Welcome to the Zip Half Year 2022 financial results call and webcast. Hosting the call today from Zip will be our management team. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the prepared remarks. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Lastly, if you should need any assistance from an operator, please press star zero. It is now my pleasure to turn the floor over to Vivienne Lee, Director of Investor Relations for Zip. You may begin.
Thank you operator, and good morning, everyone. To open the call, I would like to acknowledge the Gadigal of the Eora Nation, the traditional custodians of this land, and pay my respects to their elders, past, present, and emerging. Thank you for joining us today for Zip's first half 2022 earnings call, during which we will also discuss Zip's proposed acquisition of Sezzle and capital raise of up to $99 million. By now you would have seen the joint ASX announcement by Zip and Sezzle regarding the transaction, as well as an accompanying investor presentation. This half year results announcement and presentation can also be found in the investor relations section of our website. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, it does include risks and uncertainties.
There are also certain assumptions and qualifications that underpin forward-looking statements. For further detail, we refer you to the Disclaimers and Key Risk section, the ASX announcement, and investor presentation we released today to understand our assumptions, qualifications, and details of the specific factors that could cause actual results to differ materially. We'll start this call with some prepared remarks and then open the call to respond to questions. An audio replay will also be available on our website after the call. I'm joined today by Zip Co-founder and Global CEO, Larry Diamond; Zip Co-founder and Global COO, Peter Gray; and Zip CFO, Martin Brooke. Also joining us is Sezzle Co-founder, Executive Chairman, and CEO, Charlie Youakim. With that, I'll now hand over the call to Larry.
Thanks, Vivian, and welcome to all our investors joining today's call. It is indeed an exciting and transformational day for us at Zip. We are pleased to announce that we are entering into a definitive merger agreement to acquire Sezzle in an all-stock transaction. I'm also proud to welcome to the call Charlie, Co-founder of Sezzle and Executive Chairman and CEO. Pete and I have known Charlie for some time and have been incredibly impressed by what he and his team have achieved in America in the Fintech sector. Founder-led businesses have unique character to them and an incredible drive, and I'm thrilled to welcome Charlie to Zip. It's amazing to see how far we've come as a company since founding Zip just nine years ago.
As you know, we've been on a mission to be the first payment choice everywhere and every day, and to create a world where people can live fearlessly today knowing they're in control of tomorrow. As a leader in the buy now, pay later category, we recognize the importance of not simply giving people access to money, but rather giving people the ability to take control of their financial future. In Sezzle, we have found an ideal partner who shares our vision and North Star, and we believe there is very strong cultural fit between our two companies. Before we talk about the transaction, I also wanted to just acknowledge our concerns for the people of Ukraine, including our Zip team on the ground. We pray those who yield power end this deeply horrifying situation and hear our call for peace. Moving on to the positive transaction.
We firmly believe that consolidation makes sense and that Zip and Sezzle are in fact stronger together. Despite the near-term market and macro headwinds, we maintain our conviction that the long-term fundamentals of the BNPL sector remain sound. Customer trends are shifting away from the unfair credit and towards more responsible and fairer alternatives. While merchants continue to see the immense benefits of including buy now, pay later at checkout, driving new customer acquisition and driving engagement. We are still very early on in the buy now, pay later journey, evidenced by the fact that only 2% of checkout volumes go through this method today in The U.S., with growth expected to continue at pace. BNPL is forecasted to be the fastest growing e-commerce payment method over the next two years, with The U.S. representing the lion's share.
We also acknowledge the recent and aggressive shift in the stock market and also the increasing importance for fintech growth businesses to deliver sustainable growth. We believe that Sezzle certainly helps us accelerate this objective. For all these reasons, we believe that now is the time. This transaction is a continuation of our growth story, which began in Australia in 2013 and led us to The U.S. via our acquisition of Quadpay in 2020. We are now doubling down our efforts in The U.S. and remaining true to our coalition of founders approach to scaling across global markets with local expertise. Between Zip and Sezzle, we have strong alignment on vision, strategy, mission, people and brand, and we couldn't be more excited to be bringing our combined offer to more consumers and more merchants around the world.
I'd like to walk you through the strategic rationale behind this transformational acquisition on slide 2. First and foremost, this acquisition will significantly enhance Zip's scale and product offering with the capability to accelerate in The U.S. The combined business will have over 13 million customers and 125,000 merchants, with more than 60% of the business weighted towards The U.S. Second, we expect to realize meaningful customer benefits through unlocking buy now, pay later anywhere for Sezzle customers, as well as providing Zip customers access to Sezzle's expansive US merchant network, accelerating our flywheel. Third, we believe this is a great opportunity to bring together two highly complementary enterprises as well as small and medium-sized business merchant networks with a strengthened set of capabilities to win holistically across a diverse range of verticals.
Fourth, we believe this deal should support material cost synergies and provide healthy opportunities for improved revenue and unit economics while supporting Zip's path to profitability. We estimate up to $130 million in annual EBITDA benefits from FY 2024 from the combined group, and the Zip and Sezzle team have done a lot of work in identifying and validating these synergies and assumptions. Finally, we believe we have an integration path to deliver the targeted near-term financial benefits to Zip, including accretion and balance sheet runway to sustainable growth and synergy realization. All in all, leading to what we believe to be real potential to create significant value for both Zip and Sezzle stockholders. We'll get into more of these details in a second.
Moving over onto slides 3 and 4, we'll just quickly go through the key terms of the proposed transaction. We've structured this deal as an all-share consideration, with Zip shareholders to own approximately 78% and Sezzle stockholders to own approximately 22% of the issued shares post-transaction. This approach was taken given the conviction of both Sezzle and Zip management, which are large shareholders of the business, in the growth and the synergy story. Sezzle shareholders will receive 0.98 Zip shares for every Sezzle share, with the implied value to Sezzle $491 million, which is a 22% premium to the last close. The deal is expected to be revenue and EBITDA accretive on a per-share basis, including the full impact of synergies in FY 2024.
As well, to get this transaction, we are conducting an equity raise of up to $199 million, including a fully underwritten institutional placement of $149 million, as well as a non-underwritten share purchase plan to raise up to $50 million. We expect this capital raising to help strengthen our balance sheet and provide sufficient runway to execute on the targeted transaction synergies. Pete will get into the specifics of this later on in the presentation. As part of the proposed transaction, we are also establishing an ADR program with these securities being ADR Level III to be listed on a U.S. exchange as a closing condition.
As Zip will have undertaken this process as part of the transaction, this provides Zip with a pathway to explore a potential U.S. listing in the future, as well as access to new pools of capital. At the close of the proposed transaction, Charlie, I'm excited to say, will be joining our expanded board of directors as well as taking on the role of President and CEO of the Americas. Paul Paradis will join our U.S. leadership team. Given their founder backgrounds and established successes to date, I know they'll be relentless in driving sustainable growth in these key geographies. Finally, we believe the transaction to complete approximately around the end of the third quarter this calendar year. A very exciting transaction.
With that, I'd like to hand over to Charlie to provide you an overview of Sezzle and why he's here today. Thanks.
Thanks, Larry, and thanks for the kind words. It's great to be here today and to announce the next chapter of our journey. Listeners, please flip to slide five. A little bit about Sezzle. We were founded a little over six years ago, launching the product you see today in August of 2017. Since that time, we've experienced rapid growth. I'm extremely proud of the way our team has handled this fast-growing path and the incredible payments platform that we've built along the way. Our product makes a positive impact for our consumers and for our merchants. We have been laser-focused on the dynamic high-growth U.S. geography since our inception. We know this geography well, and we've done the hard work in establishing our reputation with our key stakeholders, our merchants, and our consumers.
This hard work has put us in a great position, particularly with SMBs and mid-market merchants. We have a fantastic team who has delivered on our growth strategy, and this transaction is a key milestone for all of us. Together with Zip, we will be able to deliver on our mission even faster to financially empower the next generation. Our key merchant and retail partners include several enterprise names like IKEA and Target, as well as a wide range of SMBs across e-commerce platforms like Shopify and Wix. Payment platforms like Stripe and Apple's Apple Pay, and other financial institutions like credit agencies, card networks, and banks, all of which are supported by our innovative omni-channel solutions. We offer short-term interest-free products and long-term installment products via partnerships with great companies like Alliance Data, Oportun, and Genesis.
We also have our Sezzle Up program, which allows you to report payments to the credit bureaus and build credit over time. Sezzle Up is a product we're happy to support as it truly does help our consumers get to the next stage in their financial futures. A critical component of what we do is driven by our proprietary technology, which allows us to effectively manage credit, fraud, underwriting, and repayment risk. Our platform has flourished in The U.S. and Canada and has been in testing in India and Europe. Now turning to slide six. Our BNPL platform has supported the business growth for over 47,000 active merchants while serving 3.4 million active consumers globally, with the vast majority of those in The U.S. Not only are we growing our merchants and consumers exponentially, but we are seeing strong repeat usage of our BNPL platform.
We see high repeat usage rates because of our differentiated offerings with the top 10% of consumers transacting 49 times per year. Nearly 93% of our active customers are repeat users. I'm extremely encouraged at our future prospects when I see how often our consumers come back to our platform. We have created a true product love with our customers. I know we will continue to grow that affinity between our customers and our platform with Zip post-combination, and that has me excited. Turning to slide 7. We've always believed that to win BNPL, we must hire the best people. Our recruiting and retention philosophies have always been a key area of focus for us, and I personally believe that great companies can only be built by great teams.
I believe that Sezzle has created an exceptional reputation in the market for its best-in-class management team, as well as its product and engineering capabilities. Combined with the talented Zipster team, we will utilize the best of both sides and roll out innovative products faster to our enlarged customer base. Before I pass it back to Larry, I wanted to echo his enthusiasm for the business in supporting everything we can do to advance our mission. Thanks, Larry.
Thanks, Charlie, and we're really excited about the transaction. I'd like to now sort of step through some of the key elements of the strategic rationale and why we believe one plus one equals three. Turning to slide 8. As flagged, we believe Sezzle significantly enhances our ability to win in the critical U.S. geography. Something I believe the market is looking to us to achieve. Looking at the bigger picture, BNPL represents a mere 2% of the global $25 trillion retail market and is forecast to grow two and three times by 2024. That's a tremendous amount of growth in a very short amount of time.
As a combined business with the scale, the rich product set, deep talent base, and team on the ground, we believe we are uniquely positioned to benefit from these macro trends and shifts in consumer behavior. Together with Sezzle, we are now doubling down in The U.S. and believe we have what it takes to win in that core market. Moving on to the next slide. Here you can see a overview of our pro forma geographic and product mix based on the December figures. With this transaction, our geographic presence firmly shifts towards The U.S. as the largest market, accounting for over 60% of total transaction volume and likely to be greater over time, with Australia representing just over 35%.
In terms of product mix, paying full will now represent approximately 60% of MergeCo, with our Australian account-based products accounting for 40%. When you reflect that Zip Pay accounts for the majority of Australian transaction volume, the merged business will have a much greater weighting towards short-term BNPL products. We believe this puts us in a much stronger position to, A, recycle capital faster, as well as, B, being more agile to respond to any changes in the macro environment. Next, on slide 10. A big reason why we're pursuing this acquisition is the scale. With this transaction, as you can see, we're expanding our customers to over 13 million and merchants to close to 130,000 across 14-odd geographies.
The acquisition will allow us to scale our breadth of collective products across different markets, customer segments, and merchant verticals. Specifically in The U.S., we will add over 3 million customers and 42,000 merchants, bringing our U.S. pro forma metrics to close to 8.8 million customers and 61,000 merchants. The targeted revenue synergy potential between our two companies has the potential to be a significant driver of growth. While it's more difficult to accurately predict, we do believe the combined business has the potential to really accelerate our pipeline conversion. As for our customers on slide 11, we have identified significant cross-sell opportunities to bring each company's products to a new set of customers.
We strongly believe the acquisition of Sezzle will provide meaningful customer benefits, in particular, unlocking BNPL anywhere for Sezzle customers while also providing Zip customers access to Sezzle's extensive US merchant network, which of course then in turn opens the doors to a large customer base as well. As you see on the slide here on the right, we've laid out a range of benefits that customers will see after this transaction closes. From offering short and long duration installments in a single checkout experience, to rewards programs, credit builder, and much, much more. Turning to slide 12. We believe our combined ecosystem and expanded product range will drive deeper engagement with our customers and merchants. Our enlarged, talented product and engineering teams will continue to be able to innovate and deliver best-in-class products.
In due diligence, we were actually extremely encouraged by the similarity between our respective future roadmaps and North Star. Our goal is not just to become the first payment choice ever and every day, we also wanna give customers the financial tools they need to control their lives. In terms of a few specifics, Sezzle is already offering long-term BNPL installments, as Charlie mentioned, something that Zip is actively working on. Sezzle has also already launched its credit builder and Sezzle Up program, which helps new-to-credit customers build an internal credit profile. This is all very much in line with our shared mission of financial empowerment. We're very excited to accelerate our roadmap and deliver immense value to our customer network. Moving on to slide 13.
We believe our complementary models here should really drive engagement both across app and checkout channels, with a focus on a blended set of strong unit economics. In particular, there exists a strong opportunity to introduce this higher margin, open loop, shop everywhere experience to Sezzle customers who have been acquired at checkout for a very low cost of acquisition, as well as introducing Sezzle's 40,000-odd merchant network to Zip's customers. All of this, we believe, will support our path to profitability by driving more engagement and more LTV per customer, while reducing the overall cost of customer acquisition in The U.S. Now just moving on to slide 14. This transaction creates a much more holistic merchant proposition by bringing together the highly complementary enterprise and SMB networks of both businesses.
As Charlie flagged, Sezzle historically has been a pioneer in the small and medium-sized merchant network, and more recently has demonstrated a strong ability to bring on enterprise merchants such as Target and IKEA. With a customer base in The U.S. of close to 9 million, offering both short and long-term BNPL solutions, and the ability to flex merchant and vertical pricing, we believe this will be extremely well placed to differentiate in market, provide vertical specialization, and continue to sign merchants at pace. With its primary merchant and customer base in The U.S., Sezzle is well-positioned to help Zip penetrate this core geography. Finally, slide 15, which should be familiar to most of you, which highlights Zip's competitive advantages, which we believe will be further strengthened through the combination with Sezzle.
Namely, being able to offer short and long installments, which can cover all purchase amounts, allowing merchants to deal with a single supplier with one look and feel, customer experience. We have a mixed open loop and integrated network driving frequency and user preference as well as in-store. Third, our ability to maintain strong margins through a two-sided revenue model that can optimize for vertical and specific merchant profiles. Fourth, we believe this helps drive an enhanced risk management practice, having underwritten over $18 billion in credit installments in BNPL between both businesses and a core part of what we do. Finally, our ability to provide merchants with access to BNPL in 13 markets through a single integration, we believe is a compelling proposition as we talk to global merchant partners.
That's all on the rationale. Let me hand over to Pete to walk you through the financial benefits.
Thanks, Larry. I'm now on slide 16. While we're very excited about all the great features and solutions we can now provide our merchants and customers alike, I really wanna focus on some key financial drivers for the deal. Above all, this transaction supports our path to profitability. The last part of this will be driven by our potential to realize material revenue synergies and cost out opportunities of up to $ 130 million of EBITDA benefit in FY 2024. In this respect, while there's no assurance that Zip will fully realize the target synergies, the Zip and Sezzle teams have done a lot of work identifying and validating these synergies and the assumptions, and we are excited by the opportunity and have a very strong conviction that they will be realized.
For further details, we refer you to the disclosed and achieved risk section in the ASX announcement and investor presentation we released to the ASX today to understand the assumptions, qualifications, and details of the specific risk factors that could cause actual results to differ. We have undertaken in-depth planning on the integration and have the opportunity to take the best-in-class capabilities of both companies across key functions, product features, and technology. Our efforts will be focused on the potential of, A, cost synergies and, B, revenue or net transaction margin synergy. There's a potential cost-saving opportunity of approximately $ 60 million-$80 million commencing in FY 2023, with a full impact targeted to be realized in FY 2024. Potential cost activities include reducing combined employee expenses and duplicative roles, increased leverage and scale, reducing future headcount requirements, rationalization of technology, and other OpEx reductions like G&A costs.
In addition to these, it is anticipated that revenue and net transaction margin synergies have the potential to generate run rate EBITDA of approximately $40 million-AUD 50 million in FY 2024. We expect this largely to be driven by access to new merchants via our larger customer base, increased Sezzle consumer engagement via the Zip app, and stronger unit economics from that transaction type. This customer is transacting with Sezzle integrated merchants and scale, driving funding and processing cost efficiencies. If everything goes to plan, we are targeting full potential synergies of the material opportunity from realization from FY 2024, the first full- year of ownership. We have previous experience in integrating businesses globally, having done this successfully in The U.S. with Quadpay. We've also forecast one-off transaction integration costs of AUD 60 million over two years to support the immediate execution and extraction of these targeted potential synergies.
Now, despite all the above, it's important to note the success of the proposed transaction will depend in part on its ability to successfully combine the businesses currently operating as independent companies, including realizing the targeted synergies, cost savings, and operational efficiencies from the combination. Again, for further details of the risk factors that could cause actual results to differ, we refer you to the Key Risks section of the investor presentation. Now on slide 17, I'll just walk you through our plan to deliver near-term and medium-term financial benefits. Overall, while Zip already has a strong cash-generative ANZ business, the addition of Sezzle will deliver scale and help support our path to profitability in The U.S. In terms of our near-term financial outlook, the proposed transaction is expected to be accretive to revenue per share and EBITDA per share in FY 2024, assuming the full impact of potential synergies.
Importantly, we now expect to be EBITDA and cash flow positive during FY 2024, assuming the full impact of these potential synergies. Our balance sheet strength will help position us for ongoing sustainable growth, especially following AUD 148.7 million of fully underwritten equity raising, which I will get to in just a moment. In addition, we expect to see continued improved capital recycling driven by an increase in volume from the Pay in 4 to approximately 60% of overall volumes. Longer-term, we are anticipating strong EBITDA and cash flow generation from FY 2024 onwards and are targeting a net transaction margin for the pro forma business of 2.5% and above. Through both the accretion and the potential synergies, we believe this transaction represents a compelling value creation opportunity for shareholders in both the near and long -term.
Talking to slide 18, as Larry highlighted, in addition to today's acquisition, we are raising AUD 148.7 million by a fully underwritten institutional placement. We'll issue approximately 78.3 million new fully paid ordinary shares in Zip, the placement shares, which represents 13.3% of Zip's current ordinary shares. We are also very pleased to announce that eligible Zip shareholders will have the opportunity to participate in a non-underwritten share purchase plan to raise up to AUD 50 million. Pricing details are provided on slide 18. We believe this is a very important step that will help strengthen our balance sheet and will position Zip for continued sustainable growth with sufficient runway to execute on the potential synergies from the proposed acquisition. Importantly, neither the placement or share purchase plan are conditional on completion of the proposed acquisition.
Before I pass back to Larry to wrap up, I'll just provide a brief overview of Zip's financial results for the first half of 2022, which were posted earlier today. Let me start by saying Zip has again delivered some very strong numbers and continued our strong growth trajectory. During the half, we achieved record transaction volume of AUD 4.5 billion, up significantly at 93% year-on-year, driving revenue up 89% year-on-year to AUD 302.2 million. On an annualized basis, this now translates to over AUD 9 billion in TPV and over AUD 600 million of revenue from our valued merchants and customers across 14 global geographies. As of December 31, we proudly served nearly 10 million customers and over 80,000 merchants, further establishing us as a global leader in BNPL.
Revenue margins remained strong at 6.7%, broadly in line with half year 2021, driven by our differentiated revenue model, and we continue to lead the market on this metric. While we are delivering impressive growth figures across these key top-line metrics, we understand the need to be laser-focused on our path to profitability. We've taken quick, decisive actions to improve our gross profit and cash transaction margin. During the half, both cash transaction margin and cash gross profit were impacted by increased bad debt costs. Cash transaction margin, while still solid at 2.1%, decreased from 3.7% from half year 2021. We fully recognize and appreciate the headwinds in the current environment impacting our bad debts charge.
These factors include an increase in losses driven by both external influences, like the easing of US government stimulus, as well as internal factors, including entry into newer, less mature markets and increased risk appetite in early 2021. Bank fees and data costs were 1.3% of transaction volumes, up 0.2% year-on-year, reflecting a continued shift in business mix to The U.S. We have continued opportunities to leverage this increased scale and lower-cost payment methods, particularly in The U.S., to significantly reduce these costs as a percentage of TTV. These factors were partly mitigated by an improvement in interest expenses, driven by reduced rates on U.S. and AU facilities, and faster book recycling driven by The U.S. Pay in 4 volumes. Managing risk is a core part of our business, and we have a proven track record of successfully managing credit performance while maintaining growth.
This proprietary credit decision technology provides us with a unique ability to manage risk and control credit outcomes. With the fast-evolving nature of our receivables, recycling approximately every three months, changes to risk rules and settings play through to our performance very quickly. We specifically referenced the slide 18 in our half year results deck, and as highlighted, we have a proven track record of controlling credit outcomes in the face of challenging external circumstances. At the onset of COVID-19 in early 2020, we experienced similar headwinds, and we took swift and decisive action, which delivered improved and controlled outcomes in the six to nine -month period post-implementation. In The U.S., we optimized risk settings to maintain write-offs within our target range at around 2% while continuing to deliver exceptional growth in The US market.
For Australia, we promptly tightened decisioning and limit allocation rules to decrease write-offs to below our target range while still supporting strong top-line growth here also. We have already adjusted our risk settings to address the current environment, and we expect these actions to deliver similar outcomes to those delivered historically. That is, maintaining strong growth while bringing losses back to our medium-term target of 2%. In addition, we are continuing to invest in our data and machine learning capabilities to support not only our risk decisioning, but also our ongoing collection and portfolio management strategies. Globally, we are transitioning to an environment of rising interest rate costs. That's the reality. Zip is well-placed to withstand any base rate increases. Our loan book is currently recycling every three to four months, so we have a very efficient receivable.
As The U.S. share of our overall transaction volume increases, we would expect this to improve further. Just for context, an increase to base rate of 25 basis points equates to an increase in funding costs for a Pay in 4 transaction of a mere 2 basis points. We will also receive the benefit of repricing of future funding issuances in Australia, offsetting any base rate increase. Confirmation of that will be demonstrated during the period as Zip issues its first primary issuance under the Master Trust with a AAA rating, demonstrating our ability to benefit from repricing future issuances. We are currently well-placed with significant headroom across the group's funding facilities to support future growth and transaction volume.
In addition to headroom in our funding facilities, the group has an available liquidity position of AUD 212.5 million as at 31 December to support our operations. Just briefly, a few minutes on our global segments. The Australian business is Zip's engine room, delivering 14 periods of consecutive cash flow positivity. It demonstrates our ability to establish a sustainable and profitable business at scale. The ANZ market is our most mature market, where our success is driven by the deep knowledge of our domestic customer base that we have built over the last eight years. In the first half of 2022, we continued to leverage customer engagement with revenue per customer increasing by 20% year-on-year.
Increasing engagement provides us with a very strong base to deliver additional products and services to our customers and merchants that will add additional revenue streams. US business continues growing at a remarkable pace and is our highest priority. Total transaction volumes were up 163% to AUD 2.1 billion, driving a 153% increase in revenue. U.S. now comprises 48% of group revenue, up from 36% in the prior corresponding period, overtaking the ANZ business, and customer numbers grew by 78%, now at AUD 5.7 million. Despite the current credit conditions affecting this jurisdiction, the growth trajectory continues, and The U.S. continues to present significant market opportunities based on the current low BNPL penetration levels.
The Zip app remains a key driver of business, with the top 10% of our customers transacting 40 or more times per year, with 90% of orders now coming from repeat customers. We're committed to our global expansion plan, but we'll be taking a more disciplined approach. We see significant growth potential in the expansion markets, where TTV is now annualizing at over AUD 600 million. Beyond The U.S. and Australia, we have seen adoption and growth in our expansion markets such as Canada and Mexico, with significant new merchant wins across the board. We are already seeing the benefits of recent acquisitions in Europe and the Middle East with Twisto and Spotii, plus Payflex, which is not yet reflected in our reported results.
For example, Twisto had transaction volume growth of over 75% year-on-year, with our PayU partnership providing access to over 20,000 new merchants. Following rapid growth and investment, we are focused on unit economics and performance with a disciplined approach with regards to how we allocate capital and resources. Going forward, we have refined our priorities with a focus on accelerating our path to profitability. This includes continuing to invest for sustainable growth in core markets, a focus on unit economics and loss rates to deliver outcomes across the group to take us towards our medium-term targets, and cost management initiatives that will right-size our global cost base. With that, I'll pass back to Larry to close it out before we hit some Q&A.
Thanks, Pete. So to conclude, I wanna bring us back to the transaction today, which we believe strategically but also financially really represents a compelling combination. In summary, we believe this is a transformational merger that provides scale, enhanced growth, and supports our pathway to profitability. Pete also touched on a number of initiatives that we are doing in our core business to achieve this goal. We also gain immediate scale in The U.S. with over 13 million customers and 125,000 merchants globally. We do believe that this does simplify our investment case with a global business with a core focus on T he U.S. and Australia. We spoke about the ability to drive immediate customer benefits and the ability to drive the net transaction margin as we combine both channels.
We also spoke about how complementary both companies' merchant networks are, and that together we will now cover a broad range of segments and verticals to really size up in the American market. Finally, we spoke about the strong synergy, the accretion that we expect and a bolstered balance sheet to support our runway over the next two years. We've always said that we are a growth-focused business in the near to medium term, with optimization for profit coming over the medium to longer term. We believe the acquisition of Sezzle really helps accelerate this strategy. We are thrilled to look at the road ahead. Together, we will be able to deliver on the promises we have made to our people and our customers, creating a world where people can live fearlessly today, knowing they're in control of their financial tomorrow.
At the same time, we will do this from a position of combined strength and aim to create substantial value for our shareholders. Before I open up to questions, I just wanted to say a big thank you to the entire Zip team, our Fearless Zipsters, for their continued commitment, passion and dedication. We would be nowhere without our incredible talent across the globe. We are also super excited to welcome the Sezzle team, many whom we have personally met along this journey, to join us for this next phase. That brings to an end the formal part of the presentation, and we'll now move to Q&A. Thanks.
The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. Our first question today comes from Phil Chippindale with Ord Minnett. Your line is open.
Thanks, team. Thanks very much for your time. First question. Larry, can you just talk us through how these products will sit in the marketplace? A few different aspects here, I suppose. Will there be a rebranding of Sezzle? Will there be a consumer pay aspect that's common across the entire product suite? Yeah, just be interested in terms of how should we think about this going forward?
Yeah, thanks. Thanks, Phil. Yeah, the aim, of course, is to consolidate around a single brand and that will be the Zip brand. I think what we have working for us is that, you know, Sezzle's footprint, you know, is largely digital and not sort of dissimilar to, you know, us going through the Quadpay rebrand over in The U.S. You know, the ability to update widgets and to introduce customers along our own channels to the changing brand. That will be the intention. We think what that does as well is really increase brand awareness, which has probably been in that sort of 10%-15% bracket for Zip.
As we kind of drive brand awareness beyond that, we expect that should also help to improve conversion funnels, you know, particularly around application conversion funnels, both at checkout and at the app. That's on day one post-completion, it will probably be, you know, Sezzle becoming Zip. Then once we get through the tech and product rationalization, we'll then move across. In terms of, we've also had a lot of work done between our respective product and tech teams on how we can build a best of breed platform and move that reasonably quickly and have really good confidence from both teams.
In terms of the product mix, yeah, you will absolutely expect that we would get to a single app, one that has you know, a very strong checkout business and one that has a very strong app business. We will continue to offer a Zip Pay for all app customers. I think if you look at some of Sezzle's numbers, you know, 80% of the volume is really at checkout, and so there's a huge opportunity to drive shop everywhere and drive ubiquity. That obviously is very good for our unit economics. Finally, the ability for us to price merchants, you know, that continuum between merchant pay and customer pays so that we can really differentiate in market will be core to our go-to-market.
I think Zip's really validated in Australia as well as particularly in The U.S., you know, that this model works and really differentiates. You know, many merchants that we have on the platform, also those that are coming through the pipeline, also support this and is very aligned to sort of Charlie's future thinking as well.
Thanks. Just looking at the table on slide 11 in the presentation. There's two lines in particular. The long duration product and the credit builder. Those are two aspects of Sezzle's business that Zip doesn't have. But in the pro forma column, they're both ticked. So just on the credit builder, will the Zip product across the entire board have a credit building product? It reads that way. Then secondly, just on the long duration product, do you guys have any intention to have an on-balance sheet form like you do, say, in Australia? Or is your intention to, in terms of that long duration product, retain Sezzle's structure, i.e., the off-balance sheet form?
Yeah. Two good questions. I mean, we've been looking at. You know, if you look at our roadmap, even before we bumped into Charlie, we have credit builder absolutely on the roadmap. You know, how we introduce thin file and new-to-credit customers to credit, help them build their profile and build a credit score in America, and kinda guide them through that journey. You know, we're absolutely aligned to that. I think it's, you know, Sezzle's just a little bit ahead of us. I might hand over to Charlie to talk about how he's thinking about long duration in the customer experience, then I might add a few follow-up comments.
Yeah, no problem, Larry. Great talking to you, Phil. In terms of the long-term products, the advancements are still coming in our platform, and we're big believers in the off-balance sheet approach to that product because of the very nature of the suppliers. There are many suppliers that focus on different buckets of credit quality. By partnering with many partners through our platform, our view is that we're able to offer a very large sweet spot in terms of our offering. Creating the best product possible, both for the merchant and for the potential customers coming through that funnel. You've seen the recent announcements on the Sezzle side. We've got Alliance Data with their Bread product, which is a phenomenal product. That's gonna be integrated coming soon, in the next couple months, actually.
We've also got Oportun and Genesis, which are considered, you know, quote-unquote, subprime suppliers in that space, which allows us to sweeten the or enlarge the sweet spot. We're really excited about where that product's going. I think what's really exciting about the combination with Zip is that post-combination, we'd be able to offer that type of product to a much larger set of customers, a much larger set of checkouts, and also in-app purchases. I think it also makes us more powerful when we go into enterprise merchants, when we combine the offerings and add that into the offerings.
Yeah, I'm just gonna add, I think that's right. You know, for us, obviously, Zip's heritage has been by offering short and long installments at checkout to merchants, has been a way for us to differentiate. Being able to do it in The U.S., particularly in a capital light model by, you know, Charlie's approach to working with, you know, by white labeling different underwriters to get the highest conversion rate, but still delivering that simple, seamless customer experience, we think that really will allow us to compete against the likes of Affirm and I think even the, you know, the private label credit card players.
The merchants are realizing that the BNPL brand is much more powerful, so by us simply plugging this in should be a great way to differentiate and also acquire a lot of customers. We're really excited to roll this out and, you know, drive improved economics for us without the balance sheet risk.
Thanks. Final question from me. Just on the AUD 60 million of one-off transaction and integration costs, can you give us a sense of what the split is between those two categories? Is it 50/50, or is it more weighted towards the integration side of the equation?
Thanks, Phil. It's about 40/60.
Excellent.
transaction cost
Thanks, guys.
versus integration.
Okay, great. I'll jump back in the queue and let somebody else ask.
Thank you. We will move next to Tom Beadle with UBS. Your line is open.
Hi, guys. Thanks for the opportunity to ask questions. I've got three, please. Just firstly, on your expectation to achieve cash EBITDA profitability by FY 2024, on my math, you know, even if you achieve AUD 130 million of synergies by then, you're still obviously gonna have to overhaul both businesses' underlying cost bases as well as grow your top line if you're gonna be cash flow positive or EBITDA positive. Can you just talk about some of the initiatives that you're undertaking outside of synergies? And also, what are the specific key assumptions that you're making to get to that break even expectation? Secondly, just on The U.S., Zip's transaction frequency is obviously hovering around that one transaction per customer per quarter.
You know, it could potentially indicate that there's a tail of inactive users there. Could you quantify what the size of the cohorts of your US active customer base that have not transacted for nine months or more and for six months or more please? And Charlie, actually, if you have those metrics available for Sezzle, that'd be great to know as well, please. And then sorry, finally, excuse me. On the AUD 108 million cash EBITDA loss, you know, obviously, you know, you'd provided updates that were there or thereabouts with the market's expectations for the top line throughout the half. I think the market was pricing in around break even or a relatively small loss. That's obviously different from the market's expectations.
Has something changed towards the end of the half quite rapidly? For example, were you required by your auditor to write off a larger amount of receivables than you'd expected or the losses incurred relatively evenly across the half? Oh, sorry, the quarters. Sorry. Thanks.
Okay. Thanks, Tom. A few questions in there. We'll try not to miss them all in the answer, and some we'll probably need to take on notice for the appropriate metrics. I think with regards to the first one, obviously, we're calling out the very strong synergies on the cost side. You know, clearly the industrial logic and the business case stand up, you know, very clearly there. I think in addition to that, what we're calling out is global right-sizing of some of the other jurisdictions with regards to the broader cost base that both businesses have. We'll be looking at initiatives with more strategic support of some of those markets that are close to cashflow breakeven. A call out for...
on the Zip side would be some steps we're taking in The U.K., you know, off the back of that strategy. I think there's a broad range of initiatives and, obviously, we're also suggesting, in terms of the latter part of your question, that credit losses did influence the half year result quite significantly off the back of the last quarter. There was also a one-off adjustment in terms of losses in December. Sorry, one of. What were the other parts of your question?
Yes, I think in terms.
I was gonna say, if there's before we move on to the customer cohorts, Tom, does that answer your question?
I think one other thing to add with the in terms of the expectation on costs. I don't think the market had really built in the investment in new geographies. They have really disregarded that to some extent in expectations. I think that may have been a surprise as well.
Yep. Okay. Sorry, what were you saying about the cohorts?
I think what we'll do is we'll probably take that one on notice to kinda come back to you in terms of the engagement across the different cohorts. I mean, your point around not all of them are super active, I think is absolutely true. You know, our product teams are exclusively focused on how we drive transactions per monthly transacting user. If you look at our North Star metric that we developed in Australia a few years ago, is this monthly transacting user. So that's an internal metric, and we have a lot of initiatives on how we increase that. You know, in Australia, we went from one to two times to six times per month from a range of initiatives.
We'll be expecting to bring those to The U.S. market to help drive those engagement levels. You know, for example, you know the in-store, we haven't really cracked the in-store as successfully as the bar that we would have. There's a lot more work going into the app as well. We can come back to you separately just on the different cohort engagement levels.
Larry, this is Charlie. If I could step in for a second. You know, from the Sezzle side, one of the really attractive parts of this potential transaction is the fact that the Zip team in the United States has the tooling for user fees. What we've noticed by serving our customer base is that one of the reasons that a customer churns at the end of the twelve-month period is because we don't have the offering of the merchant that they're looking for. By adding user fees, which we were planning on doing independently, we're able to offer more merchants, which increase the ubiquity of the product, which increases frequency.
That I think is gonna be something that will be realized over the couple of years in our projections here in terms of talking about the synergies on the Sezzle side, and I think it'll continue to happen on the Zip side here in the United States.
Thank you. We will move next to Siraj Ahmed with Citigroup. Your line is open.
Thanks. I'll ask three questions. The first one: regarding the AUD 40 million-AUD 50 million revenue synergies and the transaction margins, can you just break that down into what you're seeing for top line versus cost of sales? In that, have you had discussions with Sezzle's large merchants, Target, et cetera, in terms of change of control?
In answer to the first part of the question, Siraj, in terms of the top line, there's a huge natural fit between the two businesses with regards to capability. Sezzle at checkout and Zip via the app. A lot of it will be driven by incremental transaction volume from Sezzle customers in the Zip app at the higher margin transactions. We are attributing revenue and net transaction margins growth from that eventuality, and we'll obviously have significant opportunity to drive that. Largely speaking, that will be top line.
In terms of cost side, Sezzle has a significant capability of processing repayment costs cheaper than Zip, and we'll be able to leverage some of their learnings and processes to move away from scheme file collection. We do see that as being able to drive improvements on the processing cost side. With regards to the merchant question, that's probably one for Charlie.
Yeah. Just on the cost side, there's probably a little benefit because our funding costs are slightly lower than theirs are. Also, clearly we've got more customers coming through the credit engine. There's a little saving in credit costs as well.
Charlie, do you wanna talk to the merchant question?
Yeah. To the merchant question, we have examined, you know, our contracts and it will require some conversations with our merchant partners. From our viewpoint, what we're doing here today or planning to do today will only strengthen our position with these retailers. One of the conversations that come up with our enterprise merchants is how big is your user base? How big is your platform? By making this transaction occur, increasing our scale, it should really increase the strength of our proposition to the merchant partners.
Additionally, with enterprise merchants, we do have a view that user fees may be required in some scenarios to make those enterprise contracts work because of the desire for enterprise merchants to have relatively less expensive, you know, quote-unquote, "processing." I think in some cases, we view that enterprise merchants would require user fees to make those contracts work out. Those are the conversations we'll be having with our enterprise clients in some scenarios where necessary to talk them through this transaction and, you know, where we see it coming through on their side.
Sure. Thanks, Charlie, Larry, and Martin. Just to follow up on that, what about revenue dissynergies? I mean, you've given a pro forma number of 8.8 million customers. There would have to be some overlap. Can you just give us an idea of what business you've done in terms of customer overlap? And what proportion of your app users in Zip US would be potentially using, you know, Target or some of Sezzle's major enterprise merchants or even the SME merchants with the $1 fee. Just keen to understand how you thought of revenue dissynergies in this.
Yes, Siraj, that's a good question. There's probably a few buckets to the revenue side and origination volumes. I think just to answer your question around overlap, we did some analysis that says, depending on how you look at it, about 25% of the app is overlap. So we've actually built quite differentiated customer geodemographic profiles across The U.S. So we think that's sort of validated. That was one of the key areas of diligence that we needed to get comfortable with, obviously, with bringing the two businesses together. And similarly on the merchant side as well, you know, quite a differentiated proposition. So as we thought about increased originations, where I'd say we actually went light was on...
You know, Charlie's point is one of the reasons that we both lost our, you know, our merchant deal is because we haven't had enough customers. We really think this takes that away. You know, investment in brand, ability to offer short and long, and the ability to subsidize merchant processing with customer fees really give us true differentiation. I'd say we probably have erred on the side of conservatism in terms of those. It's obviously a lot harder to predict. In terms of increased originations, we've looked at Sezzle customers then, you know, moving, you know, we spoke earlier about a best of breed platform and ultimately migrating to a single ledger, but using different components.
We do believe that, and validated with a lot of work that Charlie's done as well, that their customers are happy to pay fair, transparent customer fees for the utility and ubiquity of shopping everywhere. You know, a certain percentage of the 3 million customers should be able to have that feature, and we should be able to drive incremental spend. For the Zip customer, who, you know, pretty soon after in a completion, will be able to check out at a Sezzle merchant instantly, does mean that, I guess there's two incremental transactions. One is in the app, and then you look for something, and you just end up at a site that happened to be Sezzle, which we think, you know, accounts for a small component.
The other is just our customers as they're just, you know, traveling around the internet and then landing on sites that will then start to see a Zip logo, and it's a pretty extensive network. There's two incremental transactions. We obviously have a, you know, certain amount of our customers that are already transacting at Target. Of course, getting to Target happens from the app, which we're a big lead referrer, but also going to Target's website outside the app. I think you kind of cover both of those. That's just a little bit of color of how we've built it up. As I said, we probably haven't put as much in those buckets, you know, as we think the true opportunity presents.
Thank you. We will take our next question today from Brendan Carrig with Macquarie. Your line is open.
Hi. Good morning, everyone. Just a couple more questions from me. Just on the cost synergies, if I look at Sezzle's first half costs for staff, marketing, and admin, they were about AUD 37.5 million. Annualizing these to 75, your AUD 60 million-AUD 80 million of cost synergies would imply 80%-110% of the annualized cost base. Now, I recognize there would be some growth in those costs since the first half of 2021 from Sezzle, but how realistic are those synergy targets given that they effectively represent the entire annualized first half 2021 cost base?
I think if you, if you look at the Quadpay and the Sezzle cost base together on an annual basis, then the synergies are somewhere between sort of 25%-40% of that total cost base. I think they're imminently achievable. If you think logically, you know, the two organizations doing much the same thing, similar sort of volumes. I don't think that's an unreasonable number.
Okay. I'll move on. Just on the bad debts. For the U.S. business, again, on an annualized basis, the write-offs are about 50% of closing receivables.
Can you provide a sense as to how much of that was driven by new customers? Then, yeah, maybe in terms of the cohorts it feeds on from Tom's question earlier. Was there a really large percentage of those BDDs that were from new customers that effectively it was their first transaction, and therefore, the normalization in your bad debts would come from those sorts of customers not repeating again? Can we expect a commensurate reduction in your new customer growth as a result?
Yeah. That, that's right. Obviously, given that a higher number of transactions or penetration is made by existing customers, you're actually right. More than half of or considerably more than half of the write-offs there is from the newer cohort of customers. We do get benefit over time, you know, from increasing engagement from our existing and growing customer base, as you touched on, combined with a reduction in risk appetite for lower credit quality cohorts. I think the way to think about risk-setting adjustments is, largely speaking on lower, you know, FICO or credit score customers, decreasing the approval rate. In terms of mitigating growth, I think the opportunity to continue to grow at the same rate is there when we plug in new enterprise-level partners.
Each enterprise-level partner is a significant contributor to growth. That is the way that we'll be able to continue to manage growth at the same rate while tempering our risk appetite for first-time transactors.
Thank you. We will move now to Roger Samuel with Jefferies. Your line is open.
Oh, hi. Morning, guys. I've got a few questions as well. First one, just to understand Sezzle. Can you tell us the loss rate for Sezzle in the last quarter? I think in the previous quarters, you've been averaging around, you know, 2.3%-3.4%. And what's Sezzle's net transaction margin as well?
Do you want me to hop in here, Larry?
Yeah. I meant to cue you in. Go for it.
For the fourth quarter, the principal loss rate was north of 3%, and the net transaction margin, I think, came in around negative 40 basis points.
Negative 40 basis-
The core business was actually quite strong.
Yeah.
The vast majority of that came from enterprise accounts in the holiday season.
Okay. All right. Yep. Just back to the Zip business. Just trying to understand the write-down in Zip U.K. Can you tell us what's been happening there?
Yeah. As part of the ongoing review of where we're allocating our capital, we determined that we wanted to reduce the amount of capital allocated to The U.K. As part of that reduction or the consequence of that reduction is that all current cash flows coming from that business weren't able to support the goodwill that we were carrying in the account. That goodwill came from back in the day when we acquired the PartPay business a couple of years ago. We ended up having to impair that goodwill charge you'll see in the accounts.
Okay. There's no issue with the performance of the online business?
I think other than the fact that it's probably hasn't grown in line with our initial, you know, expectations or ambition, and given what we're calling out is proactive steps to right-size our cost base globally and focus on near-term profitable markets. In our estimation, The U.K. remains further away than we were comfortable with to continue investment at the same rate.
Okay, thanks. That's all from me.
We will go next to Elise Kennedy from Jarden. Your line is open.
Thank you. I've got a couple of questions here. The first one I wanted to ask was on that customer crossover that you spoke to earlier. I wanted to check, do you know the duplication, particularly in The U.S., and just whether or not the actual active customers could come down? Just how confident you are about the customers that you've given there not having duplication. I wanted to check also on the rebranding as my second question around if the costs you're thinking are similar to Quadpay's rebrand, and if those costs are included in the ongoing synergies, and then also on the one-off costs. My last question is just around the competitive landscape and some of the changes that have come through. For example, Afterpay being put into those Square terminals.
Do you foresee that becoming more challenging to have conversations with those merchants? Or from the signs that you've seen on the ground, can you still tap into those because it's a matter of the customers that you bring, but that's not really a huge game changer? Thanks.
Yeah, thanks. I think just in terms of the overlap. We did a, you know, confidential data wash to actually identify, you know, masking all the PII information to identify the overlap. Identified about 25% of Sezzle's active base that was-
In the last 12 months. I think that was very comforting. We think though that, and as Charlie touched on, the ability to offer everywhere should actually enhance engagement levels. A lot of the attrition is because I can't use you over there. Again, you know, I can't use Pay in 4 at this merchant or kind of that merchant. As you encourage and educate users on this feature, we do see, you know, upgrades in engagement levels. I think, you know, Charlie's saying the same thing, that we expect that to definitely help the cohort decays that are happening in the Sezzle customer base. In terms of rebrand, I would look at it slightly differently.
You know, when we rebranded from Quadpay to Zip was on August 16 last year. Zip was unknown in the US market. The two parts to the rebrand, one is just upgrading all the digital assets across owned channels, and working with merchant partners, which is a very low cost, because it's all just digital changes. We invested in it with a bit more out-of-home and just general brand awareness as we try to cement Zip and also show merchants that Zip's arrived in the US market. I think we did exactly that. I would look at the cost quite differently.
Sezzle owns all their channels, but their technology is, you know, very good, so the ability to upgrade the widgets on the product detail pages and then working with the larger merchants on email campaigns. We do not believe that we need to spend the same level of investment. We'll naturally get, if you think about it, we have to do additional spending to drive brand awareness late last year. We'll get that automatically through working with Sezzle's really extensive digital footprint, 40,000-odd sites and so forth.
Larry, if I could jump in here.
Yeah.
To the question about the Square terminals, just to give an insight into the US market, because I see that, you know, daily. The Square terminals, we don't really feel as threatened about Afterpay being added to those terminals because those terminals are typically in coffee shops or food trucks. It's not really in the typical sectors that you might find BNPL. So in terms of, you know, cornering a sector of retail or merchants, it's really not one that we really view as a target market. I just thought it'd be helpful to clarify that for some of the Australian investors that may not be in tune with where those terminals might be located.
There you go. Thanks, Charlie and Larry.
We will take our final question today.
One more.
My apologies.
No, that's okay. We can. You finished with the last question. Please go ahead.
Okay. We will take our final question from Chami Ratnapala with RBC Capital Markets. Your line is open.
Thanks for that. Hi, Larry, Pete, Charlie, and the team. Just one quick question from me. I mean, you did talk about right sizing of certain global markets. Ex U.K., could you talk to if there are any changes to the international expansion strategy now with the combined group, or do things sort of still stand the same way with that strategy? Thank you.
Yeah. Thanks, Chami. We still believe in the global opportunity, and clearly it's starting to deliver, you know, meaningful chunks of TTV on a monthly basis, as called out in the results. What we're calling out is the investment strategy will be a little bit more focused on the core markets that are closer to profitability. Where we've invested for growth across a broader footprint, some of the growth investment in the markets further away from profitability will be slowed to ensure that, you know, we're successful in managing our cash to deliver on these synergies, as outlined in the transaction. I think that's the way to think about it. Slowing investment in markets that are further away from that profitability that is now clearer in focus.
Thanks for that.
This concludes the [a lot of] time for questions. I would like to turn the call back over to Larry Diamond for any additional or closing remarks.
Thanks so much. Look, thanks everyone for your time today. Obviously pretty exciting and transformational day in the history of Zip. We are really excited to bring the two businesses together. I think there's still a bit of time to go before completion, so it's still business as usual, I think, on both sides of the ditch, for the next five months. We do believe that together, we will create a really solid business, in The U.S., one that is financially sound and has a great outlook, but also strategically, we're one of very few, BNPL in a total addressable market that is significant and, building an asset base that, you know, we believe is the envy of the financial, the financial system.
I do think there's a lot of hard work to do for us in extracting the synergies. There'll be a lot of hard work between both leadership teams to construct it. You know, we all really believe in it and are excited about the road ahead. Thank you very much for your time, and if you have any further questions, please don't hesitate to reach out to us on the investors hotline. Thank you.
This does conclude today's conference call and webcast. Please disconnect your line at this time and have a wonderful day.