SEZL Q3 2026 earnings call transcript, November 4, 2026

And this quarter, we're starting to get some more answers. SEZL cash. 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 SEZL 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. 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. 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 three.

Total transaction volume, which expands our traditional GMB measure to include SEZL cash and SEZL 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. 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 7.8 times, compared to 6.5 times a year ago. Importantly, that now includes not only purchases, but also SEZL cash advances and SEZL send payments. That's an important distinction because we're giving consumers more reasons to use SEZL 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 four, 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 puts us within reach of 1 million. One thing I want to call out is our 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 six-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 that. 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 nine more transactions per quarter than non-subscribers. And importantly, that now includes not just traditional purchases, but also SEZL cash advances and SEZL send payments.

So we're getting a more complete picture of how consumers are engaging with SEZL 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 SEZL more often. And we're continuing to add to that value proposition. More recently, we introduced Subscription Saver, which helps Anywhere Subscribers identify managing... ...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 SEZL more useful in their... our 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 five, it's not just one big product launch. It's a series of additions that we are... making to make SEZL more useful for our consumers. We started the year with Pay in Five, added the virtual card offering in Canada, expanded our long-term lending capabilities, and introduced SEZL Mobile. Then we launched SEZL Cash, giving eligible anywhere consumers access to funds for short-term cash needs.

Without having to make a purchase. And we also introduced SEZL Send, which remained in beta throughout the third quarter before we opened it up more broadly to SEZL 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 SEZL and more reasons to keep coming back. We also did an updated study earlier this year on SEZL UP, our pro bono credit builder. It turns out that for our on-time subprime customers, they are lifting their credit score on average of 17 points. in four months. That's an amazing result for a group of consumers that can benefit greatly from a credit score list 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 standalone revenue driver. Look at SEZL 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 SEZL 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 SEZL 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 SEZL Cash, we're starting to see some encouraging... results that I think are worth spending a little more time on. We rolled out SEZL Cash 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, SEZL Cash 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 SEZL Cash. That's a meaningful number. We're seeing consumers sign up for SEZL Anywhere, a product that has historically been centered around shopping, and their first transaction isn't a purchase, it's a cash advance. That suggests SEZL Cash may be attracting consumers who wouldn't have necessarily considered an Anywhere subscription for BMPL 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 SEZL Cash also went on to make

a BMPL purchase. And when we look at all SEZL Cash users during the third quarter, more than 90% also use SEZL for BMPL purchases. We're also seeing repeat engagement with the product itself, with more than 60% of SEZL Cash users taking multiple advances during the quarter. Now we're still early, and we're continuing to be thoughtful about how we can grow and manage the product, but the opportunity is becoming clearer. SEZL Cash may be bringing consumers into our subscription offerings who wouldn't have used us or reached us otherwise. And we're seeing many of those consumers go on to use our traditional BMPL products. With SEZL Send, we're exploring another avenue for reaching consumers, but this time through something entirely different, sending money to another person. SEZL 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 SEZL 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 five installments. And regardless of what you're doing, you can send money to another person. Regardless of how the sender chooses to pay, the recipient receives the full amount upfront. Where this becomes a new avenue for SEZL is in how it can introduce people to the platform. When one of our consumers sends money to somebody who doesn't use SEZL, 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 SEZL app. Sending money is different from shopping. Someone receiving their first transfer, there's an onboarding experience involved. So broader adoption may take some time. SEZL cash addresses a more immediate financial need for eligible Anywhere subscribers. SEZL send involves getting consumers comfortable using SEZL 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 SEZL send, we're also continuing to invest in the products we've already built. Slide 8 is a good example. We originally launched SEZL 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 nine. 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'd 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 two-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 information. consumer satisfaction from those interactions as well. Based on our post-contact surveys, AI interactions are 1.4 times 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 SEZL. 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 7.8 times, up from 6.5 times a year ago. That now includes BNPL purchases along with SEZL cash and SEZL 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 remains strong at 97.4% of total transactions, up 80 basis points year over year. 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've 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 SEZL 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 watch.

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. slides 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 cost 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 three 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 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 1.6% of TTV is a percentage of TTV. 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. Due 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 2.5%. or 0.2% of TTV. That reflects the new $300 million credit facility we entered into in May at a lower rate, plus SEZL cash and SEZL 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. 4.7% 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. 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 six months. The investments we made in Q2 are already showing up, with active subscribers reaching $955,000. We're also getting operating leverage in other areas. Personal 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 three new products. Corporate strategic project costs were $2.4 million this quarter for two 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 SEZL, 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 $70.2 million, up 77% year-over-year, with a 42.1% margin. Plus $47.7 million. The relatively minor difference with gap net income is attributed to the difference of discrete tax benefit, all set 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. and 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 0.4 times trailing 12-month adjusted EBITDA and 0.4 times 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 a $100 million program this year. Which brings me to slide 20. We first got into... $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... compared to $5.45 to $5.50, up from $5.25. We're 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... includes a measured view of our newest products. SEZL Cash is off to a strong start, and SEZL 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.

we will pause momentarily to assemble our... And today's first question comes from Mike Grandal with Northland. Please go ahead.