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Affirm retooled its business to operate under interest rates: CFO

The current interest rate environment continues to raise alarm bells for U.S. consumers. Affirm (AFRM) CFO Michael Linford sits down with Yahoo Finance Live to discuss how the fintech company is maneuvering a higher-rate environment.

Linford acknowledges the volatility attributed to higher interest rates, stating the company has adjusted by "retooling" its business strategy while managing to work towards consistent profitability.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

JULIE HYMAN: Well, the rising rate environment taking a toll on the broader market, of course, as we've been noting today. But also raising concerns about the state of fintech specifically. Companies could be getting squeezed on two fronts because of the slowing economy on the consumer side and also potentially margin pressures and higher borrowing rates.

Joining us now Michael Linford, Chief Financial Officer of Affirm. Michael, it's good to see you again. Thanks so much for joining us. You know, we've been talking about all the different ways that higher rates are affecting consumers and companies. Obviously, you guys, as effectively lenders, are affected by this as well. Talk to me about how-- and I know this is a subject that you guys have been talking a lot about lately. Just kind of summarize for us how you guys are attacking the higher rate issue.

MICHAEL LINFORD: Yeah. Thanks for having me. Affirm's product, everything that we do is more valuable in a high-rate environment. I think the past 18 months has been one of extreme volatility, where you saw not just a higher rate environment, which is what we're in now, but a rising rate environment with the most quick rise in rates that we've seen in decades.

And that impact is behind us. So much of what we've been working on at Affirm is retooling our business to operate in this higher-rate environment. We feel really good about that. The last quarter's results demonstrated our ability to deliver really strong unit economics, good margins for Affirm despite being in that higher rate environment. And we're kind of excited too to see how this plays out in the next several quarters. The recent execution we did in the ABS market is another great proof point of the high-rate environment and strong investor demand for our asset despite the rate environment.

JOSH LIPTON: And Michael, how does, in this environment, one question that investors are asking, the Street's asking is, how does Affirm get to GAAP profitability in this environment with higher rates? How much of a challenge is that?

MICHAEL LINFORD: Yeah. So we just posted our first quarter of adjusted operating income profitability last quarter. And we gave guidance that we would continue to do so. And we're really proud of that milestone. What that means is that Affirm is beginning to print a P&L that is profitable on an adjusted basis.

GAAP profitability is around the corner. That has to deal with a lot of non-cash items located in stock-based compensation to warrant expense. Those will take a few years to roll out and work through. But the-- we point investors to looking at adjusted operating income as a really good indicator as a waypoint to showing real leverage in the business.

And the leverage we showed last quarter is really strong. We're able to really scale the network, because at the core of what we do is we're a software business that's tackling a fintech problem. And software businesses show a lot of leverage and last quarter that was on display. I think we're going to continue to show that in the quarters to come.