Sezzle Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports full-year results, not standalone fourth-quarter results; Q4-specific financial values are not clearly provided in the filing text. Amounts below are in U.S. dollars unless noted.
Business context
Sezzle operates a buy-now-pay-later payments platform, primarily in the United States. Its core product lets consumers pay in four interest-free installments over six weeks; Sezzle generally earns merchant fees and assumes consumer repayment and payment-processing risks. At year-end, it reported 47,000 active merchants and 3.4 million active consumers. Newer offerings included credit-building product Sezzle Up, a virtual card, and partner-funded long-term installment loans.
Financial and operating metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total income | $114.8 million | $58.8 million | +95.3% |
| Sezzle income | $98.2 million | $49.7 million | +97.7% |
| Operating loss | $(68.7) million | $(27.9) million | Loss widened |
| Net loss | $(75.2) million | $(32.4) million | Loss widened |
| Net loss per share, basic and diluted | $(0.38) | $(0.17) | — |
| Operating cash flow | $(72.1) million | $(24.8) million | Cash use increased |
| Underlying Merchant Sales (UMS) | $1.81 billion | $856.4 million | +111.1% |
| Active merchants / consumers | 47,000 / 3.4 million | 27,000 / 2.23 million | +76.0% / +52.4% |
Merchant fees were $94.4 million, about 82% of total income. Account reactivation fee income was $16.6 million, or 14.5% of total income. Total operating expenses rose to $183.5 million from $86.7 million. The provision for uncollectible accounts increased to $52.6 million from $19.6 million, equal to 53.6% of Sezzle income versus 39.4% in 2020. Net charge-offs on consumer notes, net of recoveries, were $40.6 million.
Operating loss was approximately 59.8% of total income, compared with 47.5% in 2020; net loss was approximately 65.5% of total income, versus 55.1%. These ratios are calculated from reported figures.
Liquidity, debt and cash flow
At December 31, 2021, cash, cash equivalents and restricted cash totaled $78.9 million ($77.0 million unrestricted cash and cash equivalents). Working capital was $113.7 million, up from $104.6 million. Notes receivable, net, were $134.0 million; merchant accounts payable were $96.5 million.
The company had $78.8 million outstanding under its asset-based revolving facility ($77.7 million net of debt issuance costs), with $29.8 million of unused borrowing capacity. The facility has stated capacity of up to $250 million, but only $125 million is committed; access to additional capacity depends on lender discretion and borrowing-base availability. The facility is secured by pledged consumer receivables and subject to financial covenants. Total liabilities were $185.6 million and stockholders’ equity was $37.8 million.
Operating cash use was $72.1 million; investing cash use was $1.4 million; financing provided $63.2 million, including $38.8 million net proceeds from the line of credit and $30.0 million from a share issuance to Discover Financial Services. Cash and restricted cash declined by $10.3 million during the year. Sezzle reported a $5.3 million net interest expense and a $1.1 million loss on extinguishment of its prior credit facility.
Changes, outlook and material developments
- Growth in income and UMS was accompanied by substantially higher expenses and a wider net loss. Management attributed the increased credit-loss provision in part to adverse selection from non-integrated enterprise merchant offerings and higher losses on first payments made by ACH. It described steps to improve collections, require a card on file for ACH first payments, and increase enterprise integrations.
- Management said continued losses at the 2021 level could breach credit-facility covenants. A February 25, 2022 amendment adjusted covenant terms and reporting requirements. On March 10, 2022, Sezzle announced a workforce reduction affecting approximately 20% of its North American workforce, including normal attrition, with expected annualized savings of about $10 million. Further cost reductions could be required.
- Management stated that liquidity plans and available resources were expected to support working capital and investment needs beyond the next 12 months. The financial-statement note says management believed its plans would allow the company to continue as a going concern through at least March 31, 2023, while warning that success was not assured and that inability to improve profitability and liquidity could impair funding of operations.
- On February 28, 2022, Sezzle agreed to be acquired by Zip Co Limited for 0.98 Zip ordinary shares (or equivalent Zip ADRs, subject to election and eligibility) per Sezzle share, subject to closing conditions. The transaction was pending when the 10-K was filed; failure to close, transaction disruption and related costs are identified risks.
- Sezzle committed to up to approximately $35.1 million of future co-marketing and advertising spend under merchant agreements, generally lasting one to three years. A further approximately $6.7 million of potential spend depends on specified criteria being met.
- Management reported that disclosure-control deficiencies identified in the second and third quarters, primarily concerning IT controls and reporting data, were remediated by year-end; management assessed internal control over financial reporting as effective at December 31, 2021. The independent auditor did not provide an internal-control attestation. The audited financial statements received an unmodified opinion.
- The filing reports no material legal proceedings beyond routine matters. Sezzle faces regulatory uncertainty for BNPL, consumer-credit losses, competition and merchant pricing pressure, cybersecurity and privacy risks, and possible funding and covenant constraints. Seasonality typically makes Q4 the strongest period for income and UMS, with higher charge-offs also historically observed.
Most important facts for investors to verify
- Whether credit-loss rates and charge-offs improve, particularly for enterprise merchants and ACH-originated first payments, and how they compare with UMS and Sezzle income growth.
- Current unrestricted liquidity, borrowing-base availability, covenant compliance and any further amendments or cost-reduction actions.
- Whether the Zip transaction closed, its final consideration and any effects on Sezzle’s operations, costs, workforce or B Corporation status.
- Whether the workforce reduction delivers the stated savings without materially impairing revenue growth, merchant relationships or platform operations.
- Actual future costs and performance obligations under merchant incentive and co-marketing agreements, and whether growth can support a path to profitability and positive cash flow.