Affirm provides interest-free loans to consumers that allow them to buy an item and take it home, but pay for it over six to eight weeks. The company also offers more traditional interest-bearing loans that are paid off in installments on a monthly basis.

In a Wednesday letter to the company’s employees, Levchin confessed that Affirm’s headcount in recent years grew at a rate that was unsupported by revenue growth, partly because of Affirm’s confidence in its strategy. That was overconfidence, as it turned out, when the U.S. economy soured last year.

“Everything changed in mid-2022,” the CEO said in the letter. “Over the last three quarters, the Fed increased its benchmark rate at an unprecedented pace. This has already dampened consumer spending and increased Affirm’s cost of borrowing dramatically.”

Not only did Affirm over-hire, it also wasn’t quick enough to impose price increases as the economy changed course in response to higher inflation and the resulting rate hikes. “The root cause of where we are today is that I acted too slowly as these macroeconomic changes unfolded,” Levchin said in the letter.

In December, Affirm Chief Financial Officer Michael Linford told analysts at a conference that the company was considering increasing the fees that it charges merchants and the interest rates levied on consumers.

The CEO said Wednesday that he had egg on his face for miscalculating how long it would take to implement the price increases, noting it was the company’s first time doing so. “You should not expect us to have another one of these apologizing sessions,” he explained during a call with analysts.

Affirm has now increased the maximum possible annual percentage rate on the company’s interest-bearing loans to 36%, from 30%. “Our pricing initiatives are now starting to produce results, and we expect tailwinds to both (revenue less transaction costs and gross merchandise volume),” the CEO said in the shareholder letter. “We learned a valuable (and expensive) lesson in network management.”

Over the past two years, the company’s 30-day delinquency rates on the longer-term loans have crept up, rising from .8% in the last quarter of 2020 to 2.4% in the final quarter of 2022. Nonetheless, that most recent rate is still below where it was before the COVID-19 pandemic when the rate for the same quarter was 3.8% in 2017. The 60-day and 90-day delinquencies have followed similar trends.

Now, the company is chopping operating expenses, partly by reverting to its headcount about six to 12 months ago. “In this period of economic turbulence, Affirm will stay focused on our core business and delay projects with less certain timelines,” Levchin explained.

An analyst at RBC Capital Markets who follows Affirm downgraded his rating on the company’s stock after reviewing the quarterly results. “We believe the combination of higher funding costs, latency effects of pricing actions, and expected deceleration (in the next two quarters of gross merchandise volume) and revenues points to a more challenging environment ahead,” RBC analyst Daniel Perlin wrote in a note to investor clients Wednesday.

The company is also jettisoning some of its programs to reduce costs, including ending its crypto service at the end of next month, with the option to buy bitcoin, the most popular cryptocurrency, through the Affirm app ending on March 2.

A bright spot in the results for Affirm was a 27% increase in its gross merchandise volume over the year-earlier period to a quarterly record of $5.7 billion. The company also said it landed more financing capacity from funding partners, ending the quarter with a record $11.3 billion. 

Nonetheless, Affirm, which is the largest independent BNPL provider in the U.S., also reduced its performance outlook for the remainder of its fiscal year.

The company said it would provide U.S. employees who are being terminated with a minimum of 15 weeks base pay, plus one more week for each year they’ve been at the company. It’s also providing a health stipend of $5,000 per employee, and potentially more for those with families.