SEZL - NASDAQ

Good day, and welcome to the Sezzle Incorporated Third Quarter Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I’d now like to turn the conference over to Mr. Charlie Youakim, CEO and Executive Chairman. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to Sezzle’s 2024 third quarter earnings call. My name is Charlie Youakim. I’m the CEO and Executive Chairman of Sezzle. I’m joined today by our Chief Financial Officer, Karen Hartje; our President, Paul Paradis; and our Head of Corp Dev and IR, Lee Brading. 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. If you have not done so already, please go to the Investor Relations section of our website. There, you will find the press release and earnings presentation under Quarterly Earnings within the Financials section. With that done, let’s get started. I’m very excited to share our latest quarterly performance. Our strong growth momentum continues to show in our financial results as we set new highs in several areas. The combination of stronger-than-anticipated results, plus the launch of a banking program with WebBank, has led us to raise our 2024 guidance. Many of these items are captured in our summary provided on Slide 3, if you want to flip ahead. The first item to pop out on that slide is that our quarter three revenue rose 71.3% year-over-year. Like Q2, our strong performance was driven by the rise in consumer purchase frequency and the growing number of subscribers. Our subscriber count reached 529,000 at the end of the third quarter, which represents an increase of 67,000 subscribers when compared to last quarter. Clearly, we are outpacing the buy now pay later industry as reported by third-party research companies such as Adobe Analytics. Net income for the quarter came in at $15.4 million, representing a net income margin of 22.1%. Like Q2, we have some one-time discrete tax items to adjust to that number, which is why we provide an adjusted net income. Our adjusted net income of $17.3 million reached a new quarterly high and an adjusted net income margin of 24.7%, marking the second quarter in a row in which our adjusted net income margin has exceeded 20%. On past calls, we’ve talked about the rule of 40 and our own rule of 100, where we want to strive for 20% revenue growth on 60% gross margins and exceed a 20% net income margin. This quarter, we had 71% revenue growth, a 55% gross margin and a 25% adjusted net income margin. We tallied a score of 151 on our own hard-to-reach rule of 100. However, you want to slice it, we are proudly exceeding the financial performance of the vast majority of listed companies. Slide 3 also provides a sneak peek into our guidance, which Karen will provide greater detail on at the end of the presentation. Nonetheless, I will make a couple of comments here. Our new guidance now includes the estimated impact of our partnership with WebBank. As discussed in prior calls, our previous guidance did not reflect our partnership with WebBank. Therefore, the combination of our new banking program and the strong outperformance in Q3 has caused us to update and, I’m happy to say, raise our guidance. The 20% growth in our 2025 adjusted EPS guidance over 2024 is post-tax. I want to call that out because we’re looking into a roughly 20% tax headwind in 2025 and still expecting to grow EPS by over 20%. Lastly, please take note of our accolades from third-parties, our strong ratings from consumers and the frequency amongst our top 10% of users. All the indicators are saying that we are making the right moves for all of our stakeholders. Speaking of stakeholders, our guiding principles shown on Slide 4 provide us with a path to ensure that we are headed in the right direction. Believe me when I say we question and scrutinize every movie we make, and these key principles are at the core of those decisions. The proof is in our results. We are visibly outperforming our peers when it comes to profitability, and that would not have happened if we had not been increasing consumer lifetime values or acquiring new users. Our latest product offering, On-Demand, checks all of the boxes of our guiding principles. It shares many of the same attributes of our subscription products, particularly with the goal of enhancing the consumers’ experience while also helping us increase the lifetime values of our consumers. We will discuss On-Demand in greater detail later in the presentation, but I believe it will be one of the next significant growth vectors in Sezzle’s journey. And last, but not least, the all-encompassing stakeholder satisfaction guiding principle. We are, after all, a public benefit corporation. Many think that public benefit status conflicts with being profitable. We disagree, and we believe being a good steward doesn’t mean you can’t be profitable. We track a variety of metrics to make sure we are aligning ourselves with stakeholders, such as consumer satisfaction, merchant sentiment, employee happiness and stockholder returns, to name a few. Our guiding principles led us down the path of one of our most significant operational activities that we have conducted in the history of Sezzle, launching our partnership with WebBank, as reflected on Slide 5. As mentioned earlier, I’m excited to share the news of our WebBank partnership with you. We feel lucky to have found such a partner that is very much aligned with us. We were told by many that they are the gold standard for bank partners, and we believe that we are on the right path with them. Prior to today, the banking program was not a part of our guidance on a go-forward basis, but today, it will be. Let me give you a little more color on how the program will benefit us. Before this partnership, we had to manage everything on a state-by-state level, which makes running our business a lot more complicated, particularly when it comes to compliance. The banking program unifies our product construct across the United States under the bank’s national charter, which allows us to standardize our regulatory procedures on a national level rather than a state-by-state approach, thus aiding in our profitability. More importantly, the banking program enables us to introduce new products that will be a key to future user acquisition and consumer lifetime value expansion, as suggested on Slide 6. As we evolve, we continue to focus on the needs of the consumer. At each stage of our journey, we have successfully enhanced the users’ experience while increasing their lifetime values. Without having the consumer in mind, you can’t have a successful product. We are presently focusing on two areas for our users: financial tools and shopping tools. I believe that we are just at the beginning stages of our relationship with the consumer as there are so many more things they need. In addition to On-Demand and our product marketplace, we have listed several other areas we are considering for future products and future launches. Not all of these are for certain, but we wanted to give you an idea of the variety of opportunities that exist in our future path. But let’s talk about one product that is for certain, On-Demand, as shown on Slide 7. We couldn’t have launched this Pay-in-4 product without the WebBank partnership. Its biggest deliverable is that it will allow consumers to use Pay in 4 Anywhere, even if they don’t have a Sezzle Premium or Anywhere subscription. We get it. Many first-time users don’t want to immediately sign up for a subscription. We believe that On-Demand creates a bridge for those users to potentially become subscribers down the road. We are unable to give much detail at this time as it is a very new offering, but we expect On-Demand to help us in two areas. First, it should allow us to be even more competitive for enterprise merchants as it will give us another means of monetization. Second, we expect greater consumer activation within the purchase funnel as new nonsubscribers can choose to incur a onetime service fee at the point of purchase to shop anywhere Visa is accepted rather than the only previously available option of signing up for a subscription. Early data suggests user activation into our monetized programs, i.e., our subscription in On-Demand programs, is happening at a 30% higher rate now. There will be some learning curve when it comes to the balance between On-Demand and subscription. We believe both will be very important to the future success of Sezzle, with On-Demand serving as a bridge to Premium and Anywhere subscription. As you can see on Slide 8, we had another quarter of solid growth as we finished the quarter with 529,000 subscribers. The growth in the quarter was driven by our efforts to attract first-time users through advertising and expanding the pool of current users that we’re able to join. With the launch of On-Demand, we expect to see a trade-off with subscription as new consumers to Sezzle will have more choices as they look to shop everywhere with us. The activity and feedback on our subscription products has been phenomenal, and we expect Premium and Anywhere to be core products for the long term. Nonetheless, we think the flexibility On-Demand offers will greatly increase consumer activations in the purchase funnel, and we are already seeing that early sign, as I pointed out earlier in the presentation here. We also expect our monthly active On-Demand users to be as important a metric to the company going forward as subscriber count. And you might be wondering why. And the reason is, once we’ve shown a customer the ability to download our app and use us in more places, we believe that we’ve successfully converted that customer into a strong LTV customer for the company and we believe that On-Demand will follow that same path of creating strong LTV customers. It’s likely that in the near to intermediate term, the interplay between On-Demand and our subscription products will create some waviness in the subscriber counts, with them even potentially going down as On-Demand pickup accelerates. Bottom line, we believe the net-net of subscription and On-Demand will be positive for our financial performance as well as our customer experience. As I say this, I also want our investors to know that we did take such volatility into consideration as part of our 2024 and 2025 guidance. And that segues us over to Slide 9 because now that we’ve got a handful of strong LTV products, the new goal is getting more consumers into the funnel. One way to do that is by increasing awareness and making more noise. As shown on Slide 9, we have several ways we are trying to increase product awareness with consumers as well as general awareness of the brand name Sezzle. As you will see from our 10-Q that will be filed in the morning before the market opens, we did increase our marketing spend during the quarter compared to the first half of the year, but admittedly not as aggressively as we anticipated as much of the airwaves were clogged up with political ads. As the airwaves clogged up, the cost of having one’s voice heard during the political season also increased, making the ad spend not worth it, in many instances. We expect to be able to have greater opportunities now that the political season has passed. Nonetheless, we have successfully gotten out there with selective engagement strategies. And we might be a little bit biased, but we believe the jersey patch sponsorship of our hometown NBA team, the Minnesota Timberwolves, has been a great awareness strategy for us. The Timberwolves are approaching 30 nationally televised games this season, not including a likely playoff run. The Wolves also have Anthony Edwards, who looks like a reincarnation of Michael Jordan to me. I have my fingers crossed that he can lead the Wolves to an NBA title with our logo on his chest. Whether they make it to the championship or don’t make it, we believe we’re set up to increase our brand awareness dramatically through this partnership. Now please turn to Slide 10, where I’m happy to say that everything on the screen is green. As discussed in prior periods, the one laggard was active consumers, and that too is now positive and trending in the right direction. We want to become top of wallet for consumers, and the numbers suggest that we are becoming a more important part of consumers’ lives. While Slide 10 shows the year-over-year progression, Slide 11 reflects the sequential performance quarter-over-quarter, which also supports our strong momentum. With that, I’m happy to turn the call over to our CFO, Karen Hartje, who will go over our quarterly financial results in greater detail. Karen?

Thank you, Charlie, and hello to all. On to Slide 12. I’m happy to go into greater detail on our quarterly results. It’s always fun when the results are this strong. Total revenue increased 71.3% year-over-year due to a 41% increase in UMS and a 167% rise in subscription revenue. We have provided adjusted numbers to remove the noise mostly related to the discrete nature of our deferred tax valuation allowance, which is nonrecurring. We believe this provides a more reflective run rate of the company’s results. Adjusted net income was $17.3 million for Q3 compared to $1.2 million in the prior year. The significant gains to the bottom line were driven by all facets, from revenue growth, which was up 71.3% year-over-year; to unit economic gains as total revenue less transaction-related costs rose to 55% of total revenue compared to 49.2% in the prior year; and to leveraging our non-transaction operating expenses, which fell to 30% of total revenue compared to 46.2% a year ago. These results are further captured in our EBITDA margin, which rose to 32.2% compared to 18.5% a year ago. On Slide 13, you can see the third quarter revenue growth of 71% year-over-year is outpacing our UMS growth of 40.6%. Most of the additional revenue growth beyond UMS is attributable to subscription, particularly Sezzle Anywhere. At the end of third quarter of 2024, we had 529,000 subscribers compared to only 210,000 in the previous year. We didn’t launch Anywhere until June of 2023, thus, a lot of UMS and subscriber growth occurred subsequently. We have our bundled transaction-related costs on to Slide 14. Transaction expense, which is primarily payment processing costs, declined to 1.9% of UMS. We believe we can maintain a level of around 2%. Net interest expense continues to hover around 0.5% of UMS as we are reaping the benefits of going to a lower-cost facility in April of this year. Meanwhile, our provision for credit losses rose in line with our expectations. As noted on our Q2 earnings call, we guided that the provision would increase in the second half of the year toward the mid-2s as a percentage of UMS due to seasonality and our decision to open the funnel to more consumers given the confidence we have in our underwriting models. We believe the previous guidance of being in the mid-2s in terms of our provision for the second half of the year remains reasonable. Given the decision to optimize our top line growth with a controlled expansion of our consumer funnel, we thought it would be helpful to provide a little more insight into our underwriting, as shown on Slide 15. Our proprietary underwriting ecosystem centers around what we call our prophet models. Yes, we believe our system is both a soothsayer and a driver of bottom line profitability. Our prophet models are proprietary machine learning models first launched in fiscal 2022. We have the Baby Prophet model for new consumer sign-ups, and we are on the fourth generation of our prophet model for existing customers. The last part of our prophet model series is the False Prophet for fraud. Comparing the performance of the Baby Prophet to FICO, as shown on the chart on the left, we have found that our Baby Prophet model is a better predictor than FICO for consumer delinquencies. What gives us further confidence in our underwriting is the chart on the right, where we have overlaid charge-off performance based on consumer deciles from the riskiest to the least risky. You can see that the charge-offs by group are appropriately sloped from the riskiest consumers in decile one to the least in decile 10. If there was lumpiness in the charge-offs from decile to decile, we would see that something is off in the inputs we use in our models. This system also allows us to set spending power appropriately for consumers. Lastly, I would like to point your attention to the bottom chart, which shows a proxy for delinquencies over time for our most loyal consumers, those that have made more than 10 orders with us. This group represents most of our sales activity, and we have not seen any degradation in their credit performance. In fact, for each one of these cohorts, the results are either flat with the prior year or slightly better. The proof of our effectiveness in underwriting credit risk can be seen on Slide 16. We were able to grow the top line by over 70% year-over-year and increase our unit economic margin to 55% from 49.2% in the prior year. The 55% is consistent with the guidance we provided in Q2. Now let’s turn to Charlie’s favorite charts on Slide 17. Here, you can see the outcome of growing our top line, improving unit economics and leveraging our cost structure. Our goal is to separate the lines on the chart on the right as much as possible. Yes, it sounds simple, but we believe we have the right team in place to continue to find opportunities to grow while leveraging our costs. We expect our results will continue to translate into strong bottom line performance as shown on Slide 18. We had some minor adjustments this quarter, mostly related to our deferred tax asset valuation allowance. Either way you look at it, net income or adjusted net income margin has exceeded 20% for two quarters in a row. We have also achieved an EBITDA margin in excess of 30% for three quarters in a row, as shown on Slide 19. Profitability helps liquidity and allows us to consider various options for shareholders, such as the $15 million stock buyback plan we completed during Q3. During the quarter, the remaining $7.1 million of the plan was fully executed. As shown on Slide 20, we have over $80 million in unrestricted cash with an additional $17.9 million available on our line of credit. We are always evaluating ways to manage and strengthen the balance sheet, so we will be filing a universal shelf registration with the SEC in the near future. I am mentioning it here because I don’t want anyone to jump to any conclusions. We do not have any immediate plans to raise capital, but we believe it is good housekeeping to have one in place. The shelf will have a three-year life after being declared effective by the SEC. Lastly, on Slide 21, I do want to touch on our guidance before turning the call over for Q&A. Our updated guidance now includes the impact from the launch of our banking program with WebBank, which was not part of our previously provided guidance. Further, this, coupled with our outperformance in Q3, is leading us to boost our 2024 guidance in several areas. We are also providing guidance for 2025 for the first time. Given the launch of the banking program and that we are becoming a full taxpayer in 2025, we thought it would be beneficial for investors to get some direction for 2025, albeit only at the adjusted EPS line. We anticipate providing greater detail to our 2025 forecast in 2025. We believe our guidance provides some insight into how positive we are about the direction and future of Sezzle. With that, I would like to turn the call over to the operator as we are happy to take your questions. Operator, will you please open the lines for Q&A?

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] First question will be from Mike Grondahl of Northland Securities. Please go ahead.

Hey, thanks guys. Could you talk a little bit about what you’ve learned so far with the bank partner and how the new On-Demand product is going?

Sure. I think the first thing with the launch of the partnership, I think a lot of what we expected to happen has happened.

The second part is on competitive environment.

Okay. But back to WebBank, I think what’s happening is what we’ve really expected. It’s really simplified the business and helped us to focus on the unified product construct, and that is helping profitability. It’s helping profitability because it simplifies the business. But also in a number of states, in the state-by-state approach, we are quite limited. And now with a national approach, we are seeing some pickup in our revenue and our profitability in some states across the U.S. And Mike, just that’s provided or that kind of like impact is provided in the guidance. It’s in there, I guess. And then as far as On-Demand, we mentioned 30% increase in activations. So we’re presenting On-Demand along with subscription to consumers as they enter our app, et cetera. And we are seeing increased pickup, which is what we expected. I think when a customer comes into the app, we kind of understood that for some customers, it might be a bridge too far. You use this once like a freemium model with a merchant checkout, and then you come to the app, "I’d love to check out Sezzle," and use us in more places. And then we’re asking you for $12.95 or $17.95 per month and a commitment of some kind. And I think that created some restrictions in some people’s thoughts. With On-Demand, it basically reduces the friction to the entry. And so that’s helping with the activations. And then part two, what was it again, Mike, part two?

Well, it was the On-Demand stuff. Maybe just one follow-up, Charlie. Any update on the bank products you want to offer? Is that mid-2025? What’s the current thinking there?

Well, I think we have these two pillars basically in the company of what we want to keep on focusing on because we think that consumers kind of view us this way. We have a financial benefit or a financial tooling benefit to consumers, but we also have a shopping benefit to consumers. And I always kind of think of analogies, and I think of the company as like we’re an athlete trying to be as agile as possible. And we just kind of like leaned into our left foot with financial services, getting On-Demand launched, getting the WebBank partnership. I think we’re probably going to push back over to the right foot, to the shopping side, and really try to create some incredible shopping features in the app. Because we know that those shopping features can attract new consumers, can make the product stickier, can just overall enhance the value creation to the consumer. So I think in the near term, we’ll be really focusing on those shopping features. I think that being said, we’re not going to totally ignore the other side. We’re not going to ignore financial services additions or financial products. But I would say probably no commitment on the time line. I’m sure we’ll have one or two products potentially on the financial services side that we’d launch in 2025. But the near term is really to focus more on the shopping side.

Fair. And you guys said that 90 days ago, too. So that makes a ton of sense. And congrats again on the robust quarter and guidance.

Thanks a lot, Mike.

Thank you. Next question will be from Nico Sacchetti from RBC. Please go ahead, sir.

Hey everyone. Congrats on a good quarter. Can you hear me?

Yes. Thanks. We appreciate it.

Can you just clarify, so the full year 2024 guide, is this a GAAP number, $12.05, and your adjusted number is $9.80? Is that adjustment from the cost around launching the banking program?

No, the adjustment is around the discrete tax items. I don’t know, Karen, do you want to provide any more details on that?

We had a valuation allowance against our deferred tax asset, which we released given where we’re going with profitability, and that created in second quarter a huge discrete tax item that we still have on our books. And so we back that out and some other smaller one-time items to come up with an adjusted number that is more meaningful to investors.

Okay. And then it’s $12 in adjusted earnings guidance for the upcoming fiscal year?

Exactly. Exactly. And that would be more apples-to-apples, that’s more in comparison to the $9-plus number in 2024.

Got it. Okay. I mean you’re growing at such an incredible clip. I’m just curious, from what you guys are seeing, where do we go from here? I know you like the basketball analogy, but maybe what inning do you think we’re in? What’s the outlook from here? I mean we’re looking at, what, 20% net income margin, 30% EBITDA margins and now 55% revenue growth. What do you think is the goal from a growth standpoint? And what’s the opportunity ahead look like?

I think we really think about it more in terms of we’ve got this great sector we’re in, buy now pay later. I think the estimates out there is that buy now pay later itself is going to grow 20% year-on-year as a whole. And our view is that we’re outperforming the entire sector. We had 71% revenue growth year-on-year in the third quarter. And so the way I kind of always view it and our team is viewing it is the sector is going to grow. A lot of our competitors are going to do really well. But as we’re doing that, our strategies and our approach, we believe that we’re going to be able to kind of push our shoulders out and gain market share in the sector that’s also growing. So that’s basically what our approach has been. We’ve kind of always looked to Australia as the canary in the coal mine for the sector, and they’ve had growth above and beyond what you’ve seen in the U.S. so far because they launched it there a couple of years earlier. So we definitely believe that there’s growth to be had in the sector. And then our goal is to just spread and increase our market share within the sector as we’re doing that, just through really strong strategies.

Is there anything you can attribute to, like is there some secret sauce in here or just more of what we’ve discussed around not chasing growth at any cost but more of this quality growth approach?

Well, definitely I think – we definitely have the quality growth approach and not seeking growth at any cost. We think long term. We think like in five-year views. So we’re willing to make decisions that fit that. And I know that people – a lot of people out there doubt this kind of like competitive advantage, but I think our team is incredibly awesome. I think that we have very high standards in hiring. We have very high standards in performance management. And great talent attracts more great talent. And I think that if you look at our history, we’ve come up with a lot of strategic or product differentiations that have helped us, but those types of product differentiations are created by an excellent team. And so I think we’ve had incredible retention. We’ve got an incredible team. It’s allowed us to become this amazing athlete, in the analogy view, that just outperforms. And I think that my view and our view is that we’re going to keep on doing it because we have an incredible team that really understands how to cut the BS out of the game and go after real results, but also really hit it and win big for all the stakeholders along the way while we’re doing it.

Is there any tie to a weaker consumer that is maybe helping the business where it looks like people who are existing customers of yours are using it more frequently by quite a substantial rate above what you saw a year ago? Any idea what you can attribute that to? And maybe like do you have a reference point for what’s common in the industry for how often people are using these? And are you above/below? What’s kind of a sweet spot for frequency of use for each consumer?

I think it’s less about like a weakness sign. That’s why we have on Slide 15 at the bottom, controlled expansion, optimized top line growth with no deterioration in Sezzle’s core customers. We wanted to provide that kind of proxy for delinquencies because we’re not seeing any deterioration. And if you saw customers spending too much, like needing the product, you’d see a deterioration. I think the reason we’re seeing increased utilization from our existing customers or customers in our business is because we’re providing better products than our competitors. I think we’re providing products that are stickier. The customers like it. They like our product. They like using it. And so instead of using a competitive product out there, they’re preferring to come back to ours. I think that’s really the key. Because I think, Nico, I think you’d see deterioration if they were weakened financially and just coming to us because they needed it is, I guess, the point.

Sure. Okay. Last question, is there – from past years, is there any seasonality with your business where like going into a holiday season, you expect a good Q4, and then things kind of tail off in Q1? Just any idea of what the cadence of the next couple of quarters looks like?

Yes, there definitely is seasonality. I mean we’re retail-linked. But it’s a little bit unusual. We’ve talked about this in the past a bit, but a lot of the time during the holiday season, we tend to play a lot of defense. We try to make sure the customers don’t overspend. And I think this is something that new investors, maybe it’s worth hearing for new investors as well, is I think this is where we’re very different than credit cards and I think, in many ways, better for consumers than credit cards because in the holiday season, we try to restrict spending. So in some cases, we lower limits where we see it fit with customer base – some of the customer base. Because if the customer overspends too much, they fail. And if they fail, they can’t make another purchase. And then sometimes if they fail with too big of an outstanding balance, they walk away. It’s common sense. With credit card companies, I think, on the flip side, they’ll never tell you this, but I think they love it when people overspend in the holidays because when they overspend in the holidays, they create a revolver and the revolver becomes a revolver for the next five years, paying interest rates, et cetera. And so I think that’s what and that’s kind of dynamic, I think, really shows why Pay in 4 is a way better credit product, especially for young consumers, as they get into their first credit products because there’s a way less of a chance that someone goes over their skis with our products because we’re basically hand-in-hand, same incentive structure as the consumer to not overspend. We don’t want them to overspend because if they overspend, there’s a greater chance that we lose them forever and we bring the lifetime value to zero. So there’s going to be an increased spending in quarter four. We defend quite a bit while it’s happening. So you’ll see that. And in quarter one, spending goes down. But we’re in the tax season. And a lot of our customers is mid to low income, they get a lot of tax returns, so we tend to have a lower principal loss rate as well where, in the fourth quarter, there tends to be a higher principal loss rate in general because of overspending in the holidays. As much as you try to restrict it, it does happen. So those are sort of the dynamics. It’s really Q4, Q1 are the big seasonalities and then Q2 and Q3 are more normalized.

So just for my understanding, a real-life example of this would be like I have a $500 limit, you’re able to track my, what, spending habits and proactively drop my limit going into the holiday season? How do you actually…

Yes. It’d be less about one by one. But if you look back to that slide, Slide 15, we have this score decile by Baby Prophet, and we’re looking at this. And what we might do is we might say, for new customers coming in with a certain score level, we’ll start at lower levels in the holidays or existing customers, we’ll restrict growth and limits behind the scenes – or not behind the scenes, people see their limits. We’ll restrict growth. Or maybe if there’s some sort of a negative event in the model that we have, it might bring limits down faster in the holidays, if something happens. Like, let’s say, a payment failure occurs, we might bring it down. Instead of a 20% drop in limit, it might be a 35% drop in limit…

Got it.

… just to kind of because we know – and by the way, some [indiscernible] they’re for instances. These are not exact. But that kind of is the gist of what we do.

Okay, understood. All right. Thanks for your time. Congrats on the quarter.

Thanks.

Thank you. [Operator Instructions] Next question will be from Hal Goetsch of B. Riley Securities. Please go ahead.

Hey. Thank you. Can you give us a perspective on how much of your UMS is from monthly subscribers and how much is from the occasional user or an active user but you only use it occasionally and not under a subscription?

Karen, do you have any of that data like at your fingertips?

Yes. We don’t really disclose the sources of UMS externally. We have the breakdown of the revenue streams in our 10-Q.

Yes. Okay.

And I think one area you can find it, Hal, is I think on Slide 8, I think we talked about frequency numbers versus our core customers. So like there’s eight more orders from subscribers versus nonsubscribers during the third quarter on average. So I think probably maybe like you can kind of use that as like a proxy for volumes I think.

Okay. And on the marketing side, you said the election environment crowded you guys out. So what might you have tried to have spent? Or kind of what’s kind of the goal to take spending to on marketing to grow the subscription business? Because there was a – I want to know if there’s a slowdown, that advertising pullback or what you didn’t want to do did cause the number of new subscribers to be different than it was in 2Q.

Yes. The one thing we use is not like a goal in spend, it’s more of a goal on ROI.

Okay.

So we have this like six-month sort of mindset. We want to get our money back in six months, if you look at the lifetime value accumulated versus the expenditure. And so our lifetime value is kind of thing in the same place, that’s really about that tells us what our expenditure can be, and then using that same expenditure number with ballooning costs across all the advertising channels out there. I mean, I don’t know if you were watching TV during the political season, but I was basically watching political ads nonstop. So it basically crowded out reasonable spend during the time period, and that basically kind of pushed us out on some of that spending. And right now it’s not – we’re not totally dependent on that because we have two channels, basically we have two parts of the – two funnels that come into our subscriber or monetized user base. One of those is from direct-to-consumer advertising, which is newer for us. And then the other is our more traditional directly integrated merchant acquisition, which is still happening. And so when we acquire a consumer or a shared consumer with our merchant partners, we can advertise our subscription products. That’s free. So we still have that. It was more of an impact on the newer channel, which is the direct-to-consumer advertising, that we’re more inclined to do now that we have lifetime values that support it.

All right, terrific. Thanks. I’ll get back in the queue.

Thank you. That ends our question-and-answer session. I’d like to turn the call back over to Charlie for closing remarks.

Thank you, operator. In closing, I’d like to thank the Sezzle team again. As I mentioned earlier, we continue to make tremendous strides in our business, and I know it’s because we have an incredibly talented team going in the right direction. And before I go, I wanted to add a quote from one of my favorite investing heroes, Benjamin Graham, "People who invest make money for themselves; people who speculate make money for their brokers." A big thank you to the investors out there and an apology to our investment banking partners for this quote suggestion that people and firms should speculate less. Thank you all, and have a great rest of your day.