SEZZLE INC. (SEZL)

Business overview

BUSINESS Unless otherwise noted, references in this Form 10-K to “we,” “us,” “our,” “Company,” or “Sezzle” refer collectively to Sezzle Inc. and our subsidiaries. Our Company 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, we aim to give consumers control of their spending, ways to save money, and access to responsible 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.

We launched Sezzle amid a backdrop during which digital shopping began to claim a larger share of the retail sector and younger generations (i. e. , Gen Z and Millennials) started demonstrating a need for credit. Gen Z and Millennial consumers, who we define as individuals currently between ages 18–29 and 30–48, respectively, use credit cards less frequently than other generations and, in many cases, lack access to traditional credit. These same consumers are tech-savvy and gravitate towards modern, streamlined commerce solutions, whether online or in-person. Our platform addresses the shortcomings in legacy payment offerings consumers face by providing a flexible, secure, omnichannel alternative with the structural benefit of “creditizing” traditional debit products.

The technology solutions we have designed align with our mission of financially empowering the next generation. We believe our stakeholder approach gives us a competitive advantage and positions our company for success. Stakeholders want to be affiliated with a purpose-driven partner and, to that extent, we elected to become a Delaware public benefit corporation in June 2020. Public benefit corporations are for-profit corporations intended to produce a public benefit and operate in a responsible and sustainable manner. Under Delaware law, public benefit corporations must identify in their certificate of incorporation the public benefit or benefits they will promote, and their directors have a duty to manage the affairs of the corporation in a manner that balances the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit or public benefits identified in the public benefit corporation’s certificate of incorporation.

Being a public benefit corporation offers advantages, including: • public benefit corporation status is a clear differentiator in an increasingly growing, and sometimes crowded, industry; • we are more likely to become an employer of choice as the younger workforce increasingly seek employment from companies which align with their ethical values; • further opportunities to conduct business with brands that also care about sustainability; • the potential to expand our consumer base due to conscious consumers; • added credibility to our mission statement and potential to grow capital through impact investing; and • further opportunities for positive public relations and marketing. We operate in the United States and Canada, and are currently winding down and exiting operations in India and certain countries in Europe.

6 Products Sezzle Platform The Sezzle Platform offers a payments solution for consumers that instantly extends credit at the point-of-sale, allowing consumers to purchase and receive the ordered merchandise at the time of sale while paying in installments over time. The Sezzle Platform can be integrated into merchants’ websites via pre-built widgets for select e-commerce platforms or our direct Application Programming Interface. Consumers can access the Sezzle Platform through the Sezzle mobile application or Sezzle online dashboard. We are able to rapidly onboard and integrate merchants through an increasingly automated merchant underwriting process and, once integrated, consumers can choose the Sezzle Platform as a payment method at the merchant’s point-of-sale.

The Sezzle Platform is presented alongside other payment options on the merchant’s checkout page. Consumers then select Sezzle as their payment option and, if they are a first-time user, create an account with Sezzle in a quick and streamlined process integrated into the selected merchant’s checkout. If a particular merchant is not directly integrated with us, consumers are still able to checkout with the Sezzle Platform using a virtual card if they are subscribed to Sezzle Premium (for select merchants) or Sezzle Anywhere (subject to certain merchant, product, goods, and service restrictions), or if they elect to use Sezzle On-Demand (as discussed below). The Sezzle Platform reviews the transaction and consumer profile in real-time and, if approved, quickly confirms the transaction for both the consumer and the merchant. Once an initial transaction is approved, consumers are granted a spending limit. […]

Management discussion and analysis

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Form 10-K. This discussion and analysis may contain forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Forward-Looking Statements”, “Factors Affecting Results from Operations”, and “Risk Factors” sections of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis. Overview 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 platform, we aim to give consumers control of their spending, ways to save money, and access to responsible 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 extend credit at the point-of-sale, allowing consumers to purchase and receive merchandise, while paying in installments over time. Consumers pay a portion of the purchase price at the point-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. 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 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. We primarily operate in the United States and Canada, and are currently winding down and exiting operations in India and certain countries in Europe. 55 Factors Affecting Results of Operations The following key factors have affected our financial performance and are expected to impact our performance going forward.

Sustainable Business Model 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. 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, exclusive promotions for consumers using Sezzle, and Sezzle Capital, which facilitates access to small business loans issued by third-party lender. […]

Key risk disclosures

“Risk Factors,” of this Form 10-K. If any of these risks actually occur, our business, financial condition, or results of operations would likely be materially and adversely affected. In such case, the trading price of our shares of common stock would likely decline, and you may lose all or part of your investment. These risks include, but are not limited to, the following: Risks Related to Our Industry • Our industry has become subject to increased regulatory scrutiny. • We operate in a highly competitive industry. • Our success is subject to macro-economic conditions that have an impact on consumer spending and consumer credit.

• We, and our industry, has been and may continue to be subject to negative publicity. Risks Related to Our Strategy and Growth • We may not be able to maintain historic levels of profitability in the future. • Our business depends on our ability to maintain and increase our merchant network. • Our business depends on our ability to retain and increase our consumer base and GMV. • Our ability to attract and retain consumers to enroll in our subscription products. • Our ability to effectively manage growth.

• We may not be able to sustain our growth rate. • Our ability to promote and maintain our brand. • We may require additional capital. Risks Related to Our Financing Program • Loans facilitated through our platform involve a high degree of financial risk. • Our agreement with our originating bank partner is non-exclusive and subject to termination by our originating partner upon the occurrence of certain events. • We rely on third-party data to assess the creditworthiness of consumers and such data may be inaccurate.

• Consumer bad debts and insolvency of merchants may adversely impact our financial success. • Merchants may fail to fulfill their obligations to consumers or comply with applicable law. Risks Related to Our Technology and the Sezzle Platform • Our results depend on integration, support, and prominent presentation of our platform by our merchants. • Unanticipated surges or increases in transaction volumes. • The occurrence of data security breaches, cyberattacks, employee or other internal misconduct, malware, phishing or ransomware, physical security breaches, natural disasters, or similar disruptions. • Real or perceived software failures or outages.

• Disruption in service on our platform that prevents or delays us from processing transactions. • Fraudulent activities occurring on our platform. 4 Other Risks Related to Our Business • Our ability to comply with the applicable requirements of payment processors. • The failure of key vendors or merchants to comply with legal or regulatory requirements or to provide various services that are important to our operations. • Changes to our key operating metrics and real or perceived inaccuracies. • Conditions in the capital and credit markets, including higher interest rates.

• Exchange rate fluctuations between the United States and Canada. • Our ability to protect our intellectual property rights. • The loss of licenses or any quality issues with third-party technology that support our business operations or are integrated with our products or services. • Our insurance may not apply or be sufficient. • Our business is subject to damage or interruption from events beyond our control. • Our inability to retain our existing workforce or recruit additional staff, and risks of staff misconduct.

Risks Related to Our Regulatory Environment • The costs of complying with various laws and regulations applicable to the BNPL industry in the United States and Canada. • We are subject to various laws in the United States and Canada concerning lending programs, consumer finance and consumer protection. • We are subject to the regulatory, supervisory and enforcement authority of the CFPB. • We rely on our originating bank partner model to originate a substantial majority of the loans facilitated on the Sezzle Platform. • Failure to identify, obtain and operate the licenses necessary to operate our business. • Violating applicable federal, state and/or local lending or other laws.

• Litigation, regulatory actions, and compliance issues could subject us to increased costs. • Privacy and data protection laws could result in claims or harm our business. Risks Related to Our Corporate Structure • We have not paid dividends on our common stock and any future payment of dividends will be at the discretion of our board directors and depend on certain factors. • Our stock repurchase(s) could affect the price of our stock and increase volatility in the market. […]

Source and methodology

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