Sezzle Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. This is an annual report, not a standalone fourth-quarter report. Sezzle provides buy-now-pay-later payments, primarily in the United States and Canada, and was winding down operations in India, Brazil, and parts of Europe.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total income | $125.6 million | $114.8 million | +9.4% |
| Operating loss | $28.4 million | $68.7 million | Loss narrowed |
| Net loss | $38.1 million | $75.2 million | Loss narrowed |
| Operating margin | (22.6%) | (59.8%) | Improved |
| Net margin | (30.3%) | (65.5%) | Improved |
| Operating cash flow | $8.5 million | $(72.1) million | Turned positive |
| Underlying Merchant Sales (UMS) | $1.743 billion | $1.808 billion | (3.6%) |
| Active merchants / consumers at year-end | 42,000 / 2.95 million | 47,000 / 3.4 million | (10.4%) / (13.3%) |
Merchant processing fees were $92.6 million, broadly flat year over year. Total income also included $23.0 million from other services, up 7.8%, partly reflecting the Sezzle Premium launch. Merchant processing fees represented 74% of total income, down from 81%.
The net loss included $11 million received from Zip as reimbursement for costs related to the terminated merger. The company reported $6.6 million of external merger costs in general and administrative expense. Net interest expense increased 63% to $8.6 million; the weighted-average rate on credit facilities was 16.07% at year-end. Provision for uncollectible accounts declined 44% to $29.4 million, or 28.7% of transaction income versus 56.3% in 2021.
Liquidity, debt, and capital
Cash, cash equivalents, and restricted cash totaled $69.5 million at year-end, compared with $78.9 million a year earlier. Working capital was $70.9 million, down from $113.7 million. Credit-facility borrowings had $65.0 million principal outstanding; unused capacity was approximately $0.48 million, down from $29.8 million. The balance sheet reported $63.8 million of line-of-credit debt net of issuance costs. Notes receivable, net, were $93.4 million, down from $134.0 million.
The October 2022 revolving facility has capacity up to $100 million, matures in October 2024, and is secured by eligible receivables. It carries interest at Adjusted SOFR plus 11.5% and imposes minimum outstanding borrowing requirements that increase to $80 million after March 30, 2023. Management stated existing cash, available borrowing capacity, and expected operating cash flows should cover working capital and investment needs beyond 12 months.
Operating cash flow improved substantially, while cash declined by $8.2 million overall. The filing attributes cash generation in part to collection of prior-year receivables and merchant payment deferrals under the Merchant Interest Program; these factors warrant consideration when assessing cash-flow sustainability. Stockholders’ equity was $8.8 million at year-end, down from $37.8 million.
Changes, outlook, and risks
- Management shifted emphasis from top-line growth to profitability, tightened underwriting, offboarded unprofitable merchants, reduced staffing, and exited or began winding down several international markets. These actions accompanied lower UMS and smaller active merchant and consumer bases.
- Management cited improved collections and underwriting as drivers of lower credit-loss provisions. Marketing expense more than doubled to $19.0 million, largely due to merchant and partner co-marketing obligations.
- The proposed Zip merger was terminated by mutual consent in July 2022; Sezzle received $11 million for merger-cost reimbursement.
- The filing does not provide numeric revenue or earnings guidance. Management described its liquidity as sufficient beyond the next 12 months, but this depends in part on receivables, facility availability, and operating cash flows.
- Key risks include elevated funding costs and limited unused facility capacity; consumer credit losses and macroeconomic pressure; merchant concentration (one merchant generated approximately 14% of FY2022 income); intense competition and pricing pressure; and changing BNPL, lending, privacy, and consumer-protection regulation.
- Sezzle reported no material legal proceedings beyond routine litigation. Its financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not required to attest to internal-control effectiveness.
Important facts for investors to verify
- Current facility availability, covenant compliance, required minimum borrowings, borrowing costs, and the receivables collateral supporting the facility.
- Whether positive operating cash flow persists after receivables collections and merchant payment deferrals normalize.
- Credit-loss trends, delinquency and charge-off data, and the effects of tighter underwriting on transaction volume and customer retention.
- Exposure to the merchant representing 14% of income, and the terms and cost effectiveness of merchant marketing commitments.
- Progress and costs of international wind-downs, and whether the Premium subscription product can scale profitably.
- Potential share dilution: 13.0 million unvested restricted stock units, 11.3 million outstanding options, and warrants for up to 2.1 million shares were disclosed at year-end.