# Sezzle Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Sezzle Inc.](/companies/sezl.md) (CIK 1662991)
- Form: 10-Q
- Filed: 2024-11-08
- Accepted by EDGAR: Nov 7, 2024, 22:46 ET
- Period: 2024-09-30
- Accession: 0001662991-24-000294
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1662991/000166299124000294/szl-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1662991/000166299124000294/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $35.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $91.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $2.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $7.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $20.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $51.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $3.3m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $10.3m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $2.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | −$13.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $15.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $53.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $2.62 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $8.94 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $2.79 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $9.46 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 5,905,833 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 5,948,131 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $39.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $36.1k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $22.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $80.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $232.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $252.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $96.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $191.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $61.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,405 characters.

### RESULTS OF OPERATIONS

*The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Forward-Looking Statements”, “Factors Affecting Results from Operations”, and “Risk Factors” sections of this Form 10-Q, and the “Risk Factors” sections on this Form 10-Q and the 2023 Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.*

### Overview

We are a purpose-driven payments company on a mission to financially empower the next generation. Launched in 2017, we built a digital payments platform that allows merchants to offer their consumers a flexible alternative to traditional credit. As of September 30, 2024, our platform has supported the business growth of 23 thousand Active Merchants while serving 2.7 million Active Consumers. Through our products we aim to enable consumers to take control of their spending, be more responsible, and gain access to financial freedom. Our vision is to create a digital ecosystem benefiting all of our stakeholders—including consumers, merchants, employees, communities, and investors—while continuing to drive ethical growth.

The Sezzle Platform offers a payments solution for consumers that instantly extends credit at the point-of-sale, allowing consumers to purchase and receive the ordered merchandise at the time of sale while paying in installments over time. The Sezzle Platform flagship product, “pay-in-four,” allows consumers to pay a fourth of the purchase price up front, and then another fourth of the purchase price every two weeks thereafter over a total of six weeks. We also offer alternative payment options on the Sezzle Platform, including “pay-in-two” and “pay-in-full,” to certain consumers. We realize high repeat usage rates by many of our consumers, with the top 10% of our consumers measured by Underlying Merchant Sales (“UMS,” as defined below) transacting an average of 77 times per year based on the transaction activity during the rolling twelve months ended September 30, 2024, although historical transaction activity is not an indication of future results.

Our product is generally free to consumers who pay on time and use a bank account to make their installment payments, excluding their first payment, unless they choose to pay for one of our two subscription products or enter into an interest-bearing loan with our third-party partners. We make most of our revenue by charging our merchants fees in the form of a merchant processing fee and through our two paid versions of the core Sezzle experience: Sezzle Premium and Sezzle Anywhere. Sezzle Premium is a paid subscription service for consumers to access large, non-integrated premium merchants, along with other benefits, for a recurring fee. Sezzle Anywhere is a paid subscription service that allows consumers to use their Sezzle Virtual Card at any merchant online or in-store, subject to certain merchant, product, goods, and service restrictions, for a recurring fee. Additionally, through collaboration with third-party partners we enable our consumers at participating merchants access to interest-bearing monthly fixed-rate installment-loan products for larger-ticket items (up to $15,000), which extend up to 60 months.

We primarily operate in the United States and Canada, and are currently winding down and exiting operations in India and certain countries in Europe.

### Factors Affecting Results of Operations

We have set out below a discussion of the key factors that have affected our financial performance and that are expected to impact our performance going forward.

### Sustainable Business Model

Our ability to profitably scale our business long-term is reliant on creating a transparent and sustainable ecosystem of products and services that add value for all of our stakeholders, including our consumers and merchants. Our product is generally free for consumers who pay on time and use a bank account to make their installment payments, excluding their first payment, unless they choose to pay for one of our two optional subscription products or enter into an interest-bearing loan with our long-term lending partners. Subscription revenue comprised approximately 33% and 16% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively.

We earn fees from our merchants predominately based on a percentage of the UMS value plus a fixed fee per transaction, collectively called a “merchant processing fee.” We generally pay our merchants the full transaction value upfront, net of the merchant fees owed to us, and assume all costs associated with the consumer payment processing, fraud, and payment default. Merchant and partner-related income comprised approximately 39% and 65% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively. Our merchants have access to a toolkit we provide that can assist in the growth of their businesses. This toolkit includes marketing placements, co-branded marketing, exclusive promotions for consumers using Sezzle, and Sezzle Capital which facilitates access to small business loans issued by third-party lenders.

### Acquisition and Retention of Consumers and Merchants

Our ability to profitably scale our business is reliant on the acquisition and retention of both consumers and merchants on the Sezzle Platform. Changes in our merchant and consumer bases have had, and will continue to have, an impact on our results of operations. It is costly for us to acquire (and in some cases retain) merchants and consumers. As such, high turnover in our merchant and consumer bases could result in higher than anticipated overhead costs.

We rely heavily on our merchant base to offer our product to new consumers at the point of sale. As of September 30, 2024, we had approximately 23 thousand Active Merchants (defined as directly integrated merchants who have had at least one order on the Sezzle Platform in the last twelve months) on our platform. Our integration into scaled e-commerce platforms is expected to give more merchants the opportunity to offer Sezzle as a payment option at checkout, and we expect that our partnerships with larger retailers will familiarize more consumers with the Sezzle Platform. Onboarding and retaining merchants, as well as growing merchant utilization of the Sezzle Platform, requires investment in sales, co-marketing, and competitively priced merchant fee rates and incentives. In order to stay competitive, we have and may continue to adjust our pricing or offer incentives to larger merchants in order to increase UMS. These pricing structures with merchants may include up-front cash payments, fee discounts, rebates, credits, performance-based incentives, marketing, and other support payments that impact our revenues and profitability, and therefore, could incur substantial costs to acquire and retain these larger merchants. Certain agreements contain provisions that may require us to make payments to certain merchants and are contingent on us and/or the merchants meeting specified criteria, such as achieving implementation benchmarks.

There is a risk that we may lose merchants for a variety of reasons, including a failure to meet key contractual or commercial requirements, or merchants shifting to other service providers, including competitors or in-house offerings. We also face the risk that our key partners could become competitors of our business if such partners are able to determine how we have designed and implemented our model to provide our services. We continue to prioritize our focus on merchant profitability, which has resulted in a decline in our directly-integrated merchant base.

The success of our business is also dependent on a consumer base that actively uses our products. As of September 30, 2024, we had approximately 2.7 million Active Consumers on the platform. We aim to provide offerings to our consumers that keep them engaged within our ecosystem, such as Sezzle Up, our tap-to-pay Sezzle Virtual Card, and our paid subscription services Sezzle Premium and Sezzle Anywhere. There is a risk that we may lose consumers for a variety of reasons, including consumers shifting to competitors or other payment options, changes in the general macroeconomic climate, or changes in our underwriting.

### Product Innovation

Our expanding product suite enables us to further promote our mission of financially empowering the next generation, and the adoption of these products by our consumers is expected to drive operating and financial performance. In 2023, we launched Sezzle Anywhere, a paid subscription service that allows consumers to use their Sezzle Virtual Card at any merchant online or in-store, subject to certain merchant, product, goods, and service restrictions, for a recurring fee. In 2023, we also began offering a “pay-in-two” option to certain consumers who are not qualified for our “pay-in-four” product. In “pay-in-two,” a consumer pays half of the value of their order up-front and the second half in two weeks. In 2024, we launched Payment Streaks, a new feature designed to reward consumers for consistent and timely payments. Our free Payment Streaks program enables consumers to ascend through loyalty tiers by consistently making on-time payments, with each tier providing additional benefits to consumers. We continue to seek out new partners to adopt our existing products and strategize on new products to complement our platform and core products, which we believe will have an impact on the continued growth of our business.

### Credit Risk Management

A critical component of our business model is the ability to effectively manage the repayment risk inherent in allowing consumers to pay over time, as we absorb the costs of all credit losses on the credit we extend to our consumers. The provision for credit losses is a significant component of our operating expenses, and excessive exposure to consumer repayment failure may impact our results of operations. To that end, a team of Sezzle engineers and risk specialists oversee our proprietary systems, identify transactions with an elevated risk of fraud, assess the credit risk of the consumer, assign spending limits, and manage the ultimate receipt of funds. Because consumers typically settle 25% of the purchase value upfront at the point of sale, we believe repayment risk is more limited relative to other traditional forms of unsecured consumer credit.

We believe our systems and processes are highly effective and allow for predominantly accurate, real-time decisions in connection with the consumer transaction approval process. As our consumer base grows, the availability of data on consumer repayment behavior will better optimize our systems and ability to make real-time consumer repayment capability decisions over time. Optimizing repayment capacity decisions of our current and future consumer base may reduce our provision for credit losses and related charge-offs by providing optimal limitations on spending power to qualified consumers. We also utilize third-party collection agencies in addition to our internal collections process, which further helps us lower our loss rates and manage credit risk.

### Maintaining our Capital-Efficient Strategy

Maintaining our funding strategy and efficient use of capital is important for the ability to grow our business. We have designed a funding strategy that we believe allows us to scale our business and drive rapid growth. Due to the short-term nature of our products, we are able to recycle capital quickly and create a multiplier effect on our committed capital. We primarily rely on revolving credit facilities to fund our receivables over time, and do not currently require additional equity contributions to directly fund product growth.

### General Economic Conditions and Regulatory Climate

Our business depends on consumers transacting with merchants, which is affected by changes in general economic conditions. For example, the retail sector is affected by macroeconomic conditions such as unemployment, interest rates, consumer confidence, economic recessions, public health crises, or extended periods of uncertainty or volatility—all of which may influence consumer spending, and suppliers’ and retailers’ focus and investment in outsourcing solutions. This may subsequently impact our ability to generate income. Additionally, in weaker economic environments, consumers may have less disposable income to spend, and may be less likely to purchase products by utilizing our services. This could also cause our credit losses to increase due to consumers’ failure to repay the loans originated on the Sezzle Platform. Our industry is further impacted by numerous consumer finance and protection regulations, both domestic and international, and the prospects of new regulations, including the cost to comply with such regulations, have an ongoing impact on our results of operations and financial performance.

### Seasonality

We experience seasonality as a result of the spending patterns of our consumers. Total revenue and UMS in the fourth quarter have historically been strongest for us, in line with consumer spending habits during the holiday shopping season, which has typically been accompanied by increased charge-offs when compared to the prior three quarters.

### Key Operating Metrics

### Underlying Merchant Sales

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Underlying Merchant Sales ("UMS") | $659,889 | $469,500 | $190,389 | 40.6% | $1,684,797 | $1,222,392 | $462,405 | 37.8% |

UMS is defined as the total value of sales made by merchants based on the purchase price of each confirmed sale where a consumer has selected the Sezzle Platform as the applicable payment option. UMS does not represent revenue earned by us, is not a component of our income, nor is included within our financial results prepared in accordance with U.S. GAAP. However, we believe that UMS is a useful operating metric to both us and our investors in assessing the volume of transactions that take place on the Sezzle Platform, including our Sezzle Premium and Sezzle Anywhere products, which is an indicator of the strength of the Sezzle Platform.

For the three months ended September 30, 2024 and 2023, UMS totaled $659.9 million and $469.5 million, respectively, which was an increase of 40.6%. For the nine months ended September 30, 2024 and 2023, UMS totaled $1,684.8 million and $1,222.4 million, respectively, which was a increase of 37.8%. The increases in both periods were primarily from the expansion of our Sezzle Anywhere subscription product, which launched in June 2023, as well as changes to consumer underwriting to further promote profitable top-line growth.

### Active Consumers and Active Subscribers

*(in thousands, except percentages)*

|  | As of September 30, 2024 | December 31, 2023 | Change #% |  |
| --- | ---: | ---: | ---: | ---: |
| Active Consumers | 2,667 | 2,601 | 66 | 2.6% |
| Active Subscribers | 529 | 307 | 222 | 72.0% |

Active Consumers is defined as unique consumers who have placed an order with us within the last twelve months. As of September 30, 2024 we had 2.7 million Active Consumers, an increase of 2.6% when compared to our 2.6 million Active Consumers as of December 31, 2023. The increase in Active Consumers was driven by our marketing efforts and changes to our underwriting.

Active Subscribers is defined as unique consumers who have an active subscription for either Sezzle Premium or Sezzle Anywhere. As of September 30, 2024, we had 0.5 million Active Subscribers, an increase of 72.0% when compared to our 0.3 million Active Subscribers as of December 31, 2023. The increase in Active Subscribers was driven by the continued marketing and adoption of our subscription products.

### Components of Results of Operations

### Total Revenue

Our total revenue is classified into three categories: transaction income, subscription revenue, and income from other services.

#### Transaction Income

Transaction income is comprised of all income earned from merchants, consumers, and other third parties that relate to placing and processing orders on the Sezzle Platform. This includes merchant processing fees, partner income, and consumer fees.

We earn income from fees paid by merchants in exchange for our payment processing services. These merchant processing fees are applied to the underlying sales of consumers passing through our platform and are predominantly based on a percentage of the consumer order value plus a fixed fee per transaction. For orders that result in a financing receivable, merchant processing fees are recognized over the underlying order’s duration using the effective interest method. For orders that do not result in a financing receivable, merchant processing fees are recognized at the time the sale is completed.

We also earn income from partners on consumer transactions. This income includes interchange fees through our virtual card solution and promotional incentives with third parties. Virtual card interchange income is recognized over the underlying order’s duration using the effective interest method and promotional incentives are recognized as they are earned during the promotional period.

Transaction income also includes income from consumers when they choose to make an installment payment, excluding the first installment, using a card pursuant to state law. These fees are recognized at the time a payment is processed.

#### Subscription Revenue

We offer our consumers the ability to subscribe to two paid services: Sezzle Premium and Sezzle Anywhere. Sezzle Premium allows consumers to shop at select large, non-integrated premium merchants, along with other benefits, for a recurring fee. Sezzle Anywhere allows consumers to use their Sezzle Virtual Card at any merchant online or in-store, subject to certain merchant, product, goods, and service restrictions, for a recurring fee. Subscription fees are recognized straight-line over the subscription period.

#### Income from Other Services

Income from other services includes all other incomes earned from merchants, consumers, and other third parties not included in transaction income or subscription revenue. This includes late payment fees, gateway fees, and marketing revenue earned from affiliates. Late payment fees are applied to principal installments that are delinquent, subject to regulations within specific state jurisdictions. Late payment fees are recognized at the time the fee is charged to the consumer to the extent the fee is reasonably collectible.

### Personnel

Personnel primarily comprises all compensation paid to employees, contractor payments, employer-paid payroll taxes and employee benefits, equity and incentive-based compensation, and other employee-related expenses.

### Transaction Expense

Transaction expense primarily comprises processing fees paid to third parties to process debit, credit and ACH payments received from consumers, merchant affiliate program and partnership fees, and consumer communication costs. We incur merchant affiliate program and partnership fees when consumers make purchases with merchants who either were referred by another merchant or are associated with partner platforms with which we have a contractual agreement. We incur consumer communication costs when we notify the consumer about the transaction status and upcoming payments. Communications are primarily made via text message and email directly to the consumer.

### Third-Party Technology and Data

Third-party technology and data primarily includes cloud-based infrastructure, fraud prevention, obtaining underwriting data that resulted in failed loan applications, and consumer engagement. Underwriting costs incurred that result in successfully originated loans are an element of transaction income and recognized as a reduction of the overall income and, therefore, are not included in third-party technology and data.

### Marketing, Advertising, and Tradeshows

Marketing, advertising, and tradeshows primarily comprises costs related to marketing, sponsorships, advertising, attending tradeshows, promotions, and co-marketing the Sezzle brand with our merchants.

### General and Administrative

General and administrative expenses are primarily comprised of professional service fees, depreciation and amortization, insurance premiums, travel, meals, and entertainment costs. Professional service fees include legal, compliance, audit, tax, and consulting services to support the growth of our company.

### Provision for Credit Losses

We maintain an allowance for credit losses at a level necessary to absorb expected credit losses on principal receivables from consumers. The allowance for credit losses is determined based on our current estimate of expected credit losses over the remaining contractual term and incorporates evaluations of known and inherent risks in our portfolio, historical credit losses, consumer payment trends, estimates of recoveries, current economic conditions, and reasonable and supportable forecasts. We regularly assess the adequacy of our allowance for credit losses and adjust the allowance as necessary to reflect changes in the credit risk of our notes receivable. Any adjustment to the allowance for credit losses is recognized through the provision for credit losses.

### Net Interest Expense

We incur interest expense on a continuous basis as a result of draws on our revolving line of credit to fund consumer notes receivable as well as our Merchant Interest Program, whereby merchants may defer their payments owed by us in exchange for interest. The interest paid on borrowings under our line of credit is based on SOFR. Interest paid to merchants under the Delayed Settlement Incentive Program is based on a fixed interest rate.

### Income Tax Expense (Benefit)

Income tax expense (benefit) consists of income taxes in various jurisdictions, primarily U.S. federal and state income taxes, and also the other foreign jurisdictions in which we operate. Tax effects of transactions reported in the consolidated financial statements consist of taxes currently due. Additionally, we record deferred taxes related primarily to differences between the basis of receivables, property and equipment, equity based compensation, and accrued liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Significant judgement is required in determining whether or not our net deferred tax assets are more likely than not to be realized. We assess the realizability of our deferred tax assets by taking into account all relevant positive and negative evidence at each reporting date, including our history of taxable income adjusted for permanent book-tax differences, volatility in our earnings, impacts of the timing and reversal of temporary book-tax differences, and our projected future earnings. Our valuation allowance assessment is based on our best estimate of future results considering all available, relevant evidence.

### Other Comprehensive Income (Loss)

Other comprehensive income (loss) is comprised of foreign currency translation adjustments.

### Results of Operations

### Total Revenue

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Transaction income | $36,398 | $27,046 | $9,352 | 34.6% | $92,096 | $78,870 | $13,226 | 16.8% |
| Subscription revenue | 22,857 | 8,555 | 14,302 | 167.2% | 57,377 | 17,769 | 39,608 | 222.9% |
| Income from other services | 10,703 | 5,243 | 5,460 | 104.1% | 23,432 | 13,816 | 9,616 | 69.6% |
| **Total revenue** | **$69,958** | **$40,844** | **$29,114** | **71.3%** | **$172,905** | **$110,455** | **$62,450** | **56.5%** |

Transaction income totaled $36.4 million and $27.0 million for the three months ended September 30, 2024 and 2023, respectively. Transaction income totaled $92.1 million and $78.9 million for the nine months ended September 30, 2024 and 2023, respectively. Within transaction income, merchant processing fees totaled $14.8 million and $17.8 million for the three months ended September 30, 2024 and 2023, respectively, and $42.9 million and $57.2 million for the nine months ended September 30, 2024 and 2023, respectively. Merchant processing fees decreased due to the higher concentration of UMS volume transacted with our subscription products. Despite the decrease in merchant processing fees, transaction income grew year-over-year overall due to increases in both partner income and consumer fees.

Subscription revenue totaled $22.9 million and $8.6 million for the three months ended September 30, 2024 and 2023, respectively. Subscription revenue totaled $57.4 million and $17.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase was primarily driven by the overall growth in our Active Subscribers.

Income from other services totaled $10.7 million and $5.2 million for the three months ended September 30, 2024 and 2023, respectively. Income from other services totaled $23.4 million and $13.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase was driven by higher consumer fee income and increased marketing revenue generated from merchants. Consumer late payment fees totaled $6.8 million and $2.6 million for the three months ended September 30, 2024 and 2023, respectively, and $13.5 million and $7.0 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in late payment fees was primarily driven by a higher number of orders becoming past due.

### Personnel

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Personnel | $13,424 | $11,079 | $2,345 | 21.2% | $37,185 | $34,670 | $2,515 | 7.3% |

Personnel costs for the three months ended September 30, 2024 and 2023 totaled $13.4 million and $11.1 million, respectively. Personnel costs for the nine months ended September 30, 2024 and 2023 totaled $37.2 million and $34.7 million, respectively. Recorded within personnel, equity based compensation totaled $1.5 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively, and $3.8 million and $7.1 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in personnel costs was driven by increased headcount and accrued bonuses in the current period, offset against lower equity based compensation when compared to the prior period.

### Transaction Expense

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Payment processing costs | $11,230 | $7,972 | $3,258 | 40.9% | $30,483 | $20,880 | $9,603 | 46.0% |
| Affiliate and partner fees | 1,233 | 1,143 | 90 | 7.9% | 3,774 | 3,594 | 180 | 5.0% |
| Other transaction expense | 298 | 822 | (524) | (63.7)% | 1,033 | 1,647 | (614) | (37.3)% |
| **Transaction expense** | **$12,761** | **$9,937** | **$2,824** | **28.4%** | **$35,290** | **$26,121** | **$9,169** | **35.1%** |

Transaction expenses were $12.8 million and $9.9 million for the three months ended September 30, 2024 and 2023, respectively, and $35.3 million and $26.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Payment processing costs were $11.2 million and $8.0 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, payment processing costs were $30.5 million and $20.9 million, respectively. The increase was primarily driven by higher UMS during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023.

Merchant affiliate program and partnership fees are incurred by us when consumers make purchases with merchants who either were referred by another merchant, or are associated with partner platforms with which we have contractual agreements. Such costs were $1.2 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively, and $3.8 million and $3.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Other transaction expense was $0.3 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively, and $1.0 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively. Such costs are comprised of consumer communication costs and consumer and merchant support–related costs. The decrease was a result of fewer consumer and merchant support-related costs during the three and nine months ended September 30, 2024 when compared to the three and nine months ended September 30, 2023.

### Third-Party Technology and Data

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Third-party technology and data | $2,386 | $2,003 | $383 | 19.2% | $6,724 | $5,655 | $1,069 | 18.9% |

Third-party technology and data costs totaled $2.4 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively. Third-party technology and data costs totaled $6.7 million and $5.7 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in expense was driven by an increase in utilization of cloud-based infrastructure and other related costs to support the Sezzle Platform and our expanded suite of product offerings, as well as general increases in third-party technology costs.

### Marketing, Advertising, and Tradeshows

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Marketing, advertising, and tradeshows | $2,726 | $3,615 | $(889) | (24.6)% | $4,376 | $10,128 | $(5,752) | (56.8)% |

Marketing, advertising, and tradeshow costs were $2.7 million and $3.6 million for the three months ended September 30, 2024 and 2023, respectively. Marketing, advertising, and tradeshow costs were $4.4 million and $10.1 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in costs was primarily from a reduction in contractual obligations to co-market the Sezzle brand with our enterprise merchants and partners, offset against higher marketing and advertising expenses to promote user acquisition during the three and nine months ended September 30, 2024.

### General and Administrative

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $2,417 | $2,184 | $233 | 10.7% | $7,319 | $6,680 | $639 | 9.6% |

General and administrative costs were $2.4 million and $2.2 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, general and administrative costs were $7.3 million and $6.7 million, respectively. The increase in costs was primarily related to higher professional service fees in connection with the growth of our business.

### Provision for Credit Losses

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Provision for credit losses | $15,402 | $6,677 | $8,725 | 130.7% | $30,636 | $12,667 | $17,969 | 141.9% |

The total provision for credit losses was $15.4 million and $6.7 million for the three months ended September 30, 2024 and 2023, respectively. As a percentage of total revenue, the provision for credit losses was 22.0% and 16.3% for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the total provision for credit losses was $30.6 million and $12.7 million, respectively. As a percentage of total revenue, the provision for credit losses was 17.7% and 11.5% for the nine months ended September 30, 2024 and 2023, respectively. The increase in credit losses was a result of higher UMS during the three and nine months ended September 30, 2024 when compared to the three and nine months ended September 30, 2023, as well as changes to consumer underwriting to further promote profitable top-line growth.

### Net Interest Expense

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net interest expense | $3,328 | $4,143 | $(815) | (19.7)% | $10,321 | $11,454 | $(1,133) | (9.9)% |

Net interest expense was $3.3 million and $4.1 million for the three months ended September 30, 2024 and 2023, respectively, and $10.3 million and $11.5 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease was driven by the lower interest rate on our new line of credit that we entered into on April 19, 2024, offset against higher outstanding borrowings during the three and nine months ended September 30, 2024 when compared to the three and nine months ended September 30, 2023.

### Income Tax Expense (Benefit)

*(in thousands, except percentages)*

|  | For the three months ended September 30, 2024 | 2023 | Change $% |  | For the nine months ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Income tax expense (benefit) | $2,163 | $16 | $2,147 | Not meaningful | $(13,567) | $48 | $(13,615) | Not meaningful |

Income tax expense (benefit) for the three months ended September 30, 2024 and 2023 was $2,162,989 and $15,874, respectively. Our effective income tax rate for the three months ended September 30, 2024 and 2023 was 12.3% and 1.2%, respectively. Income tax (benefit) expense for the nine months ended September 30, 2024 and 2023 was ($13,567,130) and $48,024, respectively. Our effective income tax rate for the nine months ended September 30, 2024 and 2023 was (34.3%) and 1.1%, respectively. The change was a result of the release of our valuation allowance during the nine months ended September 30, 2024.

We assess all relevant positive and negative evidence to determine if our existing deferred tax assets can be realized at each reporting date. As of September 30, 2024, we concluded that it is more likely than not that our U.S. federal and state deferred tax assets are realizable. As a result, we recorded a discrete tax benefit of $14,941,204 to reflect the release of our valuation allowance during the nine months ended September 30, 2024. As of September 30, 2024 and December 31, 2023, we recorded a $8,349,879 and $32,478,033 valuation allowance against our net deferred tax assets, respectively.

### Other Comprehensive Income (Loss)

We had $71,598 and ($358,465) of foreign currency translation adjustments recorded within other comprehensive income (loss) for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, we had ($2,353) and ($199,586) of foreign currency translation adjustments, respectively. Foreign currency translation adjustments are a result of the financial statements of our non-U.S. subsidiaries being translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. We expect to record foreign currency translation adjustments in future periods and changes will be dependent on fluctuations in foreign currencies of countries in which we have operations.

### Liquidity and Capital Resources

We have historically financed our operating and capital needs primarily through private sales of equity, our capital raises on the ASX, and our revolving line of credit. As of September 30, 2024, our principal sources of liquidity were cash, cash equivalents, restricted cash, the unused borrowing capacity on our line of credit, and certain cash flows from operations.

As of September 30, 2024, we had cash, cash equivalents, and restricted cash of $88.3 million, compared to $70.7 million as of December 31, 2023. Our cash and cash equivalents were held primarily for working capital requirements and the continued investment in our business. A majority of our restricted cash is made available for use within 2-3 business days.

As of September 30, 2024 and December 31, 2023, we had working capital of $135.5 million and $21.8 million, respectively. The increase in working capital was driven by the reclassification of our line of credit from a current liability to a non-current liability as a result of refinancing of our line of credit agreement on April 19, 2024. As of September 30, 2024 and December 31, 2023 we had an unused borrowing capacity on our line of credit of $17.9 million and $3.5 million, respectively.

We believe that our existing cash, cash equivalents, restricted cash, our unused borrowing capacity on our line of credit, and certain cash flows from operations will be sufficient to meet our working capital and investment requirements beyond the next 12 months.

### Factors Affecting Liquidity and Capital Resources

While we believe that our business will be able to generate enough cash flow from operations and that future borrowings will be available to us in an amount sufficient to enable us to fund our liquidity needs, we cannot provide any assurance. Our ability to meet these needs is dependent on current economic conditions and other factors, many of which are beyond our control. Material factors that could affect our liquidity and capital resources are consumer delinquencies and defaults, declines in consumer purchases, an inability to access fundraising, macroeconomic conditions, and instability of financial institutions. If our capital is insufficient to satisfy our liquidity requirements, we will need to seek additional equity or debt financing. In an increasing interest rate environment, our ability to raise equity or incur debt could be limited, our borrowing costs could increase, we could be subject to restrictions, or we could be required to pledge additional collateral as security. If we are unable to raise additional capital or generate the necessary cash flows, our results of operations and financial condition could be materially and adversely impacted.

### Cash Flows

The following table summarizes our cash flows:

|  | For the nine months ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net Cash Provided from (Used for) Operating Activities | $39,928,625 | $(10,675,166) |
| Net Cash Used for Investing Activities | (1,058,150) | (1,037,709) |
| Net Cash (Used for) Provided from Financing Activities | (21,213,116) | 9,205,604 |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $17,657,359 | $(2,507,271) |

31

### Operating Activities

Our largest source of operating cash is receipts from consumers, and our largest use of operating cash is payments to merchants. Other primary uses of cash from operating activities are for personnel, payment processing costs, and interest payments.

During the nine months ended September 30, 2024, net cash provided from operating activities totaled $39.9 million which was related to our $53.2 million net income adjusted for $27.1 million of non-cash adjustments such as deferred income taxes, credit losses, equity based compensation, and depreciation and amortization, offset against cash outflows of $40.3 million from changes in our operating assets and liabilities. Our cash outflows from changes in our operating assets and liabilities were driven by a $33.0 million increase in our notes receivable related to higher transaction volume during the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023, as well as timing of consumer repayments. Cash outflows from changes in our operating assets and liabilities were also driven by a $7.2 million increase in other receivables related to increased late payment fees assessed in the current period and the timing of consumers paying such fees. These both resulted in a decrease of cash receipts from consumers during the nine months ended September 30, 2024.

Offset against these, we had a $5.0 million increase in other payables as a result of the timing of payments received from consumers on receivables owned by our originating partner that we have not yet purchased, which resulted in an increase of cash receipts from consumers during the nine months ended September 30, 2024. During the nine months ended September 30, 2024, cash payments for personnel-related expenses totaled $33.6 million, cash payments for processing costs totaled $31.3 million, and cash interest payments totaled $10.5 million.

During the nine months ended September 30, 2023, net cash used for operating activities totaled $10.7 million, which was related to our $4.2 million of net income adjusted for $21.9 million of non-cash adjustments such as credit losses, equity based compensation, and depreciation and amortization, offset against cash outflows of $36.8 million due to changes in our operating assets and liabilities. The change in operating assets and liabilities was driven by a $20.9 million increase in our notes receivable, which was related to higher transaction volume and timing of consumer repayment resulting in decreased cash receipts from consumers. The change in operating assets and liabilities was also driven by a $14.9 million decrease in our merchants accounts payable as a result of the timing of payments to merchants, which resulted in an increase of cash payments to merchants during the nine months ended September 30, 2023. During the nine months ended September 30, 2023, cash payments for personnel-related expenses totaled $25.2 million, cash payments for processing costs totaled $20.8 million, and cash interest payments totaled $11.9 million.

The change in net cash from operating activities year-over-year was from increased cash receipts from consumers related to our increased profitability during the nine months ended September 30, 2024.

### Investing Activities

Net cash used for investing activities was $1.1 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. Cash outflows for investing activities were used for purchasing computer equipment and payments of salaries to employees who create capitalized internal-use software.

### Financing Activities

Net cash (used for) provided from financing activities during the nine months ended September 30, 2024 and 2023 was ($21.2) million and $9.2 million, respectively. Our net cash used for financing activities during the nine months ended September 30, 2024 was comprised of repurchases of common stock totaling $22.2 million and the payment of debt issuance costs totaling $1.1 million. Repurchases of common stock include $20.0 million of cash outflows for our stock repurchase plans, with the remaining repurchases representing withheld shares of common stock from employees to cover minimum statutory withholding tax obligations owed for vested restricted stock units issued under our equity incentive plans. These cash outflows were primarily offset against proceeds from stock option and warrant exercises totaling $2.0 million.

Financing cash inflows during the nine months ended September 30, 2023 was comprised of net proceeds from our line of credit totaling $10.9 million, offset against repurchases of common stock totaling $1.6 million and payment of debt issuance costs totaling $0.1 million.

### Line of Credit

Refer to Note 6. Line of Credit on the accompanying Notes to the Consolidated Financial Statements for discussion about our lines of credit.

### Loan Commitments

Refer to Note 8. Commitments and Contingencies on the accompanying Notes to the Consolidated Financial Statements for discussion about our direct obligation to purchase loans from our originating partner.

### Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These principles require us to make certain estimates and judgments that affect the amounts reported in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable. Our actual results may differ materially from our estimates because of certain accounting policies requiring significant judgment. To the extent that there are material differences between our estimates and actual results, our future consolidated financial statements will be affected.

We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to our allowance for credit losses, equity based compensation, and income taxes. We believe these estimates have the greatest risk of affecting our consolidated financial statements; therefore, we consider these to be our critical accounting policies and estimates. Refer to Note 1. Principal Business Activity and Significant Accounting Policies within the Notes to Consolidated Financial Statements and “Critical Accounting Policies and Estimates” within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Annual Report on Form 10-K for a complete discussion of our significant accounting policies and critical accounting estimates.

### New Accounting Pronouncements

Refer to Note 1. Significant Accounting Policies on the accompanying notes to our consolidated financial statements for discussion about recent accounting pronouncements.

### Off Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our performance and the performance of our subsidiaries.

## Market risk

As filed, 4,426 characters.

As a smaller reporting company, we are not required to provide the information required by this Item; however, we are exposed to market risks during our ordinary course of business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices, interest rates, and foreign currency exchange rates. Our primary risk exposure is the result of fluctuations in interest rates and foreign currency exchange rates. Management establishes policies and programs around our investing and funding activities in order to mitigate market risks. We continuously monitor risk exposures.

#### Interest Rate Risk

We are exposed to interest rate risk primarily from our revolving line of credit. As of September 30, 2024 and December 31, 2023, we had a revolving line of credit facility of $150 million and $100 million available to us, respectively. We are obligated to pay interest on borrowing under our line of credit as well as other customary fees, including an unused commitment fee. Borrowings under our line of credit bear interest at a floating rate based on the U.S. Federal Reserve’s Secured Overnight Financing Rate (“SOFR”); therefore, we are exposed to risks related to fluctuations in SOFR to the extent of our outstanding borrowings. As of both September 30, 2024 and December 31, 2023, we had $95 million, outstanding under our line of credit. For the nine months ended September 30, 2024, a 100 basis point hypothetical adverse change in SOFR during the year would have resulted in an additional $0.5 million of interest expense recorded within net interest expense on our consolidated statements of operations and comprehensive income, based on actual borrowings on our line of credit during the year.

Interest rates may also adversely impact our consumers’ spending levels and ability to repay outstanding amounts owed to us. Higher interest rates could lead to larger payment obligations for consumers under other lenders, such as mortgages and credit cards, which may reduce our consumers’ ability to remain current on their installment plans with us. This may lead to increased delinquencies, charge-offs, and credit losses on our notes receivable, which would have an adverse effect on our net income.

#### Foreign Currency Risk

During the ordinary course of business, we enter into transactions denominated in foreign currencies, primarily the Canadian dollar, which exposes us to foreign currency exchange rate risk. We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains or losses related to revaluing monetary assets and liabilities that are denominated in currencies other than the functional currency of the entities in which they are recorded. We considered historical trends in foreign currency exchange rates and concluded it was reasonably possible that a 10% change in exchange rates could occur in the near term. If a hypothetical 10% foreign currency exchange rate change was applied to total monetary assets and liabilities denominated in currencies other than the functional currency of the entities in which they were recorded at the balance sheet date, it would not have a material impact on our financial results. At this time, we have not entered into derivatives or other financial instrument transactions in an attempt to hedge our foreign currency exchange risk due to its immaterial nature. In the future, we may enter into such transactions should our exposure become more substantial.

We are also subject to foreign currency exchange risk related to translation, as a number of our subsidiaries have functional currencies other than the U.S. Dollar. Translation from these foreign currencies to the U.S. Dollar is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate for the period. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss on the consolidated balance sheets. A hypothetical adverse 10% change in all of our subsidiaries’ functional currencies against the U.S. Dollar compared to the exchange rate during the nine months ended September 30, 2024 and 2023 would have resulted in an additional foreign currency translation adjustment of approximately $1.6 million and $1.1 million, respectively.

## Controls and procedures

As filed, 740 characters.

### Disclosure Controls and Procedures

Based on their evaluation as of September 30, 2024, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at a reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting as defined in the Exchange Act Rule 13a-15(f) that occurred during the nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 499 characters.

As a smaller reporting company, we are not required to provide the information required by this Item. However, there have been no material changes to the risk factors described in Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023. Investors are encouraged to review such risk factors, as they have the potential to affect our business, financial condition, results of operations, cash flow, strategies or prospects in a material and adverse manner.

Filed Nov 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001662991-24-000294. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.