Sezzle Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. This is an annual report, not a standalone fourth-quarter report. Sezzle operates a buy-now-pay-later payments platform, primarily in the United States and Canada, and was winding down operations in India and certain European countries. Its core product splits purchases into four installments over six weeks. At year-end, it reported 2.6 million active consumers and approximately 28,000 active merchants.
Financial performance and position
| Metric | FY2023 / Dec. 31, 2023 | FY2022 / Dec. 31, 2022 |
|---|---|---|
| Total income | $159.4 million | $125.6 million |
| Operating income (loss) | $22.2 million | ($28.4 million) |
| Net income (loss) | $7.1 million | ($38.1 million) |
| Diluted earnings (loss) per share | $1.25 | ($7.00) |
| Operating cash flow | ($25.7 million) | $8.5 million |
| Cash, cash equivalents and restricted cash | $70.7 million | $69.5 million |
| Working capital | $21.8 million | $70.9 million |
| Line of credit outstanding | $95.0 million | $65.0 million |
- Total income rose 26.9%. Operating margin was approximately 13.9%, and net margin approximately 4.5%.
- Income mix shifted: subscription revenue increased to $29.7 million from $5.3 million, while merchant processing fees declined to $75.2 million from $92.1 million. Partner income and consumer card-payment fees increased. Subscription revenue represented 19% of total income, versus 4% in 2022; merchant- and partner-related income together represented 62%, versus 81%.
- Provision for credit losses declined 21.2% to $23.2 million, or 14.6% of total income compared with 23.4% in 2022. Management attributed the reduction to its Prophet Score model and credit-risk management. Net charge-offs on consumer notes receivable were $20.3 million in 2023.
- Net interest expense rose 85.7% to $16.0 million. The credit facility’s average interest rate was 16.78%, versus 7.11% in 2022.
- Year-end notes receivable, net, were $130.6 million, up from $93.4 million. Cash from operations was negative despite reported net income, primarily because notes receivable increased $59.4 million and merchant payables declined $9.1 million. Financing activities provided $28.2 million, primarily from net credit-facility proceeds.
- Of $70.7 million in cash, cash equivalents and restricted cash, $67.6 million was cash and cash equivalents. Unused borrowing capacity was approximately $3.5 million. The $100 million revolving facility matures October 14, 2024; substantially all of its $95 million year-end balance was classified as current.
Material changes versus FY2022
- Sezzle moved from a $38.1 million net loss to $7.1 million net income, supported by higher income and lower operating expenses. Personnel, marketing, and general and administrative expenses declined; the latter also reflected $6.6 million of 2022 merger-related professional fees.
- 2022 included an $11 million reimbursement from Zip after the proposed merger was terminated. No comparable payment was recorded in 2023.
- Underlying Merchant Sales (UMS), a non-GAAP operating metric and not company revenue, increased 4.6% to $1.824 billion. Active consumers fell 11.8% to 2.601 million as underwriting tightened; active subscribers rose 157.2% to 307,000, driven by Sezzle Anywhere.
- Sezzle adopted the expected-credit-loss accounting standard in 2023; the transition reduced the opening allowance and increased retained earnings by approximately $0.9 million.
Outlook, risks and unusual items
- Management said existing cash, unused facility capacity and expected operating cash flows should be sufficient for working capital and investment needs beyond the next 12 months, and anticipated refinancing the facility before its October 2024 maturity. These are expectations, not guaranteed financing arrangements; the filing gives no quantified earnings or revenue guidance.
- Key risks include the facility’s high floating-rate cost, limited remaining borrowing capacity and dependence on eligible receivables as collateral; consumer defaults and fraud; competitive pressure on merchant fees; and potential changes in BNPL regulation, licensing and consumer-protection requirements.
- Fourth-quarter income and UMS are typically seasonally strongest, with historically higher charge-offs than in the prior three quarters. No material legal proceedings were reported. Sezzle said it was in compliance with credit-facility covenants at year-end.
- The $5 million share repurchase authorization announced in December 2023 began January 17, 2024; it is discretionary and does not require the company to buy a particular amount. Employee share withholding repurchases in 2023 were for tax obligations, not purchases under that public program.
- The company reported no material cybersecurity incident known to it as of the report date. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Progress and terms of refinancing the $100 million facility before October 14, 2024, including borrowing availability, covenants and interest costs.
- Whether improved credit-loss performance persists as receivables and UMS grow; review delinquency trends, charge-offs, recoveries and allowance assumptions.
- Whether subscription growth and other transaction income can offset lower merchant processing fees, and how these revenue sources affect profitability and customer retention.
- The causes and persistence of negative operating cash flow, including receivables growth and merchant-payable movements.
- Effects of tightened underwriting on active consumers, transaction volume and longer-term growth, alongside subscriber growth and UMS.
- Regulatory, licensing and compliance developments in the United States and Canada, and the financial and operational effects of exiting other markets.
- Potential dilution and governance considerations: approximately 47.6% of shares were held by three major stockholders as of February 23, 2024; the filing also describes a 1-for-38 reverse stock split in May 2023.