Sezzle Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures are as of March 31, 2024 unless noted. Sezzle operates a single-segment BNPL payments platform, primarily in the U.S. and Canada, and was winding down operations in India and certain European countries. It reported approximately 26,000 active merchants and 2.6 million active consumers.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total income | $47.0 million | $34.7 million; up 35.5% |
| Operating income | $13.8 million; 29.4% of income | $5.4 million; 15.6% |
| Net income | $8.0 million; 17.0% of income | $1.7 million; 5.0% |
| Net income per share | $1.41 basic; $1.34 diluted | $0.31 basic and diluted |
| Operating cash flow | $38.6 million | $(4.1) million |
| Cash, cash equivalents and restricted cash | $82.2 million | $70.7 million at December 31, 2023 |
| Notes receivable, net | $103.3 million | $130.6 million at December 31, 2023 |
| Line of credit | $72.0 million principal; $71.4 million net carrying value | $95.0 million principal at December 31, 2023 |
| Stockholders’ equity | $29.6 million | $22.1 million at December 31, 2023 |
Income growth reflected subscription revenue of $14.7 million, up 255.9%, primarily following the 2023 launch of Sezzle Anywhere. Transaction income rose 2.9% to $26.6 million, while other-services income increased 21.4% to $5.7 million. Subscription revenue was about 31% of total income versus 12% a year earlier. Underlying Merchant Sales (UMS), a non-GAAP operating metric, increased 33.2% to $492.7 million. Active subscribers grew 20.9% from year-end to 371,000; active consumers were essentially flat at 2.594 million.
Expenses included a $5.1 million provision for credit losses, up from $1.7 million; the provision increased to 10.9% of income from 4.9%. Transaction expense rose 43.1% to $11.8 million, mainly because payment-processing costs increased with UMS. Marketing expense declined 79.5% to $0.7 million, and personnel expense fell 4.7% to $11.0 million. Net interest expense increased 20.9% to $4.1 million.
Q1 operating cash flow benefited substantially from a $22.0 million decrease in notes receivable and collection timing. Investing cash outflow was $0.3 million; financing cash outflow was $26.8 million, including $23.0 million of net line-of-credit repayments and $3.8 million of share repurchases and withholding-related share purchases. Cash, cash equivalents and restricted cash increased by $11.5 million during the quarter.
Working capital was reported at $98.7 million, compared with $21.8 million at year-end. The increase largely reflects the line of credit’s reclassification from current to non-current following the subsequent refinancing, not solely an increase in underlying liquidity. Cash and cash equivalents were $77.8 million and restricted cash totaled $4.4 million; management said most restricted cash becomes available within two to three business days.
Material changes and notable items
- Merchant processing fees decreased to $14.5 million from $20.0 million, which the company attributed to a higher concentration of UMS through subscription products. Growth in partner income and consumer fees offset that decline within transaction income.
- Net charge-offs on notes receivable were $8.2 million in Q1 2024. At March 31, $11.1 million of notes receivable were 1–90 days past due; $4.2 million were 57–90 days past due. The allowance for credit losses was $9.2 million, down from $12.3 million at year-end after charge-offs and recoveries.
- On February 23, 2024, the company amended outstanding warrants following its ASX delisting and converted warrant liabilities to equity. The conversion was $2.2 million; a $1.3 million fair-value remeasurement loss was recorded in Q1 other expense.
- On April 19, 2024, Sezzle entered a new secured revolving credit facility with borrowing capacity up to $150 million and maturity in April 2027, and used it to refinance its existing line. Pricing is three-month Term SOFR plus 6.75%, subject to a 2.0% SOFR floor; the agreement requires a $60 million minimum outstanding balance and includes financial and other covenants. At March 31, unused capacity under the prior facility was $3.6 million.
Outlook, risks and contingencies
The filing gives no quantitative revenue, earnings or other formal guidance. Management stated that existing cash, restricted cash, unused borrowing capacity and expected operating cash flows should meet working-capital and investment needs beyond the next 12 months, while cautioning that this depends on conditions outside the company’s control.
Key risks cited include consumer delinquencies and defaults, macroeconomic effects on spending and repayment, access to capital and collateral requirements, floating-rate borrowing costs, competition, merchant and consumer retention, regulatory scrutiny and compliance costs, cybersecurity and vendor or partner disruptions, and foreign-exchange movements. Management noted that Q4 has historically been the strongest period for income and UMS and has typically had higher charge-offs than the other quarters. The company reported no material legal proceedings and no material changes to the risk factors in its 2023 Form 10-K. Disclosure controls were deemed effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether subscription growth and UMS growth translate into durable transaction economics and profitability, given lower merchant processing fees and higher payment-processing costs.
- Credit performance by vintage and delinquency status, including the effect of elevated 57–90-day delinquencies, charge-offs and future allowance estimates.
- The terms, availability and covenant headroom of the new $150 million credit facility, including the minimum borrowing requirement and sensitivity to SOFR and collateral performance.
- How much of Q1 operating cash generation reflects sustainable earnings versus receivable collections and working-capital timing.
- Whether consumer and merchant activity, subscriber growth and risk trends remain consistent with management’s expectations; the filing provides no formal quantitative guidance.