Sezzle Inc

Previous wording

We are a purpose-driven payments company on a mission to financially empower the next generation. Launched in 2017, we built a digital payments platform that allows merchants to offer their consumers a flexible alternative to traditional credit. As of June 30, 2024, our platform has supported the business growth of 24 thousand Active Merchants while serving 2.6 million Active Consumers. Through our products we aim to enable consumers to take control of their spending, be more responsible, and gain access to financial freedom. Our vision is to create a digital ecosystem benefiting all of our stakeholders—including consumers, merchants, employees, communities, and investors—while continuing to drive ethical growth.

Current wording

We are a purpose-driven payments company on a mission to financially empower the next generation. Launched in 2017, we built a digital payments platform that allows merchants to offer their consumers a flexible alternative to traditional credit. As of September 30, 2024, our platform has supported the business growth of 23 thousand Active Merchants while serving 2.7 million Active Consumers. Through our products we aim to enable consumers to take control of their spending, be more responsible, and gain access to financial freedom. Our vision is to create a digital ecosystem benefiting all of our stakeholders—including consumers, merchants, employees, communities, and investors—while continuing to drive ethical growth.

Previous wording

The Sezzle Platform offers a payments solution for consumers that instantly extends credit at the point-of-sale, allowing consumers to purchase and receive the ordered merchandise at the time of sale while paying in installments over time. The Sezzle Platform flagship product, “pay-in-four,” allows consumers to pay a fourth of the purchase price up front, and then another fourth of the purchase price every two weeks thereafter over a total of six weeks. We also offer alternative payment options on the Sezzle Platform, including “pay-in-two” and “pay-in-full,” to certain consumers. We realize high repeat usage rates by many of our consumers, with the top 10% of our consumers measured by Underlying Merchant Sales (UMS, as defined below) transacting an average of 70 times per year based on the transaction activity during the rolling twelve months ended June 30, 2024, although historical transaction activity is not an indication of future results.

Current wording

The Sezzle Platform offers a payments solution for consumers that instantly extends credit at the point-of-sale, allowing consumers to purchase and receive the ordered merchandise at the time of sale while paying in installments over time. The Sezzle Platform flagship product, “pay-in-four,” allows consumers to pay a fourth of the purchase price up front, and then another fourth of the purchase price every two weeks thereafter over a total of six weeks. We also offer alternative payment options on the Sezzle Platform, including “pay-in-two” and “pay-in-full,” to certain consumers. We realize high repeat usage rates by many of our consumers, with the top 10% of our consumers measured by Underlying Merchant Sales (“UMS,” as defined below) transacting an average of 77 times per year based on the transaction activity during the rolling twelve months ended September 30, 2024, although historical transaction activity is not an indication of future results.

Previous wording

Our ability to profitably scale our business long-term is reliant on creating a transparent and sustainable ecosystem of products and services that add value for all of our stakeholders, including our consumers and merchants. Our product is generally free for consumers who pay on time and use a bank account to make their installment payments, excluding their first payment, unless they choose to pay for one of our two optional subscription products or enter into an interest-bearing loan with our long-term lending partners. Subscription revenue comprised approximately 34% and 13% of our total revenue for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Our ability to profitably scale our business long-term is reliant on creating a transparent and sustainable ecosystem of products and services that add value for all of our stakeholders, including our consumers and merchants. Our product is generally free for consumers who pay on time and use a bank account to make their installment payments, excluding their first payment, unless they choose to pay for one of our two optional subscription products or enter into an interest-bearing loan with our long-term lending partners. Subscription revenue comprised approximately 33% and 16% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

We earn fees from our merchants predominately based on a percentage of the UMS value plus a fixed fee per transaction, collectively called a “merchant processing fee.” We generally pay our merchants the full transaction value upfront, net of the merchant fees owed to us, and assume all costs associated with the consumer payment processing, fraud, and payment default. Merchant and partner-related income comprised approximately 42% and 69% of our total revenue for the six months ended June 30, 2024 and 2023, respectively. Our merchants have access to a toolkit we provide that can assist in the growth of their businesses. This toolkit includes marketing placements, co-branded marketing, exclusive promotions for consumers using Sezzle, and Sezzle Capital which facilitates access to small business loans issued by third-party lenders.

Current wording

We earn fees from our merchants predominately based on a percentage of the UMS value plus a fixed fee per transaction, collectively called a “merchant processing fee.” We generally pay our merchants the full transaction value upfront, net of the merchant fees owed to us, and assume all costs associated with the consumer payment processing, fraud, and payment default. Merchant and partner-related income comprised approximately 39% and 65% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively. Our merchants have access to a toolkit we provide that can assist in the growth of their businesses. This toolkit includes marketing placements, co-branded marketing, exclusive promotions for consumers using Sezzle, and Sezzle Capital which facilitates access to small business loans issued by third-party lenders.

Previous wording

We rely heavily on our merchant base to offer our product to new consumers at the point of sale. As of June 30, 2024, we had approximately 24 thousand Active Merchants (defined as directly integrated merchants who have had at least one order on the Sezzle Platform in the last twelve months) on our platform. Our integration into scaled e-commerce platforms is expected to give more merchants the opportunity to offer Sezzle as a payment option at checkout, and we expect that our partnerships with larger retailers will familiarize more consumers with the Sezzle Platform. Onboarding and retaining merchants, as well as growing merchant utilization of the Sezzle Platform, requires investment in sales, co-marketing, and competitively priced merchant fee rates and incentives. In order to stay competitive, we have and may continue to adjust our pricing or offer incentives to larger merchants in order to increase UMS. These pricing structures with merchants may include up-front cash payments, fee discounts, rebates, credits, performance-based incentives, marketing, and other support payments that impact our revenues and profitability, and therefore, could incur substantial costs to acquire and retain these larger merchants. Certain agreements contain provisions that may require us to make payments to certain merchants and are contingent on us and/or the merchants meeting specified criteria, such as achieving implementation benchmarks.

Current wording

We rely heavily on our merchant base to offer our product to new consumers at the point of sale. As of September 30, 2024, we had approximately 23 thousand Active Merchants (defined as directly integrated merchants who have had at least one order on the Sezzle Platform in the last twelve months) on our platform. Our integration into scaled e-commerce platforms is expected to give more merchants the opportunity to offer Sezzle as a payment option at checkout, and we expect that our partnerships with larger retailers will familiarize more consumers with the Sezzle Platform. Onboarding and retaining merchants, as well as growing merchant utilization of the Sezzle Platform, requires investment in sales, co-marketing, and competitively priced merchant fee rates and incentives. In order to stay competitive, we have and may continue to adjust our pricing or offer incentives to larger merchants in order to increase UMS. These pricing structures with merchants may include up-front cash payments, fee discounts, rebates, credits, performance-based incentives, marketing, and other support payments that impact our revenues and profitability, and therefore, could incur substantial costs to acquire and retain these larger merchants. Certain agreements contain provisions that may require us to make payments to certain merchants and are contingent on us and/or the merchants meeting specified criteria, such as achieving implementation benchmarks.

Previous wording

The success of our business is also dependent on a consumer base that actively uses our products. As of June 30, 2024, we had approximately 2.6 million Active Consumers on the platform. We aim to provide offerings to our consumers that keep them engaged within our ecosystem, such as Sezzle Up, our tap-to-pay Sezzle Virtual Card, and our paid subscription services Sezzle Premium and Sezzle Anywhere. There is a risk that we may lose consumers for a variety of reasons, including consumers shifting to competitors or other payment options, changes in the general macroeconomic climate, or changes in our underwriting.

Current wording

The success of our business is also dependent on a consumer base that actively uses our products. As of September 30, 2024, we had approximately 2.7 million Active Consumers on the platform. We aim to provide offerings to our consumers that keep them engaged within our ecosystem, such as Sezzle Up, our tap-to-pay Sezzle Virtual Card, and our paid subscription services Sezzle Premium and Sezzle Anywhere. There is a risk that we may lose consumers for a variety of reasons, including consumers shifting to competitors or other payment options, changes in the general macroeconomic climate, or changes in our underwriting.

Previous wording

A critical component of our business model is the ability to effectively manage the repayment risk inherent in allowing consumers to pay over time, as we absorb the costs of all credit losses from our consumers that we extend credit to. The provision for credit losses is a significant component of our operating expenses, and excessive exposure to consumer repayment failure may impact our results of operations. To that end, a team of Sezzle engineers and risk specialists oversee our proprietary systems, identify transactions with an elevated risk of fraud, assess the credit risk of the consumer, assign spending limits, and manage the ultimate receipt of funds. Because consumers typically settle 25% of the purchase value upfront at the point of sale, we believe repayment risk is more limited relative to other traditional forms of unsecured consumer credit.

Current wording

A critical component of our business model is the ability to effectively manage the repayment risk inherent in allowing consumers to pay over time, as we absorb the costs of all credit losses on the credit we extend to our consumers. The provision for credit losses is a significant component of our operating expenses, and excessive exposure to consumer repayment failure may impact our results of operations. To that end, a team of Sezzle engineers and risk specialists oversee our proprietary systems, identify transactions with an elevated risk of fraud, assess the credit risk of the consumer, assign spending limits, and manage the ultimate receipt of funds. Because consumers typically settle 25% of the purchase value upfront at the point of sale, we believe repayment risk is more limited relative to other traditional forms of unsecured consumer credit.

Previous wording

For the three months ended June 30, 2024 and 2023, UMS totaled $532.2 million and $383.1 million, respectively, which was an increase of 38.9%. For the six months ended June 30, 2024 and 2023, UMS totaled $1,024.9 million and $752.9 million, respectively, which was a increase of 36.1%. The increases in both periods were primarily from the expansion of our Sezzle Anywhere subscription product, which launched in June 2023.

Current wording

For the three months ended September 30, 2024 and 2023, UMS totaled $659.9 million and $469.5 million, respectively, which was an increase of 40.6%. For the nine months ended September 30, 2024 and 2023, UMS totaled $1,684.8 million and $1,222.4 million, respectively, which was a increase of 37.8%. The increases in both periods were primarily from the expansion of our Sezzle Anywhere subscription product, which launched in June 2023, as well as changes to consumer underwriting to further promote profitable top-line growth.

Previous wording

Active Consumers is defined as unique consumers who have placed an order with us within the last twelve months. As of June 30, 2024 and December 31, 2023, we had 2.6 million Active Consumers. Active Consumers remained flat as of June 30, 2024 compared to December 31, 2023.

Current wording

Active Consumers is defined as unique consumers who have placed an order with us within the last twelve months. As of September 30, 2024 we had 2.7 million Active Consumers, an increase of 2.6% when compared to our 2.6 million Active Consumers as of December 31, 2023. The increase in Active Consumers was driven by our marketing efforts and changes to our underwriting.

Previous wording

Active Subscribers is defined as unique consumers who have an active subscription for either Sezzle Premium or Sezzle Anywhere. As of June 30, 2024, we had 0.5 million Active Subscribers, an increase of 50.2% when compared to our 0.3 million Active Subscribers as of December 31, 2023. The increase in Active Subscribers was driven by the continued adoption of our subscription products.

Current wording

Active Subscribers is defined as unique consumers who have an active subscription for either Sezzle Premium or Sezzle Anywhere. As of September 30, 2024, we had 0.5 million Active Subscribers, an increase of 72.0% when compared to our 0.3 million Active Subscribers as of December 31, 2023. The increase in Active Subscribers was driven by the continued marketing and adoption of our subscription products.

Previous wording

We incur interest expense on a continuous basis as a result of draws on our revolving line of credit to fund consumer notes receivable as well as our Merchant Interest Program, whereby merchants may defer their payments owed by us in exchange for interest. The interest paid on borrowings under our line of credit is based on SOFR. Interest paid to merchants under the Merchant Interest Program is based on a fixed interest rate.

Current wording

We incur interest expense on a continuous basis as a result of draws on our revolving line of credit to fund consumer notes receivable as well as our Merchant Interest Program, whereby merchants may defer their payments owed by us in exchange for interest. The interest paid on borrowings under our line of credit is based on SOFR. Interest paid to merchants under the Delayed Settlement Incentive Program is based on a fixed interest rate.

Previous wording

Income tax (benefit) expense consists of income taxes in various jurisdictions, primarily U.S. federal and state income taxes, and also the other foreign jurisdictions in which we operate. Tax effects of transactions reported in the consolidated financial statements consist of taxes currently due. Additionally, we record deferred taxes related primarily to differences between the basis of receivables, property and equipment, equity based compensation, and accrued liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Current wording

Income tax expense (benefit) consists of income taxes in various jurisdictions, primarily U.S. federal and state income taxes, and also the other foreign jurisdictions in which we operate. Tax effects of transactions reported in the consolidated financial statements consist of taxes currently due. Additionally, we record deferred taxes related primarily to differences between the basis of receivables, property and equipment, equity based compensation, and accrued liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Previous wording

Other comprehensive (loss) income is comprised of foreign currency translation adjustments.

Current wording

Other comprehensive income (loss) is comprised of foreign currency translation adjustments.

Previous wording

Transaction income totaled $29.1 million and $26.0 million for the three months ended June 30, 2024 and 2023, respectively. Transaction income totaled $55.7 million and $51.8 million for the six months ended June 30, 2024 and 2023, respectively. Within transaction income, merchant processing fees totaled $13.6 million and $19.5 million for the three months ended June 30, 2024 and 2023, respectively, and $28.1 million and $39.4 million for the six months ended June 30, 2024 and 2023, respectively. Merchant processing fees decreased due to the higher concentration of UMS volume transacted with our subscription products. Despite the decrease in merchant processing fees, transaction income grew year-over-year overall due to increases in both partner income and consumer fees.

Current wording

Transaction income totaled $36.4 million and $27.0 million for the three months ended September 30, 2024 and 2023, respectively. Transaction income totaled $92.1 million and $78.9 million for the nine months ended September 30, 2024 and 2023, respectively. Within transaction income, merchant processing fees totaled $14.8 million and $17.8 million for the three months ended September 30, 2024 and 2023, respectively, and $42.9 million and $57.2 million for the nine months ended September 30, 2024 and 2023, respectively. Merchant processing fees decreased due to the higher concentration of UMS volume transacted with our subscription products. Despite the decrease in merchant processing fees, transaction income grew year-over-year overall due to increases in both partner income and consumer fees.

Previous wording

Subscription revenue totaled $19.8 million and $5.1 million for the three months ended June 30, 2024 and 2023, respectively. Subscription revenue totaled $34.5 million and $9.2 million for the six months ended June 30, 2024 and 2023, respectively. The increase was primarily driven by the June 2023 launch of Sezzle Anywhere, along with the overall growth in our Active Subscribers.

Current wording

Subscription revenue totaled $22.9 million and $8.6 million for the three months ended September 30, 2024 and 2023, respectively. Subscription revenue totaled $57.4 million and $17.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase was primarily driven by the overall growth in our Active Subscribers.

Previous wording

Income from other services totaled $7.0 million and $3.9 million for the three months ended June 30, 2024 and 2023, respectively. Income from other services totaled $12.7 million and $8.6 million for the six months ended June 30, 2024 and 2023, respectively. The increase was driven by higher consumer fee income and increased marketing revenue generated from merchants. Consumer late payment fees totaled $4.0 million and $2.0 million for the three months ended June 30, 2024 and 2023, respectively, and $6.7 million and $4.5 million for the six months ended June 30, 2024 and 2023, respectively. The increase in late payment fees was primarily driven by a higher number of orders becoming past due.

Current wording

Income from other services totaled $10.7 million and $5.2 million for the three months ended September 30, 2024 and 2023, respectively. Income from other services totaled $23.4 million and $13.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase was driven by higher consumer fee income and increased marketing revenue generated from merchants. Consumer late payment fees totaled $6.8 million and $2.6 million for the three months ended September 30, 2024 and 2023, respectively, and $13.5 million and $7.0 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in late payment fees was primarily driven by a higher number of orders becoming past due.

Previous wording

Personnel costs for the three months ended June 30, 2024 and 2023 totaled $12.7 million and $12.0 million, respectively. Personnel costs for the six months ended June 30, 2024 and 2023 totaled $23.8 million and $23.6 million, respectively. Recorded within personnel, equity based compensation totaled $1.5 million and $2.4 million for the three months ended June 30, 2024 and 2023, respectively, and $2.4 million and $4.8 million for the six months ended June 30, 2024 and 2023, respectively. The decrease in equity based compensation was offset with higher salary and accrued bonus expense compared to the prior period.

Current wording

Personnel costs for the three months ended September 30, 2024 and 2023 totaled $13.4 million and $11.1 million, respectively. Personnel costs for the nine months ended September 30, 2024 and 2023 totaled $37.2 million and $34.7 million, respectively. Recorded within personnel, equity based compensation totaled $1.5 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively, and $3.8 million and $7.1 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in personnel costs was driven by increased headcount and accrued bonuses in the current period, offset against lower equity based compensation when compared to the prior period.

Previous wording

Payment processing costs were $9.1 million and $6.6 million for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, payment processing costs were $19.3 million and $12.9 million, respectively. The increase was primarily driven by higher UMS during the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

Current wording

Payment processing costs were $11.2 million and $8.0 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, payment processing costs were $30.5 million and $20.9 million, respectively. The increase was primarily driven by higher UMS during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023.

Previous wording

Merchant affiliate program and partnership fees are incurred by us when consumers make purchases with merchants who either were referred by another merchant, or are associated with partner platforms with which we have contractual agreements. Such costs were $1.3 million and $1.2 million for the three months ended June 30, 2024 and 2023, respectively, and $2.5 million for both the six months ended June 30, 2024 and 2023. Such fees, along with other transaction expense, remained flat for the three and six months ended June 30, 2024 when compared to the three and six months ended June 30, 2023.

Current wording

Merchant affiliate program and partnership fees are incurred by us when consumers make purchases with merchants who either were referred by another merchant, or are associated with partner platforms with which we have contractual agreements. Such costs were $1.2 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively, and $3.8 million and $3.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Third-party technology and data costs totaled $2.2 million and $1.9 million for the three months ended June 30, 2024 and 2023, respectively. Third-party technology and data costs totaled $4.3 million and $3.7 million for the six months ended June 30, 2024 and 2023, respectively. The increase in expense was driven by an increase in utilization of cloud-based infrastructure and other related costs to support the Sezzle Platform and our expanded suite of product offerings, as well as general increases in third-party technology costs.

Current wording

Third-party technology and data costs totaled $2.4 million and $2.0 million for the three months ended September 30, 2024 and 2023, respectively. Third-party technology and data costs totaled $6.7 million and $5.7 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in expense was driven by an increase in utilization of cloud-based infrastructure and other related costs to support the Sezzle Platform and our expanded suite of product offerings, as well as general increases in third-party technology costs.

Previous wording

Marketing, advertising, and tradeshow costs were $1.0 million and $3.3 million for the three months ended June 30, 2024 and 2023, respectively. Marketing, advertising, and tradeshow costs were $1.6 million and $6.5 million for the six months ended June 30, 2024 and 2023, respectively. The decrease in costs was primarily from a reduction in contractual obligations to co-market the Sezzle brand with our enterprise merchants and partners, offset against higher marketing and advertising expenses during the three and six months ended June 30, 2024.

Current wording

Marketing, advertising, and tradeshow costs were $2.7 million and $3.6 million for the three months ended September 30, 2024 and 2023, respectively. Marketing, advertising, and tradeshow costs were $4.4 million and $10.1 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in costs was primarily from a reduction in contractual obligations to co-market the Sezzle brand with our enterprise merchants and partners, offset against higher marketing and advertising expenses to promote user acquisition during the three and nine months ended September 30, 2024.

Previous wording

General and administrative costs were $2.5 million and $1.7 million for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, general and administrative costs were $4.9 million and $4.5 million, respectively. The increase in costs was primarily related to higher professional service fees in connection with the growth of our business.

Current wording

General and administrative costs were $2.4 million and $2.2 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, general and administrative costs were $7.3 million and $6.7 million, respectively. The increase in costs was primarily related to higher professional service fees in connection with the growth of our business.

Previous wording

The total provision for credit losses was $10.1 million and $4.3 million for the three months ended June 30, 2024 and 2023, respectively. As a percentage of total revenue, the provision for credit losses was 18.0% and 12.3% for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the total provision for credit losses was $15.2 million and $6.0 million, respectively. As a percentage of total revenue, the provision for credit losses was 14.8% and 8.6% for the six months ended June 30, 2024 and 2023, respectively. The increase in credit losses was a result of higher UMS during the three and six months ended June 30, 2024 when compared to the three and six months ended June 30, 2023, as well as changes to consumer underwriting to further promote profitable top-line growth.

Current wording

The total provision for credit losses was $15.4 million and $6.7 million for the three months ended September 30, 2024 and 2023, respectively. As a percentage of total revenue, the provision for credit losses was 22.0% and 16.3% for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the total provision for credit losses was $30.6 million and $12.7 million, respectively. As a percentage of total revenue, the provision for credit losses was 17.7% and 11.5% for the nine months ended September 30, 2024 and 2023, respectively. The increase in credit losses was a result of higher UMS during the three and nine months ended September 30, 2024 when compared to the three and nine months ended September 30, 2023, as well as changes to consumer underwriting to further promote profitable top-line growth.

Previous wording

Net interest expense was $2.9 million and $3.9 million for the three months ended June 30, 2024 and 2023, respectively, and $7.0 million and $7.3 million for the six months ended June 30, 2024 and 2023, respectively. The decrease was from a lower interest rate on our new line of credit that we entered into on April 19, 2024, offset against higher outstanding borrowings during the three and six months ended June 30, 2024 when compared to the three and six months ended June 30, 2023.

Current wording

Net interest expense was $3.3 million and $4.1 million for the three months ended September 30, 2024 and 2023, respectively, and $10.3 million and $11.5 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease was driven by the lower interest rate on our new line of credit that we entered into on April 19, 2024, offset against higher outstanding borrowings during the three and nine months ended September 30, 2024 when compared to the three and nine months ended September 30, 2023.

Previous wording

Income tax (benefit) expense for the three months ended June 30, 2024 and 2023 was ($16,123,213) and $20,526, respectively. Our effective income tax rate for the three months ended June 30, 2024 and 2023 was (118.7%) and 1.8%, respectively. Income tax (benefit) expense for the six months ended June 30, 2024 and 2023 was ($15,730,119) and $32,150, respectively. Our effective income tax rate for the six months ended June 30, 2024 and 2023 was (71.6%) and 1.1%, respectively. The change was a result of the release of our valuation allowance during the three months ended June 30, 2024.

Current wording

Income tax expense (benefit) for the three months ended September 30, 2024 and 2023 was $2,162,989 and $15,874, respectively. Our effective income tax rate for the three months ended September 30, 2024 and 2023 was 12.3% and 1.2%, respectively. Income tax (benefit) expense for the nine months ended September 30, 2024 and 2023 was ($13,567,130) and $48,024, respectively. Our effective income tax rate for the nine months ended September 30, 2024 and 2023 was (34.3%) and 1.1%, respectively. The change was a result of the release of our valuation allowance during the nine months ended September 30, 2024.

Previous wording

We assess all relevant positive and negative evidence to determine if our existing deferred tax assets can be realized at each reporting date. As of June 30, 2024, we concluded that it is more likely than not that our U.S. federal and state deferred tax assets are realizable. As a result, we recorded a discrete tax benefit of $16.8 million to reflect the release of our valuation allowance during the three months ended June 30, 2024. As of June 30, 2024 and December 31, 2023, we recorded a $9,693,510 and $32,478,033 valuation allowance against our net deferred tax assets, respectively.

Current wording

We assess all relevant positive and negative evidence to determine if our existing deferred tax assets can be realized at each reporting date. As of September 30, 2024, we concluded that it is more likely than not that our U.S. federal and state deferred tax assets are realizable. As a result, we recorded a discrete tax benefit of $14,941,204 to reflect the release of our valuation allowance during the nine months ended September 30, 2024. As of September 30, 2024 and December 31, 2023, we recorded a $8,349,879 and $32,478,033 valuation allowance against our net deferred tax assets, respectively.

Previous wording

We had ($75,402) and $304,687 of foreign currency translation adjustments recorded within other comprehensive (loss) income for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, we had ($73,951) and $158,879 of foreign currency translation adjustments, respectively. Foreign currency translation adjustments are a result of the financial statements of our non-U.S. subsidiaries being translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. We expect to record foreign currency translation adjustments in future periods and changes will be dependent on fluctuations in foreign currencies of countries in which we have operations.

Current wording

We had $71,598 and ($358,465) of foreign currency translation adjustments recorded within other comprehensive income (loss) for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, we had ($2,353) and ($199,586) of foreign currency translation adjustments, respectively. Foreign currency translation adjustments are a result of the financial statements of our non-U.S. subsidiaries being translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. We expect to record foreign currency translation adjustments in future periods and changes will be dependent on fluctuations in foreign currencies of countries in which we have operations.

Previous wording

As of June 30, 2024, we had cash, cash equivalents, and restricted cash of $64.0 million, compared to $70.7 million as of December 31, 2023. Our cash and cash equivalents were held primarily for working capital requirements and the continued investment in our business. A majority of our restricted cash is made available for use within 2-3 business days.

Current wording

As of September 30, 2024, we had cash, cash equivalents, and restricted cash of $88.3 million, compared to $70.7 million as of December 31, 2023. Our cash and cash equivalents were held primarily for working capital requirements and the continued investment in our business. A majority of our restricted cash is made available for use within 2-3 business days.

Previous wording

As of June 30, 2024 and December 31, 2023, we had working capital of $98.5 million and $21.8 million, respectively. The increase in working capital was driven by the reclassification of our line of credit from a current liability to a non-current liability as a result of refinancing of our line of credit agreement on April 19, 2024. As of June 30, 2024 and December 31, 2023 we had an unused borrowing capacity on our line of credit of $35.3 million and $3.5 million, respectively.

Current wording

As of September 30, 2024 and December 31, 2023, we had working capital of $135.5 million and $21.8 million, respectively. The increase in working capital was driven by the reclassification of our line of credit from a current liability to a non-current liability as a result of refinancing of our line of credit agreement on April 19, 2024. As of September 30, 2024 and December 31, 2023 we had an unused borrowing capacity on our line of credit of $17.9 million and $3.5 million, respectively.

Previous wording

During the six months ended June 30, 2024, net cash provided from operating activities totaled $34.2 million which was related to our $37.7 million net income adjusted for $5.7 million of non-cash adjustments such as deferred income taxes, credit losses, equity based compensation, and depreciation and amortization, offset against cash outflows of $9.2 million from changes in our operating assets and liabilities. Our cash outflows from changes in our operating assets and liabilities were driven by a $4.1 million increase in our notes receivable related to higher transaction volume during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023, as well as timing of consumer repayments. This resulted in a decrease of cash receipts from consumers during the six months ended June 30, 2024. Offset against these, we had a $3.3 million increase in accrued liabilities related to the timing of payments to vendors and personnel, which resulted in a decrease of cash payments during the six months ended June 30, 2024. During the six months ended June 30, 2024, cash payments for personnel-related expenses totaled $23.7 million, cash payments for processing costs totaled $20.3 million, and cash interest payments totaled $7.1 million.

Current wording

During the nine months ended September 30, 2024, net cash provided from operating activities totaled $39.9 million which was related to our $53.2 million net income adjusted for $27.1 million of non-cash adjustments such as deferred income taxes, credit losses, equity based compensation, and depreciation and amortization, offset against cash outflows of $40.3 million from changes in our operating assets and liabilities. Our cash outflows from changes in our operating assets and liabilities were driven by a $33.0 million increase in our notes receivable related to higher transaction volume during the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023, as well as timing of consumer repayments. Cash outflows from changes in our operating assets and liabilities were also driven by a $7.2 million increase in other receivables related to increased late payment fees assessed in the current period and the timing of consumers paying such fees. These both resulted in a decrease of cash receipts from consumers during the nine months ended September 30, 2024.

Previous wording

During the six months ended June 30, 2023, net cash provided from operating activities totaled $2.5 million, which was related to our $2.9 million of net income adjusted for $13.0 million of non-cash adjustments such as credit losses, equity based compensation, and depreciation and amortization, offset against cash outflows of $13.4 million due to changes in our operating assets and liabilities. The change in operating assets and liabilities was driven by a $15.8 million decrease in our merchants accounts payable as a result of the timing of payments to merchants, which resulted in an increase of cash payments to merchants during the six months ended June 30, 2023. Additionally, we had a $3.4 million decrease in our accrued liabilities related to the timing of payments to vendors and personnel, which resulted in an increase in cash payments. This was offset against a $4.6 million decrease in our notes receivable, which was related to lower transaction volume and timing of consumer repayment resulting in increased cash receipts from consumers. During the six months ended June 30, 2023, cash payments for personnel-related expenses totaled $17.0 million, cash payments for processing costs totaled $13.0 million, and cash interest payments totaled $7.7 million.

Current wording

During the nine months ended September 30, 2023, net cash used for operating activities totaled $10.7 million, which was related to our $4.2 million of net income adjusted for $21.9 million of non-cash adjustments such as credit losses, equity based compensation, and depreciation and amortization, offset against cash outflows of $36.8 million due to changes in our operating assets and liabilities. The change in operating assets and liabilities was driven by a $20.9 million increase in our notes receivable, which was related to higher transaction volume and timing of consumer repayment resulting in decreased cash receipts from consumers. The change in operating assets and liabilities was also driven by a $14.9 million decrease in our merchants accounts payable as a result of the timing of payments to merchants, which resulted in an increase of cash payments to merchants during the nine months ended September 30, 2023. During the nine months ended September 30, 2023, cash payments for personnel-related expenses totaled $25.2 million, cash payments for processing costs totaled $20.8 million, and cash interest payments totaled $11.9 million.

Previous wording

The change in net cash from operating activities year-over-year was from increased cash receipts from consumers related to our increased profitability during the six months ended June 30, 2024.

Current wording

The change in net cash from operating activities year-over-year was from increased cash receipts from consumers related to our increased profitability during the nine months ended September 30, 2024.

Previous wording

Net cash used for investing activities was $0.8 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively. Cash outflows for investing activities were used for purchasing computer equipment and payments of salaries to employees who create capitalized internal-use software.

Current wording

Net cash used for investing activities was $1.1 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively. Cash outflows for investing activities were used for purchasing computer equipment and payments of salaries to employees who create capitalized internal-use software.

Previous wording

Net cash used for financing activities during the six months ended June 30, 2024 and 2023 was $40.0 million and $8.0 million, respectively. Our net cash used for financing activities during the six months ended June 30, 2024 was comprised of net payments to our line of credit totaling $25.0 million, repurchases of common stock totaling $14.3 million, and the payment of debt issuance costs totaling $1.0 million. $12.8 million of our common stock repurchases were made under our stock repurchase plan, with the remaining repurchases representing withheld shares of common stock from employees to cover minimum statutory withholding tax obligations owed for vested restricted stock units issued under our equity incentive plans. These cash outflows were primarily offset against proceeds from stock option exercises totaling $0.3 million.

Current wording

Net cash (used for) provided from financing activities during the nine months ended September 30, 2024 and 2023 was ($21.2) million and $9.2 million, respectively. Our net cash used for financing activities during the nine months ended September 30, 2024 was comprised of repurchases of common stock totaling $22.2 million and the payment of debt issuance costs totaling $1.1 million. Repurchases of common stock include $20.0 million of cash outflows for our stock repurchase plans, with the remaining repurchases representing withheld shares of common stock from employees to cover minimum statutory withholding tax obligations owed for vested restricted stock units issued under our equity incentive plans. These cash outflows were primarily offset against proceeds from stock option and warrant exercises totaling $2.0 million.

Previous wording

Significant financing cash outflows during the six months ended June 30, 2023 included net payments to our line of credit totaling $6.7 million, repurchases of common stock totaling $1.3 million, and payment of debt issuance costs totaling $0.1 million.

Current wording

Financing cash inflows during the nine months ended September 30, 2023 was comprised of net proceeds from our line of credit totaling $10.9 million, offset against repurchases of common stock totaling $1.6 million and payment of debt issuance costs totaling $0.1 million.