Katapult Holdings, Inc. Q2 FY2024 earnings call

Merchant Strategy - Integration progress: New relationship with Meineke, partnership with PayTomorrow, completed integration with Synchrony's waterfall dApply, awarded exclusive waterfall agreement with Adorama. Added more than 30 new merchant pathways in Q2, transitioned over 70 merchants/websites to new Shopify version, rolled out price calculator tool with results like daily gross originations expansion for a large mattress retailer. - Marketing and partnership: Merchant partners using marketing assets to promote relationship, affiliate program Impact added 41 partnerships with 30% impression growth and 38% revenue growth, launched Layoff insurance. ### Consumer Strategy - Katapult Pay: Delivered $15.7 million in gross originations in Q2, added Costco, Newegg, Lowe's to marketplace. - Marketing: Monthly active users on app grew year-over-year, marketing emails sent increased ~6x year-over-year with 35% gross originations attributable, unique customers opening app grew >35% year-over-year, app downloads grew 83% from last year.

In the second quarter of 2024, Katapult achieved across-the-board growth. Gross originations saw seventh consecutive quarter of growth. Revenue grew nearly 9%. Adjusted EBITDA loss improved by $1.2 million year-over-year. 52% of the business is centered on originations outside of Wayfair, and non-Wayfair gross originations, including Katapult Pay, grew by nearly 20% in Q2. Katapult Pay delivered $15.7 million in gross originations in Q2, representing 28% of total gross originations. Gross originations for merchants only available through Katapult Pay grew 115% in Q2.

Q3 Outlook: Expect gross originations growth of 8% to 10%, revenue growth in the range of 7% to 8% and breakeven or better adjusted EBITDA. ### Full Year 2024: Reiterates minimum 10% growth for gross originations and revenue. Expect to deliver positive adjusted EBITDA for the full year 2024. Expect 2025 to be an inflection point with aim to be in neutral cash usage position and turn cash accretive after 2025, and positive income from operations as early as 2025.

Risks: Impact of major macro events like meaningful slowdown in home furnishings sales; tightening of prime lending standards and US consumers' access to financing which could affect the business.

Q: You did come up short in terms of your gross origination forecast for the second quarter. It sounds like it was mainly Wayfair. Is that a fair assessment that the shortfall was really, or primarily Wayfair?

A: Hi, Anthony, it’s Orlando. Nancy and I both wanted to answer that question. Yes. Yeah, it was primarily Wayfair. As they noted in their earnings release, they had a slowdown. So, obviously it affects us a little bit. And I think that's where we came in a little short on the gross origination side.

Q: If I'm doing my math correctly, your gross originations for the first half of this year were up about [indiscernible] 1.4% somewhere in that in that range. You're guiding to double-digit gross originations growth for the year. So that would imply that second quarter is up significantly. And you just said that Wayfair is [disappointing] (ph). So I guess what gives you the confidence that the second quarter or second half, of course, its originations will accelerate that significantly?

A: Well, as we've talked about before, holiday obviously is a very big season for us. But with the additions that we've made to K-Pay, those take a little bit of time to ramp up. We've added some new partnerships and affiliations that will also take time to ramp up. So we look at this almost as a layer cake, that as we're seeing the wrap from last year into the second half of this year, as well as all of the new initiatives that we've been discussing, that's going to build in the second half and gives us a lot of confidence that we can still achieve 10% both in revenue and gross originations.

Q: You have announced your partnerships with PayTomorrow, Adorama, Meineke. What impact, if any, do you think these partnerships will have on your second half gross originations and revenue?

A: As we just talked about with Anthony, as these partnerships and affiliates, the merchants, they take a little time to do the integration and then they will start building. Since a lot of those are occurring as we're speaking, we're expecting that to be a pretty significant build in the second half, which again adds to that layer cake that I discussed that we have a number of initiatives that are ramping up in the third and fourth quarters.

Q: The [indiscernible] and FirstCash have recently discussed the impacts of the tightening on subprime credit, and I was wondering what impacts, if any, do you anticipate this tightening will have on the back half of your year?

A: Thanks, Cameron. It's Orlando. Yeah, we've noted that we saw the impact of tightening above us in ‘23, and we continue to see it. There is a difference with the others and us, because we're mostly e-commerce versus in-store, and I think that drives a bit of a difference. The customer is online. They're applying. They're coming through. And the tightening, we haven't seen more tightening, I guess, is my point, since ‘23 when we started to see it, but we stay on top of it. We don't expect -- we're not adding anything new, expect tightening to continue, but we expect as Nancy mentioned in her remarks that if prime, prime lenders start tightening up because of the late fee issues and things like that that they're facing, [that will] (ph) be the benefit of that.