Sezzle Inc. (SEZL) Earnings Call Transcript & Summary

Good day, and welcome to Sezzle's Second Quarter 2026 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 Second Quarter 2026 Earnings Call. I'm Charlie Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our CFO, Lee Brading; my Co-Founder and Company President, Paul Paradis; and Head of IR and Corporate Development, Jack Fagan. In conjunction with this conference call, we filed our earnings announcement with the SEC and have 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 of 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. Okay. With the boilerplate completed, let's get started. We know you can now see that 2026 is off to a great start. I was remarking to our leadership team earlier this past quarter that our volume growth curves look a lot like they did back in 2020 and 2021, which was an amazing growth period for the company. My tip off to that was our May GMV surpassing our December holiday GMV. In recent years, it has taken until August for the same sort of event to occur. And as many of you know, volume isn't our North Star, but it's a nice secondary indicator that our solutions are taking hold. In the second quarter, we made more strides towards improving those solutions and executing on their growth. We brought more consumers onto the subscription platform in the quarter than we have ever done before. And we improved the subscription offering, deepening the relationship with the customer once they joined. SezzleCash is a new offering only available to subscribers that allows them to smooth their cash flow needs with a product that feels familiar with a Pay-in-4 or Pay-in-5 payback period. Now the customer can access funds at an extremely low cost relative to alternatives and budget for the payback. As we're supporting our customers with products like SezzleCash, they become more loyal to our brand because we keep nailing the offering. In layman's terms, our products get stickier, which is a damn good thing. We're also winning outside the product ecosystem. On Slide 3, you'll see we continue to receive accolades by outlets that have recognized us before. The CNBC named us one of the World's Top Fintech Companies for 2026. Newsweek included us on America's Best Online Platforms and U.S. News recognized us as one of the Best Companies to Work For in 2026. We don't do this for the awards, but when the same outlets keep coming back, it tells us the product is working for our consumers and the culture is working for our team. Both of those matter. Now to the results. Second quarter GMV grew 37.9% year-on-year to a record $1.3 billion, and total revenue grew 51.7% to $149.7 million. Net income was $40.8 million, a 27.2% profit margin, and adjusted EBITDA was $58 million, a 38.8% margin. Total revenue less transaction-related costs came in at 63.5% of total revenue, right in the upper half of the 55% to 65% range that we target. Given the strength in the first half and the momentum we're seeing across the platform, we are raising full year guidance again. We now expect total revenue growth of 35%, targeting the upper bound of our prior 30% to 35% range. We are raising adjusted net income guidance to $185 million from $180 million and adjusted net income per diluted share to $5.25 from $5.10. Lee will give you more detail later in the call. The engagement story behind those numbers is in the bottom right of the slide. Active subscribers reached 854,000, up an incredible 76.4% year-over-year. And average quarterly purchase frequency hit a record 7.2x compared to 6.1x in the second quarter of last year. Subscribers are our highest lifetime value users, and frequency is a metric that tells us whether the ecosystem is actually working. Both are moving in the right direction. Turning to Slide 4. We added 140,000 net new subscribers in the quarter. That's the largest quarter-over-quarter and year-over-year subscriber gain we've had since we launched the subscription program. That didn't happen by accident. As you can see on the chart, marketing spend was $19.4 million in the quarter. We have said before that we would push marketing as far as we can while staying inside a 6-month payback period. And the second quarter is us doing exactly that. Based on the core data we have so far, payback is still under 6 months. That tells us something important about the virality and the value of the subscription suite. When we put more dollars to work, consumers convert and they stick. I'd like to note that this was a deliberate step-up to test out higher levels of marketing spend and not a new run rate. We tested to see how far channels could stretch until we became less comfortable with the ROI. We found that we could push levels of spend higher and still stay at the sub 6-month payback. But even with that, we feel more comfortable with better ROIs on marketing spend. I have always had a strong feeling that business is a bit art and a bit science. And while the science says, yes, you can do this or even yes, you should do this, perhaps, our gut is telling us that we feel more comfortable with strong return curves at lower levels of marketing spend. You can expect a lower level of spend in Q3, all things being equal. But for us, it's never that simple as we have just recently launched SezzleCash and are about to launch Sezzle Send. The mandate to the team hasn't changed. If they find places to put dollars to work that stay within our payback threshold, we're going to test them. And even with that step-up in spend in this quarter, we're still raising our bottom line guidance because the consumers we added this quarter begin paying back in the third and fourth quarters. The other half of the equation is making the subscription itself worth more every quarter. On last quarter's call, we announced the Sezzle Mobile plan, giving Sezzle Anywhere subscribers an unlimited 5G plan on AT&T's network starting at $29.99. At the end of the second quarter, we added another benefit, access to SezzleCash, a new cash advance product that gives Anywhere subscribers a way to cover short-term liquidity needs through Pay-in-4 or Pay-in-5 with no down payment required. Add in card-linked offers, more points and rewards and early access to beta products and the subscription keeps getting harder to walk away from. And as an added benefit in the coming quarter, Anywhere consumers will enjoy no service fees on Sezzle Send. However, we aren't only building value for subscribers, we're expanding what every consumer gets because retention and engagement matter across the whole base. A lot of this we're doing through partnerships, which lets us bring benefits to everyday shoppers quickly rather than building everything ourselves, as seen on Slide 5. That includes card-linked offers that reward virtual card spending at partner merchants and expansion of cashback across more merchants and daily actions like gamified surveys, trivia and giveaways that give consumers a reason to open the app even when they aren't shopping. And on the monetization side, we're converting engagement we already have into revenue without changing the user experience. The more value our consumers get from Sezzle, the more valuable they become to us. Consumer value and shareholder value move together here, and that's the test we apply to every product decision. You'll also see the merchant side of this. When we launched On-Demand, we said it would help us win enterprise merchants because it lets us offer more competitive pricing to merchants with thinner margins. Enterprise sales cycles are long, so this takes time, but the strategy is starting to bear fruit. Recent enterprise wins include Poshmark, Gymshark, Debenhams, and several others. Acquiring users and driving engagement matters in any consumer business. But what matters just as much to us is the pace at which we ship. As you'll see on Slide 6, the second quarter was another busy one for our product and engineering teams. We rolled out SezzleCash in June through a phased launch, reaching the full population of eligible Sezzle Anywhere subscribers by the end of the quarter. And coming in August, we plan to launch Sezzle Send, a peer-to-peer money transfer product that lets consumers send money by phone number and either Pay-in-4 or use Pay-in-5. The recipient receives the full amount upfront and doesn't need to be a Sezzle consumer to get the money. So every send is a potential introduction to the platform. Slide 7 goes deeper on both. Up to this point, almost everything we've built has been anchored to a purchase, SezzleCash and Sezzle Send aren't. They're about liquidity and moving money, everyday financial needs that have nothing to do with the checkout page. We are continually expanding beyond our original point-of-sale offering and our never-ending race to increase the value of our platform to our stakeholders. SezzleCash and Sezzle Send do three things for us: drive virality; increase attraction to the platform; and improve retention to the platform by bringing consumers back into Sezzle for reasons other than shopping and by offering more value to them. As we continue to increase our value to the consumer, we'll continue to earn more share in their wallet. Although SezzleCash just launched, the initial signal is encouraging. The average advance size is approximately $165, and nearly 10% of eligible new subscribers are requesting in advance as their first transaction in the Sezzle Anywhere ecosystem. That tells us the product is pulling in consumers we might not have reached through our traditional offering alone. On Sezzle Send, I think most of us on this call use the money transfer product. So we all understand the virality of these platforms. Our twist is to take the burden off the transfer. A consumer can send 100% of the money to their friend upfront and repay us through Pay-in-5. And because the recipient doesn't need a Sezzle account to get the money, every send is a potential low-cost acquisition in a new acquisition channel our consumers drive for us. For Sezzle Anywhere subscribers, we waived the service fee on Pay-in-5 entirely in Sezzle Send. And for nonsubscribers, the fee is de minimis, around $3 for $100 spend. Unlike SezzleCash, we made the Send product available to nonsubscribers because of the virality it can help us create. But even though the fee for non-subs is small, it's still another reason to be a subscriber and another screen in our app where we can convert the consumer into a subscriber. I'll add the caveat I'd want to hear as an investor. As with any new lending product, we're being conservative early and still fine-tuning the underwriting. So I'll spoil part of Lee's narrative and tell you now that our guidance does not assume material upside from SezzleCash and assumes 0 contribution from Sezzle Send. A couple of items about Sezzle Send. First, we've already got about 100,000 users on the wait list. Our users are excited about it. And second, it's the first product we produced where the vast majority of the build was AI-driven, and a small team has taken it from concept to launch-ready in a matter of weeks rather than months, a product that moves real money between real people built by AI. A couple of years ago, that would have been a research project. For us, it was one quarter's worth of work, which leads us to Slide 8. AI is embedded across this platform now, and I want to give you real numbers rather than talking points. On the consumer side, our AI support chatbot is deflecting 68% of consumer inbounds. And I'd note that the bot is scoring a higher CSAT than our human agents on those answers. That frees our people up for the complex issues that generally need a person. Our AI shopping assistant within our Discover tab is driving a 3.6x product click-through rate versus control, and it's now live for 80% of Sezzle Anywhere users with plans to expand to all consumers. Internally, we've become an organization that effectively requires AI in the workflow. It's the expectation for every employee, and the team has taken that to heart. As new models roll out, I expect all of our internal KPIs, not just a few listed on the right side of the slide, to get better and our teams to do more with the same headcount. My first bots out of school told me, speed, quality and cost, pick 2 out of 3. With AI, Sezzle is taking all three. That brings me to Slide 9. We're building fast, shipping quickly and putting more products in front of consumers every quarter, and that pace compounds. It shows up directly in the year-over-year engagement metrics. MODS increased 234,000 year-over-year to 982,000. Quarterly purchase frequency reached a new high of 7.2x, up 1.1 turns. And repeat usage was 97.2% of total orders, up 80 basis points. While these numbers continue to step up every quarter, the one I'd like to point out to you is the bottom left. The average quarterly revenue per monetized user increased 16.2%. Growth is coming from a larger user base, but it's also coming from consumers who engage with us more often and generate better economics over time. Those two things working together are the whole model. It's multiplication, not addition. A bigger base and a more valuable consumer within it compound on each other, and that's what we're building for over the long run. We are still early in what Sezzle can become for the value-focused consumer, but the flywheel is getting stronger every quarter. With that, I'll turn it over to Lee to walk you through the numbers in more detail.

Thanks, Charlie. I will get started on Slide 10. It's exciting to see the hard work and effort put in by our team at Sezzle pay off. Q2 revenue increased 51.7% year-over-year. Net income rose 47.7% year-over-year and adjusted net income expanded by 58.4% year-over-year. Growth did not come at the sacrifice of margins, as we have always said that we will not grow for growth's sake. We take bottom line profitability seriously, if not more so, than top line growth. Total revenue less transaction-related costs as a percentage of total revenue increased 240 basis points to 63.5%, which is at the upper end of our 55% to 65% target range. Revenue growth plus EBITDA margin puts us right at a score of 91 for the Rule of 40, exceeding our 82 score for Q1. On Slide 11, you can see the strong momentum in our business. Q2 GMV grew 15.1% sequentially, 37.9% year-over-year and exceeded our Q4 2025 holiday season peak. Q2 revenue rose 51.7% as revenue yield expanded 110 basis points year-over-year to 11.7%. For 2026, we expect our revenue yield will be similar to 2025's yield of 11.4%. Therefore, we project our revenue yield will continue to step down sequentially for the remainder of 2026 with Q4 being the seasonal low point. Turning to our unit economics on Slides 12 through 14. As a reminder, transaction-related cost is a non-GAAP measure that combines transaction expense, provision for credit losses and net interest expense. You might also hear us refer to revenue less transaction-related costs as net transaction margin or gross margin. For those that listened to our Q1 earnings call, you heard us belabor the point about the seasonality in our business regarding the revenue yield and provision. As a quick reminder, revenue yield tends to be the highest in Q1 and lowest in Q4, while the provision for credit losses typically reaches its lowest point in Q1 and rises throughout the year. This is evident on Slide 13. You can see that transaction expense and net interest expense are relatively static as a percentage of GMV compared to the provision for credit losses. Again, Q1 tends to be a seasonal low point in the provision led by the tax refund season. The increase in the provision is not unexpected, and I want to remind everyone of two things when we consider provision and its impact on our financials. First, we target a 55% to 65% net transaction margin, which is inclusive of the provision. And second, we expect the full year provision to be in the range of 2.5% to 3% of GMV. We are good on both accounts. We finished Q2 with a net transaction margin of 63.5%, which is at the high end of our target range, and we expect the provision for credit losses will be in the 2.5% to 3% range for 2026. So yes, we can have a provision in a quarter that goes above the 3% level. Before moving on, I want to emphasize the increase in provision was expected due to seasonality and our push to bring on new users. As Charlie noted in his comments, we had a record quarter-over-quarter and year-over-year gain in the number of net new subscribers. As a result, we had more new consumers utilizing the platform and with new users comes higher provisioning. Our hyperfocus on cost does not stop at the unit economic line. It also extends to our non-transaction-related operating expenses, as shown on Slide 15. Non-transaction-related operating expenses consist of personnel, third-party tech and data, marketing and G&A. The bulk of the expense is driven by personnel and marketing. Like last quarter, we more than doubled our marketing spend year-over-year. As Charlie noted earlier, as long as the math works for a less than 6-month payback, we will continue spending. I'm guessing the marketing spend might be more than most people modeled for, but the results speak for themselves, new highs in active consumers, subscribers and GMV. Further, we were still able to raise our net income and EPS guidance while removing the low end of our revenue guidance despite the significant growth in marketing expenditure. A large incremental increase in spending can be a headwind initially, but will start paying dividends for us over the coming quarters. On an apples-to-apples basis, we do expect our core marketing spend to decrease from Q2 to Q3. However, we are in the middle of launching two important products: SezzleCash; and Sezzle Send. We have done little to no marketing for either of these, so it will require some basic awareness expense, and we will let the payback math dictate the magnitude of the spend. We did incur minor costs related to our corporate strategic projects during the quarter. On May 11, the U.S. District Court granted in part and denied in part the defendant's motion to dismiss our antitrust suit. Most notably, the court denied the motion to dismiss our claims, a monopolization and attempted monopolization under the Sherman Act and the parallel claims under Minnesota Antitrust Law and the Minnesota Deceptive Practices Act. We are now entering the discovery phase, which is expected to go through 2027. The banking charter process continues to roll forward, and we are planning to submit our application for National Bank charter this quarter. I believe we have one of the cleanest income statements when it comes to add-backs and adjustments. You can see on Slide 16, very little difference between net income and adjusted net income. Most of the differences are attributable to discrete tax items recognized in each quarter. Further, you can see the seasonality of our numbers with Q1 followed by Q4 as typically the best bottom line performing quarters. We are well capitalized and positioned with plenty of liquidity and very low leverage, as seen on Slide 17. At quarter end, we had over $205 million in liquidity between unrestricted cash and availability under our new $300 million line of credit. Our total debt to trailing 12-month adjusted EBITDA stands at only 0.5x and our total debt to equity is also only 0.5x. I'm sure by now, everyone has already checked out Slide 18 and therefore, is quite aware of our updated guidance. We are really excited about the momentum in our business and believe some of that is captured in our updated guidance. I'll make a couple of comments before passing the call over to the operator for Q&A. Our guidance does not take into consideration Sezzle Send as that product is just getting to the launch pad. Additionally, the guidance has very little impact from our recent launch of SezzleCash. SezzleCash has been a measured rollout in terms of marketing and risk. So it is still too early to put much emphasis on it in our guidance. I would now like to turn the call over to the operator for Q&A.

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

This is Mike Pochucha on for Mike Grondahl. Maybe just on the bank charter, can you remind us what a typical time line might look like for that application process?

Well, the OCC has been pounding the table that from application to conditional approval or conditional decision is around 120 days or basically, I guess, mandated at 120 days. But that's not the end of the process. You also have to go through FDIC approval and Fed approval. I would say our expectations are 12 to 18 months in total. I think we're being a little bit conservative with that. But we view that as if we get our national charter in the next 18 months, we feel pretty good about the entire process.

Got it. Makes sense. And then on the new partnership funnel, if you could just characterize that maybe versus 6 months ago or a year ago? Anything to call out there?

Well, I would just say, just in general, a lot stronger with a lot of nice enterprise names on the partnership side. I think On-Demand has a lot to do with that. And also our strong lifetime values of our consumers. That math all goes in the equation. On-Demand goes in the equation for the merchant side. It helps us model better pricing for merchants that are sensitive to cost, which brings many more merchants into the fold. And on our side, because our subscription products are such strong products for us on the consumer side, we do model in winning these merchant deals and what percentage of those consumers will go into those products. And that also helps us with more aggressive pricing, more aggressive deal making. And I think all in all, I think that's helping quite a bit. I don't know, Paul, anything to add to that?

I would just add to that. We started to be added alongside other BNPL providers over the last 2, 3 years. Early days, a merchant would commit to one exclusively. And so as we create successful case studies that show that adding a second or third brings incremental sales, it's accelerated the enterprise sales funnel. So we expect it to continue to improve.

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

A couple of questions on the new products. And I know you partnered with Pagaya for some larger loan offerings. You've got Pay-in-5 and you have the two new initiatives you just announced today. Could you tell us maybe what's embedded in your outlook for some of those products?

Lee, I'll leave it to you on that one. We've already mentioned a couple of those, Hal. So on Sezzle Send, SezzleCash, not a lot. But Lee, anything to add to that?

Yes. And I think, Hal, you were asking about Pagaya too. And Pagaya is hopeful, but it's not -- I'd say, not a material impact at this point. So yes, nothing significant from those. I would say that materially moves the needle.

Okay. And on the marketing spend, are you suggesting that like the payoff is so good that you're going to continue this kind of maybe dollar spend or even take that up? Because the subscriber numbers were pretty powerful sequentially in a seasonally weak quarter, generally seasonally weak. I mean it was one of your largest net adds in a non-holiday quarter ever.

I think it depends, Hal. Basically, the way we're viewing it is I always like to look at visual or think of visualization. And I think we are like hitting the gas in the car just to kind of see how the car reacted. If we did it, and just like what the cohort pumping through would look like. And so I think from that perspective, we're letting off the gas a little bit, all things being equal. But that's why we mentioned like all things aren't equal because we have Sezzle Send launching. We have SezzleCash. SezzleCash, we haven't even started marketing externally yet. It's just marketing internally to our existing cohorts and customers seeing pickup rates, and reactivation rates. So we're really not even spending externally on that product at this time. So I think if you subtract SezzleCash, Sezzle Send, I probably expect a lower level on a volume basis of marketing spend just because we wanted to pump that cycle through and see how the cohorts run out. But what we're seeing from the cohorts running out is it is a sub-6-month return on investment. That being said, I think we just feel a little bit more comfortable not going near the 6 months or not going as near the 6-month edge. So that's another reason for a little bit of pullback. So some of it is just seeing the engine react. Some of it is just we feel a little bit more comfortable pulling it back. But then again, the reason I caveat is because now we got these two products launching. And with those two products launching and pushing out a little bit more, that might be the offset that leads to a little bit higher spending level. Does that make sense?

The next question comes from Ryan Tomasello with KBW.

Congrats on a good quarter. Also I wanted to ask about the thought process around the marketing spend. Maybe just help us understand why pull back if the payback is so strong? I know that a few of your peers that also focus on the lower income category have also been leaning heavily into customer acquisition. So curious if there were any signals that were suggesting pressure on the payback and why not run rate 2Q into the second half? And then just looking at the second half guidance, obviously, still really solid growth, but I think maybe the hope would have been that there would have been some more meaningful flow-through of the growth momentum in the second half. So just help us understand what's driving the deceleration in 2Q -- sorry, in second half revenue growth as well?

Well, on the marketing spend, again, it's just a level of comfort. The 6 months is our edge. And the closer you get to your edge, the tighter -- the higher the risk reward, I guess, near the edge. So that's part of the reason for maybe a little bit of a pullback in our mind, but we also want to see it pulse through. Again, it takes 6 months to get the return. And if you're off by 30%, it's not 6 months, it's 7-something months, near 8 months. And -- then that starts to -- you don't know that until you a little bit further down the month on month-on-month line. And so that's why I was kind of the analogy of like pumping the gas on the car, we wanted to kind of hit the gas in the car, push that cycle through. Let's see how it looks as it cycles through. And as we start to feel more comfortable, confident, I think maybe the next time we go about an exercise like this, we might even feather on it a little bit slower instead of just pumping on a cycle like that. And then as far as the guidance or the growth, I don't know, Lee, if you have anything to touch on that?