Sezzle Q4 2024 Earnings Report

Sezzle EPS Results

• Actual EPS: $0.73
• Consensus EPS: $0.51
• Beat/Miss: Beat by +$0.22
• One Year Ago EPS: N/A

Sezzle Revenue Results

• Actual Revenue: $271.13 billion
• Expected Revenue: $73.90 million
• Beat/Miss: Beat by +$271.05 billion
• YoY Revenue Growth: N/A

Sezzle Announcement Details

• Quarter: Q4 2024
• Date: 2/25/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 25, 2025
• Conference Call Time: 5:00PM ET

Sezzle (NASDAQ:SEZL) is a financial technology company that operates a buy now, pay later platform. Its services allow consumers to split eligible purchases into scheduled installments, typically through participating online and in-store merchants. Sezzle’s platform is designed to provide flexible payment options while helping merchants attract customers and support e-commerce sales.

The company offers products and services that include installment payment solutions, a virtual card, and subscription-based access to additional purchasing features. Sezzle has also introduced tools intended to help consumers establish or improve their credit histories, subject to applicable terms and reporting requirements.

Founded in 2016 and headquartered in Minneapolis, Minnesota, Sezzle primarily serves consumers and merchants in the United States and Canada. The company was co-founded by Charlie Youakim, who serves as chief executive officer. Sezzle is listed on the Nasdaq under the symbol SEZL.

Sezzle Q4 2024 Earnings Call Transcript

Key Takeaways

• Record 2024 Financials: Full-year revenue reached $271 M, a 70% increase year-over-year, Q4 revenue doubled, adjusted net income hit $66.2 M (10× yoy), and 2025 guidance targets double-digit revenue growth with pre-tax net income up > 55% and EPS of $13.25.
• On Demand Launch Success: Partnership with WebBank enabled the On Demand BNPL launch, driving 707 K Monthly On Demand Subscribers (+130% yoy), three enterprise merchant signings, a 35% lift in activation rates, and a 61 NPS in Q4.
• Enhanced Shopper Engagement: New product marketplace and couponing features generated 39% month-over-month growth in orders and a 70% increase in session activity, aimed at boosting retention and customer lifetime value.
• Higher Credit Loss Guidance: While H2 2024 principal loss rates averaged mid-2% of GMV in line with prior guidance, Sezzle expects losses to rise to 2.5%–3% in 2025 as it opens its underwriting funnel to more consumers.
• Despite raising only $120 M versus competitors’ > $1 B, Sezzle’s “Moneyball” approach has delivered market-share gains and stronger profitability, underlining its operational efficiency.

Presentation

[Operator]

Good day and welcome to the Sezzle Inc Fourth Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Charlie Youakim. Please go ahead.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 the 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 head starts ranging from five 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 think blowing cash is a strategy, and yet here we stand, outpacing most of the longer established peers in terms of profitability and growth. I'm extremely proud of our team as our success is directly connected to their creativity, dedication, and hard work. Our team is a winning team, and our sector is a growth sector. It's a great combination. It is clear that buy now, pay later as a payment segment is here to stay. Various third-party reports call for the BNPL industry to continue at double-digit annual growth rates for the next 5-10 years. While we continue to ride the BNPL wave, we also believe that we can continue to outpace and take share within the segment.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Logically, it just makes sense why BNPL continues to grow. The BNPL product can give users greater flexibility in payments and match their payments to their budgeting needs. In a worst-case scenario, it can help users avoid the cycle of debt because if they can't make a payment, then they aren't allowed to make another purchase. The same can't be said for some other payment methods. Credit cards tend to be the inverse. Once a customer can't make the full payment, they become a revolver and in many ways stuck with a balance for a period of time. We love our alignment with responsible repayment. One knock on the BNPL space has been that it doesn't enable users to build their credit histories. We have an answer for that, but we are unique.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

We have a product that consumers can opt into if they want to build their credit history, Sezzle Up. It's both free and optional for our customers. Please take a look at Sezzle reviews when you get a chance. You'll see how many users are talking about the positive results from Sezzle Up, which we're proud of. Another great example of the early innings concept is the launch of our banking partnership with WebBank at the end of September 2024, which has positioned us well for the future. The program has lived up to our expectations and has enabled us to launch a key new product with On-Demand. On-Demand was just introduced to consumers in Q4 after we went live with WebBank.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

It is still very early in its history, only a matter of months at this point, but we believe that we have succeeded with yet another initiative at the company with the launch of On-Demand. We've added another product that we know our customers want, and our improved activation rates support that idea. We will provide further details later in the presentation. As we look back at 2024, it was fulfilling to see the fruits of our labors turn up in the financial performance. In 2024, net income increased more than tenfold compared to 2023 on a top line that outpaced the industry. As we look forward to 2025, we anticipate another year of industry outperformance as we expect double-digit revenue growth with our pre-tax net income rising at least 55% compared to 2024.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Meanwhile, we remain focused on enhancing the shopper experience and launching new products that consumers want and need. Although we have several future product offerings under consideration, our near-term focus is on maximizing our On-Demand launch and improving the shopping experience and engagement in our app. We will touch on these topics in greater depth in the presentation so let's go to Slide 3, where we can start to dive into the quarterly and annual results. In 2024, we exceeded expectations on the top and bottom line. In Q4, we experienced heavy engagement during the holiday season with our revenue growing more than 100% year-over-year. We met the Rule of 40 and our own Rule of 100 on revenue growth alone for the fourth quarter.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

It's also great to see us delivering a strong margin at the net income level as well, not to mention a healthy return on equity for shareholders. This quarter, because of the success of On-Demand, we're introducing a new concept, MODS, which stands for Monthly On-Demand and Subscriber Users. In December, we had 707,000 MODS at the quarter end. That represents a 130% year-on-year increase and an increase of 178,000 users since the end of the third quarter. We are excited by this increase in activity as On-Demand was live on a limited basis in the quarter because we were still rolling it out to all users. We tend to roll out products gradually as we launch them, and we're a bit more cautious about new products in the fourth quarter when some users tend to overspend. One other item on 2024.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Back at the end of the second quarter, we gave guidance of a mid-2% for principal loss rate as a percentage of GMV for the back half of the year, which we nailed. We believe that 2025's principal loss rate will be in the range of 2.5%-3% as we continue to prioritize growth. Newer user groups have higher loss rates, and now that we have built a better mousetrap, we want to put it to use. As discussed earlier, we are highly focused on improving shopper engagement in the app. Slide 4 represents some of the initiatives we're working on. Many enhancements are recent or just launching, so we have yet to see the full potential of the offerings. Our product marketplace continues to gain momentum as orders placed there averaged a growth rate of 39% month-over-month growth during 2024. I'm also very excited about couponing.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Who doesn't want to take advantage of discounts on purchases? I'm sure even investors on this call use couponing apps, but I'm certain that our typical customer uses them heavily and in many cases needs them to stretch their paycheck. We believe this product will solve a need for our customers, increasing their retention and loyalty to us, all while we pull in adjacent customer groups that we can introduce buy now, pay later to. We are just starting to roll out couponing and other shopping features, so it won't likely be until Q3 or Q2 that we see the full benefit from the increased shopper activity. But now let's talk further about a key product that was launched On-Demand, shown on Slide 5. We couldn't have launched this Pay-in-4 product without the banking partnership.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

On-Demand fills a need as it allows customers to use Pay-in-4 everywhere Visa is accepted, even if the shopper doesn't have Sezzle Premium or Anywhere. When we launched the product, there were two areas that we felt it would help. First, it would make us more competitive for enterprise merchants as we could pass on some of the costs to the consumer at the checkout. Enterprise merchants love lowering their costs, and this design helps scratch that itch. Second, it would create a greater customer activation within the purchase funnel as non-subscribers can choose to incur a one-time service fee at the point of sale instead of signing up for a subscription to shop Anywhere Visa is accepted. On-Demand has a much lower barrier to entry than our subscription products, and over time, we believe it will become a bridge into subscriptions.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

I'm happy to say that our initial thesis was correct. In Q4, we signed three enterprise-level merchants: Backcountry, Bealls, and Rural King, with GMVs ranging from approximately $700 million to over $1.5 billion. Meanwhile, the activation rates of users downloading our mobile app to placing an order have risen 35% from September to January. Again, just getting started, but early indications are positive. Don't just take our word for it. Look at the NPS scores from consumers: a 61 for on-demand. It's clearly a great complementary product with Premium and Anywhere, which have similar NPS scores of 57 and 67, respectively. We noted last quarter that we expect to see a trade-off from subscription to on-demand as consumers will have more options when shopping with Sezzle. We even noted that the interplay between on-demand and our subscription products could even cause subscriber count to decline.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Nonetheless, we believe On-Demand is a win-win as we expect it will lead to a successful long-term consumer conversion and higher LTV shoppers, which ultimately leads to greater financial performance for Sezzle. Based on what we're seeing early on, it looks like the average top-line revenue from an On-Demand user is very similar to a Premium user, which makes us even more confident in our approach. Speaking of engagement and performance, please turn to Slide 6, where everything is green. We are experiencing strong year-over-year engagement across the platform. We have talked a lot about our performance from the viewpoint of the consumer. What's great to see here is that consumers are also shopping at a much higher number of merchants with Sezzle than they have in the past. During the year, consumers shopped at 598,000 different merchants.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

While we are integrated directly with over 20,000 merchants with our on-demand and subscription products, it doesn't matter as those users can shop pretty much Anywhere, and it shows in the number of unique merchants shopped by consumers in our results. The year-over-year comparisons are impressive, but we are also seeing incredible sequential growth as shown on Slide 7 across MODS, active consumers, and unique merchants shopped. With that, I'm happy to turn the call over to our CFO, Karen Hartje, who will go over our quarterly and yearly financial results in greater detail. Karen.

[Karen Hartje, CFO at Sezzle Inc.]

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 performance when the results are this good.

[Karen Hartje, CFO at Sezzle Inc.]

The strong holiday season, plus the bank program launch, led to a 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.

[Karen Hartje, CFO at Sezzle Inc.]

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 flat sequentially at 1.9% of GMV. We continue to believe we can maintain a level around 2%. Net interest expense continued its downward trend as we benefited from the lower-cost facility that we entered last April.

[Karen Hartje, CFO at Sezzle Inc.]

We have the opportunity to further lower our net interest expense by the end of 2025 as our facility can be refinanced in October without any early prepayment penalties. Last but not least, our provision for credit losses performed in line with our expectations and the guidance we gave to the market back in second and third quarters that our provision will be in the mid-2%. Note the reason for the increase in the second half relative to the first half was twofold. First, natural seasonality as the provision typically reaches its high point in the fourth quarter, and second, and more importantly, we made a conscious decision to open up the funnel to more consumers given the confidence we have in our underwriting models. As Charlie mentioned, we expect provision to be between 2.5%-3% of GMV in 2025.

[Karen Hartje, CFO at Sezzle Inc.]

Let's quickly review a summary of Sezzle's underwriting ecosystem on Slide 11. Among our many proprietary machine learning models, we have specific models for new customers to Sezzle and returning consumers. Our models are strong predictors of consumer performance and enable us to properly set spending power levels for consumers. We are currently developing the fifth-generation model for existing consumers, which will take into consideration our recent fourth quarter launch of On-Demand. So let's see how we put our money where our mouth is on Slide 12. Again, to remind you that our goal is to optimize not only our growth, but also our profitability. As you can see from the graph on the left, late in second quarter, we began increasing approval rates for both repeat customers and new customers, which correlates with us having a higher provision in the second half.

[Karen Hartje, CFO at Sezzle Inc.]

However, we believe that our underwriting models have allowed us to do so judiciously. The chart on the right shows that we have increased the balances for non-delinquent customers while keeping average balances for delinquent customers in check. Our ability to separate performing versus non-performing customers is crucial to us opening the funnel, per se. For further proof, our financial performance bears out our actions. On Slide 13, you can see that our transaction-related costs, inclusive of the provision for credit losses, declined in the quarter, both sequentially and year-over-year. To come full circle, turn to Slide 14. Throughout the year, we have provided guidance that our total revenue, less transaction-related costs, would be 55% for the year. I'm happy to report that we were ahead of that number as we achieved 55.7%, which includes our provision for credit losses.

[Karen Hartje, CFO at Sezzle Inc.]

Now let's move on from our unit economic discussion and turn to Slide 15, which internally we have finally come to call Charlie's Slide. Quite simply, in terms of financial performance, our goal is to make the green line on the right outpace the growth of the red line below it. As a technology-driven company, we believe we should be able to continue to leverage our operations, and we look forward to widening the gap. The main components of non-transaction-related operating expenses are personnel, data, and third-party tech, marketing, and G&A. The wild card, so to speak, amongst these is marketing and advertising. That said, we are very focused on payback and return on CAC. Generally, we target a six-month payback. All of this is translated to a strong performance on the bottom line, as shown in Slide 16 for both net income and adjusted net income.

[Karen Hartje, CFO at Sezzle Inc.]

We've been able to post adjusted net income margin above 20% for three straight quarters. We've also been able to generate an EBITDA margin in excess of 30% for four straight quarters, as shown on Slide 17. Our improved profitability has strengthened our balance sheet, and our liquidity is reflected on Slide 18. At year-end, we had $98.3 million in cash on the balance sheet and $39 million of unused borrowing capacity available. $25.1 million of the cash balance is restricted, with $20.3 million designated as long-term restricted cash, which is required to be maintained as a reserve account under the terms of our marketing and servicing agreement with our originating partner, WebBank. I'm guessing by this point, you have already reviewed Slide 19 before even listening to our presentation. Let me highlight a couple of items before turning it over to Q&A.

[Karen Hartje, CFO at Sezzle Inc.]

Prior to today, the only numeric guidance we have given for 2025 was an EPS of $12 for both net income and adjusted net income. We are bumping up our 2025 EPS guidance to $13.25. For 2025, we will continue to present an adjusted number for comparison purposes and to remove non-recurring items. Further, we have provided additional metrics for 2025 that we have traditionally given for previous periods. An important callout is that we will be provisioning for a full tax burden in 2025. I guess that's the penalty for being profitable, which is why we've added the note at the bottom. 2025 guidance implies pre-tax net income growth in excess of 55%. With that, I would like to turn the call over to the operator as we are ready to answer your questions. Operator, will you please open the lines for Q&A?

[Operator]

Thank you. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. First question comes from Mike Grondahl with Northland. Please go ahead.

[Mike Grondahl, Analyst at Northland]

Hey, guys. Congratulations on a very strong finish to the year. My first question, the year-over-year revenue growth in three Q 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Oh, thanks, Mike. I think one of the biggest drivers was. There's probably two big ones.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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. So that was one element, I would say, is by going live with WebBank, unifying the fee structure, it led to increased revenue, increased gross margin, and then more to the bottom line. And then additionally, allowing us to launch a new product with, you saw the number with MODS going up to 707,000 over the quarter.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

It created basically another growth metric or another growth vector for us at the company, which really helped out in terms of driving revenue. Karen, anything else to add to that?

[Karen Hartje, CFO at Sezzle Inc.]

No, you took the words right out of my mouth.

[Mike Grondahl, Analyst at Northland]

Charlie, just as a follow-up to that, I don't know, would holiday season be the third driver with that acceleration? I'm trying to understand where just seasonality comes into play too. Not necessarily because it's year-on-year.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

I guess if 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 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

In prior years, if you go back and look at our results from like four years ago, November would typically be like our peak month because that's when a lot of people did a lot of online shopping. Now that we have these Anywhere products, it actually turns out that we become more December-weighted in terms of our volumes, which I think also helps. The more Anywhere products helps to basically carry the momentum through all of the quarter rather than weight it to the early half of the quarter where people were shopping online only.

[Mike Grondahl, Analyst at Northland]

Got it. 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.

[Mike Grondahl, Analyst at Northland]

I know you're not breaking the three out, but any just high-level comments on Anywhere and Premium and how they operated in Q4?

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 kind of 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, lower barrier to entry first, get them into On-Demand when we can.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 lean 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 on the top line 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, which is 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 are predicting it to be.

[Mike Grondahl, Analyst at Northland]

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%.

[Mike Grondahl, Analyst at Northland]

Can you talk and describe a little bit about what that is and what you're trying to create there?

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 have a lot of releases throughout the year. I mean, hundreds, 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

And many customers, maybe they didn't use this for a couple of 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.

[Mike Grondahl, Analyst at Northland]

Great. Hey, thanks a lot.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Thanks, Mike.

[Operator]

Once again, if you have a question, please press star, then one. The next question comes from Hal Gooch with B. Riley. Please go ahead.

[Operator]

Hey, thank you. Hey, Charlie and team, congratulations on a great year. My question about the funnel for mid-market merchants and maybe even enterprise merchants. It seems like the buy now, pay 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 you guys dig 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

We mentioned it 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 cost, they're comparing you to payment processing, credit card processing, which is around 2% or so. And when we came in early days with buy now, pay later, we were charging 6+30. Actually, that's our rack rate today for SMBs, for our small to medium-sized businesses. Well, 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

As you saw, as we mentioned, we did 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 in some more and more situations.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Okay. Charlie, you're saying those three merchants you signed, that's more of an on-demand where the consumer pays?

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 two-month activity. It's usually a few months.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

And last two for me, real quick. Is there a monetization in couponing you can do?

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Two, on the capital allocation, if you generate another $80 million in adjusted net income and you're basically turning 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Yeah. In terms of the generating cash, I think the great thing is 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 to 24 months, where if 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

I think that's the nice thing about being a profitable company. 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's first question, just to remind me.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Yeah, is there any monetization potential on the coupon?

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 do 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

But I mean, these are definitely when we talk about kind of a Honey for Mobile as 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Okay. Excellent. Thanks, guys.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

Thanks, Hal.

[Operator]

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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 talk 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 1980s, we started buying Coca-Cola stock. Not a complicated decision. Here's a company selling sugar water all over the world.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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 residual, 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 of 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.

[Charlie Youakim, CEO and Executive Chairman at Sezzle Inc.]

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.

[Operator]

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

Participants

Executives

• Karen Hartje, CFO
• Charlie Youakim, CEO and Executive Chairman

Analysts

• Mike Grondahl, Analyst at Northland
• Analyst at B. Riley