Sezzle Inc. earnings

Management highlights

• 2026 focus is to move beyond checkout and serve consumers broadly in everyday lives, expanding into areas like deposit accounts, card products, enhanced lending options. • First quarter had strong growth, profitability, and improved engagement. Average quarterly purchase frequency increased to 7.1 times. • Investments in marketing paying off, with 4.8 million visits to the Earn tab and 55% increase in BNPL conversion within 30 days after first Earn tab activity. • AI embedded into product building, consumer support, data analysis, and business operation. • Using AI to improve consumer experience, increase output, and scale business while keeping expense growth below revenue growth. • Progress made on several fronts in Q1: expanded short-term installment optionality, launched and enhanced long-term lending, introduced virtual card in Canada, launched Sezzle mobile plan.

Guidance

• Raised total revenue growth guidance from 25% to 30% to a new range of 30% to 35%. • Increased adjusted net income guidance by $10 million to $180 million. • Raised adjusted EPS guidance to $5.10 to $4.70. • Guidance reflects confidence in the momentum of the business. • Expect to continue leveraging operating expense base while investing in areas delivering attractive returns.

Segment performance

GMD grew 37.3% year over year. Total revenue grew 29.2%. Gross margins reached 74% of total revenue. Generated 51.3 million of net income (37.9% profit margin) and 71.1 million of adjusted EBITDA (52.5% adjusted EBITDA margin). Total subscribers increased by 44,000 to 714,000. Marketing spend increased in Q1 but payback period is less than six months. PAN 5 expanded short-term installment optionality, long-term lending capability enhanced, virtual card launched in Canada, Sezzle mobile plan launched on AT&T's network.

Risks & headwinds

• Antitrust suit is currently ongoing. • Banking charter process is long and not guaranteed. • Marketing spend is a variable, and while payback period is less than six months, there's always risk in marketing effectiveness. • Provision for credit losses is an estimation and can be affected by various factors including seasonality and new product launches.

Analyst Q&A

• Q: Mike Grondahl asked about projecting the most important product out of PAN 5, Virtual Card in Canada, mobile plan, and enhanced long-term lending, and about marketing channels and outlook.

  A: Charlie said Pay in 5 is important as it has proven results, Virtual Card in Canada has potential but is in Canada with 10% volume, mobile plan is for retention, enhanced long-term lending is a nice sidecar. Marketing channels include web ads, social media ads, in-app ad networks, connected TV; marketing spend is up year over year but as a percent of revenue is reasonable.

• Q: Kyle Peterson asked about credit costs, expectations of getting back to 2.5 to 3% range, and partnership with Pagaya.

  A: Lee said provision is an estimation, trend lines are good, paying 5 has slightly higher provision but they're comfortable with 2.5 to 3%. Partnership with Pagaya is for monetization as a take rate on volume, helps win merchant deals.

• Q: Hal Goetsch asked about middle market merchants, enterprise customers, marketing spend outlook, and macro.

  A: Charlie said business is becoming more direct to consumer, marketing spend will continue to rise as team finds more ad places, macro not affecting their customer base much.

• Q: Raina Kumar's substitute asked about product pipeline timeline, AI use.

  A: Charlie said products may be completed by end of 2027, AI is used everywhere in product development, making teams more productive.

• Q: Ryan Tomasello asked about cash advance product, checking product.

  A: Cash advance product is being tested, planned to launch in next few months, checking product planned for third quarter, will figure out ways to incentivize uptake.

• Q: Hoang Nguyen asked about revenue less transaction cost margin, levers to improve margin, and bank charter.

  A: Lee said margin is helped by scale, transaction expense, net interest expense, provision; bank charter provides regulatory defensibility and moves variable cost to fixed cost.

• Q: Hoang Nguyen's follow-up on bank charter asked about products it allows to launch.

  A: Bank charter provides regulatory defensibility, moves variable cost to fixed cost, and may allow faster product launch as bank is more focused.