More annual reports from Sezzle Inc:
2023 ReportPeers and competitors of Sezzle Inc:
Credit AcceptanceThe way forward.
A N N U A L R E P O R T
A N N U A L R E P O R T
2 0 1 9
2 0 1 9
For personal use only O U R M I S S I O N
O U R M I S S I O N
Financially
empowering the
next generation
For personal use only C O N T E N T S
2
4
5
11
Key Performance Metrics
About Sezzle
Message from the Executive Chairman and CEO
Sustainability Report
28 Operating & Financial Review
42 Directors’ Report
54 Consolidated Financial Statements
79 Directors’ Declaration
80
Additional ASX Information
83 Corporate Information
SEZZLE INC.
ANNUAL REPORT 2019
1
For personal use only Key Performance Metrics
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U N D E R LY I N G
M E R C H A N T
S A L E S ( U M S )
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A C T I V E
M E R C H A N T S
A C T I V E
C U S T O M E R S
R E P E A T
U S A G E
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US$244.1
$31.1
685%
Underlying Merchant Sales
(UMS) increased by 685%.
T O T A L
I N C O M E
( $ 0 0 0 s )
US$16,060
$1,632
884%
Total income increased
by 884% from 2018 to
2019 reflecting strong
top-line growth.
10,010
2,228
914,886
155,257
83.7%
69.7%
349%
Active Merchants increased
by 349% and exceed 10,000.
N E T
T R A N S A C T I O N
L O S S E S A S A
P E R C E N T A G E
O F U M S
1.5%
2.3%
0.8PP
Losses as a percentage of UMS
decreased from 2.3% in 2018 to
1.5% in 2019 reflecting disciplined
credit risk management and
increased repeat usage by
End-customers.
489%
Active Customers increased
by 489% and are quickly
approaching 1MM.
N E T
T R A N S A C T I O N
M A R G I N A S A
P E R C E N T A G E
O F U M S
0.3%
1.3PP
-1.0%
We went from negative
Net Transaction Margin in 2018
to positive Net Transaction
Margin in 2019.
14PP
Repeat Usage increased 14
percentage points (pp) and is
calculated as the percentage
of cumulative orders made by
returning End-customers to
date relative to total cumulative
orders to date. This is an indication
of increasingly positive user
experience and growing
brand loyalty.
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US$244.1
$31.1
685%
Underlying Merchant Sales
(UMS) increased by 685%.
T O T A L
I N C O M E
( $ 0 0 0 s )
A C T I V E
M E R C H A N T S
10,010
2,228
349%
Active Merchants increased
by 349% and exceed 10,000.
N E T
T R A N S A C T I O N
L O S S E S A S A
P E R C E N T A G E
O F U M S
A C T I V E
C U S T O M E R S
914,886
155,257
489%
Active Customers increased
by 489% and are quickly
approaching 1MM.
N E T
T R A N S A C T I O N
M A R G I N A S A
P E R C E N T A G E
O F U M S
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US$16,060
$1,632
884%
Total income increased
by 884% from 2018 to
2019 reflecting strong
top-line growth.
1.5%
2.3%
0.8PP
Losses as a percentage of UMS
decreased from 2.3% in 2018 to
1.5% in 2019 reflecting disciplined
credit risk management and
increased repeat usage by
End-customers.
0.3%
1.3PP
-1.0%
We went from negative
Net Transaction Margin in 2018
to positive Net Transaction
Margin in 2019.
R E P E A T
U S A G E
83.7%
69.7%
14PP
Repeat Usage increased 14
percentage points (pp) and is
calculated as the percentage
of cumulative orders made by
returning End-customers to
date relative to total cumulative
orders to date. This is an indication
of increasingly positive user
experience and growing
brand loyalty.
SEZZLE INC.
ANNUAL REPORT 2019
3
For personal use only About Sezzle
A N E X T G E N E R A T I O N P A Y M E N T S P L A T F O R M
F O R A N E W G E N E R A T I O N O F C O N S U M E R S
Additional reschedules on the order
are levied a fee and are dependent
on the shopper agreeing to pay that
additional fee.
Failed payment fees are applied
in cases where the End-customer’s
payment fails in the automated
payment process. In these instances,
the fee is waived if the End-customer
makes a payment within two days’
time. End-customers temporarily
blocked from transacting with Sezzle
for failure to make a payment, and
who wish to continue to use Sezzle,
must settle their arrears and any
accrued failed payment fees before
being allowed to make additional
purchases on the Sezzle Platform.
Sezzle pays merchants the value of
underlying sales net of transaction
fees. Sezzle charges merchants for
facilitating the purchases by End-
customers transacted on their retail
web sites and select on-site locations.
Merchant fees are generated on
each individual, approved order
placed by an End-customer through
the Sezzle Platform. The fee is
predominantly based on a percentage
of the End-customer order value plus
a fixed transaction fee.
Sezzle does not
charge interest
or initiation fees
for offering credit
to customers.
Reschedule fees and failed payment
fees are another source of income
for the Company. Reschedule fees are
not a major driver of Sezzle Income,
but may be applied to End-customers
who need to shift their payment
schedules. Sezzle limits reschedules
to two weeks from the originally
scheduled date and allows
End-customers to reschedule
once per order for free.
Sezzle is a technology-enabled
payments company based in the
United States with operations in
both the United States and Canada.
The Company is traded on the
Australian Securities Exchange
(ASX) under the ticker SZL. Sezzle’s
mission is to financially empower
the next generation. This mission
is accomplished by enabling
merchants to offer customers a
more consumer-friendly credit
alternative. Many consumers today
are locked out of the existing credit
system or prefer not to use payment
methods that can get them into
debt or hurt their credit scores.
Sezzle provides a flexible, reliable,
transparent, and secure alternative
to the incumbent payment options
traditionally available to everyday
consumers.
The Company offers its payment
solution in online stores and a
select number of brick-and-mortar
retailers. Sezzle connects consumers
with merchants via a proprietary
payments solution that instantly
extends credit at point-of-sale,
allowing consumers to purchase
and receive the items that they
need now while paying over time
in interest-free installments.
Merchants turn to Sezzle to increase
sales by tapping into Sezzle’s existing
user base, improving conversion
rates, raising spend per transaction,
increasing purchase frequency, and
reducing return rates, all without any
credit risk to the merchant. Sezzle is
a high-growth, networked platform
that benefits from a symbiotic and
mutually beneficial relationship
between merchants and consumers.
4
For personal use only Message from
the Executive
Chairman
and CEO
CHARLIE YOUAKIM,
CHAIRMAN AND CEO
In the year ahead, we will double
down on our commitment to
financially empowering the next
generation of consumers.
Dear Fellow Shareholders,
We are excited to report that
we experienced tremendous
growth across all our key
operating metrics in 2019.
This growth, coupled with
becoming of a publicly traded
company in July, solidified
our position as the leading
US-based installment payments
platform. Our team is committed
to our mission of empowering
the next generation of
consumers and building a brand
that makes our stakeholders
proud. We forge into 2020
with the momentum of 2019’s
tremendous success and plans
to make a significant impact
in the years ahead.
This inaugural Annual Report has
a very different look from previous
Sezzle investor and marketing
materials. This Annual Report marks
the unveiling of Sezzle’s new brand.
Indeed, this new brand, which we
hope you love as much as we do,
better reflects who we are as a
company and where our business
is heading.
F I N A N C I A L LY E M P O W E R I N G
T H E N E X T G E N E R A T I O N
Our mission at Sezzle – it’s even
chiseled on the walls of our
headquarters – is “financially
empowering the next generation.”
Gen Z and millennial consumers
across the globe are looking for
new and dynamic ways to pay
and also for long-term partners in
their financial journeys. Since our
founding, we have always been
consumer-first in our thinking
and actions. We are proud to be
a trusted partner and brand for
many Gen Z and millennial shoppers
across North America. In the year
ahead, we will double down on our
commitment to financially empower
the next generation of consumers,
by expanding our array of product
offerings to increase our value
proposition to our shoppers and
merchants and broadening our
footprint both into new sectors
and across new territories.
5
ANNUAL REPORT 2019SEZZLE INC.For personal use only E X E C U T I V E C H A I R M A N A N D C E O ’ S M E S S A G E
C O N T I N U E D
2 0 1 9 : A S T O R Y O F S T E L L A R
G R O W T H A N D C O M M I T T I N G
T O T H E H I G H E S T S TA N D A R D S
O F G O V E R N A N C E
At Sezzle, achieving stellar growth
and committing to the highest
standards of corporate governance
are two sides of the same coin.
As evidenced by our tremendous
growth in 2019, we believe that
we can continue to deliver high
growth performance metrics in a
responsible, sustainable manner
throughout 2020 and well beyond.
As such, we filled the past year
with many important milestones
and achievements outlined here:
H I G H G R O W T H F O C U S
W I T H A P U B L I C C O M P A N Y
M I N D S E T
Our capital raise on the Australian
Securities Exchange in mid-2019 gave
us the cash injection to fuel our
growth. Becoming a public company
accelerated our transformation into a
mature enterprise poised to achieve a
market leadership position. Our DNA
is still that of a high-growth company.
We are still the savvy marketers and
competent risk managers who
propelled us to where we are today.
Becoming a public company has
had a transformative and positive
impact on our governance structure,
approach to sustainability, and
corporate best practices.
S T E L L A R K E Y P E R F O R M A N C E
M E T R I C S I N 2 0 1 9
Underlying Merchant Sales (UMS)
on the Sezzle Platform – a key
performance metric underpinning
the symbiotic relationship between
customer satisfaction and merchant
success – totaled $244.1 million, up
from $31.1 million in 2018, a marked
685% year-over-year increase.
These impressive economic metrics
were made possible by strong growth
in the number of users on both
sides of the Sezzle Platform. In 2019,
Active Customers grew by over
489%, ending the year at 914,886,
while Active Merchants grew to
10,010 compared to 2,228 at the end
of 2018, an increase of 349%. Despite
the increasingly large and varied
size of consumers and merchants,
Net Transactions Losses (NTL)
improved to (1.5%) of UMS and Net
Transaction Margin (NTM) turned
positive in 2019, ending the year at
0.3% of UMS. This dynamic is proving
that Sezzle can scale its business
while mitigating risk, improving
unit economics, and securing
operational and financial efficiencies.
6
For personal use only We believe that we
can continue to
deliver high growth
performance metrics
in a responsible,
sustainable manner
throughout 2020
and well beyond.
K E Y D R I V E R S O F G R O W T H
We are always focused on ways to
efficiently expand our prospects.
Our mid-year entry into the
Canadian marketplace represented
a significant opportunity for our
company because it marked Sezzle’s
first territorial expansion outside
the United States. We know that
territorial expansion will undoubtedly
be one of the tools that we use
to continue to push forward on
our growth.
During 2019 we also leveraged
partnerships as a growth driver.
We forged several key strategic
partnerships that are enabling
broad, large-scale adoption of
the Sezzle Platform by entirely
new communities of merchants.
Expanding our reach with merchants
through these partnerships enhanced
our unit economics by decreasing
merchant acquisition costs.
To support this exceptional
growth, we need to fuel it with
capital. In December of 2019,
we announced a new $100 million
debt funding facility to supply
that fuel. This funding has given
our company the added financial
wherewithal to accelerate our
Underlying Merchant Sales in
the year ahead.
7
ANNUAL REPORT 2019SEZZLE INC.For personal use only E X E C U T I V E C H A I R M A N A N D C E O ’ S M E S S A G E
C O N T I N U E D
D A T A A N D P R I V A C Y
In our business, data is the key to
nearly everything. We are keenly aware
of the importance of data security
and data privacy. To this end, our
engineering and data science teams
have made data security priority
number one. We take pride in knowing
that Sezzle’s customer, merchant, and
employee data is safe and secure.
C O R E V A L U E S
Everything at Sezzle boils down
to who we are as a company, and
the key to capturing our corporate
ethos is to understand our guiding
principles and core values. At Sezzle,
from the CEO down to the newest
employee, we are committed to:
• Creating a company identity
synonymous with Strong
Character, rooted in integrity;
• Fostering a culture of
Excellent Communication,
with a steadfast focus on
openness and transparency;
• Developing and supporting a
Passionately Engaged workforce;
• Harnessing a tireless esprit de
corps, being Driven to Succeed
and wanting to win, by focusing
on making ourselves better;
• Preserving a work environment
that encourages overall wellness,
happiness, and Having Fun.
As we have grown in complexity
and size, we have not wavered from
these core tenets. Our company
ethos has remained stable and
forms the foundation of what
we aspire to be—a genuinely
revolutionary high-growth
financial technology enterprise.
8
P R O - A C T I V E A P P R O A C H
T O R E G U L A T I O N A N D
O V E R S I G H T
O U R S E C R E T W E A P O N :
S E Z Z L E ’ S C O R P O R A T E
C U LT U R E
In 2019, our company’s roster of
full-time personnel nearly doubled
in size. We continue to build our
capabilities across sales and
business development, engineering,
risk management, and other core
strategic growth areas. Despite a
tight U.S. labor market, Sezzle is
drawing in significant interest and
demand for our open positions.
In 2019, we had well over 2,000
applications during our recruiting
process to fill 30 roles. This strong
inbound applicant pipeline is an
essential dynamic in a fast-growing
company. This pipeline allows us to
not only find the most competent
and skilled people to join our ranks
but also those who embody our
core values. We know that the right
corporate culture is a crucial driver
of its long-term success, which is
why we are so focused on it.
The ‘buy now, pay later’ space is
new in North America, and, as the
marquee US-based leader in the
space, we aim to become the lodestar
for regulators seeking to better
understand this emerging area
of commerce.
Our consumer-friendly product
puts us in a positive light with
regulators who are typically focused
on predatory lending practices.
However, it’s possible we have
relied too much on the assumption
that the consumer-friendly nature
of our product is self-evident.
The state of California ruling on our
lending license application—since
resolved—was an example of a
misstep that we are taking steps
to prevent in the future.
We have been proactive with
regulators in the past, but our focus
in this area will increase in 2020.
In October of 2019, we sought out
an audience with the US Consumer
Federal Protection Bureau to give
officials an overview of our consumer-
friendly product and our burgeoning
sector. It was a highly productive
meeting that exemplifies what we
need to do throughout the US and
Canada with federal, state, and
provincial oversights. We will seek
out constructive dialogue with
these regulators, enabling us to
address issues head on, before
they become problems.
Our payment product is very new
in North America. Because of this, we
feel it is incumbent upon ourselves,
as the leading US-based platform
in this sector, to help inform and
educate US and Canadian regulators.
We will spend a good part of the
upcoming year meeting with
lawmakers and policymakers on an
array of emerging issues relevant
to this category to help shape the
narrative. We know we are the type
of business they want to support.
For personal use only We believe in the power of diversity:
diversity in ethnicity; diversity
in socio-economic background;
diversity in age, gender, and gender
identity; and diversity in beliefs.
We also believe in a healthy,
mission-driven corporate culture.
One might say that our culture, which
supports transparency and steadfast
dedication to empowering and
supporting the consumer, is our
secret weapon. We believe being
open and transparent about what
we do and how we do it is not at
odds with driving income growth
and charting a course towards
profitability. Instead, we believe that
it is precisely the embodiment of
these values that will enable us to
achieve our objectives swiftly and
with limited external friction.
W E A R E A L L I N T H I S
T O G E T H E R : S E Z Z L E ’ S
C O M M I T M E N T T O S H A R E D
R E S P O N S I B I L I T Y A N D
S T A K E H O L D E R V A L U E .
Sezzle is a company with its finger
on the pulse of millennials and Gen Z
consumers. One of the fundamental
characteristics of this age cohort is
the sense that their loyalties will not
merely follow brands that are a means
to an end. For millennials and even
more so for Gen Z, good corporate
citizens must not only be good at
what they do – they must be agents
of good. Sezzle has made a firm
commitment to delivering value
across the entirety of its stakeholder
ecosystem: consumers, merchants,
employees, the community at large,
and of course, our shareholders.
One of the core concepts
embedded in every critical
decision that we make at Sezzle
is the notion of a “mission-driven
approach to profit.”
Our focus is not on cutting corners,
but on finding faster and more
innovative ways to get to the finish
line. We hire the very best people and
let them take the reins. We encourage
a culture of thinking outside of the
box and trying new things. Most
importantly, we encourage listening
to our customers and retail merchant
partners and engaging in an open
dialogue with all of our stakeholders.
We now have over 10,000 merchants
on our Platform, ranging from small
‘mom-and-pop’ online stores to
billion-dollar retailers. We understand
that we cannot always take a one-
size-fits-all approach to meet their
needs and expectations. In 2019, we
began developing an array of new
product offerings to meet the specific
needs of small, medium, and large-
sized merchants. We’ve also started
testing a variety of in-store payment
solutions for brick-and-mortar clients
and customers who prefer to do
their shopping in person.
On the consumer front, we’ve
taken up several initiatives aimed
at creating useful and compelling
tools to help our End-customers with
payment scheduling, budgeting, and
financial education. We believe that
supporting our consumers to take
control of their finances is in the
long-term best interest of Sezzle.
Shared responsibility is a cornerstone
of our organization. We’ve partnered
with select merchants who have
socially-driven causes to support
our consumers’ desires to give back
and support their communities.
Something I am particularly proud
of is how strong the culture of giving
back is among Sezzle employees.
Throughout 2019, Sezzlers, as we
call our team members, volunteered
countless hours of their own time in
their communities, non-profits, and
other service-oriented organizations.
9
ANNUAL REPORT 2019SEZZLE INC.For personal use only The new logo is more accessible
and leans into our core audience.
The overall messaging conveys a
more youthful feel, and, we hope,
is more readily associated with our
mantra of financial empowerment.
In short, we feel good about how
much we have achieved and where
we are heading in 2020.
On behalf of my co-founders and
our senior leadership at Sezzle,
I’d like to take this opportunity to
thank our team of deeply committed
coworkers. You continue to inspire us,
challenge us, and help push Sezzle
forward every day.
We at Sezzle believe we have tapped
into something bigger than merely
being a payments platform where
buyers and sellers meet. It’s increasingly
evident to us, told through myriad
merchant and customer testimonials,
that Sezzle means so much more to
its users than simply a way to pay.
We increasingly see ourselves as
being in the business of transforming
lives, facilitating personal financial
betterment, and preparing the next
generation of consumers for the
road ahead.
And that’s something we will continue
to fight for every single day.
Charlie Youakim
Executive Chairman and
Chief Executive Officer
Charlie.Youakim@sezzle.com
E X E C U T I V E C H A I R M A N A N D C E O ’ S M E S S A G E
C O N T I N U E D
S T R O N G F I N A N C I A L
P O S I T I O N
We ended 2019 in a strong financial
position. The initial public offering
on the ASX raised USD 30.3 million
of growth financing, which enabled
us to invest in key strategic areas.
We added to our financial strength
with our new credit facility. The new
facility will fund significant growth
as every additional dollar of capital
supports $14 of Underlying
Merchant Sales.
We find ourselves in a great situation
due to our merchant diversification.
A large number of small merchant
partners is a winning strategy.
This dynamic turns a merchant loss
into a relative non-event, which is
powerful. We ignore this, though,
and instead strive to keep every
merchant on our platform. We keep
our merchant partners happy,
as indicated by public merchant
ratings and our low churn rates.
Low merchant churn means that
our user growth will continue to
tick up, which is something we love.
We end the year with $36.6 million
of cash on hand, 123 employees
plus 10 contractors spanning four
countries, and a full head of steam
for 2020.
B R A N D I N G F O R T H E F U T U R E
Finally, as I alluded to above, in
this report, we are unveiling our new
logo and updated brand identity.
As a consumer-first organization,
we are continually listening to our
customers and retail merchant
partners. We take in their feedback
and assess where we can make
adjustments. Through this feedback,
we learned that our brand didn’t
fully capture the dynamism, energy,
and diversity that are the hallmarks
of our company. We have fixed it.
The result of this process is the new
logo, branding, and imagery that
weaves its way throughout this report.
The vibrant palette of colors reflects
the inclusiveness and diversity
that figures so prominently in
our positioning.
The initial
public offering
on the
ASX raised
US$30.3M
of growth
financing
Sezzle is a company predicated
on removing barriers and enabling
consumers to buy the things they
need today with a financially
responsible way to pay.
We believe that the percentage of our
income derived from failed payment
fees is the lowest of our competitive
set. We pride ourselves on being the
only payments platform that offers
free rescheduling of payments.
We endeavor to grow in partnership
with our customers, not despite them.
We view all of our stakeholders
as symbiotic components of a
flourishing Sezzle ecosystem.
Each piece is accretive in nature,
making the whole more powerful
than the sum of its parts. Shareholder
value is not just about bottom-line
profits. That’s an unsustainable vision.
Long-term shareholder value will
only come from the culmination
of an innovative and hardworking
workforce, satisfied customers,
growing merchants, and a company
that gives back to its community.
We are steadfast in our belief that
the stakeholder approach to winning
is the right path. This belief is an
immutable core underpinning of
our corporate philosophy.
10
For personal use only S U S T A I N A B I L I T Y R E P O R T
S U S T A I N A B I L I T Y R E P O R T
Building your
tomorrow,
today
SEZZLE INC.
11
ANNUAL REPORT 2019For personal use only We are in the business
of doing good
Two out of three. That’s the number
of Americans under the age of 30
that are considered ‘sub-prime’ –
a classification in the American
financial system that indicates
that an individual’s credit score
presents a substantially high
default risk. A sub-prime credit
score effectively locks out millions
of Americans from access to
lenders who finance products
such as mortgages, credit cards,
and auto loans.
67%
30 years
or younger
are sub-prime
At Sezzle, we believe the algorithms
used by third-party organizations to
generate credit scores overemphasize
the importance of credit history.
As a result, many young Americans
and Canadians are finding it
increasingly difficult to get access
to credit due to their stunted
credit score.
This lack of access to credit
disenfranchises large portions of
the population from harnessing
their real purchasing power. In turn,
the impact of not using credit early
on in life makes it more difficult for
young adults to develop a credit
history, critical to developing a
good credit score in the future.
Due to this dynamic, Gen Z, the cohort
born between 1997 and 2012, and
millennials, those born between 1981
and 1996, have turned to debit cards
and other cash-based equivalents
for their purchasing needs.
It was precisely from this vicious
cycle in the credit marketplace,
unfairly penalizing young adults,
that the idea for Sezzle was born.
We call these same young adults
“prime-to-be” because we believe
that they shouldn’t be hampered
in the building of a credit record
when a low credit score is due to a
lack of payment and credit history,
not a lack of willingness to repay.
At Sezzle, we view these Americans
and Canadians – those ill-served by
the current credit system – as the
heart and soul of our tomorrow.
We believe in them, so we’ve built
a product that supports them.
We are empowering them with a
way to pay, using credit, even if they
have no discernible credit history.
We are focused on empowering
millions of Gen Z and millennial
customers because we know that
they will grow into prime credit
customers in the years to come.
6
7
%
3
3
%
5
9
% 4
%
1
5
1
%
4
9
%
5
9
%
4
1
%
8
5
%
1
5
%
7
1
%
2
9
%
30 or younger
30-39
40-49
50-59
60-69
70 or older
Credit score distribution by age
≤680
>680
12
For personal use only M E E T T H E S E Z Z L E R S
Equally important is the diversity of
experience and perspective of our
company’s workforce. Sezzlers speak
9 different languages and dialects
and hail from 12 different countries
and territories, representing a broad
cross-section of cultural and socio
– economic backgrounds and
upbringings. This broad-based
perspective within our ranks
strengthens our ability to gather
insights and better connect with
our End-customers and merchant
clients, who are equally diverse in
their composition.
We are deeply committed to the
notion that our diversity and
openness makes us stronger and
more cohesive as an organization.
Although our senior leadership
team brings together decades of
experience in their relevant areas
of expertise, we are proud to have
a workforce that reflects the younger
nature of our core consumer base.
Our average age of employee is
29 years old, comprised of a growing
contingent of Gen Z, millennials,
Gen X, and baby boomers.
We think of ourselves as “training
wheels” for young credit users.
We allow young adults to exercise
their budgeting muscles with short-
term financing on everyday goods
and services. Our installment plans
make it easier for those on a tight
budget to buy the things they need
today without incurring undue
financial burden or paying massive
interest charges.
One of our goals is to make this
next generation of young adults
across North America fall in love
with our brand by using our product.
We know that these young consumers
will be our future, and if we do our
job correctly, we’ll be a part of their
future, helping them gain their
footing on their financial journeys.
We founded Sezzle on the principle
of making consumers’ lives more
manageable and empowering them
to live responsibly. We endeavor to
serve our customers by enabling
them to acquire the things they need
when they need them without further
aggravating their financial health.
We view Sezzle as a vector through
which consumers can take greater
control over their finances and set
themselves on a path for future
success and growth. We are all
about building a bridge to a
better tomorrow, starting today.
In short, we believe that we are in
the business of doing good, and
it is this ethos that sits at the heart
of the long-term sustainability of
our company. As we grow in scale,
expand geographically, and diversify
our product offerings, our board
and executive leadership will remain
committed to the twin concepts of
doing good and helping solve the
real problems facing real people.
In 2019, we received well over 2,000
applicants to fill a mere 30 open
positions. Two of the most frequently
asked questions from applicants
during the multiple interviews
conducted throughout the year
were, “What does Sezzle mean?”
and “What is it like to be a Sezzler?”
There is no easy answer, of course.
We don’t include the word ‘pay’ in our
name, as we don’t see our long-term
mission constrained by our flagship
product offering in 2019 and 2020.
Instead, we are building a company
predicated on developing an intimate
and integral long-term relationship
with our End-customers.
We are fully committed to building
the foundation for a trusted
partnership with consumers, and
a key to fostering this mindset
within our company is, naturally,
hiring the right people.
Although our workforce, which
now numbers 133 employees and
contractors, is highly diverse in its
composition, it’s a shared belief
in our core values that binds us
together. Sezzlers:
• Exhibit Strong Character
• Are Passionately Engaged
• Are Driven to Succeed
• Demonstrate Excellent
Communication; and
• Have Fun.
We are proud of the diversity of
our workforce and look forward to
further expanding the company’s
heterogeneous makeup in the year
ahead. We have a corporate culture
and work atmosphere that embraces
and celebrates the diverse array
of political affiliations, religious
persuasions, and sexual orientations
that our employees bring to the
organization.
13
ANNUAL REPORT 2019SEZZLE INC.For personal use only C A I T LY N R O E
HEAD OF PEOPLE OPERATIONS,
M I N N E A P O L I S , U S A
There is no greater asset to our
company than our people – our
‘Sezzlers’ – a cohesive team united
behind our core values. Our culture is
a key to the long-term sustainability
of our business and a strategic
advantage when it comes to
recruiting. Top talent wants to come
and work at Sezzle not only because
they believe in our mission and our
business, but because it’s a great
place to work.
W E A R E I N T H E B U S I N E S S O F D O I N G G O O D
C O N T I N U E D
E M M A N U E L I S A A C ,
F U L L S T A C K S O F T W A R E E N G I N E E R ,
L A G O S , N I G E R I A
Although I am based on the other side of the
world, I feel a real sense of connectedness to my
teammates in Minneapolis. I’ve visited the office
multiple times and my teammates there are like
family to me. Our international presence also
allows us to take advantage of a 24-hour workflow.
When my teammates in Minneapolis prepare to
go home for the evening, they hand off projects to
our teammates in India, and then to me in Nigeria.
When I’m getting ready to sign off, the team in the
US is just getting started. This spirit of global
connectedness and international sense of
family among the team members are the
aspects I most value with my work at Sezzle.
14
For personal use only O U R C O M M I T M E N T T O
T R A N S P A R E N C Y I S L I T E R A L
Our main headquarters is in the heart
of the North Loop area of downtown
Minneapolis. It’s a vibrant commercial
district dotted with scores of trendy
restaurants, coffee shops, galleries,
boutiques, and start-up technology
firms, making it a very desirable
location for young workers. Our office,
housed in an old warehouse building,
mixes historic charm with a fun
‘start-up’ look and feel, with exposed
brick walls butted up against full
glass conference rooms. It’s a place
that our team loves and celebrates.
Our open office space fosters
communication and transparency
while creating ample opportunities
for spontaneous cross-departmental
interaction – an often-serendipitous
form of instinctive connection.
This connectedness sparks new
ideas and brings innovation to
life. The dearth of internal walls,
scarcity of individual offices, ample
communal areas, and the abundance
of free snacks and beverages grant
employees of all levels easy access
to senior leadership and vice versa,
breaking down the traditional
barriers of the corporate hierarchy.
Sezzle employees
enjoy an open
workspace that
fosters informal
cross-departmental
collaboration,
idea sharing, and
reinforces a shared
sense of mission.
Education and learning are
significant components of daily
life at Sezzle. Industry workshops,
all-staff ‘Town Hall Meetings,’ and
off-site corporate events play a
vital role at the company. As the
workforce expands both in size as
well as geography, our core values
remain intact, and our cultural profile
as a company remains strong and
unified. We take our company culture
seriously, and we invest in initiatives
that nurture and cultivate the Sezzle
esprit de corps. Members of our senior
leadership team often lead lunches,
learning sessions, and interactive
forums that enable employees to
engage with leadership, ask tough
questions, and offer suggestions.
We believe that you reap what you
sow, and we are committed to never
taking our strong cultural identity
for granted.
Our diverse yet culturally aligned
workforce, situated in an open and
transparent work environment that
fosters personal interaction, has
created a fertile breeding ground
for breakthrough ideas, innovative
problem-solving, and game-changing
strategic thinking. Our culture has
become a hallmark of Sezzle’s
successes to date. Sezzle’s culture
is an asset that furthers our
corporate mission and firmly cements
our shared sense of purpose.
15
ANNUAL REPORT 2019SEZZLE INC.For personal use only W E A R E I N T H E B U S I N E S S O F D O I N G G O O D
C O N T I N U E D
S E Z Z L E : S T R A T E G I C I N V E S T M E N T
I N O U R P E O P L E
Our people are our greatest asset; they fuel the tremendous growth that we see on the horizon ahead.
As such, we have invested significant resources in our ‘People Operations’ team to equip them to find,
nurture, and support Sezzle talent.
One of the critical initiatives slated
for 2020 is the formation of an
external advisory board, comprised
of seasoned, experienced leaders
in fintech and payments, retail, SMBs
(small and medium businesses),
technology, public policy, consumer
marketing, and other relevant areas.
As we compile this external body
of advisors, we will apply the same
rigorous set of credentials as we do
for every new employee with an eye
towards cultural fit. Moreover, a vital
prerogative of this advisory board is
that it not only represents a diversity
of opinions based on varied
foundational and area expertise
but that it reflects the broad cultural
diversity and heterogeneity that
we are seeking to foster within our
company ranks.
At Sezzle, regular interaction and
engagement between our people
operations team members and
staff are always encouraged.
So many times, in a typical corporate
environment, one only engages with
human resources at the point of
hiring, firing, or retiring. We take the
opposite approach. We encourage
employees at Sezzle to regularly share
their experiences and perspectives
with our people operations team,
in a confidential setting, to ensure
that there is an open line of
communication between senior
management and employees at all
different levels of the company.
This open dialog is an important
feature that heads off potential
areas for concern in the early stages,
allowing senior management to
gain insights into issues to which
they wouldn’t usually have access.
According to the employment review
site Glassdoor, Sezzle is rated 4.8 out
of 5.0 stars, and has a 100% “would
recommend the company to a friend”
rating as of December 31, 2019.
All full-time employees are eligible
to receive equity-based awards
in addition to their standard
compensation and benefits
packages. We fully embrace the
idea of shared ownership in the
company’s growth as we believe
that equity participation is an
extension of our shared values
of the community. We hope that all
employees become shareholders
in our company.
We’re in an excellent spot today
with a highly diverse and gender-
balanced workforce. But, we
understand we must continue to
invest in programs that ensure the
long-term sustainability of our
diversity, which we consider to be
a core strategic asset. We have a
variety of programs underfoot
throughout 2020 that will seek to
bolster our diversity and gender
equality, particularly as it relates
to management roles.
Another initiative we are planning
to kick off in 2020 is developing a
meaningful whistleblower policy
for employees to raise concerns
outside of the traditional hierarchical
managerial lines of reporting. In
consultation with external experts
who specialize in this area, we will
be developing a thoughtful and
responsible set of procedures in
which employees at all levels will feel
comfortable and protected in coming
forward and voicing their concerns
about potential misconduct.
Sezzle is rated
stars according
to the employment
review site Glassdoor
16
For personal use only 2 0 2 0 : M O R E I N V E S T M E N T
I N C O M M U N I T Y S T A K E H O L D E R S
One area we began to develop in
2019, and look forward to expanding
throughout the year ahead, is our
corporate commitment to volunteerism
and charitable initiatives. Sezzlers, by
and large, are very generous with their
time; many are involved outside of
regular working hours with an array of
charitable, religious, community–based,
and other non-profit organizations.
Sezzle’s leadership team plans to
develop a meaningful set of initiatives
and programs focused on targeted
volunteerism and charitable giving
that align with the company’s mission
of financially empowering the next
generation. We already have a generous
charitable matching program in
place, but this is just a start.
Through mentorship programs,
financial literacy programs, and
a variety of other educational and
community-based projects focused
on personal finance and economic
well-being, in 2020, we aim to more
fully leverage Sezzle’s domain
knowledge to benefit the community
at large.
Both in Minneapolis and at
our Canadian headquarters in
Toronto, we are fortunate to be
located close to a large number of
community-based organizations
that focus on advancing women
and disadvantaged youth in tech.
Because of their missions and our
proximity and penchant for
supporting groups like these, it’s
our goal to find ways to help them
and partner with them. We plan to
develop a relationship with a leading
organization in this charitable space.
SEZZLE INC.
17
ANNUAL REPORT 2019For personal use only W E A R E I N T H E B U S I N E S S O F D O I N G G O O D
C O N T I N U E D
C O N S U M E R S A R E A T T H E
H E A R T O F O U R P R O M I S E
A N D O U R M I S S I O N
It’s not uncommon to hear corporate executives use the phrase
“consumer-first,” but at Sezzle, our dedication to the End-customer
is not just lip service – it’s at the heart of who we are.
Active Customers
using Sezzle grew by
489%
in 2019, positioning
the company to break
the one million mark
early in 2020.
For this reason, Sezzle is investing
heavily in developing a series of
programs and initiatives focused
on studying the Gen Z cohort and
using the insights and learnings from
these efforts to better engage with
Gen Zers who are above the age of 18.
This dedication to serving our
End-customers is the reason that
our BBB (Better Business Bureau)
rating was an A+ during 2019, our
Trustpilot score is 4.8 out of 5.0 and,
our Facebook reviews give us a 4.8
out of a possible 5.0. We are proud
of these ratings and look forward
to continuing to exceed our
customers’ expectations.
A L E X W I L L I A M S O F T H E N E W
Y O R K T I M E S , D E S C R I B I N G
G E N E R A T I O N Z ( 9 / 1 8 / 2 0 1 5 )
With the oldest members of this cohort
barely out of high school, these tweens and
teens of today are primed to become the
dominant youth influencers of tomorrow.
Flush with billions in spending power, they
promise untold riches to marketers who
can find the master key to their psyche.
Over the past year, the number of
Active Customers using Sezzle grew
by 489%, positioning the company
to break the one million Active
Customer mark in early 2020.
Although dispersed across many
different demographics in the United
States and Canada, a large portion
of that growth stemmed from new
Gen Z and millennial customers.
These two demographic subsets
are substantial in size. There are
approximately 80 million millennials
in the US and Canada and another
90 million that comprise Gen Z.
Although the majority of Gen Z have
yet to become adults, every year
over 4.5 million new members of this
cohort turn 18 years old and enter
the workforce, start college, or take
up vocational training.
Demographers, generational experts,
and consumer trend analysts are
united in pointing out that although
there are some shared characteristics
between millennials and Gen Z, to
treat them as the same would be a
big mistake on the part of consumer-
facing brands.
18
For personal use only S E Z Z L E B E L I E V E S I N G E N Z
Simply put, our goal is to become the preferred payment platform for Gen Z. We believe that investing
in this up-and-coming generation is a strategic pillar that will help guarantee our company’s long-term
financial success by cementing our brand as a preferred method of payment among this group.
The future is always on the mind of
Gen Z. For a generation that grew
up after 9/11 and lived through the
2008 financial crisis, this is a cohort
that has learned that life can be
unpredictable. Among the strongest
tenets that unite the majority of
Gen Zers in North America is their
commitment to ensuring diversity
in their workplace, embracing of all
different types of lifestyles, interests,
and vocations, and vigorously
defending their right to a level
playing field.
The other major trend that defines
Gen Z is social media. Gen Z is a
generation that grew up on Wi-Fi.
Apps such as Snapchat, Instagram,
and increasingly Tik Tok, are not only
replacing the communication tools
of millennials, but Gen Zers are
finding new and compelling ways to
use them. They are a digitally native
generation that consumes media in
a way that is profoundly different
from any generation that came
before them. The number of hours
this generation spends on devices
and screens outpaces that of any
other generation, and many studies
project that the number of hours
Gen Z spends on devices will
eventually approach the number
of waking hours. Indeed, a recent
study indicated that nearly 75% of
Gen Zers’ time outside of school
or work is spent online.
Sezzle is a company with its
finger on the pulse of Gen Z; we
understand their values, how to
connect with them, and what drives
them. Our payments platform and
user experience are optimized to
engage with Gen Zers on their
terms. We understand that for many
Gen Zers, debt is a ‘four-letter word”
We understand that personal
recommendations, word-of-mouth,
and the cycles of digital virality are
the quintessential hallmarks of how
brands are recognized and ultimately
adopted by this young generation.
The bottom line is that our reputation
matters with this group. We need to
treat each consumer engagement
and every customer transaction as
if our company’s future depends
on it – because it does!
in the pejorative sense. One of our
aims in connecting with the Gen Z
cohort is to take the fear out of credit
by creating an inviting, trustworthy
payment solution. We want to create
a payment system that is much
more than merely a way to transact,
but also a dedicated partner they
can lean on for help with budgeting,
planning, and preparing for the
future. Many of our dedicated
customer success specialists are
themselves members of Gen Z, and
bring invaluable insights to our
engineering, product development,
and marketing teams.
Because of the nature of our
business, Sezzle takes precautions to
avoid marketing directly to teenagers
below the age of 18. Nonetheless, we
are fully cognizant of the fact that
the teenagers of today are not only
far more digitally savvy than older
generations but are exposed to a
plethora of external influences much
earlier than in generations past.
ZENAB KASHIF,
STUDENT AND ENTREPRENEUR,
AGE 21
Sezzle helps me invest in myself. Because of
Sezzle, I can buy higher quality items that
I’ll be able to use for a long time. I can use
Sezzle to pay for these items over time and
use the purchases to invest in my future
and my career. The ability to stretch
payments has taken a lot of stress and
anxiety off my back.
19
ANNUAL REPORT 2019SEZZLE INC.For personal use only W E A R E I N T H E B U S I N E S S O F D O I N G G O O D
C O N T I N U E D
O U R N E W B R A N D A I M S T O C O N N E C T
W I T H T H E V A L U E S O F G E N Z E R S
The new Sezzle brand, unveiled for the first time in a public forum in this annual report, is a reflection
of our efforts over the past year to engage in a meaningful way with our core customer base.
We spent many hours listening to
Gen Z consumers, logging their
comments and suggestions, and
transposing that feedback into
tangible, actionable projects and
initiatives. Over the course of 2019,
our marketing division underwent a
wholesale renewal, switching up the
leadership and bringing in new talent.
One of the very first projects of this
new team was to set up a variety of
focus groups and listening sessions
to understand how our brand was
viewed in the broader marketplace,
and in particular by Gen Z.
One consistent piece of feedback
garnered through this process
was that, although our customers
love the user experience and really
value the Sezzle platform, they felt
that the brand didn’t share that
same level of dynamism.
As a result, we embarked on a mission
to revisit our corporate identity and
institutional brand. Everything was
on the table. The feedback from these
studies was clear: consumers wanted
Sezzle’s brand to reflect the energy
and diversity that are the hallmarks
of our product offering. The result of
this process is not just the new logo
that encompasses a wide range of
colors. It’s also a unique feeling that
projects the Sezzle ethos in a much
more forward-facing fashion while
paying homage to our core pillars
of transparency, inclusivity, and
diversity that figure so prominently
in our market positioning.
20
For personal use only O U R T E C H N O L O G Y I S B U I L D I N G
A B R I D G E T O A B E T T E R T O M O R R O W
Although it would be correct to
describe Sezzle as a digital payments
solution, such a statement barely
scratches the surface of what our
company does. At its core, Sezzle
is a powerful technology platform
with a proprietary risk management
algorithm managed by a team of
experienced engineers, sophisticated
data scientists, and steady-handed
actuaries that safeguard the long-
term stability and sustainability
of Sezzle’s business model.
Our intellectual property is the
backbone of our business. It’s created
a strategic advantage that has put
Sezzle’s technology at the forefront of
the payments industry. Our underlying
code, technology-centered human
resources, and data analytics
capabilities combine to serve as
both a formidable defensive shield
and a strategic differentiator in
the competitive landscape.
In the year ahead, we will be
folding in additional resources to
complement our technology team.
In 2020, we will invest in bringing
on more human talent as well as
adding to our existing investments
in machine learning and artificial
intelligence capabilities.
The end-result of Sezzle’s massive
deployment of resources into our
technology matrix is a stable, secure,
and high-performance suite of
interconnected digital capabilities,
management protocols, and human
resources that are positioning
Sezzle for a period of extensive,
high-pitched growth.
21
ANNUAL REPORT 2019SEZZLE INC.For personal use only W E A R E I N T H E B U S I N E S S O F D O I N G G O O D
C O N T I N U E D
T H E M E T R O T A R G E T R E T A I L
A C C E L E R A T O R P R O G R A M
P O W E R E D B Y T E C H S T A R S
Throughout 2019, executives from
Sezzle participated in the METRO
Target Retail Accelerator Program
powered by Techstars, an elite
program sponsored by US retail
giant Target to identify breakthrough
ideas and concepts that can be
applied across retail.
Our executive team met with
dozens of senior leaders within
Target’s organization over an
intensive 12-week program.
Our conversations with these
leaders allowed us to distill
how we could better serve a
large-scale enterprise retailer
with our technology.
Our team also spent a few weeks
in Berlin meeting with METRO
executives and technology thought
leaders to help us gain insights
into how our product might fit
into the European marketplace.
22
For personal use only At Sezzle, we
have your back.
C O N S U M E R
S A F E G U A R D S
Our proprietary suite of
technologies, intellectual property,
patents, and know-how combine
to deliver an unparalleled value-
added experience for the End-
customer while empowering our
merchants to drive sales and
increase basket sizes.
Our chief source of Income,
nearly 81% of 2019 operating income,
was generated from merchants
who pay Sezzle a fee for every
transaction conducted on the
Platform. Our business model does
not rely upon failed payment fees
and other charges borne by the
End-customer. Instead, we do
everything in our power to help our
users avoid fees. We take great care
in our approval process, monitoring
new customers for the first sign of
non-payment. We keep limits relatively
low for the first several transactions,
allow one free rescheduling per
transaction, and forgive failed
payment fees if the customer
makes good on their payment
within 48 hours.
We have a robust compliance system
to ensure that no consumer finds
themselves using the Sezzle Platform
as a vector for indebtedness.
We know that we will only be able
to scale our business by keeping
customer defaults and non-payments
to a minimum. Despite the rapid pace
of growth of our business throughout
2019 and the increasingly large pool
of consumers using our platform,
Net Transactions Losses (NTL) and
Net Transaction Margin (NTM)
continued to post positive trends.
These improvements prove that
Sezzle can scale its business while
mitigating risk and improving unit
economics.
Our business is predicated on
consumer success, diligent
repayment, and repeat usage.
Nonetheless, we realize that life does
throw curveballs, and one of our
objectives for 2020 is to develop a
hardship policy for consumers who
have suffered legitimate life-altering
events, enabling them to extend the
stipulated repayment time without
incurring fees or charges.
Another area of which we are
particularly proud is our steadfast
and immutable dedication to data
privacy. In our business, data is
everything, and consumers want to
know that their information is secure
with us. Sezzle’s engineering and
data science teams work diligently
to ensure that our standards
for managing user data not only
meets but exceeds the international
standards for data storage.
Our long-term sustainability as a
company relies upon consumer
confidence that their data is secure
with us. This reliance is one of the
reasons we have made a concerted
effort to ensure that we host all
data on secure servers.
Furthermore, we have provisioned
data security protocols for disaster
redundancy mitigation and business
continuity plans that we believe will
keep our platform operational in
just about any fathomable scenario.
Our disaster recovery team simulates
these scenarios in tests to help
ensure seamless continuity and
service to our merchants and
customers. Building on this strong
foundation of operational integrity,
in 2020 we will begin a multi –
departmental exercise in strategic
long-term planning, aimed at
ensuring that we have the proper
amount of resources, infrastructure,
human capital, technology solutions,
and environmental sensibilities to
be able to secure a long-term,
sustainable, and prosperous
future for our stakeholders.
23
ANNUAL REPORT 2019SEZZLE INC.For personal use only W E A R E I N T H E B U S I N E S S O F D O I N G G O O D
C O N T I N U E D
O U R M E R C H A N T S
A N D R E T A I L E R S
At Sezzle, merchant success means
our retailers see Sezzle as a pathway
towards reaching new customers,
increasing basket sizes, and growing
order volume. 67% of North American
consumers under the age of 30 have
a sub-prime credit score, which
effectively shuts them out from
the traditional credit card market.
For these consumers, online shopping
has increasingly meant paying in full
upfront with debit cards, which has
stymied their overall spending power.
For these consumers, Sezzle unlocks
their purchasing power and enables
them to stay within their budgets.
For the merchants on our platform,
we are delivering a new customer
base to which they either wouldn’t
ordinarily have access or one with
which they would very likely be
unable to transact.
The Merchant Success Team at
Sezzle is one of the most vibrant
and exciting groups within the
entire company.
Customers can find merchants
that use Sezzle either by discovering
Sezzle during checkout on a retailer’s
site or by finding a retailer on
the Sezzle merchant directory.
Our directory is increasingly
becoming a virtual shopping mall,
with curated content from coveted
retail brands spanning fashion,
nutritional supplements, beauty,
fitness, and home goods.
During the course of 2019, the
number of Active Merchants using
Sezzle grew 349%, surpassing the
symbolically significant 10,000 mark
in the fourth quarter. Interestingly,
our US headquarters is located only
The Merchant
Success Team
at Sezzle is one
of the most vibrant
and exciting groups
within the entire
company.
M E E T A N N A M E Y E R ,
V I C E P R E S I D E N T O F
M E R C H A N T S A L E S
The sales team at Sezzle likes to roll
up their sleeves and really understand
what makes our larger retail clients tick.
What really energizes us is seeing how the
transaction and sales volume steadily
increases once our new clients have been
onboarded onto the Sezzle Platform.
Like any sales team, we get a rush from
closing a sale and getting a new merchant
under contract – but it’s nothing compared
to the satisfaction we get from seeing
their business really take off once they
have been using Sezzle’s solution for
a short while.
24
For personal use only B O D E G A
Sezzle has been an absolutely essential
piece of the puzzle for our business. I love
the idea that Sezzle gives our shoppers
the power to pay on their terms. Financial
freedom is top of mind for our customers.
With Sezzle, we saw explosive conversion
rates off the bat. Bottom line: we love Sezzle
and so do our customers. Easy as that.
Although we believe that active
merchant growth is an important
leading indicator for merchant
demand, we believe that the
Underlying Merchants Sales (UMS)
metric gives the marketplace a
much more complete picture of
merchant growth. Underlying
Merchant Sales on the Sezzle
platform in 2019 totaled $244.1
million, up from $31.1 million in
2018, a marked 685% year-over-year
increase. This growth is an indication
that merchant demand for our
product is high, and speaks to not
only the explosive growth ahead
but the long-term sustainability
of our business model.
a few miles from the Mall of America,
the largest shopping mall in the
country, which features roughly
500 different stores and commercial
establishments. Sezzle now has
twenty times as many merchants
on its curated shopping platform
as the largest shopping mall in the
United States.
In December of 2019, Sezzle
announced a new $100 million
debt funding facility, which will
further enhance the company’s
ability to pay retail merchants ahead
of the installment payments made
by End-customers. This new facility
gave our company added financial
backing to ensure we could fund
robust merchant sales in the
year ahead.
In June of 2019, we announced our
first international expansion and
began offering our product to
customers in Canada. We have since
opened our Canadian headquarters
in Toronto and have brought on
seasoned sales professionals to lead
our effort in developing the market.
Our approach to securing new
merchants is a three-pronged
strategy. Every day, we have scores
of new merchants, generally SMBs,
that proactively reach out to us,
going through our application and
screening process, seeking to join our
platform. In addition to these inbound
merchants, we have a sales team
that targets a robust cross-section of
mid-sized retailers who are interested
in adopting a ‘buy now, pay later’
solution for checkout. Finally, we
have a dedicated team of engineers,
product specialists, developers, and
marketers that focus on developing
bespoke solutions for large-scale
retailers. As a result, our target mix
is a combination of SMBs, midsize,
and mass retailers.
In the year ahead, we look to broaden
our mix of merchant partners, extend
into new business verticals, expand
and solidify the incumbent sectors
already on our platform, and support
the merchants already using Sezzle.
25
ANNUAL REPORT 2019SEZZLE INC.For personal use only W E A R E I N T H E B U S I N E S S O F D O I N G G O O D
C O N T I N U E D
A S T E A D FA S T C O M M I T M E N T
T O C O R P O R A T E G O V E R N A N C E
Excellence in corporate governance is paramount to the long-term sustainability of Sezzle.
in fulfilling its mission of financially
empowering the next generation.
It was a productive meeting that
exemplifies the benefits of proactive,
direct engagement with regulators
and oversight bodies. This meeting
laid the track for ongoing, open
dialogue with regulators throughout
the US and Canada on the federal,
state and provincial, and local levels.
In late 2019 we suffered a temporary
setback when the State of California’s
Department of Business Oversight
notified us of their intent to deny
our lending license application.
The situation, although quickly
rectified and resolved, was an
example of a misstep that we must
prevent going forward. We plan to
address this by expanding our
proactive outreach from a federal
level down to the state and provincial
level. This plan will take some work,
but we realize that we are trailblazers
in this industry and that regulators
need to understand who we are
and what we do—particularly
the consumer-friendly nature
of our business.
We have been pleased with the
contributions of our board members
who, throughout 2019, provided
a wealth of strategic guidance,
frameworks for risk mitigation,
and critical inputs on proposed
partnerships and other strategic
growth initiatives. Our board has
been exceedingly accessible to the
CEO and other members of the
executive leadership team.
Specifically, the board has been
committed to ensuring that we are
proactive in our efforts to engage
with regulators, lawmakers, and other
institutions that might directly or
indirectly influence the future of
our payments space, both in the
US and Canada.
We believe wholeheartedly in
engaging regulators and educating
them about our products and the
competitive space in which we do
business. We are adamant that our
commitment to transparency, the
safeguards that we have built into
our product to protect consumers,
and our vigorous anti-fraud and
anti-money-laundering practices—
all coupled with our consumer-
friendly product mix—places Sezzle
in a positive light vis-à-vis regulators
who are accustomed to dealing
with a panoply of bad actors and
their abusive credit schemes.
We have proactively engaged with
regulators in the past, and we will
continue to do so in the future.
In October 2019, we secured an
audience with the US Consumer
Financial Protection Bureau in
Washington, DC, to deliver an
executive overview of our payments
sector and the role Sezzle is playing
26
For personal use only ERIN AND ABBY MOFFITT
SHAREHOLDERS
We were early investors in Sezzle.
We could see from the outset that
this was a company that was going
to change the world and disrupt a
credit system that unnecessarily
penalized young adults—just as
they are beginning their careers.
As shareholders, we are deeply
committed to the empowering mission
of the company, and we look forward
to seeing many new milestones
achieved in the year ahead.
T H E S E Z Z L E A P P R O A C H T O S T A K E H O L D E R
E N G A G E M E N T A N D S U S T A I N A B I L I T Y
We’ve addressed the importance
of valuing and supporting our
employees, servicing our End-
customers, investing resources and
time in the communities in which
our business operates, supporting
our robust and growing portfolio of
merchants, and taking a proactive
approach to engaging with
regulators. What we haven’t yet
addressed is our final group of
stakeholders—our shareholders.
Addressing our shareholders last
is not a reflection of their relative
importance—quite the contrary.
Instead, we firmly believe that
delivering shareholder value is,
in many respects, a function of
supporting all the other stakeholders.
By ensuring that our stakeholders
are duly vested in our company’s
success throughout the year, we
are building a bridge to a bright
and sustainable tomorrow.
We believe we have the right product
for the right audience at the right
time. The environment in which Sezzle
is operating is favorable at both the
macroeconomic and microeconomic
levels. Our talented team of
professionals has the ability and
resources to execute our business
plan and mitigate risk, enabling our
platform to take full advantage of
the so-called “network effect,” which
creates a symbiotic, increasingly
positively correlated relationship
between merchants and consumers.
As our platform expands, we will have
to diligently manage the inevitable
interest that this growth will generate
from regulators, competing interests,
and other entities, some of which will
inevitably not have our best interests
at heart. But with each transaction,
each new customer, and each new
merchant, we are laying the
foundation for long-term sustainable
growth and shareholder value.
We look forward to the year ahead.
27
ANNUAL REPORT 2019SEZZLE INC.For personal use only Operating
& Financial
Review
28
For personal use only Operating and
Financial Performance
Sezzle delivered a strong performance in 2019, as reflected in key operating and performance metrics.
While driving significant growth, Sezzle completed its initial public offering, drove Net Transaction
Margin from negative to positive, secured a $100 million debt facility, and expanded its operations
into Canada. 2019 was indeed a banner year.
S U M M A R Y O F K E Y O P E R A T I N G M E T R I C S
The Company’s key operating metrics continue to show signs of rapid growth during the financial year as a result
of the continued success of onboarding and retaining Active Merchants and Active Customers.
A summary of the key operating metric results as of and for the year ended is shown below:
As of the year ended December 31
Active Merchants1
Active Customers1
For the year ended December 31 (US$000s)
Underlying Merchant Sales (UMS)
Merchant Fees
Net Transaction Margin (NTM)2 (% of UMS)
Net Transaction Losses (NTL)2 (% of UMS)
A C T I V E
M E R C H A N T S
A C T I V E
C U S T O M E R S
U N D E R LY I N G
M E R C H A N T
S A L E S
( $ 0 0 0 , 0 0 0 s )
9
1
0
2
8
1
0
2
9
1
0
2
8
1
0
2
9
1
0
2
8
1
0
2
10,010
2,228
914,886
155,257
US$244.1
$31.1
Up 349%
2019
10,010
2018
2,228
Up 489%
914,886
155,257
Up 685% $
244,126
Up 775% $
12,969
$
$
Up 1.3pp
Up 0.8pp
0.3%
(1.5%)
31,081
1,482
(1.0%)
(2.3%)
349%
Increased by 349% to 10,010
compared to the prior year.
489%
Increased by 489% to 914,886
compared to the prior year.
Additionally, repeat usage,
calculated as the percentage
of cumulative orders made by
returning End-customers to
date relative to total cumulative
orders to date was 83.7% as
of December 31, 2019, compared
to 69.7% as of the prior
comparative period.
685%
Increased by 685% to
over $244 million in 2019,
compared to $31 million
in the prior year.
1 Active Merchants and Active Customers are defined as those who have transacted with Sezzle in the past 12 months.
2 Net Transaction Margin and Net Transaction Losses are non-U.S. GAAP financial metrics.
29
ANNUAL REPORT 2019SEZZLE INC.For personal use only O P E R A T I N G A N D F I N A N C I A L P E R F O R M A N C E
C O N T I N U E D
N E T T R A N S A C T I O N M A R G I N
Net Transaction Margin is expressed as a percentage and is calculated by Sezzle as:
(a) Total Sezzle Income earned divided by Underlying Merchant Sales, expressed as a percentage;
(b) Less the cost of End-customer communications and the total fees paid by Sezzle to process transactions,
divided by Underlying Merchant Sales, expressed as a percentage;
(c) Less Transaction Funding Financing Costs, divided by Underlying Merchant Sales, expressed as a percentage;
(d) Less Net Transaction Loss, divided by Underlying Merchant Sales, expressed as a percentage.
Sezzle has continued to see improvements in its Net Transaction Margin, resulting in a positive margin in 2019.
The increase was driven primarily by efficiencies in Sezzle Income and gains in Net Transaction Losses. Summarized
below, Net Transaction Margin for the years ended December 31 are as follows:
FOR THE YEARS ENDED
2019
2018
Net Transaction Margin (NTM)
US$000s
% of UMS
US$000s
% of UMS
Underlying Merchant Sales (UMS)
$
244,126
–
$
31,081
Sezzle income
Cost of income
Net Transaction Loss
Transaction funding financing costs
13,375
(7,660)
(3,551)
(1,328)
5.5%
(3.1%)
(1.5%)
(0.5%)
1,415
(915)
(724)
(93)
Net Transaction Margin
$
836
0.3% $
(317)
–
4.6%
(2.9%)
(2.3%)
(0.3%)
(1.0%)
Net Transaction Loss is calculated as the expected provision and actual losses against notes receivable and reschedule
fee losses to be incurred (less End-customer fees collected). The improvement of 0.8pp of UMS from the prior year was
primarily due to higher collections of notes receivable, and End-customer failed payment fees.
FOR THE YEARS ENDED
2019
2018
Net Transaction Loss (NTL)
US$000s
% of UMS
US$000s
% of UMS
Provision for uncollectible accounts
$
(6,236)
(2.6%)
$
(940)
End-customer other income
2,685
1.1%
217
(3.0%)
0.7%
Net Transaction Loss
$
(3,551)
(1.5%) $
(724)
(2.3%)
F I N A N C I A L R E V I E W
A summary of Sezzle’s financial results for the years ended December 31 are as follows:
US$000s
Total income
Cost of income
Provision for uncollectible accounts
Net loss after tax
30
2019
2018
Up 884% $
16,060
$
1,632
Up 737%
Up 563%
7,660
6,236
915
941
Up 296%
(16,596)
(4,194)
For personal use only The results of the Company are reported in US dollars under accounting principles generally accepted in
the United States of America (U.S. GAAP). This report also contains certain non-U.S. GAAP financial information
including EBITDA, EBIT, Gross Profit, Gross Margin, Net Transaction Margin, and Net Transaction Loss, as
defined in the applicable sections below:
• EBITDA is earnings before interest, taxes, depreciation, and amortization;
• EBIT is earnings before interest and taxes;
• Gross profit is calculated as Total income less Cost of income; and
• Gross margin is gross profit divided by Total income, expressed as a percentage.
Note, the amounts included in this section were rounded to the nearest $1,000 (unless otherwise stated).
Any discrepancies between totals and the sums of components contained in this report are due to rounding.
The financial results of the Company for the years ended December 31 are presented below:
US$000s
Sezzle income
FOR THE YEARS ENDED
2019
2018
Change
$
13,375
$
1,415
$
11,960
End-customer other income
2,685
217
2,468
Total income
Cost of income
Gross profit
Gross margin %
16,060
1,632
14,428
(7,660)
8,400
(915)
717
(6,745)
7,683
52.3%
43.9%
8.4pp
Other income (expense)
133
(37)
170
Provision for uncollectible accounts
(6,236)
(940)
(5,295)
Other operating expenses
(12,962)
(3,712)
(9,250)
EBITDA
(10,665)
(3,973)
(6,692)
Depreciation and amortization
(261)
(117)
(144)
EBIT
Net interest expense
Interest expense on beneficial conversion feature
Fair value adjustment on future equity obligations
Loss before tax
Income tax expense
Net loss after tax
(10,926)
(4,090)
(6,836)
(1,460)
(4,198)
_
(96)
_
(7)
(1,364)
(4,198)
7
(16,584)
(4,194)
(12,390)
(12)
_
(12)
$
(16,596) $
(4,194) $
(12,402)
31
ANNUAL REPORT 2019SEZZLE INC.For personal use only
Provisions for uncollectible accounts
on the Notes receivable are calculated
on an expected loss basis. The total
provision for uncollectible accounts
was $6.2 million or 2.6% of UMS for
2019, compared to $0.9 million or 3.0%
of UMS in the prior year. Improved
loss rates are a result of an increase in
repeat usage among End-customers
and continuous improvements
in Sezzle’s proprietary
underwriting processes.
O P E R A T I N G A N D F I N A N C I A L P E R F O R M A N C E
C O N T I N U E D
End-customer other income was
$2.7 million for the year ended
December 31, 2019, compared to
$0.2 million for the year ended
December 31, 2018. End-customer
other income is comprised of failed
payment fees and makes up 16.7%
of Total Income for the year ended
December 31, 2019, compared to
13.3% in the prior year.
C O S T O F I N C O M E
Cost of income primarily comprises
payment processing costs paid to
third-party payment processors.
Payment processing costs as a
percentage of UMS was 2.4% for
the year ended December 31, 2019,
compared to 2.5% in the prior year.
In April 2019, Sezzle changed card
processing service providers to lower
processing costs. Savings realized by
the change in card processing service
providers were partially offset by
the increase in card utilization over
direct debit from End-customer
bank account payment methods.
Additionally, short-term referral fee
costs stipulated by agreements with
partners and merchants of Sezzle
increased by 0.3% as a percentage of
UMS year over year, driving the total
cost of income to increase by 0.2%
of UMS in 2019 compared to 2018.
R E C E I V A B L E S A N D
U N C O L L E C T I B L E A C C O U N T S
Sezzle’s End-customer notes
receivables before expected losses
increased to $28.8 million as of
December 31, 2019, compared to
$5.6 million as of December 31,
2018—an increase of 414% as a
result of the rise in UMS and
Active Customers. Sezzle’s notes
receivable have a weighted average
days outstanding of 34 days.
T O T A L I N C O M E ( U S $ 0 0 0 S )
0
6
0
,
6
1
$
S
U
2
3
6
,
1
2019
2018
Sezzle income totaled $13.4 million
for the year ended December 31, 2019,
compared to $1.4 million for the year
ended December 31, 2018—an increase
of 845%.
As a percentage of UMS, Sezzle
income was 5.5% for the year ended
December 31, 2019, compared to
4.6% in the prior year. The Company
has seen a similar improvement in
Merchant fees as a percentage
of UMS, with ratios of 5.3% and
4.8% for the years ended 2019
and 2018, respectively.
Merchant fees and End-customer
reschedule fees, less financing
origination costs, collectively
comprise Sezzle income and are
initially recorded as a deduction from
notes receivable in the consolidated
balance sheets. Deferred fees and
expenses are recognized in the
consolidated statements of
operations over the average duration
of the underlying notes receivable.
Together, total End-customer
reschedule fees and note origination
costs were less than $0.4 million,
or 3% of total Sezzle income
recognized in 2019.
32
For personal use only O T H E R O P E R A T I N G E X P E N S E S
Other operating expenses for the years ended December 31 were made up of the following:
Other operating expenses
US$000s
% of Total
US$000s
% of Total
Compensation related expenses
$
8,372
64.6% $
2,251
60.6%
2019
2018
Third-party service provider costs
Marketing, advertising, and tradeshows
Professional services
Rent
Other
1,284
855
1,025
404
1,023
9.9%
6.6%
7.9%
3.1%
7.9%
615
365
114
92
275
16.6%
9.8%
3.1%
2.5%
7.4%
Other operating expenses
$
12,962
$
3,712
• Compensation related expenses increased to $8.4 million in the current year from $2.3 million in the prior year
as a result of increased employee and contractor headcount. Total employees and contractors were 133 as
of December 31, 2019, compared to 63 as of December 31, 2018.
• Third-party service provider costs consist primarily of costs incurred to obtain data used in underwriting
End-customers and fraud prevention. These costs increased to $1.3 million in 2019 compared to $0.6 million
in the prior year, driven by growth in Active Customers.
• Marketing, advertising, and tradeshow costs were $0.9 million, compared to $0.4 million in 2018, as a result of the
Company’s efforts in expanding its presence with both merchants and customers, as well as the investment in
updating the Sezzle brand.
• Professional services include legal, financial audit, and tax compliance related costs. Costs of $1.0 million for 2019
were driven by regulatory fees incurred associated with obtaining a lending license in California, completion of its
financial statement audit for the 2017 and 2018 reporting years, as well as other ongoing professional services costs
associated with the Company now being listed on the ASX.
• Rent expense was $0.4 million in 2019. The Company’s corporate headquarters moved to a larger facility to
accommodate its expanded employee headcount. Sezzle also opened its Canadian office in 2019 alongside the
rollout of its product in Canada.
33
ANNUAL REPORT 2019SEZZLE INC.For personal use only
Significant non-cash items include
expenses recorded to establish the
provision for uncollectible accounts
on notes and other receivables from
End-customers ($7.4 million in 2019,
compared to $1.0 million in 2018),
expenses recorded for the Company’s
equity-based compensation for
employees ($1.0 million in 2019 and
$0.03 million in 2018), and a $4.3 million
loss on the Company’s convertible
notes resulting from the conversion
of the notes to common stock.
Net cash used in investing activities
increased to $0.5 million during 2019,
compared to $0.4 million in the prior
year. This increase is primarily from
the capitalization of internal-use
software used in product development.
Net cash flow received from financing
activities increased to $50 million
in 2019 from $12.8 million in 2018.
Net proceeds from convertible notes
totaled $5.8 million. The Company
borrowed $24.2 million from its
revolving line of credit and repaid
$7.0 million on the line. Additionally,
the Company received proceeds
from its IPO of $30.3 million, before
issuance costs of $2.8 million.
Refer to the Consolidated Statements
of Cash Flows on page 60 in this
Annual Report for further information.
O P E R A T I N G A N D F I N A N C I A L P E R F O R M A N C E
C O N T I N U E D
I N T E R E S T E X P E N S E
Net interest expense totaled $1.5
million for the year ended December
31, 2019, primarily driven by a full year
of utilizing the Company’s revolving
credit facilities. Refer to Note 13
within the Company’s Consolidated
Financial Statements for additional
commentary on its line of credit.
Interest expense on the beneficial
conversion feature was incurred
on the Company’s Initial Public
Offering date and resulted from the
conversion of $5.8 million of notes
issued in the first half of 2019. Refer to
Note 16 of the Consolidated Financial
Statements for further information.
F I N A N C I A L P O S I T I O N
A C T I V I T Y
Sezzle’s total assets increased to
$64.5 million as of December 31,
2019, from $12.5 million as of December
31, 2018. This growth of $52 million
is primarily from increases in both
cash and cash equivalents and
notes receivables.
Merchant accounts payable
increased to $13.3 million as of
December 31, 2019, compared to
$2.3 million as of December 31, 2018.
This increase is related to the growth
in Underlying Merchant Sales and
Active Merchants during 2019. Total
liabilities increased to $37.2 million
as of December 31, 2019, compared
to $7.2 million in the prior year.
Stockholders’ equity and mezzanine
equity increased to $27.3 million as
of December 31, 2019, from $5.3 million
as of December 31, 2018, primarily
as a result of the proceeds from the
Company’s Initial Public Offering (IPO).
C A P I T A L M A N A G E M E N T
To help manage the increase in UMS,
Sezzle signed an agreement with
the Syndicate to increase its debt
facility to $100 million in November
2019. As of December 31, 2019, Sezzle
had drawn $21.5 million from its
revolving line of credit.
Sezzle also issued convertible notes
totaling $5.8 million during the
first half of 2019. Proceeds from this
offering were utilized to fund the
Company’s operations as well as
facilitate lending activity with Active
Customers and Active Merchants.
On July 24, 2019, Sezzle restructured
its capital in anticipation of listing
on the Australian Securities Exchange
(ASX). The Series A preferred stock
and convertible notes outstanding
were converted into common stock.
The Company issued 70,446,291
common stock upon conversion of
70,446,291 Series A preferred stock,
converted on a 1:1 basis, per the terms
of the preferred stock agreements.
Additionally, the Company issued
12,064,155 shares of common stock
following the conversion of the $5.8
million of convertible notes, plus
accrued interest, at a conversion
price of $0.49 per common share.
On July 29, 2019 the Company officially
listed on the ASX. The initial public
offer of 35,714,286 CHESS Depository
Interests (CDIs) over shares of common
stock (one CDI equates to one share
of common stock) were offered at a
price of A$1.22 (approximately $0.84)
per CDI to raise about A$43.6 million
(approximately $30 million).
Refer to the Consolidated Balance
Sheets on page 57 in this Annual
Report for further information.
C A S H F L O W A C T I V I T Y
Sezzle used $19.9 million of net cash
outflows for its operating activities
for the year ended December 31,
2019, compared with $6.2 million in
2018. Increased cash usage versus
the prior year was driven by higher
operating losses and increased net
working capital. The increase in net
working capital was primarily due to
an increase in receivables from End-
customers of$28.0 million, offset by
an increase in accounts payable of
$11.0 million and accrued liabilities
of $1.2 million.
34
For personal use only Business
and Strategy
When co-founders Charlie
Youakim, Paul Paradis, and
Killian Brackey came together
in 2016 to start Sezzle, the vision
they articulated was one founded
on the guiding principle of
empowering everyday consumers
by making their finances more
manageable in increasingly
uncertain times.
As Sezzle has grown, transforming
itself into a publicly-traded
multinational corporation with over
10,000 merchant partners, over 130
employees and contractors, and
almost 1 million Active Customers,
keeping this underlying mission of
being an agent of social good front
and center continues to be the
organization’s number one priority.
As the executive leadership team
and the board develop plans for
continued growth and future
expansion this year and beyond,
these essential underlying principles
remain paramount, and our 2020
enterprise strategy is a reflection and
continuance of these fundamental
underlying precepts. Bottom line: no
matter our size and reach, our core
principles remain immutable—our
future strategic goals and objectives
will always serve to further these values.
10,000+
merchant partners
Over
130
employees
Rapidly
approaching
1M
Active Customers
B R A N D
For our merchant partners and
End-customers, our market research
indicates that Sezzle is widely viewed
as the ‘good guy’ in a sector of the
economy that has historically been
led by a bevy of companies labeled
as bad actors, predatory lenders,
and other less than scrupulous
descriptors. We strive every day to
live up to our reputation as being
a company that does right by our
customers and partners and strives
for social good.
As we unfurl to the broader
marketplace our new branding, which
reflects the meaningful way in which
we engage with our core customer
base and the dynamism of our
company’s offerings, we believe that
the year ahead will be replete with
opportunities to accelerate our
engagement with consumers and
create new pivot points to connect
with an ever-growing community
of interested merchant partners.
We are fundamentally changing how
consumers think about payments
and their financial futures. With our
mission to financially empower the
next generation, we are committed to
building a company that reinforces
this mission. A big part of that is how
we communicate with our consumers,
brands, and partners. We launched a
rebranding process to ensure that we
are establishing our commitment to
the future by providing a platform
of inclusivity, transparency, access,
and a promise to always have our
customers’ back.
We have always lived this mantra
internally and want to ensure that we
are presenting that externally as well.
Our rebranding efforts are much
more than a change in our logo,
our fonts, or our colors, they are a
commitment to our stakeholders
and will have a meaningful impact
on our design, tone of voice, and
all ways we communicate. We are
forward-thinking at Sezzle. While we
have historically been product-led, we
recognize the importance of design
and branding as we move into a
market where retailers are looking
at payments as a marketing engine.
As importantly, our rebranding will
be reflected in our product design,
user experience, and all aspects of
our business as we position ourselves
for future growth.
35
ANNUAL REPORT 2019SEZZLE INC.For personal use only B U S I N E S S A N D S T R A T E G Y
C O N T I N U E D
U N L O C K I N G T H E P O W E R
O F O U R E N D - C U S T O M E R S
One of the results of a vibrant
network of merchants and End-
customers is that the sheer size
of our consumer base becomes
an increasingly powerful asset for
us as we continue to harness the
collective purchasing power of
Sezzle consumers. A significant
pillar of our 2020 business strategy
revolves around looking for ways
to unlock the value of the power of
our End-customers, accelerating
the network effect, which devolves
geometrically increased value to
the Sezzle platform and opens
up a variety of potential additional
revenue streams to the company.
R I S H I M U K H E R J E E ,
D E V E L O P E R
As one of the first developers hired by Sezzle,
it’s been an amazing experience being able
to create this technology platform from the
ground up. The architecture of our tech is
built not just to meet the demands of today,
but for the anticipated growth of tomorrow.
The development team takes tremendous
pride in the product we put out, which we
feel can stand toe-to-toe with any other
platform in the payments space.
L E V E R A G I N G O U R T E C H N O L O G Y
The engineering and data science
teams at Sezzle have created a
powerful digital engine, optimized
for delivering a secure, streamlined,
and transparent consumer-facing
experience built upon a robust set of
risk mitigation algorithms. To this end,
in 2020, Sezzle will be examining, on
a case-by-case basis, opportunities
to deploy this technology for adjacent
uses across the fintech sector.
Our business development team will
continue to engage in conversations
with select large-scale merchants
and partners that are interested
in tapping into our technology
to facilitate their strategic payments-
related initiatives. As we examine
and evaluate these opportunities,
we will be focused not on short-term
economic return, but ensuring
that any expansion of services,
products, or meaningful deployments
of resources and human capital
dovetail with our long-term strategic
objectives.
36
For personal use only 2 0 2 0 : B U I L D I N G O U T
A D D I T I O N A L R E S O U R C E S
In the year ahead, we will be
developing both in-house and via
key strategic external partnerships,
a portfolio of tools, content offerings,
and other ancillary services that will
further support our consumers and
merchants. We believe that financial
education and financial access are
critical for our end-users to ensure
continued success as our product
grows and expands. To that end,
we will deploy significant human
resources towards thinking critically
about the ideal complementary
offerings that we can bring to the
marketplace to stand alongside
our core product. We believe that
our platform should be not only an
endpoint where customers come
to do their shopping and make
payments, but a starting point for
their budgeting, financial planning,
and general personal financial
education.
I N T E R N A T I O N A L E X P A N S I O N
In 2019, we announced Sezzle’s
expansion into Canada, its first
market outside of the United States.
Since then, we opened an office in
Toronto and hired a country general
manager, Patrick Chan, a former
digital payments executive with deep
experience in the Canadian market.
P A T R I C K C H A N ,
A F O R M E R S A L E S E X E C U T I V E I N
D I G I T A L P A Y M E N T S , J O I N E D S E Z Z L E
T O L E A D I T S C A N A D A T E A M
Despite being in the market for only half a year,
the pick-up from Canadian merchants has been
overwhelming. In the year ahead, we look forward
to developing a national sales force with vertical
domain experts. It’s a really exciting time to be at
Sezzle in Canada right now, and we look forward
to making the most of the opportunity.
Our plans for Canada in 2020 will be
centered around further developing
the Sezzle brand, developing business
with new merchant retailers, and
solidifying a number of key strategic
partnerships that will further cement
our role as an agent of good and
positive change in the Canadian
retail ecosystem.
In addition to continuing to support
our investment in Canada, our
company is actively exploring
opportunities across Asia, Europe,
and Latin America, where we believe
Sezzle can play an important role in
supporting consumers and offering
a valuable alternative payment
solution to local in-country
merchants. To be clear, our approach
in these marketplaces will be
deliberate, and any investments
made will be incremental and in the
form of limited liability subsidiaries.
Our thinking around expansion
into strategic new markets is one
of enabling seed investments to take
hold, adding water and nutrients as
the investment proves itself viable
and worthy of additional resources.
We will not be making large-scale
initiatives in untested markets, but
we see a number of opportunities
to move into territories during the
course of 2020.
37
ANNUAL REPORT 2019SEZZLE INC.For personal use only Key Risks and
Challenges
In the course of conducting our business operations, we are exposed to a variety of risks, some
of which are inherent in our industry and others of which are more specific to our businesses.
This discussion addresses the most
significant factors, of which we are
currently aware, that could affect
our businesses, results of operations,
and financial condition. However,
other factors not discussed below or
elsewhere in this Annual Report could
also adversely affect our businesses,
results of operations, and financial
condition. Therefore, the risk factors
below should not be considered a
complete list of potential risks that
we may face.
38
L O S S O F K E Y R E T A I L
M E R C H A N T C L I E N T
R E L A T I O N S H I P S
The Company depends on continued
relationships with its current
significant retail merchant clients.
There can be no guarantee that these
relationships will continue or, if they
do continue, that these relationships
will continue to be successful.
The Company’s contracts with retail
merchant clients can be terminated
for convenience on relatively short
notice by either party, and so the
Company does not have long term
contracted income.
There is a risk that the Company
may lose retail merchant clients for a
variety of reasons, including a failure
to meet key contractual or commercial
requirements, or retail merchant
clients shifting to in-house solutions
or competitor service providers.
Although the Company does not
currently depend on any single
retail merchant client for more than
approximately 3% of Sezzle Income,
the Company’s business is still at
a relatively early stage, and retail
merchant client income is not as
diversified as it might be for a more
mature business. The loss of even a
small number of the Company’s key
retail merchant clients may materially
and adversely impact the Company’s
income and profitability, and increase
marketing expenses to sign up new
retail merchant clients to replace
those lost. Depending on the reason
for the loss of a key retail merchant
client, it may also negatively impact
the Company’s reputation with other
retail merchant clients and with
End-customers.
There is also a risk that new
agreements formed with retail
merchant clients in the future may
be less favorable to the Company,
including pricing and other key
terms, due to unanticipated
changes in the market in which
the Company operates.
E X P O S U R E T O E N D -
C U S T O M E R B A D D E B T S
The Company’s profitability depends
on its ability to put in place and
optimize its systems and processes
to make predominantly accurate,
real-time decisions in connection
with the End-customer transaction
approval process. End-customer non-
payment is a significant component
of the Company’s expenses at
present, and the Company is currently
exposed to End-customer bad debts
as a regular part of its operations.
However, excessive exposure to
bad debts through customers
failing to meet their repayments to
the Company will materially and
adversely impact the Company’s
profitability.
The Company also has an exposure,
although much more limited, to the
potential insolvency of a retail
merchant client to which the Company
has advanced funds. Exposure occurs
in the period between the advance
of funds to a retail merchant client
for a customer’s purchase of goods
and the retail merchant shipping
the goods to the End-customer
(at which point the Company is
entitled to payment from the End-
customer). However, this period of
risk is typically only a few days.
A D D I T I O N A L R E Q U I R E M E N T S
F O R C A P I T A L
As the Company’s current business
grows and new lines of business are
developed, the Company will require
additional funding to support the
provision of installment plans to
End-customers and working capital.
Although the Directors believe that
the Company will have sufficient
working capital and capacity with the
funds raised during the initial public
offering and under its existing credit
facilities to carry out its short-term
business objectives, there can be
no assurance that such goals can
be met without further financing
or, if new funding is necessary,
For personal use only Events of that nature may
cause part or all of the Company’s
technology system or the
communication networks used by
the Company to become unavailable.
The Company’s operational processes
and contingency plans may not
adequately address every potential
event and may disrupt transaction
flow and adversely impact the
Company’s financial performance
and reputation.
E M P L O Y E E R E C R U I T M E N T
R I S K A N D R E T E N T I O N
The Company’s ability to effectively
execute its growth strategy depends
upon the performance and expertise
of its people. The Company relies on
experienced managerial and highly
qualified technical staff to develop
and operate its technology and to
direct operations staff to manage
the operational, sales, compliance,
and other functions of its business.
There is a risk that repeated failures
to keep the Company’s technology
available may result in a decline in
End-customer and retail merchant
client numbers or retail merchant
clients terminating their contracts
with the Company. Such failures may
materially and adversely impact the
Company’s financial performance,
including a reduction in income
from completed transactions and an
increase in the costs associated with
servicing End-customers through
the disruption, as well as negatively
impacting the Company’s reputation.
R E L I A N C E O N T H E
A C C U R A C Y O F T H I R D - P A R T Y
D A T A P R O V I D E D T O T H E
C O M P A N Y
The Company purchases data from
third parties that are critical to
the Company’s assessment of the
creditworthiness of End-customers
before they are either approved or
denied funding for their purchase
from a retail merchant client. The
Company is reliant on these third
parties to ensure that the data they
provide is accurate. Inaccurate data
could cause the Company not to
approve transactions that otherwise
would have been approved or vice
versa, resulting in loss of income or
higher income with a higher incidence
of bad debts for the Company.
There is a risk that the Company
may not be able to attract and
retain key staff or be able to find
competent replacements promptly.
The loss of staff, or any delay in
their replacement, could impact
the Company’s ability to operate
its business and achieve its growth
strategies, including through the
development of new systems and
technology.
There is a risk that the Company
may not be able to recruit suitably
qualified and talented staff in a
time frame that meets the growth
objectives of the Company. Staffing
delays may result in delays in
the integration of new systems,
development of technology, and
general business expansion, which
may adversely impact the Company’s
income and profitability.
There is also a risk that the
Company will be unable to retain
existing staff or recruit new staff
in terms of retention that are as
attractive to the Company as past
agreements. Low retention would
adversely impact employment costs
and profitability.
that financing can be obtained on
favorable terms or at all. Further,
if additional funds are raised by
issuing equity securities, this may
result in dilution for some or all
of the Shareholders.
C O M P E T I T O R S A N D
N E W M A R K E T E N T R A N T S
The Company considers it has a
competitive advantage in being one
of the first to provide an interest-free
‘buy now, pay later’ service to the US
and Canadian online retail market.
However, there is always a risk of new
entrants in the market, which may
disrupt the Company’s business and
market share. Existing competitors, as
well as new competitors entering the
industry, may engage in aggressive
customer acquisition campaigns,
develop superior technology offerings
or consolidate with other entities to
deliver enhanced scale benefits. Such
competitive pressures may materially
erode the Company’s market share
and income, and may materially and
adversely impact the Company’s
income and profitability.
A general increase in competition
may also require the Company to
increase marketing expenditure or
offer lower fees to Retail Merchant
Clients, which would decrease
profitability even if the Company’s
market share does not decrease.
FA I L U R E S O R D I S R U P T I O N S
O F T E C H N O L O G Y S Y S T E M S
The Company depends on the
constant real-time performance,
reliability, and availability of its
technology system and third-party
technology and communication
networks (including the systems of
third-party e-commerce networks).
There is a risk that these systems
may fail to perform as expected or be
adversely impacted by several factors,
including those outside the control
of the Company, such as damage,
equipment faults, power failure, fire,
natural disasters, computer viruses
and external malicious interventions
such as hacking, cyber-attacks
or denial-of-service attacks.
39
ANNUAL REPORT 2019SEZZLE INC.For personal use only merchant clients, and regulatory
scrutiny and fines, any of which
could materially adversely impact the
financial performance and prospects
of the Company.
Also, any security or data issues
experienced by other software
companies globally could adversely
impact customers’ trust in providing
access to their data generally,
which could adversely affect the
Company’s ability to provide its
services generally.
T E C H N O L O G I C A L C H A N G E S
The Company participates in a
competitive environment. IT systems
are continuing to develop and
are subject to rapid change, while
business practices continue to
evolve. The Company’s success will,
in part, depend on its ability to offer
services and systems that remain
current with the continuing changes
in technology, evolving industry
standards, and changing consumer
preferences. There is a risk that the
Company will not be successful in
addressing these developments
promptly, or that expenses will be
higher than expected. Additionally,
there is a risk that new products
or technologies (or alternative
systems) developed by third parties
will supersede the Company’s
technology, and this may materially
and adversely impact the Company’s
income and profitability.
K E Y R I S K S A N D C H A L L E N G E S
C O N T I N U E D
C O M P L I A N C E W I T H L A W S ,
R E G U L A T I O N S , I N D U S T R Y
C O M P L I A N C E S T A N D A R D S
The Company is subject to a range
of legal and industry compliance
requirements that are continually
changing. Such requirements include
privacy laws, consumer protection
laws, and contractual conditions.
There has recently been an increased
focus and scrutiny by regulators
in various jurisdictions concerning
‘buy now, pay later’ arrangements.
There is potential that the Company
may become subject to additional
legal or regulatory requirements if
its business, operations, strategy,
or geographic reach expand in the
future or if the regulations change
with respect to the jurisdictions in
which it operates. These changes may
potentially include credit licensing,
financial services licensing, or other
licensing or regulatory requirements
or similar limitations on the conduct
of business.
There is a risk that additional or
revisions to legal, regulatory, and
industry compliance standards may
make it uneconomic for the Company
to continue to operate, or to expand
under its strategy. These additions
or revisions may materially and
adversely impact the Company’s
income and profitability, including
by preventing its business from
reaching a sufficient scale.
There is also a risk that if the
Company fails to comply with these
laws, regulations, and industry
compliance standards, this may
result in significantly increased
compliance costs, cessation of
certain business activities, or the
ability to conduct business, litigation
or regulatory inquiry or investigation
and significant reputational damage.
40
Sezzle’s business is subject to
investigation by regulators,
enforcement agencies, and offices of
state attorneys general, which could
lead to enforcement actions, fines,
and penalties, and qualifications to
conduct business or the assertion
of private claims and lawsuits
against Sezzle. The US Federal Trade
Commission and the US Consumer
Financial Protection Bureau have the
authority to investigate consumer
complaints against Sezzle, to conduct
inquiries at their insistence, and to
recommend enforcement actions
and seek monetary penalties.
The Company is continually reviewing
the regulatory landscape that
governs each of the jurisdictions
in which it operates. The Company
will work with the regulators in each
domain and, if required, will apply
for the requisite licenses to ensure
that it is compliant with the laws
of that state.
D A T A S E C U R I T Y B R E A C H E S
Through the ordinary course of
business, the Company collects a wide
range of confidential information.
Cyber-attacks may compromise or
breach the technology platform used
by the Company to protect sensitive
data. The Company’s business could
be materially impacted by security
breaches of the data and information
of Retail Merchant Clients and End-
customers data and information,
either by unauthorized access, theft,
destruction, loss of information,
or misappropriation or release of
confidential data.
There is also a risk that the measures
the Company takes may not be
sufficient to detect or prevent
unauthorized access to, or disclosure
of, such confidential personal or
proprietary information, and any of
these events may cause significant
disruption to the business and
operations. This risk may also
expose the Company to reputational
damage, legal claims, termination of
the Company’s contracts with retail
For personal use only R E P U T A T I O N R I S K
Maintaining the strength of the
Company’s reputation is vital
to retaining and increasing its
End-customer base and its retail
merchant client base, maintaining its
relationships with partner companies
and other service providers, and
successfully implementing the
Company’s business strategy.
There is a risk that unforeseen issues
or events may adversely impact the
Company’s reputation, and this may
negatively impact the future growth
and profitability of the Company.
The Company’s reputation is also
closely linked to the timely and
accurate provision of services to
End-customers. There is a risk that
the Company’s actions and the
actions of the Company’s suppliers
and merchants may adversely
impact the Company’s reputation.
Any factors that diminish the
Company’s reputation could result
in customers, merchants, or other
parties ceasing to do business with
the Company. Such reputation risk
would impede the Company’s ability
to successfully provide its goods and
services, negatively affect its future
business strategy, and materially and
adversely impact its financial position
and performance.
E X P O S U R E T O A D V E R S E
M A C R O E C O N O M I C
C O N D I T I O N S
The Company’s business depends
on End-customers transacting
with retail merchant clients, which
in turn can be affected by changes
in general economic conditions.
For example, the retail sector is
affected by such macroeconomic
conditions as unemployment,
interest rates, consumer confidence,
economic recessions, downturns,
or extended periods of uncertainty
or volatility, all of which may
influence customer spending and
suppliers and retailers’ focus and
investment in outsourcing solutions.
These macroeconomic factors
may subsequently impact the
Company’s ability to generate income.
Additionally, in weaker economic
environments, consumers may have
less disposable income to spend,
and as a result, may be less likely to
purchase products by utilizing the
Company’s services, and bad debts
might increase.
41
ANNUAL REPORT 2019SEZZLE INC.For personal use only Directors’
Report
42
For personal use only Directors’ Report
THE DIRECTORS PRESENT THEIR REPORT, TOGETHER WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, OF SEZZLE INC. (ASX: SZL, SEZZLE, OR COMPANY ) AND ITS WHOLLY OWNED
SUBSIDIARIES FOR THE YEAR ENDED DECEMBER 31, 2019.
DIRECTORS
The following individuals were Directors of Sezzle for the full year ended December 31, 2019:
• Charlie Youakim, co-founder, Executive Chairman, and Chief Executive Officer
• Paul Paradis, co-founder, Executive Director, and Chief Revenue Officer
Additionally, the following individuals were named to the Board of Directors during the reporting period:
• Paul Lahiff, Independent Non-Executive Director – appointed May 7, 2019;
• Kathleen Pierce-Gilmore, Independent Non-Executive Director – appointed April 15, 2019; and
• Paul Purcell, Independent Non-Executive Director – appointed April 15, 2019
INFORMATION ON DIRECTORS
CHARLIE YOUAKIM
CHAIRMAN, EXECUTIVE CHAIRMAN, AND CHIEF EXECUTIVE OFFICER
Charlie is a co-founder, Executive Chairman, and Chief Executive Officer of Sezzle.
Charlie is a serial technology entrepreneur with nearly ten years of experience in growing
fintech companies from inception to large-scale businesses. Charlie began his career as an
engineer and software developer. After successfully advancing in his early career, he returned
to business school where he was able to focus on expanding his knowledge of finance,
marketing, and business strategy.
In 2010, after completing business school, Charlie founded his first payments company,
Passport. Passport became a leader in software and payments for the transportation
industry. At Passport, Charlie led the construction of the original technology and led the
company as it disrupted the industry through the introduction of white label systems and
payments wallets. Passport is the technology behind enterprise transportation installations
like ParkChicago, ParkBoston, and the GreenP in Toronto.
Charlie co-founded Sezzle in 2016 and also planned much of the business’ technology
architecture.
Charlie has a degree in Mechanical Engineering from the University of Minnesota and
an MBA from the Carlson School of Management at the University of Minnesota.
Other current Directorships: Charlie does not currently hold any other directorships.
Interests in Shares: 88,359,809
Interests in Options: 500,000
43
ANNUAL REPORT 2019SEZZLE INC.For personal use only Directors’ Report
Continued
PAUL PAR ADIS
EXECUTIVE DIRECTOR AND CHIEF REVENUE OFFICER
Paul is a co-founder, Executive Director, and Chief Revenue Officer at Sezzle.
Paul has extensive experience in sales and marketing. He began his career in sales with
the Minnesota Timberwolves. He left the Timberwolves to attain his MBA from the Carlson
School of Management at the University of Minnesota, where he focused on marketing and
strategy. After graduating from the Carlson School of Management, Paul spent six years
leading sales and marketing at Dashe & Thomson and the Abreon Group, which are
boutique management consultancies focused on IT transformation adoption.
Paul left the Abreon Group in 2016 when he co-founded Sezzle. At Sezzle, Paul oversees
sales, marketing, partnerships, and merchant development.
Paul has a BA in Political Science from Davidson College and an MBA from the
University of Minnesota.
Other current Directorships: Paul does not currently hold any other directorships.
Interests in Shares: 10,000,0001
Interests in Options: 500,000
PAUL L AHIFF
INDEPENDENT NON-EXECUTIVE DIRECTOR
Paul Lahiff was previously Chief Executive Officer of Mortgage Choice and prior to this,
Chief Executive Officer of Permanent Trustee and Heritage Bank. He also held senior
management roles for Westpac Banking Corporation in Sydney and London.
He previously held Board roles with Sunsuper, Thorn Group, New Payments Platform Australia
and Cancer Council NSW.
Paul holds a BSC degree from the University of Sydney, is a graduate of the Australian
Institute of Company Directors.
Other current Directorships: Paul is a Non-Executive Director of AUB Holdings, 86400 and
NESS Superannuation.
Interests in Shares: 81,967
Interests in Options: 250,000
1. Paul Paradis holds 10,000,000 shares. As of the date of this Annual Report, 8,625,000 shares have fully vested with the
remaining shares subject to vesting conditions as follows: 1,375,000 shares will vest in monthly installments over the
next 22 months.
44
The Way FoRWaRD
For personal use only KATHLEEN PIERCE-GILMORE
INDEPENDENT NON-EXECUTIVE DIRECTOR
Kathleen has been a payments and fintech executive for 20+ years across firms, including
American Express, Capital One, PayPal, and most recently startup companies Raise
Marketplace and Flexa Technologies. She has held leadership positions from leading
Strategy to COO, President, and CEO roles. In addition to her deep expertise in customer
experience, consumer lending, product development, and P&L management, she has also
led businesses on the merchant side of the payments ecosystem. She is currently CEO of
a boutique executive search firm focused primarily in the fintech space.
Kathleen graduated with a BA from the Integrated Sciences Program at Northwestern
University and has recently completed the Non-Executive Director Diploma program
through the Financial Times.
Other current Directorships: Tala
Interests in Shares: 0
Interests in Options: 350,000
PAUL PURCELL
INDEPENDENT NON-EXECUTIVE DIRECTOR
Paul Purcell has invested in financial services companies (public and private markets) for
nearly 20 years. He retains a specific specialization in emerging financial innovation as well
as non-bank financial services. He has been the Chief Investment Officer of Jupiter Management
since January 1, 2019 and prior to assuming that position led the sourcing and origination of
investments at Continental Investors. Paul is a frequent panelist at industry conferences and
has published several articles on the trends and developments in the emerging commerce
and financial services market places.
Before joining Continental Investors, Paul was a co-founder of Continental Advisors, a
manager of two sector-based hedge funds. He was also Manager of Internet Marketing
at the Chicago Board Options Exchange (CBOE), a department he helped found.
Paul is a graduate of the University of San Diego where he is a member of the Board
of Trustees.
Other current Directorships: Paul currently serves on the Boards of Listo!, Veritec Solutions,
Drizly, Winestyr, Intuition LLC, CarHop, and What’s Next Media.
Interests in Shares: 0
Interests in RSAs: 02
2. In accordance with Paul Purcell’s director appointment agreement, 350,000 restricted stock awards were issued to
Continental Investment Partners on March 29, 2019 which comprises compensation for Paul Purcell’s services as director.
45
ANNUAL REPORT 2019SEZZLE INC.For personal use only Directors’ Report
Continued
INFORMATION ON CORPOR ATE SECRETARY
Justin Clyne is a company director and company secretary for public-listed and unlisted companies. He has
significant experience and knowledge in international law, the Corporations Act, the ASX Listing Rules, and corporate
regulatory requirements. Mr. Clyne was admitted as a solicitor of the Supreme Court of New South Wales and
High Court of Australia in 1996 before gaining admission as a barrister in 1998. He had 15 years of experience in the
legal profession acting for the country’s largest corporations, initially in the areas of corporate and commercial
law before dedicating himself full time to the provision of corporate advisory and company secretarial services.
Mr. Clyne holds a Master in Laws in International Law for the University of New South Wales, and is qualified as a
Chartered Company Secretary.
MEETINGS OF DIRECTORS
During the financial year ended December 31, 2019, Sezzle held five meetings of the Board of Directors and one
meeting of the noted committees, all of which were standard meetings.
FULL BOARD
AUDIT AND
RISK COMMITTEE
REMUNERATION AND
NOMINATION COMMITTEE
Held
Attended
Held
Attended
Held
Attended
5
5
5
5
5
5
5
5
5
5
1
1
1
1
1
11
01
1
1
1
1
1
1
1
1
11
01
1
1
1
Charlie Youakim
Paul Paradis
Paul Purcell
Kathleen Pierce-Gilmore
Paul Lahiff
1 Not a committee member.
As of the date of this report, Sezzle has an Audit and Risk Committee and a Remuneration and Nomination Committee
of the Board of Directors. All committee members are non-executive independent directors. The members of each
committee are as follows:
Audit and Risk Committee
Remuneration and Nomination Committee
Paul Lahiff (Chair)
Paul Lahiff (Chair)
Kathleen Pierce-Gilmore
Kathleen Pierce-Gilmore
Paul Purcell
Paul Purcell
PRINCIPAL ACTIVITIES
The principal activities of Sezzle are to provide a technology-driven payment platform that facilitates fast, secure,
and easy payments between End-customers and retailers through its short-term, interest-free installment plans
that delivers to End-customers both a budgeting and financing value proposition.
FINANCIAL RESULT
The Company reported a net loss of $16.6 million after tax for the year ended December 31, 2019, compared to a loss
of $4.2 million in the previous year ended.
46
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For personal use only
OPER ATING AND FINANCIAL REVIE W
Refer to pages 28-34 for the Company’s operating and financial review, which covers discussion of the Company’s:
•
financial and operating performance;
• business strategies and initiatives; and
• key risks and challenges.
FUTURE DEVELOPMENTS
Any other information on likely developments in the operations of the Company and its prospective financial
future have not been included in this report because the Directors believe it to be commercial-in-confidence and
as a result likely to result in unreasonable prejudice to the Company.
SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE YEAR
No material events have occurred subsequent to the end of the year at the time of issuing this report.
SIGNIFICANT CHANGES IN THE STATE OF A FFAIRS
In the opinion of the Directors, there were no significant changes in the state of affairs of the consolidated
entity during the financial period, except as otherwise noted in this report.
DIVIDENDS
No dividends on common stock were declared or issued during the year ended December 31, 2019.
On June 23, 2019, the Board of Directors declared and issued a 15% stock dividend resulting in the issue of 909,451
Series A preferred stock to the existing holders of Series A-1 through A-5 preferred stock, valued at $0.8 million.
All preferred stock was converted into common stock on July 24, 2019 in conjunction with the Company listing on
the Australian Securities Exchange (ASX).
STOCK-BASED PAYMENT PL ANS
A summary of the Company’s stock-based payment plans is disclosed within Note 17 of the Consolidated
Financial Statements.
SUSTAINABILIT Y
The Company understands and supports the increased role environmental, social, and economic factors play into
the sustainability of its businesses and its stakeholders. The Company also understands that there are stakeholders
that expect additional information on the Company’s sustainability initiatives. To this extent, the Company discusses
its sustainability initiatives and stakeholder approach in pages 11-27 of this report.
The consolidated entity is not subject to any significant environmental regulation under the laws of the United States.
CORPOR ATE GOVERNANCE
The Company’s Corporate Governance Statement for the year ended December 31, 2019 can be found at
https://www.sezzle.com/investors
REMUNER ATION REPORT
The Directors of the Company present the Remuneration Report for Non-Executive Directors, Executive Directors,
and other Key Management Personnel (KMP), prepared pursuant to the Corporations Act 2001 and the Corporations
Regulations 2001.
47
ANNUAL REPORT 2019SEZZLE INC.For personal use only Directors’ Report
Continued
The Remuneration Report is set out under the following main headings:
• Remuneration Philosophy;
• Performance;
• Details of Remuneration;
• Service Agreements;
• Share-Based Compensation;
• Short Term Incentive Program;
• Long Term Incentive Program; and
• Other Information.
REMUNER ATION PHILOSOPHY
The performance of Sezzle depends upon our ability to attract and retain KMP. To prosper, we must attract,
motivate, and retain these highly skilled individuals. KMP are those persons having authority and responsibility
for planning, directing, and controlling the activities of the Company, directly or indirectly, including all Directors.
To that end, our remuneration framework is designed to deliver:
• Competitive rewards to attract high caliber executives;
• Clear alignment of remuneration with strategic objectives;
• Focus on creating sustainable value for all of our stakeholders;
• Merit-based remuneration across a diverse workforce; and
• Ensure total remuneration is competitive by market standards.
The Remuneration and Nomination Committee (RNC) is responsible for determining and reviewing compensation
arrangements for the KMP. The RNC assesses the appropriateness of the nature and amount of remuneration for
KMP on a periodic basis by reference to relevant market conditions with the overall objective of ensuring maximum
stakeholder benefit from the retention of a high-quality board and executive team.
The Board of the Company believes the remuneration framework to be appropriate and effective in attracting and
retaining the best KMP to operate and manage the Company.
The KMP remuneration framework is designed to support the Company’s reward philosophies and to underpin
the Company’s growth strategy. The framework comprises the following components:
• Base salary-appropriate to the position and experience and is competitive in the market; and
• Long term incentive-aligned to delivery of long term performance and delivery of returns to stakeholders.
The Board will continue to review KMP packages annually by reference to the Company’s performance, KMP
performance, and comparable information from industry sectors and other listed companies in similar industries.
PER FORMANCE
As shown in the table below, the Company has achieved exceptional growth over the last three years.
Year ended December 31
2019
2018
2017
Underlying Merchant Sales (US$)
$
244,125,995
$
31,081,277
$
855,381
Active Customers
Active Merchants
Total Income (US$)
48
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914,886
155,257
10,010
2,228
4,542
100
$
16,060,356
$
1,632,060
$
29,366
For personal use only DETAILS OF REMUNER ATION
AMOUNTS OF REMUNERATION
Details of the remuneration of KMP of the Company are set out in the following tables. The KMP of the Company
during the reporting period consisted of the following:
• Charlie Youakim, Executive Chairman and Chief Executive Officer;
• Paul Paradis, Executive Director and Chief Revenue Officer;
• Kathleen Pierce-Gilmore, Non-Executive Director;
• Paul Purcell, Non-Executive Director;
• Paul Lahiff, Non-Executive Director; and
• Karen Hartje, Chief Financial Officer.
Non-Executive Directors
P. Purcell
K. Pierce Gilmore
P. Lahiff
Executive Directors
C. Youakim
P. Paradis
Executive Management
K. Hartje
SHORT TERM
LONG TERM
Cash Salary
and Fees
US$
Non-
Monetary
Annual
Leave
US$
Options/
RSAs
Nil
Nil
$
17,796
Nil
Nil
Nil
Nil
Nil
Nil
350,000 RSAs1
350,000 Options2
250,000 Options3
$
$
205,593
168,878
Nil
Nil
$
$
6,635
500,000 Options4
5,577
500,000 Options4
$
203,096
Nil
$
6,577
500,000 Options4
1.
In accordance with Paul Purcell’s director appointment agreement, 350,000 RSAs were issued to Continental Investment
Partners on March 29, 2019 which comprises compensation for Paul Purcell’s services as Director.
2. Kathleen Pierce-Gilmore received 350,000 options on March 29, 2019 with an exercise price of $0.05, which comprises
her compensation for her services. 1/36th of the options granted to Kathleen Pierce-Gilmore vest each month after the
grant of the options, provided that she remains a Director of the Company as of the applicable date. The options expire
ten years from March 29, 2019.
3. 1/36th of the options granted to Paul Lahiff vest each month after the grant of the options, provided that he remains
a Director of the Company as of the applicable date and are exercisable at the exercise price per option of $0.84.
The options expire ten years from July 27, 2019.
4. 1/48th of the options for these KMPs vest each month after the grant of the options, provided the individual remains
an employee of the Company as at the applicable date. These options expire ten years from July 27, 2019.
49
ANNUAL REPORT 2019SEZZLE INC.For personal use only
Directors’ Report
Continued
SERVICE AGREEMENTS
Remuneration and other terms of employment for KMP are formalized in service agreements. Details of these
agreements are as follows:
Name:
Title:
Charlie Youakim
Executive Chairman and CEO
Agreement commenced:
June 21, 2019
Term of Agreement:
Annual salary of $225,000. Charlie’s agreement may be terminated:
(i) at any time upon mutual written agreement of the parties;
(ii) by the Company immediately and without prior notice for cause;
(iii) immediately upon Charlie’s death or disability;
(iv) by the Company other than for cause with advance written notice of at least
12 months; or
(v) by Charlie, other than due to Charlie’s death or disability, with advance written
notice of at least 12 months.
Name:
Title:
Paul Paradis
Executive Director and Chief Revenue Officer
Agreement commenced:
June 21, 2019
Term of Agreement:
Annual salary of $200,000. Paul’s agreement may be terminated:
(i) at any time upon mutual written agreement of the parties;
(ii) by the Company immediately and without prior notice for cause;
(iii) immediately upon Paul’s death or disability;
(iv) by the Company other than for cause with advance written notice of at least
12 months; or
(v) by Paul, other than due to Paul’s death or disability, with advance written notice
of at least 12 months.
Name:
Title:
Karen Hartje
CFO
Agreement commenced:
June 21, 2019
Term of Agreement:
Annual salary of $225,000. The Company may terminate immediately for cause.
Either party may terminate with 6 months’ written notice without cause.
50
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For personal use only Name:
Title:
Paul Purcell
Non-Executive Director
Agreement commenced: March 28, 2019
Term of Agreement:
The Agreement shall continue until terminated by either party for any reason upon five (5)
days prior written notice without further obligation or liability other than as otherwise
set forth in the Agreement. 350,000 RSAs were issued to Continental Investment Partners
on March 29, 2019 which comprises compensation for Paul Purcell’s services as Director.
Name:
Title:
Kathleen Pierce-Gilmore
Non-Executive Director
Agreement commenced: March 26, 2019
Term of Agreement:
The Agreement shall continue until terminated by either party for any reason upon
five (5) days prior written notice without further obligation or liability other than as
otherwise set forth in the Agreement. Kathleen received 350,00 options exercisable
at $0.05 each and expiring March 29, 2029 vesting monthly over 3 years engagement
as a director but automatically vesting in full upon certain circumstances including
a sale, merger or consolidation.
Name:
Title:
Paul Lahiff
Non-Executive Director
Agreement commenced: May 7, 2019
Term of Agreement:
The Agreement shall continue until terminated in accordance with the provisions
of the Agreement including in the event that Paul is not re-elected as a director of
the Company by shareholders or becomes disqualified from acting as a director.
Paul receives a total of A$60,000 per annum comprising A$50,000 as a director and
an additional A$10,000 in board subcommittee fees.
KMP have no entitlement to termination payments in the event of removal for misconduct.
SHARE-BASED COMPENSATION
ISSUE OF SHARES
Other than as set out in this report, there were no shares issued to KMP as part of compensation during the year
ended December 31, 2019.
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ANNUAL REPORT 2019SEZZLE INC.For personal use only Directors’ Report
Continued
SHARES/CDIS HELD BY KMP:
The number of ordinary shares in the Company during the year ended December 31, 2019 reporting period held
by each of the Company’s key management personnel, including their related parties, is set out below:
Member of KMP
Charlie Youakim
Paul Paradis
Kathleen Pierce-Gilmore
Paul Purcell
Paul Lahiff
Karen Hartje
Note:
Balance at
Start of Year
Granted as
Remuneration
Received on
Exercise
Other
Changes
Held at end
of Reporting
Period
40,000,000
10,000,0002
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
48,359,8091
88,359,809
0
0
0
10,000,000
0
0
81,967
81,967
0
0
1. Charlie Youakim held 47,680,590 preferred shares at the beginning of 2019. An additional 679,219 shares were granted to him
pursuant to the preferred dividend that was declared by the Board of Directors on June 23, 2019. These 48,359,809 preferred
shares converted to common shares of the Company on July 24, 2019 in conjunction with the Company’s listing on the ASX.
2. Paul Paradis holds 10,000,000 shares. As of the date of this Annual Report, 8,625,000 shares have fully vested with the remaining
shares subject to vesting conditions as follows: 1,375,000 shares will vest in monthly installments over the next 22 months.
OPTIONS HELD BY KMP:
The number of options in the Company during the year ended December 31, 2019 reporting period held by each of
the Company’s KMP, including their related parties, is set out below:
Member of KMP
Charlie Youakim
Paul Paradis
Kathleen Pierce-Gilmore
Paul Purcell
Paul Lahiff
Karen Hartje
Notes:
Balance at
Start of Year
Granted as
Remuneration
Other
Changes
–
–
–
–
–
500,000
500,000
350,000
0
250,000
1,735,000
500,000
–
–
–
–
–
–
Held at end
of Reporting
Period
500,0001
500,0001
350,0002
03
250,0004
2,235,0001
1. 1/48th of the options for these KMPs vest each month after the grant of the options, provided the individual remains
an employee of the Company as at the applicable date. These options expire 10 years from the date of grant.
2. Kathleen Pierce-Gilmore received 350,000 options on March 29, 2019 with an exercise price of $0.05, which comprises
her compensation for her services. 1/36th of the options granted to Kathleen Pierce-Gilmore vest each month after the
grant of the options, provided that she remains a Director of the Company as at the applicable date. The options expire
10 years from March 29, 2019.
3. In accordance with Paul Purcell’s director appointment agreement, 350,000 restricted stock awards were issued to
Continental Investment Partners on March 29, 2019 which comprises compensation for Paul Purcell’s services as Director.
4. 1/36th of the options granted to Paul Lahiff vest each month after the grant of the options, provided that he remains
a Director of the Company as of the applicable date and are exercisable at the exercise price per option of $0.84.
The options expire 10 years from July 27, 2019.
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For personal use only SHORT TERM INCENTIVE PROGR AM
Other than cash salaries, the Company did not have other short term incentives for 2019.
LONG TERM INCENTIVE PROGR AM
Under the terms of the 2016 Employee Stock Option Plan and 2019 Employee Incentive Plan (collectively the “Plans”)
approved by the board, the Company may offer options and other incentives to eligible employees. Incentives are
subject to vesting conditions consisting of time-based hurdles.
OTHER INFORMATION — LOANS TO KMP
There were no loans made during the year to any Key Management Personnel.
THIS CONCLUDES THE REMUNER ATION REPORT.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has sought to bring proceedings on behalf of the consolidated entity, and the consolidated entity is not
a party to any proceedings, for the purpose of taking responsibility on behalf of the consolidated entity for any such
proceedings, or for a particular step in any such proceedings.
INSUR ANCE OF DIRECTORS AND OFFICERS
During the year, Sezzle paid a premium for a Directors and Officers Liability Insurance Policy (D&O Insurance).
This policy covers Directors and Officers of the Company and the consolidated entity. In accordance with normal
commercial practices under the terms of the insurance agreements, the disclosure of the nature of the liabilities
insured against and the amount of the premiums are prohibited by the policy.
INDEMNIFICATION OF AUDITORS
To the extent of the law, Sezzle has agreed to indemnify its auditors, Baker Tilly Virchow Krause, LLP as part of the
terms of its audit engagement agreement. No payment has been made in relation to this agreement during or after
the financial year.
NON-AUDIT SERVICES
Sezzle may choose to employ its auditor for services additional to their statutory audit duties. Pursuant to the
Sarbanes-Oxley Act of 2002, Sezzle and its affiliates do not employ its auditors on assignments related to:
• Bookkeeping;
• Financial information systems design and implementation;
• Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
• Actuarial services;
•
Internal audit outsourcing services;
• Management functions or human resources;
• Broker-dealer, investment adviser, or investment banking services; and
• Legal services and expert services unrelated to the audit.
In all other instances, the Audit and Risk Committee considers whether any service may impair the firm’s
independence in fact or appearance and approves the service before engagement.
53
ANNUAL REPORT 2019SEZZLE INC.For personal use only Financial
Statements
Sezzle Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2019 and 2018
54
The Way FoRWaRD
For personal use only Contents
Independent Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Note 1 – Principal Business Activity and Significant Accounting Policies
Note 2 – Property and Equipment
Note 3 – Internally Developed Intangible Assets
Note 4 – Notes Receivable
Note 5 – Leases
Note 6 – Commitments and Contingencies
Note 7 – Income Taxes
Note 8 – Merchant Concentration
Note 9 – Income
Note 10 – Stockholders’ Equity (Deficit)
Note 11 – Mezzanine Equity
Note 12 – Employee Benefit Plan
Note 13 – Revolving Line of Credit
Note 14 – Notes Payable
Note 15 – Future Equity Obligations
Note 16 – Convertible Notes
Note 17 – Equity-Based Compensation
Note 18 – Losses per Share
Note 19 – Subsequent Events
Directors’ Declaration
ASX Additional Information
Corporate Directory
56
57
58
59
60
61
61
66
66
67
68
69
69
71
71
72
73
74
74
75
75
75
76
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83
55
ANNUAL REPORT 2019SEZZLE INC.For personal use only Independent auditors’ Report
INDEPENDENT AUDITORS' REPORT
Board of Directors
Sezzle, Inc. and Subsidiaries
Minneapolis, MN
We have audited the accompanying consolidated financial statements of Sezzle, Inc. and Subsidiaries, which
comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related
notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of
consolidated Financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors' judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Sezzle, Inc. and Subsidiaries as of December 31, 2019 and 2018, and the results of their
operations and their cash flows and substantially all of the disclosures for the years then ended in accordance
with accounting principles generally accepted in the United States of America.
Minneapolis, Minnesota
February 27, 2020
Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of
which are separate and independent legal entities. © 2018 Baker Tilly Virchow Krause, LLP
56
The Way FoRWaRD
For personal use only
Consolidated Balance Sheets
as of December 31, 2019 and 2018
Assets
Current Assets
Cash and cash equivalents
Restricted cash
Notes receivable, net
Other receivables, net
Prepaid expenses and other current assets
Total current assets
Non-Current Assets
Internally developed intangible assets, net
Property and equipment, net
Right-of-use assets
Restricted cash
Other assets
Total Assets
Liabilities, Mezzanine Equity, and Stockholders’ Equity (Deficit)
Current Liabilities
Merchant accounts payable
Lease liability (current)
Accrued liabilities
Other payables
Total current liabilities
Long Term Liabilities
Long term debt
Lease liability (non-current)
Line of credit, net of unamortized debt issuance costs of US$590,827
and US$66,172, respectively
Total Liabilities
Mezzanine Equity
2019
US$
2018
US$
$
34,965,069
$
6,519,400
1,639,549
545,454
25,189,135
4,930,616
315,502
882,939
32,780
128,167
62,992,194
12,156,417
480,098
134,400
867,272
20,000
49,171
260,732
75,676
–
20,000
22,509
$
64,543,135
$
12,535,334
$
13,284,544
$
2,276,880
389,257
1,670,261
267,934
–
457,488
96,252
15,611,996
2,830,620
250,000
500,131
250,000
–
20,859,173
4,133,828
37,221,300
7,214,448
Preferred stock, 6% noncumulative, US$0.00001 par value; 200,000,000 shares
authorized;
0 and 69,536,840 shares issued and outstanding, respectively
–
11,678,429
Stockholders’ Equity (Deficit)
Common stock, US$0.00001 par value; 300,000,000 shares authorized;
178,931,312 and 59,416,666 shares issued and outstanding, respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders’ Equity (Deficit)
1,789
51,138,207
594
99,857
(23,818,161)
(6,457,994)
27,321,835
(6,357,543)
Total Liabilities, Mezzanine Equity, and Stockholders’ Equity (Deficit)
$
64,543,135
$
12,535,334
See accompanying notes to the consolidated financial statements.
57
ANNUAL REPORT 2019SEZZLE INC.For personal use only Consolidated Statements of operations
For the years ended December 31, 2019 and 2018
Income
Sezzle income
End-customer other income
Total income
Cost of Income
Gross profit
Operating Expenses
Selling, general, and administrative expenses
Provision for uncollectible accounts
Total operating expenses
Operating Loss
Other Income (Expense)
Interest expense
2019
US$
2018
US$
$
13,375,254
$
1,415,077
2,685,102
216,983
16,060,356
1,632,060
7,660,276
915,266
8,400,080
716,794
13,223,605
3,829,013
6,235,820
940,498
19,459,425
4,769,511
(11,059,345)
(4,052,717)
(1,459,782)
(96,496)
Interest expense on beneficial conversion feature
(4,197,674)
–
Other income and expense
Fair value adjustment on future equity obligations
Loss before taxes
Income tax expense
Net Loss
Earnings per share:
132,554
(36,850)
–
(7,490)
(16,584,247)
(4,193,553)
11,981
–
$
(16,596,228) $
(4,193,553)
Basic and diluted loss per common share
$
(0.15)
$
(0.07)
Basic and diluted weighted average shares outstanding
111,576,824
59,416,666
See accompanying notes to the consolidated financial statements.
58
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For personal use only Consolidated Statements of
Stockholders’ equity (Deficit)
For the years ended December 31, 2019 and 2018
Common Stock
Shares
Amount
US$
Additional
Paid-in Capital
US$
Stock
Subscriptions
US$
Accumulated
Deficit
US$
Total
US$
59,416,666
$
594
$
69,180
$
(57,708) $
(2,264,441) $
(2,252,375)
30,677
–
–
30,677
Balance at
January 1, 2018
Equity based
compensation
Collection of stock
subscription
Net loss
Balance at
December 31, 2018
Equity based
compensation
Stock option
exercises
Restricted stock
issuances and
vesting of awards
Preferred stock
dividend
Conversion of
preferred stock
to common stock
Proceeds of initial
public offering, net
of issuance costs
Conversion
of notes to
common stock
Net loss
Balance at
December 31, 2019
–
–
–
–
–
–
–
–
59,416,666
594
99,857
–
882,914
407,000
–
–
8
4
–
825,302
37,099
126,673
–
70,446,291
705
12,441,662
35,714,286
357
27,509,331
12,064,155
–
121
–
10,098,283
–
178,931,312
$
1,789
$
51,138,207
$
See accompanying notes to the consolidated financial statements.
57,708
57,708
–
–
–
–
–
–
–
–
–
–
–
(4,193,553)
(4,193,553)
(6,457,994)
(6,357,543)
–
–
–
825,302
37,107
126,677
(763,939)
(763,939)
–
–
–
12,442,367
27,509,688
10,098,404
(16,596,228)
(16,596,228)
$
(23,818,161) $
27,321,835
59
ANNUAL REPORT 2019SEZZLE INC.For personal use only Consolidated Statements of Cash Flows
For the years ended December 31, 2019 and 2018
Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization
Provision for uncollectible accounts
Provision for other uncollectible receivables
Equity based compensation and restricted stock vested
Amortization of debt issuance costs
Fair value adjustment on future equity obligations
Impairment losses on long-lived assets
Loss and accrued interest on conversion of convertible notes
Changes in operating assets and liabilities:
Notes receivable
Other receivables
Prepaid expenses and other assets
Merchant accounts payable
Other payables
Operating leases
Accrued liabilities
Net cash used for operating activities
Investing Activities:
Purchase of property and equipment
Internally developed intangible asset additions
Net cash used for investing activities
Financing Activities:
Proceeds from issuance of long term debt
Costs incurred for convertible note issuance
Proceeds from line of credit
Payments to line of credit
Proceeds from employee stock option exercises
Payments of debt issuance costs
Proceeds from initial public offering
Costs incurred for initial public offering
Proceeds of future equity obligations
Proceeds from issuance of preferred stock, net of costs
Collection of stock subscription
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash:
Beginning of Year
End of Year
Non-cash investing and financing activities:
Conversion of notes to common stock
Conversion of preferred stock to common stock
Issuance of preferred stock dividend
Non-cash lease liabilities arising from obtaining right-of-use assets
2019
US$
2018
US$
$
(16,596,228)
$
(4,193,553)
245,496
6,235,820
1,188,201
951,979
72,379
–
15,623
4,306,622
96,845
940,498
102,540
30,677
4,727
7,490
19,827
–
(26,494,339)
(5,658,137)
(1,470,923)
(788,428)
11,007,664
171,682
22,116
1,212,773
(133,100)
(121,195)
2,168,981
79,575
–
421,492
(19,919,563)
(6,233,333)
(125,885)
(406,333)
(532,218)
5,812,500
(25,000)
24,200,000
(6,950,000)
37,107
(592,750)
30,286,785
(2,777,097)
–
–
–
49,991,545
29,539,764
(101,529)
(267,375)
(368,904)
250,000
–
4,600,000
(400,000)
–
(70,899)
–
–
30,000
8,368,386
57,708
12,835,195
6,232,958
7,084,854
851,896
$
36,624,618
$
7,084,854
$
10,098,404
$
12,442,367
763,939
872,210
–
–
–
–
Issuance of preferred stock from future equity obligations
–
3,310,043
Supplementary disclosures:
Cash paid for interest
1,153,730
34,634
See accompanying notes to the consolidated financial statements.
60
The Way FoRWaRD
For personal use only Notes to the Consolidated
Financial Statements
December 31, 2019 and 2018
NOTE 1 – PRINCIPAL BUSINESS ACTIVIT Y AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPAL BUSINESS ACTIVIT Y
Sezzle Inc. (the “Company” or “Sezzle”) is a technology-enabled payments company based in the United States with
operations in both the United States and Canada. The Company is a Delaware corporation formed on January 4, 2016.
The Company offers its payment solution at online stores and a select number of brick-and-mortar retail locations,
connecting consumers with merchants via a proprietary payments solution that instantly extends credit at point-of-sale,
allowing consumers to purchase and receive the items that they need now while paying over time in interest-free
installments.
Merchants turn to Sezzle to increase sales by tapping into Sezzle’s existing user base, increase conversion rates,
increase spend per transaction, increase purchase frequency, and reduce return rates, all without bearing any
credit risk. Sezzle is a high-growth, networked platform that benefits from a symbiotic and mutually beneficial
relationship between merchants and consumers.
The Company’s core product allows consumers to make online purchases and effectively split the payment for
the purchase over four equal, interest-free payments over six weeks. The End-customer makes the first payment
at the time of checkout and makes the subsequent payments every two weeks after that. The purchase price,
less processing fees, is paid to retail merchant clients by Sezzle in advance of the collection of the purchase
price installments by Sezzle from the End-customer.
The Company is headquartered in Minneapolis, Minnesota.
BASIS OF PRESENTATION
The consolidated financial statements are prepared and presented under accounting principles generally accepted
in the United States of America (U.S. GAAP). All amounts listed are reported in US dollars. It is the Company’s policy to
consolidate the accounts of subsidiaries for which it has a controlling financial interest. The accompanying consolidated
financial statements include all the accounts and activity of Sezzle Inc., Sezzle Funding SPE, LLC, Sezzle Canada Corp.,
Sezzle Holdings I, Inc., and Sezzle Holdings II, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
CONCENTR ATIONS OF CREDIT RISK
CASH AND CASH EQUIVALENTS
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash
and cash equivalents. The Company maintains its cash in depository accounts that, at times, may exceed Federal
Deposit Insurance Corporation (FDIC) limits. As of the date of this report, the Company has experienced no losses
on such accounts.
FOREIGN CURRENCY RISK
The Company is exposed to foreign currency fluctuations on its consolidated balance sheets and consolidated
statements of operations. Currency risk is managed through limits set on total foreign deposits on hand which
are routinely monitored by the Company.
NOTES RECEIVABLE
The Company has a policy for establishing credit lines for individual End-customers that helps mitigate credit risk.
The allowance for uncollectible accounts is adequate for covering any potential losses on outstanding notes receivable.
CASH AND CASH EQUIVALENTS
The Company had cash and cash equivalents of $34,965,069 and $6,519,400 as of December 31, 2019 and 2018,
respectively. The Company considers all money market funds and other highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. The Company accepts debit and credit
cards from End-customers as a method to settle its receivables, and these transactions are generally transmitted
through third parties. The payments due from third parties for debit and credit card transactions are generally
settled within three days. The Company considers all bank, debit and credit card transactions initiated before year
end to be cash and cash equivalents.
61
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 1 – PRINCIPAL BUSINESS ACTIVIT Y AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED
RESTRICTED CASH
The Company is required to maintain cash balances in a bank account in accordance with the lending agreement
executed on November 29, 2019 between Sezzle Funding SPE, LLC, Sezzle Inc, and their third party line of credit
providers Bastion Consumer Funding II, LLC, Atalaya Asset Income Fund IV LP, and Hudson Cove Credit Opportunity
Master Fund, LP (“the Syndicate”). The bank account is the property of Sezzle Funding SPE, LLC, but access to
End-customer payments is controlled by the Syndicate. On a regular basis cash received from End-customers is
deposited to the bank account and subsequently made available to Sezzle through daily settlement reporting
with the Syndicate. Cash deposits to the bank account represent cash received from End-customers not yet made
available to Sezzle, as well as a minimum balance consisting of the sum of $20,000, accrued interest on the drawn
credit facility, and accrued management fees charged by the Syndicate. Additionally, the Company is required
to maintain minimum balances in a deposit account with a third-party service provider to fund notes receivable.
The amount on deposit within the current restricted bank accounts totaled $1,639,549 and $545,454 as of
December 31, 2019 and 2018, respectively.
As of December 31, 2019 and 2018, the Company was required to maintain a $20,000 cash balance held in a reserve
account to cover Automated Clearing House (ACH) transactions. The cash balance within this account is classified
as non-current restricted cash on the consolidated balance sheets.
RECEIVABLES AND CREDIT POLICY
Notes receivable represent amounts from uncollateralized End-customer receivables generated from the purchase
of online merchandise. The original terms of the notes for the Company’s core product are to be paid back in equal
installments every two weeks over a six-week period. The Company does not charge interest on the notes to End-
customers. Sezzle defers direct note origination costs over the average life of the notes receivable using the
effective interest rate method. These net deferred fees and costs are recorded within notes receivable, net on
the consolidated balance sheets. The Company evaluates the collectability of the balances based on historical
experience and the specific circumstances of individual notes, with an allowance for uncollectible accounts being
provided as necessary. All notes receivable from End-customers, as well as related fees, outstanding greater than
90 days past due are charged off as uncollectible. It is the Company’s practice to continue collection efforts after the
charge-off date. Refer to Note 4 for further information about receivable balances, allowances, and charge-off amounts.
DEBT ISSUANCE COSTS
Costs incurred in connection with originating debt have been capitalized and are classified in the consolidated
balance sheets as a reduction of the line of credit balance to which those costs relate. Debt issuance costs are
amortized over the life of the underlying debt obligation utilizing the straight-line method, which approximates the
effective interest method. Amortization of debt issuance costs is included within interest expense in the consolidated
statements of operations. For the years ended December 31, 2019 and 2018, amortization of debt issuance costs
totaled $72,379 and $4,727, respectively. Total cumulative cash payments to date for debt issuance costs were
$663,649 and $70,899 for the years ended December 31, 2019 and 2018, respectively.
PROPERT Y AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using either
the straight-line or double-declining balance method, based on the useful lives of the assets:
Computer equipment
Office equipment
Furniture and fixtures
Years
Method
3
5
7
Double-declining balance
Double-declining balance
Straight-line
Maintenance and repairs are expensed as incurred. Refer to Note 2 for further information.
62
The Way FoRWaRD
For personal use only INTERNALLY DEVELOPED INTANGIBLE ASSETS
The Company capitalizes costs incurred for web development and software developed for internal use. The costs
capitalized primarily relate to direct labor costs for employees and contractors working directly on the development
and implementation of the software. Projects are deemed eligible for capitalization once it is determined that the
project is being designed or modified to meet internal business needs, the project is ready for its intended use,
the total estimated costs to be capitalized exceed $500, and there are no plans to market, sell or lease the project.
Amortization is provided using the straight-line method, based on useful lives of the intangible assets as follows:
Internal use software
Website development costs
Refer to Note 3 for further information.
RESEARCH AND DEVELOPMENT COSTS
Years
Method
3
3
Straight-line
Straight-line
Research expenditures that relate to the development of new processes, including internally developed software,
are expensed as incurred. Such costs were approximately $517,000 and $394,000 for the years ended December 31, 2019
and 2018, respectively. Research expenditures are recorded within selling, general, and administrative expenses within
the consolidated statements of operations.
IMPAIRMENT OF LONG -LIVED ASSETS
The Company reviews the carrying value of long-lived assets, including property, equipment and internally developed
intangible assets for impairment whenever events and circumstances indicate that the carrying value of the assets
may not be recoverable from the future cash flows expected to result from its use and eventual disposition. In cases
where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized
equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management
in performing this assessment include current operating results, trends and prospects, the manner in which the
property is used, and the effects of obsolescence, demand, competition, and other economic factors. Management
has determined that $15,623 and $19,827 of impairment losses were incurred for the years ended December 31, 2019
and 2018, respectively.
As of December 31, 2019 and December 31, 2018 the Company had not renewed or extended the initial determined life
for any of its recognized internally developed intangible assets.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and
consist of taxes currently due plus deferred taxes related primarily to differences between the basis of receivables,
property and equipment, accrued liabilities, and equity based compensation 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. A full valuation allowance is recorded against the Company’s
deferred tax assets as of December 31, 2019 and 2018.
The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to
determine if an accrual is necessary for uncertain tax positions. As of December 31, 2019 and 2018, the unrecognized tax
benefits accrual was zero. The Company will recognize future accrued interest and penalties related to unrecognized
tax benefits in income tax expense if incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred and consist of traditional marketing, digital marketing, sponsorships,
and promotional product expenses. Such costs were $368,235 and $179,394 for the years ended December 31, 2019
and 2018, respectively.
63
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 1 – PRINCIPAL BUSINESS ACTIVIT Y AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED
EQUIT Y-BASED COMPENSATION
The Company maintains stock compensation plans which provides the offering of incentive and non-statutory stock
options and restricted stock to employees, directors, and advisors of the Company. Equity-based compensation
expense reflects the fair value of awards measured at the grant date and recognized over the relevant vesting
period. The Company estimates the fair value of each stock option on the measurement date using the Black-Scholes
option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options,
risk-free interest rate and dividend yield. The Company issues new shares upon the exercise of stock options. Refer to
Note 17 for further information around the Company’s equity-based compensation plans.
ESTIMATES
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements. The Company’s
estimates and judgments are based on historical experience and various other assumptions that it believes are
reasonable under the circumstances. The amount of assets and liabilities reported on the Company’s consolidated
balance sheets and the amounts of income and expenses reported for each of the periods presented are affected
by estimates and assumptions, which are used for, but not limited to, determining the allowance for uncollectible
accounts recorded against outstanding receivables, the useful life of property and equipment and internally developed
intangible assets, determining impairment of property and equipment and internally developed intangible assets,
valuation of equity based compensation, leases, and income taxes.
FAIR VALUE
Fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (i.e. an exit price). The accounting guidance
includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three
levels of the fair value hierarchy are as follows:
Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable
either directly or indirectly for substantially the full term of the asset or liability; and
Level 3 — Unobservable inputs for the asset or liability, which include management’s own assumption about the
assumptions market participants would use in pricing the asset or liability, including assumptions about risk.
The Company measures the value of its money market securities on a regular basis. The fair value of its money market
securities, totaling $7,282,946 and $1,800,559 as of December 31, 2019 and 2018, respectively, are based on Level 1 inputs
and are included within cash and cash equivalents on the consolidated balance sheets.
COST OF INCOME AND SELLING, GENER AL AND ADMINISTR ATIVE EXPENSES
The primary costs classified in each major expense category are:
Cost of income:
• Payment processing costs
• End-customer communication expenses
• Merchant affiliate program fees
•
International payment processing costs
• Partner revenue share fees
64
The Way FoRWaRD
For personal use only Selling, general, and administrative expenses:
• All compensation related costs for employees and contractors
• Third party service provider costs
• Depreciation and amortization
• Advertising costs
• Rent expense
• Legal and regulatory compliance costs
SEGMENTS
The Company’s operations consist primarily of lending to End-customers located in the United States who
purchase goods from its affiliated merchants. During the year ended December 31, 2019, the Company began
operations in Canada. While a distinct geographic location, the operations in Canada are still in an early growth
stage. Additionally, as of December 31, 2019, management has not found any significant difference in the economic
performance of each operating segment. Therefore, management has concluded that the Company has one
reportable segment on a consolidated basis.
FOREIGN CURRENCY EXCHANGE LOSSES
Sezzle works with international merchants creating exposure to gains and losses from foreign currency exchanges.
Sezzle’s income and cash can be affected by movements in the Canadian dollar. Sezzle has transactional currency
exposures arising from merchant fees and payouts to Canadian merchant partners. Gains (losses) from foreign
exchange rate fluctuations affecting Sezzle’s net loss totaled $20,729 and ($38,859) for the years ended December 31, 2019
and 2018, respectively, and are recorded within other income and expenses on the consolidated statements of
operations. The Company did not hold foreign currency prior to October 2018.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
No. 2016-02, “Leases,” which requires all lessees to recognize a liability and a corresponding right-of-use asset for all
long-term leases. The Company has adopted the new standard as of January 1, 2019 using the modified retrospective
approach. Upon adopting this standard, the Company established a right of use asset of $345,607, lease liability
of $355,567, and reduced its deferred rent liability by $9,960. The Company elected to apply the package of three
practical expedients which most notably allowed the Company to carryforward the classifications of its existing
leases. Refer to Note 5 for further discussion around lease implementation.
In June 2018, the FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”
to include share-based payment transactions for acquiring goods and services from nonemployees. The Company
adopted the new accounting pronouncement as of January 1, 2019. Implementation of the accounting standard
did not result in adjustments to previously reported financial figures.
During August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement.” ASU No. 2018-13 modifies the disclosure requirements for fair value
measurements in Topic 820, Fair Value Measurement. The amendments are based on the concepts in the FASB
Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements,
which the Board finalized on August 28, 2018. ASU No. 2018-13 is effective for fiscal years and interim periods within
those fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not believe
that the adoption of ASU No. 2018-13 will have a material effect on its consolidated statements of operations,
consolidated balance sheets, and statement of cash flows.
65
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 1 – PRINCIPAL BUSINESS ACTIVIT Y AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses
on Financial Instruments” which requires reporting entities estimate credit losses expected to occur over the life
of the asset. Expected losses will be recorded in current period earnings and recorded through an allowance for
credit losses on the consolidated balance sheet. During November 2018, April 2019, May 2019, and November 2019,
the FASB also issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”,
ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”; ASU No. 2019-05
“Targeted Transition Relief ”; and ASU No. 2019-10, “Financial Instruments — Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815), and Leases (Topic 842): Effective Dates” and ASU No. 2019-11, “Codification Improvements to
Topic 326, Financial Instruments – Credit Losses.” ASU No. 2018-19 clarifies the effective date for nonpublic entities
and that receivables arising from operating leases are not within the scope of Subtopic 326-20, ASUs Nos. 2019-04
and 2019-05 amend the transition guidance provided in ASU No. 2016-13, ASU No. 2019-10 defers the effective date
of and ASU No. 2019-11 amends ASU No. 2016-13 to clarify, correct errors in, or improve the guidance. ASU No. 2016-13
(as amended) is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2022. Early adoption is permitted for annual and interim periods beginning after December 15, 2018.
The Company plans to adopt the standard beginning January 1, 2023 and is currently evaluating the impact of the
standard on its consolidated statements of operations, consolidated balance sheets, and statements of cash flows.
NOTE 2 – PROPERT Y AND EQUIPMENT
As of December 31, property and equipment, net consists of the following:
Computer and office equipment
$
225,186
$
114,978
Furniture and fixtures
Property and equipment, gross
Less: accumulated depreciation
28,394
5,727
253,580
120,705
(119,180)
(45,029)
Property and equipment, net
$
134,400
$
75,676
2019
US$
2018
US$
Depreciation expense relating to property and equipment was $74,151 and $36,086 for the years ended
December 31, 2019 and 2018, respectively.
NOTE 3 – INTERNALLY DEVELOPED INTANGIBLE ASSETS
As of December 31, internally developed intangible assets, net consists of the following:
Internal use software
Web development costs
Work in process
Internally developed intangible assets, gross
Less: accumulated amortization
2019
US$
2018
US$
$
662,653
$
257,537
20,195
13,672
29,027
46,370
696,520
332,934
(216,422)
(72,202)
Internally developed intangible assets, net
$
480,098
$
260,732
Amortization of internally developed intangible assets was $171,344 and $60,759 for the years ended
December 31, 2019 and 2018, respectively.
66
The Way FoRWaRD
For personal use only NOTE 4 – NOTES RECEIVABLE
As of December 31, Sezzle’s notes receivable, related allowance for uncollectible accounts, and deferred net
origination fees are recorded within the consolidated balance sheets as follows:
Notes receivable, gross
$
29,700,598
$
5,719,723
2019
US$
2018
US$
Less: allowance for uncollectible accounts
Balance at start of period
Provision
Charge-offs, net of recoveries
Total allowance for uncollectible accounts
Notes receivable, net of allowance
(645,332)
(45,783)
(6,235,820)
(940,498)
3,419,315
340,949
(3,461,837)
(645,332)
26,238,761
5,074,391
Deferred net origination fees on notes receivable
(1,049,626)
(143,775)
Balance at end of year
$
25,189,135
$
4,930,616
Sezzle maintains an allowance for uncollectible accounts at a level necessary to absorb estimated probable losses
on principal receivables from End-customers. Any amounts delinquent after 90 days are charged-off with an offsetting
reversal of the allowance for doubtful accounts through the provision for uncollectible accounts. Included in
charge-offs, net of recoveries are recoveries totaling $170,231 and $41,396 for the years ended December 31, 2019
and 2018, respectively.
Sezzle uses its judgement to evaluate the allowance for uncollectible accounts based on existing economic conditions
and historical performance of End-customer principal payments. The historical vintages are grouped into
fortnightly populations for purposes of the allowance assessment, in line with the standard payment plan of an
End-customer. The balances of historical cumulative charge-offs by vintage support the calculation for estimating
the allowance for uncollectible accounts for vintages outstanding less than 90 days.
Deferred net origination fees are comprised of Sezzle income less direct note origination costs, are recognized
over the duration of the note with the End-customer and are recorded within Sezzle income on the consolidated
statements of operations.
Sezzle estimates the allowance for uncollectible accounts by segmenting End-customer accounts receivable by the
number of days balances are delinquent. Balances that are at least one day past the initial due date are considered
delinquent. Balances that are not delinquent are considered current. End-customer notes receivable are charged-
off following the passage of 90 days without receiving a qualifying payment, upon notice of bankruptcy, or death.
End-customers are allowed to reschedule a payment one time without incurring a reschedule fee and the principal
of a rescheduled payment is not considered to be delinquent. If End-customers reschedule a payment more than
once in the same order cycle they are subject to a reschedule fee. Alternatively, failed payment fees are applied to
any missed payments for which an End-customer did not reschedule or pay within 48 hours of the original payment
date. Any failed payment fees associated with a delinquent payment are considered to be the same number of days
delinquent as the principal payment.
67
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 4 – NOTES RECEIVABLE CONTINUED
The following table summarizes Sezzle’s gross notes receivable and related allowance for uncollectible accounts
as of December 31, 2019 and December 31, 2018:
2019
2018
Gross
Receivables
US$
Allowance
US$
Net Receivables
US$
Gross
Receivables
US$
Allowance
US$
Net Receivables
US$
Current
$
25,695,723
$
(1,014,888)
$
24,680,835
$
4,975,024
$
(101,054)
$
4,873,970
Days past due:
1-28
29-56
57-90
2,251,591
(923,396)
1,328,195
400,755
(215,592)
185,163
919,177
(719,910)
199,267
200,491
(188,339)
834,107
(803,643)
30,464
143,453
(140,347)
12,152
3,106
Total
$
29,700,598
$
(3,461,837) $
26,238,761
$
5,719,723
$
(645,332) $
5,074,391
Principal payments received after the 90 day charge-off period are recognized as recoveries in the allowance
for uncollectible accounts in the period the payment is received.
NOTE 5 – LEASES
During the year of 2019, the Company entered into four new operating leases for corporate office space, three
of which are located within the United States and one in Canada. Total lease expense incurred for the year ended
December 31, 2019 and 2018 was $348,246 and $76,252, respectively, and is recorded within selling, general and
administrative expenses on the consolidated statements of operations. Additionally, total cash paid for rent
for the years ended December 31, 2019 and 2018 was $350,722 and $73,433, respectively.
Right-of-use assets and lease liabilities are recognized as of the commencement date based on the present value
of the remaining lease payments over the lease term which include renewal periods the Company is reasonably
certain to exercise.
As of December 31 the Company’s operating leases are recorded on the consolidated balance sheets as follows:
Operating Leases
Assets
Total leased assets
Liabilities
Current
Classification
Right-of-use asset
2019
US$
867,272
867,272
$
$
Lease liability (current)
$
389,257
Non-current
Lease liability (non-current)
Total lease liabilities
500,131
$
889,388
68
The Way FoRWaRD
For personal use only NOTE 5 – LEASES CONTINUED
The expected maturity of the Company’s operating leases are as follows:
Maturity of Lease Liabilities
2020
2021
2022
Less: interest
US$
$
423,039
376,457
141,525
(51,633)
Present value of lease liabilities
$
889,388
The weighted average remaining term of the Company’s operating leases is 2.4 years. The weighted average discount
rate of the operating leases is 4.75%. As of December 31, 2019, Sezzle has not entered into any lease agreements that
contain residual value guarantees or financial covenants. Sezzle has several immaterial lease agreements in which
it has the right to terminate the contract by providing written notice in advance.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
MARKETING AND ADVERTISING
In September 2018, the Company entered into an agreement with a third party whereby Sezzle will pay for marketing
and advertising costs. The agreement stipulates it will spend up to $250,000 over the four years following the date
of the agreement.
The Company entered into similar agreements with third parties in 2019, committing up to $1,085,000 in marketing
and advertising spend. The Company spent $530,000 of this amount during 2019, of which approximately $495,000 is
recorded as a prepaid expense on the consolidated balance sheet as of December 31, 2019. Absent a termination of the
noted agreements, the Company is committed to spend an additional $500,000 on an annual basis in future years.
Costs relating to these agreements totaled $34,760 and $50,000 for the years ended December 31, 2019 and 2018, respectively
and are included within selling, general, and administrative expenses within the consolidated statements of operations.
NOTE 7 – INCOME TAXES
The income tax expense (benefit) components for the years ended December 31, 2019 and December 31, 2018
are as follows:
Current tax expense/(benefit)
Federal
Foreign
State
Deferred tax expense/(benefit)
Federal
Foreign
State
2019
US$
2018
US$
$
$
–
–
11,981
–
–
–
$
11,981
$
–
–
–
–
–
–
–
69
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 7 – INCOME TAXES CONTINUED
A reconciliation of the Company’s provision for income taxes at the federal statutory rate to the reported income tax
provision for the years ended December 31, 2019 and 2018 is as follows:
Computed “expected” tax benefit
State income tax benefit, net of federal tax effect
Nondeductible equity-based compensation
Nondeductible interest expense on beneficial conversion feature
Other permanent differences
Change in valuation allowance
Rate differentials and other
Income tax expense (benefit)
2019
%
(21.0)
0.0
1.0
5.3
0.5
15.0
(0.9)
0.1
The components of the net deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:
2019
US$
2018
%
(21.0)
(0.1)
–
–
0.4
20.7
–
–
2018
US$
Deferred tax assets:
Net operating loss carryforwards
$
2,686,878
$
959,000
Allowance for uncollectible accounts
Deferred Sezzle income
Equity-based compensation
Depreciation and amortization
Startup costs
Accruals
Other
Total net deferred tax assets:
Valuation allowance
861,239
149,255
–
30,320
30,047
7,482
11,488
48,625
539
2,110
2,866
11,913
–
–
3,646,298
1,155,464
(3,646,298)
(1,155,464)
Net deferred tax asset/(liability):
$
–
$
–
70
The Way FoRWaRD
For personal use only NOTE 7 – INCOME TAXES CONTINUED
The total amount of gross federal net operating loss carryforwards are $11,898,000 and $4,394,000 as of December 31, 2019
and 2018, respectively. The total amount of gross state net operating loss carryforwards are $1,735,000 and $461,000
as of December 31, 2019 and 2018, respectively. The federal net operating loss carryforwards that originated after 2017
will have an indefinite life and may be used to offset 80% of a future year’s taxable income. The federal net operating
loss carryforwards that originated before 2018 have expiration dates between 2036 and 2037. The state net operating
losses will carryforward for 15-20 years and will expire beginning in 2031.
The Company’s ability to utilize a portion of its net operating loss carryforwards to offset future taxable income is
subject to certain limitations under Section 382 of the Internal Revenue Code due to changes in the equity ownership
of the Company. An ownership change under Section 382 has not been determined at this time.
The Company established a valuation allowance against its deferred tax assets to reduce the total to an amount
management believes is appropriate. Realization of deferred tax assets is dependent upon sufficient future taxable
income during the periods when deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform
legislation. This legislation makes significant change in U.S. tax law, including a reduction in the corporate tax rates,
changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax.
The legislation reduced the U.S. corporate tax rate from the current rate of 35% to 21%.
The legislation also introduced a new Global Intangible Low-Taxed Income (“GILTI”) provision. Under U.S. GAAP, the
Company is allowed to make an accounting policy choice of either 1) treating taxes due on future U.S. inclusions in
taxable income related to GILTI as a current-period cost when incurred, or 2) factoring such amounts into the Company’s
measurement of its deferred taxes. GILTI depends not only on the Company’s current structure and estimated future
income but also on intent and ability to modify the structure or business. The Company has elected to treat GILTI
as a current-period cost when incurred.
In November 2018, the U.S. Treasury issued proposed regulations for the new section 163( j), which generally limits
business interest deductions to 30% of adjusted taxable income (“ATI”). Any disallowed business interest can be
carried forward on an indefinite basis. For the year ended December 31, 2019, the Company was not subject to the
business interest limitation.
Sezzle Canada Corp. does not have any earnings and no deferred tax liability has been booked related to unremitted
earnings of the foreign subsidiary.
NOTE 8 – MERCHANT CONCENTR ATION
There are no material concentrations for the years ended December 31, 2019 and 2018.
NOTE 9 – INCOME
SEZZLE INCOME
Sezzle receives its income predominantly from fees paid by retail merchant clients in exchange for Sezzle’s
payment processing services. These fees are applied to the underlying sales to End-customers passing through
the Company’s platform and are based on a percentage of the End-customer order value plus a fixed fee per
transaction. End-customer installment payment plans typically consist of four installments, with the first payment
made at the time of purchase and subsequent payments coming due every two weeks after that. Additionally,
End-customers may reschedule their initial installment plan by delaying payment for up to two weeks, for which
Sezzle earns a rescheduled payment fee. The total of merchant fees and rescheduled payment fees, less note
origination costs, are collectively referred to as Sezzle income within the consolidated statements of operations.
71
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 9 – INCOME CONTINUED
Sezzle income is initially recorded as a reduction to notes receivable, net within the consolidated balance sheets.
Sezzle income is then recognized over the average duration of the End-customer note using the effective interest
rate method. The total Sezzle income to be recognized over the duration of existing notes receivable outstanding
was $1,049,626 and $143,775 as of December 31, 2019 and 2018, respectively. Total Sezzle income recognized was
$13,375,254 and $1,415,077 for the years ended December 31, 2019 and 2018, respectively.
END-CUSTOMER OTHER INCOME
Sezzle also earns income from End-customers in the form of failed payment fees assessed to End-customers who
fail to make a timely payment. Sezzle allows a 48-hour waiver period where fees are dismissed if the installment is
paid by the End-customer. Failed payment fees are recognized at the time the fee is charged to the End-customer,
less an allowance for uncollectible amounts. Failed payment fee income recognized totaled $2,685,102 and $216,983
for the years ended December 31, 2019 and 2018, respectively.
NOTE 10 – STOCKHOLDERS ’ EQUIT Y (DEFICIT )
STOCK SUBSCRIPTIONS
As of January 1, 2018, stock subscriptions represented a receivable for consideration that has not been paid to
the Company based on the subscription price agreed to between the stockholder and the Company related to the
purchase of common stock. The Company issued a stock subscription receivable of $57,708 to employees for 19,416,666
shares of common stock at prices ranging from $0.0005 and $0.0065. Stock subscriptions are included within
stockholders’ equity (deficit). The total amount of stock subscriptions receivable was fully paid by the end of 2018.
PREFERRED STOCK DIVIDEND
On June 23, 2019, the Company issued a preferred stock dividend to preferred stockholders. Refer to Note 11
for further information.
CONVERSION OF PREFERRED STOCK TO COMMON STOCK
On July 24, 2019, the Company restructured its share capital in anticipation of listing on the Australian Securities
Exchange (ASX). Each of the Series A preferred stock was converted into common stock. The Company issued
70,446,291 common shares upon conversion of 70,446,291 of Series A preferred stock, converted on a 1:1 basis in
accordance
with the terms of the preferred stock agreements. Historical preferred stock issuances are outlined within Note 11.
CONVERSION OF CONVERTIBLE NOTES TO COMMON STOCK
On July 24, 2019, the Company issued 12,064,155 common shares following the conversion of the $5,812,500 of convertible
notes outstanding, along with accrued interest, at a conversion price of $0.49 per common share. Refer to Note 16
for further information on the convertible note issuance.
INITIAL PUBLIC OFFERING OF COMMON STOCK
On July 29, 2019, the Company listed on the ASX. The initial public offer of 35,714,286 CHESS Depository Interests (CDIs)
over shares of common stock (one CDI equates to one common share) were offered at an issuance price of A$1.22
(approximately $0.84) per CDI to raise approximately A$43.6 million, resulting in proceeds of $30,286,785. Total costs
of the offer were $2,777,097, resulting in overall net proceeds of $27,509,688.
72
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For personal use only NOTE 11 – MEZZANINE EQUIT Y
PREFERRED STOCK
As of December 31, 2018, the Company had authorized and designated shares of Series A-1 through A-5 preferred
stock as follows:
Series A-1:
Series A-2:
Series A-3:
Series A-4:
Series A-5:
174,652 shares
15,584,042 shares
18,291,457 shares
33,981,205 shares
25,401,218 shares
The Company also had 106,567,426 of preferred shares authorized but unissued and undesignated. On April 10, 2018,
the Company issued 19,655,605 shares of A-1 through A-3 preferred stock in exchange for converted Simple Agreement
for Future Equity (SAFE) agreements issued in prior years. The exchange of the SAFE agreements resulted in the
issuance of preferred stock valued at $3,310,043. The initial cash proceeds of the SAFE agreements were $2,346,000.
Refer to Note 15 for further information regarding the SAFE agreements.
During 2018, the Company issued 49,881,235 of A-4 and A-5 preferred shares in exchange for cash proceeds
of $8,368,386, net of costs to issue.
As of December 31, 2018, the preferred shares were classified as mezzanine equity on the consolidated balance sheets
due to the fact they were redeemable upon a deemed liquidation event, defined as a change in control upon a merger,
consolidation, transfer or sale of the Company that the Company cannot control or prevent from occurring.
The preferred stockholders were entitled to receive, if declared by the Board of Directors, a preferential 6%
noncumulative dividend. On May 1, 2019, the Company amended its articles of incorporation. One of the amendments
required the first dividend declared by the Board of Directors to be calculated at 15% of the original issue price.
On June 23, 2019, the Board of Directors declared and issued a dividend of 909,451 shares of Series A preferred
shares to the existing holders of Series A-1 through A-5 preferred stock, valued at $763,939. The preferred stock
dividend was classified as Series A-6 preferred stock and was subject to the same rights as all other series of
preferred shares.
Additionally, the preferred shares were mandatorily convertible upon either (a) the closing of a public offering for
the sale of common stock resulting in at least $50 million of proceeds, less issuance costs; or (b) the date and time,
or occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding
preferred shares. Upon the occurrence of either of the aforementioned events, all outstanding preferred shares
were to be automatically converted into common shares on a one to one basis. The conversion ratios of preferred
to common stock price per share range from $0.1152 to $0.1684.
All preferred stock mandatorily converted to shares of common stock on July 24, 2019 in conjunction with the Company’s
initial public offering of common stock on the ASX. Refer to Note 10 for more information.
73
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 12 – EMPLOYEE BENEFIT PL AN
The Company sponsors a defined contribution 401(k) plan for eligible U.S. employees. Plan assets are held separately
from those of the Company in funds under the control of a third-party trustee. Participants in the plan may elect to
defer a portion of their eligible compensation, on a pre or post-tax basis, subject to annual statutory contribution
limits. The Company does not offer matching contributions and may make discretionary contributions. There have
been no Company contributions made to the plan for the years ended December 31, 2019 and 2018.
NOTE 13 – REVOLVING LINE OF CREDIT
On November 14, 2018, Sezzle Funding SPE, LLC and Sezzle Inc. entered into a Loan and Security Agreement with
Bastion Consumer Funding II, LLC (“Bastion”). The loan agreement provided for a credit facility of $30,000,000.
As of December 31, 2018, the Company had an outstanding revolving line of credit balance relating to this agreement
of $4,200,000, recorded within line of credit, net as a non-current liability on the consolidated balance sheets.
The line of credit beared interest at a floating per annum rate equal to the 3-month LIBOR + 12% on the first
$15,000,000 and 3-month LIBOR + 10% for the remaining $15,000,000 (14.74% as of December 31, 2018).
On November 29, 2019, Sezzle Funding SPE, LLC and Sezzle Inc. entered into a new agreement with the Syndicate
for a credit facility of $100,000,000, with a maturity date of May 29, 2022. As of December 31, 2019, the Company had
an outstanding revolving line of credit balance of $21,450,000, recorded within the line of credit, net as a non-current
liability on the consolidated balance sheets. The new line of credit agreement bears interest at a floating per annum
rate equal to the 3-month LIBOR + 7.75% on the $100,000,000 line (9.65% as of December 31, 2019).
Under the agreements, interest on borrowings is due monthly and all borrowings are due at maturity. Borrowings
subsequent to May 1, 2019 are based on 90% of eligible notes receivable from both the United States and Canada,
defined as past due balances outstanding less than 30 days and originating from the United States. Total interest
expense incurred related to the line of credit was $908,309 and $80,744 for the years ended December 31, 2019 and
2018, respectively. As of December 31, 2019 and 2018, Sezzle had pledged $23,757,188 and $4,656,967, respectively,
of its notes receivable to Sezzle Funding SPE, LLC.
The Company’s obligations under the agreement are secured by its installment payments receivable.
The Company must maintain a drawdown from the credit facility of at least $20,000,000 beginning November 29, 2019
and of at least $40,000,000 beginning November 29, 2020.
Sezzle will pay a termination fee and a make-whole fee to the Syndicate in the event of an early termination.
Fees differ based on termination timing differences. Beginning May 27, 2020, any daily unused amounts will result
in a facility fee due to the Syndicate from Sezzle at a rate of .50% per annum.
The cumulative total of debt issuance costs incurred to obtain and manage the line of credit with Bastion and the
Syndicate totaled $663,649 through December 31, 2019. The costs were capitalized as a reduction to the line of credit
balance, and are amortized over the remaining life of the agreement.
74
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For personal use only NOTE 14 – NOTES PAYABLE
On July 26, 2018, the Minnesota Department of Employment and Economic Development (DEED) funded a
$250,000 seven-year interest-free loan due in June 2025 to Sezzle under the State Small Business Credit Initiative
Act of 2010 (the “Act”). The Act was created for additional funds to be allocated and dispersed by states that have
created programs to increase the amount of capital made available by private lenders to small businesses.
The loan proceeds are used for business purposes, primarily start-up costs and working capital needs. The loan
may be prepaid in whole or in part at any time without penalty. If more than fifty percent of the ownership interest
in Sezzle is transferred during the term of the loan, the loan will be required to be paid in full, along with a penalty
in the amount of thirty percent of the original loan amount.
NOTE 15 – FUTURE EQUIT Y OBLIGATIONS
During the year ended December 31, 2018, the Company entered into various SAFE agreements with investors
in exchange for proceeds of $30,000. The SAFE agreements had no maturity date and bore no interest. The agreements
provided the rights of the investors to preferred stock in the Company upon an equity financing event as defined
in the agreements. The agreements were subject to valuation caps ranging from $8,000,000 to $12,000,000 and had
conversion discount rates ranging from 15% to 25%.
Based on the terms of the SAFE agreements, if there were a liquidity event before the termination of the SAFE
agreements, the investors would, at their option, either: 1) receive a cash payment equal to the purchase amount
or 2) automatically receive from the Company a number of shares of common stock equal to the purchase amount
divided by the liquidity price. In a dissolution event, the SAFE agreement holders would be paid out of remaining
assets prior to holders of the Company’s common stock.
The Company recorded the changes in fair value of the SAFE agreements at each reporting period to the consolidated
statements of operations. The changes in fair value resulted in losses of $7,490 for the year ended December 31, 2018.
The changes in fair value are recorded to other income (expense) within the consolidated statements of operations.
On April 10, 2018, the SAFE agreements converted into preferred stock.
NOTE 16 – CONVERTIBLE NOTES
On March 29, 2019, the Company issued $5,662,500 of convertible notes to a group of investors. The promissory
notes had a stated maturity date of March 29, 2021 and paid an annual interest rate of 4% on the unpaid principal
balance through June 30, 2019. Subsequent to June 30, 2019 the notes paid an annual interest rate of 8% on the
unpaid principal balance. The notes were issued at a $25,000 discount which is amortized over the life of the
convertible notes. Amortization of the discount totaled $4,281 for the year ended December 31, 2019 and is recorded
within interest expense within the consolidated statements of operations.
Additionally, the notes carried a conversion feature whereby they would automatically convert upon either (a) a
change in control of the Company; (b) a reorganization, merger, or consolidation of the Company; (c) the sale of
the Company’s assets; or (d) an initial public offering of the Company’s common stock (or a security representing
common stock). The notes also would have converted in the event the Company consummated an equity financing
arrangement with an aggregate sales price of no less than $10,000,000. Upon the occurrence of one of the
aforementioned events the notes would have converted into 80% of the price per share value of common stock
applicable at the time of the event. The notes also carried an optional conversion feature whereby the notes
may convert into common stock.
On June 6, 2019, the Company issued two separate convertible notes totaling $150,000. The promissory notes had a
stated maturity date of June 6, 2021 with the option of individual 1-year renewable periods for up to five years should
no conversion event occur. The notes would pay an annual interest rate of 10% on the unpaid principal balance
through June 6, 2021.
75
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 16 – CONVERTIBLE NOTES CONTINUED
The first convertible note of $75,000 carried a conversion feature where it would automatically convert upon
either (a) a change in control of the Company; (b) a reorganization, merger, or consolidation of the Company;
(c) the sale of the Company’s assets; or (d) an initial public offering of the Company’s common stock (or a security
representing common stock). The note would have also converted in the event the Company consummates an equity
financing arrangement with an aggregate sales price of no less than $500,000. Upon the occurrence of one of the
aforementioned events the note would convert into 80% of the price per share value of common stock applicable
at the time of the event. The note also carried an optional conversion feature whereby the note may convert into
common stock.
The second convertible note of $75,000 carried a conversion feature whereby the holder may convert, upon the
holder’s discretion, for either (a) a change in control of the Company; (b) a reorganization, merger, or consolidation
of the Company; (c) the sale of the Company’s assets; or (d) an initial public offering of the Company’s common
stock (or a security representing common stock). The note would have also converted automatically in the event
the Company consummated an equity financing arrangement with an aggregate sales price of not less than
$500,000. Upon the occurrence of one of the aforementioned events the note would have converted into 80% of
the price per share value of common stock applicable at the time of the event. The note also carried an optional
conversion feature whereby the note may convert into common stock.
The conversion features of the notes issued on March 29, 2019 and June 6, 2019 were triggered as a result of
the Company’s initial public offering of common stock on the ASX. The total non-cash impact of the beneficial
conversion feature was $4,306,622, comprised of $4,197,674 of expense incurred on the date of conversion, and
accumulated interest incurred on the convertible notes of $108,948. The impacts of the conversion are recorded
within interest expense on beneficial conversion feature and interest expense, respectively, in the consolidated
statements of operations for the year ended December 31, 2019.
NOTE 17 – EQUIT Y-BASED COMPENSATION
The Company issues incentive and non-qualified stock options, restricted stock units, and restricted stock awards
to employees and non-employees with vesting requirements varying from two to four years (the typical vesting is
a one-year cliff vesting and monthly vesting after the first year of service). The Company utilizes the Black-Scholes
model for valuing stock option issuances, and the grant date fair value for valuing the restricted stock issuances.
Equity-based compensation expense recorded totaled $951,979 and $30,677 for the years ended December 31, 2019
and 2018, respectively, and is recorded within selling, general, and administrative expenses within the consolidated
statements of operations.
2016 EMPLOYEE STOCK OPTION PL AN
The Company adopted the 2016 Employee Stock Option plan on January 16, 2016. The number of options authorized
for issuance under the plan is 10,000,000. The Company had 8,336,253 and 7,430,000 options issued and outstanding
as of December 31, 2019 and 2018, respectively. Additionally, the Company had 350,000 of restricted stock awards
issued and outstanding as of December 31, 2019. During the year ended December 31, 2019, 882,914 options were
exercised into 882,914 shares of common stock.
76
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For personal use only 2019 EQUIT Y INCENTIVE PL AN
The Company adopted the 2019 Equity Incentive plan on June 25, 2019. The number of options authorized for
issuance under the plan is 10,000,000. The Company had 8,716,250 options and 557,000 restricted stock units issued
and outstanding as of December 31, 2019.
The following summarizes the options issued, outstanding, and exercisable as of December 31:
2018
Weighted
Average
Exercise Price
US$
Number of
Options
Intrinsic
Value
US$
Weighted
Average
Remaining Life
Outstanding, beginning of year
752,500
$
0.002
$
3,315
Granted
Exercised
Forfeited or surrendered
Outstanding, end of year
Exercisable, end of year
6,677,500
0.049
–
–
7,430,000
949,961
–
–
0.044
0.018
–
–
–
44,749
30,761
Expected to vest, end of year
6,480,039
$
0.048
$
13,988
–
–
–
–
9.48
8.44
9.63
2019
Weighted
Average
Exercise Price
US$
Number of
Options
Intrinsic
Value
US$
Weighted
Average
Remaining Life
Outstanding, beginning of year
7,430,000
$
0.044
$
44,749
Granted
Exercised
Forfeited or surrendered
11,971,250
(882,914)
(1,465,833)
0.891
0.042
0.215
–
1,642,949
–
Outstanding, end of year
17,052,503
0.624
14,895,996
Exercisable, end of year
3,396,325
0.071
4,731,629
Expected to vest, end of year
13,656,178
$
0.762
$
10,164,367
–
–
–
–
9.18
8.40
9.37
77
ANNUAL REPORT 2019SEZZLE INC.For personal use only Notes to the Consolidated Financial Statements
Continued
NOTE 17 – EQUIT Y BASED COMPENSATION CONTINUED
The following table represents the assumptions used for estimating the fair values of stock options granted to
employees, contractors, and nonemployees of the Company. The risk-free interest rate is based on the U.S. Treasury
yield curve in effect on the grant date.
2019
2018
1.59%-2.61%
2.26%-2.61%
49.78%-82.88%
44.93%-50.42%
6.00
5.82
0.15
Risk-free interest rate
Expected volatility
Expected life (in years)
Weighted-average estimated fair value of options granted
$
0.64
$
Restricted stock award and restricted stock unit transactions during the year ended December 31, 2019 are summarized
as follows:
Unvested shares as of January 1, 2019
Granted
Vested
Forfeited or surrendered
Unvested shares as of December 31, 2019
Weighted
Average Grant
Date Fair Value
US$
Number of
Shares
–
$
907,000
(134,778)
–
772,222
$
–
1.14
0.94
–
1.12
During 2019, employees and non-employees received restricted stock grants totaling 907,000 shares, inclusive of
557,000 restricted stock units and 350,000 restricted stock awards. Vesting of restricted stock units and restricted
stock awards are totaled 57,000 and 77,778, respectively. All restricted stock awards and 57,000 restricted stock units
are recorded as issued and outstanding within the consolidated statements of stockholders’ equity. The shares
underlying the awards were assigned a weighted average fair value of $1.14 per share, for a total value of $1,036,324.
The restricted stock issuances are scheduled to vest over a range of three to four years.
The Company had no restricted stock awards or restricted stock units issued or outstanding prior to 2019.
As of December 31, 2019, the total compensation cost related to non-vested options, restricted stock awards and
restricted stock units not yet recognized is $7,720,545 and is expected to be recognized over the weighted average
remaining recognition period of approximately 3.6 years.
NOTE 18 – LOSSES PER SHARE
The computation for basic loss per share is established by dividing net losses for the period by the weighted average
shares outstanding during the reporting period. Dilutive losses per share is computed in a similar manner, with
weighted average shares increasing from the assumed exercise of employee stock options (if dilutive). Given the
Company is in a loss position, the impact of including assumed exercises of stock options and conversion of future
equity obligations and preferred stock would have an anti-dilutive impact on the calculation of diluted loss per
share. Therefore, stock options, restricted stock units, restricted stock awards, convertible notes and preferred stock
shares are not included in the calculation of diluted loss per share for the years ended December 31, 2019 and 2018.
NOTE 19 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing of this report and determined that there
have been no events that have occurred that would require adjustments to the disclosures in the consolidated
financial statements.
78
The Way FoRWaRD
For personal use only Directors’ Declaration
For the year ended December 31, 2019
The Directors declare that in the Directors’ opinion:
(a) The attached financial statements and notes give a true and fair view of the consolidated entity’s financial
position as of December 31, 2019 and performance for the financial year ended on that date;
(b) There are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when
they become due and payable;
(c) The attached financial statements and notes comply with accounting principles generally accepted in the
United States of America (U.S. GAAP) as issued by the Financial Accounting Standards Board as described in
the notes to the financial statements;
(d) The attached financial statements and notes also comply with mandatory professional reporting requirements,
including the Corporations Act 2001, the Accounting Standards, and the Corporations Regulations 2001 to the
extent that the Company is required to comply with such provisions; and
(e) The remuneration disclosures set out in the Directors’ Report comply with Corporations Regulations 2001 and
other mandatory professional reporting requirements to the extent that the Company is required to comply
with such provisions.
The Directors have been given a declaration by the Chief Executive Officer and Chief Financial Officer equivalent
to section 295(a) of the Corporations Act 2001.
On behalf of the Board,
Charlie Youakim,
Chairman and CEO
27 February 2020
79
ANNUAL REPORT 2019SEZZLE INC.For personal use only aSX additional Information
Between the date of the Company’s admission to the official list of the ASX on July 29, 2019 and the end of the
reporting period on December 31, 2019, the Company used its cash and assets in a form readily convertible to
cash that it had at the time of admission in a way consistent with its business objectives.
Additional information required pursuant to ASX Listing Rule 4.10 and not disclosed elsewhere in this report
is set out below. The information is effective as of February 21, 2020.
CORPOR ATE GOVERNANCE:
The Company’s Corporate Governance Statement for the year ended December 31, 2019 can be found at
https://sezzle.com/investors
SUBSTANTIAL SHAREHOLDERS:
As a company incorporated in Delaware and listed solely on the ASX, neither Chapter 6 of the Corporations Act 2001 (Cth.)
(Corporations Act) or the corresponding provisions of the Securities Exchange Act of 1934 dealing with notification
of substantial holding apply to shareholders in Sezzle. However, as disclosed to the ASX on July 29, 2019, the Company
has agreed with ASX to release to the market certain information about a person (other than Sezzle itself) becoming
a substantial holder in the Company within the meaning of section 671B of the Corporations Act, varying its
substantial holding by 1% or more or ceasing to be a substantial holder.
Having regard to the qualifications and limitations as disclosed to the ASX, the table below sets out the information
known to Sezzle as of February 21, 2020 concerning substantial holdings in Sezzle’s CDIs.
Name of Substantial Holder within the meaning of section 671B
of the Corporations Act
Number
of CDIs in
which the
substantial
holder holds
a relevant
interest
Record
Holder
(if different)
% of total
shares on
issue
Charlie Youakim
N/A
88,359,809
49.63%
Continental Investment Partners
N/A
10,389,407
5.84%
Paul Paradis
N/A
10,000,000
5.62%
NUMBER OF HOLDERS OF EACH CL ASS OF EQUIT Y SECURITIES:
Category
CHESS Depositary Interests (quoted on ASX)
Unlisted Options (not quoted on ASX)
Restricted Stock Units (not quoted on ASX)
Common Stock (not quoted on ASX)
VOTING RIGHTS:
Number of
Holders
3,722
129
4
14
Shareholder and CDI Holder voting rights are summarized within section 9 ‘Additional Information’ (page 123)
of the Company’s Replacement Prospectus dated July 8, 2019 and section 9.4 (b) on page 125.
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For personal use only DISTRIBUTION SCHEDULE OF CDI HOLDERS:
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Total
Total
Holders
CDIs
% of CDIs
1,196
634,902
1,302
3,379,925
585
580
4,687,585
13,704,433
59
155,278,719
0.36
2.10
2.63
7.70
87.21
3,722
178,045,564
100.00
UNMARKETABLE PARCELS:
There were 304 holders of less than a marketable parcel of CDIs, comprising a total of 62,324 CDIs (0.035% of CDIs
on issue), being a parcel of less than 274 CDIs based on a closing price of AUD$1.83 per CDI on February 21, 2020.
TOP 20 CDI HOLDERS:
Name
CHARLES G YOUAKIM
CONTINENTAL INVESTMENT PARTNERS LLC
PAUL PARADIS
KILLIAN BRACKEY
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
MR LEE BRADING
UBS NOMINEES PTY LTD
MR BRYAN KRUG
BNP PARIBAS NOMINEES PTY LTD
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