Sezzle Inc. Q2 FY2025 earnings call

• Marketing spend in Q2 was $8.8 million, up from $1 million prior year, with a focus on customer acquisition and retention and a target 6-month payback period for CAC.
• Launched numerous product enhancements, resulting in an NPS score of 75, monthly active users up 52% year-over-year, and revenue-generating user engagement up 138%.
• Mods rose 14% sequentially and 62% year-over-year, with significant growth in On-Demand. Mods have different profitabilities: Anywhere is most profitable, Premium has higher margins, and On-Demand is the least profitable currently.
• Yearly active consumer growth nearly doubled digits, unique merchants reached 412,000, and purchase frequency showed year-over-year growth. The company focuses on efficient customer reach through marketing and innovation in product offerings, aligning with responsible spending.

Second quarter total revenue grew 76.4% year-over-year to $98.7 million, and adjusted net income nearly doubled, growing 91.8% year-over-year to $24.4 million. GMV increased 74.2% year-over-year. Margins expanded with adjusted EBITDA margin and total revenue less transaction-related costs as a percentage of total revenue improving 5.5 and 3.5 points respectively. Nontransaction-related operating expenses as a percentage of total revenue decreased to 28.1%. Take rate improved slightly to 10.6% of GMV. Transaction-related costs totaled $38.4 million, down 40 basis points year-over-year.

• Reaffirmed full-year guidance for total revenue growth, total revenue less transaction-related costs as a percentage of total revenue, adjusted net income, and adjusted EPS.
• Introduced a 2025 adjusted EBITDA target of $170 million to $175 million.
• Committed to balanced growth, monitoring consumer trends and macro signals while investing where efficient returns are seen.

• Potential erosion of consumer credit quality and the need to manage underwriting and expense management accordingly.
• Lawsuit with Shopify, which could take 3 to 5 years and has no immediate update.

Q: Talk about the mix of mods between On-Demand, Premium and Anywhere, and profitability; is the investment primarily marketing.

A: The investment is primarily marketing at $8.8 million. Mods growth was mostly in On-Demand. Anywhere is the most profitable, Premium has higher margins, and On-Demand is the least profitable currently due to some users using it as a trial.

Q: Concern on consumer credit quality erosion and underwriting, competitive landscape pricing, and update on Shopify lawsuit.

A: Monitor default rates daily and can adjust limits quickly; no major pricing changes in the competitive landscape; lawsuit with Shopify has no update, could take 3-5 years.

Q: Perspective on sequential change in effective take rate and seasonality.

A: Q1 was an anomaly due to seasonality and revenue recognition from late fees in prior quarters; ACH usage lowers top line but also processing costs.