Earnings call transcript Q4 2022

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Operator

Good day, and thank you for standing by. Welcome to the Katapult Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to Wright, conference Head like speaker to now Bill today, of would hand over the your I Investor Relations. ahead. go Please

Bill Wright

Thank Zayas, Operating Chief Chief Financial Welcome Officer. morning. Officer; Nancy and call. and and recently Katapult’s Executive me operator, appointed our With Orlando quarter conference full-year Derek to are today Officer; Walsh, fourth XXXX you, the good Medlin, Chief

can release and during our earnings website. and found Both we the be issued presentation our morning, corresponding Investor We this the these will referencing call. of Relations be on investor section

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

XX-K Before to in our financial and the our from future December Form earnings call financial statements. These this that of filed contained I year as expectations be factors subject reflect reports related SEC. we regarding business uncertainties, will including considered Katapult. conjunction in our are begin, risks current periodic and with release cautionary outlook would actual remind to everyone with XXXX, performance cause management's to as statements we results the ended subject assumptions number forward-looking These a XX, significant and the and and and materially performance, beliefs, and statements may operating statements assumptions like contain should of forward-looking statements subsequent that that our for current differ the are well those to

a of any publicly as statements accurate information, revise the result as we or as is The discussed. call otherwise. events no by or new only of undertake update information in of these future to contained this any whether law, required date obligation Except

a available for are the SEC with constitutes measures financial is are certain and will directly This results. and earnings our section Investor should provide of together financial our replacements our of for read webcast Relations not financial be GAAP we GAAP financial website. A website. today's under financial information replay of release on non-GAAP available non-GAAP that most comparable with recorded non-GAAP the our measures will During These the should considered call and reconciliation measures included section measures Investor to Relations today's being be be discussion on of financial rule. performance,

now will turn the Orlando. to I call over

Orlando Zayas

Good non-prime and Thank everyone provide you, team and durable you year, financial and results. On deserve fourth customers., mission Bill. growth XXXX will joining call, consumers, they our need. our morning, hard would for their review to they for for flexibility thank we an us. thank during the our provide I the update dedication quarter underserved also this to work like We’ll experience on today's an enhanced access strategies members goods past providing forward to first our our driving

Walsh, flooring strategic Pier accessories. thrilled prominent at Nancy company I'm Officer CFO, she our and and a leadership the December. brands hardwood driving multi-channel perfect at President In last functions she level, Timberland, retail flooring a led retailer like specialty of Nancy Coach like broad-based who public finance she and is expertise is company that execution. and tactical experience of would highly new publicly a hardwood and financial to and detailed and fit entrepreneurial, is the role, Nancy's while I growth Executive Vice teams recently Flooring, X here. introduce was companies. with accomplished domestic traded in More global senior Chief Aloha also Financial joined executive

by new Pay products. app solid have about built are investments public a strong key a a company, showing far. In customers, that focused results strategic is on This of series feature Katapult promising a is our we thus We expanding on we helping embarked new launch becoming highlighted passionate and our to XXXX, core team mobile with foundation capabilities. our on since leadership

As to forward, plan line we profitability. drive top improve and look growth we

QX Katapult success integration strategic as seven growth for macro plan new a was total launch of and Home since deeper merchants of result signs Wayfair in in Depot, backdrop retailers. our merchants. growth year and sales originations direct the for bringing reflected consumers Pay, We our new as the year. grew progressed through a Wayfair a penetration year-over-year, early and Gross for fourth delivered of volume results. to ago app and gross of the of year-over-year. our finally, we our through highest a mobile Supporting level improved the this XX And XXXX mid-teens featuring challenging XX originations the The despite December a merchants us X.X% including of increase quarter

savings During severance. we one-time cash cost in in identify opportunities to continued significant quarter, EBITDA improvements are result to in and to operating sequential after that QX related expense expected adjusted reductions expenses XXXX, the

while core remains our all portfolio Our close satisfaction achieved maintaining keeping customer success promoter of on strong XX net KPIs We eye with this score at risk prudent management. a year-end. a and

continuing expenses. and operating line Taking our merchants include integrations; driving these app and our priorities customer of usage adding expanding results, XXXX expand The context mobile merchant top around into direct achieving an to managing leverage to priorities app; diligently growth improving these our our executing centered Pay are profitability. to more QX Katapult by operating levers our feature; for

Nancy moment. Something in upon touch a will

themselves, monthly a merchants our mobile variety that through app. or speak XXXX app users, series did of functionality, create measuring our continue platform a originations to gross success engaging of relationship strategic expand not customers. our and will to early access since quality mobile an of occur our active overnight, with it’s for been to results enhance by develop The investments whether The driven

accomplishments expense. all these occurred additional marketing have direct-to-consumer without Importantly,

our the accelerated transaction, refresh Katapult’s with and adding of Pay, of customers card Katapult offers technology customer Katapult of our lease-to-own wide feature more On end-to-end and one-time our payment out lower app our customers. Katapult solution virtual a purchasing memory, driver makes feature, a The complete cost, lease on a new our success can has with simple lease The intuitive one-time mobile merchants for facilitate for Pay the mobile Katapult use merchants app is giving card rates. tech been while that Pay. everyone's our our featuring Pay and To experience option lift minimal variety our over app. improved Katapult control used to conversion virtual on an checking

believe we Katapult with Despite existing Best million proprietary by than only Customer December adoption just no fueled marketing in more Buy as expectations. disruptive $X launching months We and technology gross is industry the leading generated of under our originations Katapult our Pay is exceeding in expense algorithms. QX targeting XXXX, since direct-to-consumer and customers that AI four way.

only is of Buy As you detect lease-to-own durable ability feature know, Pay cart. their our customer for game app solution. goods a whether in The is Katapult precisely video a Best to on the leasing refrigerator Shopping can a power qualify or our

for Depot, are that example, Home leasable. At there are not products many

AI millions items Our of leasable our get need. navigate helps the to customers products available the

we adding on Pay new ahead, to our Katapult the mobile merchants continue feature to Looking plan app.

we mobile adopting Stay can gross providing the lease-to-own volume In our higher addition, by we we in for future. solution customer accelerate Katapult’s while in origination to drive expect new opportunities tuned. believe app, valuable insights,

details our share And our now, Nancy? I'll Nancy financial the outlook. to to call and turn over

Nancy Walsh

expect for spending lease Orlando rising of as both we consumer and drive managing adjusted the investments our business. challenging initiatives that while the performance, on we and and future. XXXXs and will morning, executing results our combination and Thank still focused consumers In you, our reflected in quickly everyone. good impacted reduced retailers inflation pressures the environment response, key ongoing portfolio growth

grew QX in in We mid-teens increased the This originations see growth increase December by as investments as to through mobile began the quarter of year-over-year. reflects investments the technology year-over-year. originations XXXX we and Gross these Katapult X.X% app Pay. results progressed and made our improved by gross

driven Total decrease million, revenue adoption XXX. and ASC lower results. for million margins was year-over-year more impact Please $X slide the the and XXX primarily related the $XX.X on on the to ASC lease XX by our of for information quarter see is

expenses decreased Overall, million operating $X year-over-year.

of initiatives. XXX, eliminating due January million, related the impact XXXX, XXXX expense the $X.X expenses effective X, operating adoption primarily ASC our to debt of investment increased Excluding to bad

of from XX.X% percentage improvement due EBITDA which to reflects our in charges the growth gross the as face revenue support lower in million a $X Impairment Adjusted quarter. of to sequential originations the negative the of decrease XXXX year-over-year, for in quarter fourth a was X.X%, and were expenses million, of inflation. third higher $X.X XXXX, management risk investments strategic trends a of in rising quarter primarily prudent

continue to underwriting environment will monitor We and accordingly. adjust we'll the macro

creates loan XXXX. to date also agreement our that reached and to provide Earlier delighted an structure to agreement our in the to credit savings. line top with by partner this X, long-term revolving ratios facility existing capital profitability. amend to of optimizes and lending utilization efficient support continued and our more week, This a term the result maturity extend lender June growth financial expense line drive interest from overall flexibility We're will improve we us

for revolving of spread a terms from certain exercise to benchmark loan, purchase $XX $X.XX at issuance. reduced per major three the rate exercise commitment per share, X%; of under the an events additional the term the down spread may The common of on to shares X, the warrant the of shares outstanding common X.X%; this million $X.XX X paid purchase occurrence line up following: for an exercisable the warrants share; of price line subject December X.X% principal; include million to to of XXXX, issued an million credit the issued the increased at be stock warrants months price X after of credit up remains rate revolving to benchmark to amendment above million; agreement $XX of to stock of the in of

In all adjustment XX-K addition, morning, SOFR in and consumer to Form market. except amendment our to and of covenants of labor the The the the credit remain navigate and conditions complete the related spread. the financial LIBOR environment macro credit place. forth in a was converted plus uncertainty agreement was company applicable The continues as filed the from this challenging inflation, to spending amendment, in set with benchmark rate terms

into also company expects featuring of as mobile credit the a hedge to is, headwinds the prime is full consumer creating the integrations, our gross second-half persist not on first-half the this to company macro merchants of of Katapult originations company expects providing app As time. countercyclical environment; against spending the XXXX result, to in from the compared The XXXX, new the the well in XXXX historically company at see of as guidance company improvement to benefit growth company periods availability; year-over-year the leased providing benefit expects XXXX; a as shrinking sees solutions commentary financial continue challenging sequential own XXXX; follows: however, through direct as Pay.

to company portfolio credit as our the our of improve the expense our XXXX. based and on quality total advancement on engagement our the XXXX, quality development the of believes expects mobile XX% app operating XXXX consumers reduction continue fourth Entering full-year by than the new Pay. featuring as modeling, of of quality reduce and of our attracted the ongoing initiated boarded, to for in of expenses impact more should the risk The Katapult to quarter the well merchants company

Excluding to full-year which underwriting our reduction spending for as reduction to XXXX. than cash of variable compensation align XXXX, efforts completed an fixed the January are expense, X. of servicing areas to all we non-cash encompassed first quarter companywide decrease In effective and our organization expenses plan. expense by operating additional the XXXX costs, we of stock-based more was expect The headcount and and XX%

first expense expense overall the as will severance reductions. a be transition one-time quarter XXXX As quarter offsets result, a

driven improvement trend operating adjusted full-year the gross company a in continuing Katapult year-over-year app company's result and integration such of by increased March, year-over-year improvement with have and reduced XXXX, a Through as line featuring gross from direct For with as to QX early and the EBITDA in origination strategic XXXX in the mobile pay. investments the achieve expectations technology originations our expects positive merchants expenses.

now back to it final will for I Orlando comments. turn

Orlando Zayas

to focused gross want originations we on profitability thank to position you, drive for all in I and the over executing reiterate and our success us strategies Nancy, are for improved Thank growth XXXX and long-term. you intently attending.

team uncertainty. current of of experienced We that technology confident the an have will help weather suite innovative a I'm us macro executives built

line on to updating they our creating team, about next they customers our deserve more access introducing Katapult and mobile our underserved improve our our today. profitability. I featuring and by our access to growth new mission forward consumer about excited relationships the remain Pay flexibility like technology to you. our We app top results non-prime points look consumers you goods to drive and engagement call. deepening passionate with durable need I'm provide on Thank

Operator

Siegler] from with [Operator Instructions] Cantor. First comes (ph) [Josh question

open. now is line Your

Josh Siegler

Hi. taking for Yes. Good my Thanks morning. question.

color we think be Katapult start if on I great it'd additional Pay. some could with

walk marketing XXXX? the And was it further, How evolved Specifically, marketing Thank us meaningfully there? Pay over has expect you do I curious if And to you you. continue time? your how could app and you through do expect contribute XXXX? Katapult in strategy to

Derek Medlin

Hi, and thank I'll that take question you [Josh] it. (ph). This Derek, is for

exceeding has So Katapult Pay easy for make rolled with how complete been understand out expectations. our them and And to been thus the that transparent behavior this objective our to smooth, experience far something customer really transactions. trying and cautiously. of it's we've customer, their And to

then enlarging that our engagement and creating value focus for merchants far Our who with Katapult value for are a has in ecosystem. customer consumers those the existing more really been so and Katapult lifetime of Katapult, thus on

expect which going strategy forward those are for on future, focus approved to us. is immediate customers looking who business to we with and continue to existing the that So, do

And for can retailers constantly successful forward be direct of and versus we gives can get our with go is how integrate they're that lightweight they to basis, be through Katapult Katapult, that will solution, cart customers we'll for. durable it use on that looking and because this be to us on Pay merchants great a transactions community for with and think how to it more of and a new complete a opportunities integration. goods using more the awareness successfully they new grow shopping where goods On expand and testing us some new capabilities that

we will be come forward. do for to but more that growth So believe on major this driver us in a future, that the going

Josh Siegler

tighter do for start you're down by year, lenders waterfall? And the Okay, understood. you underwriting the seeing thinking start as expect moving some and That's more the to XXXX, credit about that helpful. to prime then of consumers

Orlando Zayas

the think impact, literally like the quarter. Hi, when question. in going John, up. it, like that not carefully customers prime already a to happened the it's in first in it we've track and have take we see where We waterfall saw was rise started the improved prime be it’s pretty seeing it's Yes, Orlando. I'll COVID one it meaningful tighten especially we don't week and to it we're we started to lenders since

and evidence of a continue. So, better flow think we we're we have customers that will seen seeing of it,

Josh Siegler

Thank Okay. you.

Operator

from Instructions] Our [Operator with next Chukumba question comes Anthony Loop Capital.

Your line is now open.

Anthony Chukumba

you Thank question. my taking Good morning. for

Just one question on Katapult Pay.

to mention does sort Just like there wondering does remind into that? retailer of you like I'm just them? So, have and partnership is work? Can with me, Buy the Best How Depot? that opt specifically some Home

Derek Medlin

joining This Derek. us and for is Hi, Thanks Anthony. morning. question this again thanks for your

with, is answer that others. affiliate retailers it have we direct we the So, with relationships varies, have partnerships we have

would integrate situation be of type works to customer different to how to allowing able flow through website, eligible, each with over device is shop well they a really be they on this lease. it's technology so, guided about that our their and all help with them successful websites, novel have mobile the their their they And goods retailer. And understand sure just what what's need their with make information a checkout the have are will to steerable like

really and to easy it's And to really shop. us for where for so, partner it we've easy made customers

Anthony Chukumba

terms still significant just early, significant KPIs to That's it. that. -- I ticket rates helpful. mean anything merchandise Pay Katapult and Got or of average I customers it's in you call any guess seen then relatively or resource out? And in know other like I differences differences any between have write-off but

Derek Medlin

Anthony. you, Thank question. great a that's Yes,

right of we're in performance. now similar terms what average sizes actually with seeing is Everything cart is in line remarkably average behavior our and So, expectations.

of a In fact, can large is website, consumer, the they retailers think network our this on having expectations, of ability I now part most go have exceeding to exciting that that the understand our to we who shop the frequency at. marketplace the

seeing And frequency performing standpoint. a engagement standpoint we increased value from transactions, between are are lifetime and an consumers is shortened so, an well. which from extremely a great and And our time

So, with it's we're results. pleased really but early the days,

Anthony Chukumba

question. Q&A just And but not have to bogart Got it. final the session, one

the So, deeper wafer. with mentioned penetration you

How that Wayfair, sales it, I'm I that we your I the a about would know that than -- don't close not So imply slower your, should that? but declining. rate that U.S. bid? I – cover Wayfair guess, originations super sales think are imply to so that their at your gross Would declined their with

Orlando Zayas

we Anthony, Obviously, compare do directionally U.S. to look the and the how America, to Orlando. right Hi, it's their it. sales that. way at Yes, look North at we that's

so can't they as improved and did say to that nice the penetration do. rate. affect at look things we and see But that quarter make magnitude their and they obviously, with we that's in continue we while marketing how and to. last And, penetration we And saw like we improvement so other sales a that and

getting about their letting they making market buy them that offer it's So, working it's sure customers, in we to back to the all and proven have with them them know be effectively successful. to more

Anthony Chukumba

very it. Got Thank That's you. helpful.

Operator

participating. call. no at further show you concludes for time. This today's conference questions I this Thank

disconnect. may You now

Katapult (KPLT) 9 Mar 232022 Q4 Earnings call transcript