Q2 2024 Sezzle Inc Earnings Call

Lee Brady: Lee Brady.

Operator: In conjunction with this conference call, we filed our earnings announcement with the SEC, and it posted it along with our earnings presentation on our investor website on Sezzle.com. If you have not already done so, please go to the Investor Relations section of our website. There you will find the press release and earnings presentation under Quarterly Earnings within the financial section.

In conjunction with this conference call, we filed our earnings announcement with the SEC.

unknown: In conjunction with this conference call, we filed our earnings announcement with the SEC and have posted it, along with our earnings presentation, on our investor website, sezzle.com. If you have not already done so, please go to the investor relations section of our website. There you will find the press release and earnings presentation under quarterly earnings within the financial sector. Now that we have all the administrative duties out of the way, let's get started.

Unidentified Speaker: In conjunction with this conference call, we filed our earnings announcement with the SEC and have posted it, along with our earnings presentation, on our investor website, sezzle.com. If you have not already done so, please go to the investor relations section of our website. There you will find the press release and earnings presentation under quarterly earnings within the financial sector. Now that we have all the administrative duties out of the way, let's get started.

And have posted it along with our earnings presentation on our Investor website on struggled dot com.

If you have not already done so please go to the Investor Relations section of our website.

There you will find the press release and earnings presentation under quarterly earnings within the financial section.

Charles Youakim: Now that we have all the administrative duties out of the way, let's get started. We're extremely excited to share our Q2 results and are updated guidance with you. Please flip ahead to slide three. Slide three provides an overview of how our actions are translating into positive results. As you can see, Q2 revenue rose 60.2 percent year on year, driven by strong growth and consumer purchase frequency and subscriber growth. Our growth is outpacing the buy-in-up pay-later industry, as reported by third party research companies such as Adobe Analytics. Net income for the quarter came in at $29.7 million.

Now that we have all the administrative duties out of the way, let's get started.

Unidentified Speaker: We're extremely excited to share our Q2 results and our updated guidance; please flip ahead to slide 3. Slide three provides an overview of how our actions are translating into positive results. As you can see, Q2 revenue rose 60.2% year on year, driven by strong growth in consumer purchase frequency and subscriber growth. Our growth is outpacing the buy-not-pay-later industry, as reported by third-party research companies such as Adobe Analytics. Net income for the quarter came in at $29.7 million.

unknown: We're extremely excited to share our Q2 results and our updated guidance; please flip ahead to slide 3. Slide three provides an overview of how our actions are translating into positive results. But before anyone gets too excited, it includes a one-time discrete income tax benefit of $16.8 million for the release of the valuation allowance previously recorded against our deferred tax assets. What that means for next year is that we'll be recognizing taxes at their full effect, which is a number that we are still very proud of. We will walk through all the guidance and a more detailed explanation of the one-time items at the end of this presentation.

We're extremely excited to share our Q2 results and our updated guidance with it please.

Please flip ahead to slide three.

Slide three provides an overview of our actions are translating into positive results.

You can see Q2 revenue rose, 62% year on year, driven by strong growth in consumer purchase frequency and subscriber growth.

Our growth is outpacing the buy now pay later industry as reported by third party research companies such as Adobe analytics.

Net income for the quarter came in at $29 7 million, yes, $29 7 million for the quarter.

Unidentified Speaker: Yes, $29.7 million for the quarter. But before anyone gets too excited, it includes a one-time discrete income tax benefit of $16.8 million for the release of the valuation allowance previously recorded against our deferred tax assets. This is effectively recognizing a deferred tax asset and pulling its impact forward. What that means for next year is that we'll be recognizing taxes at their full effect. So adjusted net income for the quarter was $13.1 million, which is a number that we are still very proud of.

Charles Youakim: Yes, $29.7 million to the quarter. But before anyone gets too excited, it includes a one-time discrete income tax benefit of $16.8 million for the release of the valuation allowance previously recorded against our deferred tax assets. This is effectively recognizing the deferred tax asset and pulling its impacts forward. What that means for next year is that we'll be recognizing taxes at their full effects. So adjusted net income for the quarter of $13.1 million, which is a number that we are still very proud of. As a result, we are raising our fiscal 2024 guidance across the board.

But before anyone gets too excited it includes the one time discrete income tax benefit of $16 8 million for the release of the valuation allowance previously recorded against our deferred tax assets.

This is effectively recognizing a deferred tax asset and pulling its impact for.

What that means for next year is that we'll be recognizing taxes at their full effect.

So adjusted net income for the quarter of $13 1 million.

Which is the number that we are still very proud of.

Unidentified Speaker: As a result, we are raising our fiscal 2024 guidance across the board. And because of the one-time items, we are now providing adjusted net income and adjusted net income for diluted share guidance of $40,006.75, respectively. But don't worry about the term adjusted.

As a result, we are raising our fiscal 'twenty 'twenty four guidance across the board.

Charles Youakim: And because of the one-time items, we are now providing adjusted net income and adjusted net income for diluted share guidance of $40 million and $6.75, respectively. But don't worry about the term adjusted. We aren't adjusting out real costs like stock-based comp and interest. We're just removing a few one-time items that can make it more difficult for investors to understand our performance.

And because of the onetime items, we are now providing adjusted net income and adjusted net income per diluted share guidance of $40 million.

$6.75 respectively.

Speaker Change: But don't worry about the term adjusted we arent adjusting out real costs like stock based comp and interest.

Unidentified Speaker: We aren't adjusting out real costs like stock-based comp and interest. We're just removing a few one-time items that can make it more difficult for investors to understand our performance. We will walk through all the guidance and a more detailed explanation of the one-time items at the end of the presentation. Our total subscriber count increased by 91,000 during the quarter to 462,000. And our consumer engagement continues to grow, as evidenced by the top 10% of consumers transacting an average of 70 times per year. This number stood at 53 times at the end of Q1. We continue to strongly exceed the rule of 40, no matter how one slices the equation.

We're just removing a few one time items that can make it more difficult for investors to understand our performance.

Charles Youakim: We will walk through all the guidance and a more detailed explanation of the one-time items at the end of the presentation. Our total subscriber count increased by 91,000 during the quarter to 462,000. And our consumer engagement continues to grow, as evidenced by the top 10% of consumers transacting an average of 70 times per year. This number stood at 53 times at the end of Q1. We continue to strongly exceed the rule of 40, no matter how one slices the equation. Last quarter, we also discussed another measuring statistic of 20, 60, 20, which equates to 20 plus percent revenue growth, 60 plus percent gross margin, and 20 plus percent net income margin.

Speaker Change: We will walk through all the guidance and a more detailed explanation of the onetime items at the end of the presentation.

Our total subscriber count increased by 91000 during the quarter to 462000.

unknown: Our total subscriber count increased by 91,000 during the quarter to 462,000. The launch of our premium and anywhere subscription products is a great example of us finding a way to increase the lifetime value of our consumers with products they truly love. A key part of enhancing lifetime value is providing products that consumers need. From a stakeholder perspective, driving profit and bottom-line results is important. The growth of 91,000 subscribers this quarter outpaced the last quarter's growth of 64,000. We expect, and to date have seen, that the path we have chosen is the right one.

In our consumer engagement continues to grow as evidenced by the top 10% of consumers transact in an average of 70 times per year.

Speaker Change: December stood at 53 times at the end of Q1.

Speaker Change: We continued to strongly exceed the rule of 40 no matter how once licensed the equation.

Unidentified Speaker: Last quarter, we also discussed another measure in the statistics of 2060-20, which equates to 20 plus percent revenue growth, 60 plus percent gross margin, and 20 plus percent net income margin. We came very close to achieving each of these metrics in Q2, but fell just short of achieving the gross margin line. Nonetheless, great results for the quarter. I guess one could say that we've created our own rule of 100.

Speaker Change: Last quarter, we also discussed in other measures of 'twenty 'twenty.

Speaker Change: Which equates to 20 plus percent revenue growth 60, plus percent gross margin.

Speaker Change: And 20 plus percent net income margin.

Charles Youakim: We came very close to achieving each of these metrics in Q2, but fell just short of a gross margin line. Nonetheless, great results for the quarter. I guess one could say that we created our own rule of 100.

Speaker Change: We came very close to achieving each of these metrics in Q2, but fell just short of the gross margin line.

Speaker Change: Nonetheless, great results for the quarter.

Speaker Change: Yes, one could say that we've created our own rule of 100.

Speaker Change: As a company we continue to push forward with a focus on our guiding principles as shown on slide four.

Charles Youakim: As a company, we continue to push forward with the focus on our guiding principles as shown on slide 4. It's obvious from the outside that we are positively affecting profitability as we continue to report higher net income each quarter and increase forward guidance. However, I don't think people outside of Sezzle truly appreciate the laser focus on improving bottom-line results. It is woven into every decision that we make from revenue generating activities to cost saving an issue. A key part of the formula for increasing profitability is increasing the lifetime value of our consumers. The launch of our premium and anywhere subscription products is a great example of us finding a way to increase the lifetime value of our consumers with products they truly love.

Unidentified Speaker: As a company, we continue to push forward with a focus on our guiding principles, as shown on slide four. It's obvious from the outside that we are positively affecting profitability as we continue to report higher net income each quarter and increase forward guidance. However, I don't think people outside of Sezzle truly appreciate the laser focus on improving bottom-line results.

Speaker Change: It's obvious from the outside that we are positively affecting profitability as we continue to report higher net income each quarter and increase for guidance.

Speaker Change: I don't think people outside of several truly appreciate the laser focus on improving bottom line results. It.

Unidentified Speaker: It is woven into every decision that we make, from revenue-generating activities to cost-saving initiatives. A key part of the formula for increasing profitability is increasing the lifetime value of our consumers. The launch of our premium and anywhere subscription products is a great example of us finding a way to increase the lifetime value of our consumers with products they truly love. We continue to look for new product offerings our consumers need and want and enhance those that we already provide them, all with the goal of improving retention, frequency, and satisfaction.

Speaker Change: It is woven into every decision that we make from revenue generating activities to cost saving initiatives.

Speaker Change: A key part of the formula for increasing profitability and increasing the lifetime value of our consumers.

Speaker Change: The launch of our premium in any of our subscription products is a great example of us finding a way to increase the lifetime value of our consumers with products they truly love.

Charles Youakim: We continue to have an eye on new product offerings our consumers need and want, and enhancing those that we already provide them, all with the goal of improving retention frequency and satisfaction. We believe we have numerous opportunities to continue to enhance the consumer experience with Sezzle and thus continue to drive top and bottom line results. A key part of enhancing lifetime value is providing products that consumers need, which we believe will lead us to requiring more new users. I'm happy to say that we are seeing green shoots in this area. You will see later in the presentation that we are experiencing sequential quarterly growth in active users and at starting in Q3 we should report year-over-year growth in active users.

Speaker Change: We continue to have an eye on new product offerings, our consumers need and want.

Speaker Change: In enhancing those that we already provide.

Speaker Change: All with the goal of improving retention frequency and satisfaction.

Unidentified Speaker: We believe we have numerous opportunities to continue to enhance the consumer experience with Sezzle and thus continue to drive top and bottom line results. A key part of enhancing lifetime value is providing products that consumers need, which we believe will lead us to acquiring more new users. I'm happy to say that we are seeing green shoots in this area.

Speaker Change: We believe we have numerous opportunities to continue to enhance the consumer experience with agile and thus continue to drive top and Bottomline results.

Speaker Change: A key part of enhancing the lifetime value is providing products that consumers need.

Speaker Change: Which we believe will lead us to acquire more new users.

Speaker Change: I'm happy to say that we are seeing green shoots in this area.

Unidentified Speaker: You will see later in the presentation that we are experiencing sequential quarterly growth in active users and that, starting in Q3, we should report year-over-year growth in active users. From a stakeholder perspective, driving profit and bottom-line results is important, but we also recognize that we must be good stewards.

Speaker Change: You will see later in the presentation that we are experiencing sequential quarterly growth in active users and that's starting in Q3, we should report year over year growth in active users.

Charles Youakim: From a stakeholder perspective, driving profit and bottom line results are important, but we also recognize that we must be good stewards. We are a public benefit corporation and are proud to be the only buy and up here that are companies that have certified B-Corp, which is spouses being good stewards for the next generation that comes after us. As shown on slide 5, we have 462,000 subscribers. The growth of 91,000 subscribers this quarter outpaced the last quarter's growth of 64,000. The increase was driven by a few different initiatives that are paying off. First, our efforts in attracting the first time users to Sezzle are starting to pay off, meaning more consumers are coming into the top of the funnel.

Speaker Change: From a stakeholder perspective, driving profit and bottom line results are important.

Speaker Change: But we also recognize that we must be good stewards. We are a public benefit corporation and are proud to be the only buying up here that are company that has a certified B Corp.

Unidentified Speaker: We are a public benefit corporation and are proud to be the only buy now, pay later company that is a certified B Corp, which espouses being good stewards for the next generation that comes after. As shown on slide 5, we have 462,000 subscribers. The growth of 91,000 subscribers this quarter outpaced the last quarter's growth of 64,000. The increase was driven by a few different initiatives that are paying off. First, our efforts in attracting first-time users to Sezzle are starting to pay off, meaning more consumers are coming into the top of the phone.

Speaker Change: What's your spouse's being good stewards for the next generation that comes after us.

Speaker Change: As long as shown on slide five we have 462000 subscribers.

Speaker Change: The growth of 91000 subscribers this quarter outpacing the last quarter's growth of 64000.

Speaker Change: The increase was driven by a few different initiatives that are paying off.

Speaker Change: First our efforts in attracting first time users to several are starting to pay off meaning more consumers are coming into the top of the fall.

Charles Youakim: Second, we have expanded the pool of current users that are available to join, and third, driven by our strong LTVs, we have increased ad spending for consumer signings. We are monitoring these efforts closely for the trade-off between profitability and credit losses. We expect and to date have seen that the path we have chosen is the right one. We expect to see an increase in our provision for credit losses but potentially submit 2% in the second half of the year. We believe it will be more than offset by enhanced margins, growth, and ultimately higher profitability through more lifetime value creation.

Unidentified Speaker: Second, we have expanded the pool of current users that are available to join. And third, driven by our strong LTVs, we have increased ad spending for consumer sign-ups. We are monitoring these efforts closely for the tradeoff between profitability and credit losses.

Speaker Change: Second we have expanded the pool of current users that are available to join and third driven by our strong ltvs, we have increased AD spending for consumer silence.

Speaker Change: We are monitoring these efforts closely for the trade off between profitability and credit losses, we expect and to date have seen that the path. We have chosen is the right one.

Unidentified Speaker: We expect, and to date have seen, that the path we have chosen is the right one. While we expect to see an increase in our provision for credit loss, potentially to mid-2% in the second half of the year, we believe it'll be more than offset by enhanced margins, growth, and ultimately higher profitability through more lifetime value creation. The year-on-year increase in our second quarter provision is an active example of that. We know that we have higher-margin products now, which allows us to open up our products to more and more consumers. The tradeoff is paying off.

Speaker Change: While we expect to see an increase in our provision for credit losses potentially some mid 2% in the second half of the year, we believe it'll be more than offset by enhanced margins growth and ultimately higher profitability through more lifetime value creation.

Charles Youakim: The year on your increase in our second quarter provision is an active example of that. We know that we have higher margin products now, which allows us to open up our products to more and more consumers; the trade off is paying off. The amount of engagement and positivity back from consumers has been overwhelming. Our incredible NPS scores rose once again, and consumers are using our payment method in new locations where only debit or credit cards dominated in the past. One thought of as an apparel only product says those paying for payment method is moving into the mainstream and becoming top of wall for more and more users.

unknown: The year-on-year increase in our second quarter provision is an active example of that. More recently, we launched other initiatives such as our product marketplace and payment streaks, which we expect to add to the consumer experience and thus increase consumer lifetime value. We have not yet shared the monetary future benefits of the banking relationship or included anything related to it as part of our forward guidance, as forces outside of our control can impact the climate.

Speaker Change: The year on year increase in our second quarter provision is an act of example of that.

Speaker Change: We know that we have higher margin products, now, which allows us to open up our products to more and more consumers. The tradeoff is paying off.

Speaker Change: The amount of engagement and positive feedback from consumers has been overwhelming our incredible NPS scores rose once again and consumers are using our payment method of new locations, where only debit or credit cards dominated in the past.

Unidentified Speaker: The amount of engagement and positive feedback from consumers has been overwhelming. Our incredible NPS scores rose once again, and consumers are using our payment method in new locations where only debit or credit cards dominated in the past. Once thought of as an apparel-only product, Sezzle's pay-in-for-payment method is moving into the mainstream and becoming top-of-the-wallet for more and more users.

Speaker Change: Once thought of as an apparel only product so those pan for payment method is moving into the mainstream and becoming top of wallet for more and more users and the ever evolving landscape of consumer finance more and more the data, suggesting that buy now pay later is simply a modern adaptation of credit and a popular one at that.

Charles Youakim: In the ever evolving landscape of consumer finance, more and more, the data is suggesting that by now pay later is simply a modern adaptation of credit and a popular one at that.

Unidentified Speaker: In the ever-evolving landscape of consumer finance, more and more, the data is suggesting that BinalPayLater is simply a modern adaptation of credit, and a popular one at that. On slide six, we wanted to update you all on what we're seeing from payment streaks, as we're very happy with the results. Not only are we seeing enhanced engagement through this gamification, but we are also seeing rank order repayment results, which allows us to use the information gleaned from Streaks as another layer of user segmentation.

Charles Youakim: On slide six, we wanted to update you all on what we're seeing from payment streaks, as we're very happy with the results. Not only are we seeing enhanced engagement through the standardization, but we are seeing rank or the repayment results, which allows us to use the information gleaned from streaks as another layer of user segmentation. And the plus in all of this is that it aligns with rewarding good behavior and educating newer credit users on the importance of proper repayment. We think all of this aligns with our mission of financially empowering the next generation. And I'm sure you figured it all out by now that a good deal of our efforts are focused on profitability and increasing consumer lifetime values.

Speaker Change: On slide six we wanted to update you all on what we're seeing from payments rates as we're very happy with the results.

Speaker Change: Not only are we seeing enhanced engagement through this indication, but we are seeing rank order repayment results.

Speaker Change: Which allows us to use the information gleaned through streets is another layer of user segmentation.

Speaker Change: And the plus and all of this is that it aligns with rewarding good behaviour.

Unidentified Speaker: And the plus of all of this is that it aligns with rewarding good behavior and educating newer credit users on the importance of proper repayment. We think all of this aligns with our mission of financially empowering the next generation. And I'm sure you've figured it all out by now that a good deal of our efforts are focused on profitability and increasing consumer lifetime value. From a high level, slide seven shows how we have done that over time.

Speaker Change: And educating Newark credit users on the importance of proper repayment.

Speaker Change: We think all of this aligns with our mission of financially empowering the next generation.

Speaker Change: And I'm sure. If you can figure it all out by now but a good deal of our efforts are focused on profitability and increasing consumer lifetime values.

Charles Youakim: From a high level, slide seven shows how we have done that over time. We continue to evolve and adapt and add value for our stakeholders. From our original merchant direct immigration product in 2017 to credit reporting in 2021 to subscriptions in 2021, sorry, 2022 and 2023, at each stage, we enhance the consumer's experience and have increased consumer lifetime values in the process. More recently, we launched other initiatives such as our product marketplace and payment streaks, which we expect to add to the consumer experience and thus increase consumer lifetime values.

Speaker Change: From a high level of slide seven shows how we have done that over time.

Speaker Change: We continue to evolve and adapt and add value for our stakeholders from our original merchant direct integration product in 2017 to credit reporting in 2021 to subscriptions in 2021, sorry, 2022 and 2023.

Unidentified Speaker: We continue to evolve and adapt and add value for our stakeholders. From our original Merchant Direct integration product in 2017, to credit reporting in 2021, to subscriptions in 2021, sorry, 2022, and 2023. At each stage, we enhance the consumer's experience and have increased consumer lifetime values in the process. More recently, we launched other initiatives, such as our product marketplace and payment streaks, which we expect to add to the consumer experience and thus increase consumer lifetime values.

Speaker Change: At each stage, we enhance the consumer experience and have increased consumer lifetime value in the process.

Speaker Change: More recently, we have launched other initiatives such as our product marketplace and payments streets, which we expect to add to the consumer experience invest increase consumer lifetime value.

Charles Youakim: As we look forward, the bank partnership is the next significant leg in our journey to expand our relationship with the consumer. We are excited about the progress we have made with our future bank partner and expect to complete the process and go live with them in the fourth quarter. We have not yet shared the monetary future benefits of the banking relationship or included anything related to it as part of our forward guidance, as forces outside of our control can impact the timing. We prefer to have the burden hand before we include it in our guidance.

Speaker Change: As we look forward the bank partnership is the next significant leg in our journey to expand our relationship with the consumer.

Unidentified Speaker: As we look forward, the bank partnership is the next significant leg in our journey to expand our relationship with the consumer. We are excited about the progress we have made with our future bank partners and expect to complete the process and go live with them in the fourth quarter. We have not yet shared the monetary future benefits of the banking relationship or included anything related to it as part of our forward guidance, as forces outside of our control can impact the timing. We prefer to have the burden of risk before we include it in our guidance.

Speaker Change: We are excited about the progress we have made with our future bank partner and expect to complete the process to go live with them in the fourth quarter.

Speaker Change: We have not yet shared the monetary future benefits of the banking relationship or included anything related to it as part of our forward guidance.

Speaker Change: Forces outside of our control can impact the timing.

Speaker Change: We prefer to have the bird in hand before we included in our guidance.

Charles Youakim: I won't go into a lot of detail, as we have discussed the benefits of the partnership on past calls, but let me remind you of a couple points. Initially, the bank partnership will allow us to unify our product construct across the United States versus the state-by-state approach we have today. As you might imagine, state laws are not consistent from state to state with restrictions on fees such as late fees, varying wisely. Our current state-by-state setup makes running our business a bit more complicated and also limits our profitability. Once we're live with the bank partnership, we unify the product construct on a national level.

Speaker Change: I won't go into a lot of detail as we have discussed the benefits of the partnership on past calls, but let me remind you of a couple of points. Initially the bank partnership will allow us to unify our product construct across the United States versus the state by state approach we have today as.

Unidentified Speaker: I won't go into a lot of detail, as we have discussed the benefits of the partnership on PASCALS, but let me remind you of a couple points. Initially, the bank partnership will allow us to unify our product construct across the United States versus the state by state approach we have today. As you might imagine, state laws are not consistent from state to state, with restrictions on fees, such as late fees, varying widely.

Speaker Change: As you might imagine state laws are not consistent from state to state with restrictions on fees such as late fees varying wildly.

Unidentified Speaker: Our current state by state setup makes running our business a bit more complicated and also limits our profitability. Once we're live with the bank partnership, we will unify the product construct on a national level. The partnership will also allow us to launch products that we believe will be a key to future user acquisition and consumer lifetime value expansion.

Speaker Change: Our current state by state that makes running our business a bit more complicated and also limits our profitability.

Speaker Change: Once we're live with a bank partnership partnership we unified the product construct on a national level.

Speaker Change: The partnership will also allow us to launch products that we believe will be a key future user acquisition and consumer lifetime value expansion.

Charles Youakim: The partnership will also allow us to launch products that we believe will be a key future user acquisition and consumer lifetime value expansion. Out of the gate, we expect to launch on demand, which will allow consumers to use everywhere, even if they don't have a subscription with us. We believe this product can help us in a couple of ways. First, not everyone wants to be a subscriber, and with on demand, the consumer can pay a one-time transaction fee at the point of sale. To use this with merchants, we aren't integrated with. Second, we believe it will help us become more competitive in winning enterprise merchants.

unknown: The partnership will also allow us to launch products that we believe will be a key to future user acquisition and consumer lifetime value expansion. Out of the gate, we expect to launch On Demand, which will allow consumers to use it everywhere, even if they don't have a subscription with them, which we expect to be green next quarter.

Speaker Change: Out of the gate, we expect to launch on demand, which will allow consumers to use everywhere, even if they don't have a subscription with us.

Speaker Change: We believe this product can help us in a couple of ways.

Speaker Change: Not everyone wants to be a subscriber and with on demand consumer can pay a onetime transaction fee at the point of sale to use us with merchants we are integrated with.

Speaker Change: Second we believe it will help us become more competitive in winning enterprise merchants.

Charles Youakim: Just to reiterate, we are very excited to be adding more arrows to the quiver.

Speaker Change: Just to reiterate we are very excited to be adding more arrows to the quiver.

Charles Youakim: In addition to closely tracking financial metrics, we are equally rabid about non-financial metrics, with a small sample shown on Flight 8. There's nothing but green on the screen, except for active- Jimmers, which we expect to be green next quarter. The improvements in frequency, unique merchants, and number of transactions are all tied to the growth.

Speaker Change: In addition to closely track the financial metrics, we are equally rabid about nonfinancial metrics with a small sample shown on slide eight.

Speaker Change: Theres, nothing but green on the screen, except for active consumers, which we expect to be green next quarter.

Speaker Change: The improvements in frequency unique merchants and number of transactions are all tied to the growth in subscriptions as shoppers want to use federal everywhere and it's a regular part of their daily lives, it's both exciting and rewarding to see.

Speaker Change: We have also added slide nine to show that quarter over quarter momentum, we believe the quarter over quarter results reflect the strong momentum that we are seeing in the business and why we are confident that we will continue to grow our active consumer accounts.

Karen Harkey: And with that I'm happy to turn the call over to our CFO, Karen Harkey, who will go over our quarterly financial results in greater detail.

Karen Harkey: Thank you Charlie and Hello to all.

Karen Harkey: I'm just slide 10, I'm excited to dive a little deeper into the results that Charlie provided earlier.

Karen Harkey: Total revenue increased 62% year over year.

Speaker Change: Due to a 39% increase in U S and 288% increase in subscription revenue and several anywhere it was launched in June 2023, and the second quarter of 2023.

Speaker Change: Net income came in at $29 7 million for the quarter compared to 1.1 million the previous year.

Karen Harkey: As noted by Charlie at the start of the call. We recorded a discrete tax benefit of $16 8 million in the quarter related to our deferred tax valuation allowance.

Charlie: In the second quarter, we determined that our deferred tax assets are more likely than not to be realized due to the company's profitable trajectory and that's putting us in a taxable income position in the current and likely future years.

Speaker Change: To remove the discrete nature of the adjustment our net income we have provided adjusted net income as the more reflective run rate as the company's result.

Charlie: Adjusted net income was $13 1 million compared to a loss of <unk> 2 million in the prior year.

Speaker Change: The improvement was driven by across the board performance with unit economics as total revenue less transaction related costs grew to 57, 6% of total revenue compared to 53, 7% in the prior year.

Speaker Change: And leveraging our non transaction related operating expenses as they declined to 32, 9% of total revenue compared to 54.2% in the prior year.

Speaker Change: Those results are further reflected in our second quarter adjusted EBITDA margin of 32.9% compared to only 18, 3% in the prior year.

Speaker Change: On Slide 11, you can see the second quarter revenue growth of 60% year over year is outpacing our U S growth of 38, 9%.

Speaker Change: Other than U S. Most of the growth is attributable to subscription, particularly Tesla anywhere.

Speaker Change: We ended the second quarter of 2024, we had 462000 subscribers compared to only 168000 in the previous year.

Speaker Change: We didn't launch anywhere until June of 2023 that's a lot of Jan Madsen subscriber growth occurred subsequently.

Speaker Change: We are also happy to point out that total revenue as a percentage of U M. S reached an all time quarterly high of 10.5% in the second quarter.

Speaker Change: We have bundled all of our transaction related costs on to slide 12.

Speaker Change: Well, let's look at transaction expense, which is primarily payment processing costs at decline to 2% of U M. S.

Speaker Change: We believe we can maintain this level in the low twos now.

Speaker Change: So we've seen a significant improvement in our net interest expense as we entered into a new credit facility in April which lowered our borrowing cost by 475, bips annually and lowered our required borrowing level by 20 million from 80 to 60 million.

Speaker Change: The last component of transaction related costs is the provision for credit losses.

Speaker Change: As anticipated it has risen as a percentage of your M. S. As the first quarter is typically the lowest point due to the tax refund season.

Speaker Change: As the year progresses, it tends to rise, especially during the holiday season quarter to quarter four.

Speaker Change: For 'twenty 'twenty four we expect a similar trend to occur and wouldn't be surprised to see it reached the mid twos.

Speaker Change: As Charlie discussed earlier, we have seen an increase in subscribers and more consumers coming into the top of the funnel and as such are closely monitoring as we expect the increase in revenue and unit economics to more than offset higher move in the provision for credit losses.

Charlie: Our second quarter results are a great example of this.

Speaker Change: Despite our provision for credit losses rising to one 9% at you know on that from one 1% in the prior year and 1% in the previous quarter. Our total revenue less transaction related costs as a percentage of revenue shown on slide 13 increased 390 basis points.

Charlie: Year over year, and 230 basis points quarter over quarter.

Charlie: As you will see later in our presentation, our second quarter unit economic results were well above our previous guidance of 50% and therefore, we are increasing our fiscal 2024 guidance to 55%.

Charlie: Turning to slide 14, it quickly becomes evident that the combination of holding down non transaction related operating costs, while improving unit profitability is a strong combination of bottom line performance.

Charlie: For the remainder of 'twenty 'twenty four we do expect to see some pick up in non transaction related operating costs, but not at the expense of bottom line profitability.

Joe: Joe can internally that it is amazing what making money well I want to do first is investing in more brand awareness and customer acquisition.

Joe: The good thing is that we are finding ourselves in a position where we can make investments in the business that we might not have made it in the past, particularly in marketing.

Speaker Change: Speaking of Bottomline performance, turning to slide 15, where we lay out the reconciliation between net income and adjusted net income.

Speaker Change: In past quarters, we've had minor adjustments, but with the size of the release of the valuation allowance it became necessary for the first time, our adjusted net income margin exceeded 20%.

Charlie: We realize many investors also like to refer to EBITDA. So slide 16 provides a comparison of our net income metrics to adjusted EBITDA were adjusted EBITDA margin reached 32, 9%.

Speaker Change: As discussed in our last quarterly conference call, we improved our liquidity position and solidified our capacity for further growth with a new $150 million credit facility that was closed in April.

Charlie: Slide 17 shows some key balance sheet metrics and you'll see in the fine print in the footnotes that as of quarter end, we had $35 3 million of availability on our line of credit.

Charlie: I would also like to note that during the quarter, we repurchased shares in the open market, representing approximately $10 6 million, leaving 7.1 million left in our repurchase plans the 7.1 million with fully executed as of July 9th 'twenty 'twenty four.

Charlie: I'm sure by now everybody has looked ahead to the outlook slide 18.

Charlie: Let me provide a few highlights before turning the call over to Q&A. We are excited to be increasing our guidance for total revenue margin net income and net income per share.

Charlie: As discussed earlier for the first time, we're providing guidance on adjusted net income, but due to the dynamic of the discrete tax items. We are also providing guidance for a mid single digit tax rate for the remainder of fiscal 'twenty 'twenty four.

Charlie: Now diving into all the details I think our guidance speaks for itself.

Speaker Change: It's shown a lot of positive momentum in the business and we expect it to continue.

Speaker Change: Which leads me to the bottom of slide 18 valuation.

Charlie: We get it right now we are a small cap and so is the rest of the Russell 2000, you might sense that we arent happy with our valuation considering our growth and profitability as we continue to trade at less than half the valuation compared with popular market indices.

Speaker Change: As of today since December of 2023.

Speaker Change: We have completed 20 million in stock repurchases and we will continue to evaluate capital return options for shareholders, including but not limited to special dividends incremental share repurchases or a combination of both.

Speaker Change: With that I would like to turn the call over to the operator as we are happy to take your questions operator.

Speaker Change: Operator will you. Please open the lines for Q&A.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys.

Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Our first question comes from Mike Grondahl with F N B O Northland. Please go ahead.

Mike Grondahl: Hey, Charlie and team congratulations on a very strong quarter.

Mike Grondahl: My first question.

Speaker Change: Subscriptions growing 91000.

Speaker Change: <unk> to $4 62.

Speaker Change: You mentioned you had some initiatives for first time users.

Speaker Change: Trying to expand the pool of current users and some ad spending.

Speaker Change: I don't know just a few more details on each one of those might be helpful.

Speaker Change: And kind of your outlook for subscriptions.

Speaker Change: Yeah, we're not providing any guidance on subscriptions, Mike and then to the quarter over quarter results.

Speaker Change: We are putting a little bit more emphasis into marketing channels you know our view is.

Speaker Change: As we get stronger and stronger as the business financially. It just makes sense to coupons com.

Speaker Change: The pedal on that side.

Mike Grondahl: But we're not I wouldn't say that we're.

Speaker Change: Like overly aggressive or jerky about it we've kind of likes to have like a.

Speaker Change: Steady push or acceleration as we do that.

Speaker Change: So I think that's helped a bit.

Speaker Change: But in terms of.

Speaker Change: Quarter over quarter, and you know where this goes from here, it's just hard for us to tell because if you looked at our total active users.

Speaker Change: And the ratio between total subscribers to that number at some point you think theres got to be some sort of limiting function right. We don't know the answer toward that might be so we keep on trying to grow and keep on accelerating and accelerating both groups growing the active users which is like the Keystone was viewed as like Oh.

Speaker Change: Many tam for an intermediate Tam for the subscriber count.

Speaker Change: So I think that's why we're focused on bolt.

Speaker Change: We see at some point, we think at some point there'll be some sort of.

Speaker Change: Limiting function between the two so that makes sense.

Speaker Change: Yeah, Directionally and then just.

Speaker Change: Premium and anywhere like the average is like $15 a month per subscriber correct.

Speaker Change: Change.

Sam: This is Sam.

Sam: Got it and then.

Speaker Change: Any new merchants to call out.

Speaker Change: Just on your merchant relationships that are now lives in the last quarter or two.

Speaker Change: We would've announced something publicly if we had a significant merchant you know I will say that our team is growing the pipeline.

Speaker Change: That's one thing we're watching closely as we mentioned.

Speaker Change: On the call here some of the launches that we have in the pipeline are actually tied in some ways to the sprint partnership. This is a bank partnership helps us launch more merchants.

Speaker Change: Through our on demand product.

Speaker Change: Those are for generally some merchants that have lower margins, they're looking for a product where it's more of the fees or pass on the consumer. So we have some of that is kind of tied behind that launch of that product as well.

Speaker Change: Got it.

Speaker Change: Your your revenue.

Speaker Change: As a percent of U M S with 10.5%.

Speaker Change: Higher than where we modeled it looked like almost a record for you guys.

Speaker Change: How do you how should we think about that number going forward is that sort of.

Speaker Change: You know a nice tailwind pushing that higher.

Speaker Change: You know you're getting more efficient.

Speaker Change: You also have more subscriptions just how do you feel about that number.

Speaker Change: Oh of course, I love it.

Speaker Change: And I want to keep on moving it north personally.

Speaker Change: But as a company I think subscription helps us with that but then we also have new products launching and so.

Speaker Change: Again, thats hard to project going forward, where that might go.

Speaker Change: But our goal is really to keep on increasing top line, which helps us get higher gross margins mentioned, we have a goal of 60% plus gross margins as a company.

Speaker Change: And getting that top line definitely helps with that.

Speaker Change: I think.

Speaker Change: Somewhere in this range going forward is probably a good place to start but we do monitor that number no doubt about it but it's as we introduce new products, that's going to be the big question, Mark with those new products might you do that.

Mark: Got it and then a last one for me.

Mark: Adjusted net income 13 point.

Mark: $1 million in to Q, I think per that slide 9.4 million and <unk> 22, and a half.

Speaker Change: You know your $40 million of <unk>.

Speaker Change: Adjusted net income guidance would kind of ply 18, and a half a million in the back half of the year, if I'm thinking about it right.

Speaker Change: Is there something seasonally there we should be cognizant of or.

Speaker Change: Just.

Speaker Change: Kind of the step down there.

Speaker Change: I think you know.

Speaker Change: Some of that is seasonal because fourth quarter comes along it's definitely a higher volume quarter for us, but it's also a quarter I mean this is what the buy now pay later product I think in such a fantastic product for consumers.

Speaker Change: At quarter, we try our best to make sure that consumers don't over spend which on the flip side I think credit cards lovingly consumers overstaffed, because they build our balances and they start to revolve.

Speaker Change: We don't want consumers to overspend in that quarter because of the overspend. We tend to find is that leads to higher default and then higher defaults leads to loss consumers because with our product. They once they are in a default situation. They can't transact with US again, so we play a lot of defense.

Speaker Change: Tend to have higher loss rates in the fourth quarter and so I think that's probably the biggest variable going forward and we don't want to.

Speaker Change: Misguide anyone with.

Speaker Change: With the variability that can happen in the fourth quarter and that's really more about what we're we're guiding towards.

Speaker Change: Got it well it congratulations again.

Speaker Change: Thank you.

Mike Grondahl: Thanks, Mike.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Charlie you Kim for any closing remarks.

Speaker Change: Well. Thank you. Thank you operator in closing I'd again like to thank the.

Speaker Change: The subtlety.

Speaker Change: I know on the outside we I think we looked like a calm duck above water, but I can guarantee that below the surface. This team has legs are moving extremely fast and I think but I think there are the work has been incredible through the past quarter and more than just the past quarter.

Speaker Change: And also for your frequent listeners to the conference calls into those in subtle is that all know that I love Charlie Munger, Here's another Charlie Munger quote that's appropriate for the real subtle investors I E. The long term holders.

and I.R.

Lee Brady: Lee Brady. In conjunction with this conference call, we filed our earnings announcement with the SEC, and it posted it along with our earnings presentation on our investor website on Sezzle.com. If you have not already done so, please go to the investor relations section of our website. There you will find the press release and earnings presentation under quarterly earnings within the financial section.

Speaker Change: The big money is not in the buying and selling but in the way.

Speaker Change: Thank you all and have a great rest of your day.

Speaker Change: Yeah.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Lee Brady: Now that we have all the administrative duties out of the way, let's get started. We're extremely excited to share our Q2 results and are updated guidance with you. Please flip ahead to slide three. Slide three provides an overview of how our actions are translating into positive results. As you can see, Q2 revenue rose 60.2 percent year on year driven by strong growth and consumer purchase frequency and subscriber growth. Our growth is outpacing the buy-in-up pay-later industry as reported by third party research companies such as Adobe Analytics.

Lee Brady: Net income for the quarter came in at $29.7 million. Yes, $29.7 million to the quarter. But before anyone gets too excited, it includes a one-time discrete income tax benefit of $16.8 million for the release of the valuation allowance previously recorded against our deferred tax assets. This is effectively recognizing the deferred tax asset and pulling its impacts forward. What that means for next year is that we'll be recognizing taxes at their full effects.

Lee Brady: So adjusted net income for the quarter of $13.1 million, which is a number that we are still very proud of. As a result, we are raising our fiscal 2024 guidance across the board. And because of the one-time items, we are now providing adjusted net income and adjusted net income for deluded share guidance of $40 million and $6.75 respectively. But don't worry about the term adjusted. We aren't adjusting out real costs like stock-based comp and interest.

Lee Brady: We're just removing a few one-time items that can make it more difficult for investors to understand our performance. We will walk through all the guidance and a more detailed explanation of the one-time items at the end of the presentation. Our total subscriber count increased by 91,000 during the quarter to 462,000. And our consumer engagement continues to grow as evidenced by the top 10% of consumers transacting an average of 70 times per year.

Lee Brady: This number stood at 53 times at the end of Q1. We continue to strongly exceed the rule of 40, no matter how one slices the equation. Last quarter, we also discussed another measuring statistic of 20, 60, 20, which equates to 20 plus percent revenue growth, 60 plus percent gross margin, and 20 plus percent net income margin. We came very close to achieving each of these metrics in Q2, but fell just short of a gross margin line.

Lee Brady: Nonetheless, great results for the quarter. I guess one could say that we created our own rule of 100.

Lee Brady: As a company, we continue to push forward with the focus on our guiding principles as shown on slide 4. It's obvious from the outside that we are positively affecting profitability as we continue to report higher net income each quarter and increase forward guidance. However, I don't think people outside of Sezzle truly appreciate the laser focus on improving bottom line results. It is woven into every decision that we make from revenue generating activities to cost saving an issue.

Lee Brady: A key part of the formula for increasing profitability is increasing the lifetime value of our consumers. The launch of our premium and anywhere subscription products is a great example of us finding a way to increase the lifetime value of our consumers with products they truly love. We continue to have an eye on new product offerings our consumers need and want and enhancing those that we already provide them all with the goal of improving retention frequency and satisfaction.

Lee Brady: We believe we have numerous opportunities to continue to enhance the consumer experience with Sezzle and thus continue to drive top and bottom line results. A key part of enhancing lifetime value is providing products that consumers need which we believe will lead us to requiring more new users. I'm happy to say that we are seeing green shoots in this area. You will see later in the presentation that we are experiencing sequential quarterly growth in active users and at starting in Q3 we should report year over year growth in active users.

Lee Brady: From a stakeholder perspective driving profit and bottom line results are important but we also recognize that we must be good stewards. We are a public benefit corporation and are proud to be the only buy and up here that are companies that have certified B-Corp which is spouses being good stewards for the next generation that comes after us. As shown on slide 5 we have 462,000 subscribers. The growth of 91,000 subscribers this quarter outpaced the last quarters growth of 64,000.

Lee Brady: The increase was driven by a few different initiatives that are paying off. First, our efforts in attracting the first time users to Sezzle are starting to pay off meaning more consumers are coming into the top of the funnel. Second, we have expanded the pool of current users that are available to join and third, driven by our strong LTVs we have increased ad spending for consumer signings. We are monitoring these efforts closely for the trade off between profitability and credit losses.

Lee Brady: We expect and to date have seen that the path we have chosen is the right one. We expect to see an increase in our provision for credit losses but potentially submit 2% in the second half of the year. We believe it will be more than offset by enhanced margins, growth and ultimately higher profitability through more lifetime value creation. The year on your increase in our second quarter provision is an active example of that.

Lee Brady: We know that we have higher margin products now which allows us to open up our products to more and more consumers, the trade off is paying off. The amount of engagement and positivity back from consumers has been overwhelming. Our incredible NPS scores rose once again and consumers are using our payment method in new locations where only debit or credit cards dominated in the past. One thought of as an apparel only product says those paying for payment method is moving into the mainstream and becoming top of wall for more and more users. In the ever evolving landscape of consumer finance more and more, the data is suggesting that by now pay later is simply a modern adaptation of credit and a popular one at that.

Lee Brady: On slide six, we wanted to update you all on what we're seeing from payment streaks, as we're very happy with the results. Not only are we seeing enhanced engagement through the standardization, but we are seeing rank or the repayment results, which allows us to use the information gleaned from streaks as another layer of user segmentation. And the plus and all of this is that it aligns with rewarding good behavior and educating newer credit users on the importance of proper repayment.

Lee Brady: We think all of this aligns with our mission of financially empowering the next generation. And I'm sure you figured it all out by now that a good deal of our efforts are focused on profitability and increasing consumer lifetime values. From a high level, slide seven shows how we have done that over time. We continue to evolve and adapt and add value for our stakeholders. From our original merchant direct immigration product in 2017 to credit reporting in 2021 to subscriptions in 2021, sorry, 2022 and 2023, at each stage, we enhance the consumer's experience and have increased consumer lifetime values in the process. More recently, we launched other initiatives such as our product marketplace and payment streaks, which we expect to add to the consumer experience and thus increase consumer lifetime values.

Lee Brady: As we look forward, the bank partnership is the next significant leg in our journey to expand our relationship with the consumer. We are excited about the progress we have made with our future bank partner and expect to complete the process and go live with them in the fourth quarter. We have not yet shared the monetary future benefits of the banking relationship or included anything related to it as part of our forward guidance as forces outside of our control can impact the timing.

Lee Brady: We prefer to have the burden hand before we include it in our guidance. I won't go into a lot of detail as we have discussed the benefits of the partnership on past calls, but let me remind you of a couple points. Initially, the bank partnership will allow us to unify our product construct across the United States versus the state-by-state approach we have today. As you might imagine, state laws are not consistent from state-to-state with restrictions on fees such as late fees, varying wisely.

Lee Brady: Our current state-by-state setup makes running our business a bit more complicated and also limits our profitability. Once we're live with the bank partnership, we unify the product construct on a national level. The partnership will also allow us to launch products that we believe will be a key future user acquisition and consumer lifetime value expansion. Out of the gate, we expect to launch on demand, which will allow consumers to use everywhere, even if they don't have a subscription with us.

Lee Brady: We believe this product can help us in a couple of ways. First, not everyone wants to be a subscriber, and with on demand, the consumer can pay a one-time transaction fee at the point of sale. To use this with merchants, we aren't integrated with. Second, we believe it will help us become more competitive in winning enterprise merchants. Just to reiterate, we are very excited to be adding more arrows to the quiver.

Lee Brady: In addition to closely tracking financial metrics, we are equally rabid about non-financial metrics, with a small sample shown on flight 8. There's nothing but green on the screen, except for active- Jimmers, which we expect to be green next quarter. The improvements in frequency, unique merchants and number of transactions are all tied to the growth