Katapult Holdings, Inc. Q2 FY2025 earnings call

Key Points

• Q2 had terrific results with gross originations, revenue, and adjusted EBITDA exceeding expectations.
• Total app originations grew 56% to $43.1 million, with KPay originations growing 81% to $28.3 million.
• NPS score was 63, up year-over-year, and 58.4% of gross originations came from repeat customers.
• Unique new customers grew approximately 40% in Q2.
• App was opened 3.8 million times in Q2, with first half opening nearly 50% more than last year.
• Added approximately 48 new direct or waterfall merchants or merchant pathways in Q2.
• Spring Living and Mother's Day campaign led to nearly 30% gross originations growth and nearly 40% application growth compared to the same period last year, with participating merchants seeing 300% year-over-year increase in gross originations.

In the second quarter, gross originations grew 30.4% year-over-year to $72.1 million. Total app originations, which started in the app and may be consummated elsewhere, grew 56% to $43.1 million, accounting for approximately 60% of gross originations. KPay originations, a subset of total app originations, were $28.3 million, growing 81% year-over-year. Direct and waterfall merchants accounted for approximately 61% of total gross originations, with gross originations for this group growing about 11%. Excluding the home furnishings and mattress category, direct and waterfall gross originations grew approximately 56% year-over-year.

Q3 Outlook

• Expect gross originations growth in the range of 25% to 30%, revenue growth in the range of 20% to 25%, and between $3 million and $3.5 million of adjusted EBITDA.

Full Year 2025 Outlook

• Raising 2025 outlook for gross originations to between 20% and 25% (an increase from original outlook of at least 20% growth).
• Reiterating revenue growth of at least 20% and at least $10 million in positive adjusted EBITDA.

Risks

• Macro economic headwinds, such as increasing tariffs or rising inflation.
• Lease merchandise charge-off rate fluctuation, although currently within the 8% to 10% target range.

Q: What drove the year-over-year increase in the lease merchandise charge-off rate and how is it expected to trend?

A: Nancy mentioned fluctuation in quarterly results is normal and within the 8% to 10% range. Orlando noted June is always the toughest month around delinquencies and expects it to be back to normal next quarter.

Q: Any commentary on the pipeline for new partners in terms of waterfall and direct partners?

A: Derek said the pipeline is looking really strong with strong interest across different segments including auto, home furnishings, furniture, appliances, electronics from different sizes of omnichannel and e-commerce merchants.

Q: Could you go into color on what's being done on the sales and marketing side to drive higher application activity?

A: Derek said they've been working on digital marketing strategy, customer referral strategy to bring in customers fitting the profile and segment, and working to improve down the funnel to convert applications into origination dollars.

Q: What's the competitive environment like in terms of competitors moving up and down the credit ladder or being creative around pricing?

A: Derek said up above in the financing spectrum, there's been fairly consistent conditions. Katapult optimizes for risk, conversion, and repeat rate with clear communication and strong affinity to drive conversion for merchant partners, which is working well.