- Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Katapult Q3 2022 Earnings Conference Call. I would now like to turn the call over to Bill Wright, Head of Investor Relations. Please go ahead.

Bill Wright

Thank you, and good morning. Welcome to the Katapult Third Quarter 2022 Earnings Results Conference Call. Orlando and Executive Officer. Derek are Chief Karissa today Officer; Financial Medlin, me Zayas, Officer; Chief Cupito, With Chief Operating issued referencing and and release our presentation We morning, this corresponding we during these investor be the call. will earnings Investor on be of section the can our Relations Both found website.

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

release update of a actual otherwise. or revise factors of as required publicly information, and for that the most no any to number earnings our prime These opportunity, credit management's assumptions our Before we and success card forward-looking XX-Q to including the regarding June lending the initiatives XXXX whether events future as XX be reports like file regarding a considered our statements from new of tightening. statements, ended timing subsequent financial of of financial with expectations result occurrence to statements may of with results current this performance, virtual Pay, Sears, recent reports, and Catapult including performance, of impact everyone and or reflect we statements. anticipated These undertake cautionary and our and future begin, remind materially and I the and and SEC. should to application our partnership in periodic exclusive obligation future on gross market and and quarter are growth conjunction scale would contain statements Except Form current contained cause SEC solution, subject statements timing in call impact with and company's our periodic these beliefs, the those the differ our by any the we levels adoption will potential and mobile inherent events law, origination

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

Orlando Zayas

thank on growth strategic review are of On Good provide progress for Bill. of initiatives. morning, and an the call, us. significant and you today's joining we'll making on we quarter everyone, Thanks, the update results XXXX third our

and the to to work value in see team virtual Turning that to create continues capture you lease-to-own share diligently market. addressable large additional slide our four, can to

We to have estimate opportunity goods, market for e-commerce underserved billion. billion only $XX $XX we scratched the surface which be durable about of to the customers, total

term and confident weather our longer focused progressing plan shareholders. challenges are macroeconomic remain immune we in to order we ongoing While in over value the strategic ability for to pressures, on our to these create are our the not

aspects virtual successfully App quarter, launched Pay, our We’ve strategic Katapult and plan. the our executed of we our During card growth several Mobile solution. credit

and optimization the members quarter to are speed XXXX quickly making our including of contributions, of We our process. sales is getting already hires up and new the planned also our third bearing completed for This strategic fruit. team

and e-commerce as Appliance from as Being Showrooms, with lease full-line Sears Holding’s bid partnership Sears Transform transform exclusive selected to Sears.com. and announce, SR the space online both months. well in XXXX stores Town, storefronts solution expand Sears with LLC, Sears in with We Home to XXX operates site our exclusive partnership forward national will which Life e-commerce purchase us retailer. the Sears from originations Management the online stores, meaningful their beyond. formats, allows and pleased multiple Sears Home in and and coming starting look and integrating and exciting I'm we As a omnichannel including as competitive Home And very is growth to see we process believe

that Promoter customers. pleased gross are quarter we Additionally, high Score during our from XX% be continues to that repeat the originations of Net and were

lives, to especially proud goods are underserved continue in their way We need challenging with a they times. access during providing consumers to these that daily

call. our Turning earnings strategic will five, on plan we see quarter first to you slide our fourth on continue execute to we detailed XXXX growth that

We for the beginning introducing of filling we have process, optimizing key sales new our launching marketing the including year, the initiatives of brand achieved positions, almost in goals set that and and products. all new fact ourselves at leadership

We initiatives these to dividends going expect pay forward.

lease as launched Katapult details of proprietary add going originated over Pay, We about with existing by and virtual is and to which merchants Firm, self-service like customers App. affiliate since have Buy, X,XXX use Through we merchants come with these our the and beginning into customers. version origination through The then is the including add Drills million Katapult gross in we to channel retailers gaining Katapult to with checkout. soft work and to and new and more credit HP. have one-time customers The can our our release, launch our originations beta Trigger over Mobile newly To-date way Katapult card Our technology our in card allows campaigns ongoing. this to Mobile third is additional Katapult the of for launch understand provides preapproved, our We Mobile make The will to utilize lease QX encouraging enabled this payments new this get virtual most Mattress very as September, interact and our revenue regular Pay Katapult and customers Pay app Pay. forward. launched we with merchants Pay our improve we largely each plus Mobile than that to simpler XX% six our Best quarter $X email currently soft of App, is achieved our quarter, purchasing merchants our customer XX affiliate App conversion in importantly begin XXXX network. during complete already new as well believe grow app since engagement that word-of-mouth. with we ever as out and entered check envision product. and lease transactions analytic makes Pay, always that card leverage brand strong momentum plan be product, our partnering out continue can with credit select App Slide are success Katapult. capabilities powered a merchants build main become We that value adoption to

we of wins and to client’s quarter. Moving which to the each competitive SimpleTire, steadily continue number we retail seven, add are partners XStopBedroom of quarter. both Most slide during to two enterprise launched notably, the

also agreement leading PCs. We gaming e-commerce performance a into with entered high iBUYPOWER, merchant for custom

working our point-of-sale their with we support the complete as new integration currently in-store U.S. are As integration to stores online full the for and both to partnership across existing their exclusive in custom system in Sears, rollout business, well XXX-plus as e-commerce

not online lease purchase do a prime both Additionally, apply, eligibility financing under automatically offer. but and through to be the preapproval provider will partnership, Katapult for for the qualify in-store who shoppers credit considered Sears receive

and to enough believe both needs to retailer a to that while customers being financial Craftsman, in and shopping become Sears Sears Karissa, to our of brands CFO, together. We ability of focused top Moore, intend excited it to turn more to partner We serve give I over now Karissa? shop and with to support would way members. partners affiliates, customize its to an fast will role to Hard. integration, consumers of in experiences non-prime has nimble a very pioneer access details important the more and decision the one partner our and XXXX. digital who provide customer performance. of merchant Together, Ken on sides our played potential seamlessly physical understand and connect are Die Katapult’s the we leading like and Sears to your like

Karissa Cupito

for million. Thank decreased eight, and on results macro our detailed the challenging both consumers, revenue revenue, quarter $X.X down in retailers third slide. and $X.X total January on of key origination was Gross on profit and reflected and decline to was third profit revenue margins slide $X.X adoption volume, originations you, XXXX, the down quarter due from the million gross were environment to XXX, XXXX for Adjusted million of adoption XXXX $X.X next the million $XX.X weighed which relates the a loss decreased quarter million $XX.X the million, ASC third down Gross which was of in decline of resulted Orlando, XXX. was the EBITDA $X.X is adjusted as ASC for lease second and million effective for quarter originations X, was and $XX.X our drivers. ongoing net million, the in year-over-year, again lower of discussed

XX, declined for debt million offset adoption strategic bad connection Turning compensation and our the expense at increase elimination XXX, expense related total increases overall the by $X.X $X.X costs with professional slide in million fees consulting growth. to in XX%. headcount operating were The operating and year-over-year expenses or to of investments an of down includes to due in ASC

and anticipate of lower XXXX the of growth as launch light in for the completed, reach a environment. several completion macroeconomic to organization With our of operating lowering as challenging we continue look expenses initiatives of initiatives we our significant operating full-year expenses across

have of credit negatively related by prime continuing of which credit model in slide in XXXX, of is and pressures to the our anticipate to customers underwriting to current that continued offerings, throughout was tighten absence anticipate release the tightens increase application impairment gross this stimulus have QX. new we we It to lenders, including our significant funnel. based we a as originations charges The as Turning our higher year of consumers. the seek for spectrum, return vintage growth funds that an levels XX, percentage impairment QX felt top response, of coupled property worth income out to will to seen and our held off XX.X% in data, we has decline a our originations of economic the with across as widening reflect noting customers XXXX pre-pandemic our being percentage impact inflation due charges

us, back meaningful to from wrap seeing yet to lenders some over will tightening now actions such key turn not the are to eventually occur. above the anticipate I we up prime with we While Orlando takeaways. tightening call

Orlando Zayas

macroeconomic diverse Thanks, the retail conclusion, thus across turbulent partners larger addition progress is our paying of Karissa. despite believe investments growth against channels. far In our strategic conditions, dividends we with

underwriting product partners, and retail our new customers, manage conservatively new deepen to continue strategy, launch add with existing We relationships capabilities.

a and market. As we remain virtual our company all. we that lease-to-own you confident well share addressable positioned ahead, to market large is look add Thank

We will your take questions. now

Operator

is Fitzgerald. Your The [Operator of line now from Josh from the questions. comes open for floor your Instructions] first Cantor question Siegler

line Your is open.

Unidentified Analyst

question. is Josh. [indiscernible] for guys. Thanks on This Hi, taking for our

that little the you add what you prime back there consumer providers even a from seem So at you've you're we levels. prime maybe guys? pre-COVID charges Could seeing impairment health? financing could mentioned yet not underwriting tightening seen like when see and a around they're from though around And a color tightening

Karissa Cupito

Yes, this is Karissa.

held the terms our There's tightening, it'll perspective, impairment will obviously out prime not a but terms as to impairment reflected especially terms be in coming are the significant and us have latest in seen year it in seen lot that's in we entire QX. of we vintages, a believe the macroeconomic of have we of it's believe the positive From the near-term, of the been for and have percentage that's tightening. trend leading why trends not that's a not seeing come QX. numbers, and we with throughout property lease underwriting we In data prime in declining of yet delinquencies

Unidentified Analyst

can Thanks you, [Multiple Sears size good of touch bit What reach and then And there. little do to help think Got maybe opportunity the you level you. wanted Speakers] partnership, the is also on which with Karissa. see. to the Sears you penetration you there? partnership? a really us color Thank Could

Orlando Zayas

last that have experience of I But lot Thanks few forward very is question. a especially years. client driven, for Orlando, is is their are trying Sears. excited and which before. mine I customer they about, the Obviously, least Stores, in help really the Hometown was lot like. really customer Hometown owner customer we small of a a in possibly focus bring Stores their has the where their because the This that towns a with franchisee, on and changed to we're

have the type to probably continue time who the they to strong, the have the and our strongest because their that and as really customer customers go that be think as that rate draw, of again. reputations will we well one So penetration of them time with of they market they back

this does at opportunity, high strong customers it So our we're these about actually helping with really because and really excited a fit quality mission retailer. get perfectly merchandise

be. So really they're I numbers the don't about it. But really and excited strong know based we're on will previous exactly experience, what my

Operator

from Your next question line the of comes Stephens. Vincent from Caintic

open. is line Your

Vincent Caintic

morning. good questions. Hey, Thanks taking for my

on wondering -- cycle illustrative, to essentially also went that's if that. because following to very the to so how pretty was excited against order how Sears, that's up talk were competing this -- competition, in sales So that others have that. you I'm hear exclusivity the nice for could maybe and I be sure through

that? were win And -- differentiators? how you. So to able you Thank what the Katapult was

Orlando Zayas

hear just to was from it Nice Vincent. process, Thanks, say. you, a let's long Yes.

first current provider notice. year, of basically down to two think gave we early in their shutting them I the them was and talked part weeks'

out integration, quickly. because And about they did differentiator had some what having our alternative the integration and they move and in-store, on look still big having done had shock talk was Sears.com to to numerous with system they to see really to and POS our they've there easy they that no ready we points, their at side the liked we wanted the they where integrating think tech the this checking is tech. because was, and programs. and and -- how as realized as they that is I in side calls So their And account, make really into what's didn't we shop-your-way had on move tech a then what especially And time, April. and did the before. can that took it's Unfortunately, them the best again, to, leasing we've start fast company

were for And it talking we do we so I think we we knew them, and easily. we because could and quickly the decision knew eased about really

Vincent Caintic

Okay, perfect.

is integration they are already or so process there And still fully on turned to go? an

Orlando Zayas

in which as Yes, system, system. because a program relatively POS integration our integration then is there's can Sears.com. there's POS loyalty the points. they’re imagine, you shop-your-way, literally and still which There's process, old is three is There the

three So on integrations there's literally going right now.

Vincent Caintic

urgency with how how changed from a that and bit, the Thank bit the any help? are And you're perhaps Okay, or you kind positioning merchants? more the pulling you. of season, can for -- maybe your and then great. or of your maybe discussions or then a pipeline they you you're seeing have, more And that things expanding merchants engagement that ahead but back maybe having potential merchants now has holiday

Derek Medlin

new being really with say Medlin. is I'd Thanks even that I'd for the branding And And what we share are in and Burke resonating, and QX, Reed expand looking to like addition CRO capabilities grow revamped many or really Hi, new we integration on a Derek time question. product to pipeline during love the been lot that is and the when is we’ve are Vincent. -- what a to the consumer retailers that and done, their working base This we've believe enhancements sales. that active. especially of strong the

continue to we're that's next but really so that the into last year that, we've had going going going about traction quarters, And also the few over optimistic forward.

Orlando Zayas

for over of it. add, ‘XX, shipping number months. the make the if Yes. of it's hearing they retailers most story they talking been retailers trying as interesting in they last as I because to well as a ordered, And because we I've retailers Vincent, the back issues new up out can were them current I've been same have, in for both potential that to few had

they've inventory a Now got move. inventory of got lot they've to lot of and a

They're want gotten excited I'm to So and on they got we've when so can because inventory, alternatives move pretty know for move. looking about we they've retailer that fast. that to a the and a of move far inventory, ton they needs engagements sitting

Vincent Caintic

Okay. so Thanks much. That's perfect. helpful. Very

Operator

the Loop Your line Goetsch comes Capital. from final question from Hal of

open. line is Your

Hal Goetsch

on a average about maybe this new size with new Thanks. and early virtual involved got question us rates order little maybe early loss vendors good Can product. you some the and guys. tell on bit Hey, product? I the a quick morning, indications

Derek Medlin

we're what really really Thanks consumers is Hi, we for for transactions seeing working and well better, respond retailers aim and community product to opportunity with higher experience hearing time giving repeat about larger the the as from App that and up the we've Katapult Hal. the that This make to. customer a Derek. respond question. we we're been excited about something can we've as how retailers This on the to We're launched. Mobile both what engagement, for from to Katapult of Pay the is how the can open and recurring from set some

So or our at just just that. with came at just average may at to in, form similar find purchasing a thinking, well seeing opportunities they're and early a mobile of something and had the been we're for this mattress us the have with the see exciting we capability, they engagement, SKU exciting are finding as and and or a enabled that repeat order XX-days. this But the really encouraging as consumers that factors other behaving found already Tractor seeing and market a very but in the Supply Buy the very say place from in similar Mobile faster we're the out were I'll of numbers new now are about categories sort to the and -- it's early and as easily behavior. And we've buying able new what's in only level is of customer higher App signs to really digital of forward new someone who mobile is like option just value, Best have will experience, days, general, terms rate, really

So we're a our for us means beyond. systems are and we and that excited we've purchasing for technology for really consumers what for XXXX about card easy means to its create and platforms to been new leverage AI-driven excited this and able what and virtual path and

Orlando Zayas

announcement it's add and Hal, payments we is make and thing that, mention engagement. using about forgot the it surprised if is have told apps to it been can anybody haven't first and we things to forgot discovered Derek this one And that I Yes. public at add or our really just were customers the and

And know. so of now our about might the we've that to going test, other that been repeat have host products don't know them a been to XX-days. of not that we It's that different it's through to customers kind we're we're customers, -- we before. the mostly just so into in walk But carefully beta customers access excited we we're being able able offer market

Hal Goetsch

a Is kind card details, SIC amount Is rails those code kinds it with Visa [Markedo] a of certain of for virtual us some branded things? about Tell it to network with the set (ph) like over card traditional product bit or like done is stored a a vendor something? issued leasable. by a that those

Derek Medlin

it similar. Great question, Hal. Hi, so is

is wanted make we tools items. things, the having and our would trying able it was somewhere were transparent a else. improve all a to give our really and access if So were customer what solve without to the how to leave marketplace great flow finding to lease we're rate have great that processes site to to quality and to work understand lead be what two that conversion merchants in our And a go could that to shop really consumer could and them to one, easy for we that, forward we

you're can things so able lease, yes, they branded to checkout with clearly of what that checkout by the to got any terms controls, enabled to having to controls exposure pricing and the of transaction. and was just us And of a traditional that display complete one consumer, understand virtual the options like Visa that card would fraud all of seamlessly or final transaction and we're to Mastercard step in the solve is as the for to they other a and limit the excellent there. like We've lease to the the AI that the is mentioning But properties the shop it card. do use both checkout as payment well reduce

one. make very it very account frictionless. highly and That's we quickly. it's experience consumer, repeat consumer best customer that to just falls and the engaged because extremely smooth This so seamless closely is integrated and allows a so that still the great a directly after And have a believe transaction for a experience, the and a

Orlando Zayas

technology, me There of being that retailers that you the build Derek lot we at I was said, was we are that file a it's that Buy transaction He wow, remember, lease, making in about smooth can't And avoid because we really a do. our it people is. Derek that obviously was make the can think went little and lease the you regulations talking Best called just think seamlessly, can he items humble if and fraud And if which I process. it's goes, through of have. sure I the things and about we that part and

and it now our even without telling so it obviously excited about pretty are using customers And we're them.

a So that here. got great opportunity we believe we've

Hal Goetsch

Okay. lot. Thanks a

Orlando Zayas

Thanks, Hal.

Operator

of comes Your from the from Chukumba line final Loop Markets. question Capital Anthony

Your open. line is

Anthony Chukumba

Good morning. my for taking Thanks questions.

customer adoption, ones, understand can of like Mobile quick what XX% you by XX% guess first adoption, what like few sort exactly said just a with I Just App XX% of customer my that? context essentially? give the there's on didn't mentioned I you some meant one you

Derek Medlin

Yes.

Anthony, question. Derek thanks we So, the -- This is again. for

what couple a made big we data tag the summer, of started really campaign. mobile to And has no couple we are of but it the marketplaces since interesting. in communications, it where And Mobile stores, just a launched the quickly this stores. the and our in points available massive So App saw we adding very

downloaded the it using application base XX% already has about monthly. and active of So our is customer

that portal active larger then And go beyond that month-over-month. an of is they're And the to and but from engaging they're this a through one we're just and payment interacting that initial And brand you we've sites. the App knew no pay, seen seeing our customer what shift our was us. base, Mobile types all that engagement use. and the that's the or that recurring call-in looking has a mobile with enhanced interesting points interaction believe they significant app. grow effort with traditional to to-date. that app. at that, and number first, the continue with knew of we we're devices would a paying behavior is regular really just we that just And and but and And data away we seen were how other is is basically marketing download, to log-in customer in we've So our And if the were that with how just they

base. in stay our to connected more in what means about way of terms excited future the our we're even customer that to So

Anthony Chukumba

it. Got

Okay.

Now that's helpful.

in Sears, were I terms Second stores. franchise they that think thing of Orlando mentioned

integrate So my whether out each it to want or becomes just have all decide, question I going guess store franchisee across they to get lease to solution to like store your like this franchise or be not? decide rolled each to each add does then stores get -- is to own

Orlando Zayas

highly them the But were had we on the now. familiar, and Stores. going we because it, be them before, up It's call is they complete, in engaged to these program to the was with excited integration recently to my rolled good a No, are visit us got encourage access get about it to to use experience, Hometown get out. stores of all the phone a stores She head they stores will it fully it. When the have and users. incredibly

And each but I be have think we don't easy, adoption sign-up. have store no, to is so to going

Anthony Chukumba

Got it.

just Obviously, Okay. color they're then Any their question. Wayfair on having one And business? last challenges? your

Orlando Zayas

having partnership. They're challenges just partner. everybody ups love of more up still business. down. was they're up Obviously, as They they Yes, a tightened weeks has the our a else are great in we've ago. I and couple Boston want

So their to on we've how had customers, partnership. really We're the to customers up focused but they're how good some we our going we plans, Obviously, discussions with set we're underwrite extremely are the it, partnership. heavily plans want good around to some better. to going continue program and happy the market

ups hard to way to downs, they're just business they're well. really and drive forward a the working volume. to we're but drive as looking So know day I we them, to season couple have had trying a of with that go They help holiday ago, along weeks and

Operator

Thank call. today's your does conclude Thank you, for and gentlemen. ladies participation. This you

now may You disconnect.

Katapult (KPLT) 9 Nov 222022 Q3 Earnings call transcript