SEZL 10-K & 10-Q changes, risk factors and insider trading

Despite any competitive advantage we may have, there is always a risk of new entrants in the market, which may disrupt our business and decrease our market share. We expect competition to intensify in the future, both as emerging technologies continue to enter the marketplace and as large financial institutions increasingly seek to innovate their offered services. In addition, deregulation of our industry, including as a result of policies adopted by the new administration, may encourage additional market entrants. Technological advancesadvances, including investment in artificial intelligence (AI), and the continued growth of e-commerce activities have increased consumers’ accessibility to products and services and led to the expansion of competition in digital payment options such as pay-over-time solutions. We face competition in areas such as: flexibility on payment options; duration, simplicity, and transparency of payment terms; reliability and speed in processing applications; underwriting effectiveness; compliance and security; promotional offerings; fees; approval rates; ease-of-use; marketing expertise; service levels; products and services; technological capabilities and integration; customer service; brand and reputation; and consumer and merchant satisfaction. In addition, it may be become more difficult to distinguish our platform, and products and services, from those of our competitors.

Our business depends primarily on individual consumers transacting with our merchants throughutilizing ourthe Sezzle Platform, and the ability of those individual consumers to fully repay to us the resulting loans. These events can be affected by uncertainty and changes in general economic and political conditions, particularly for those macroeconomic conditions that affect consumer spending and consumer credit. For example, consumer spending and consumer credit are affected by economic conditions such as unemployment, consumer confidence, actual or anticipated economic recessions, consumer debt, inflation and deflation, currency exchange rates, tariffs and international trade regulations, taxation, fuel and energy prices and interest rates, downturns or extended periods of uncertainty or volatility, all of which may influence consumer spending and the availability of consumer credit. In weaker economic environments, consumers may have less disposable income to spend and so may be less likely to purchase merchandise by utilizing our services. Alternatively, consumers may purchase merchandise but become unable or unwilling to repay loans, which would result in an increase of loans that will not be paid on time or at all. As a result, such conditions may result in reduced cash flow, failure to meet our earningsforecasted financial expectations and cashfailure flowsto couldachieve suffer.revenue growth.

We have agenerated limitedsignificant operatingnet historylosses and,in untilthe recently,past. a history of operating losses, and weWe may not achieve or be able to maintain historic levels of profitability in the future.

If we fail to maintain our relationships withretain existing merchant partners,consumers or ifacquire wenew doconsumers not attractin a diversecost-effective mix of merchant partners to our platform, thenmanner, our business, results of operations, financial condition, and prospectsresults likelyof wouldoperations could be materially and adversely affected.

We believe that growth of our business depends, in part, on our ability to continue to cost-effectively grow our GMV by retaining our existing merchants and attracting new merchants. A historical portion of our revenue is derived from merchant processing fees generated from transactions on our platform using our direct-integration method and our platform’s appeal to consumers depends, in part, on offering access to a broad and diverse selection of merchants. In particular, our partnerships with larger merchants and merchants with a high degree of brand recognition are a key component of our strategy to provide a wide and attractive selection for consumers. If we fail to retain our existing merchants, especially our most popular and larger merchants, or acquire new enterprise merchants, the value of our platform would be negatively impacted.

We face intense competitive pressure on the fees we charge our merchants, particularly our larger merchants. In order to stay competitive, we may need to adjust our pricing or offer incentives to our merchants to increase payments volume, enter new market segments, adapt to regulatory changes, and expand their use and acceptance of the Sezzle Platform. These incentives include up-front cash payments, fee discounts, rebates, credits, performance-based incentives, marketing, and other support payments that impact our revenues and profitability. Market pressures on pricing, incentives, fee discounts, and rebates could impair our operations or growth. We may continue to incur substantial expenses to acquire additional merchants, particularly larger merchants that we believe will make our platform more attractive to consumers. These merchant partnership cost structures may not be cost-effective for us and we cannot assure you that the revenue we generate from the merchants we acquire will ultimately exceed the cost of adding them to our platform. We have entered into merchant agreements that require us to make marketing, incentive or other payments to these merchantmerchants over the terms of the agreement, which are typically one to three years. Certain agreements also contain provisions that may require payments by us and are contingent on us and/or the merchant meeting specified criteria, such as achieving volume targets and implementation benchmarks. If we are not able to implement cost savings and productivity initiatives in other areas of our business or increase our volumes in other ways to offset or absorb the financial impact of these incentives, fee discounts, and rebates, our business will be adversely impacted.

Our agreement with our originating bank partner, WebBank, which has originated a substantial majority of loans facilitated by the Sezzle Platform since September 26, 2024, issubjects non-exclusiveus to an exclusivity provision and subject to early termination or suspension by WebBank upon the occurrence of certain events. If this agreement is terminated and we are unable to replace the commitments of WebBank or WebBank,WebBank enters into a more favorable relationship with one of our competitors, our business, results of operations and financial condition may be adversely impacted.

We rely on WebBank to originate a substantial majority of the loans facilitated by the Sezzle Platform and to comply with various federal and state laws. The agreement with WebBank (the “WebBank Agreement”) is subject to early termination or suspension by WebBank upon certain events. Under the WebBank Agreement, WebBank is the exclusive issuer of our card products (including virtual card, subject to a one year transition periodcard), on-demand products, and pay-in-four or pay-in-two consumer loans. The WebBank Agreement does not prohibit WebBank from working with our competitors or from offering competing services. WebBank currently participates in a variety of consumer and commercial financing programs, some of which include, or may in the future include, our competitors. WebBank could terminate the WebBank Agreement or suspend performance of its oblationsobligations under the WebBank Agreement immediately upon certain events or could decide to enter into a more favorable relationship with one or more of our competitors. WebBank may not perform as expected under the WebBank Agreement. We could have a disagreement or dispute with WebBank in the future which could negatively impact or threaten our relationship or with other originating banks with whom we may seek to partner.

We purchase data from third parties that is critical to our assessment of the creditworthiness of consumers before they are either approved or denied for credit for their purchase from a merchant. We rely on third parties to provide isus accurate data. Inaccurate data could cause us to not approve transactions that otherwise would have been approved, reducing our transaction volume and potential to earn revenue. Alternatively, we may approve transactions that should have been denied, causing us to experience higher delinquency rates and either lose total revenue, or earn total revenue that may lead to a higher incidence of bad debts. Our inability to collect on certain amounts from consumers due to poor creditworthiness or otherwise would likely have a material adverse effect on our results of operations and financial condition.

Our ability to generate profits depends on our ability to put in place and optimize our systems and processes to make predominantly accurate, real-time decisions in connection with the consumer transaction approval process. We do not ordinarilyperform performhard credit checks on consumers in connection with the application process, unless consumers join our “Sezzle Up” program and opt-in to send their Sezzle Platform transaction records to credit agencies.process. Consumer non-payment is a major component of our expenses, and we are exposed to consumer bad debts as a normal part of our operations because we absorb the costs of all uncollectible notes receivable from our consumers. Our ability to collect on loans is dependent on the consumer’s continuing financial stability, and consequently, collections can be adversely affected by a number of factors, including job loss, divorce, death, illness, or personal bankruptcy. Excessive exposure to bad debts as a result of consumers failing to repay outstanding amounts owed to us may materially and adversely impact our results of operations and financial position.

Although our merchants are obligated to fulfill their contractual commitments to consumers and to comply with applicable law, from time to time they might not do so, or a consumer might allege that they did not do so. This, in turn, can result in claims or defenses against us or any subsequent holder of our installment agreements. One such claim or defense could be made pursuant to a term included in our or our originating bank partner’s installment loan agreement, thatwhich is pursuant to the Federal Trade Commission’s Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses (the “Holder in Due Course Rule”). The Holder in Due Course Rule provides that the holder of the consumer credit contract, in our or our originating bank partner’s case the installment loan agreement, is subject to all claims and defenses which the debtor could assert against the seller of goods or services that were obtained with the proceeds of the consumer credit contract. If merchants fail to fulfill their contractual or legal obligations to consumers, it may also negatively affect our reputation with consumers, and negatively affect our business. Federal and state regulatory authorities may also bring claims against us, including unfair and deceptive acts or practices (“UDAP”) or unfair, deceptive or abusive acts or practices (“UDAAP”) claims, if we fail to provide consumer protections relating to potential merchants actions or disputes.

If we fail to comply with the applicable requirements of Visa or other payment processors, those payment processors could seek to fine us, suspend us or terminate our registrations, which could limit our ability to process transactions or earn related revenue, and could have a material adverse effect on our business, results of operations, financial condition, and prospects.

We partially rely on card issuers or payment processors, and must pay a fee for this service. From time to time, payment processors such as Visa may increase the interchange fees that they charge for each transaction using one of their cards. The payment processors routinely update and modify their requirements. Changes in the requirements, including changes to risk management and collateral requirements, may impact our ongoing cost of doing business and we may not, in every circumstance, be able to pass through such costs to our merchants or associated participants. Furthermore, if we do not comply with the payment processors’processors requirements (e.g., their rules, bylaws, and charter documentation), the payment processors could seek to fine us, suspend us or terminate our registrations that allow us to process transactions on their networks. Some payment processors may also choose not to support BNPL solutions; including our products, in which case, the credit cards these processors issue cannot be linked to pay for purchases made through BNPL entities, including Sezzle. The termination of our registration due to failure to comply with the applicable requirements of Visa or other payment processors, or any changes in the payment processors’ rules that would impair our registration, could require us to stop providing payment services to Visa or other payment processors, which could have a material adverse effect on our business, results of operations, financial condition, and prospects. We are also subject to the Payment Card Industry Data Security Standard (“PCI DSS”) with respect to the acceptance of payment cards. PCI DSS sets forth security standards relating to the processing of cardholder data and the systems that process such data, and a failure to adhere to these standards can result in fines, limitations on our ability to process payment cards, and impact to our relationship with our merchant partners and their own ability to comply with PCI DSS.

We have significant vendors that, among other things, provide us with financial, technology, and other services to support our products and other activities, including, for example, cloud-based data storage and other IT solutions, and payment processing. We could be adversely impacted to the extent our vendors fail to comply with the legal requirements applicable to the particular products or services being offered. For example, the Consumer Financial Protection Bureau (“CFPB”) has issued guidance stating that institutions under its supervision may be held responsible for the actions of the companies with which they contract.

We depend on continued relationships with our current significant merchants and partners that assist in obtaining and maintaining our relationships with merchants. There can be no guarantee that these relationships will continue or, if they do continue, that these relationships will continue to be successful. Our contracts with merchants can generally be terminated for convenience on relatively short notice by either party, and sotherefore we do not have long-term contracted income. There is a risk that we may lose merchants for a variety of reasons, including a failure to meet key contractual or commercial requirements, merchants shifting to in-house solutions (including providing a service competitive to us), or competitor service providers. Similarly, there is a risk that e-commerce platforms with which we partner may limit or prevent Sezzle from being offered as a payment option at checkout. Such actions would magnify the risks to our business as compared to similar actions taken by individual merchants unaffiliated with such platforms. We also face the risk that our key partners could become competitors of our business after our key partners determine how we have implemented our model to provide our services.

As our products and services change or expand over time, we may revise or cease reporting certain key operating metrics if we determine such metrics are no longer appropriate measures of our performance. We regularly review our processes for calculating these key operating metrics, and from time to time we may make adjustments to improve the accuracy or relevance of these key metrics. Our key operating metrics are calculated using internal company data based on activity we measure and compiledcompile from multiple systems, and we believe to be reasonable methodologies and estimates. If investors, analysts, or customers do not consider our reported measures to be sufficient or to accurately reflect our business, we may receive negative publicity, our reputation may be damaged, and our business may be adversely affected.

Any inability to retain our employeesworkforce or recruit additional employeesworkforce could adversely impact our financial position.

Our ability to effectively execute our growth strategy depends upon the performance and expertise of our employees.workforce. We rely on experienced managerial and highly qualified technical employeesindividuals to develop and operate our technology and to direct operational employeesstaff to manage the operational, sales, compliance and other functions of our business.

We may not be able to attract and retain key employeesindividuals or be able to find effective replacements in a timely manner. The loss of employees,key individuals, or any delay or inability to replace such employees in their replacement,individuals, could impact our ability to operate our business and achieve our growth strategies, including through the development of new systems and technology. There is a risk that we may not be able to recruit suitably qualified and talented employees in a timeframe that meets our growth objectives. This may result in delays in the integration of new systems, development of technology and general business expansion. There is also a risk that we will be unable to retain existing employees,staff, or recruit new employees,staff, on terms of retention that are as attractive to us. Our inability to retain our key employees or recruit additional employees, in particular key employees,individuals would likely have a material adverse effect on our business, results of operation and financial condition.

Under Title X of the Dodd-Frank Act, the CFPB hascontinues to have broad authority to regulate and supervise providers of consumer financial products and services, including bank and non-banking entities,services such as us and our originating bank partner.Sezzle. The CFPB is specifically authorized, among other things, to take actions to prevent companies providing consumer financial products or services and their service providers from engaging in unfair, deceptive or abusive acts or practices in connection with consumer financial products and services, and to issue rules requiring enhanced disclosures for our loan products and services. The CFPB also has authority to interpret, enforce, and issue regulations implementing enumerated consumer laws that apply to our business.

In 2017, the CFPB issued a final rule under its unfair, deceptive and abusive acts and practices rule-making authority relating to certain installment loans entitled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the "Rule"). The Rule introduces new limitations on repayment for lenders of certain installment loans. If a consumer has two consecutive failed payment attempts, the lender must obtain a consumer’s new and specific authorization to make further withdrawals from the consumer’s bank account. The lender may also be required to provide certain notices to consumers before attempting a first payment withdrawal, an unusual withdrawal and/or after two consecutive failed payment attempts. The Rule isbecame expectedeffective on March 30, 2025, however, on March 28, 2025, the CFPB announced it would not prioritize supervisory or enforcement actions related to becomecompliance with the Rule. Despite this enforcement posture, the Rule remains effective Marchand 31,compliance 2025,obligations andmay still apply, including through potential state enforcement actions or future changes to the CFPB’s supervisory or enforcement priorities. Compliance with the Rule may require changes to our practices and procedures for suchloans loans,to which couldthe adverselyRule affect our ability to make such loansapplies and the profitability of such loans. Additionally, any further regulatory changes to the Rule could have effects beyond those currently contemplated that could further materially and adversely impact our business and operations.

Any of the foregoing changes in law or interpretation or enforcement of existing laws could impair our relationship with our originating bank partner and could adversely impact our business, results of operations and financial operation.condition.

Certain states have adopted laws regulating and requiring licensing, registration, notice filing, or other approval by parties that engage in certain activity regarding consumer finance transactions. Furthermore, certain states and localities have also adopted laws requiring licensing, registration, notice filing, or other approval for consumer debt collection or servicing, and/or purchasing or selling consumer loans. We have obtained lending licenses or made applicable notice filings in certain states, and we may in the future pursue obtaining additional licenses or making additional notice filings. The loans we may originate or service on the Sezzle Platform pursuant to these state licenses are subject to state licensing and interest rate restrictions, as well as numerous state requirements regarding consumer protection, interest rate, disclosure, prohibitions on certain activities, and loan term lengths. We cannot assure you that we will be successful in obtaining state licenses in other states or that we have not yet been required to apply for.

Stringent and changingevolving laws and regulations relating to privacy and data protection could result in claims, harm our results of operations, financial condition, and prospects, or otherwise harm our business.

We process significant volumes of personal, financial and transaction data in connection with our platform and services. As a result, we are subject to a varietycomplex and evolving array of laws, rules, directives, and regulations, as well as contractual obligations, relating to theprivacy processingand ofdata personal information,protection, including personallywith identifiablerespect information.to cloud computing and artificial intelligence and machine learning (“AI/ML”). The legal and regulatory environment relating to privacy and data protection laws continues to develop and evolve in ways we cannot predict, including with respect to technologies such as cloud computing, artificial intelligence, and machine learning.predict. Any failure or alleged failure by us to comply with our privacy policies as communicated to customers or with privacy and data protection laws could result in proceedings or actions against us by data protection authorities, other government agencies, or others, which could subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, result in reputational harm, and materially harm our business. Compliance with inconsistent privacy and data protection laws may also restrict or limit our ability to provide products and services to our customers, or alternatively increase our costs in ways that could materially and adversely affect our financial position.

We also use artificial intelligence and machine learning (“AI/ML”), in certain aspects of our operations, including for fraud detection and credit risk analysis.management. If the AI/ML models are incorrectly designed, the data we use to train them is incomplete, inadequate, or biased in some way, or we do not have sufficient rights to use the data on which our AI/ML models rely, the performance of our products, services, and business, as well as our reputation, could suffer or we could incur liability through the violation of laws, third-party privacy, or other rights, or contracts to which we are a party. In addition, future privacy and data protection laws, rules, directives, and regulations may complicate or limit efforts to use data in connection with AI/ML.

Furthermore, manyMany jurisdictions in which we operate (and have operated in the past) globally have enacted, or are in the process of enacting, data privacy legislation or regulations aimed at creating and enhancing individual privacy rights. NumerousA growing number of U.S. states have enacted or are in the process of enacting state level data privacy laws and regulations governing the collection, use, and retention of their residents’ personal information, including the California Consumer Privacy Act, California Privacy Rights Act, Minnesota Consumer Data Privacy Act, Virginia Consumer Data Protection Act, Colorado Privacy Act, Utah Consumer Privacy Act, Texas Data Privacy and Security Act, Delaware Personal Data Privacy Act, Montana Consumer Data Privacy Act, Iowa Consumer Data Protection Act, Nebraska Data Privacy Act, New Jersey Privacy Act, New Hampshire Expectation of Privacy Act, Tennessee Information Protection Act, Rhode Island Data Transparency and Privacy Protection Act, Oregon Consumer Privacy Act, Maryland Online Data Privacy Act, Kentucky Consumer Data Protection Act, Indiana Consumer Protection Act, and Connecticut Data Privacy Act. Internationally, we are currently or have in the past been subject to the Canadian Personal Information Protection and Electronic Documents Act (“PIPEDA”) in Canada. The continued proliferation of privacy laws in the jurisdictions in which we operate is likely to result in a disparate array of privacy rules with unaligned or conflicting provisions, accountability requirements, individual rights, and national or local enforcement powers, which could lead to increased regulatory scrutiny and business costs, or unintended consumer confusion. It may also increase our potential liability and may inhibit our operations to the extent that such requirements do not allow international transfers of personal information or otherwise restrict our processing of personal information or the availability of personal information to us.

We are a purpose-driven payments company on a mission to financially empower the next generation. Launched in 2017, we have built a digital shopping and payments platform that provides consumers a flexible alternative to traditional credit. Through our products,platform, we aim to enablegive consumers to take control of their spending, useways creditto responsibly,save money, and gain access to financialresponsible freedom.credit. Our vision is to create a digital ecosystem benefiting all of our stakeholders—including merchants, consumers, employees, communities, and investors—while continuing to drive ethical and sustainable growth.

The Sezzle Platform offers a payments solution for consumers in the United States and Canada that has the ability to instantly extendsextend credit at the point-of-sale, allowing consumers to purchase and receive merchandise at the time of salemerchandise, while paying in installments over time. Consumers pay a portion of the purchase price at the point of salepoint-of-sale as a down payment, and then pay off the remaining amount over time through scheduled payments. We also offer the ability to “pay-in-full” using the Sezzle Platform.

OurWe product is generally free toprovide consumers who make successful, on-time payments and use a bank account or non-electronic payment methodaccess to make their scheduled payments, unless they choose to pay for one of our two subscription products, electshort-term credit products at the point of sale, which may be free or subject to usefees Sezzle On-Demand, and/or enterinterest, intoand anaccess to interest-bearing loanloans with our third-party partner. We make mosta majority of our revenue from merchants, partners, consumer fees, 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 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. Sezzle On-Demand allows consumers who are not subscribed to Sezzle Anywhere to use the Sezzle Platform at any merchant online or in-store (subject to the same restrictions as Sezzle Anywhere) in exchange for a finance charge, which is added to the consumer’s initial down payment. Additionally, through collaboration with a third-party partner we enable our consumers access to interest-bearing monthly fixed-rate installment-loan products at participating merchants for larger-ticket items (up to $15,000), which extend up to 48 months.

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. OurWe productstand isat generallythe freeintersection of digital shopping and a need for credit for consumers who payprefer on time andto use acredit bankalternatives accountother than credit cards or do not have access to maketraditional theircredit installmentproducts. payments,We excludingprovide theirconsumers first payment, unless they chooseaccess to pay for one of our two optional subscription products, electshort-term credit products at the point of sale, which may be free or subject to usefees Sezzle On-Demand, and/or enterinterest, intoand anaccess to interest-bearing loanloans with our long-termthird-party lending partners. Subscription revenue comprised approximately 30% and 19% of our total revenue for the years ended December 31, 2024 and 2023, respectively.partner.

We earn fees from our merchants predominately based on a percentage of the GMV 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 processing fee owed to us, and assume all costs associated with consumer payment processing, fraud, and payment default. We also earn income from partners, including interchange fees through our virtual card solution, promotional incentives with third parties, and marketing revenue earned from affiliates. Merchant and partner income comprised approximately 37% and 62% of our total revenue for the years ended December 31, 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 lender.

Our ability to profitably scale our business relies on the acquisition, monetization, and retention of consumers on the Sezzle Platform. Changes in our consumer base have had, and will continue to have, an impact on our results of operations. The success of our business depends on a consumer base that actively engages with the Sezzle Platform. It is costly for us to acquire consumers; therefore, we aim to provide offerings to our consumers that keep them engaged within our ecosystem, such as our in-app product marketplace, price comparison feature, Payment Streaks, Earn tab, and Sezzle Up. High turnover in our consumer base could result in higher than anticipated overhead costs. 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.

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 our consumers typically settle 25%a portion 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 experience seasonality as a result of the spending patterns of our consumers. Total revenue and GMV in the fourth quarter have historically been strongest for us, in line with consumerconsumers generally spending habitsmore during the holiday shopping season. These higherseasonal volumes have typically been accompanied by increased charge-offs when compared to the prior three quarters. Increased charge-offs accompanying higher seasonal volumes typically result in an increase in the provision for credit losses on an absolute basis and as a percentage of GMV.

GMV 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. GMV does not represent revenue earned by us, is notneither a component of our income, nor is included within our financial results prepared in accordance with U.S. GAAP. However, we believe that GMV 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 utilization and strength of the Sezzle Platform.

“Active Consumers” is defined as unique consumers who have placed an order with us within the last twelve months. Monthly On-Demand Users and Subscribers” (or “MODS”) is defined as unique consumers who have placed at least one On-Demand order during the month ended December 31, 2024,2025, plus consumers with an active subscription for either Sezzle Premium or Sezzle Anywhere as of the end of the period. The increase was driven by the continued marketing and adoption of our subscription products, as well as the launch of Sezzle On-Demand.

As of December 31, 2024,2025, we had 0.50.7 million unique consumers who had an active subscription for either Sezzle Premium or Sezzle Anywhere (“Active Subscribers”), and 0.2 million unique consumers who placed an On-Demand order during the month ended December 31, 2024.2025. The increase in both Active Consumers and MODS is attributed to increased marketing and advertising initiatives during the current year.

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

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 valueGMV plus a fixed fee per transaction. For orders that result in a financing receivable, merchant processing fees are recognized over the loan’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.completed and not deferred over the life of the loan.

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 related to loans we originatepurchase is recognized overat the loan’s duration usingtime the effectiveunderlying interestorder method.is Virtualplaced. card interchange income related to loans we purchase and promotionalPromotional incentives are recognized asin theythe areperiod earned.we fulfil our contractual obligations with third-party platforms for directing traffic or volume to specific merchants or brands.

Transaction income also includes income from consumer fees that are related to processing orders and payments. Such fees are assessed when consumers choosemakes toa makescheduled an installment payment, excluding the first installment,payment using a card pursuant to state law;card, when a payment method fails when attempting to make an installment payment;payment, or when consumers pay a finance charge to use Sezzle On-Demand. These fees are recognized at the time the fee is assessed to the extent the fee is reasonably collectible.

Income from Other ServicesSources

Income from other servicessources 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 primarily comprises all compensation paid to employees, contractor payments, employer-paid payroll taxes and employee benefits, equityequity- and incentive-based compensation, and other employee-related expenses.

We maintain an allowance for credit losses at a level necessary to absorb expected credit losses on principalnotes receivablesreceivable 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,and current economic conditions,conditions. In estimating the allowance for credit losses, we utilize a roll rate analysis of delinquent and reasonablecurrent notes receivable. A roll rate analysis is a technique used to estimate the likelihood that a loan progresses through various stages of delinquency and supportableeventually forecasts.charges off. We segment our notes receivable into delinquency statuses and semi-monthly vintages for the purpose of evaluating historical performance and determining the future likelihood of default. 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 in net income through the provision for credit losses.losses on our consolidated statements of operations and comprehensive income. While we believe our allowance for credit losses is appropriate based on the information available, actual losses could differ from our estimate.

Income Tax Expense (Benefit) Expense

Income tax expense (benefit) expense 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 judgementjudgment 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.

The increase in income from other servicessources was largely derived from consumer fee income. The increase in consumer fees was driven by a higher consumerabsolute number of fees charged in the current period as a result of GMV growth, contributing to approximately $32.7 million of the increase; fee incomestandardization, contributing to approximately $26.3 million; and increasedthe marketingintroduction andof advertisingnew revenue.products, which contributed to approximately $3.9 million of the increase. Consumer late payment fees totaled $25.2$74.0 million and $9.7$25.2 million for the years ended December 31, 20242025 and 2023,2024, respectively. The increase in late payment fees was primarily driven by the standardizing of late payment fees andalong with a higher number of orders becoming past due.due as a result of GMV growth. Increases in affiliate and advertising revenue also contributed to the increase in income from other sources.

The increase in payment processing costs was primarily driven by higher GMV. GMV duringgrowth outpaced the yearincrease endedin Decemberpayment 31,processing 2024expenses comparedas toa result of more efficient processing strategies in place in the yearcurrent ended December 31, 2023.year.

Merchant affiliate programAffiliate and partnershippartner 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. The decrease was from lower GMV on such partner platforms.

Other transaction expense is 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 year ended December 31, 2024 when compared to the year ended December 31, 2023.

As a percentage of total revenue, the provision for credit losses was 20.3% and 14.6% for the years ended December 31, 2024 and 2023, respectively. The increase in credit losses was a result of higher GMV during the year ended December 31, 20242025, when compared to the year ended December 31, 2023,2024, as well as changes to consumer underwriting to further promote new consumer acquisition alongand withretention. profitableOf top-linethe growth.$34.3 million increase when comparing the years ended December 31, 2025 and 2024, approximately $30.3 million was attributable to the increase in GMV. The rest of the increase was a result of changes in consumer underwriting.

Income Tax Expense (Benefit) Expense

Our effective income tax rate for the years ended December 31, 20242025 and 20232024 was 18.3% and (16.6%) and 7.9%,, respectively. The change in the effective tax rate was primarily driven by a resultrelease of the releasemajority of our valuation allowance during the year ended December 31, 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 a result of the positive trends in our net incomeincome, forduring the years ended December 31, 20242025 and 2023, during the year ended December 31, 2024 we concluded that it iswas more likely than not that our U.S. federal and state deferred tax assets are realizable. AsDuring athe result,year ended December 31, 2024, we recorded a tax benefit of $28.2 million to reflect the release of our valuation allowance during the year ended December 31, 2024. As of December 31, 2024 and 2023, we maintained a $3.7 million and $32.5 million valuation allowance against our net deferred tax assets, respectively. The remaining valuation allowance recorded as of December 31, 2024 is related to foreign deferred tax assets.allowance.

For the years ended December 31, 20242025 and 2023,2024, our net income was $78.5$133.1 million and $7.1$78.5 million, respectively. We have historically financed our operating and capital needs primarily through private sales of equity, our capital raises on the Australian Securities Exchange (ASX), and our revolving line of credit. As of December 31, 2024,2025, 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 December 31, 20242025 and 2023,2024, we had working capital of $151.9$262.1 million and $21.8$151.9 million, respectively. AsThe ofincrease December 31, 2023, our line of credit was classified as a current liability which impacted our reportedin working capital bywas $94.4 million. Working capital also increased asprimarily a result of higherthe growth in notes receivable, net, driven by higher GMV at the end of the year ended December 31, 2024 compared to the end of the year ended December 31, 2023.GMV. Additionally, as of December 31, 20242025 and 20232024 we had an unused borrowing capacity on our line of credit of $39.0$73.5 million and $3.5$39.0 million, respectively.

We provide consumers access to subscription products, short-term credit products at the point of sale, which may be free or subject to fees and/or interest, and access to interest-bearing loans with our third-party partner. We make a majority of our revenue from merchants, partners, consumer fees, 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 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. Sezzle On-Demand allows consumers who are not subscribed to Sezzle Anywhere to use the Sezzle Platform at any merchant online or in-store (subject to the same restrictions as Sezzle Anywhere) in exchange for a finance charge, which is added to the consumer’s initial down payment. Additionally, through collaboration with a third-party partnerpartners we enable our consumers access to interest-bearing monthly fixed-rate installment-loan products at participating merchants for larger-ticket items (up to $15,000), which extend up to 48 months.

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. We stand at the intersection of digital shopping and a need for credit for consumers who prefer to use credit alternatives other than credit cards or do not have access to traditional credit products. We provide consumers access to subscription products, short-term credit products at the point of sale, which may be free or subject to fees and/or interest, and access to interest-bearing loans with our third-party partner.partners.

We earn fees from our merchants predominately based on a percentage of the GMV 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 processing fee owed to us, and assume all costs associated with consumer payment processing, fraud, and payment default. We also earn income from partners, including interchange fees through our virtual card solution, promotional incentives with third parties, and marketing revenue earned from affiliates. 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, and exclusive promotions for consumers using Sezzle, and Sezzle Capital, which facilitates access to small business loans issued by third-party lender.Sezzle.

In 2026, we launched Sezzle Mobile,Mobile and SezzleCash. Sezzle Mobile is a mobile phone plan embedded directly within the Sezzle app that offers unlimited talk, text, and 5G data on AT&T’s network, to our consumers. SezzleCash allows consumers to borrow funds and pay back the amount over time, plus a service fee. We also partnered with a new long-term lending provider to expand and further integrate interest-bearing monthly fixed-rate installment-loan products into the Sezzle Platform.

“Active Consumers” is defined as unique consumers who have placed an order with us within the last twelve months. Monthly On-Demand Users and Subscribers (or “MODS”) is defined as unique consumers who have placed at least one On-Demand order during the month ended MarchJune 31,30, 2026, plus consumers with an active subscription for either Sezzle Premium or Sezzle Anywhere as of the end of the period.

As of MarchJune 30, 2026 and December 31, 2026,2025, we had 0.7854 millionthousand and 670 thousand unique consumers who had an active subscription for either Sezzle Premium or Sezzle Anywhere (“Active Subscribers”), respectively, and 0.2128 millionthousand and 248 thousand unique consumers who placed an On-Demand order during the monthmonths ended MarchJune 30, 2026 and December 31, 2026.2025, respectively. The increase in Active Consumers and MODS is attributed to increased marketing and advertising initiatives, as well as new product releases. The decrease in MODS is attributed to seasonality, as more consumers utilized On-Demand during the holiday season compared to the first quarter of 2026.

Our total revenue is classified into threetwo categoriescategories, based on ASC recognition criteria: transactionlending-based income, subscription revenue,income and incomerevenue from othercontracts sources.with customers.

WeRevenue offerfrom ourcontracts consumerswith thecustomers abilityprimarily relates to subscribesubscription torevenue and certain consumer fees. We earn revenue from two paid services:subscription services, Sezzle Premium and Sezzle Anywhere.Anywhere, for a fixed fee paid at the beginning of the subscription period. Sezzle Premium allows consumers to shop at select large, non-integrated premium merchants, along with other benefits, for a recurring fee.benefits. 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,restrictions. forThese performance obligations comprise a recurringseries fee.of Subscriptiondistinct feesservices that are substantially the same; therefore, such revenue is recognized straight-line over the subscription period. All performance obligations related to these subscriptions are fully satisfied within one year of receiving payment. Payment received for performance obligations not yet satisfied are recorded as deferred revenue within the consolidated balance sheets until such performance obligations are satisfied.

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.costs, consumer and merchant support–related costs, and third-party fraud losses. 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 primarily includes cloud-based infrastructure, fraud prevention, obtaining underwriting data that resulted in failed loan applications,data, and consumerother engagement.third-party services to support our operations.

The decreaseincrease in personnel was adriven resultby ofoverall lower bonus expensegrowth in our workforce and an increase in profit-sharing incentive plan expenses during the current period, offset against higher contract labor.year. Recorded within personnel, equity based compensation totaled $1.3$2.1 million and $1.5 million for both the three months ended MarchJune 31,30, 2026 and 2025.2025, respectively, and $3.4 million and $2.8 million for the six months ended June 30, 2026 and 2025, respectively.

The increase in marketing, advertising, and tradeshow costs was driven byfrom the continued expansion of initiatives to promote consumer acquisition, retention, and engagement.engagement, as well as a result of testing different levels of marketing effort to determine optimal strategies. We expect to realize the benefits of this marketing investment in future periods.

The increase was primarily from higher professional service fees related to the overall growth of the business.business, offset against lower operating costs associated with our loan origination partner funding virtual card transactions.

Our effective income tax rate for the three months ended MarchJune 31,30, 2026 and 2025 was 22.3%21.2% and 23.1%,15.5%, respectively. Our effective income tax rate for the six months ended June 30, 2026 and 2025 was 21.8% and 20.0%, respectively. Income tax expense includes $1.7$1.9 million and $0.8$3.1 million of excess tax benefits recorded on equity basedequity-based compensation for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and $3.6 million and $4.0 million of excess tax benefits recorded on equity-based compensation for the six months ended June 30, 2026 and 2025, respectively.

For the threesix months ended MarchJune 31,30, 2026 and 2025, our net income was $51.3$92.1 million and $36.2$63.8 million, respectively. As of MarchJune 31,30, 2026, 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 MarchJune 31,30, 2026, we had cash and cash equivalents of $120.4$79.8 million, compared to $64.1 million as of December 31, 2025. Our cash and cash equivalents were held primarily for working capital requirements and the continued investment in our business. As of MarchJune 31,30, 2026 and December 31, 2025, we had restricted cash of $26.9$32.3 million and $38.5 million, respectively.

As of MarchJune 31,30, 2026 and December 31, 2025, we had working capital of $298.6$306.7 million and $262.1 million, respectively. The increase in working capital was primarily a result of the growth in cash and cash equivalents, as well as notes receivable, net, driven by higher GMV. Additionally, as of MarchJune 31,30, 2026 and December 31, 2025 we had an unused borrowing capacity on our line of credit of $69.0$126.3 million and $73.5 million, respectively.

During the threesix months ended MarchJune 31,30, 2025,2026, net cash provided from operating activities totaled $52.5$141.2 million, driven by our $36.2$92.1 million net income adjusted for $22.5$68.1 million of non-cash adjustments such as deferred income taxes, credit losses, equity based compensation, deferred income taxes, and depreciation and amortization, and offset against cash outflows of $6.2$18.9 million from changes in our operating assets and liabilities. Our cash outflows from changes in our operating assets and liabilities were driven by a $3.6$31.1 million decreaseincrease in merchantother accounts payableassets related to the timing of payments to merchantstaxing authorities and avendors, $0.9as millionwell decrease in our accrued liabilities related to the timing of payments to vendors and personnel, both of which resulted in increased cash payments to third parties in the current period. Our other receivables also increased by $4.4 million related toas higher delinquency fees assessed in the current period not yet collected,collected. whichOffset resultedagainst this was a $9.3 million increase in decreasedother cashliabilities, receiptsdriven fromby consumersan increase in thecollections currentof period.consumer down payments on unpurchased originating partner receivables. During the threesix months ended MarchJune 31,30, 2025,2026, cash payments for personnel-related expenses totaled $18.0$30.1 million, cash payments for processing costs totaled $15.9$36.2 million, cash interest payments totaled $3.2$7.7 million, and cash paid for income taxes totaled $0.1$35.9 million.

Net cash (used for) provided from investing activities was ($22.5)$80.3 million and $6.1$54.3 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. Cash outflows for investing activities were from purchases and originations of notes receivable, net of repayments; purchasing computer equipment; and payments of salaries to employees who create capitalized internal-use software.

Net cash used for financing activities during the threesix months ended MarchJune 31,30, 2026 and 2025 was $21.5$51.1 million and $36.1$0.8 million, respectively.

Our net cash used for financing activities during the threesix months ended MarchJune 31,30, 2026 was primarily driven by repurchases of common stock totaling $25.7$32.8 million, offset against net proceedspayments fromto our line of credit totaling $4.2$17.8 million.million, $24.8and payment of debt issuance costs totaling $1.1 million related to our new line of ourcredit. Repurchases of common stock repurchases were made under our stock repurchase plan,plan totaled $28.0 million, 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. Offset against these cash outflows were proceeds from stock option exercises totaling $0.6 million.