Sezzle Inc.

08/07/2026 | Press release | Distributed by Public on 08/07/2026 04:01

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q"). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the "Forward-Looking Statements", "Factors Affecting Results from Operations", and "Risk Factors" sections of this Form 10-Q, and the "Risk Factors" sections on this Form 10-Q and the 2025 Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.
Overview
We are a purpose-driven payments company on a mission to financially empower the next generation. Launched in 2017, we have built a digital shopping and payments platform that provides consumers a flexible alternative to traditional credit. Through our platform, we aim to give consumers control of their spending, ways to save money, and access to responsible credit. Our vision is to create a digital ecosystem benefiting all of our stakeholders-including merchants, consumers, employees, communities, and investors-while continuing to drive ethical and sustainable growth.
The Sezzle Platform offers a payments solution for consumers in the United States and Canada that has the ability to instantly extend credit at the point-of-sale, allowing consumers to purchase and receive merchandise, while paying in installments over time. Consumers pay a portion of the purchase price at the point-of-sale as a down payment, and then pay off the remaining amount over time through scheduled payments. We also offer the ability to "pay-in-full" using the Sezzle Platform.
We provide consumers access to subscription products, short-term credit products at the point of sale, which may be free or subject to fees and/or interest, and access to interest-bearing loans with our third-party partner. We make a majority of our revenue from merchants, partners, consumer fees, and through our two paid versions of the core Sezzle experience: Sezzle Premium and Sezzle Anywhere. Sezzle Premium is a paid subscription service for consumers to access large, non-integrated premium merchants for a recurring fee. Sezzle Anywhere is a paid subscription service that allows consumers to use their Sezzle Virtual Card at any merchant online or in-store, subject to certain merchant, product, goods, and service restrictions, for a recurring fee. Sezzle On-Demand allows consumers who are not subscribed to Sezzle Anywhere to use the Sezzle Platform at any merchant online or in-store (subject to the same restrictions as Sezzle Anywhere) in exchange for a finance charge, which is added to the consumer's initial down payment. Additionally, through collaboration with third-party partners we enable our consumers access to interest-bearing monthly fixed-rate installment-loan products at participating merchants for larger-ticket items (up to $15,000), which extend up to 48 months.
Factors Affecting Results of Operations
The following key factors have affected our financial performance and are expected to impact our performance going forward.
Sustainable Business Model
Our ability to profitably scale our business long-term is reliant on creating a transparent and sustainable ecosystem of products and services that add value for all of our stakeholders, including our consumers and merchants. We stand at the intersection of digital shopping and a need for credit for consumers who prefer to use credit alternatives other than credit cards or do not have access to traditional credit products. We provide consumers access to subscription products, short-term credit products at the point of sale, which may be free or subject to fees and/or interest, and access to interest-bearing loans with our third-party partners.
We earn fees from our merchants predominately based on a percentage of the GMV value plus a fixed fee per transaction, collectively called a "merchant processing fee." We generally pay our merchants the full transaction value upfront, net of the merchant processing fee owed to us, and assume all costs associated with consumer payment processing, fraud, and payment default. We also earn income from partners, including interchange fees through our virtual card solution, promotional incentives with third parties, and marketing revenue earned from affiliates. Our merchants have access to a toolkit we provide that can assist in the growth of their businesses. This toolkit includes marketing placements, co-branded marketing, and exclusive promotions for consumers using Sezzle.
Acquisition, Monetization, and Retention of Consumers
Our ability to profitably scale our business relies on the acquisition, monetization, and retention of consumers on the Sezzle Platform. Changes in our consumer base have had, and will continue to have, an impact on our results of operations. The success of our business depends on a consumer base that actively engages with the Sezzle Platform. It is costly for us to acquire consumers; therefore, we aim to provide offerings to our consumers that keep them engaged within our ecosystem, such as our in-app product marketplace, price comparison feature, Payment Streaks, Earn tab, and Sezzle Up. High turnover in our consumer base could result in higher than anticipated overhead costs. There is a risk that we may lose consumers for a variety of reasons, including consumers shifting to competitors or other payment options, changes in the general macroeconomic climate, or changes in our underwriting.
Additionally, our results of operations are significantly impacted by our success in monetizing our consumer base who use the Sezzle Platform. A majority of our revenue is earned through consumers using the Sezzle Platform as a payment method when making purchases, especially when using the Sezzle Virtual Card, or when consumers choose to enroll in either of our optional, paid subscription services. There is a risk that we may be unable to successfully monetize consumers who actively engage with the Sezzle Platform, which could adversely impact our results of operations.
Product Innovation
Our expanding product suite enables us to further promote our mission of financially empowering the next generation, and the adoption of these products by our consumers is expected to drive operating and financial performance.
In 2025, we launched price comparison, the Earn tab, and Sezzle Balance. Price comparison is a feature in our product marketplace that provides consumers the ability to compare the price of a product across a variety of different merchants and receive notifications if the price drops. The Earn tab allows consumers the ability to save money through coupons, discounts, and playing games. Sezzle Balance allows consumers to preload funds into a digital wallet for a simplified repayment process.
In 2026, we launched Sezzle Mobile and SezzleCash. Sezzle Mobile is a mobile phone plan embedded directly within the Sezzle app that offers unlimited talk, text, and 5G data on AT&T's network, to our consumers. SezzleCash allows consumers to borrow funds and pay back the amount over time, plus a service fee. We also partnered with a new long-term lending provider to expand and further integrate interest-bearing monthly fixed-rate installment-loan products into the Sezzle Platform.
We continue to seek out new partners to adopt our existing products and strategize on new products to complement our platform and core products, which we believe will have an impact on the continued growth of our business.
Credit Risk Management
A critical component of our business model is the ability to effectively manage the repayment risk inherent in allowing consumers to pay over time, as we absorb the costs of all credit losses on the credit we extend to our consumers. The provision for credit losses is a significant component of our operating expenses, and excessive exposure to consumer repayment failure may impact our results of operations. To that end, a team of Sezzle engineers and risk specialists oversee our proprietary systems, identify transactions with an elevated risk of fraud, assess the credit risk of the consumer, assign spending limits, and manage the ultimate receipt of funds. Because our consumers settle a portion of the purchase value upfront at the point of sale, we believe repayment risk is more limited relative to other traditional forms of unsecured consumer credit.
We believe our systems and processes are currently effective and allow for predominantly accurate, real-time decisions in connection with the consumer transaction approval process. As the availability of data on consumer repayment behavior grows, we believe we can better optimize our systems and ability to make real-time consumer repayment capability decisions over time. Optimizing repayment capacity decisions of our current and future consumer base is a critical component of our operations, and the optimization of our risk management strategy may influence both our profitability and our provision for credit losses and related charge-offs. We also have a collection strategy where we utilize third-party collection agencies, in addition to our internal collections process, which further helps us lower our loss rates and manage credit risk.
Maintaining our Capital-Efficient Strategy
Maintaining our funding strategy and efficient use of capital is important for the ability to grow our business. We have designed a funding strategy that we believe allows us to scale our business and drive rapid growth. Due to the short-term nature of our products, we are able to recycle capital quickly and create a multiplier effect on our committed capital. We primarily rely on revolving credit facilities to fund our receivables over time, and do not currently require additional equity contributions to directly fund product growth.
General Economic Conditions and Regulatory Climate
Our business depends on consumers transacting with merchants, which is affected by changes in general economic conditions. For example, the retail sector is affected by macroeconomic conditions such as unemployment, interest rates, consumer confidence, economic recessions, public health crises, or extended periods of uncertainty or volatility-all of which may influence consumer spending, and suppliers' and retailers' focus and investment in outsourcing solutions. This may subsequently impact our ability to generate income. Additionally, in weaker economic environments, consumers may have less disposable income to spend, and may be less likely to purchase products by utilizing our services. This could also cause our credit losses to increase due to consumers' failure to repay the loans originated on the Sezzle Platform. Our industry is further impacted by numerous consumer finance and protection regulations, both domestic and international, and the prospects of new regulations, including the cost to comply with such regulations, that have an ongoing impact on our results of operations and financial performance.
Seasonality
We experience seasonality as a result of the spending patterns of our consumers. Total revenue and GMV in the fourth quarter have historically been strongest for us, in line with consumers generally spending more during the holiday shopping season. These seasonal volumes have typically been accompanied by increased charge-offs when compared to the prior three quarters. Increased charge-offs accompanying higher seasonal volumes typically result in an increase in the provision for credit losses on an absolute basis and as a percentage of GMV.
Key Operating Metrics
Gross Merchandise Volume
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Gross Merchandise Volume $ 1,278,502 $ 926,981 $ 351,521 37.9 % $ 2,388,910 $ 1,735,664 $ 653,246 37.6 %
GMV is defined as the total value of sales made by merchants based on the purchase price of each confirmed sale where a consumer has selected the Sezzle Platform as the applicable payment option. GMV does not represent revenue earned by us, is neither a component of our income, nor included within our financial results prepared in accordance with U.S. GAAP. However, we believe that GMV is a useful operating metric to both us and our investors in assessing the volume of transactions that take place on the Sezzle Platform, including our Sezzle Premium and Sezzle Anywhere products, which is an indicator of the utilization and strength of the Sezzle Platform.
The increase in GMV was driven by increased usage of our Sezzle Anywhere and Sezzle Premium subscription products.
Active Consumers and Monthly On-Demand Users and Subscribers
As of Change
June 30, 2026 December 31, 2025 # %
(in thousands, except percentages)
Active Consumers 3,160 3,049 111 3.6 %
Monthly On-Demand Users and Subscribers
982 918 64 7.0 %
Active Consumers is defined as unique consumers who have placed an order with us within the last twelve months. Monthly On-Demand Users and Subscribers (or "MODS") is defined as unique consumers who have placed at least one On-Demand order during the month ended June 30, 2026, plus consumers with an active subscription for either Sezzle Premium or Sezzle Anywhere as of the end of the period.
As of June 30, 2026 and December 31, 2025, we had 854 thousand and 670 thousand unique consumers who had an active subscription for either Sezzle Premium or Sezzle Anywhere ("Active Subscribers"), respectively, and 128 thousand and 248 thousand unique consumers who placed an On-Demand order during the months ended June 30, 2026 and December 31, 2025, respectively. The increase in Active Consumers and MODS is attributed to increased marketing and advertising initiatives, as well as new product releases.
Components of Results of Operations
Total Revenue
Our total revenue is classified into two categories, based on ASC recognition criteria: lending-based income and revenue from contracts with customers.
Lending-Based Income
Lending-based income relates to net origination fees on financing receivables we originate, premiums and discounts on financing receivables we purchase, and delinquency fees on financing receivables we hold. This is primarily comprised of merchant processing fees on orders that result in a financing receivable, delinquency fees, and other ancillary consumer fees, such as fees to reschedule installment due dates and nonrefundable fees assessed for using Sezzle On-Demand. Merchant processing fees are based on the GMV passing through our platform and are predominately based on a percentage of the GMV, plus a fixed fee per transaction. Lending-based income, other than delinquency fees, is initially recorded as a reduction to notes receivable, net, within the consolidated balance sheets. Such income is subsequently recognized over the average duration of the related note receivable using the interest method. Delinquency fees include fees assessed to consumers who fail to make a timely principal payment or their payment method fails when attempting to make an installment payment, and are recognized at the time the fee is charged to the consumer, to the extent they are reasonably collectible.
Revenue from Contracts with Customers
We earn revenue from contracts with customers via partners. This revenue primarily includes interchange fees earned through our virtual card and promotional incentives with third parties. We have an agreement with a card-issuing partner to facilitate the issuance of virtual cards to be used by our consumers at checkout. We earn virtual card interchange fees when a consumer uses a virtual card to complete a purchase. Such interchange fees are established by the applicable payment network, are assessed to the merchant's acquiring bank, and are remitted to the card-issuing partner that issues our virtual cards, which in turn remits to us the portion of those fees to which we are contractually entitled. Our customer in this arrangement is our card-issuing partner, and our performance obligation is to facilitate and process the underlying card transaction. The performance obligation is satisfied at the point in time the transaction is settled by the payment network, at which time the related revenue is recognized.
We earn promotional incentives from third-party platforms and brand partners for directing consumer traffic or transaction volume to specified merchants or brands. Revenue is recognized at the point in time the performance obligation is fulfilled, which is when a sale is made or traffic is directed to the merchant or brand. Consideration under these arrangements is generally determined based on the volume of consumer traffic or transaction activity in the period.
Revenue from contracts with customers primarily relates to subscription revenue and certain consumer fees. We earn revenue from two paid subscription services, Sezzle Premium and Sezzle Anywhere, for a fixed fee paid at the beginning of the subscription period. Sezzle Premium allows consumers to shop at select large, non-integrated premium merchants, along with other benefits. Sezzle Anywhere allows consumers to use their Sezzle Virtual Card at any merchant online or in-store, subject to certain merchant, product, goods, and service restrictions. These performance obligations comprise a series of distinct services that are substantially the same; therefore, such revenue is recognized straight-line over the subscription period. All performance obligations related to these subscriptions are fully satisfied within one year of receiving payment. Payment received for performance obligations not yet satisfied are recorded as deferred revenue within the consolidated balance sheets until such performance obligations are satisfied.
Revenue from contracts with customers also includes revenue from fees assessed when consumers make a scheduled payment using a card or load funds into their Sezzle Balance. Such consumer fees relate to a single performance obligation to process the related payment, which is satisfied, and the related revenue is recognized, at the point in time the transaction is processed.
Personnel
Personnel primarily comprises all compensation paid to employees, contractor payments, employer-paid payroll taxes and employee benefits, equity- and incentive-based compensation, and other employee-related expenses.
Transaction Expense
Transaction expense primarily comprises processing fees paid to third parties to process debit, credit and ACH payments received from consumers, merchant affiliate program and partnership fees, consumer communication costs, consumer and merchant support-related costs, and third-party fraud losses. We incur merchant affiliate program and partnership fees when consumers make purchases with merchants who either were referred by another merchant or are associated with partner platforms with which we have a contractual agreement. We incur consumer communication costs when we notify the consumer about the transaction status and upcoming payments. Communications are primarily made via text message and email directly to the consumer.
Third-Party Technology and Data
Third-party technology and data primarily includes cloud-based infrastructure, fraud prevention, obtaining underwriting data, and other third-party services to support our operations.
Marketing, Advertising, and Tradeshows
Marketing, advertising, and tradeshows primarily comprises costs related to marketing, sponsorships, advertising, attending tradeshows, promotions, and co-marketing the Sezzle brand with our merchants.
General and Administrative
General and administrative expenses are primarily comprised of professional service fees, depreciation and amortization, insurance premiums, travel, meals, and entertainment costs. Professional service fees include legal, compliance, audit, tax, and consulting services to support the growth of our company.
Provision for Credit Losses
We maintain an allowance for credit losses at a level necessary to absorb expected credit losses on notes receivable from consumers. The allowance for credit losses is determined based on our current estimate of expected credit losses over the remaining contractual term and incorporates evaluations of known and inherent risks in our portfolio, historical credit losses, and current economic conditions. In estimating the allowance for credit losses, we utilize a roll rate analysis of delinquent and current notes receivable. A roll rate analysis is a technique used to estimate the likelihood that a loan progresses through various stages of delinquency and eventually charges off. We segment our notes receivable into delinquency statuses and semi-monthly vintages for the purpose of evaluating historical performance and determining the future likelihood of default. We regularly assess the adequacy of our allowance for credit losses and adjust the allowance as necessary to reflect changes in the credit risk of our notes receivable. Any adjustment to the allowance for credit losses is recognized in net income through the provision for credit losses on our consolidated statements of operations and comprehensive income. While we believe our allowance for credit losses is appropriate based on the information available, actual losses could differ from our estimate.
Net Interest Expense
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 Delayed Settlement Incentive Program, whereby merchants may delay their payments owed by us in exchange for daily incentive payments. The interest paid on borrowings under our line of credit is based on SOFR. Daily incentives paid to merchants under the Delayed Settlement Incentive Program are based on a fixed interest rate.
Income Tax Expense
Income tax 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.
Results of Operations
Total Revenue
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Lending-based income $ 64,962 $ 46,686 $ 18,276 39.1 % $ 125,531 $ 94,606 $ 30,925 32.7 %
Revenue from contracts with customers
84,721 52,016 32,705 62.9 % 159,691 109,008 50,683 46.5 %
Total revenue $ 149,683 $ 98,702 $ 50,981 51.7 % $ 285,222 $ 203,614 $ 81,608 40.1 %
Lending-based income primarily increased as a result of consumer-derived income, which totaled $54.1 million and $34.0 million for the three months ended June 30, 2026 and 2025, respectively, and $104.5 million and $67.7 million for the six months ended June 30, 2026 and 2025, respectively. The increase in consumer-derived income when comparing the three months ended June 30, 2026 and 2025 was driven by both a higher number of consumer fees charged, contributing to approximately $13.4 million of the increase, and higher fee prices, contributing to approximately $6.6 million of the increase. The increase in consumer-derived income when comparing the six months ended June 30, 2026 and 2025 was also driven by both a higher number of consumer fees charged, contributing to approximately $23.2 million of the increase, and higher fee prices, contributing to approximately $13.5 million of the increase. Lending-based income also included merchant- and partner-derived income of $10.9 million and $12.7 million for the three months ended June 30, 2026 and 2025, respectively, and $21.0 million and $26.9 million for the six months ended June 30, 2026 and 2025, respectively.
Revenue from contracts with customers included merchant- and partner-derived income of $28.6 million and $16.5 million for the three months ended June 30, 2026 and 2025, respectively, and $52.7 million and $30.5 million for the six months ended June 30, 2026 and 2025, respectively. The increase was a result of higher GMV on our virtual card products and promotional incentive revenue in the current period. Revenue from contracts with customers also increased as a result of consumer-derived revenue, which totaled $56.2 million and $35.5 million for the three months ended June 30, 2026 and 2025, respectively, and $106.9 million and $78.5 million for the six months ended June 30, 2026 and 2025, respectively. The increase in consumer-derived revenue when comparing the three months ended June 30, 2026 and 2025 was primarily driven by a greater number of consumers subscribed to Sezzle Premium and Sezzle Anywhere, contributing to approximately $13.1 million of the increase. The increase in consumer-derived revenue when comparing the six months ended June 30, 2026 and 2025 was also primarily driven by a greater number of consumers subscribed to Sezzle Premium and Sezzle Anywhere, contributing to approximately $22.9 million of the increase.
Personnel
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Personnel $ 14,725 $ 11,681 $ 3,044 26.1 % $ 29,392 $ 26,729 $ 2,663 10.0 %
The increase in personnel was driven by overall growth in our workforce and an increase in profit-sharing incentive plan expenses during the current year. Recorded within personnel, equity based compensation totaled $2.1 million and $1.5 million for the three months ended June 30, 2026 and 2025, respectively, and $3.4 million and $2.8 million for the six months ended June 30, 2026 and 2025, respectively.
Transaction Expense
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Transaction expense $ 20,738 $ 14,243 $ 6,495 45.6 % $ 39,258 $ 29,560 $ 9,698 32.8 %
The increase in transaction expense was driven by higher payment processing costs as a result of a higher number of payments processed in the current year in line with GMV. Payment processing costs totaled $19.3 million and $13.3 million for the three months ended June 30, 2026 and 2025, respectively, and $36.8 million and $27.4 million for the six months ended June 30, 2026 and 2025, respectively. The rest of transaction expense was comprised of affiliate and partner fees, third-party fraud losses, consumer communication, and consumer and merchant support-related costs.
Third-Party Technology and Data
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Third-party technology and data $ 4,907 $ 3,428 $ 1,479 43.1 % $ 9,322 $ 6,802 $ 2,520 37.0 %
The increase in expense was driven by higher utilization of cloud-based infrastructure and other third-party services to support the scaling of the Sezzle Platform as a result of higher GMV and our expanded suite of product offerings.
Marketing, Advertising, and Tradeshows
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Marketing, advertising, and tradeshows $ 19,396 $ 8,772 $ 10,624 121.1 % $ 30,642 $ 14,118 $ 16,524 117.0 %
The increase in marketing, advertising, and tradeshow costs was from the continued expansion of initiatives to promote consumer acquisition, retention, and engagement, as well as a result of testing different levels of marketing effort to determine optimal strategies. We expect to realize the benefits of this marketing investment in future periods.
General and Administrative
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
General and administrative $ 4,348 $ 3,846 $ 502 13.1 % $ 8,328 $ 6,977 $ 1,351 19.4 %
The increase was primarily from higher professional service fees related to the overall growth of the business, offset against lower operating costs associated with our loan origination partner funding virtual card transactions.
Provision for Credit Losses
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Provision for credit losses $ 30,608 $ 20,646 $ 9,962 48.3 % $ 44,283 $ 33,447 $ 10,836 32.4 %
The increase in the provision for credit losses is generally consistent with the growth in GMV, with any deviations a result of changes in expected performance on the current year portfolio compared to the prior year. As a percentage of total revenue, the provision for credit losses was 20.4% and 20.9% for the three months ended June 30, 2026 and 2025, respectively, and 15.5% and 16.4% for the six months ended June 30, 2026 and 2025, respectively.
We expect that increases in GMV and revenue will likely result in higher absolute amounts of credit losses. Additionally, we expect changes in our underwriting strategy to affect the amount of credit losses as a percentage of total revenue. However, tightening or loosening our credit standards that apply to our consumers may impact both total revenue and credit losses to different extents, potentially causing changes in credit losses as a percentage of total revenue. Our underwriting strategy continues to evolve and, therefore, it is challenging to predict the effect changes in our underwriting would have on the amount of future credit losses as a percentage of total revenue.
Net Interest Expense
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Net interest expense $ 3,250 $ 3,501 $ (251) (7.2) % $ 6,265 $ 6,415 $ (150) (2.3) %
Net interest expense decreased as a result of entering into a new line of credit agreement on May 7, 2026, which carries a lower interest rate than our previous line of credit, offset against higher outstanding borrowings during the three and six months ended June 30, 2026.
Income Tax Expense
For the three months ended June 30, Change For the six months ended June 30, Change
2026 2025 $ % 2026 2025 $ %
(in thousands, except percentages)
Income tax expense $ 10,947 $ 5,068 $ 5,879 116.0 % $ 25,633 $ 15,910 $ 9,723 61.1%
Our effective income tax rate for the three months ended June 30, 2026 and 2025 was 21.2% and 15.5%, respectively. Our effective income tax rate for the six months ended June 30, 2026 and 2025 was 21.8% and 20.0%, respectively. Income tax expense includes $1.9 million and $3.1 million of excess tax benefits recorded on equity-based compensation for the three months ended June 30, 2026 and 2025, respectively, and $3.6 million and $4.0 million of excess tax benefits recorded on equity-based compensation for the six months ended June 30, 2026 and 2025, respectively.
Liquidity and Capital Resources
For the six months ended June 30, 2026 and 2025, our net income was $92.1 million and $63.8 million, respectively. As of June 30, 2026, our principal sources of liquidity were cash, cash equivalents, restricted cash, the unused borrowing capacity on our line of credit, and certain cash flows from operations.
As of June 30, 2026, we had cash and cash equivalents of $79.8 million, compared to $64.1 million as of December 31, 2025. Our cash and cash equivalents were held primarily for working capital requirements and the continued investment in our business. As of June 30, 2026 and December 31, 2025, we had restricted cash of $32.3 million and $38.5 million, respectively.
As of June 30, 2026 and December 31, 2025, we had working capital of $306.7 million and $262.1 million, respectively. The increase in working capital was primarily a result of the growth in cash and cash equivalents, as well as notes receivable, net, driven by higher GMV. Additionally, as of June 30, 2026 and December 31, 2025 we had an unused borrowing capacity on our line of credit of $126.3 million and $73.5 million, respectively.
We believe that our existing cash, cash equivalents, restricted cash, our unused borrowing capacity on our line of credit, and certain cash flows from operations will be sufficient to meet our working capital and investment requirements beyond the next twelve months.
Factors Affecting Liquidity and Capital Resources
While we believe that our business will be able to generate enough cash flow from operations and that future borrowings will be available to us in an amount sufficient to enable us to fund our liquidity needs, we cannot provide any assurance. Our ability to meet these needs depends on current economic conditions and other factors, many of which are beyond our control. Material factors that could affect our liquidity and capital resources are consumer delinquencies and defaults, declines in consumer purchases, an inability to access fundraising, macroeconomic conditions, material changes in interest rates, and instability of financial institutions. If our capital is insufficient to satisfy our liquidity requirements, we will need to seek additional equity or debt financing. In an increasing interest rate environment, our ability to raise equity or incur debt could be limited, our borrowing costs could increase, we could be subject to tighter covenants, or we could be required to pledge additional collateral as security. If we are unable to raise additional capital or generate the necessary cash flows, our results of operations and financial condition could be materially and adversely impacted.
Cash Flows
The following table summarizes our cash flows:
For the six months ended June 30,
(As restated)
(in thousands) 2026 2025
Net Cash Provided from Operating Activities $ 141,226 $ 75,536
Net Cash Used for Investing Activities (80,260) (54,342)
Net Cash Used for Financing Activities (51,090) (809)
Net increase in cash, cash equivalents, and restricted cash $ 9,876 $ 20,385
Operating Activities
Our largest source of operating cash is receipts from consumers, and our largest use of operating cash is payments to merchants. Other primary uses of cash from operating activities are for personnel, payment processing costs, and interest payments.
During the six months ended June 30, 2026, net cash provided from operating activities totaled $141.2 million, driven by our $92.1 million net income adjusted for $68.1 million of non-cash adjustments such as credit losses, equity based compensation, deferred income taxes, and depreciation and amortization, offset against cash outflows of $18.9 million from changes in our operating assets and liabilities. Our cash outflows from changes in our operating assets and liabilities were driven by a $31.1 million increase in other assets related to the timing of payments to taxing authorities and vendors, as well as higher delinquency fees assessed in the current period not yet collected. Offset against this was a $9.3 million increase in other liabilities, driven by an increase in collections of consumer down payments on unpurchased originating partner receivables. During the six months ended June 30, 2026, cash payments for personnel-related expenses totaled $30.1 million, cash payments for processing costs totaled $36.2 million, cash interest payments totaled $7.7 million, and cash paid for income taxes totaled $35.9 million.
During the six months ended June 30, 2025, net cash provided from operating activities totaled $75.5 million, driven by our $63.8 million net income adjusted for $47.3 million of non-cash adjustments such as credit losses, equity based compensation, deferred income taxes, and depreciation and amortization, offset against cash outflows of $35.5 million from changes in our operating assets and liabilities. Our cash outflows from changes in our operating assets and liabilities were driven by a $20.5 million increase in other assets related to the timing of payments to taxing authorities and vendors, as well as higher delinquency fees assessed in the current period not yet collected. A $8.9 million decrease in merchant accounts payable related to the timing of payments to merchants and a $4.6 million decrease in other payables related to the timing of payments to vendors and taxing authorities also contributed to our cash outflows from operating activities. During the six months ended June 30, 2025, cash payments for personnel-related expenses totaled $29.7 million, cash payments for processing costs totaled $31.2 million, cash interest payments totaled $7.0 million, and cash paid for income taxes totaled $25.2 million.
Investing Activities
Net cash used for investing activities was $80.3 million and $54.3 million for the six months ended June 30, 2026 and 2025, respectively. Cash outflows for investing activities were from purchases and originations of notes receivable, net of repayments; purchasing computer equipment; and payments of salaries to employees who create capitalized internal-use software.
Financing Activities
Net cash used for financing activities during the six months ended June 30, 2026 and 2025 was $51.1 million and $0.8 million, respectively.
Our net cash used for financing activities during the six months ended June 30, 2026 was primarily driven by repurchases of common stock totaling $32.8 million, net payments to our line of credit totaling $17.8 million, and payment of debt issuance costs totaling $1.1 million related to our new line of credit. Repurchases of common stock made under our stock repurchase plan totaled $28.0 million, with the remaining repurchases representing withheld shares of common stock from employees to cover minimum statutory withholding tax obligations owed for vested restricted stock units issued under our equity incentive plans. Offset against these cash outflows were proceeds from stock option exercises totaling $0.6 million.
Our net cash used for financing activities during the six months ended June 30, 2025 was comprised of repurchases of common stock totaling $30.7 million, offset against net proceeds from our line of credit totaling $26.3 million and proceeds from stock option exercises totaling $3.6 million. Repurchases of common stock were made under our stock repurchase plan totaled $23.5 million, with the remaining repurchases representing withheld shares of common stock from employees to cover minimum statutory withholding tax obligations owed for vesting restricted stock units issued under our equity incentive plans.
Line of Credit
Refer to Note 7. Line of Credit on the accompanying Notes to the Consolidated Financial Statements for discussion about our lines of credit.
Loan Commitments
Refer to Note 8. Commitments and Contingencies on the accompanying Notes to the Consolidated Financial Statements for discussion about our direct obligation to purchase loans from our originating partner.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These principles require us to make certain estimates and judgments that affect the amounts reported in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable. Our actual results may differ materially from our estimates because of certain accounting policies requiring significant judgment. To the extent that there are material differences between our estimates and actual results, our future consolidated financial statements will be affected.
We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to our allowance for credit losses. We believe this estimate has the greatest risk of affecting our consolidated financial statements; therefore, we consider this to be our critical accounting policy and estimate. Refer to Note 1. Principal Business Activity and Significant Accounting Policies within the Notes to Consolidated Financial Statements and "Critical Accounting Policies and Estimates" within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Annual Report on Form 10-K for a complete discussion of our significant accounting policies and critical accounting estimates.
New Accounting Pronouncements
Refer to Note 1. Significant Accounting Policies on the accompanying notes to our consolidated financial statements for discussion about recent accounting pronouncements.
Off Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our performance and the performance of our subsidiaries.
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