KPLT - Earnings call transcript Q3 2021

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Bill Wright

Thank you and good morning. Welcome to the Katapult Third Quarter 2021 Earnings Conference Call. With me today are Orlando Zayas, Chief Executive Officer; Derek Medlin, Chief Operating Officer and Karissa Cupito, Chief Financial Officer. We issued our earnings release and presentation this morning and we will be referencing these during the call. Both can be found on the Investor Relations section of our website.

for today’s available remarks. be will Q&A prepared following We

September financial for remind XXXX. would These this statements Statements number Company’s earnings of regarding XX-Q a future Before any new growth ended regarding and initiatives our publicly performance. of I by cause Cautionary future materially should management’s the to expectations market that whether future required statements, including result everyone we a and of or these opportunity, any release quarter Form as differ actual law, factors our to reflect and and Statements we update to begin, with from undertake our Forward-Looking our be like assumptions or XX, the Except obligation events information, as current considered that contained otherwise. impact the those results conjunction to revise and statements beliefs, in contain call events are financial of statements. our performance These will may subject in no

over available on section webcast I replay being Relations Orlando. for additional performance, These discussion should be also These will is measures our as will read Investor earnings be today’s Investor and considered which results. included to the EBITDA the such now are the GAAP turn Relations for available include Reconciliations financial net SEC information is constitute of we today’s measures on be certain GAAP measures our of that a call will measures This provide certain rules. adjusted and website. our to in and should section adjusted non-GAAP non-GAAP financial and financial During recorded income. information under call of website. replacements release, not together with

Orlando Zayas

an and thank the third is are review macro growth progressing. for our environment market sustainable share good joining strategy our we XXXX Bill. and on morning quarter current we how seeing update today’s for On our in provide call within Thanks us. addressable results, you will large what

confident financial unpenetrated nonprime scalable value We reach our nonprime of is our are of that to on opportunities our for we the as evidence and see sales mission consumers. large market the as incremental growing customers merchant delivering to that bring well of we We consumer. technology and allow enabled a highly our partners for very satisfaction inclusion them

and growth. vision with long-term focus platforms this underserved that into Our our on segment and supporting we is pleased ongoing enable is that coming progress our are sharp partnerships

the goods Slide you substantial. addressable see durable Turning already market e-commerce to for can X, is

As the goods leading share e-commerce financing strategically. solely consumers positioned as platform market, capture significant to targeting durable believe on nonprime to are well we e-commerce underserved a is we continue focused consumers grow we of

decisioning to and risk our offer lease designed us customer allow value Our transparent and model our on to financing combined added sophisticated underserved proprietary experience to deliver platform consumer. a seamless ourselves options. with delivering We partners solutions innovative nonprime solutions provide and to with payment technology flexible is merchant

merchant communities and more the ahead, consumer. Looking nonprime bringing customers opportunities to possibilities incremental will financial deliver our we to

about with the as difficult a increased. are wants more on you X, macro habits to spending emerge public, Slide pandemic, like environment. services the spending quarterly As in starting see travel from execute people face begin to well can and freely team highlights changing and in of our the from to entertainment Consumer continues has on we move

remain needed strong. demand for a on durable basis goods However, daily that are

revenue sales which our new consequently is merchants chain pressuring total and of supply challenges disruptions for capture timely to our addition, share partners and quarter secure to bringing market to partners spite and merchants our with in In orders continue are had in we a merchant creating merchant new these ongoing inventory In XX fulfill year-to-date. XX their originations. gross the macro challenges, significant added and matter,

remain strong, up satisfaction as rate customer year-over-year. promoter retention merchant while metrics significantly Our our score also repeat and such our customers are net

We quarters macro we the a few more recovery see more to a of return pandemic, after environment. from expect that normal will

accelerate Our our of us as challenges that for Despite supports more setting be includes sales development an the sheet merchants challenging strategic business. we current balance product and which in addition a is are expanded impacting the as executing growth up to year our strong well strategy are with our business of that initiatives million exciting can technology a $XXX that ahead new against the driving new investments on-boarded cash partners, backdrop. of we seek macro growth merchant quickly

to a Karissa, strategy more profit details opportunities will our established quarter as who from which growth enterprise on durable to CFO stages we it have of longer Karissa. a service and execute large provide incremental are with solid operating scale. at performance. and term turn foundation building our will our dramatic financial now over early third I believe We we

Karissa Cupito

Thanks you, Orlando.

XXX.X quarter As million million, total X% were million Growth detailed X% an originations XXXX XXX.X million Slide an increase year, Growth last year-over-year. versus XXXX, XX.X of year-over-year. XX% X, up versus XXX.X on X% year-over-year. million XX was year-to-date year-over-year. million for year-to-date Revenue of of the quarter the third of originations increase are in revenue reached up third XXX.X

work Breaking in significant macro difficult our increase creating As and which higher been and quarter partners sales merchant use down chain the supply we headwinds manner, These Orlando able to third chain overall we originations leads timely slightly to for these through did are QX inventory challenges believe secure our merchant partners in Despite growth merchant disruptions. that environment. gross rates. QX would as challenging more conversion factors, orders lower disruptions origination growth supply a highlighted fulfill originations. macro were have our a absent to partners

merchant third XX% year-over-year. U.S. reported partner largest Our quarter down sales

down U.S. originations sales percentage the only and with we However, as gross our of were rates year-over-year. actually that defined our nations as X% partner increased penetration merchant brokerage with

accelerate other by add our our overall with year-over-year XX% the spurred healthier continue to originations baseline to growth and as of you growth gross merchant grew merchants merchants existing originations. We new origination adds. believe of Our to revenue new trajectory

So are create ultimately will to uncertainty prove anticipate these we chain throughout trends the our we optimistic transitory, disruptions for of partners merchant continue be supply to will industry remainder XXXX.

time. remains to these have position headwinds, for sufficient Given us guidance the for of macro balance in at to it be difficult fourth and the a quarter provide this visibility

which a record retailers. Monday, As of December and many historically we you for through Thanksgiving in fourth our five progress and update beginning sales on to the cyber quarter plan result, is Cyber period, and shoppers grains the after

trends encouraging. term extremely remain e-commerce longer in sales Looking

Our initiatives. seasonal in hires at adjusted three some increases. XXXX areas in XXX,XXX. the key of was incremental more normalized third EBITDA of of level for public expense growth increased two costs performance; new One least quarter company investment and and roughly our year-over-year breakeven three Reflecting

We will poised high into strategy. as dig grow our we more our gain economies specifically, nicely a through these margin scale categories each profile of but of is at feel to level, profit we growth

that performance to historically consumers at XXXX, Looking nonprime occurred X, prime payments credit for Slide the the response during alike. XXXX and favorable COVID lead early and stimulus

beginning is move credit we environment pre-pandemic As XXXX normalize patterns. to the through to

in right early and Our levels following both track that bite leasing higher payment performance off. lower is

Our for pre-COVID at delinquencies but year-over-year option the are levels. period through purchase stabilizing increased have XX-day and early rates down QX trended

year to up the debt Our checks low third delinquency the issue quarter was bad when compared expense a with stimulus of historically ago rates.

expense quarter. especially QX bad million of debt eight six million However, from down this sequentially in XXXX to

X.X one a levels proxy lease which for normalization between for is do XXXX. later seeing, that now, impairment assets, third In lease and our normalize is to discounts in million driven our We but the quarter payments. in We variations million for delinquencies. higher on pre-pandemic XXXX third by rely to regards lease merchant buy revenue we crucial in business forward. capacity our versus more credit don’t on the pay we rather customer economics income anticipate provision and are margin of our this model going our therefore have the lease-to-own to Our X.X was write-offs back of quarter distinction

In addition, maintaining our our approval rates. performance machine lease while and us hurdle as to allows are our data effective which proprietary sophisticated becoming tools, meets credit constantly rate overtime from increase additional algorithms that we learn more learning

some Finally, cyclicality note that is to that I there counters elements our would business.

and As and spectrum credit we discussed delinquency rates historically prime rates this on score earlier the low transactions providers year bands. our the with savings some high last consumer our highest down call, stretching to slightly capture

pool. and credit any prime higher leading deterioration modest into tighten our normalizes consumer our quality macro quality for can improving providers in we credit overall expect our company be to as down of customer underwriting, market their as will positive levels the Now coming credit consumers the environment

into were be Overall split X. XX.X growth categories. operating expense Slide to Turning year-over-year. operating two expenses million up can This largely

and go expenses. company First, additional a being we of accounting including expenses insurance public D&O premiums,

growth, is and Second future development investments on staffing. product enhancements and and additional focused technology business

headcount technology including to growth up as expenses scale headcount these we XX from to revenue professionals We sales from and anticipate today, XX full-time is will originations. XX XX is contractors Our a that as new year-ago up and our marketing our shrink percentage employees. of

continue market believe to the and capitalize will payoff is further. We massive of those ahead We addressable scale XXXX on overtime Orlando investments invest of a that investments into expect us. we as discuss potential growth to to opportunity significant as the

Orlando Zayas

Karissa. Thanks

from our of We which million credit. in balance and us with we continue third organic XXX on cash nearly the sheet gives million line quarter hand available flexibility invest strength initiatives, backed to unrestricted of the to closed revolving maintain the growth XX asset our in

putting order continuing in greater our strategically business are strong use to to good share. in capture market invest our We balance sheet to by

that clear Our to continues team technology need financial support We our product transparent continue inclusion accelerate to and omni-channel disrupt and investments and recognize in mission and enhancements experience our and through our the of to investment a statement the our marketing expand growth. to shopping focus experience. aligned sales

size members, period a the merchant past of has XX-day start been leads have to Each team year new who XX development includes team the is his which third on our quarter. to people, doubled bringing during and onboard generating and able We joined over XX member new business the or partners.

more team have than the year-over-year. product size and our We technology also doubled of

will customer working support platform that all Our access expand support One operating and opportunities. that fronts. key and infrastructure two on solutions three and to emerging transaction demand merchants and large-scale team across three, new merchant expenses channels; expenses is

added expand results as growth more add we coming as accelerate full-year diverse particularly We year, We in initiatives We that merchants compared new merchants. steadily the XXXX. continue to anticipate are the already to seeing into we the markets. during these XX new merchants year-to-date of end growth will XX

customers. incremental Connect partnership expand. more a have continues their platform platform In bring firm on with to identified They retailers addition, new Connect our will recently

be gives this it to platform to customers. loyal acquire about continue partnership, excited a We new as simple retailers

While dialogue our the additions partners. that We believe customer merchants bulk approach merchant continues of our of centric larger distinctive with sized evidence discussions with medium recent well. is the growing our enterprise partners, been small accelerating have volume as to

reminder is be can sales merchants for that long. Although and worth on-boarding cycle a quite

continue eye merchant with We base value manage business provide Katapult sustainable growth. strong our to towards we build to while merchants. long-term an our

sufficiently integration variety as achieved Our is of as the little XX-days. integration options ensure in

declined addition, and merchants Katapult have sales. risk driving differentiated incremental of access these of are and consumers enabled transactions traditional highly been rates offers In proprietary to would to our opportunity segment merchants customers and higher options. the technology otherwise as higher by underserved financing conversion our the Many nonprime by model large predictive

drive customer also levels service by service and - farmers excellent needed of We support. and providing partners repeat

built originations XX% are repeat than customers XX% of customer it truly our year-over-year, up more gross long-term coming relationships in see we are for from customers. repeat We data, new and with

larger of merchant shortage a issues our and are facing and IT we to chain as such constraints than pipeline challenges Our a of is anticipate resources, ever resolved merchant growth before trajectory supply near-term they variety overtime. accelerate and

Katapult appreciate Our of of ease use customers and our approach. the platform the customer centered

waterfall our our the firm, Whether with a flexible and a direct both lease XX net integration to of satisfaction. to high September head levels of applying like through we one our transparent of payment which customer customers In year, with end and promoter proud options. high as for was the lease be up application is XX% provide straightforward partners are or XX score be Our continues a customer satisfaction as and year-over-year. of merchant providing XXXX, to of conclusion, we our

and our positioning provide excited potential to with will strategically We beyond. to With pleased balance take sheet will our the channel in storm also believe e-commerce secular liquidity our and with questions. headwinds. growth weather of our customer us and take grow I’m XXXX solutions advantage We company. up ability which near-term strong long-term are ability macro with trends about our ample will and investments of open and more to new retail I of merchant matched continuing now even multi that, the opportunities

Operator

[Operator Instructions] El-Assal Ramsey first of the line you. from Thank Our question with comes Barclays.

line Your open. is now

Ramsey El-Assal

my us implications return return taking you for we P&L of think double-digit appreciate morning. to that high I Does saw environment. sort growth help ask thanks question macro Hi, sort wanted a of I if normal of of more could that to sort the previously? it. a through a this back to mean

Orlando Zayas

Sure.

those or help macro and least credit look side. are we I to and challenges. tightening are the as little if we things see environment, around some credit at continues shoots normalization think on But we at seeing us we of green going the performance it pose step prime stabilizing to back obviously a the the

probably posting kind last been time have talking would means been about normalization their of the talked coming You lead of we which delinquencies prime that credit that to lately. us. and what tightening increasing lenders have That noticed, should better to generate customers about or more have

are And share, we business, and we pretty things perspective that excited the to market are and to from steadily capture growth normal. get a to starting we adding So back are merchants. new growing continue then

the issues the around distracted face. integrations have quarter merchants because last Some they pretty of been the in supply of chain that getting

as get to holiday bit the starting year. So a into next Yes to little kind open of Derek. season and the we we door see

Derek Medlin

I some we the the here investing addition, we space. a experiments has for about can continued critical progress consistent for individuals, different our been building consumer. of margin in channel will that are with is includes scale and we is really tinkering we just North going some Yes. personalized and that our will our improving conversion for And us on And global platforms we the in channel and how are broader to added channel the our Ramsey, areas and add quickly. Derek, goals are comes able this gainer back really that offers be running have this controlled think seeing. up rapidly R&D really to improving about that scale many results partners in that that partners. so the path been excited believe And nonprime of with of it And we enterprise we different these and a our continue we investments share to up growth announcements to whether we as be is that to that is in gain in depressed, strategic

Ramsey El-Assal

ask Thank your starting somewhat to That trying you. bottleneck? loosen remains just with up wanted is on constraints IT is about great. or of the whether certainly an to also And I’m partners. that a gauge update I to

Orlando Zayas

the who Obviously, cold during way are driven season, I our of I is retailers think many Yes, are kind we describe pretty in starting holiday to holiday see it freeze. are normalize, to of mean, it.

of let’s talk So what your are around integration seeing more first later. after kind year, the let’s we response put

the So to I believe up. first year, that are see we after open going

Ramsey El-Assal

of of And a would disproportionately sort sort year, some little tailwind year an get provide that next Yes next a as up and would bit is you that you pent would implementations into characterize year, it pushed of more of therefore, then you that okay. next big benefit impact?

Orlando Zayas

manage some I this the only between trying through they believe of of and supply year. disruptions kind think the which We are the they were not that, also signed then got chain that BNPLs, but to

May I we to. the talking Now, retails we the prioritization think moving up level are the of are prioritization,

Ramsey El-Assal

thanks Got it. so much. Terrific,

Orlando Zayas

Ramsey. Thanks

Operator

with of question Fitzgerald. from the Siegler next comes Our line Josh Cantor

is line now Your open.

Josh Siegler

can I for Hi future? believe get taking driving guys. the detail continue that what My you penetration of around partner, Thanks would more your around my is and were love increased the behind in factors call. first a that, to question little largest the

Orlando Zayas

a Yes. do marketing, to rates. a of retailers. is of team base lot our conversion we many our strong obviously, our retailers really top really and we how with testing, I And return customer of actually closely continues mean, drive And do lot the around works grow.

conversion rates higher. different drive see the product even may the salesperson conversion much improve online penetration that it rate is that be store So the to customer a have the you about rate, position improving. than on But many where taking over helps we is how And and in that to been testing we narrative. trying options

We are with XX% fact add was want to pretty saw we some gain thrilled Derek, and that down anything? there. our the share you retailer top

Derek Medlin

Really, being of whatever that deploy this for we around every question. kind of gives at situation many vision to made looking execute whichever space. got offers and we Great to transaction consumer and have earlier Yes. of more investments of type the personalized given are a their able retailer, year, capability

And so really the relevant is gain share. signs test those our showing give propensity fruiting about to offers think of and campaigns is we really early that to excited some and results team ability going and that are and

Josh Siegler

Excellent. down pay is simply the just helpful. you. that. little eventually very move their lot I that get traditional customers more then Yes offerings see color checkouts. they the Do Thank love a and to chain? lease-to-own of to nonprime retailers even into start on as of you it we that box seen overtime big progressing would And have color is a progressing matter now, later buy implementing a

Orlando Zayas

of many - now is but be level hot it no. while, be, think and further is that a for BNPL up the prioritization through the retailers season holiday things are chain, just continue not managing right, to supply won’t Right a the we prioritize we it it drive with the will you I and chain they see working exactly That if issues, Josh. continue to will. and that through Yes, is they as hot are they

I I let as could through think the not happening is over is implement, It how because business. be complicated first year. after I the step more ours BNPL drive see four, So incremental think that it and done, But incremental as a the and we next even can will is is quite do easy payments to say once that is just is that just also us really splitting lease-to-own. bit customers of drive

Derek Medlin

and one just LTO going Yes Josh, conversation, power giving into just able to. customer add the on understanding the retailers process I nonprime just stores will into traditionally the a or their evolution is they these of Katapult conversation would been is is level to not of BNPL and transact an like have the from or thing set, to already, transact that or payment customer an flexibility that the websites at in not of

of And accessing financing what so are of through retailers payment this can loyal markets. new see journey transactions great and from we different a awareness them, do that and how that options recurring just for as going powers customers and and

Josh Siegler

very Excellent, much. thank you

Orlando Zayas

Josh. Thanks

Operator

question Mark with of next Lake comes from Our Street. the Argento line

now Your line open. is

Mark Argento

morning guys. good Hey

question in fairly like quick team. I where of terms it out are you guys aggressively on have would building a hiring been there Just seems your be Any and helpful? updates know sales guys the you team.

Orlando Zayas

on talent XX-days account they business development But includes to able think get about And at know been sales tough, focused to real hiring. been real really aggressive aggressive. XX business that, and hiring management. guys of we we but on Yes, now the had boarded. those team and we side take development we that reps Surprisingly, start a I mostly have on generation are this this I support are new to right been think attract have strong lead has we people. up week, Actually, seven I

they start is it are quick. And some onboard, leads start an them, doing SMB from generating the so, once and they for reach out we perspective, relatively

about do next heads, are we our talking on that start side, a bit the so year. out So we is seeing going name they to be that done into we take we the out there, there. talking the out large the company now that but it team. couple that mission, should fruits believe got labor talking about be larger and of a enterprise added the And to merchants little getting of that, with time, have to And

around strong support continue of really processes how are some are reaching We out to to really that And are because on allocation, good over by we you we that marketing we how going will see end people that the group. I capital think along the year, have have goes to add conversion starting we a believe we in some is to will leads, if XX generating shoots the green we really rates. are leads, that

Mark Argento

just one that helpful one. quick then Okay is and

it as In pick default little I rates to up had you stimulus less know consumer a starting of degree. overall terms mentioned of the a seems in to broader bit result market like a are credit probably partially

buy In it guys, terms in tightening credit as the now, maybe And of terms up pay seems a willing little robust? up pick stretching do if stimulus to how their later go. are spectrum rates start to anticipate of like that a bit little were bit they a you credit isn’t default bands they far back maybe down

Orlando Zayas

I are that delinquencies early what Yes, the prime side no, announcements recent is the is Mark, going that signs, starting happen, on believe we increase. mean exactly the to to

is So lower stated the will credit tendency in we customers natural of, we see in up, normalization. starting flow bands. that credit that are that kind them that to especially tighten is for why a the prepared to And those remarks the is to and are us more

Mark Argento

Great. luck holidays. good guys, through thanks the

Orlando Zayas

Mark. Thanks

Operator

Anthony Markets. Our next Loop Chukumba line of the question from Capital comes from

Your now line is open.

Anthony Chukumba

morning. Good

significantly pretty So a was couple I first it profit. it was questions. Obviously, guess, year-over-year. gross on down question,

was in drivers part terms there the color the profit? just lower additional was wondering, any Thanks. But if of debt you give expense. of is obviously, I gross Now, bad that for can

Karissa Cupito

is and spoke prepared remarks is the board, that I credit we across we in What Absolutely. think about what normalizing. seeing are

in year, versus profit we history stimulus in lowest last of midst delinquencies this and were of you if the company. look year, at the so on year, gross the And last

right percentage. about of and it to revenue just And so are that into and top we now quarter, our a more QX are stable really gross we is last continuing On that, less it we sizing conversion profit is we you less, to testing offers, promotions if rate, pricing obviously, can going see are that and working incentives have revenue you are other charge to drive booking. through how which personalized you spoke

both is a of those the we normalizations some are promotions it So and credit function of testing. of that

Anthony Chukumba

helpful. that my it, I stock earnings question, dislocated your when I $XXX second then after pretty over guess at got second release. Got look is your million And your and balance obviously, you sheet, cash quarter significantly in

So I not back in guess, what the process I was aggressively of wondering is buying just stock. thought terms

announced You that. saw of your to tender stock in (Ph) [Dutch] pretty reacted competitors pretty just one the a large well

guys holding from stock? what guess, I is back back you buying So

Orlando Zayas

are And on know Antony really, we a are our had growth how we we had And ton capital? than the and we don’t number more a of do I of deploy of focused a I have are, think around we discussions the company. I we we that growing are doubled think salespeople adding year. we lot salespeople, And last business.

are to salespeople. the are we will working platform We some only stabilized, to that that on tech have that those I support new the so but help growth do also, not drive on initiatives continue investing side,

do. So I in is is stage at think chosen invest to just to this what the have company and wise it we that

Anthony Chukumba

is helpful. you. Thank That it. Got

Operator

from Our Capital. comes Loop Instructions] question [indiscernible] with the of next line [Operator

now is line open. Your

Unidentified Analyst

there. Hi

your levels drivers I what at staff, curious transpired is are what pre-COVID below had the the thoughts was you people and - that well, collection think pre-COVID and mentioned loss at rates and how levels? your your normalized it staff collections well why to You on normalized just get

Derek Medlin

question. Yes good

Derek. This So is thank you.

And So so portfolio, we we look when we XXXX and in similar trends rates the trends, when to been pre-COVID. delinquency, more in in look amount curing we And familiar resources. back And these look of many, late that to just happening XXXX at right about accounts months how essentially the in what have drive and of of than go certainly much very do pay has staffing, looks very of are we amount the with our areas we performance just familiar it that did loss and at is all terms most the look XXXX. is anything just many seeing early rates delinquent now of to and space. we what or like that are we the with, what emphasize that we are to digital execution see having are through right talk

very we entering is customers technology having approaches. are customer so solutions, centric, and data We are very that support our drive very will clear that communication driven on

So staffing major these of is ups we seasonality go through whenever the not a issue us downs. for and

on the of we both are the to execution team And as the well so responded data the side. on how has really proud shifts, collections the science and policy as side,

day-to-day of part on this everything is kind we a of basis. do that just So

Unidentified Analyst

you. Thank Okay.

Operator

will questions. Thank remarks. Orlando Zayas the you. further closing to now call There are no back I turn for

Orlando Zayas

Thanks, Sara.

company. we be of growth continue about to really long-term the So our excited

aggressive we perspective e-commerce improvements build doing to out and seeing, see on some rate to penetration our the team are team, experience. omni-channel starting we the tech disrupt are both what our the We hiring and green sales that are shoots of the from of

e-commerce are excited community. into And our So continues. going that we of XXXX on energized a disruption the inclusion into have that team financial providing we very underserved

our immersion customers, to next merchants several through mission the rely us on Our years. continue our

thanks your So we the you today. us, we joined are for and and appreciate that time have questions excited

Operator

you call. conference this gentlemen today’s for concludes and participation. your Ladies Thank

now disconnect. You may

Katapult (KPLT) 9 Nov 212021 Q3 Earnings call transcript