Good day, and welcome to the Sezzle Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charlie Youakim, CEO and Executive Chairman. Please go ahead.

Thank you, and good afternoon, everyone, and welcome to Sezzle's Fourth Quarter and Full Year 2025 Earnings Call. I'm Charlie Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our new CFO, but a familiar face and voice for you all, Lee Brading. In conjunction with this conference call, we filed our earnings announcement with the SEC and posted it along with our earnings presentation on our investor website at sezzle.com. To retrieve the documents, please go to the Investor Relations section on our website. Please be advised of 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. Before diving into our prepared slides, I'd like to take a step back and put 2025 in context. 2025 brought a shifting landscape for BNPL and for fintech more broadly. We continue to see the sector mature within the broader U.S. financial ecosystem as BNPL became more embedded in everyday commerce and more firmly established within the financial ecosystem. One notable development this year was the continued interest across fintech in pursuing bank charters and deeper partnerships within the banking ecosystem. For Sezzle, our exploration of the industrial loan company or ILC, fits within that broader evolution. We view it as a long-term strategic journey, one that reflects how far Sezzle and BNPL have come from the early days. This is no longer a fringe category. BNPL is increasingly becoming an established part of the financial infrastructure in the United States. Turning specifically to Sezzle. 2025 was a year of focus, focus on product, focus on execution and focus on investing in areas where we see the highest return. On the product side, we launched and scaled features like our Earn tab, our…

Thank you, Charlie, and good evening to everyone joining us. The year-over-year progression overview on Slide 11 effectively captures the incredible operating leverage we built into the Sezzle engine. For the full year 2025, total revenue reached $450.3 million, a 66.1% increase over 2024. Even more impressive is how that top line momentum flowed through to our bottom line with adjusted net income nearly doubling for the year to $128.4 million. In the fourth quarter specifically, we reached a new peak in organizational efficiency. Our adjusted EBITDA margin expanded by nearly 12 points year-over-year to 44.9%. This wasn't just a result of holiday volume. It was driven by our success in optimizing our unit economics. As a percentage of total revenue, our total revenue less transaction-related costs stood at 64.3% for the quarter, a significant 9-point jump over the same period last year. Essentially, we are benefiting from the operating leverage of our proprietary tools. We continue to see the proof in our nontransaction-related OpEx, which dropped by 4.1 points for the full year to just 26.3% of total revenue. We are growing our top line at a much faster rate than our overhead, and that discipline is what allowed us to deliver these record results. On Slide 12, we break down our growth engine. This quarter marked another milestone as GMV crossed $1.16 billion, a 35.3% year-over-year increase. For the full year, we processed $3.94 billion in volume, up 55.1% compared to 2024. We saw a consistent take rate of 11.2% this quarter, contributing to a strong 11.4% take rate for the full year. These figures reflect the success of our transition toward high LTV products like Premium and Anywhere, which also enhanced the shopping experience for consumers. We're building a stickier ecosystem that rewards loyalty and drives greater…

[Operator Instructions] The first question comes from Mike Grondahl with Northland Securities.

Congrats on the progress in the year. Any comment on the state of New York and kind of some of the regulations they're looking at, your exposure there, some thoughts?

Yes. Good question, Mike. We saw that come out. I would say, first off, I don't think it's going to be a big impact and no impact really this year because it takes a few months here for that to go out. But it really -- a lot of it mimics what we saw from the CFPB in terms of their guidance on how BNPL companies should be operating with a few tweaks here and there or some slight differences that I don't -- in the end, I think even after those differences would create relatively insignificant results. I would say the more concerning trend is just the trend in our politics of states kind of jumping in and wanting to have a say at every -- on every product in every industry right now, quite frankly. Sometimes I feel like we're heading towards the EU, which is not a great way forward, I think, for our country. But we're navigating that, too. So the viewpoint is that's why we're looking at getting an ILC. That's why that process has been going underway because that strengthens us, makes us more of a national type presence. And then we also just have other ideas in mind in terms of evolving the BNPL product, adding additional products, which just strengthen our resilience against a single type product and any effects that might come from something like this. So I think we're thinking about it. We saw it. We're we're continuing to like think ahead about how to continue to evolve to make sure that anything like that, that continues -- or if a trend like this continues, we're protecting.

Got it. And then 2 other quick questions. One, just on your annual guidance for '26, the revenue less transaction margin and adjusted EBITDA, those, I think, were not provided. Are you just kind of tightening up what you're providing? Or any thoughts there?

Lee, do you want to comment on that one?

Yes. Mike, yes, from a -- and I talked earlier in the comments that we had a gross margin target kind of 55% to 65%. So kind of leave it up to you guys to kind of work within that range. And we disclosed also the operating -- the nontransaction-related operating expenses and how we continue to leverage that. So you can kind of work that in your model. We expect to continue leveraging that going forward as well.

Okay. And then lastly, you guys had talked last fall about deemphasizing the on-demand product and focusing on higher-margin subscriptions. That seemed to go well. Was it -- do you attribute that to just less options at checkout, the marketing dollars? Just talk a little bit about that.

It's really -- and we have done that. And it's really more about what you kind of show the customer first. So I always talk about business being art and science. And some of our gut instincts at the start of last year was we thought that on-demand would be a great onboarding tool as a bridge to subscription. And what we found is it really didn't turn out to be the perfect bridge. So after we saw that kind of that bridge not transition model not working as well as before, we basically stopped emphasizing like the presence of the ability to do one-off type purchases to consumers. We started really just kind of leading with subscribe. We'd love to see you subscribe to anywhere a premium. And that created all the difference...

Clearly, you had enough of a hit rate there. So that just kind of worked. Is that the right way to think about it, Charlie?

Exactly. Exactly. So the conversion rate into on-demand when it's just pay-as-you-go, it is higher, but it was only slightly higher. So our view is like it's better to have the consumer marry you and just make the commitment because when they marry you, it's like they're all in, they stop looking at the other competitors. And I think that when they're doing this kind of on-demand, which we still have in our suite, and it's still growing. It's still a product in our suite is still growing, but it's just deemphasized. But I think when your customers are on on-demand, it's still a good product for us, but I think that it's like dating and they're still looking around. And that's why we like the subscription approach.

The next question comes from Rayna Kumar with Oppenheimer.

Good results. Could you give us any clarity on how the quarterly cadence could look for revenue and earnings?

I guess what do you mean by that, Rayna?

Just like you gave a full year guide, which is very helpful, but just like how should we think of some of these metrics on a quarterly basis?

Well, on a seasonality basis -- go ahead, Lee.

No, go ahead. I was going to go into that on the seasonality. So go ahead.

Okay. So on the seasonality front, I think that's really the key driver here. What tends to happen in the first quarter is we have -- I almost kind of liken it to like a boat slowing down. If you're like in a boat and it slows down, the wave kind of comes in. And so what happens in the first quarter, our GMV tends to slow down versus the fourth quarter because the fourth quarter is a holiday period. But our payments come into the first quarter. And so that tends to happen is it tends to raise our take rate on GMV. And then that tends to expand our gross margins at the same time. And then PLR tends to come down in the first quarter as well because it's a tax season for our consumers, and they're generally getting rebates. So those are kind of the dynamics in the first quarter. Second and third quarter kind of normalize. They're just like just standard quarters. And then fourth quarter, a little bit of the inverse because our consumers with a lot of more subscribers, they tend to be spending more of their limit in that quarter. That tends to take the take rate down and then PLR tends to be higher in the fourth quarter. So that's kind of like the general seasonality. So I think it's always difficult for investors, and we always try to call this out. We don't recommend annualizing fourth quarter. We don't recommend annualizing first quarter. We recommend looking at our historicals and then kind of like maybe trend lining things out. Does that help?

Got it. Okay. That's very helpful. And then one more for me. Just in the fourth quarter, I noticed your merchant count was 463,000, and that was down a bit from the 474,000 you reported in the third quarter. Anything to call out there?

I think maybe just the level of saturation that these anywhere customers, they're kind of reaching the saturation point to the number of merchants that they shop at. So I think that number, I guess we might expect some stability in that number quarter-to-quarter-to-quarter at this point.

The next question comes from Hal Goetsch with B. Riley Securities.

Terrific year. Lee, congratulations on the new role. I wish you the best in that. I wanted to ask you about your tightened decision, I mean you really outperformed on provision like by my model by over 100 basis points. We saw a few other short-term lenders and fintechs tighten in the fourth quarter. And just curious what you guys saw that made you do that? And was there a trade-off between that and UMS?

Yes. Yes, good question, Hal. So I think if you look -- thinking back to like -- I know it's hard to remember back that far, but August, September time frame last year, there's a lot of chatter about the health of the consumer. We were hearing it. I mean it was everywhere. And so I think that made us a little bit more cautious. And I would say we only slightly tightened on like one of our models. So there was some tightening. But I think we were just super vigilant watching because there was a level of concern just across the entire U.S. economy with that. And then I think what it showed is that the consumer ended up being healthy. So like that maybe the over concern around the consumer, it was maybe a little bit unwarranted, I guess, in the end. And so I think that did a number on driving that provision lower. We also did launch new models as well in the company. So we launched a couple of new models. That also helps because the new models had higher performance levels. So that added into that. And then in terms of the trade-off on GMV, hindsight is 2020, knowing the results that all of that provided, I think we probably would have preferred to try to get some more consumers through the pipeline and probably increase GMV. But I guess what you could say is since we're guiding to the 2.5% to 3% provision for this year, I think that presents an opportunity for us with the new models in place and a new knowledge that we think that we can probably maybe even open further to help drive more GMV and more users.

Terrific. Two quick follow-ups. One is you got a lot of operating leverage on nontransaction operating expenses. But in dollars, the expenses were still up about 50% year-over-year. I was curious if that -- this is a big investment year in a lot of the things you've built? And what can we expect from that kind of growth maybe directionally or rate in 2026? And my follow-up, the next one is on the banking charter discovery. Why isn't WebBank enough? And doesn't WebBank pricing protect you from any state rules like New York changes in BNPL?

Yes. So on the second question first I mean with WebBank, I mean, WebBank is a fantastic partner. We've been very happy working with them. The only thing, I guess, the challenge is that some of these states are taking angles at the Banking-as-a-Service partnership model. They -- for whatever reason, new fintechs, new products right or wrong, and I think in our case, wrong, just kind of draws the iron of politicians, like they just want to, I guess, claim victories by saying that they're stopping things. So I think one of the ways that they think they can stop new fintechs is challenging the Banking-as-a-Service model, which is unfortunate. But so like one of the ways we're viewing it as a defense against that is becoming it ourselves. And then by having that tool within our tool belt, we are defense -- we're future-proofed against that sort of like mantra or attack against these younger fintechs like ourselves. And then on the operational expenses, I don't know, maybe, Lee, do you have any comments on that?

Yes. No, yes, if you think about our operational expenses, a big part -- the 2 big parts are really personnel and marketing. Personnel, you're going to see that slightly trend up, but we've done a really good job of maintaining that. But really, where you really see it is on the marketing side. As Charlie mentioned earlier, right, we focus on a 6-month payback, and we're going to keep pushing that as long as we're achieving those kind of levels. But that's where you see most of that movement on an absolute basis.

The next question comes from Hoang Nguyen with TD Cowen.

Congrats on the good quarter. I want to touch on the provision. You mentioned favorable repayment performance in the fourth quarter and I think you're also pivoting towards -- back towards subscription, which should have better credit quality as well. But at the same time, I think the provision guidance of 2.5% to 3%. I guess, I mean, it's not a lot of improvement versus '25. So again, can you talk a little bit about how we should think about this going forward and whether there would be any improvement as you guys continue to focus on subscription and...

Yes, sure. It will actually be a little bit of a step-up on 2025. So 2024, we had a 2.2% for the year, 2025, 2.3% for the year and then now the guidance of 2.5% to 3%. And the main reasoning of how we think about the provision guidance and is what we're trying to model for is this gross margin range of like a 60% to 65% gross margin. So when -- as our financial strength on take rate rises, that lifts the top end of our unit economics. And then because we're doing such a wonderful job on scaling with transaction processing costs going down with our cost of capital going down, our cost of funds in the unit economics, it actually expands the size of what we can accept on provision to still hit that unit economic range of that 60% to 65%. So that's how we think about it. And we're planning to design to that. And so that's basically why we give the guidance because that's where we think it would be a pretty healthy area for us to run.

Got it. And maybe you guys have any early read on the tax refund season, given that you guys serve more low-end consumers? Any trends you would note for us?

No, nothing really pops out. I think it looks like business as usual on the tax refund season.

[Operator Instructions] Our next question comes from Kyle Peterson with Needham & Company.

I wanted to start as kind of a follow-up on credit. Obviously, really good to see the lower cost there in particular, the commentary on some of the record kind of third and fourth payments. I just wanted to see, does that give you guys any more either appetite or confidence to potentially ramp up something like a Pay in 5 that I know you guys have been doing a little bit more work on. So any color there kind of in terms of appetite, whether it's mix or on the product side or customer side, that would be helpful.

That's a great question. I would say you're spot on. I think it does give us a little bit more appetite because the trade-offs in the Pay-in-5 product because of the one extra payment, you are going to have a slightly higher provision on a product like that. Whenever you extend out terms, I think, in our industry, I think you're always looking at that sort of a trade-off. And that probably would be a big part of it. And we love Pay-in-5. And our consumers mainly because I would say, our consumers are showing us that they love Pay-in-5, which for us, when we see that, it increases attraction rates, it increases retention rates. And we've designed our business in a way that even though we have some trade-offs where maybe a provision might be slightly higher from Pay-in-4 to Pay-in-5, we've also designed the system so the unit economics kind of get to the same sort of place.

Got it. That's really helpful. And then maybe just a follow-up on capital allocation. I appreciate the share repurchase commentary that you guys provided. I guess it looks like based on the statements, it looks like you guys bought about $30 million back in the fourth quarter. So was that reasonably back-end weighted? I guess, if so, should we expect a little bit of a modest dip in shares sequentially in the first quarter on a weighted average basis? And then I guess, how are you guys thinking about capital allocation from here, balancing whether it's organic investment, potential M&A or buybacks, obviously, with the stock trading at pretty attractive levels.

I don't remember the exact like weightings of the buybacks. Lee, do you have any thoughts on that?

Yes. So we finished our $50 million buyback in December and we announced a new $100 million right before we went into our blackout period. Our K will be coming out tomorrow after the close. And in that, you'll see what we did to finish out that $50 million that will be disclosed in there. But we have a 10b-5 right now right during our blackout period. And so I'll jump a little bit ahead of this and Charlie wrap it up on the allocation. But we are very opportunistic on buybacks. We look at it as -- we don't look at it as a company like, hey, we want to reduce x amount of dilution. It's about being opportunistic because we have a lot of organic opportunities as a company away from just buybacks. So we have a lot to do. And so it's just finding the right balance in all those things.

Yes. And the way we think about things is, first and foremost, it's always internally in the business. is there something that we have this capital flowing in because we've designed the business in a very favorable way now with cash flow. So we've got cash coming in. And as we're looking at new projects, we want to allocate that cash to projects. But I always tell people like we're not like a Tesla. We're not building factories. It's -- if we want to launch new products, it's typically bringing on new team members and allocating or reallocating team members across different projects. So it's really a pretty capital light for us to take on new projects. That's not usually a big need of that cash. Potentially partnerships, that could be a use of cash. But that's not like -- you're not like having like a flow of like, here, we've got these 20 partnerships available, let's do them or let's do the top 5, they come and go based on where potential partners are in their lifetimes. So that's hard to predict, but we like to have the cash available in case that those types of opportunities come about. And then M&A, if you've ever -- I mean, our history of our company, we've never done M&A. We've always typically been a buy versus build versus buy shop. We're not against it. But in the past, we've always seen -- and maybe this is changing a little bit now. But in the past, there's always just, in my opinion, absurd valuations based on unit economics and financial metrics that just never seem like it would make sense for us. We'd always -- well, we'll just build it if we want to do that for these prices. So it's never really been something that's popped up for us. It's not out of the question. If the market dynamics change, M&A could be there. It just -- I just want to level set. It's just never been something that's been a top one for us. And then that basically leaves you with buybacks and dividends. And we said in the past that onetime dividend could happen. I'm not saying any time near time, but it's something that's in the cards if the situation fits. And then buybacks, as Lee mentioned, just be opportunistic about it. It's not about trying to hit certain metrics with buybacks. We have no -- I always reiterate this because I think it's important for investors to know. No one in the executive team, no one on the Board has any performance comps tied to share price. We don't use buybacks in that sort of way. I guess there should be no concern that buybacks are being done to try to like affect the share price. We really view it as like when we see a time period where there's a great safety factor, great time to buy, we'll do it.

There is a follow-up question from Hal Goetsch with B. Riley Securities.

I'd like to know more about the mobile plan and how that came about, who your carrier partner is? And is that -- even though it's been announced, is that those -- that potential is not in your forecast. Is that correct for subscribers and revenue from the mobile plan?

That's correct.

Do you have any goals for this, do you have any thoughts on like the pace and cadence of uptake in this, if you could share with us.

Yes. I mean really good question. So the reason we're looking at Sezzle Mobile or the reason we're launching it soon here in the next month and the reason we looked at in the first place, we thought it was just from the mindset of helping an everyday American save money, like for us when we started to see the numbers and the opportunity is like this is a potential home run for our consumer. If the average consumer out there is paying $100 a month, I mean, I know my bills over a couple of hundred, but I'm not totally normal. But the average is $140 a month. I mean if you can get a plan down to $30 as an any more subscriber and maybe like $15 more per line or I can't remember the exact details, but it's not expensive to add lines on this plan. Our view is that we can save this customer a lot of money. If you can save the customer a lot of money, then they're going to be even more loyal to you. The partner -- the cellular partner is AT&T is who we're working with through an intermediary. And the viewpoint is, I don't know if we have hard numbers. Of course, every time we launch a product, we love it to be a success, and we survey ahead of time to make sure that customers would be interested in the product. But the real viewpoint is that it could potentially bring in adjacent customers, like we could start putting landing pages out there, not that we necessarily want to start competing with Mint Mobile, but we could get some landing pages out there and some promotions out there that could potentially bring in some adjacent customers, like near space adjacent customers that could be introduced to BNPL as well. So we think it's actually an acquisition opportunity to bring new customers in through different funnels. And then we think it's a great retention tool because once you've got a customer in that mobile plan through subscription with anywhere, we feel like it's just a really superior lock-in into our subscription for good reasons. Like customer is not going to want to leave anyway, but I think people just generally don't flip flop mobile plans a lot. So the tie-in with that, we thought would be great.

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

Thank you, operator. I want to give a big thank you to the Sezzle team. 2025 was a remarkable year, a record year for us on nearly every metric, and it happened because of the incredible talent and drive of the people at this company. We continue to execute at a high level, and that is a direct reflection of the quality of our team. And to close this out, Warren Buffett once noted, the big question is whether you are going to be a person who measures your life by an inner scorecard or an outer scorecard. I know everyone on this call cares about the stock price. We track it, too. But I think the real key to our successes at Sezzle has been our tracking on our inner scorecards for each of our key stakeholders, our consumers, our merchants, our team, our partners, our investors and our community. For our consumers, we measure ourselves in how much utility we provide, whether it through Sezzle Anywhere or our credit building tools or new money-saving tools like Sezzle Mobile. For our investors, we focus on scaling and being efficient with our growth. Examples of that are our return of equity exceeding 100% and our revenue growth roughly tripling our OpEx growth. What I think this shows is Buffett's quote is spot on. When you focus on the inner scorecards, the outer scorecards take care of themselves. Thank you for your continued trust in our journey. Cheers to the long-term holders, and have a great evening.

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