10-Q: Katapult Holdings Reports Q3 2024 Results, Revenue Up 10% Year-Over-Year

Sentiment:

Quarterly Report 6 November 2024 7:06 AM

Katapult Holdings, Inc. announced its third-quarter 2024 results, showing a 10% increase in total revenue compared to the same period last year, driven by gross origination growth and strong collection efforts.

Capital raiseThe company is currently seeking to refinance its debt, which matures in June 2025, and projects it will not have sufficient cash to pay off the loans upon maturity.The company may need to raise additional capital in the future to fund its operations and growth initiatives.

Worse than expectedThe company's net loss increased significantly in Q3 2024 compared to Q3 2023, indicating worse than expected results.The company's operating expenses increased significantly in Q3 2024, primarily due to litigation settlement expenses, indicating worse than expected results.

Summary

Katapult Holdings, Inc. reported a net loss of $8.9 million for the third quarter of 2024, compared to a net loss of $4.1 million in the same period of 2023.
Total revenue for the quarter increased by 10% year-over-year to $60.3 million, primarily due to growth in gross originations and improved collection efforts.
Gross originations increased by 3.3% to $51.2 million in Q3 2024, with Katapult Pay contributing 31% of the total.
Cost of revenue increased by 11.6% to $48.4 million, driven by higher gross originations and historical collection results.
Operating expenses rose by 37.7% to $16.4 million, mainly due to a $3.4 million increase in litigation settlement expenses.
The company's adjusted EBITDA for the quarter was $0.6 million, compared to $0.9 million in the same period last year.
For the nine months ended September 30, 2024, the net loss was $16.3 million, compared to $22 million in the same period of 2023.
Total revenue for the nine months increased by 12.3% to $184.2 million, with gross originations up 2% to $162.2 million.
The company is currently seeking to refinance its debt, which matures in June 2025, and projects it will not have sufficient cash to pay off the loans upon maturity.
The company is in compliance with all covenants in its revolving line of credit and term loan as of September 30, 2024.

Sentiment

Score: 4

Explanation: The document presents mixed results with revenue growth offset by increased losses and significant risks related to debt and internal controls. The need for debt refinancing and ongoing litigation add to the negative sentiment.

Positives

Total revenue increased by 10% in Q3 2024 and 12.3% for the nine months ended September 30, 2024, indicating growth in the business.
Gross originations increased by 3.3% in Q3 2024 and 2% for the nine months ended September 30, 2024, showing a positive trend in lease volume.
Katapult Pay is gaining traction, contributing 31% of gross originations in Q3 2024, up from 17% in Q3 2023.
The company is in compliance with all debt covenants as of September 30, 2024.

Negatives

The company reported a net loss of $8.9 million in Q3 2024, a significant increase from the $4.1 million loss in Q3 2023.
Operating expenses increased by 37.7% in Q3 2024, primarily due to litigation settlement expenses.
The company's debt matures in June 2025, and it projects it will not have sufficient cash to pay off the loans upon maturity.
The company has a history of operating losses and may not be profitable in the future.

Risks

A significant portion of the company's gross originations is concentrated with a single merchant, Wayfair, which exposes the company to risks associated with that merchant's business.
The company's ability to refinance its debt is uncertain, and failure to do so could have a material adverse effect on its business.
The company's debt agreements include restrictive covenants that could limit its operations or ability to pursue growth strategies.
The company has identified material weaknesses in its internal control over financial reporting, which could affect the reliability of its financial statements.
The company is subject to various legal proceedings, including a patent infringement lawsuit, which could result in significant costs and liabilities.
The company's business is subject to various risks related to technology, data security, and compliance with laws and regulations.

Future Outlook

The company is currently seeking to refinance its debt, which matures in June 2025, and projects it will not have sufficient cash to pay off the loans upon maturity. The company is focused on growing its business through new product offerings and expanding its merchant base.

Management Comments

The company saw gross origination growth in 2024 primarily as a result of our mobile app featuring Katapult Pay, which we launched in the third quarter of 2022 and growth from our direct and waterfall merchants.
Write-offs as a percentage of total revenue was flat at 9.5% (as restated in 2023) period-over-period and remains within our 8% to 10% target range.

Industry Context

The company operates in the competitive virtual lease-to-own market, facing competition from various businesses, including virtual lease-to-own companies, e-commerce retailers, and consumer finance companies. The company's performance is influenced by consumer spending patterns, economic conditions, and the availability of credit to non-prime consumers.

Comparison to Industry Standards

The company's revenue growth of 10% in Q3 2024 is a positive sign, but its net loss of $8.9 million indicates challenges in achieving profitability.
The company's reliance on a single merchant, Wayfair, for a significant portion of its gross originations is a risk factor that is not uncommon in the industry but requires careful management.
The company's adjusted EBITDA of $0.6 million in Q3 2024 is relatively low compared to some of its competitors, indicating a need to improve operational efficiency.
The company's debt maturity in June 2025 and the need for refinancing is a significant concern that requires immediate attention.
The company's material weaknesses in internal control over financial reporting are a serious issue that needs to be addressed to ensure the accuracy and reliability of its financial statements.
The company's litigation expenses are a significant factor impacting profitability and are not uncommon in the industry but require careful management.

Legal Proceedings

The company reached a settlement with DCA to resolve any and all disputes that exist between the two parties for total consideration of $3.0 million.
The company reached an agreement in principle to settle the New York Action and Delaware Action for total consideration of $12.0 million.
FlexShopper, Inc. filed a complaint against Katapult in the U.S. District Court for the Eastern District of Texas, Marshall Division, alleging patent infringement.

Stakeholder Impact

Shareholders are impacted by the company's net losses and the need for debt refinancing.
Employees are impacted by the company's efforts to remediate material weaknesses in its internal control over financial reporting.
Customers are impacted by the company's ability to provide a reliable and secure platform.
Merchants are impacted by the company's ability to attract and retain customers.

Next Steps

The company is seeking to refinance its debt prior to maturity in June 2025.
The company is working to remediate material weaknesses in its internal control over financial reporting.
The company is continuing to implement new controls and new processes.
The company is continuing to focus on growing its business through new product offerings and expanding its merchant base.

Key Dates

Date	Description
2016	Katapult was incorporated in Delaware.
2019-05-14	Katapult SPV-1 LLC entered into a Credit Agreement with Midtown Madison Management, LLC for a revolving line of credit.
2020-12-04	Atalaya provided Katapult with a senior secured term loan commitment of up to $50 million.
2020-12	Katapult changed its headquarters from New York, New York to Plano, Texas.
2021-06-09	The 2021 Stock Incentive Plan became effective.
2021-08-27	A putative class action lawsuit, McIntosh v. Katapult Holdings, Inc., et al, was filed in the U.S. District Court for the Southern District of New York.
2022-08-25	A purported Company stockholder filed a putative class action lawsuit, Saunders v. Einbinder, et al., against directors and officers of FinServ Acquisition Corp. in the Delaware Court of Chancery.
2022-Q3	Katapult launched its mobile app and Katapult Pay.
2022-12	Nancy Walsh was hired as Chief Financial Officer.
2023-03-06	The company entered into the 15th amendment to the Credit Agreement, extending the maturity date of the RLOC and Term Loan to June 4, 2025.
2023-04-01	The Secured Overnight Financing Rate (SOFR) replaced the London Interbank Offered Rate (LIBOR) for both the RLOC and the Term Loans benchmark rate for interest rate calculations.
2023-07-27	The company effected a 1-for-25 Reverse Stock Split of its common stock.
2023-12-05	The company issued a warrant to purchase an additional 80,000 shares of its common stock at an exercise price of $0.25 per share.
2024-04-24	The company entered into the 16th Amendment to the Credit Agreement with the Lender.
2024-05-20	The company reached an agreement in principle to settle the New York Action and Delaware Action for total consideration of $12.0 million.
2024-07-03	The parties executed Stipulations of Settlement for the New York Action and Delaware Action.
2024-07-24	The Court in the New York Action granted preliminary approval for the settlement.
2024-08	The company paid $3.5 million in cash and the insurer paid $5.0 million into an escrow account for the Cash Component of the settlements.
2024-09-30	FlexShopper, Inc. filed a complaint against Katapult in the U.S. District Court for the Eastern District of Texas, Marshall Division.
2024-10-07	The company reached a settlement with DCA to resolve any and all disputes that exist between the two parties for total consideration of $3.0 million.
2024-10-10	The Delaware Court of Chancery approved the settlement of the Delaware Action.
2024-10-11	The company paid $1.5 million to DCA as part of the settlement.
2024-10-24	The company delivered 167,797 shares to the plaintiff in the Delaware Action.
2024-12-13	The final approval hearing in the New York Action is scheduled.
2025-04-10	First installment of the Delaware Excess Settlement Shares or cash is due.
2025-06-04	The current maturity date of the RLOC and Term Loan.
2025-10-10	Second installment of the Delaware Excess Settlement Shares or cash is due.

Keywords

lease-to-own, fintech, e-commerce, non-prime consumers, gross originations, Katapult Pay, debt refinancing, financial results, internal controls, litigation

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