our lending activities of $1.2 billion, of which $1.1
billion were related to our warehouse facilities. Our payments of debt issuance
costs were in the normal course of business and reflective of our recurring debt
warehouse facility activity, which involves securing new warehouse facilities
and extending existing warehouse facilities. Finally, we paid taxes related to
RSU vesting of $27.3 million.

For the three months ended September 30, 2021, net cash provided by financing
activities of $244.0 million. We received $1.2 billion of proceeds from debt
financing activities related to our lending activities. These debt proceeds were
more than offset by $0.9 billion of debt repayments, of which $0.7 billion were
related to our warehouse facilities. Our payments of debt issuance costs were in
the normal course of business and reflective of our recurring debt warehouse
facility activity, which involves securing new warehouse facilities and
extending existing warehouse facilities. We also paid taxes related to RSU
vesting of $39.8 million.

Contractual obligations

There were no material changes outside of the ordinary course of business in our
commitments and contractual obligations for the three months ended September 30,
2022 from the commitments and contractual obligations disclosed in the section
titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Contractual Obligations," set forth in our Annual Report on Form
10-K for the fiscal year ended June 30, 2022, which was filed with the SEC on
August 29, 2022.


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Off-balance sheet arrangements

Off-balance sheet loans relate to unconsolidated securitization transactions and
loans sold to third-party investors for which we have some form of continuing
involvement, including as servicer. For off-balance sheet loan sales where
servicing is the only form of continuing involvement, we would only experience a
loss if we were required to repurchase such a loan due to a breach in
representations and warranties associated with our loan sale or servicing
contracts. For unconsolidated securitization transactions where Affirm is the
sponsor and risk retention holder, Affirm could experience a loss of up to 5% of
both the senior notes and residual certificates. As of September 30, 2022, the
aggregate outstanding balance of loans held by third-party investors or
off-balance sheet VIEs was $4.5 billion. In the unlikely event principal
payments on the loans backing any off-balance sheet securitization are
insufficient to pay note holders, including any retained interest, then any
amounts the Company contributed to the securitization reserve accounts may be
depleted. Refer to Note 11. Securitization and Variable Interest Entities of the
accompanying notes to our interim condensed consolidated financial statements
for more information.

Significant Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. In preparing
our condensed consolidated financial statements, we make judgments, estimates
and assumptions that affect reported amounts of assets and liabilities, as well
as revenues and expenses. We base our assumptions, judgments and estimates on
historical experience and various other factors that we believe to be reasonable
under the circumstances. The results involve judgments about the carrying values
of assets and liabilities not readily apparent from other sources. Actual
results could differ materially from these estimates under different assumptions
or conditions. We regularly evaluate our estimates, assumptions and judgments,
particularly those that include the most difficult, subjective or complex
judgments and are often about matters that are inherently uncertain. We evaluate
our critical accounting policies and estimates on an ongoing basis and update
them as necessary based on changes in market conditions or factors specific to
us. There have been no material changes in our significant accounting policies
or critical accounting estimates during the three months ended September 30,
2022.

For a complete discussion of our significant accounting policies and critical
accounting estimates, refer to our Annual Report on Form 10-K for the year ended
June 30, 2022 within Note 2 to the Notes to Consolidated Financial Statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations- Critical Accounting Policies and Estimates".

Recent accounting standards issued but not yet adopted

See Note 2. Summary of Significant Accounting Policies in the Notes to the Condensed Interim Consolidated Financial Statements.

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