Katapult Holdings, Inc. Q4 FY2023 earnings call

• Q4 performance: Gross originations grew 13% to $67.5 million, revenue grew 16.1% to $56.7 million. Adjusted EBITDA improved by $4.9 million year-over-year. - Merchant strategies: Focus on integrating new merchants, deepening relationships with anchor merchants, and offering durable goods. Examples include adding Lenovo back as a direct merchant, launching Grown Brilliance and Xotic PC, and working with Med Mart. - Katapult Pay: Accounted for 30% of Q4 originations, with December being the best month ever for it. Over 15% of current leases were initiated through Katapult Pay. App downloads increased to over 500,000 in 2023. - Marketing: Increased communication volume with 500% more emails, added SMS and push notifications, with open and click rates increasing. - Technology: Seamless direct integrations, underwriting algorithms, and generative AI use for address validation.

During the fourth quarter, Katapult achieved gross originations of $67.5 million, representing a 13% year-over-year growth. Revenue was $56.7 million, showing 16% growth. Katapult Pay accounted for approximately 19% of total gross originations in 2023. In the fourth quarter, Katapult Pay contributed $20 million in gross originations, which was 30% of the total originations for the quarter. For the full year 2023, $42 million of gross originations were generated through Katapult Pay, and it accounted for 19% of total gross originations.

• First quarter 2024: Expected year-over-year gross originations growth flat, revenue growth 12%-14%, meaningful Adjusted EBITDA improvement, fixed cash operating expenses down ~15% year-over-year. - Full year 2024: Expect gross originations to grow at least 10%, revenue growth at least 10%, Adjusted EBITDA to follow seasonal patterns, with growth driven by direct merchant originations and Katapult Pay, and strong credit quality from risk modeling and merchant on-boarding.

• Third-party lease verification vendor issue: In December 2023, a timing error in the vendor's validation processes led to Katapult over-funding $9.6 million in leases, which was corrected in early 2024. Enhanced controls and processes were implemented to prevent recurrence.

Q: Josh Siegler asked about guidance and merchant pipeline, with Orlando Zayas responding that the merchant pipeline is robust, growth expected from new merchants and Katapult Pay, and investment in areas with best return.

A: Orlando Zayas: 'Our merchant pipeline continues to be robust... we expect that some of the growth is going to come from new merchants that we’ve already identified in the pipeline, but that most of the growth is coming from the growth in Katapult Pay as well as our current merchants...' Q: Anthony Chukumba asked about revenue reconciliation, CFPB impact, and Wal-Mart's role. Nancy Walsh addressed revenue reconciliation due to out-of-period adjustments. Derek Medlin discussed CFPB impact potential. Orlando Zayas and Nancy Walsh talked about Wal-Mart's contribution.

A: Nancy Walsh: 'You are absolutely correct - we did pre-announce 19%. As a result of those one-time out-of-period adjustments we needed to make, that impacted revenue...' Derek Medlin: 'What we see in terms of the changes to what’s happening the credit stack above us... we have not built that into any of our planning...' Nancy Walsh: 'It’s total leases, not the gross origination dollars.'