Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 revenue rose 60.2% year on year, driven by strong growth in consumer purchase frequency and subscriber growth.
- Net income for the quarter came in at $29.7 million, including a one-time discrete income tax benefit of $16.8 million.
- Adjusted net income for the quarter was $13.1 million, reflecting strong underlying performance.
- Total subscriber count increased by 91,000 during the quarter to 462,000, indicating strong consumer engagement.
- Sezzle Inc (SEZL, Financial) continues to exceed the Rule of 40, demonstrating robust financial health and growth potential.
Negative Points
- The net income figure includes a one-time tax benefit, which may not be indicative of future performance.
- Provision for credit losses is expected to rise to mid-2% in the second half of the year, potentially impacting profitability.
- Gross margin fell just short of the 60% target, indicating room for improvement in cost management.
- The company is not providing specific guidance on future subscription growth, creating some uncertainty.
- Higher loss rates are anticipated in Q4 due to increased consumer spending during the holiday season, which could affect net income.
Q & A Highlights
Q: Subscriptions growing 91,000 sequentially to 462,000. Can you provide more details on the initiatives for first-time users and your outlook for subscriptions?
A: We are not providing specific guidance on subscriptions. We are emphasizing marketing channels as our financial strength grows. We aim for steady growth rather than aggressive expansion. We focus on growing both active users and subscribers, as there might be a limiting function between the two.
Q: Is the average subscription revenue still around $15 per month per subscriber?
A: Yes, that figure remains unchanged.
Q: Are there any new significant merchant relationships to highlight?
A: No significant new merchants to announce publicly. Our team is growing the pipeline, and some launches are tied to our bank partnership, which will help us introduce more merchants through our on-demand product.
Q: Revenue as a percentage of UMS was 10.5%, higher than expected. How should we think about this number going forward?
A: We aim to keep increasing this number. Subscription growth helps, but new product launches could impact it. We monitor this closely and aim for higher gross margins.
Q: Adjusted net income guidance implies a step down in the back half of the year. Is there a seasonal factor to consider?
A: Yes, the fourth quarter is higher volume but also higher loss rates due to consumer overspending during the holiday season. We play defense to avoid defaults, which can lead to lost consumers.
Q: Can you elaborate on the impact of the bank partnership on your product offerings and profitability?
A: The bank partnership will unify our product construct across the U.S., simplifying operations and increasing profitability. It will also allow us to launch new products like on-demand services, enhancing user acquisition and lifetime value.
Q: How are you balancing profitability with credit losses as you expand your user base?
A: We are closely monitoring the trade-off between profitability and credit losses. We expect an increase in credit losses to mid-2% in the second half of the year but believe it will be offset by enhanced margins and growth.
Q: What are your plans for capital return to shareholders?
A: We have completed $20 million in stock repurchases and will continue to evaluate options like special dividends and incremental share repurchases.
Q: Can you provide more details on the financial metrics and guidance for the rest of 2024?
A: We are increasing our guidance for total revenue, margin, net income, and net income per share. We are also providing guidance for a mid-single-digit tax rate for the remainder of fiscal 2024.
Q: How are you leveraging non-transaction-related operating costs to improve bottom-line performance?
A: We are holding down non-transaction-related operating costs while improving unit profitability. We expect some pickup in these costs but not at the expense of bottom-line profitability. We are investing more in brand awareness and customer acquisition.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
