Q1 2025 Sezzle Inc Earnings Call
Speaker Change: Good afternoon and welcome to the Sezzle Inc. 1st, 225 running conference call. All participants will be in a list of only-mode. Should you use the system to please a no-conference specialist by
Speaker Change: Ask today's presentation. There will be an opportunity to ask questions. To ask a question, you request starting when you need to a phone keypad. To withdraw your question, please start in two. Please note this event is being recorded. I'm not like you're trying to contact Charlie Youakim. See you. Please go ahead.
Charles Youakim: Thank you, and good afternoon everyone and welcome to Sezzle's first quarter conference call for 2025.
I'm Charlie Youakim, CEO and Executive Chairman of Sezzle [inaudible]
Charles Youakim: I'm joined today by our chief financial officer, Karen Hartje, our president, Paul Peridus, and our head of Corp. Dev and I are liberating.
Charles Youakim: In conjunction with this conference call, we filed our earnings announcement with the SEC and posted it and the earnings presentation on our investor website at sezzle.com.
Charles Youakim: There you will find the press release and the Garnings presentation under the Investor Relations section.
Charles Youakim: Please be advised of the cautionary note on forward looking statements and the reconciliation of gap to non-GAAP measures included in the presentation, which also covers our statements on today's call.
Charles Youakim: I'm looking forward to discussing our first quarter results with you all. As this quarter marked the 12th straight quarter in which we have posted positive year-on-year improvements in revenue and operating income.
Charles Youakim: It's an exciting time for payments industry and especially vinyl pay later as our sector continues to grow and gain market share.
Charles Youakim: Even as we're gaining on other payment methods, we still represent less than 10% of the payment's market.
Charles Youakim: We believe that our sector will continue to gain share as we gain share within it.
Charles Youakim: We have said this before, but we will say it again now, BNPL is aligned with responsible repayment.
Charles Youakim: Consumers must be current with us, or they aren't allowed to continue to use us as a payment method.
Charles Youakim: The NPL is very different from revolving line of credit on a credit card, where large overdue balances can be punted into the next cycle, accumulating large fees and high APRs, leading to a cycle of never-ending debt.
Charles Youakim: We love that we're on the right side of responsible payments.
Charles Youakim: Looking at our first quarter results, we can continue to defy those who say we can't compete with larger, better capitalized competitors.
Charles Youakim: We are doing more than just competing. We are thriving and winning.
Charles Youakim: It turns out the innovation and efficient operations can still produce great returns.
Charles Youakim: Seasonally, the first quarter tends to be our strongest in terms of revenue as a percentage of GMB. As the revenue recognition on payment plans initiated in the fourth quarter rolls into a seasonly lower GMB first quarter.
Charles Youakim: Our provision for credit losses also tends to be improved in the first quarter versus the fourth quarter.
Charles Youakim: The combination of the seasonally better payment trends in the first quarter and a better than expected repayment performance on GMB originated in the fourth quarter led to outsides gross margins and in turn outsize net income margins.
Charles Youakim: We will dive deeper into each of these in our presentation.
Charles Youakim: Adding to our strong performance was the launch of our banking partnership with Web Bank in September last year.
Charles Youakim: This quarter was the first quarter that we began to see the full benefit of our partnership with them.
Charles Youakim: You can see how it all came together on slide three, where we provide a snapshot of our first quarter results.
GMV Road, 64% year-over-year, well-outpacing the overall BMPL industry.
Charles Youakim: Revenue increased 123% year-over-year, driven by a 77% year-over-year growth rate in our monthly on-demand users and subscribers, which we call MOTS.
Charles Youakim: The strong top-line results coupled with a 70.4% margin for our unit economics and our ability to continue to leverage non-transaction-related costs led to a net income of 36.2 million for the quarter.
Charles Youakim: Yes, as you might have guessed, we are bumping up our guidance for 2025.
Charles Youakim: I don't want to steal Karen's thunder on our revised guidance, but as you can see here, we're increasing our 20-25 net income guidance by almost 50%.
Karen Hartje: to 120 million from 80.4 million and bumping up the 2025 EPS guidance from a split-adjusted $2.21 per share to $3.25 per share.
Karen Hartje: We continue to significantly upperform the Rule of 40 in our similar version, the Rule of 100. Actually, I think we posted a score of over 200 on that metric.
Karen Hartje: We grew revenues by 123% with a gross margin of 70% and a net income margin of 34.5%. That's a total of 227.5. Wow.
That will be tough to beat.
We're going to keep on trying, though.
Karen Hartje: Look at the end of the day, we're going to keep letting our results do the talking, even if some folks in the market might not be fully appreciating what we're building here.
Karen Hartje: We are constantly working to enhance our consumer experience. Proof is in the pudding as our consumer purchase frequency and repeat usage have risen every quarter since the launch of our subscription products in 2022.
Karen Hartje: We're particularly excited about a couple of new product enhancements that are currently in beta stage, Pay-in-5, and Auto-Couponning.
Karen Hartje: We've also stepped into some capital market activities as another way to enhance shareholder value. As many of you know, our team makes up a large portion of the shareholder. And with that, we're quite aligned with many of you listening to the call.
Karen Hartje: During the quarter we announced a $50 million share repurchase program, which went into effect after quarter end. And we also completed a six-for-one stock split to make our shares more appealing and accessible for investors, with the mindset that this was to help increase liquidity in our stock.
We believe both decisions are smart capital markets moves.
Karen Hartje: On slide 4, you can see with greater detail some of the product tools we are adding. Our product focus with consumers has been in two areas, financial tools and shopping features.
Karen Hartje: We believe it is critical to give consumers as many financial options as possible. One size does not fit all.
Karen Hartje: Providing consumers with more shopping tools such as a shopping browser extension, price comparisons on products, and auto-couponning is all done with the mindset of increasing the value provided to our consumers, which in turn should increase retention and loyalty.
Karen Hartje: These are each very early in their rollout to consumers, so we don't think we will begin to fully experience the impact until Q3 at the earliest.
Karen Hartje: Speaking of rollouts, we are in the early stages of on-demand and what we refer to as mods as shown on slide five. Mods were up 77% year over year to 658000 and down sequentially from Q4, consistent with the seasonal drop in GMB activity from Q4 to Q1.
Karen Hartje: We are excited about how well on-demand is performing as a new product in our product suite and we expect it and our subscription products to continue to be the drivers of growth for the company.
Karen Hartje: As shown on slide 6, we continue to see better year-over-year engagement and performance on a number of metrics.
Karen Hartje: The average quarterly purchase frequency increased from 4.5 times to 6.1 times per quarter. Repeat usage increased 60 Bips, and our active consumer count rose by 5.4% year over year.
Karen Hartje: I love seeing that subscribers are taking us everywhere as they shopped it. 346,000 unique merchants during the quarter.
Karen Hartje: And our sales team continues to focus on integrating with enterprise level merchants. We signed 3 and Q4 and added two more signings than Q1. Sheels, a Midwestern sporting goods store, and WAP.com, a social commas commerce platform.
Karen Hartje: We are starting to see the positive momentum from our sales team as evidence by our signings, but more importantly, by the level of discussions and pipeline development, we are seeing with a variety of significant merchants.
Speaker Change: I'm happy to point out that our active consumer count rose sequentially for the fourth straight quarter. With that, I'm happy to turn the call over to our CFO , Karen Hartje, who will go over our quarterly financial results in greater detail.
Thanks, Charlie, and hello to everyone joining us today.
Speaker Change: Diving into our first quarter numbers on slide 8, you'll see the momentum continues. We're maintaining our upward trajectory with another strong quarter fueled by discipline growth, improving unit economics and the expanding impact of our bank program.
Speaker Change: As Charlie mentioned at the start, we easily met the rule of 40 and for that matter our own rule of 100.
Speaker Change: Total Revenue increased 123% year-over-year to 104.9 million, and our Adjusted Net Income grew 286% year-over-year to 36.1 million.
The Substantial Acceleration of Growth
Speaker Change: Rates at the top and bottom lines is Meaningful, reflecting stronger monetization for the dollar of GMB.
Speaker Change: Thanks to both our Mods program and the Unified Bee Structure under the Bank program, all while keeping our expenses in check.
Slide 9, Charles R.G. and B, and Revenue Yield in Action Again.
Speaker Change: Total revenues surpassed our fourth quarter holiday shopping period with our cake rate rising to 13% of GMB.
Speaker Change: Our take rate tends to take a step up from quarter four to quarter one is GMB tends to dip after the holiday season. But we still have the seasonal spell over of team and activity from quarter four quarters that encourage in first quarter.
Speaker Change: Additionally, strong subscriber engagement and a full quarter impact of our partnership with Webbank drove total revenue yield to lead sequential quarter over quarter growth despite the seasonal drop in GMB.
Speaker Change: On slides 10 and 11, we break down our transaction-related costs, transaction expense, provision for credit of the losses and net interest expense.
Speaker Change: As you can see in the breakdown, our transaction expenses substantially benefited from our provision for credit losses as we realize better than expected consumer repayment behavior.
Speaker Change: We remain focused on driving more consumers through the funnel and we still expect the provisional trend higher over the remaining quarters of 2025 within our guided range at two and a half to three percent.
Speaker Change: Alongside our provision, transaction expense and net interest expense as a percentage of GMB help steady sequentially at 1.9% and 0.4% respectively.
Speaker Change: Year over year both metrics improved as a result of an optimized transaction processing strategy and our new debt facility that went live last April .
Speaker Change: Given the current volatility and uncertainty in the market, I want to emphasize the strength of our business model as seen on Slide 12.
Speaker Change: Growing 11.9% points to over 60% for the last 12 months ended in March.
Speaker Change: The margin expansion occurred all while we've accelerated our volume growth and expanded our risk tolerance.
Speaker Change: And the critical factor giving us comfort in an uncertain market is the rapid portfolio turnover with our loan tenor being approximately 42 days.
Speaker Change: In the first loan cohort quality reading, two weeks after its origination, meaning we can pivot fast much quicker than other consumer loan businesses, where well-positioned for whatever life ahead.
Speaker Change: To wrap up this point, you'll see on slide 13 that total revenue, less transaction-related costs, grew nearly three times year over year to 74 million, representing 70.4% of total
Speaker Change: His previously stated, stronger than expected, consumer credit performance drove the outperformance
Speaker Change: Jumping to slide 14, we continue to stay the course to widen our gap between our total revenue, less transaction-related costs, and our non-transaction-related operating expenses, consisting of personnel, data and third-party tech, marketing, and GNA.
Speaker Change: Our discipline across all categories, including the deliberate expansion of marketing expense to accelerate growth, leads us well positioned to leverage our existing infrastructure and continue this trend.
Speaker Change: And now our favorite topic here at Sezzle, our profitability as seen on slides 15 and 16.
Speaker Change: All prayer components out live resulted in first quarter 25 net income reaching 36.2 million with our net income margin expanding to 34.5%.
Speaker Change: Additionally, adjusted EBITDA margin jumped to 49%. Our ability to drive consistent margin performance while growing revenue at this pace validates our strategic claim and reflects the strength of our current business model.
Speaker Change: and the stability this provides to our balance sheet is particularly noteworthy as shown on slide 17.
Speaker Change: Cash and Cash Equivalents grew 15.7 million quarter over quarter, all while we reduced our usage of our line of credit with quarter in incremental borrowing to pass the 52.2 million.
Speaker Change: As a cash generating business, we believe it's important to highlight our cash from operations which grew nearly 20 million year over year to 58.8 million for the first quarter of 2025.
Speaker Change: This provides us with the flexibility to return capital to shareholders, like our recently announced share repurchase program, while also maintaining liquidity for growth investments.
Speaker Change: Finally, let's look forward. We are excited to announce that we're raising 20-25 guidance across the board. Increasing top-line revenue growth from 20 to 30 percent to 60 to 65 percent and earnings per share from $221 to $3.25.
Speaker Change: I know that's a significant adjustment, especially when you see many companies out there pulling back on guidance completely. So let me walk you through while we're confident about the adjusted outlook.
Speaker Change: It's important to start by calling out the tailwinds leading to our 36th
Speaker Change: $1 million net income quarter. First, demand remains strong in the first quarter, which is usually one of our softer quarters. Second, credit performance surpassed our expectations with the provision for credit losses as a percentage of GMV coming in well below our stated expectations.
Speaker Change: Last, the interplay between our subscription and on-demand products has exceeded our expectations.
Speaker Change: We expected to see a balance between the cannibalization of subscription and adoption of our on-demand product. Yet, our subscribers are holding up and even using the product more frequently, and non-subscribers continue to engage with our on-demand product.
Speaker Change: We expect this positive trend to continue providing a strong tailwind for 60% plus top line growth.
Speaker Change: That concludes the financial section and with that I'll turn it back over for Q and A.
We will not begin the question and answer session.
Speaker Change: On your telephone key, if you want to ask questions, press star then when your telephone keypad. If you're using a speaker phone, please pick up your hand to be focused on the keys. To try a question, please press star then two. At this time, we'll pause momentarily to get some water raster.
Speaker Change: Our first question will come from how Goetsch would be Riley Securities, you may now go ahead.
Hal Goach: What types are they? What size are they? It seems to be that the BNPL is really kind of broading out and want to know.
Thanks, Al. Um, yeah, so, um...
Speaker Change: So the funnel is great, you know, obviously we can't announce any names in our funnel in our pipeline But we tend to focus more towards enterprise level merchants now although we do have a mid-size funnel as well
Speaker Change: But many of those merchants don't, you know, they tend not to be like the more name brands that you would ever announce. So so even as we sign and close those mid-size deals, you're not seeing a lot of those announcements or you probably won't. But but it's definitely a focus towards the larger side of the equation. I don't know, Paul, you have anything to add on that.
Paul Paradis: Yeah, I think that's right, Charlie. I would add that we are starting to push into new categories where BNPL has been
Paul Paradis: Light to be adopted. You know, if you go back to the start to be in P.L., it was...
Have you any discretionary categories?
We're seeing a push in categories like Grocery.
Paul Paradis: Bills. So we're starting to make headway in some new categories that are new to our industry in general as well.
Speaker Change: Okay, and when you find these new verticals, are you the solo logo on it, or are you another choice for VNPL from another provider that's, you know, well known?
Paul, do you want to answer that?
Paul Paradis: Yeah, typically what happens is, a merchant will want to test the waters with one BNPL provider first.
Paul Paradis: and you'll sign an exclusive contract with that merchant for a period of time. And then once that contract is up, sometimes they'll re-up but sometimes they'll look to add additional providers.
Thank you. Thank you.
Speaker Change: Well, last question to me, I'll go back to the tube, but can you just show us, you know, like...
Thank you.
What is the frequency or the optimist you're seeing from?
Speaker Change: on demand. You're only about two and a half, maybe two quarters into this. Could you share any more details with us on what you're seeing with on demand exclusively from, say?
Subscribe to monthly subscribers or pay you monthly fee.
Speaker Change: Yeah, I would say that where we're seeing is monthly sequential growth right now, which tells you we've got a winner over product on that and the other thing that I think is attractive with on-demand is it?
Speaker Change: On a per-user level, like the Gross Margin per user, at like a, you know, same cohort stage seems to be relatively similar to premium.
You're one of our existing...
subscription product. So, you know, it
Speaker Change: Has a lower barrier to entry which allows us to bring more consumers into the funnel which we love and then once we've got them in
Speaker Change: on-demand and using us with on-demand. That's where we're starting to use the opportunity to start the market, our subscription products. Like if you're using it frequently, maybe you want to just sign up for the subscription because it's a better bargain for you.
Okay.
Speaker Change: In, I guess, one last one of my questions on the most of you all.
Speaker Change: It looks like you're despite this growth, you're outstanding kind of felt, felt, you guess maybe it's December , it's a back half loaded kind of month where you don't have a lot of a lot more seasonally higher people balance on December 31 than maybe a more even
Stephen Paye, standing throughout the first quarter.
Speaker Change: Yeah, I think that's some of it. Karen, do you have anything to add on that? [inaudible]
Karen Hartje: Well, I think, you know, we do have heavy receivable growth in fourth quarter because of the holiday season. Then the payments are coming in, so on that in January . So January , you know, early, first quarter of their heavy payments receipts. Period of decency. And then it's finality.
Karen Hartje: Yeah, okay, yeah, because this looks like you generated a ton of free cash in the first quarter, one with those payments getting there.
And that's the end of our quarter.
Yeah, all right. Thank you very much. Good job.
Thank you.
Speaker Change: Again, if you have a question, please put stars in one.
Speaker Change: Our next question will come from Mike Grondahl with Northland. You may now go ahead.
Mike Grondahl: Hey guys, thanks and congrats on a very robust quarter. A couple of questions.
Mike Grondahl: Are you able to quantify or give us a sense of the web bank partnership and the financial benefit you saw there having a first full quarter?
Mike Grondahl: I think the probably the best way to do that is probably just go look near on your differences and profiles.
of the company.
You know you
Mike Grondahl: If you look at fourth quarter to first quarter last year versus fourth quarter to first quarter this year maybe a couple quarters more I think you'll start to see like where web bank is helping us and I mean I think the gist is look at our revenue yield as a percentage of. [inaudible]
Mike Grondahl: GMB. That's a big part of it because there was a number of states where we were running sub-optimally because we were going to stay by state with web bank where basically just ran the product as designed.
Mike Grondahl: through web offering the lending product and not Sezzle. So I think that's basically where you can probably pick up a lot of the differences. I know some of that's not true A.B. because we've got other products in the mix, but I think you'll kind of get a sense looking here on here.
Yeah, got it.
<expletive> and then
You know...
Mike Grondahl: The 658,000 of on-demand and monthly subscribers mods now, you talked about the stickiness of those monthly subscribers.
What would you attribute that stickiness to your...
Mike Grondahl: You're shopping experience, just the overall consumer experience. It sounded like you were surprised by, you know, how strong, how sticky the monthly pain subscribers were. So just like a little more color there.
Mike Grondahl: I, you know, the story I kind of give when I think about this is, you know, I think early things, early days credit cards, because early days credit cards were kind of similar to early days by not pay later, not that I was alive back then, but from what I've read.
Mike Grondahl: But imagine like you have a chase card and you go into a restaurant they're like oh we only accept
Mike Grondahl: You know, now you have to have an AMIC card to shop at that, you know, be at that restaurant or be at that store, which I think early days credit card that's basically what's happening.
Mike Grondahl: So early days, B&P, I'll think kind of thing. You've got to have Sezzle to shop for this store. Oh, you've got to have one of our competitors to shop for another store. That can be kind of annoying, I think, for a customer. And so it's our subscription product and now on demand.
Mike Grondahl: I think it just creates like an ease of mind, or ease of use aspect to the product. I don't have to care what that store thinks I should use.
Mike Grondahl: I can just, you know, the heuristic, I can just use Sezzle. I don't have to think about it. I'm going to get paying for. I like how Sezzle operates. I like their app, I like their functionality. I can just go on there and tap now because I've got anywhere or premium or on demand.
Mike Grondahl: who creates an ease of use for the, which is value for the customer and now they can use that card ever work, just like, you know, just like you probably use the same credit card ever work, you just don't want to think about it. So that's what I would think it would be like.
Fair, Fair, okay, and then...
Mike Grondahl: You know, I get asked a lot about credit quality. The 1.6 was you know, nicely lower than where you guys were thinking it was going to be.
Mike Grondahl: Yeah, we know our profitability levels are a lot stronger year-over-year, which basically we're shooting for that 60% type gross margin.
Mike Grondahl: and so if you know that your top lines at a higher level, you can you can eat.
except a little bit of a higher cost.
Mike Grondahl: So that allows us to be a little bit more open.
Mike Grondahl: But I mean, trust me, we're not trying to just open up to grow volumes. We think about it in terms of ROI and on terms of maintaining gross margins that we like to maintain. So that's probably like why we came in where we did plus with first quarter. There's always there's always provision. So that's what we're trying to do.
Mike Grondahl: And so in fourth quarter we have the provision which is an estimate of what we think the losses will be on those loans.
Mike Grondahl: and we had a little bit better than expected results as well, so that led into the 1.8 or the number for the first quarter of PLR because we have to make an adjustment when things come in better than we expected. And then the first quarter itself is just a good quarter for this customer because they tend to be getting tax refunds.
Mike Grondahl: So that all kind of played into it, but we give that guidance of like the 2.5 to 3% PLR for the year and for now we're sticking with that. We still think that that's probably the right range even though the first quarter is coming in much lower than that.
Speaker Change: Got it. And then, hey, just lastly, can you give us a little bit of color about pay-in-five and auto-couponing? Couponing, just describe those at least?
Speaker Change: Yeah, so pan five, we did a survey to our customer base.
and it was...
Speaker Change: And not just our customer base, but also the MPL users outside of our customer base and ask them, you know, paying five versus paying four. What do you like?
Speaker Change: And I know some of it kind of seems common sense, someone would take an extra payment, but they result are really surprisingly positive. And so...
Speaker Change: I think most of business is common sense, quite frankly. I don't think a lot of it is rocket science and when our customers are and other potential customers are saying that they would really love that type of a product.
Speaker Change: We're like, okay, let's get that in the mix and try it out. And you know, we're seeing so far as it looks pretty good like we're pretty happy with the results as far as still early, you know, it's less than 10% of our volume at the stage. And so that's really the gist of it, something like...
Speaker Change: Customers just like that from what we're seeing. So, we feel good about that. We're probably going to keep on increasing volume to pay in five as long as we keep on seeing good results.
Speaker Change: You know, in terms of profitability, in terms of repayment, in terms of uptake from customers. And then auto couponing, basically the idea behind that is just keep on helping our customer. You know, so our customer is mid to low income, younger customers, and if you can surprise them the item by all of a sudden they're shopping it.
Speaker Change: Well, you're going to remember that. No doubt about it. These customers will remember it. That'll create loyalty and retention and keep them around our ecosystem. And that's really the idea there is where it's not we're not doing a lot on a shopping side. I'd say to increase profitability levels. It's more about [inaudible]
Just
Speaker Change: Giving the customer tons of value for being in the Sezzle ecosystem. That's the main part of it right now.
Speaker Change: Fair enough. Hey, Go Wolves. Thanks guys. Go and Go Wolves, for sure.
Speaker Change: This concludes our question and answer session. I'd like to turn the comments back over to Charlie Youakim for any close remarks.
Charles Youakim: Thank you, operator. And also a big thank you to the Sezzle team. We'll continue to execute on a high level, which is why we continue to outperform in our results. I'm sure of it.
Charles Youakim: and in closing, out of homage to Warren Buffett is upcoming retirement, I'd like to tell a Warren Buffett story, technical.
Speaker Change: In the early 1960s, American Express was embroiled in a huge scandal, a company called Allied Crude Vegetable Oil Use, Fraudulent Collateral, barrels filled with mostly water, not oil.
Speaker Change: to borrow millions from banks using AMX's letters of credit. When the fraud was exposed, AMX stock plunged by over 50 percent and everyone thought the company might collapse.
Speaker Change: Warren didn't panic, instead he dug in a little deeper. He realized that despite the scandal, the core MX business was doing just fine. He talked to bank tellers, bank officers, credit card users, hotel employees, and restaurant workers to get a feel of whether usage had
Speaker Change: Based on that research, Buffett concluded that Wall Street has punished MX by battering the stock price. MX's reputation hadn't been tarnished on Main Street.
Speaker Change: The research led to a very large investment in AMX at that time. Buffett invested around 20 million in AMX, which was over 40% of its fund size, and around 5% of AMX's market cap.
Speaker Change: The results, M. X. Stock tripled from that point within a couple of years and became one of the first home run investments for Buffett.
Warren's lesson and his quote Michael Grondahl,
Speaker Change: The stock market is a device for transferring money from the inpatient to the patient.
Speaker Change: That's the story. Cheers to the patient, long-term holders of Sezzle. Have a great evening, everyone, and thanks to Operator Walden, the colonel.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.