Welcome to Sezzle Inc. Fourth Quarter Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this events is being recorded. I would now like to turn the conference over to Charlie Youakim. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Sezzle's 2023 fourth quarter earnings call. My name is Charlie Youakim. I'm the CEO and Executive Chairman of Sezzle. I'm joined today by my Co-Founder and President, Paul Paradis; our Chief Financial Officer, Karen Hartje, and our Head of Corp Dev and IR, Lee Brading. In conjunction with this conference call, we filed an earnings announcement and presentation with SEC and posted them to our investor website on sezzle.com. Additionally, if you sign up with our IR email distribution list, you can get these releases prior to our presentations at each quarterly release. So please do so if you haven't already. Please go to either the sec.gov website or find our presentation on our website if you'd like to follow along. Before we get started, I just want to touch on what I feel is an important landmark in our company history. This earnings call is our first since completing our NASDAQ listing and ASX delisting. It really does feel like the beginning of a new chapter for the company, one in which we'll focus on profitable growth, increasing margins, and OpEx reduction, all while pleasing our key stakeholders. We operate this company with a sole proprietor mindset to produce returns for our shareholders. If that aligns with your investment philosophy, please stand in line. Now let's dive into the presentation starting with Slide 3. At Sezzle, we're helping a great number of people on their financial journey and our historical numbers speak to this. Since our launch, we've had over 18 million consumers sign up, processed over 6 billion in volume and initiated over 63 million transactions. Additionally, our subscription service that was initially launched in June of 2022 at Sezzle Premium and then expanded in June of 2023 with Sezzle…

Thank you, Charlie, and hello to all. On to Slide 13. Seasonally, the fourth quarter is our strongest UMS quarter due to the holiday period. But we also had a strong quarter on a year-over-year basis as UMS increased 33%. The increase in our UMS led to total income for the quarter increasing 28% year-over-year to 48.9 million. The annual results tell a similar story for total income growth as it increased 27% year-over-year driven by subscription and UMS growth. On Slide 14, 2023 transaction expense, which is primarily payment processing costs, improved by 18 basis points year-over-year to 2.1%. We believe we can further lower our payment processing expenses as we continue to push for consumers to use ACH, renegotiate terms with network partners as our volumes grow, expand products such as Pay in 2 and Pay in Full, and as noted earlier, introduce AI into the process. As discussed on previous earnings conference calls, we expected our provision for credit losses, as shown on Slide 15, to increase throughout the year, but still outperform for fiscal 2023 compared to 2022. Going forward, we will continue to evaluate the balance of growth versus losses with what makes the most sense. Turning to Slide 16, we can't emphasize this enough. Our unit economics measured by total income less transaction related costs puts us in a strong financial position. Our total income less transaction related costs is now around 50% of total income. A significant improvement compared to 37.5% in 2022. The key to our success has not only been the improvement in unit economics, but our ability to reduce non-transaction-related operating expenses. Without both, we would not have become profitable. As shown on Slide 17, non-transaction-related operating expenses declined by $20 million in 2023 and fell to 46.9% of total…

Thanks, Karen. With that, we're happy to take your questions. Operator, will you please open up the lines for Q&A?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from [Nico Sakary] (ph) with RBC. Please proceed.

Can you guys hear me?

Yes. Hey, Nico.

Hey Charlie, how are you?

Good. How are you?

I'm good. Do you -- so I saw that I was prompted to send in some e-mail questions here, but would you rather just take them over the phone here?

Yes, that works.

You guys are knocking it out of the park. So I'm just curious if there's any way that you can kind of walk us through how you've been able to achieve profitability at such a small scale compared to some of your competitors that are out there?

I really think it's vigilant attack on both sides of the equation, Nico. I mean we didn't sit on our laurels. We've innovated on the product side quite a bit over the last two years, which has helped us dramatically and the subscription services are a big part of that, Sezzle Premium, Sezzle Anywhere. But there are a number of other initiatives we've taken throughout the last two years in the company to really push on the revenue side. But I'd say even bigger than the revenue side or maybe equally as big, is how vigilant we've been on the cost side. I wouldn't say that Elon Musk is like my disciple, I'm more of a Jeff Bezos' fan. But when you see what Elon Musk did with Twitter, cutting the staff by 75% and still running that company, I think it kind of speaks to how he can run a company pretty lean and really accomplish a lot of things. We had to make some tough decisions over the past two years. We exited a lot of markets, Europe, India, Brazil, but really kept to our core in North America. And even though we're sticking to that core, we also were really cost conscious about all our operating expenses. And between the two of those things, we've really pulled off what I think is an impressive feat over the last few years. And we're, I think, just getting warmed up at this point. We really understand how to run the business and how to run it really efficiently. We've got a Whipsmart team that's really hard working, and we're happy with where we are, and we just want to keep them marching forward now.

So is there some costs coming down the pike here that would lead to just a reduction in the profitability? Or is it something that as you continue to grow, you'll continue to scale and as profitable as you are now, it should improve in an ideal situation.

Yes. I think this business scales incredibly well. I still talk about our first holiday season when we were a little [indiscernible] a company, and we basically have the software run the systems without the team doing in the office during the holiday season. That just showed me firsthand how powerfully the product can scale. So I think we plan to continue to show the operational scaling effects by growing top line while trying to keep our operational expenses down throughout this time period.

Do you -- is it worth? I mean it's such a stark difference from looking at some of the valuation metrics around what I would say "is your peer group." Do you think it's fair to say that there are competitors of yours to try to draw parallels to your business, the Affirms, the PayPals of the world, do you view them as competitors? Are they competing for the same customers as you?

I think some are closer than others. Affirm is closer than PayPal as a competitor, even though PayPal has a similar product set. Our closer competitors are probably Afterpay, Klarna, Zip, probably even more closely aligned to what we do. And yes, we've noticed what you are saying. But I'm a big believer in the Benjamin Graham, Warren Buffet approach that just over time -- in the short term, the market is a voting machine. In the long term, it's a weighing machine. And we're going to put the pressure on the weighing machine.

Just had a couple of clarification questions. So you put the stock buyback in place or you approved it. Did you buy back any stock in the quarter?

We can't disclose that at this time. The first update you'll see for that will be in our May release after the first quarter.

Sure. Okay. The other one, you put out a term total income. Is that just a reference to your revenue, correct?

Yes. That's just because of GAAP dynamics. That's revenue -- traditional revenue top line.

So when I'm looking at these numbers, 2023 revenue was $159.4 million, and your guide for 2024 is 20% year-over-year growth of revenue growth. That's correct, right?

Exactly. Exactly.

Okay. And then net income for the trailing 12 months was $7.1 million, and you're expecting -- so you gave an exact guidance of $20 million of net income for 2024?

That's correct.

And so, if my math is right, you're looking at close to $3.60 a share in earnings based on those numbers in the share count?

My maths is not as quick as yours, but I'm going to go through a calculator.

Okay. All right. That's -- I think that's -- last one was, you talked about EBITDA percentage, EBITDA margin expansion being up around 18%, 19%. Do you have a target in place for where you think you can achieve? You mentioned such a stark turnaround there. Is there -- is this kind of the run rate that you're expecting? Or is there a number above and beyond this high teens level?

No, we want to keep on improving. I'll give you an example like we mentioned the Rule of 40. Internally, we've started to talk about an idea of like sort of related to the Rule of 40, but more it's 20-60-20, 20% revenue growth, 60% gross margins and 20% profit margins, net income margins, which is the goals. That's not the guidance. Those are the goals. That's what we want to hit as a company. We think -- I mean, my personal view is, if you have those sort of numbers as a company, you're doing a great job. I want to get the company to those sort of metrics.

Well, I appreciate the time and the questions. It was -- I mean, it's a great story. Thanks, Charlie.

Thanks, Nico.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to the management for closing remarks.

Thank you. In closing, a big thank you to the Sezzle squad, not only has the team pulled off this massive two year improvement, but it's also stuck together through a difficult market with many smiles and laughs along the way. I don't think there's a smarter, harder working group out there right now. I really feel like we can take on just about anything with his team, kudos to the team. And thank you to the investors on the call, and have a great day.

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