Good day. And welcome to the Sezzle Inc. Fourth Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Charlie Youakim. Please go ahead.

Thank you, and good afternoon, everyone. And welcome to Sezzle’s 2024 fourth quarter earnings call. My name is Charlie Youakim. I’m the CEO and Executive Chairman of Sezzle. I’m joined today by our Chief Financial Officer, Karen Hartje; our Head of Corp Dev and IR, Lee Brading; and our President, Paul Paradis. In conjunction with this conference call, we filed our earnings announcement with SEC and posted it and the earnings presentation on our Investor website at sezzle.com. To retrieve the documents, please go to the Investor Relations section of our website. There you will find the press release and the earnings presentation under the Investor Relations section of our website. Please note the cautionary note on forward-looking statements and the reconciliation of GAAP to non-GAAP measures included in the presentation, which also covers our statements on today’s call. I’m very excited to share our fourth quarter and full year 2024 results, as well as an updated guidance for 2025. It’s hard to imagine that 2024 was only our seventh year as a company. To say that we are in early innings is an understatement, and I mean early innings as a company and a sector. We’ve had to execute at a high level for our entire history to gain market share on our larger peers. With headstarts ranging from five years to 20 years relative to us, almost every major competitor in our industry has raised over $1 billion in equity compared to our $120 million, and we’re still gaining share. I’m not sure how familiar you are with the book and film Moneyball, but I think we might be the Oakland A’s of the BNPL industry. We’ve had to do more with less as we don’t have the luxury to blow cash. And by the way, I don’t…

Thanks, and happy birthday, Charlie. Hello to all. On to Slide 8. I feel a little bit like a broken record for the last several quarters as we keep reaching new highs. But that’s a problem I will happily accept, as it is always great to share a performance when the results are this good. The strong holiday season plus the Bank Program launch led to 100% year-over-year increase in revenue for the fourth quarter compared to the prior year’s period. Our outperformance for the quarter drove total revenue for the year to $271 million, a 70% increase from 2024. As a reminder, we have provided adjusted numbers to remove the non-recurring items, which can mostly be attributable to the release of the valuation allowance previously recorded on our deferred tax assets. We believe this provides a more reflective run rate of the company’s results and will be useful as we report in 2025 for comparison purposes. Adjusted net income was $26.5 million for the quarter and $66.2 million for the year. Each is up approximately 10 times or more compared to the prior year’s period. The significant gains year-over-year were driven by revenue growth, unit economic gains and our ability to further leverage non-transaction operating expenses. We will jump into the details of each of these beginning on Slide 9. For the year and fourth quarter, year-over-year revenue growth outpaced the rise in GMV driven by subscription growth and fee unification because of the Bank Program. As a result, revenue reached a new high of 11.5% for the quarter and 10.7% for the year. We have bundled our transaction-related costs of transaction expense, provision for credit losses and net interest expense on Slide 10. Each of these have behaved as anticipated. Transaction expense, which is primarily payment processing, was…

Thank you. [Operator Instructions] The first question comes from Mike Grondahl with Northland. Please go ahead.

Hey, guys. Congratulations on a very strong finish to the year. My first question, the year-over-year revenue growth in 3Q was 71% and that accelerated to 100% revenue growth in 4Q. What were the biggest drivers of that? If you could kind of rank them in order, that would be great. Thank you.

Thanks, Mike. I think one of the biggest drivers was -- there’s probably two big ones, the first being the partnership with WebBank. As we had mentioned to a number of our investors prior to the WebBank partnership, one of the key elements of the WebBank partnership was allowing us to basically unify our fee structure across the United States. In many states, we were going state-by-state with state licenses and some of those state licenses basically restricted us to -- basically no penalty fees or late fees whatsoever, which basically made our model non-ideal in a number of states. That was one element, I would say, is by going live with WebBank, unifying the fee structure, it led to increased revenue, increased trust margin, and then more to the bottomline, and then additionally, allowing us to launch a new product. We saw the number with MODS going up to 707,000 over the quarter. It created basically another growth metric or another growth factor for us as a company, which really helped out in terms of driving revenue. Karen, anything else to add to that?

No. You took the words right out of my mouth.

Charlie, just as a follow-up to that, I don’t know, would a holiday season be the third driver with that acceleration? I’m trying to understand where just seasonality comes into play, too?

Not necessarily, because its year-on-year. I guess you’re going quarter-on-quarter, that’s true, but we’re going year-on-year results, though, in terms of the growth rates, so…

Yeah.

… 100% increase over year-on-year, it’s still holiday season to holiday season. I guess On-Demand being another quote-unquote Anywhere product, it allows people to shop at more places. Before we had our Anywhere products or our more open network products, we were restricted to our directly integrated merchants. And in prior years, you go back and look at our results from four years ago, November would be our peak month, because that’s when a lot of people did a lot of online shopping. But now that we have these Anywhere products, it actually turns out that we’ve become more December-weighted in terms of our volumes, which I think also helps. So the more Anywhere products helps to basically carry the momentum through all of the quarter rather than weighted to the early half of the quarter, where people were shopping online only.

Got it. And then congratulations on the 707,000 subscribers, the MODS number now. Clearly, it sounds like On-Demand was pretty strong and successful. Any comments specifically on Anywhere or Premium? I know those two were 529,000 at the end of September. I know you’re not breaking the three out, but any just high level comments on Anywhere and Premium, and how they operated in 4Q?

Well, basically, we maintained subscriber numbers pretty well throughout the quarter. But the real focus, besides restrictions on introducing Anywhere or, sorry, On-Demand to new consumers, when we could introduce consumers to a product, we were tending to lean towards On-Demand, because we knew that it had better activation rates because of the lower barrier to entry. And we’re really playing into our strategy early, get customers through a lower friction, barrier -- lower barrier to entry first to get them into On-Demand when we can. And then over time, our viewpoint is that as the customer transacts frequently with On-Demand, they’ll start to make the decision that, hey, I might be better off with a subscription product. We’re starting to lead a little bit more into this new strategy. But of course, with existing subscribers, we don’t introduce On-Demand. They already have the product that they need. So we don’t even really talk about it with existing subscribers. So our viewpoint is through 2025, we’re probably going to continue to lead with On-Demand and then watch the customer utilize that product, and then probably start to introduce them to subscription again, kind of like how Uber works for many people. I’m sure a lot of people on the call use Uber, getting introduced to, I think it’s called Uber One, the subscription product. I think that’s kind of like how we’ll start to evolve with our subscriptions. And as we mentioned in the call, what we’re seeing right now in the topline revenue side, On-Demand looks pretty similar to Premium already. So you can start to kind of get the idea that some of these customers are transacting enough with On-Demand, where they might be better off moving into subscription. So we just think it’s going to take some time for that to evolve, probably the next year, for us to kind of mix the whole batter together. So over time, we think it becomes the bridge that we were predicting it to be.

Got it. And lastly, the press release talks about the enhanced product marketplace kind of driving consumer engagement and it said orders grew by an average of 39% month-over-month. Average session activity increased 70%. Can you talk and describe a little bit about what that is and what you’re trying to create there?

We just want to make the app really the go-to for these customers. And the reason you’re seeing this month-on-month growth rate is that, we’re a very tech-oriented company and if people have followed tech-oriented companies or have been involved with them. We’re very -- we have a lot of releases throughout the year. I mean, 100s, maybe around 1,000 per year. I don’t know the exact numbers, but we basically believe in these micro-releases of improvements to our apps and to our systems. And so, as the product’s improving over the year, as customers keep on coming into our app, they keep on seeing more and more features. And many customers use this for a couple months, they come back in, they’re impressed by what they’re seeing, the new options available to them. And our view is that we’re going to keep on doing this through 2025, through 2026, really focusing on the shopping side. And over time, we believe that’ll draw more eyeballs into our app. But also, I think even maybe more importantly, create a stronger retention for customers that have been introduced. And I think that app engagement and what you’re seeing in terms of the purchase activity in the app is really showing that it’s starting to work.

Great. Hey. Thanks a lot.

Thanks, Mike.

[Operator Instructions] The next question comes from Hal Goetsch with B. Riley. Please go ahead.

Hey. Thank you, Charlie and team. Congratulations on a great year. My question about the funnel for mid-market merchants, maybe even enterprise merchants, it seems like the buying app later field is going to be a handful of players, maybe five to six, and you’re one of them. And I’m just wondering when, and you guys buy a little deeper, have a lot of features. I’m just wondering how your funnel is shaping up for signing up more small, middle market, regional and even national accounts now?

It’s still strong. I think, our view is that and probably improving from what we’ve been seeing over the last few months and I think that’s not even including the idea that On-Demand is basically a newer idea. We mentioned in the call here, but maybe just to clarify for investors following the company, before we used to go to merchants, we would basically just talk about our core product, which was installing Sezzle on your website, no fees at all passed on to the customer. Basically, the merchant would have to subsidize the entire transaction and that worked for a number of merchants. But as you get into larger and larger mid to enterprise merchants, many of them are very cost constrained in terms of what they want to do with processing products. And in some cases, when you go into an enterprise or mid-market merchant, they have you talk to their processing team. And their processing team is very focused on cost. Sometimes you get into their marketing teams focused on driving traffic. Sometimes you get into their processing teams driven on cost. I think as you get bigger and bigger into bigger and bigger merchants, it tends to be more towards the processing team. And so when they’re looking at costs, they’re comparing you to payment processing, credit card processing, which is around 2% or so. And we came in early days with Buy Now Pay Later, we were charging six plus 30. Actually, that’s our rack rate today for SMBs for our small to medium sized businesses. But of course, enterprise merchants scoff at that. They want to keep their processing costs low. So with On-Demand, we can pass on a lot of the fee structure to the consumer now in terms of a service fee, even in the merchant checkout. And that’s a new product that has just started to help us build up more of the pipeline on the enterprise side. So we’ve been having some good momentum. As you saw -- as you mentioned, we had three nice signings here in the fourth quarter. But we think that it’s going to continue to improve in quality as we have introduced On-Demand into more and more situations.

Okay. So you’re saying those three merchants you signed, that’s more of an On-Demand where the consumer pays?

No. In those cases, no. But I think we’ve already had just through execution, we’ve had some good growth in terms of enterprise merchant signings with those three. But we think that we have a chance to add even more now that we have On-Demand in the mix. But it takes a while to create the pipeline with enterprise. It’s not like a…

Yeah.

… two-month activity. It’s usually a few months.

Last two for me real quick. Is there a monetization in couponing you can do? And then two, on the capital allocation, if you generate another $80 million on adjusted net income, you’re basically trending toward really not even needing a warehouse line. What are your plans when you generate that kind of cash with the warehouse line down a year from now? Thanks.

Yeah. So in terms of the generating cash, I think the great news about being a strongly profitable company is it just creates a lot of options for you. One of the options is, yeah, we could basically drive down to the point, maybe not in the next 12 months, but in the next 12 months to 24 months where, depending on your growth rate versus your margins, you could basically deplete the need for a line of credit. It also gives you the opportunities for buybacks, for dividends, for M&A. I think that’s the nice thing about being a profitable company is it gives you lots of options. And it’s not like we’re in a rush on any of these fronts. We just think that keep on executing, keep on doing a great job, keep on building up the cash and then we can evaluate the options as they come. And then, by the way, Hal, first question, just to remind me.

Yeah. Is there any monetization potential on the coupon?

Oh! For couponing. For couponing. Yeah. Basically, with all the shopping side of the activities, there are monetization channels. What we’re trying to think about now is the trade-off. How much of it did we give to the customer to create attraction and retention versus how much of it we retain? And so we’ll probably be experimenting with that. But I mean, these are definitely, when we talk about kind of a Honey for mobile is like the way we kind of talk about the new productization within the company. I mean, Honey was a profitable company. So you can definitely monetize on these items. For us, it’s just like thinking about as we launch these features, how much do we give? How much do we keep with us? But they’re definitely profitable. It’s definitely a profitable business in its own right. But we’re looking at it a little bit differently. Maybe we’re looking at more for attraction and retention, because we’ve got this great money-making machine with our Buy Now Pay Later product set. So we’ll probably be experimenting with that a bit.

Okay. Excellent. Thanks, guys.

Thanks, Hal.

This concludes the question-and-answer session. I would like to turn the conference back over to Charlie Youakim for any closing remarks. Please go ahead.

Thank you, Operator. Again, I’d like to thank the Sezzle team. We continue to make tremendous strides in our business and I know our team will continue to lead the way. I know the business school books never talked about a team as a competitive advantage, but I disagree. I know our team creates a competitive advantage and that’s why we’re winning with Moneyball. And in closing, I don’t have a Charlie Munger quote this time around, but even better, I have a Charlie Munger story all in his own words. He says, back in the late ‘80s, we started buying Coca-Cola stock. Not a complicated decision. Here’s a company selling sugar water all over the world. Got a brand stronger than Fort Knox, and people aren’t going to stop drinking it anytime soon. We picked up shares at a decent price, about $600 million worth by 1988 or so. People thought we were nuts paying that much for a soda company. Analysts said it was overvalued. Market was dreary. All the usual noise. What did we do? We sat on it. Didn’t trade it. Didn’t tinker. Didn’t listen to the chatter. Just held the damn stock. Why? Because it was a business that we understood, run by people who knew what they were doing, with a moat wider than the Mississippi. Fast forward a couple decades. By the 2000s, that $600 million turned into billions. Today, it’s worth over $20 billion. And that’s not counting the dividends we’ve collected along the way, which are millions every year now. The trick wasn’t in some fancy footwork. We didn’t outsmart the market with clever thinking or clever timing or slick moves. We just bought it and forgot about it. Let the company do its job. People think investing’s about action, but the big money’s in the waiting. You find something good, you park your ass and you don’t budge unless the story changes. That’s it. I couldn’t agree more with Charlie Munger. Have a great evening, everyone, and thanks, Operator. We can end the call.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.