Sezzle Stock

Good day, and welcome to the Sezzle Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded.

I would now like to turn the conference over to Charlie Youakim, Executive Chairman and CEO. Please go ahead, sir.

Thank you, and good afternoon, everyone, and welcome to Sezzle's third 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 Corp Dev, Jack Fagan.

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 of the 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 getting into the results, I want to talk about how I'm looking at the third quarter. We spent a good part of this year building and launching new products. I'm incredibly proud of what our teams have accomplished this year. We spent a good deal of time researching which products made sense with strategy sessions and customer surveys and panels, but the real test is whether consumers actually use the product after we launch it and whether it adds value to their relationship with Sezzle and ultimately, whether it helps us build a better business.

We saw one of our early product launches this year do just that. Pay-in-5 was a home run product launch for us. The results match the research. It's become a much-used and much-loved variant of our core BNPL product. And this quarter, we're starting to get some more answers. SezzleCash looks like it's going to be another great product for us, but it's still not putting up significant numbers just because it's starting from scratch. And Sezzle Send, our P2P product, that one looks like it still needs some fine-tuning to make a significant impact in future years. But again, really small volumes, but we just wanted to give you the early reads. All of this activity is helping though. It adds up.

We're seeing purchase frequency continue to increase, and we're seeing stronger monetization as consumers engage more deeply with the platform. We're still in the learning and improvement phase with some of these offerings like Send and Cash, and their volumes are so small relative to our base product that it will take many months for them to catch up and have truly measurable numbers relative to the existing products.

But what is encouraging is that we're beginning to see the different pieces of our strategy work together. And we're doing that while maintaining the financial discipline that's been so important to our success. We continue to keep our OpEx growth in check while we grow the team and launch new offerings for our consumers. That's how I want to frame today's results. It's not just about how much we've built, it's about what those investments are starting to deliver.

With that, let's turn to Slide 3. Total transaction volume, which expands our traditional GMV measure to include SezzleCash and Sezzle Send, grew 34.9% year-over-year, while total revenue increased 42.6%. We generated $47.8 million of net income and $70.2 million of adjusted EBITDA. And total revenue less transaction-related costs came in at 64.7% of revenue, near the upper end of the range we've consistently targeted.

Those are strong results, but I think the more important story is what's happening with our consumers. We ended the quarter with 955,000 active subscribers, up 68.1% year-over-year, putting us within reach of 1 million subscribers.

And average quarterly transaction frequency reached 7.8x compared to 6.5x a year ago. Importantly, that now includes not only purchases but also SezzleCash advances and Sezzle Send payments. That's an important distinction because we're giving consumers more reasons to use Sezzle beyond shopping. And to me, that's exactly what we've been working toward.

Given the strength of the business, we're also raising our full year outlook. We now expect revenue growth of approximately 42.5%, adjusted net income of $190 million and adjusted net income per diluted share of $5.45 to $5.50. We've also introduced a preliminary adjusted net income per diluted share outlook of $7.20 for 2027. Lee will walk through the financial details and outlook later in the call.

But before we get there, I want to spend some time talking about what's driving these results and why we believe the consumer relationship continues to strengthen. Let's start with subscriptions.

On Slide 4, you can see the continued progress we're making with subscriptions. We added another 101,000 net new subscribers in the third quarter, following the record 140,000 we added in Q2. That brings us to 955,000 active subscribers, and it puts us within reach of 1 million.

One thing I want to call out is our marketing spend because we spent quite a bit of time talking about it last quarter. In Q2, we deliberately pushed spending higher to see how far we could go while staying within our 6-month marketing payback threshold. We also said at the time that it was a test, not necessarily a new run rate.

In the third quarter, we brought marketing spend down to $15.9 million from $19.4 million, while continuing to grow our subscriber base. Our philosophy hasn't changed. If we find opportunities to acquire high-value consumers at attractive returns, we're going to pursue them. But we're not interested in growing subscribers just for the sake of growing subscribers. Based on this test, we like the lower marketing run rate spend level. We think it gives us a nice margin of safety while still delivering long-term results.

And I think that's where the engagement metrics on this slide become particularly important. On average, our subscribers are making 9 more transactions per quarter than nonsubscribers. And importantly, that now includes not just traditional purchases, but also SezzleCash advances and Sezzle Send payments. So we're getting a more complete picture of how consumers are engaging with Sezzle across different financial needs, not just when they're shopping.

To me, that's really what we're trying to accomplish. We want to keep giving consumers reasons to come back and use Sezzle more often. And we're continuing to add to that value proposition. More recently, we introduced Subscription Saver, which helps anywhere subscribers identify, manage and cancel recurring subscriptions they no longer need. It's one more practical way we can deliver value to our consumers.

And that same thinking is driving our broader product strategy. Whether consumers are shopping, converting a short-term cash need or sending money to someone else, we're finding new ways to make Sezzle more useful in their everyday lives. We've made a lot of progress on that front this year. Part of what gives me confidence in the direction is the pace at which our teams have continued to deliver new products. And when you look at what we've accomplished throughout 2026 on Slide 5, it's not just one big product launch. It's a series of additions that we are making to make Sezzle more useful for our consumers.

We started the year with Pay-in-5, added the virtual card offering in Canada, expanded our long-term lending capabilities and introduced Sezzle Mobile. Then we launched SezzleCash, giving eligible anywhere consumers access to funds for short-term cash needs without having to make a purchase. And we also introduced Sezzle Send, which remained in beta throughout the third quarter before we opened it up more broadly to Sezzle users at the beginning of October.

This brings the flexibility of installment payments to everyday money transfers. Now each of these products serves a different purpose, but the strategy behind them is the same. We're giving consumers more reasons to choose Sezzle and more reasons to keep coming back.

We also did an updated study earlier this year on Sezzle Up, our pro bono credit builder. It turns out that for our on-time subprime customers, they are lifting their credit score an average of 17 points in 4 months. That's an amazing result for a group of consumers that can benefit greatly from a credit score lift like that. And it's there in the product set and has been there for years.

Importantly, not every new product needs to be a significant stand-alone revenue driver. Look at Sezzle Up. It's free for our consumers to join. Some products are designed to attract new consumers, others to improve engagement and retention and others, like Up, to do the right thing for our consumers. In the end, what matters is the value they all create in the overall platform.

Looking ahead, we've also soft launched Sezzle Anywhere in Canada at the start of the fourth quarter. This brings our subscription model and open-loop virtual card capabilities to the Canadian customer, allowing them to use Sezzle wherever Visa is accepted in Canada. But launching new products is really only the first step. The more important question is what consumers actually do with them once they're available.

And with SezzleCash, we're starting to see some encouraging results that I think are worth spending a little more time on. We rolled out SezzleCash in June. So the third quarter was our first full quarter of seeing how consumers use the product, and the early results are encouraging. As a reminder, SezzleCash allows eligible anywhere subscribers to access funds for short-term cash needs without having to make a purchase. So whether it's paying a bill, covering an unexpected expense or something that simply doesn't accept a card, we're giving consumers another way to manage their everyday finances.

One of the clearest signals we're seeing is how consumers are getting started. In the third quarter, more than 15% of eligible new Anywhere subscribers made their very first transaction with SezzleCash. That's a meaningful number. We're seeing consumers sign up for Sezzle Anywhere, a product that has historically been centered around shopping and their first transaction isn't the purchase. It's a cash advance.

That suggests SezzleCash may be attracting consumers who wouldn't have necessarily considered an anywhere subscription for BNPL alone, and that potentially opens up an entirely new avenue for subscriber acquisition. But there's another part of the story. More than 60% of new Anywhere subscribers who started with SezzleCash also went on to make a BNPL purchase. And when we look at all SezzleCash users during the third quarter, more than 90% also use Sezzle for BNPL purchases.

We're also seeing repeat engagement with the product itself with more than 60% of SezzleCash users taking multiple advances during the quarter. Now we're still early, and we're continuing to be thoughtful about how we grow and manage the product, but the opportunity is becoming clearer. SezzleCash may be bringing consumers into our subscription offering who wouldn't have used us or reached us otherwise. And we're seeing many of those consumers go on to use our traditional BNPL products.

With Sezzle Send, we're exploring another avenue for reaching consumers, but this time through something entirely different, sending money to another person. Sezzle Send is a different kind of product for us. It was in beta throughout the third quarter, and we opened it up more broadly to Sezzle users at the beginning of October. So we're still at an early stage of understanding how consumers will use it, and we're still actively working on tweaking the offering to make it a hit.

The concept displayed on Slide 7 is straightforward. You can send money to someone using their phone number, either paying in full or splitting the payment into 5 installments. And regardless of how the sender chooses to pay, the recipient receives the full amount upfront. Where this becomes a new avenue for Sezzle is in how it can introduce people to the platform. When one of our consumers sends money to somebody who doesn't use Sezzle, that recipient has a reason to sign up and experience our product for the first time. Instead of coming to us through a merchant or an advertisement, they're being introduced through someone they know.

So we're creating a potential acquisition channel that's built directly into how consumers use the product. But to be clear, this is a new behavior for consumers within the Sezzle app. Spending money is different from shopping and for someone receiving their first transfer, there's an onboarding experience involved. So broader adoption may take some time.

SezzleCash addresses a more immediate financial need for eligible Anywhere subscribers. Sezzle Send involves getting consumers comfortable using Sezzle in a new way, including people who may never have interacted with our platform before. We like the potential here, but we're going to be thoughtful about building it out and learning from how consumers actually use it.

And while we're exploring new offerings like Sezzle Send, we're also continuing to invest in the products we've already built. Slide 8 is a good example. We originally launched Sezzle Up back in 2021, becoming the first BNPL platform in North America to give consumers the option to report their short-term installment payments to the credit bureaus.

More recently, we've focused on making that experience easier and more accessible. We've expanded eligibility, simplified enrollment and refreshed the design. We're also working on adding features like in-app credit scores, credit monitoring and alerts. And we're already seeing some encouraging results from those changes. Following our September enhancements, enrollment conversion increased 18% and average weekly enrollments nearly doubled.

So this isn't about introducing something new. It's about continuing to improve a product we've had for years and making it more useful for more consumers.

And beyond helping consumers build their credit, we've also been investing in financial education and finding better ways to learn directly from our users as seen on Slide 9. Money IQ is one part of that effort. Through the program, more than 338,000 consumers have completed over 2 million financial education modules, representing more than 68,000 hours of learning. And in our March survey, 91% of respondents said Money IQ was helpful in making financial decisions. But we're also learning from our consumers.

Our Gen Z Advisory Council gives younger consumers a direct way to tell us what they like, what they change and what they'd like to see next. And we're putting that feedback to work across products like Sezzle Send, Sezzle Up and our rewards offerings. It's a 2-way relationship. We're helping consumers become more informed about their finances while they're helping us build better products.

And as we continue to improve these products, AI is playing an increasingly important role in how quickly and efficiently we can deliver. AI continues to be a major focus across Sezzle, and Slide 10 shows some meaningful progress since our last update. We've talked before about embedding AI throughout our organization. What I want to highlight this quarter is the impact we're seeing from those efforts.

On the consumer side, 40% of support contacts now end with our AI agent without requiring any human involvement. And we're seeing strong consumer satisfaction from those interactions as well. Based on our post-contact surveys, AI interactions are 1.4x as likely to receive a top satisfaction score compared to human handled tickets.

Internally, we're seeing similar progress. More than 90% of our engineering merges in the third quarter involved AI, and we're seeing a 43% year-over-year increase in code changes merged per engineer. We're also getting more efficient in how we use these tools with AI costs per unit of work declining 27% sequentially.

These are the great results we're looking for, more consumer support handled without human intervention, greater output from our engineering teams and improving cost efficiency. It's one thing to adopt AI across an organization. It's another to see that adoption translate into measurable improvement in how the business operates.

And while a lot of this work happens behind the scenes, the ultimate measure of our progress is how consumers are engaging with Sezzle. The metrics on Slide 11 give you a good picture of how this is all coming together.

First, we're continuing to see strong engagement in our core shopping business. Average quarterly frequency reached 7.8x, up from 6.5x a year ago. That now includes BNPL purchases along with SezzleCash and Sezzle Send payments, giving us a broader view of how consumers are using the platform. Across the platform, total transactions increased 30.1% year-over-year to 12.4 million. Repeat usage also remained strong at 97.4% of total transactions, up 80 basis points year-over-year. But the number I'd like to leave you with is average quarterly revenue per monetized user, which increased 28.1% year-over-year to $41.

We spent a lot of time today talking about our investments in subscriptions, new products and the consumer experience. These are the measures that help us evaluate whether those investments are paying off. Consumers are shopping with us more frequently. They're engaging with a broader range of subtle products, and we're generating more revenue per monetized user. There's still plenty of work ahead of us, but we're encouraged by the progress we're making and confident in the direction of the business.

With that, I'll turn it over to Lee to walk through the financial results in more detail.

Thanks, Charlie. I'll start on Slide 12. Total revenue increased 42.6% year-over-year to $166.5 million. Net income rose 79.3% to $47.8 million and adjusted net income grew 89.9% to $47.7 million.

As you can see, it was a solid quarter of growth coupled with margin expansion, driven by margin improvements, profit grew roughly twice as fast as revenue as we more than doubled the threshold for the Rule of 40.

Total revenue less transaction-related costs rose 10.5 points to 64.7% of total revenue at the top of our 55% to 65% target range. Non-transaction-related operating expenses were 27.8% of revenue, up 0.7 points year-over-year, but down 1.2 points from Q2.

On Slide 13, you'll notice a change in how we measure volume. Starting this quarter, total transaction volume, or TTV, is our primary measure of overall volume. Our products now go beyond the checkout. So TTV includes volume from SezzleCash and Sezzle Send, which GMV did not capture. We recast prior periods to the TTV definition, so every comparison on these slides is apples-to-apples. Q3 TTV grew 34.9% year-over-year to a new company high of $1.4 billion, an 11.6% sequential increase.

Growth was driven by our Sezzle Anywhere and Sezzle Premium subscribers plus the launch of SezzleCash in June. Total revenue grew faster than volume at 42.6%. Revenue as a percentage of TTV was 11.9%, up 60 basis points year-over-year and flat with Q2. As a reminder of seasonality, revenue yield is usually highest in Q1 and lowest in Q4. So we expect it to step down in the fourth quarter.

Turning to the unit economics on Slide 14 through 16. As a reminder, transaction-related cost is a non-GAAP measure that combines transaction expense, provision for credit losses and net interest expense. Revenue less transaction-related costs is what we also refer to as net transaction margin.

On Slide 14, transaction-related costs for Q3 were $58.8 million or 4.2% of TTV, down from 5.2% a year ago. As a percentage of revenue, they fell more than 10 points to 35.3%.

Slide 15 breaks out the 3 main components of transaction-related costs, transaction expense, provision for credit losses and net interest expense. Most of the decrease in transaction expense as a percentage of TTV is attributed to us signing an exclusive arrangement with Visa for our U.S. credit products. During the quarter, we recognized a $3.7 million benefit from the arrangement. Excluding this benefit, transaction expense would have been about 1.6% of TTV, still an improvement on the 1.7% we've run for the past several quarters.

The provision for credit losses was 2.7% of TTV, down from 3.1% a year ago. The step-up from Q2 is the normal seasonal pattern from Q1 as the low point because of tax refunds and the provision climbing through the year from there. Year-to-date, the provision is about 2.2% of TTV. With the move to TTV, we're updating full year guidance to approximately 2.5% of TTV from 2.5% to 3% of GMV, which still allows for the usual seasonal rise in Q4.

Net interest expense fell 29% year-over-year to $2.8 million or 0.2% of TTV. That reflects the new $300 million credit facility we entered into in May at a lower rate, plus SezzleCash and Sezzle Send now being handled through our loan facility with WebBank.

That brings us to Slide 16. Net transaction margin was $107.7 million, up 70% year-over-year and 64.7% of total revenue. Even without the payment network benefit, we would have been around 62.5%, comfortably in the upper half of our 55% to 65% target range.

Our focus on costs extends to non-transaction-related operating expenses on Slide 17. These costs were $46.2 million or 27.8% of revenue, down from 29% in Q2. Marketing came in at $15.9 million, down from $19.4 million in Q2 and consistent with what we talked about in Q2. As Charlie noted earlier, Q2 was a deliberate test of higher spend, not a new run rate.

Marketing is still up 81% year-over-year, and we'll keep putting dollars to work wherever the math supports a payback of less than 6 months. The investments we made in Q2 are already showing up with active subscribers reaching 955,000.

We're also gaining operating leverage in other areas. Personnel expense grew 17% against revenue growth of 43%, helped by the AI productivity gains Charlie described. Third-party technology and data grew faster as we scaled cloud infrastructure for higher volume and 3 new products.

Corporate strategic project costs were $2.4 million this quarter for 2 projects. First, our antitrust case remains in discovery, which we expect to continue through 2027. Second, we submitted our application for a national bank charter in October. Both are long-term investments in Sezzle, and we add these costs back in our adjusted figures.

On Slide 18, net income was $47.8 million, a 28.7% margin. That's up 79% year-over-year, even though our effective tax rate rose 22.1% from 15.7% a year ago. Adjusted EBITDA was $70.2 million, up 77% year-over-year with a 42.1% margin.

We continue to keep our adjustments to a minimum. Adjusted net income was $47.7 million. The relatively minor difference with GAAP net income is attributed to the difference of discrete tax benefit offset against the after-tax add-back of corporate strategic project costs. You can also see our seasonality here. Q1 and Q4 are typically our strongest quarters for bottom line performance.

Slide 19 shows we remain well capitalized with plenty of liquidity and low leverage. At quarter end, we had about $239 million in liquidity, made up of $70.1 million of unrestricted cash and $169.3 million of availability in our $300 million line of credit. We had $104 million drawn on the line, down from $118 million a year ago, even as notes receivable grew 72% to $315.9 million. Total debt is about 0.4x trailing 12-month adjusted EBITDA and 0.4x equity.

The business continues to fund itself. Year-to-date, cash from operations was $227.9 million, up 64%. Stockholders' equity grew 79% year-over-year to $277.7 million. Year-to-date, we have also returned capital as we have repurchased $28 million of stock under our $100 million program this year, which brings me to Slide 20.

We first guided to $4.35 of adjusted EPS for 2026 a year ago, and this is our fourth raise since. We now expect total revenue growth of approximately 42.5% for 2026, up from 35%. We're also raising adjusted net income guidance to $190 million from $185 million and adjusted net income per diluted share to $5.45 to $5.50, up from $5.25.

We are also introducing preliminary 2027 guidance for adjusted net income per diluted share of $7.20. That's a growth rate of 31% to 32% over our updated 2026 range. Our outlook includes a measured view of our newest products. SezzleCash is off to a strong start, and Sezzle Send just rolled out more broadly in October. As with any new lending product, we're managing both carefully on risk and marketing, and we'll update you as they mature.

With that, I'll turn the call over to the operator for Q&A.

[Operator Instructions] And today's first question comes from Mike Grondahl with Northland.

A nice quarter. Charlie, you guys are clearly product innovation and kind of riding a new product wave here, Pay-in-5, SezzleCash, Sezzle Send. Can you talk about what inning you think we're in, in some of these newer products? And any other to call out other than those 3?

Well, good question, and thanks, Mike. Pay-in-5 is pretty much rolled out at this point. So I think that's a ball game for Pay-in-5 in terms of rolling out within our business. But our view on Pay-in-5 is maybe it's not ball game in terms of acquiring consumers and retaining consumers. That's all point is we saw such good feedback from consumers using our product that they love it so much that our view is that it incrementally helps us win consumers and keep consumers from competition.

SezzleCash and Sezzle Send, super early. I mean they're just getting started. So I think that's probably the layout. We're excited about all of them. But really Pay-in-5 has just been -- I mean, it rolled out earlier this year. So it's had a lot of time to make hay for us. And so that is the winner of the 3 right now.

Got it. And maybe just 2 more questions. One quick on Pay-in-5. What percent of the business, and I think it's a big number, has transitioned to Pay-in-5? And then secondly, could you just cover again how SezzleCash and how Sezzle Send you think that's going to help with customer acquisition kind of bringing in new customers?

Yes. I'll pass off the first part to Lee because he might have more detail on that. But on SezzleCash, Sezzle Send, actually even Pay-in-5, they all help us acquire new customers because they're basically differentiated offerings from, I think, some of the competitive base that our consumers may be compare us against. So we have differentiated or totally different products from some of our competitors that allow us to acquire new consumers.

I would say Sezzle Send has launched the entire -- I would say the majority of the design was around helping us acquire new consumers because the thesis is that consumers will send other money to their friends and family, contact, et cetera. And if you're already a Sezzle user, it's likely that you -- in your nexus, you have other potential Sezzle users just because people tend to hang out with people like them. There's a little bit of that. So our view is that, that would be a user-generated acquisition channel. And we still believe it is. But they're all helping us acquire users. I don't know, Lee, anything to add on the first part of the question?

Yes, on the percent of Pay-in-5. Yes, if you look at our kind of core BNPL product, yes, it's about -- it's the majority, and I think we've alluded to it before around 70%. And like Charlie said, yes, it's past the ninth inning, I guess.

Got it. Yes, I mean that turned out to be pretty popular.

And the next question is from Ross Cole with Needham & Company.

Congratulations on the great quarter. My first question here is for FY '27, the $7.20 guide, can you provide any color into what's driving this? And then also, is this including an impact from SezzleCash and Send? Or would you consider like that growth to be upside here?

Lee, do you want to take that one?

Yes, I can pop in here. I guess what I'll give you just a little more on the history of how we've given guidance. We did similarly in Q3 last year. We gave that $4.35 EPS for 2026. And it's inclusive of what we have opened like, what we've already launched in terms of products. So -- but we don't give much more than that at this point in time. As we come out in Q4, we'll break out more in terms of revenue and margin expectations. But at this point, it's just more of an EPS estimate for you guys.

Great. And then I was wondering as well, it's great to see the subscribers approaching 1 million. Can you maybe talk a bit about how chartering conversions from on-demand are trending?

Well, on-demand has been shrinking as a percentage of our business, mainly because we realized -- we talked about this earlier in the year as we started to transition more to subscribers as the focus. When we first launched on-demand, we had the theory in our mind, and we've been wrong before. The theory was that we were basically building like a bridge like almost like -- I know it's not free, but it's like a freemium bridge into our subscription product where it's like try before you buy, before you commit. And what we realized is a lot of those customers, they just like gating us like just dabbling, and they never made commitment. And when we converted, we did get on-demand consumers to convert in, but it wasn't like what we imagined it would be.

And so we decided, let's just lead with subscription. We've talked about this a bit externally, a bit internally. It's almost like the view is, do you want to be like a target or do you want to be like a Costco model? And what we started to realize is just we really like the kind of the Costco model instead, just a subscription-based product allows us to deliver lower-cost financial services products to our subscriber base, the ones that commit to us and want to be a part of our system.

And so we're really viewing as leading with subscription as the primary solution. And on-demand is still there. But now it's not used as much as a tool with the direct-to-consumer type of relationship with consumers. It's used more as a tool to help our sales and partnerships teams to work and deliver solutions to merchants that might be less comfortable with the merchant fees required to support BNPL. And if we can pass on some of the fees to the consumer directly in the merchant checkout, now the merchants much more comfortable with adding Sezzle into their checkout. So it's become more of a merchant acquisition tool than a consumer tool.

And our next question is from Ryan Tomasello with KBW.

This is Huan Chong on for Ryan. Congrats on a great quarter. Could you just help frame for us what the monthly spending is like for your average subscriber and how you're thinking about your current wallet share of either credit or spending within the current user base? Just trying to get a sense of how much room there could be for like a TTV per user growth, especially given the expanded product suite.

Yes. We plan to keep on pushing forward with more and more products in our future. Some of those products are waiting for our national bank charter completion, like checking accounts, savings account products and potentially more in the financial services area or arena. So we think there's more wallet share with these consumers and more frequency. We know they love our product, but we just think there's probably a lot more there in terms of making these consumers -- having these consumers that are in love with us, do more with us.

But Lee, I don't know if you have any additional color on the first part of the question?

Yes, I'll follow up on a couple of items there. Yes, we haven't -- we're not disclosing the CAC, what we do from a subscription cost because we do a net number, and we have subscribers move in and out, and it's very easy to cancel and move in and out. So we just don't get into those numbers. But also add on to Charlie's comment on the wallet shares. We've looked at some others -- other companies out there and people are transacting with them 15-plus times a month, the consumers are. And we disclosed consumers using us what, 7 to 8 times a quarter. So we definitely think there's a lot of upside.

Okay. Got it. That's helpful. And just in the most recent 10-Q, you broke out your new revenue disaggregation, which was helpful in getting a sense of that with the different moving pieces of take rate. Can you just help us understand the outlook for take rate? And do you see that roughly 11.8% rate in 3Q as something that's sustainable?

Lee, do you want to take that?

Yes. We -- sorry, yes, I'll take that. The seasonality of our business, we definitely expect it to come down in Q4. And -- but we do -- I think last quarter, we did give guidance out there. At least on the call, we talked about seeing the take rate flat year-over-year, meaning '26 versus '25. But we had a strong quarter here in Q3, particularly driven by the subscriber side, if you look at take rate. And so we'd expect that probably up a little bit year-over-year on the take rate versus -- '26 versus '25.

And the next question is from Rayna Kumar with Oppenheimer.

This is Anthony Cyganovich filling in for Rayna. With AI-driven shopping assistance and agentic commerce becoming more prevalent, can you talk about how Sezzle is positioning itself to remain relevant at the checkout layer? Are there opportunities for Sezzle to become a preferred payment or financing option within AI-powered purchasing workflows?

We're definitely thinking about a lot. I mean you hear us talk about AI a ton, I'm sure, and we really lean into it heavily. So we also think about it with our products and services to the consumer as well. I think it is a big win for our partnerships team right now because our partnerships team is looking at where are the big AI partnerships, where are the potentials, where can we get plugged in, where can we watch for fast risers and latch on quickly to become the partners of the winners of the future in AI. And we think it does matter.

But I think we're also helped a bit is that we have our Anywhere card where just like -- I'm not sure -- I asked this question to a bunch of investors about a year ago and asked who's using AI shopping assistant and it was still pretty low. But I even find myself using them now. And I'm probably a super early adopter because I try to adopt products and I like to. But I'm starting to use shopping assistants.

And basically, what I find is that when you connect into them, it's all about loading your card into the product -- and we have that card. We have a credit card for our consumers that's used as a payment vehicle. And so for our Anywhere customers, I think we're already kind of on that front, our Anywhere customers can load those cards into these virtual shopping assistants and then just be prompted to use us or to confirm the purchase.

So I think we already have an avenue that's helping us with the virtual card and our Anywhere subscription as a leading front, but we're also actively thinking about how else to get in there deeper because we really believe in it.

That's helpful. Just as my follow-up, I mean, your profitability and cash generation has been improving a lot over the last year. Can you talk about how you're prioritizing capital allocation among buybacks, product investment, geographic expansion or potential M&A?

It always starts with product and delivering to the consumer. That's the first thought whenever we're talking about capital allocation. But because we're such an efficient company with how we do things, it tends not to be a big usage of cash. To give you an idea like when we launch new products, it's basically bringing 3 or 4 new team members, especially now with AI.

I mean it's -- we've even started to discuss testing single-person teams, single-person teams bring things end-to-end more and more rather than multifaceted or multifunctional teams. So we're bringing on team members to launch and support products that doesn't tend to be a big use of funds. And then so that tends to lead to cash coming out of the balance sheet. And then we have decision-making there. Do we sit and wait? Do we do buybacks? Do we do dividends?

But we also have right in front of us our national bank charter application process. And that process also -- there's a bit of a lean towards putting on cash during that process because you want to show safety and soundness, too. So we have that in kind of the back of our heads as well.

I don't know, Lee, anything to add to that?

No, you're spot on hit on all the items. And I'd say we're constantly looking at all of those. And number one, as you mentioned, is organic investment back in the business. But with the excess, we're always looking for the best opportunity, best return.

The next question comes from Hoang Nguyen with TD Cowen.

Congrats on the quarter. I wanted to start first with maybe on the gross margin. So over the past 4 quarters, it looks like you guys have been, again, at the high end, 65% or even exceed that, right? Do you think we're at the stage where the business is at a consistently higher level of profitability and maybe the high end is what we should think about the business going forward? And I have a follow-up.

Yes, I'll let Lee give more detail on this. But I think it's hard for us to say just because we're learning about the product mix as the products get out into the market. And we think about gross margin as we launch products, but each one has like puts and takes on gross margin and what we are okay with. Like for instance, I'll give a more obvious caveat to gross margin. Sezzle Send is a product that we're okay with lower financial metrics on because we view it as a product that can help us acquire consumers. That's more of the focus. So it's a give and take. That product would have a lower gross margin. So it depends on that product grows in terms of like the next 12, 24 months on what happens to gross margin. But that kind of gives you the idea of like why it's hard to predict where it might be in 12 months, 24 months because we have some -- our own gives and takes of how we want to guide things.

But Lee, anything to add?

Yes. No, that's spot on. Yes, as we launch these new products, particularly Cash and Send, as you noted, lower margin. And typically, when you start off on the product too, you're going to have a higher provision or higher loss rate with that. So that type of -- that takes time to play out. And as Charlie mentioned earlier, we're just getting started with these products.

Got it. And maybe on the marketing, it looks like, I mean, marketing has gone up, but that also happened to your net subscriber adds, right? So net-net, I mean, how do we think about the efficiency of your marketing over the past year and coming into the holiday season, I mean, how should we think about the net subscriber add as we are about to enter the holiday?

Well, we feel good about our efficiencies. We're always focused on efficiency. We always try to explain also marketing, just so people are aware, there's some fixed elements in marketing with our Timberwolves partnership, just quarter-to-quarter-to-quarter. We have some parts of marketing that are just the more people use our app, the more -- some of the marketing cost components just rise from consumer usage. And then some of it is discretionary. So it's kind of a mixed bag on the total marketing spend we get every quarter. But on the discretionary part, I feel like we've been even more deliberate, more conservative maybe or more -- wanting even more return from what we're spending over the last quarter-on-quarter.

But Lee, anything to add to that or clear up?

No, that was spot on.

And at this time, there are no further questioners in the queue, and this does conclude our question-and-answer session. I would now like to turn the conference back over to Charlie Youakim for any closing remarks.

Thank you. I usually close with a Buffett or Munger quote, but tonight, I wanted to share something JPMorgan said to Congress in 1912. During the Pujo hearings, he was asked whether commercial credit is based primarily on money or property. His answer, "No, sir, the first thing is character." Asked whether that came before money or property said, "Before money or anything else, money cannot buy it."

A few weeks ago, we filed our application to become a national bank. It's a long process and the outcome isn't guaranteed, but it made us take a hard look at what we've built, a model where customers stay current to keep using Sezzle, where we adjust spend limits so customers don't overextend and where customers who pay on time can build their credit history through Sezzle Up. We think that's what character looks like in the lending business. The numbers we shared to that matter, but what we're more focused on building is trust with our consumers, our merchants, our regulators and all of you.

And before we close, as always, a big thank you to the Sezzle team who accomplishes far more than you can believe and to our investors for your continued support. We'll talk to you again next quarter. Thanks.

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

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?

Yes. And just following up to your comments on margin. Just I think you kind of touched on that at the end, it was more of a smoothing, right? You don't want to accelerate too hard at one time. And so it's just a more steady process with it as well, just managing that. But from a guidance standpoint, yes, I mean, we've guided here, got rid of the low end of our revenue guidance, did bump up our bottom line guidance.

So yes, second half, you do the basic math, right? First half, we were up 40% year-over-year, 48% on net income, 40% on revenue and guiding kind of 30% up here in revenue for the top line and then bottom line 40%. Feel -- we feel very confident of those. We've talked about to -- not having some certain things in there at this point in time in our guidance. So that will to be determined as we go through the remaining quarters.

That's very helpful. And then in terms of the -- Charlie, how you're thinking about the overall growth algorithm for the business over the next year or so and also looking at this disclosure in the slide deck that I think gives you the average quarterly revenue per monetized user. It looks like the mix of revenue growth in the quarter was, call it, 2/3 user growth and 1/3 ARPU. Is that kind of a mix that you feel comfortable with going forward? Or should that maybe balance out heading into the back half of the year as you pull back on the marketing and baking in these new products? Just trying to understand that growth algorithm.

I hear what you're saying, Ryan. I guess from my perspective, I don't really totally focus on that kind of split. I guess when I'm focusing on us growing the business, it's really about launching products and executing on existing products in a way that is showing that it's providing interest and value to the consumer. So we basically looked at like take-up rates of products, attraction rates to products, like, for instance, Pay-in-5, an absolute home run.

We said it from the start. It seems like -- it doesn't make sense to maybe the credit card user who's not maybe a BNPL user. But we thought early with surveys, our customers really wanted Pay-in-5. We had really high engagement rates on the product. We launched it. We saw it play through.

I think with SezzleCash, we saw some of the same dynamics with surveys. And we played it through, a lot of our customers are up taking it. I don't know if people caught the comment we made during the call.

But Sezzle Anywhere, the subscribers when they first joined it, 10% of the customers that are joining Sezzle Anywhere, their first transaction is a SezzleCash transaction. And I mean that's -- I think that's pretty incredible, especially the fact that we're not even like leading with it at the moment. It shows how much interest there in that type of a cash flow product.

And then Sezzle Send, I think that's a product that we have a really good sense that the customer wants. I mean the waitlist is already -- over 100,000 on the wait list, which is really exciting. We basically just launched the waitlist. So the uptake on that is really exciting.

And so the -- with Sezzle Send, we have another avenue for providing value to existing customers, but also acquiring new customers because as those customers use our product with P2P, they can send it to new customers or new potential customers, non-Sezzle users. to accept their funds and get introduced into our platform. So it creates a whole new channel for customer acquisition.

So I think from my perspective, that breakdown that you mentioned is not even something I look at. But I -- what I think about is just like what are home run type products. And I think what I feel good about with our business and our company is we've had just a very high percentage of home run products. We've had only a couple of products where I call them singles or strike outs.

Like it's just -- it's been a very high hit rate. And I think we have a few more in the hopper with SezzleCash and Sezzle Send that are going to be home runs.

The next question comes from Kyle Peterson with Needham.

I wanted to start out with some of the moving pieces in the take rate in the guide. I think you guys said 11.4% for the year should be about flat. So I understand there's some seasonality there, but just trying to square at least some of the year-on-year impacts with some of these newer products like Pay-in-5, which I would think would be accretive to take rate. So just want to see like how much is conservatism versus if there's any other mix or moving pieces that we should be mindful of?

Lee, do you want to take that one?

Yes. Yes, you're right on the Pay-in-5, can be accretive. But as we launch new products, like Pagaya can be not accretive to the take rate. Just the nature of how that is accounted for. And then also as we launch SezzleCash as well. So those can lower the take rates. While we still have very similar profitability and margin standpoint, the take rates on those can be a little lower.

Okay. That is helpful. And then I guess I wanted to double-click on the provision expectations moving forward. I know there's some seasonality there. And then you guys also have some more new customers coming on board. But I guess, is there any change on a apples-for-apples basis that you guys are seeing in either repayment rates or consumer credit health or anything like that? Just want to be able to understand on a going-forward basis and kind of what you're seeing real-time, especially with existing customers' performance?

Yes, everything seems just normal, Kyle, I'd say. It's nothing related to the customer profile or customer and the economy. But I'd say our prior guidance on that stands 2.5% to 3% for the year, which basically explains that there's going to be a step-up in the third quarter and fourth quarter.

I think that everyone modeling can expect that -- model for that. The only caveat I'd say is like how these new products take up and we start to really start to push them externally, I'd say, especially with virality around Sezzle Send, if that really does pick up a lot of new users.

So basically, it's like a trade-off of new users because new users have higher loss rates. So if new users pick up more than expected or more than modeled for many out there modeling, then I would expect if you have variability in your model, if you pick up new user growth, you're going to expect to have provision to be higher than you have modeled for if you move that variable around.

The next question comes from Rayna Kumar with Oppenheimer.

Great quarter. I just want to better understand just the puts and takes of the revenue yield. Obviously, it was up 110 basis points on my calculation year-over-year. Just want to understand like is that a mix? Is that pricing?

And then secondly, your 2026 guidance assumes that there is going to be a sharp deceleration in revenue growth in 2H from the second quarter. Just want to understand the drivers there?

Yes. One of the key things that we -- yes, sorry, one of the key things we pointed out heading into Q2 on our Q1 call was that we had an easy comp on the revenue yield in Q2, which drove that revenue growth this quarter.

So I don't know if you saw that, I think it was like a 10 handle or so last year versus the 11 handle this year. And we had a number of items change as far as types of fees or the rates that we had. And we mentioned on that call that going forward, I'd say more of a normalized, meaning that we weren't having any much movement in terms of how we are charging and the fees that we did and the revenue items that were driving our revenue yield.

So that you'd see a more consistent, I guess, you could say, from Q3, 4 and on. And that's where we talked about seeing a more normal performance in revenue yield from a seasonality being -- Q1 being the strongest and Q4 being the lowest because you're not seeing a lot of movement in the puts and takes. And so that's why you'll see -- that's why you saw the -- it was down year-over-year in Q1, up in Q2, but now you'll see an easier, more normal comparison going forward here. But overall, for the year, we said it would be flattish for the year.

The next question comes from Hoang Nguyen with TD Cowen.

I want to ask on, I guess, the charts on the on-demand number of users versus subscribers. So I think since you guys made the pivot, I think On-Demand count continues to go down while subscriber count continues to go up. And while subscriber demand has been strong, should we read this as a sign that once you kind of limit people's ability to use On-Demand, a large percentage of these people eventually convert to subscribers?

Well, there is a portion that are converting. That's a good insight that as we diminish the push towards it. But I'd say really more of the change has been just what is presented. We used to like lead with On-Demand as the lead product. Come and try a Sezzle at a merchant site and you can pay as you go.

Now that's really not the lead. The lead is join our subscription program. And then On-Demand, the place where that's still -- where we still the lead for On-Demand is in merchant checkouts.

So when we have these enterprise partnerships, some of these merchants coming on board, the way to pay is with essentially a transaction with the service fee, which is On-Demand.

So that's really the only place or I shouldn't say the only because there's always edge cases here and there. But the vast majority of the new cases for people entering On-Demand are at those checkouts. So I think it's more about what's being presented or led as the transition product for consumers that are moving into our MOD products.

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

Well, thank you, operator. I'd like to leave you all with something Warren Buffett said back in 1991. It's not a crazy idea. It's a simple one. He said, someone is sitting in the shade today because someone planted a tree a long time ago.

I thought that even though it's a simple concept and a simple quote, I think it nails one vector of our thinking at Sezzle. We plan for long-term returns.

Let's take a look at the tree we planted and the tree today, which is giving us all shades. Back in July of 2019, we listed on the Australian Stock Exchange. I wanted to share some of our results from the second quarter of that year right before we went public about 7 years ago, just to give you an idea of how long-term growth plans play out.

Our second quarter 2019 GMV, $41.2 million versus $1.3 billion today, basically a 30x. Our second quarter 2019 revenue, $2.6 million versus $149.7 million today, nearly 60x. Our second quarter 2019 gross margin, a negative $260,000. This quarter, $95.1 million.

As you can see, the long-term approach to growth works. I'm going to calendar this one as a reminder to do this again in 7 years. I hope you'll all still be investors at that time. And to that 7-year time line, many members of our team have been here for that entire 7-year journey. And to them and the rest of the team, a big thank you for your incredible work on getting us from there to here. We'll talk again next quarter. Thank you.

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

Good afternoon, and welcome to Sezzle's First Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charles Youakim, CEO and Executive Chairman of Sezzle. Please go ahead.

Thank you, and good afternoon, and welcome to Sezzle's First Quarter 2026 Earnings Call. I'm Charles Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our CFO, Lee Brading, and my Co-Founder and Company President, Paul Paradis.

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 of the 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 the quarter, I want to start by touching on the big picture for 2026.

We believe it is going to be an exciting year for Sezzle. 2025 was about enhancing our current consumer ecosystem. We improved the app experience, expanded engagement features, leaned back into higher-value consumers and continue to give our users more reasons to come back to Sezzle. But in 2026, we are pushing that strategy further. We are moving beyond being a product consumers think about only at checkout.

Our ambition is to serve our consumers more broadly in their everyday lives and in the way they manage everyday spending. That means continuing to build around payments, but also expanding into areas like deposit accounts, card products, enhanced lending options, our recently launched Sezzle Mobile plan and more. The goal is simple: to create more value for the consumer, create more reasons to engage with Sezzle and over time, make Sezzle a critical part of our consumers' daily lives.

The strategy is working. In the first quarter, we delivered strong growth, strong profitability and improved engagement across the platform, and we are raising our full year guidance as a result. We are still very early in what Sezzle can become for the value-focused consumer.

With that, let's dive in.

The first quarter followed a similar and important pattern to the first quarter of last year. Better-than-expected credit performance helped drive strong margins and bottom line results. The strength in repayment trends also gave confidence to approve more volume while staying disciplined on risk, helping drive GMV that nearly matched the fourth quarter holiday period. We also saw the benefits of the investments we made throughout 2025 to create a more engaging product ecosystem. Average quarterly purchase frequency increased by a full purchase across the consumer base, reaching 7.1x in the quarter compared to 6.1x in the first quarter of last year. That's a meaningful increase, and it tells us our consumers are coming back to Sezzle more often and finding more ways to use us.

Those factors helped drive the results you see on Slide 3. GMV grew 37.3% year-over-year. Total revenue grew 29.2%, and our gross margins reached 74% of total revenue. We also generated $51.3 million of net income, representing a 37.9% profit margin and $71.1 million of adjusted EBITDA, representing a 52.5% adjusted EBITDA margin. Given the strength of the first quarter and the growing engagement we're seeing across the platform, we are increasing our full year 2026 guidance across the board.

We are raising total revenue growth guidance from 25% to 30% to a new range of 30% to 35% -- we are also increasing adjusted net income guidance by $10 million to $180 million and raising adjusted EPS guidance to $5.10 from $4.70 with some benefit from repurchase activity in the first quarter.

We will provide more detail on guidance later in the call, but overall, this reflects our confidence in the momentum of the business. A key factor in the recent growth of our business has been the payoff of our reinvestment and refocus on our subscribers, our highest LTV users on the platform, which you'll see depicted on Slide 4.

Our investment continued to pay off in the first quarter with total subscribers increasing by 44,000 to 714,000. The overall total mods sequential decrease is due to the decrease in monthly on-demand users, a drop which reflects the seasonality of our platform from the busy holiday shopping period to the lower activity we see in the quarter after, along with the deemphasis or a renewed focus on our subscribers.

Turning to Slide 5. Much of that subscriber momentum traces back to the continued investment we are making in marketing. Since we began leaning harder into this effort in late 2024, we have tested a number of campaigns, funnels and pathways to reach new consumers. Like most things at Sezzle, there is a trial and error along the way, but I think it's clear that we are starting to catch our stride in finding the most effective ways to win subscribers and drive greater engagement across the consumer base. The best part is that we have been able to push spending higher while still maintaining attractive returns. Marketing spend increased again in the first quarter, but we continue to see a payback period of less than 6 months. That gives us the confidence to keep investing where we are seeing performance. To be clear, the goal is not just to acquire any user at any cost. The goal is to acquire and retain consumers with the highest lifetime values. The ones who transact more frequently demonstrate stronger loyalty and give us more opportunities to create value over time.

In practice, that means subscribers, repeat users and consumers who engage across multiple parts of the Sezzle ecosystem. The Earn tab is a great example of how our product and marketing strategies reinforce each other. Since launching in June 2025, the Earn tab has generated 4.8 million visits. And consumers show a 55% increase in BNPL conversion within 30 days after their first Earn tab activity. This is exactly the type of engagement loop we want to build. That brings us to Slide 6. Pay-in-4 has been the foundation of the business, but consumers are asking for more, more utility and more ways to use Sezzle beyond a single checkout moment.

In the first quarter and shortly after quarter end, we made progress on several fronts. We expanded short-term installment optionality with Pay-in-5, launched an enhanced long-term lending capability across the entire BNPL product suite, introduced the virtual card in Canada with select integrated merchants and launched the Sezzle Mobile plan on AT&T's network with an unlimited wireless plan starting at $29.99 for Sezzle Anywhere members.

Each of these products has slightly different use cases. but the strategic theme is the same, expand what a Sezzle relationship can do for the consumer. Turning to the next slide. AI continues to be a major focus across Sezzle. We are not treating AI as a side project or a small productivity experiment. We are embedding it into how we build products, support consumers, analyze data and operate the business.

On the consumer side, we recently launched our AI support chatbot, and it's already resolving approximately 60% to 70% of the chats without escalation. That improves speed for the consumer while allowing our support organization to handle greater volume with the same disciplined cost structure. We are also testing our AI shopping assistant, which is driving stronger click-to-order conversion and helping consumers find the right products with less friction.

Internally, we are using AI everywhere in the company to improve efficiencies and automation. We're using it to help analyze chargebacks, improve business intelligence, increase support quality, improve access to company data and speed up engineering workflows. Taken together, these efforts do three things: improve the consumer experience, increase output across the company and scale the business while keeping expense growth well below revenue growth. All of this points to a broader vision, which the next slide lays out.

Sezzle started with Pay-in-4, but we are no longer just a Pay-in-4 company. We are building an all-in-one services platform for the value-focused consumer. The strategic goal is to make Sezzle more useful in more moments. The more value we provide, the more reasons consumers have to come back. That drives engagement, supports retention and strengthens the consumer relationship over time. We still have a lot ahead of us, including products like bank accounts and greater post-purchase split capabilities among other ideations. And overall, the real test of the strategy is engagement. If the product ecosystem is working, we should see consumers using Sezzle more often across more merchants and across more use cases. That's exactly what we saw in the first quarter, as seen on Slides 9 and 10.

In the first 2 boxes, mods and quarterly purchase frequency prove out the ROI across products and marketing. Even the sequential increase in quarterly purchase frequency seen on Slide 10, jumped to a whole new level, reaching a half purchase more than our busiest quarter of the year. To me, all of these metrics you see on Slides 9 and 10 are a clear sign that we are moving in the right direction. We are still early, but the flywheel is getting stronger. And with that, I'll turn it over to Lee.

Thanks, Charlie, and good evening to everyone joining us. I will start on Slide 11. But before getting into the details, I want to highlight the seasonality in our business. From a revenue yield standpoint, which is simply total revenue divided by GMV, Q1 is typically the peak of the fiscal year as some payments from Q4's holiday season spill over into Q1.

The quarter is also typically the best performing quarter in terms of our provision for credit losses as a percentage of GMV because our consumers generally benefit from tax refunds at the start of the year, thus leading to better loss rates in Q1. As a result, Q1 is usually the best quarter in terms of margins. While we would love to just annualize a unit economic margin of 74%, we can't. And if you look back to last year's results, you will recognize that dynamic.

Even though we had a tough year-over-year comp this quarter, you can see the strong momentum in our business as we reached all-time highs in adjusted EBITDA margin and total revenue less transaction-related costs as a percentage of total revenue. As noted earlier by Charlie, our marketing spend more than doubled year-over-year in the quarter. Nonetheless, we were able to leverage non-transaction-related operating expenses by 30 basis points year-over-year.

Top line growth and leveraging our nontransaction-related OpEx, combined with strong unit economics resulted in net income outpacing total revenue for the quarter. For those playing the Rule of 40 game at home, which we measure as revenue growth plus EBITDA margin, we exceeded a score of 80 in Q1. On Slide 12, you can see the strong momentum in our business as Q1 GMV of $1.1 billion nearly surpassed Q4's holiday season GMV of $1.2 billion. Sequentially, our revenue yield rose to 12.2% from 11.2% due to seasonality, which I addressed in my earlier remarks. Year-over-year, however, revenue yield declined 80 basis points due to the mix in merchant and virtual card activity, plus a reduction in the number of consumer fees charged.

Slides 13 through 15 dive into our unit economics, which are powering our bottom line results. 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 hear us refer to gross margin and net transaction margin, which is total revenue less transaction-related costs.

Let's jump to Slide 14 and review the 3 cost components of transaction-related costs. Each of the 3 components had a favorable year-over-year move. Transaction expense consisting mostly of payment processing costs continues to experience the benefits of us driving consumer adoption toward lower-cost payment channels such as ACH.

Meanwhile, our provision for credit losses fell year-over-year because of the better-than-expected performance in the current year's portfolio as well as prior year vintages. Further, we are not seeing any unusual strains on the consumer. And as noted earlier, seasonally, this is our best quarter for provisioning for credit losses. But the story is not simply about consumers doing better than expected.

Our team continues to enhance their toolkit and decisioning. Our underwriting team is exploring new data sources, accelerating model iterations and utilizing new machine learning techniques and collections. All of these add up to improvements as we scrutinize every lever of our underwriting inputs. Lastly, net interest expense remained low at 0.3% of GMV. There is further room for improvement here as we move forward with refinancing our current credit facility, which matures next April.

Slides 13 and 14 demonstrate our hyper focus on unit economics and its components. It is evident how it all comes together on Slide 15. We continue to find ways to improve our economic model and not sacrifice growth. We recognize the importance of profitability as it allows us to pursue strategic initiatives that will further propel the business. As we have stated in the past, our goal is to drive our business and profitability with revenue less transaction-related costs in the 55% to 65% range. Our hyper focus on cost does not stop at the unit economic line.

It extends to our nontransaction-related operating expenses, too, as shown on Slide 16. Even as we more than doubled marketing spend year-over-year, we continue to generate operating leverage across the business, particularly in personnel costs. While our team has grown, we have scaled thoughtfully and remain disciplined in where we add resources. Looking ahead, we expect to continue leveraging our operating expense base while still investing in the areas that are delivering attractive returns. We did incur minor costs related to our corporate strategic projects during the quarter.

Our antitrust suit is currently ongoing and something we cannot elaborate further on. We are making progress on the banking charter process and have moved beyond the discovery phase as we are now actively hiring executives and nonexecutive directors. We anticipate submitting our application mid-2026. We recognize this process is long and not guaranteed, but we believe it is an important strategic opportunity to pursue.

Sezzle's significant momentum is evident in our bottom line results shown on Slide 17. Driven by a healthy unit economic story and leveraging our nontransaction-related OpEx, net income outpaced our top line growth. For the quarter, GAAP net income reached $51.3 million, representing a 37.9% profit margin. Adjusted net income was $50 million, and adjusted EBITDA was $71.1 million, a 52.5% margin. Each of these reflects an all-time high for Sezzle.

Our liquidity remains strong as shown on Slide 18, as we ended the quarter with $147.4 million in cash, including $26.9 million in restricted cash. In addition, we had $69 million in availability under our line of credit. Working capital did build relative to previous quarters due to the launch of Pay-in-5 in January. But as noted, we have plenty of liquidity. The strength of our liquidity and cash flow generation is further exemplified by us repurchasing $24.8 million worth of common stock during the quarter, which will be disclosed in our 10-Q that will be available tomorrow.

On Slide 19, we update our guidance. We are raising our guidance across the board. We now expect revenue growth of 30% to 35%, adjusted net income of $180 million and adjusted net income per share of $5.10. Before passing the call over to the operator for Q&A, I want to remind investors of a few items.

First, we target total revenue less transaction-related cost margin of 55% to 65%. And within this margin calculation, we target a provision for credit losses in the 2.5% to 3% of GMV range.

Second, we expect to continue to leverage our nontransaction-related OpEx as we anticipate growth in the top line to outpace our spending. Third, do not forget about the seasonality in our business that I discussed earlier in the call. And last, this guidance does not reflect any projections for new products currently in development.

With that, I would like to turn the call over to the operator for Q&A.

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

Congrats on the strong quarter and progress. I'm looking at Slide 6. Pay-in-5, virtual card in Canada, the mobile plan and enhanced long-term lending. Charlie, if you had to project out a year or guess, what do you think is going to be the most important out of those four? Or could you kind of rank them?

Yes, I would say Pay-in-5. I mean, just because it's already proven to have results for us. I know it's -- I know many of the people on the call are not our target customer. But our target customer, Middle America, value-seeking consumers, we surveyed, we asked and even though Pay-in-5 seems to just that incremental change over paying 4, there was a big demand among our consumer base for that incremental change, and we've seen it in the implementation. So the other product, virtual card in Canada, it's not quite fully launched. Our goal with that virtual card in Canada product is to get that to truly anywhere.

You can see in the subscript, it's closed end at the moment. As soon as that goes live, I would say that also has some pretty serious potential, but it's also in Canada, which is 10% of our volume. So it's going to help us, but it's 10% of the potential volume. And then several mobile plans, enhanced long-term lending, they're just really early.

Mobile plan not really designed to drive revenue, gross margin, more designed to increase retention, deliver value to consumers. So financially not going to be delivering massive numbers, I think, at any point for investors to look at. And then enhanced long-term lending, that's always been more of a nice sidecar for us as a product. We've had that in our history. We're just making it better. And it's also never been a massive driver in and results in terms of financial results at least. But a product consumers do like, yes.

Got it. And then maybe just a question on marketing. What channels or where are you getting sort of the best returns there? And then what's kind of your outlook on marketing spend the rest of the year?

Well, marketing spend, we still have the Timberwolves. We've got that deal going here another year. And by the way, go Timberwolves. I really hope they beat the first tonight, planning on it, but we want to see them in the championship. But yes, we've got the Timberwolves sponsorship going. But that's more of like brand awareness type of play. The actual channels that deliver the results for us are advertising channels, and it's really the usual suspects, web ads, social media ads, in-app ad networks. We're pushing more into connected TV, basically like the YouTubes of the world, connecting those ads. And basically just testing across the board, where we see better results, we just keep on pumping a little bit more. And that's -- if you look at our results, you can basically see like just -- we keep on feathering on the marketing spend as the results keep on playing out.

Yes, that's fair. That chart is helpful...

And Mike, I'll just add a little more color too on that marketing spend. Just if you look from a year-over-year in absolute terms, Mike, it's definitely up. But if you think about it also looking as a percent of our revenue, it's fairly reasonable and actually slightly lower than where it was if you look at Q2 last year. So we do have the ability to leverage that spend.

The next question comes from Kyle Peterson with Needham.

Really nice results. I wanted to start out on the credit costs. I appreciate the commentary and reminders of the seasonality. But I guess just looking at it, the losses as a percentage of GMV were still better than expected and down year-on-year. So I guess like how should we think about some of the puts and takes and what your expectations are of getting back to that 2.5% to 3.5% range, especially as like Pay-in-5 and some of these other products scale. I just want to see like what's conservative versus mix and if there's some potential upside to that number?

Kyle, I'll let Lee follow up. Lee, if you think I missed anything here. But part of the thing to consider when we look at our quarterly results is part of the result is actually reconciliation of the -- because it's a provision. It's reconciliation of the prior quarter.

So every quarter that we post is an estimation of what the loans for that quarter will be in terms of their estimated loss rates. And so we basically had some, you call overestimation in prior quarter that leaks in or underestimations. In this case, we had overestimation leaks in the first quarter, affecting that a little bit to the downside. So always I think take that with -- I think trend lines on the provision are a really good idea because of the fact that we have to estimate.

And it usually is two quarters' worth. And then once we got first quarter posted, it's basically washed out fourth quarter estimations. But that's always something to consider. Also, we have seasonality. But I think we're still spot. The plan is still to see 2.5% to 3% for the provision for the year. Part of that is because we're expanding our marketing spend. Marketing spend increases new users, new users have higher provisions. I would say Pay-in-5, one of the trade-offs with Pay-in-5 is that it does just logically have a slightly higher provision inherent to the idea. But the way we've designed the product mix, we think we account for that in terms of like a matching principle on potentially the fees that are collected from some of the failures. So it almost like financially plays out as a wash, but where it doesn't play out as a wash is it could potentially increase provision a bit. So I think we're comfortable with what we projected. Every time we provision, it's actual provision and actual pure estimation. But again, estimations are almost 100% guaranteed be incorrect one way or the other.

I don't know, Lee, anything to add?

I'll just reemphasize what you said. I think, yes, Q1 is -- I don't want to say an anomaly, but it is the easier or tougher comp, I guess, so to speak, from a standpoint of collections and the provision standpoint. So I get where you guys on the outside looking in, looking at the challenge going wow, such a great quarter. We'd love to annualize this. But as the year progresses, we get a little more aggressive, too, from the new, as Charlie mentioned, bringing in new users.

And not to mention that Pay-in-5 is just getting started, and we would expect to have probably initially a little higher loss rates on that as well. So I think our -- we're very comfortable with our 2.5% to 3%.

Okay. Great. That's really helpful color. And then as a follow-up, I wanted to ask about the partnership you guys have announced with Pagaya. I guess from the sounds of it, I guess, is this kind of a way that you guys can get into some more longer-term lending? And how will this partnership scale and be funded? Like are you guys contributing anything there? And I guess, if not, like what's your kind of path to monetization as that scales?

Yes, good question. In terms of monetization, it's really just a take rate on the like an MDR. We're not sharing in the risk on that product, although we're trying to help Pagaya with their results as much as possible because they're a partner of ours. But it's really just like a skin off the volume that goes through that, that comes to us for running the product through our platform.

And then for the consumer value, I would say it's primarily to help the company win merchant deals. That's primarily why we've got the product in there because there are a number of merchants that have average order values that span a larger range than our core products, core sweet spot, which is like more $100, maybe $80 to $200 for a sweet spot.

And when a merchant has AOVs that rise above that, like a general merchandiser they want to see that you have the capability to help them on some bigger ticket items. So by having this partnership, it helps our sales team win some more of those merchant deals. But then our plans are also mix this into some of our D2C products as well. And that's more about just providing as much value as we can to our consumer through our product mix. We like staying in the shorter-term products, which is why we've always partnered on longer-term products. We like the nature of our product and the terms, et cetera, just all the financial metrics around it. We're very comfortable with it. And we think give that longer-term product to people that specialize in it and Pagaya is one of those partners.

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

Could you give us some color on any middle market merchants, enterprise customers? Are you generally just seeing broad new merchants coming from subscribers who are taking their virtual cards and their anywhere subscriptions to many, many more merchants. Could you give us any color on that?

Yes, we're seeing basically a continued trend on the -- I mean, our business is becoming more and more and more direct-to-consumer, more and more and more open loop. Just I think that's where the trend is in our entire industry, which I think actually mimics things -- none of us probably old enough to know the actuals of what happened in the credit card industry. But basically, from my understanding of reading back to the credit card industry days, a lot of things started closed loop and then they moved to open loop. I think the BNPL space is going to do the same thing. It's going to -- we all started closed loop fully realizing customers love the product so much they want to use it everywhere, which leads to open loop.

And so I think what we're seeing is our consumers using us in more and more just general purpose locations like more shopping with grocery, more shopping with general merchandisers. We're seeing more and more and more of that, which matches that ideology or the want to use the product in more places. But our sales team is still out there, and we have new products, we have new services, new features that helps them land more enterprise merchants because we're not -- it's probably take 5 years to 10 years for this transition to open loop to completely play out. In the meantime, we can still deliver a lot of value to merchants on the spot.

And I think if you look at the credit card industry, it's always -- there's always been some sort of closed-loop aspect. You still have private label products out there with the credit card ecosystems. So I think we'll continue to have the sales channel on merchant. We've got on-demand now, which we can offer merchants that have thinner margins, the ability to pass on some of the fees to the consumer. That's helping us win some more deals. We've got the Pagaya launch that just occurred. That's going to help the sales team win more deals. And so I think we're going to have this as a part of our ecosystem and one that generates even more returns for us. So it's an area of the business we're going to keep on growing. That's probably not going to be growing as fast as the D2C because we're just seeing incredible growth on that right now.

I would add too, Charlie, that we view merchants primarily as a customer acquisition channel. As we've pushed more into marketing channels, as Charlie just mentioned on this call, social advertising, app store advertising, merchants are a great channel for us to acquire new customers in. And that's why we're going to continue selling into those merchants, but it's becoming a less important part of our overall business.

Terrific. And on the marketing and advertising, nice commitment to spending growth year-over-year and sequentially from Q1 of last year and Q4. Would you expect the level of dollar spending to move incrementally higher from here or flattish quarter-over-quarter? What are your thoughts on the spending commitment in marketing this year?

I think we expect it to continue to rise quarter-on-quarter because the team is finding more and more places to place ads and our mandate to them or our guidance to them is if you can find places to get the return we're looking for, we want you to place the ads. So their job is to go out hunting for more and more places to place the ads where they can get the return. And if they can do it, we're telling them to do it.

Excellent. And last question for me. Can you just give us your thoughts on the macro? We've had -- you sort of a value-focused customer. You've had a pretty good amount of narrative in the news about affordability over the last 6 months and now this gas price spike. And I just want to get your thoughts on what you're seeing real time in the business.

Yes. In terms of our customer base, I think that we're -- people have asked us about like macro trends, are you guys seeing anything?

I don't -- the only thing we've ever seen in our history that I can call out in our numbers where I really have seen something is COVID, both the spike down disclosures and the spike up once people got stimulus checks. Outside of that, we really don't pick up anything. And it seems like our customers are perfectly healthy to us when we look at the numbers. We're not seeing anything now. So I know people have brought that concern about like gas prices that really hits mid- to low-income consumers more. But maybe the mid- to low-income consumer just works a bit more, which is natural. Like if you're realizing your pinch a little bit, you've got to go out there and work a little bit more. I don't know, I'm just postulating. I just we're just not seeing anything.

The next question comes from Rayna Kumar with Oppenheimer.

This is Anthony Cyganovich filling in for Rayna. I was just curious if you could just talk about some of the drivers of what you think might be accelerating revenue from the kind of 29% that you reported in the first quarter to that 30% to 35% range that you gave. Are you including any kind of uplift from Sezzle Mobile or Pay-in-5 this year?

Well, Pay-in-5 is included now because it's part of our existing product mix. Sezzle Mobile long term just launched. So that's not anything we're projecting at this point. I think we are seeing some really nice momentum in subscriber growth. you've seen -- as we reported, on-demand down quarter-over-quarter. Some of that is -- I would say a lot of that is holiday, but some of that is also our renewed emphasis on subscribers. And we really like to focus on subscribers. We think it builds a rolling snowball, which helps us. So I think that probably is the primary reason behind it. I don't know, Lee, anything else to add to that?

Yes. No, I think that's spot on. The only other thing I would add is just a little bit of the choppiness maybe or seasonality with our revenue yield when you look at versus GMV. I think if you look -- like this quarter was a tougher comp. I think next quarter, we'll have an easier comp from a revenue yield standpoint.

And then I think you'll see a smoothing out or a more consistent from Q3, Q4, similar to Q1. But in the first half of last year, we had some movement within our revenue side. And that's, you saw that spike last year, and we were down a little bit this year, but I think you'll get the smoothing out as we go through the quarters.

That's helpful. And I guess as a follow-up, I'm just looking at Slide 8. There's a lot of new products that are on your road map here. I mean, can you help us think about kind of a time line for you to become this kind of all-in-one services platform? And then secondarily, like are you utilizing AI at all to help you develop any of these financial tools to kind of gain a little bit more operating leverage in your business?

Yes. I mean I think based on the list of items we see here, this is probably all these items completed, launched and scaling by the end of 2027, the ones we have outlined here. But I don't know if we ever will say the end is there in terms of innovation. We've always believed that we want to keep on innovating. But I think we'll have a really nice platform by the end of 2027 in terms of like much more fully featured in terms of offerings to the consumer.

We'll definitely have the deposit accounts in place by then. Secured credit card, I could see potentially in that time period, but we'll see how things play out. Every time we announce products and product road map, we always have new conversations. So that's I'm hesitant that I'd say probably because there might be things that come up in the meantime that we think are more important for the consumer. But I think over the next couple of years, I think we'll -- end of 2027, we'll have a really nice product mix.

And it's really interesting, your question on AI, definitely. I mean we have had some products thus far where the vast majority of the product development has been AI-driven. I remember our product team in their internal calls calling out this product thus far has been 100% developed with the assistance of AI from the visualization, the screen, the flows, the plan flows to the code, upwards of 80% of our code is now being developed by AI was reviewed by our team. It's incredible.

And our goal, the way we view it internally is we're asking our team to be more productive. I know we see out there in the market. I think it's -- some people talk about using AI to cost cut. I think it's just such a half-glass empty way to look at things. I think our view is AI makes you a superpowered person, use it, use it to increase our product development instead of launching one product this quarter, let's launch three, speed up, allow us to be a team that looks like 4,000 instead of 500 that we have with us. So that's our -- that's the way we utilize it. We're injecting it everywhere. We're basically mandating it everywhere. If you're a leader in the company that doesn't want to embrace AI, you're probably not going to be in the company much longer. But that's not an issue. We already have the embrace it. So I'm just saying like that's how much we believe in it. We believe it's a necessary product that you have to use.

The next question comes from Ryan Tomasello with KBW.

In terms of the product pipeline, I think you previously alluded to a cash advance product that's in the works. I was hoping you can give us an update on how that rollout was progressing. Anything you can share on engagement pricing and also on the underwriting? And particularly on the latter with underwriting, Charlie, curious if you envision an opportunity to push more into direct cash flow linked underwriting to support that rollout and if that could eventually support the broader kind of BNPL core credit product as well.

Yes. We're testing a lot of different variations of our cash flow management product. And we've seen great engagement. which is nice. We definitely can tell the customer likes the product. Because of the regulatory environment we're in, we're very cautious about how we launch the product as well. So the current plan is to have the product more mimic what we do with BNPL. So it would be like almost a Pay-in-4, pay and 5 to yourself, kind of a cash flow product, probably limited to subscribers only is the idea as a tool or another benefit for those subscribers.

And we think it will be favorably viewed by the consumer base because of the pricing to that product. So it'd probably be like one of the more lower-cost cash management tools available to a consumer, albeit they have to be one of our subscribers, but that's the whole point. We want to create more and more tooling that provides more and more value to get consumers into the subscription ecosystem and keep them there. And that's what we've seen from some of our testing. We've done some small-scale testing. It increases engagement. It increases retention, increases happiness. So it's one of those products that we -- and we plan to launch here in the next few months. So probably the next 3 months, we'll have that product out in the market in a more serious way.

Great. And then sticking on the product pipeline topic with the checking product. Can you just talk about the timing there and how you envision going to market with the product? Any carrots that you might offer to help drive uptake? And then just elaborating on like the marketing investment that might be needed to support awareness and adoption?

Yes. We -- that's another product coming in the next few months as well, definitely by end of third quarter, it would be our estimation. But in terms of like the actual like planned pitch around the product and the plan integrations, nothing yet really concrete to speak of at this time. But we just -- the whole point is we want Sezzle to be the one-stop shop for the consumer. And we'll try to figure out give and takes or customer, you give us X, we'll give you Y kind of arrangements.

We think that that's the way we kind of like to mix our value to the customer. It provide this value to the customer if they join up for X, Y or Z. So we don't have those nailed down, but we'll try to figure out some way to build it into the fold and create a compelling reason for consumers to join it. And by doing so, I think we're seeing deposit accounts or thinking deposit accounts are a great way to increase retention.

The next question comes from Huang Lin with TD Cowen.

Congratulations on the quarter. I want to ask on the revenue less transaction cost margin since you guys have been doing so well in that over the past couple of years, and it looks like it just keeps going up. If I look at 1Q this year, I think it's up like 4 points versus last year. So I mean, can you talk about -- is this -- is there something that is making your margin, I guess, structurally higher year-over-year? And maybe can you talk about some of the levers that you can continue to pull to further improve on the margin?

Yes. I'll answer some of that and pass off to Lee for more detail. But some of these things on the COGS side, they're just helped by scale. So transaction expense, as we have more scale, we get better payment processing rates. We're also, in some ways, incentivizing consumers to move over to ACH in some ways versus card processing. So that's been helping our transaction expense, but scale always helps there. Net interest expense, as we get scale, we have lower cost of financing available to us. We're also packing on cash. We're a cash-generative business. So we don't have to actually borrow as much from our line of credit, which also reduces the net interest expense. So we've had some of that benefit.

Provision, there are probably a bit of a scale benefit there as well. The more -- we find repeat customers have better loss rates. So as you scale up, we have more repeat customers generally. Of course, I always think it's like a good problem if we can scale growth of users in a big way. So that one, if we hit some of our goals, it might go the other direction if we are able to break through some finding that helps us scale users even faster. But generally, steady state, that also goes down because of our repeat user engagement. And then on the top side, I think the fact that you have subscription products as a driver, that tends to create a rolling benefit for the company on the top line. So I think that's probably why you're seeing that. But as Lee mentioned a couple of times, I just also want to reiterate for listeners that the 74% gross margin that we basically posted here in the first quarter, don't annualize it. We want to make sure investors know the fourth quarter, first quarter, there are some seasonal elements to that.

And I'll just explain it again because I think I want to make sure people understand it. The seasonal elements are mainly on the revenue side, but a little bit on the cost side with provision. As volume slows, the way we recognize costs -- that's the best way to say it. The way we recognize costs we do it through provision. So provision, we estimate right away in the quarter what the provision will be. So if you have a quarter like fourth quarter where volumes typically higher steady state because of holidays, we're taking all the costs and putting them into that fourth quarter. But the revenues or the -- what will be likely revenues are recognized on the payments, which come into the first quarter.

So you have a typically higher volume quarter, fourth quarter due to the seasonality of payments rolling in, where the revenue is recognized into the first quarter. So we get more revenue coming into the first quarter from the fourth quarter on a lower volume seasonally adjusted. We almost topped our fourth quarter volume, which speaks to the growth of the company, but we still have lower volume in the first quarter than we did the fourth quarter.

So you'll have a generally higher revenue take rate in the first quarter as well. So we want to -- that which increases your gross margin in the quarter. So we want to make sure people keep that into consideration as they're looking at what happened this quarter. I don't know, Lee, anything else to add?

Yes. I'd just emphasize that we generally talked about being a 55% to 65% area from a gross margin or revenue less transaction-related costs. And we've definitely been trending on the higher end of that, the 60% to 65%, I would say. And I think Charlie hit on it, but just to emphasize kind of the three key areas, as you know, on the transaction side or processing side, we have seen a move to more ACH, and we've been able to emphasize that. So that's obviously going to help us there.

Also interest expense, I do expect us to get -- as I mentioned in my comments, on the line of credit side, you get some improvements there as we progress through this year as we refinance our facility. So that's to come, but I expect that to happen.

And then on the provision, it's a little bit of a wildcard, but we -- that can be a big swing factor as you saw the year-over-year improvement there this quarter, which also drove that outperformance if you look on a year-over-year basis. We aren't necessarily booking in that same kind of outperformance going forward, but that's something else to be aware of.

Got it. And maybe if I can throw one more in on the bank charter, I think, I mean, one of the benefits is that it could help you guys launch more products as you guys currently cannot launch with the bank partners. So can you talk about the kind of products that your own bank charter would allow you guys to launch that you currently may not be able to do so with your bank partner?

Not necessarily. You can actually -- in today's environment with banking and service partnerships, you can pretty much launch every type of product out in the financial services world. The main reasons for the bank partnership, I would say, more defense from a regulatory perspective. We just think that it basically solidifies what we're doing. And there are some regulators out there and some states that are chopping away at the bank partnership model sadly because it's a great model, but we're well aware of it. And so getting to the ILC or to becoming a bank helps you basically push further away from that potential of that becoming an issue.

And then it does move a variable cost stream to a fixed cost stream because you basically have your fixed cost of your own bank and your staff versus the arrangement we have with WebBank currently, where it's more of a variable, a cost percentage of our volume. So over time, as our volumes grow, you move to a fixed cost structure, you're going to save. So it's more savings, more regulatory defensibility. Maybe there is some like benefit on the product side. Maybe you can launch things faster because your bank is more hyper focused on what you're doing.

So when you're talking to your regulator, you don't have 19 other partners like banking-as-a-service partners and have to talk to the regulator about all of them. You just talk to the regulator about what you're doing. So I can see it being faster potentially, but not necessarily limiting on what you can build.

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

Thank you, operator. I'd like to leave with something Charlie Munger said that stuck with me. He said, "I think you can try to make your money in this world by selling other people things that are good for them. And I think that's a fair description of what we're doing at Sezzle. We're a company that thinks about this all the time. We believe our core products are much safer and less costly than existing financial products.

We also go out of our way to find ways to help our consumers save money. We're helping our customers, and that feels good. The growth, the margins and the cash generation we walked through today are the downstream effects of getting that right. Customers who improve their financial lives come back. They refer their friends, and they graduate up the platform through Sezzle Up. That's the flywheel. And it not only spins with the alignment and it only spins with the alignment if with the consumer is real. We've got a long way to go and the environment around us is dynamic, and we're going to keep on earning our place one consumer at a time. Finally, a big thank you to the team for another quarter of disciplined execution, and thank you to our shareholders for the trust you continue to place in us. We'll talk to you next quarter. Thanks.

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

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 along with our earnings presentation on our investor website at sedar.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 continued 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 I fits within that broader evolution. We view it as a long-term strategic journey, one that reflects how far Sezzle and BNPL 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 [indiscernible], our browser extension. and price comparison tools, each designed to help consumers save money and make smarter purchasing decisions. Importantly, these features extend our value proposition beyond payments and move us closer to being an everyday financial companion for our consumers.

At the same time, we sharpened how we deploy capital and operating resources, prioritizing initiatives that drive durable engagement and repeat usage. A key area has been our investment in subscribers, a part of our monthly on-demand and subscribers group or mods, as we call it. The results speak for themselves, including the sequential growth we delivered from the third quarter to the fourth quarter. Taken together, the maturation of fintech, the evolving infrastructure backdrop and the continued improvement of our product and ecosystem create an important tailwind for Suzlon.

;And you can see that tailwind clearly in the financial and operating results we're about to walk through. With that, let's turn to the presentation, starting with Slide 3, where we'll highlight the key financial and operating metrics from the quarter and the full year. Total revenue grew 32.2% for the fourth quarter, bringing 2025 total revenue growth to 66.1%. The Net income reached a new height, hitting $42.7 million and pushing our full year net income to $133.1 million. Our return on equity for the full year 2025 exceeded 100%. Lastly, our quarterly purchase frequency increased 20% year-over-year and MOD increased by 211,000 year-over-year. I think it's clear from these numbers that we exceeded the rule of 40 and our own internal rule of 100. If you're a frequent listener, we track these both closely and love that scoreboard. For the Rule of 40, where we add revenue growth to EBITDA margin, we booked a score of 77.1% for the quarter and 17.8% for the year. And for our own rule of 100, where we add revenue growth, gross margin percentage and net income percentage, we scored a 129.4% for the quarter and a 158.1% for the year.

For our investors, we exceeded our 2025 guidance on the top and bottom line. The relentless focus on investing and enhancing the product experience for the consumer leaves us itching for new heights to achieve. We're excited to provide greater guidance for 2026. First, we're raising our 2026 adjusted EPS from $4.35 to $4.70 and introducing 2026 guidance of 25% to 30% total revenue growth and $170 million of adjusted net income. We will expand on the guidance later on, but these targets reflect our expectation that we can continue to scale the platform while maintaining a disciplined cost structure and strong unit economics.

Turning to Slide 4. 2025 marks a meaningful milestone for Sasol. It's been 10 years since the company was founded. I want to take a moment to reflect how far we've come. from our PAN 4 launch in 2017 to our turnaround and first profitable quarter in 2022 and our NASDAQ listing in 2023 and more recently, our Web Bank partnership and the launch of on-demand. Through the ups and downs, we continue to adapt and evolve. The ability to navigate and evolve is something we're proud of and something we plan to continue to do well. In our view, the moment you stop innovating is the moment you start to die, plus what fun would it be if you stopped having a growth mindset.

In 2025, we completed a 6-for-1 stock split and expanded our capital return program first by completing a $50 million share repurchase and then by authorizing an incremental $100 million share repurchase program in December. We were also recognized by several prestigious national outlets for our achievements, Time, U.S. News, Newsweek and CNBC. None of these milestones would have been possible without the sharp loyal and driven individuals here at Sezzle, many of whom have been with us since the early milestones on this time line. I want to take a moment to say thank you. The best is still ahead of us, and we are building this company with a long-term mindset. The next 10 years of Sasol may look very different from the first hand, and I think our investors, our team and our consumers are going to love what's ahead. While the time line displays our evolution through 10 years, you can see the breadth of what Sezzle has become in 2025 on Slide 5. We are no longer just a pay-in-4 product. We are evolving into an all-in-one consumer app that provides financial tools and shopping features designed to help consumers quickly find the exact products they want at the best price on the best payment terms for their budget.

We feel it's a super app in the making for a value-focused consumer. We want our target audience to have the app installed and use us daily. The investment to drive consumer engagement is proving fruitful. Monthly app sessions in December increased 51% year-over-year, and our earned Pat is driving revenue over $1 million per month. Even some of our newer developments are showing signs of start-up. Our recent testing of our receipt scanning and rewards feature far surpassed expectations, reaching an adoption rate that exceeded any other product or feature launched in Sezzle history.

But as you may know by now, we're never satisfied it as. We continue to respond to what consumers are asking for, something that you can see reflected on Slide 6. From deeper app engagement to enhancements across our long-term product road map to improving the everyday experience for our consumers, we have a lot planned for the first quarter of 2026 alone. A key example is Sezzle Mobile, which is expected to launch in the next month. We've talked for some time about building Sezzle into an everyday utility for our consumers. Moving beyond BMPL over time and increasing our impact by helping consumers save money in their day-to-day lives. Sezzle Mobile fits that strategy well because it delivers tangible value. According to J.D. Power, U.S. consumers pay $141 per month on their cellular bill. We believe we can save our consumers a lot of money on their phone plan. For Sezzle, we believe it's a strong complement to our core products, helping increase attachment, improving retention through more frequent touch points and bringing in adjacent audiences who may also benefit from our BNPL offerings.

Beyond these near-term launches, we're also advancing initiatives we believe can meaningfully expand our ecosystem. While many consumers start with Sezzle for shopping, they continue to ask for more ways to manage their financial lives. In response, work spring products like deposit accounts to support everyday money management, expanded credit offerings such as secured credit cards and additional post-purchase capabilities, including enhanced split payment experiences. On Slide 7, we provide more detail on our marketing strategy and subscriber growth trajectory. As we discussed last quarter, we pivoted our marketing emphasis back towards subscription products. That decision reflects our analysis that subscription users have meaningful higher lifetime values than on-demand users, mainly because these customers, when they choose to subscribe, are making a commitment to use Sezzle. We saw the impact of that pivot in the fourth quarter with subscribers growing 30% year-over-year and 18% sequentially. Our approach is a disciplined, targeted marketing strategy across the pathway shown on that slide, with a focus on measured returns and improving spend efficiency as we optimize ROI to drive adoption across our ecosystem.

Based on our current performance, we're still successfully getting a payback period of 6 months on these investments. and we plan to continue investing beyond the areas that are performing. The efficiency doesn't stop with our marketing team, but extends to the whole organization as we leverage AI to improve the consumer experience and scale as efficiently as possible. It has been astonishing to see how every team is utilizing AI to increase their output by multitudes. We are all aware of the SaaS [indiscernible] that has happened because of AI. We believe our model is quite defensible in an AI-enabled world for 2 reasons.

First, our business benefits from network effects. As the consumer base grows, it increases the value of our platform to merchants and partners, and that flywheel takes time to build. AI can't shortcut it. Second, our ability to expand lending over time depends on capital markets access, and disciplined time-tested underwriting and operating models, which also can't be replicated overnight by simply applying AI. The only way we get hurt by AI is if we don't enable it. And we're doing quite the opposite. We're bear hugging it. We're flying with it. We're injecting it into as many functions as we can do to multiply our efficiencies. Our battle cry is turning our team of 400 into the equivalent of a team of 4,000.

I'm continually impressed with the tooling that the AI provides us, and it seems like every month, it gets better and better. We think AI makes us stronger and accelerates our innovation and our impact. Slide 8 tells the story of how we're transitioning from being a consumer of AI to a creator of it. We've moved away from a plug-and-play approach with external vendors and instead invested in building our own proprietary engines. For example, in engineering and product, we aren't just using AI to write code. We've built an internal system that allows us to cut out expensive third-party costs and significantly increase our build velocity.

Whether it's our AI chargeback agent handling the heavy lifting of annotations for our embedded models driving personalization, we are automating the high friction areas that used to require manual oversight. It's creating a multiplier effect across the company where our existing talent can drive significantly more value as the business scales. As we prepare to launch our AI shopping assistant and support chatbot, we're positioning ourselves to handle massive increases in volume without a corresponding spike in support costs. But the ultimate proof of the strategy is the data-driven culture we've built. By giving every team, even those without technical backgrounds, the ability to reach our data through our internal database interface called CEA, we've seen a radical shift in efficiency. We aren't just working harder.

Our infrastructure is working smarter. An end goal for this efficiency is to continue improving our consumer engagement. As seen on Slides 9 and 10, the year-over-year momentum is clear across the board. As I've mentioned before, my 2 favorite metrics here are mods and purchase frequency. Seeing mods grow by 211,000 year-over-year is a testament to the health of our growth engine and reaching a purchase frequency of 6.6x per quarter shows we are successfully moving towards becoming a daily utility for our consumers. Even as we stay disciplined with our spend, the ecosystem is proving to be incredibly sticky with repeat usage now sitting at nearly 97%. Moving to Slide 10. A you can see that this growth isn't just seasonal. It's sustained. We are seeing consistent sequential improvement with active consumers and purchase frequency continuing a steady climb quarter-on-quarter. It's clear that we are successfully moving to the top of the consumer's wallet. With that, I'd like to turn the call over to Lee to review and further detail our fourth quarter and full year results. Lee?

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 desal 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 2 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 engagement across the board. Moving to Slides 13 and 14, we dive deeper into the unit economics that are powering our bottom line results. As a reminder, transaction-related costs is our non-GAAP measure that combines transaction expense, provision for credit losses and net interest expense.

For the full year 2025, we successfully optimized these variable costs with transaction-related costs falling from 44.3% of total revenue in 2024 to 37.6% in 2025. In the fourth quarter, this efficiency was even more pronounced with costs dropping to 35.7% of total revenue. This nearly 9-point year-over-year improvement is a foundational driver behind the margins we discussed on Slide 11. Slide 14 breaks out the 3 pillars in greater detail. First, transaction expense for the quarter came in at 1.6% of GMV.

Our team remains hyper-focused on payment processing optimization and we continue to see the long-term benefits of driving higher consumer adoption of lower-cost payment channels like ACH. Next, our provision for credit losses saw a sharp sequential improvement, finishing the quarter at 2% of GMV. Yes, this performance was better than we anticipated, a couple of observations. The repayment rates were better than expected.

More specifically, we experienced record repayment performance on the third and fourth payments during the fourth quarter. As many of you are aware, we also usually tighten up the underwriting during the holiday season as we don't want our consumer to overextend and thus become a former sessile user. Just before the quarter, we tightened the underwriting model, which had a pronounced impact on our loss rates. We want to lead you with this takeaway on the provision. While we're always tweaking and challenging ourselves regarding the credit box, we maintain a 55% to 65% gross margin target in our sites. This surgical approach is exactly what we mean when we talk about growing the business judiciously.

Finally, net interest expense remained at a low of 0.3% of GMV. As we scale, our cost of capital continues to improve, the recent expansion of our existing credit facility and $225 million gives us the breathing room to continue exploring funding pathways for the future. Taken together, Slides 13 and 14 demonstrate that we aren't just growing volume, we are maintaining the strong profitability of every dollar that flows through the Sezzle ecosystem.

Slide 15 serves as the proof of concept for the durability of our business model. The plot illustrates a very compelling narrative. Over the last 12 months, we have managed to driving $1.4 billion increase in GMV while achieving a 6.7 point margin expansion on our transaction economics. What is most important to note is that we secured this growth and margin expansion while keeping our provision for credit losses stable.

The secret to this stability is our short product duration we're different from traditional credit products that create the doom and gloom of news headlines on consumer credit. Our 42-day duration creates a high-velocity feedback loop with repayment trends for each vintage becoming evident in as little as 14 days.

This agility allows us to execute with precision. We can pivot our underwriting strategy in real time to respond to macroeconomic shifts a level of responsiveness that traditional long-term lenders simply cannot match. Slide 16 brings the full picture together by highlighting our total revenue less transaction-related costs. This metric effectively represents our gross margin and is the combined result of the take rate from Slide 12 and the transaction economics we broke down on Slides 13 and 14.

For the full year 2025, our gross margin reached $281 million, representing 62.4% of total revenue, the trend was even more pronounced in the fourth quarter with our margin hitting 64.3%, a 9 percentage point jump compared to fourth quarter 2024. As we have noted in previous quarters, these strong margins provide us with incredible room to maneuver.

They give us the financial flexibility to aggressively fund our strategic initiatives while consistently delivering the industry-leading profitability our shareholders expect. Slide 17 perfectly illustrates our commitment to operating leverage. For the full year 2025, we continue to scale with nontransaction-related operating expenses falling to 26.3% of total revenue, a 410 basis point improvement over the 30.4% we reported in 2024. For the fourth quarter, these expenses set at just 24.6% of total revenue, reflecting our expectations for further opportunity to scale. This validates that our core infrastructure is acting as a true force multiplier for the organization. Within the fourth quarter, we did absorb $1.3 million in expenses related to our corporate strategic projects.

I know we elaborated on these last quarter but to reiterate, we've broken these out because they are not part of our core activities, but they are critical for our long-term trajectory. These include the following: First, our capital markets exploration, which we completed in the fourth quarter. While this exercise did result in an outcome we can report at this time, it did help us understand the most optimal financing route to fund our growth in a cost-efficient manner. The second project being our antitrust, which is a project we can't discuss as the suit is currently ongoing.

Lastly, our banking charter discovery. As Charlie touched on earlier, we're seeing positive signs that the environment is shifting and are encouraged by the recent regulatory momentum. We are currently in the discovery phase supported by external consultants and attorneys and anticipate submitting an application here in the first half of 2026. While this is a long and nonguaranteed process, reviewed it as a key component of our future growth and efficiency. Even with these strategic investments, our ability to maintain strict cost discipline while hitting record profitability is a significant win. Combining the record gross margins we achieved this year with the rigorous cost discipline shown on Slide 17 reveals the true earnings power of Sezzle's model, while growing our revenue and margin dollars at a much faster rate than our overhead, we are successfully converting top line momentum into significant bottom line results.

This operational leverage flows directly into the bottom line results on Slide 18. GAAP net income for the fourth quarter reached $42.7 million representing a 32.9% profit margin. On an adjusted basis, we achieved $42.8 million for the quarter and $128 million for the year. Meanwhile, Slide 19 shows our adjusted EBITDA. [indiscernible] $58.3 million in the fourth quarter, reaching a margin of 44.9%. For the full year, adjusted EBITDA rose to $187.7 million, demonstrating the incredible scale of the Sezzle model. Turning to our balance sheet on Slide 20. Our liquidity position remains strong.

We ended the year with total cash of $102.6 million. which includes $38.5 million of restricted cash, primarily representing the reserves required under our partnership with WebBank. The growth in our total notes receivable to $254.9 million is a direct reflection of the GMV volume we processed this quarter.

To support this expansion, we increased the draw on our line of credit to $141.3 million, but it's important to note that our recent facility expansion is $225 million has significantly increased our unused capacity to $73.5 million as of year-end. On the capital allocation front, we continue to prioritize shareholder value. Following the completion of our $50 million repurchase program, the Board authorized a new $100 million program in December. This reflects our confidence in our cash generating power, evidenced by net cash provided for operations reaching $209.9 million for the year. One housekeeping item to note, Beginning this period, reclassified notes receivable related cash flows from operating activities to investing activities and our consolidated statement of cash flows and recast prior periods to conform with this presentation.

You can see this reconciliation at the bottom of Slide 20 for the periods presented. Note, this change had no impact on total cash, the net change in cash for the period or overall liquidity. The quarterly impact of the restated cash flow presentation will be included in tomorrow's Form 10-K filing. Slide 21 is a look back at how we performed against the updated guidance we provided in November. I'm happy to report that we consistently exceeded expectations. Finally, turning to Slide 22. We are providing greater detail for the year ahead. Based on the health of our ecosystem and the operational leverage we've proven out this year, we are guiding to total revenue growth of 25% to 30% for 2026.

This shift from the 66.1% growth we achieved in 2025 reflects a transition to a normalized organic trajectory following a year of unique tailwinds. Our 2025 results were bolstered by the full year impact of our mid-2024 credit risk expansion and the national unification of our product structure through the Web Bank partnership. Additionally, we are targeting adjusted net income of $170 million, which translates to an adjusted EPS of $4.70, a 30.9% increase over our 2025 results. Please note that this guidance does not bake in any projections for new products currently in development. Rather, it reflects our confidence in the sustained momentum of our core business and our commitment to growth while maintaining the cost discipline that has become our hallmark.

Thank you, and I will now turn it over to the operator for Q&A.

[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 [indiscernible] 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 really a lot of it mimics what we saw from the CFPB in terms of their guidance on how BMPL companies should be operating. But a few tweaks here and there, some slight differences that I don't -- in the end, I think even natural 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 wanting to have us 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 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 for 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?

Yes. Mike, yes, from -- 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 are going to 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 new model, we'd like 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 that check out the marketing dollars? Just talk a little bit about that.

It's really -- 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 in art and science, and some of our gut instinct at the start of last year was we thought that on demand would be a great onboarding tool like 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 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 substrate. We'd love to see you subscribe to anywhere premium. And that created all the different.

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

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.

Can you give us any clarity on how the quarterly cadence could look for revenue and earnings?

What do you mean by that, Rayna?

Just like you gave out 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.

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 was kind of liking 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 holiday pre but our payments come into the first quarter.

And so that tends to happen as 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 standard quarters. And then fourth quarter, a little bit of the inverse because our consumers who 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 1 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 a level of saturation that these anywhere customers, they're kind of reaching the saturation point of 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.

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

Yes, good question, Hal. So I think 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 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 put a preferred to try to get some more consumers through the pipeline and it 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 had 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 was 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 the -- is on the banking charter discovery. Why isn't WebBank enough? And doesn't WebBank pricing protect you from any rules like New York changes and BNPL.

Yes. So on the second question first, 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 of the service partnership model. They -- for whatever reason, new fintechs, new products right or wrong, and I think in our case, wrong, just kind of drive draws the eye of politicians like they just want to, I guess, claim victory 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 is that 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, maybe Lee, can you give any comments on that?

Yes. No. Yes, if you think about our operational expenses, the 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 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. 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 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 I have a follow up.

Sure. I actually be a little bit of a step-up on 2025. So 2024, we had a $2.2 billion for the year, 2025, $2.3 billion for the year and then now the guidance of $2.5 billion to $3 billion.

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 60% to 65% gross margin. So 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 new economics. It actually expands the 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 Needam & Company.

I wanted to start as kind of a follow-up on credit. Obviously, really good to see in the lower costs there and particularly 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 potentially ramp up something like a Pay-in-5. 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 1 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 will be a big part of it. And we love Pay-in-5 and our consumers in because I would say, our consumers are showing us that they love Pay-in-5, which for us, when we see that, it increases the traction rates, it increases retention rates. And we've designed our business in a way that even though we have some payoffs where maybe a provision might be slightly higher from Pay-in-4, Pay-in-5. We've also designed the system, so the unit economics kind of gets 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 looks like you guys bought about [indiscernible] 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 weighting of the buybacks. Lee, do you have any thoughts on that? .

Yes. So we finished our $50 million buyback in December and we announced the 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 10b5 right now, right, during our blackout period. And so I'll jump a little bit ahead of this, and Charlie can 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 and 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 at Tesla. We're not building factories. It's -- if we want to launch a new product, 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. So 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 low of like here, we've got these 20 partnerships available, let's do them or like the top 5, it's -- 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 those types of opportunities come about.

And then M&A, if you ever -- I mean, our history of our company, we've never done M&A. We've always typically have been a buy versus build versus buy shop. We're not against it. But in the past, we've always seen -- I mean maybe this is changing a little bit now. In the past, there was always just in mining an absurd valuations based on unit economics and financial metrics that just never seemed 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, I assume M&A could be there. I just want to make 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 anytime near time, but it's something that's in the cards if that 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 1 in the executive team, no 1 on the Board but any performance costs tied to share price. -- we don't use buybacks in that sort of way. Like 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 want to know more about the mobile plant and how that came about who your care your partner is? And is that -- even though it's been announced, does 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 -- so do you have any goals for this? Do you have any thoughts on the pacing cadence uptake in this, if you could share with us?

Yes. I mean really good question. So the reason we're looking at Sezzle Mobile are the reason we're launching a student 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 $14 a month. I mean I know my bill is over a couple of hundred, but not totally normal. But the average is $140 a month. I mean, if you can get a plan down to $30 million as an anywhere 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 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 surveyed 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 can start putting land in pages out there, not that we necessarily want to start competing with MintMobile, but we can 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 customers are 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 Dale you again 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 it closes out, Warren Buffett Once noted. The big question is whether you were going to be a person who measures your life by an interscore card or an outer scorecard. I know everyone on this call cares about the stock price. We track it to. But I think the real key of our success is at [indiscernible] 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 on how much utility we provide, whether he set anywhere or our credibility 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 on 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.

Good day, and welcome to the Sezzle Inc. Third 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, Executive Chairman and CEO. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Sezzle's Third Quarter Earnings Call. I'm Charlie Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our Chief Financial Officer, Karen Hartje; and our Head of Corporate Development and IR, Lee Brading.

In conjunction with this 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 of our website.

Please be advised of the cautionary note and forward-looking statements and reconciliation of GAAP to non-GAAP measures included in the presentation, which also covers our statements on today's call.

If you're a long-term investor of Sezzle, you're already well aware of how good this team is at navigating and adapting our business model and our product solutions. I continue to be impressed by our team and our ability to adjust and adapt. We're always looking for ways to create win-wins with our stakeholders and also balance profitability, growth and customer satisfaction. 2025 has been more of the same on that front. We've been testing our launches of on-demand and our shopping solutions and making incremental improvements and adjustments along the way with a strong weighting towards making our customers' lives better while also continuing to grow with strong profitability metrics.

We still believe that BNPL is in its early days and that we are likely to have years upon years of industry growth ahead of us. And we also believe that we're bringing to market a product that is fundamentally a better and more user-friendly credit product than a credit card. Our company and our BNPL industry in general, is 100% aligned with responsible repayment of short duration loans that really lean into the concept of budgeting versus outspending your income, like a credit card product can tend to do.

Our company and our products are winning and our industry is winning, too. If you take a look at Slide 3, you'll understand a bit of the excitement. We just posted revenue growth of 67% year-on-year in Q3. Our net income margin for the quarter was over 22%. Our return on equity for the last 12 months exceeded 100%, and our consumer metric measured by MODS rose almost 50% year-on-year. Further, we are raising our EPS and EBITDA guidance for 2025 and have received awards from some of the most respected media outlets, Time, U.S. News, Newsweek and CNBC. What's our secret sauce? I believe it's our constant drive. We are never satisfied and are always pushing forward. Do we have a chip on our shoulder? Yes, maybe a little bit.

Slide 4 provides some insight into our restless energy. The consumer is always wanting more, and we aim to fulfill their needs. We have launched several features in our app, most recently the Earn tab, which allows consumers to earn Sezzle spend. Consumers can find and activate offers for things like gas, groceries and dining. We have a variety of ways for them to engage and win such as Sezzle Arcade and our educational tool, MoneyIQ. Last quarter, our Earn tab had over 13 million visits, and we just launched it at the end of Q2. I'm crazy proud of our team and how they continue to find new and innovative ways to provide value to the consumer.

We continue to evaluate and push forward on additional products. Many of these are being run in parallel, and you've heard me discuss them before. Launch dates are still TBD, but they are all being worked on in various degrees. In June, we brought back one of our former heads of technology, Killian Bracky, to centralize our AI efforts. It's exciting to see the progress they are making across Sezzle. We called out a couple of example projects that the team is working on, a support chatbot and an AI shopping assistant. Both are great examples of how we're able to pull AI into our Sezzle ecosystem. The chatbot is already making a difference for our customer support team, saving them a significant amount of time, enabling our team to become more efficient.

Let me take a step back and tell you a bit about our approach to AI. We aren't looking for ways to use AI to cut our team. Why would we? We have incredible growth and cutting people is not something we need to do other than for performance. We view AI as a tool to enhance our team's productivity, allowing us to further leverage our infrastructure and scale the company faster with more efficient product launches and expansions. So in the case of customer service, it's likely that we'll scale incredibly well here over the next couple of years as the AI tooling continues to evolve and expand its ability to serve end customers. But the way we operate, you'll likely to see that the support team size doesn't grow and may even shrink over the next few years as our efficiency with technology replaces the need to backfill members of the team.

Our existing members will take on more complex cases and help train the AI systems in place to do more and more. Our marketing efforts are focused on the consumer with the primary goal of acquiring new users, but also reducing churn. The combination of new feature launches and our marketing efforts are reflected in our strong engagement metrics.

On Slide 5, you can see the step-up in our quarterly marketing and advertising spend. While we love all consumers that use Sezzle, the ones with the greatest lifetime values are those that engage Sezzle as either an on-demand user or as a subscriber. As most of you are aware, we created the definition of Monthly On-demand & Subscribers also called MODS in the fourth quarter of 2024 when we launched Sezzle On-Demand. We anticipated on-demand would allow us to reach more consumers that might be averse to joining a monthly subscription product. However, we also expected it to cannibalize our subscription product. We just didn't know to what extent.

Initially, we put most of our marketing dollars towards on-demand because there's less friction to join relative to subscription. And you can see from the results that we quickly grew that product to 264,000 monthly users at the end of the second quarter. However, you can also see that our subscriber count shrank from 529,000 users at the end of the third quarter 2024 to 484,000 users at the end of the second quarter 2025. By the end of the second quarter, we had enough information to evaluate the effectiveness of on-demand. The engagement on the front end was good, but the follow-through on conversion was not as good as we would like.

What do I mean by follow-through on conversion? When we launched on-demand, there were 3 key tenets: number one, drive enterprise opportunities; number two, increase conversion activity at the point of sale; and number three, convert a customer over to subscription eventually. On-demand has clearly positioned us to be more aggressive with enterprise merchants, and I'm happy to note a few wins on Slide 5 as a result. However, it didn't deliver like we hoped on conversions at the point of sale or over to subscription.

Further, the profit profile for on-demand is less than our premium and anywhere subscription products. We still believe on-demand is a great tool, and it's a great tool to have in our tool belt, but we have adjusted how we go to market with it. We're going to continue to lean into it for winning over merchants. But on the consumer side, we're going to lean back into subscription with on-demand only being used as an alternative tool when its parent subscription can't do the job or is meeting some resistance with an individual consumer.

As you can see from the results, we pivoted our marketing and advertising spend towards subscription products in Q3 with subscribers rising to 568,000 at the end of the third quarter. We remain disciplined in our costs with a payback on marketing for consumer acquisition at 6 months or less. Across the board, our engagement metrics on Slide 6 reflect the strong momentum we have in our business. Terrific year-on-year and quarter-on-quarter performance. My 2 favorite metrics on this slide are MODS and purchase frequency. MODS is a good indicator of consumer activity within Sezzle over the last 30 days and seeing such strong growth in our highest LTV products is fantastic. While the rise in purchase frequency suggests we are moving to the top of the consumers' wallets. You can see the same sequential dynamics on Slide 7.

Before turning the call over to Karen, I would like to give more details on our corporate strategic project costs that were called out in our earnings release and later in the presentation. During the quarter, these items added up to about $1.3 million in costs. While these costs are relatively minor, they potentially have some pretty big outcomes. We decided to break these out because they aren't part of our core activities. While they aren't material, we wanted to make investors aware of them. First, our antitrust suit. For obvious reasons, we can't discuss the case. But if you'd like to learn more, you can go to our investor site where we have posted the suit there. We will find out in December if the case will continue forward as the defendant has petitioned the court to dismiss the case.

Second is our capital markets exploration. We have talked in the past about our desire to refinance the credit facility given the size of only $150 million and price of SOFR plus 675 bps. We have decided to exercise the $75 million accordion with our current lenders as we head into the holidays, and this will give us more time to evaluate our options. You will see in our 10-Q that will be filed tomorrow morning, the amendment to our current facility, which increases the size of the facility from $150 million to $225 million.

Lastly, our banking charter discovery process. We have hired consultants and attorneys to assist us. Yes, we have an ILC bank partner in WebBank and they are fantastic. We believe that holding an ILC, which is an acronym for industrial loan company is the right long-term path for us as it doesn't subject us to becoming a bank holding company, which has all sorts of implications about capital, capital allocations, et cetera. We believe it will be accretive and add greater efficiency to our business. This is a long process and not a guarantee process. If we apply, we anticipate submitting an application in the first half of 2026. If we don't get it, it doesn't change what we're doing, and it would not affect the outlook we have.

With that, I'd like to turn the call over to Karen to review in further detail our Q3 results. But before I turn it over to Karen, I wanted to let investors know that Karen is retiring and that we're going to miss her dearly. Karen and Amin Sabzivand, our Chief Operating Officer, both joined the company on the same day, and I always say that day was one of the best days Sezzle has ever had. We're going to miss her infectious positivity and her total perfection in completing every task given to her and her team. But I also wanted to tell her how much I've appreciated her support and help along the way. We're definitely going to miss you, Karen. The plan is for Karen to stick around with us for the next 12 months as we transition. And we really feel great about that plan, and I'm also really happy Karen gets to step away in such a great way.

Karen, take it away.

Thank you, Charlie, and good evening to all those joining us. The enhancement of our product experience and deeper consumer engagement drove remarkable results for the quarter, as seen on Slide 8. Total revenue continues to grow at an exceptional pace, increasing 67% year-over-year to $116.8 million. Our profitability followed a similar growth trend with GAAP net income and adjusted net income growing over 50% to $26.7 million and $25.4 million, respectively. Our margins held steady year-over-year with an adjusted EBITDA margin of 33.9% and total revenue less transaction-related costs of 54.2%. Most importantly, alongside our growth is our ability to scale efficiently, evidenced by our non-transaction-related operating expenses decreasing 2.9 percentage points year-over-year to 27.1%.

Now turning to Slide 9, which highlights our top line growth. GMV increased 58.7% year-over-year, making our first $1 billion quarter. As Charlie discussed earlier on Slides 6 and 7, growth in active consumers and higher transaction frequency drove this milestone. Our take rate, defined as total revenue as a percentage of GMV rose 60 basis points, both sequentially and year-over-year to 11.2%. The focus on high LTV products that Charlie outlined on Slide 5 is a key driver of take rate strength, and we believe that focus positions us well to sustain this rate going forward.

On Slide 10, we note our transaction-related costs with detailed components outlined on Slide 11. Overall, transaction-related costs as a percentage of total revenue and GMV increased year-over-year due to our strategic decision to expand our underwriting aperture and drive top line growth. Specifically, third quarter provision for credit losses as a percentage of GMV increased 70 basis points year-over-year to 3.1% and is trending toward the lower half of our stated 2025 provision target likely between 2.5% and 2.75%. Despite the slightly higher transaction-related costs, total revenue less transaction-related costs, as seen on Slide 12, continues to grow robustly, increasing 64.5% year-over-year to $63.3 million and representing 54.2% of total revenue.

I know we touched on this during our prior 2 earnings calls of 2025, but we think it's important to continue emphasizing that the expansion of our underwriting isn't without carefully balancing the profitability of the growth we're experiencing. Recent headlines on a few lending companies have also called into question the sustainability of certain sectors of the consumer credit market, but we haven't seen any deterioration as consumer activity continues to perform in line with our expectations, but that is not the nature of our product or our business model as we outlined on Slide 13.

Not only do our strong gross margins provide us with great flexibility and room to maneuver, but the short duration of our lending product allows us to pivot quickly and adjust our strategy upon seeing any early sign of deterioration in our portfolio performance.

On Slide 14, you'll see that despite the incremental costs we've incurred in long-term corporate strategic projects that Charlie previously covered, we continue to maintain cost discipline and leverage our fixed cost structure. Non-transaction-related costs increased 50.9% year-over-year to $31.6 million, but decreased 290 basis points as a percentage of total revenue. In the third quarter, we incurred $1.3 million in costs related to these projects with the largest being the exploration of potential financing avenues, an effort that will continue in a more streamlined manner in fourth quarter. The remaining expenses that make up the core of this bucket, personnel, third-party technology, marketing and G&A increased sequentially, largely driven by the timing of equity and incentive compensation and our personnel costs.

Bringing the full picture together on Slides 15 and 16, GAAP net income grew 72.7% year-over-year to $26.7 million and adjusted net income increased 52.6% year-over-year to $25.4 million. GAAP profit margin expanded 70 basis points year-over-year to 22.8%, while our adjusted profit margin decreased 2 percentage points to 21.8%. Despite this decrease, our margin still remains above our internal goal of operating the business to an adjusted profit margin of at least 20%. Lastly, adjusted EBITDA grew nearly 74.6% year-over-year to $39.6 million, representing a 33.9% adjusted EBITDA margin.

Turning to our balance sheet on Slide 17. Total cash grew $14.7 million in the quarter to $134.7 million, even with paying down our line of credit by $13.3 million. Cash flow from operations for the quarter was $33.1 million, bringing year-to-date cash flow from operations to $55.6 million. These results demonstrate the strength of our balance sheet and our ability to self-fund growth while maintaining flexibility in our capital structure.

Finally, turning to our outlook on Slide 18. We're reaffirming our guidance for top line growth and adjusted net income with modest adjustments to our GAAP net income to reflect the impact of our year-to-date discrete tax benefit to our EPS to reflect adjustments related to our estimated diluted share count and to adjusted EBITDA. The discrete tax benefit raises our GAAP net income guidance to $125 million, while the updated diluted share count increases our GAAP EPS to $3.52 and adjusted EPS to $3.38. As for our adjusted EBITDA, we're raising our range from $170 million to $175 million to $175 million to $180 million.

Lastly, we are also providing adjusted EPS guidance for 2026 of $4.35, reflecting 29% growth over our 2025 adjusted EPS. While this guidance does not reflect any of the future potential products outlined at the beginning of our presentation, we wanted to give investors a view into the strong fundamentals of our business and our confidence in sustained growth moving forward. Thank you.

I will now turn it over to the operator for Q&A.

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

Maybe the first one for Charlie. Charlie, can you talk a little bit about when you deemphasized on-demand in Q3? And how you think that's going to affect sort of growth going forward, if at all?

Yes, it was probably right around the middle of the quarter. At that point, we felt like we had enough data based on what we had been seeing on conversion at point of sale, conversion into subscription. And the bridge just wasn't as strong as we were originally envisioning, I guess, is the main point. Conversions, I think, were slightly better into on-demand at point of sale than they are into subscription, but just not enough to make the payout worthwhile. And so when we started to analyze the lifetime values of the customers, the conversion rates, we really started to realize that on-demand is probably just a better tool around the fringes and at least in the direct-to-consumer portion of our business.

It's still part of the mix, but it's really the tool that we're going to lean into more on the merchant side to win over more enterprise merchants that are sensitive to margin pressures, et cetera. And then on the consumer side, we really just want to lean back into subscription and maybe use on-demand as a fallback if some consumers are resistant to subscription or whatever it might be. And then in terms of your second part of your question, Mike?

Yes. Just how do you see that maybe affecting growth? And as a follow-up to that, is your customer who maybe was going to pick an on-demand product, can you direct them into subscriptions? How does that work? How will you be successful there?

Yes. We basically pick and choose what we want to present to each individual consumer. And then in terms of growth, I think GMV growth is lower if you go to the subscription route. But if you think about pushing more into stronger lifetime values, maybe not upcoming -- it's hard to say about the next quarter, but the next quarters, we should see better growth on revenue and income. That's the main point of that decision is because the lifetime value differences multiplied by the conversion differences tell us the better story is to go into subscription.

Got it. Then maybe just one more. Can you talk a little bit about take rate trends? And then the 3.1% credit losses was maybe a little bit higher by deemphasizing on demand, will that naturally drop a little bit more?

Well, the take rate trends, I think we really shoot for like the 60% gross margin that we talked about in the past. And so when we think about the take rate, it's take rate minus our COGS getting us to 60%. And that's also how we sort of do the planning around our PLR plans for the year. And so the 3.1% PLR for the third quarter, basically right in line with what we're expecting. If some of the people on the call remember, people have followed us for a while, back in May, we talked about rest of the year, think about a 2.5% to 3% PLR for the entire year. And we already posted some lower PLRs lower than that range, which means, of course, we expect some of the third quarter, fourth quarter to be above that range because then you blend out to within the range.

We did just update the guidance to tighten it a bit, so investors would know that we're looking -- it looks like it's being more in the bottom end of the range, the 2.5% to 2.75% for the overall year. So the 3.1%, I'd say, basically fits right into what we were expecting. And then on-demand, you do bring in more because the conversion is slightly better into on-demand, and I say slightly, but it does mean you bring in more new consumers into those products. And then more new consumers tends to lead to a higher PLR, less new consumers leads to generally a lower PLR because new consumers have higher PLRs in general. So I'd say that would be the only thing to call out there, Mike.

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

Charlie, great detail. I just wanted to ask a big picture strategy on what you're seeing, what your thoughts are on BNPL broadly in the United States. I mean PayPal talked about it quite a bit and -- on the last call more than ever. And I was struck to see how actually small it is, how fast growing it is for all the different players in the space. And they called out as a replacement for -- they're seen as a major trend in the replacement of credit cards. It's more user-friendly. Could you tell us how big you think the market is for pure-play BNPL is right now in the United States? How fast do you think it's growing and why you think it has many, many years to go?

Yes. I don't have an exact number for you, Hal, but I just go by -- I think the trend is going to be here for years upon years. If you look at credit cards, they were launched in the 1950s and how long does that trend last? People are writing the credit card trend for some time. I'm not going to say that we're going to have a 75-year BNPL trend. But I think that it's pretty obvious that a lot of consumers out there prefer to use BNPL over a credit card. And in some places, it also takes a little bit away from debit card. It doesn't really take away from debit card, I guess, in the end because people are paying us back with debit in the vast majority of cases, but it replaces like the full purchase of a debit card user as well.

But what I think -- I think customers aren't stupid. They look at the total cost of ownership of a product. And I think they also look at BNPL as a safer product for them. I almost feel like some of these customers view us as like -- they really do view us as a budgeting tool, but almost like we're their nanny, like watching over them, not allowing them to overspend where credit cards allow people to overspend. No one in a credit card company would ever say it probably, but that's the win when someone overspend because now you've got a revolver. For us, when people overspend a lot, we're worried. We're worried that we allowed them to overextend and now they're not going to be able to catch up, we might lose the customer.

So we're always trying to allocate spend to the customer in a way that is in total alignment with responsible spending. And then I think that overall lowers the cost of ownership of that credit product for the customer. It also dramatically reduces the risk of a bank personal bankruptcy, which is how do you even put a price on that. So I think a lot of the customers are probably shying away over time from migrating into a credit card because they just feel a lot safer and more comfortable with our credit product.

Can I ask one follow-up? Toward the end of your press release on initiatives update, you talked about some of the products you've been building for shoppers to increase engagement and monthly active users grew 38% year-over-year, revenue-generating users rose 120% year-over-year and monthly sessions climbed 78% year-over-year. I think it's the new KPIs. I mean, what you could comment on that? And what -- tell us what you built and why it's contributing to some of those growth figures that you demonstrated in the press release?

Yes. So we talked about the shopping as being a big initiative for us for 2025 and 2026. It will be probably a 2-year initiative to keep on rolling out these shopping features and these initiatives. I said the earn tab is kind of in that mix, although maybe not directly a shopping feature. What we're trying to do is trying to keep -- drive and create value for our customers. I think middle of America, mid- to low income, younger consumers, maybe new families. We want to drive value through giving them couponing, giving them discounting, price comparison, the ability to earn almost like gig economy type earnings. Not massive type job numbers, but on the fringe helps. And what we're -- the reason -- what we're seeing from doing all of that, which you pointed out, Hal, is we're seeing increased activity in the apps. And our view is that's just a big win.

So we're monitoring those KPIs closely because the viewpoint is if you get the customer coming back in the app and returning and returning and returning over and over again, you're also going to increase retention and also give yourself a chance to introduce that customer to a subscription product. At some point, maybe they're here in early November, they're not interested. They open the app back up later in November. Okay, let me sign up for anywhere and now they're in. And that's really done by creating value, adding value, presenting that value in the app and getting that customer to keep on coming back.

The next question comes from Rayna Kumar with Oppenheimer.

It was really helpful to get the preliminary '26 EPS guidance. Could you just talk about some of the underlying drivers of that target, maybe revenue growth, GMV growth and your expectations for provisioning?

Yes. We don't have the callouts for the underlying numbers on it. But I'll tell you the overall theme is we do believe that we're going to continue to see continued growth in our subscription and our MODS, but probably leaning more towards subscription into 2026. We're going to be cost conscious as always. And if people have followed us for some time, you know that we really think quite a bit about growing gross margin dollars at a much faster pace than growing our operational expenses. So that's a part of that.

The guidance we gave for the entire year 2025, the 2.5% to 3%, we're basically kind of thinking in the same ballpark there. Like we like that ballpark because of our top line. The top line numbers that were our take rate kind of really sits along the lines of maintaining the PLR kind of thoughts that we've had from 2025. And then if there's any maybe conservatism in there at all, it's just the economy. We're not seeing anything with our consumer, but we're watching it closely. Obviously, we have the government shutdown. I don't think it's going to continue into 2026. But I think if there's a bit of conservatism, it's based on the economy and what might happen.

Understood. And then just as a follow-up, can you comment on just what you're seeing out there in terms of competition? Are you seeing any changes in pricing or strategy from your competitors?

Not really. I haven't noticed anything major. I think we saw Klarna launch a subscription product as well, but it's like a much higher dollar subscription product. So that was like one of the companies kind of leaning our direction in terms of product offerings. But other than that, it seems like more of the same.

The next question comes from Hoang Nguyen with TD Cowen.

Maybe a quick one for Charlie. So since you are pivoting back to subscriptions now, maybe can you talk about maybe the difference this time in terms of marketing posture versus, I guess, the last time before you launched on-demand? How is this time different from the last? And I think last time, I think you were tracking a net adds on subscription, maybe you made 60,000 to 70,000 a quarter. I mean, should we expect you guys to get back to that level going forward? And maybe in terms of pricing, I noticed that you recently took pricing actions on new subscribers. So I mean, can you talk a little bit about that as a lever in terms of top line going forward?

Yes. I'll probably avoid the guidance on how many adds to subscription quarter-by-quarter, but we did increase pricing on both the subscription products just by $1 or $2 per month, really viewed as just an inflationary type increase. If you launch the products 3 years ago or so and there's been some inflation in the United States. So that's the main reason for those changes. And then I guess the start of your question, can you repeat it again, just to make sure I got it nailed.

In terms of marketing for the subscription.

Marketing.

Yes. Is it different this time versus last time, maybe a year ago before you launched on-demand?

Yes. To give investors a view of like how we market the product. So when we are leaning into on-demand, it is a more seamless like first step into a purchase because basically, let's say, you want to check out at Lowe's or somewhere -- one of the apps or one of the merchants in our app or you're shopping out there. We would not bring up a subscription in most cases, like the option to sign up for a subscription right away to the consumer. We would basically just bring up a purchase request like in the lending lingo, TILA , Truth in Lending Approval or purchase request is what we call it internally. We bring up a purchase request, which it would show the on-demand fee. The customer would just accept it, they get the on-demand fee and then they make the purchase.

Now basically the difference in the marketing. And then the landing page, a lot of the landing pages, a lot of things we're doing towards advertising. It's all about bringing that funnel. But once they get into the funnel into the app, that's what the customer would see is basically they go right into a purchase request. Now what the most customers are seeing is if you want to go and use our product at point of sale or if you want to shop at one of the many merchants in our app, what we're bringing up now is the option to join our subscription. And so that's basically the biggest difference.

So marketing-wise, it's just the funnel is driving them into a different choice. And like I mentioned, there is a slighter decrease in conversion into subscription. But based on what we've seen from conversion at point of sale into subscription and then conversion from on-demand users into subscription, we viewed it as a much better decision from a lifetime value standpoint to just go straight to offering subscription to many of these customers.

Got it. And I didn't see the chart on approval rates on the presentation this quarter. Maybe can you talk a little bit about that, whether you have -- there has been any change in terms of your underwriting this quarter?

No. I mean, we've always been -- we are launching new models. So we did launch new models this quarter. And those -- the point of those models, what we like to do is we like to keep approval rates at the same level and reduce PLR. That's usually what our goals are with our new models. So I think approval rates are probably around the same levels as we've presented in the past. But with the new models in place, we believe we should have lower PLRs for those new customers coming in.

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

Thank you. And as people know, I like to usually give a Buffett or a Munger quote or story, but I've got one here from Buffett. It starts when he was just 10 years old. He scraped together $114.75, all the money he had and he bought 3 shares of Citi's Surface preferred at $38 a share. At first, the stock dropped to $27. And like a nervous young investor, he starts sweating. Then it crawls back up to $40, so he sells. He's relieved, he even makes a few bucks. But here's the kicker. A little later, that same stock shoots up past $200. Buffett said, if I just held on, I would have made a lot more money. That he says was his first real lesson in patience.

Here's another data point from the Buffett -- from Buffett that also speaks to the power of patience. I think this crazy stat speaks for itself. Over 99% of Buffett's wealth came after his 50th birthday. That's the quiet miracle of compounding. It's not flashy, it's not fast, but it's relentless if you let it do the work. Buffett always says, my life has been a product of compound interest. And also, the stock market is a device for transferring money from the inpatient to the patient. So the real trick, start early, stay patient and let time, not emotion do the heavy lifting. Because in the end, wealth doesn't come from timing the market. It comes from time in the market. That's the $114 lesson.

I'd like to thank everyone for joining the call today and also thank the Sezzle team for continuing to create wins for our consumers and for our investors. Thank you all. Have a good night.

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