8-K: Katapult Holdings Reports Strong Q4 Growth, Exceeds Expectations with 13% Increase in Gross Originations

Katapult Holdings announced a 13% year-over-year increase in gross originations for the fourth quarter of 2023, marking its second-highest volume in company history and fifth consecutive quarter of growth.

Summary

• Katapult Holdings reported its financial results for the fourth quarter and full year ended December 31, 2023.
• The company achieved a 13% year-over-year increase in gross originations in Q4, reaching $67.5 million, the second highest in company history.
• Total revenue for Q4 grew by 16.1% year-over-year to $56.7 million.
• Non-Wayfair gross originations grew by approximately 30% in Q4.
• For the full year 2023, gross originations increased by 15.1% to $226.6 million, and total revenue grew by 4.8% to $222.2 million.
• The company's net loss for Q4 was $18.6 million, which included $4.2 million in out-of-period adjustments and a $7 million expense related to class action lawsuit settlements.
• Adjusted EBITDA for Q4 was approximately breakeven, a significant improvement from a $5.0 million loss in the prior year period.
• Katapult ended the year with $28.8 million in cash and cash equivalents, including $7.4 million in restricted cash, and $60.7 million in outstanding debt.
• The company expects at least 10% growth in gross originations and revenue for the full year 2024.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong growth in key metrics, but there are some concerns about the net loss and ongoing litigation. The company's future guidance is optimistic, but there are risks related to the macro environment.

Positives

• Katapult achieved its second-highest gross originations volume in company history in Q4 2023.
• The company experienced its fifth consecutive quarter of year-over-year gross originations growth.
• Katapult is successfully diversifying its revenue streams, with non-Wayfair originations growing significantly.
• The company's customer base is expanding, with a 15% increase in new customers in 2023.
• Customer loyalty is strong, with a 60% repeat customer rate.
• The company is making progress in reducing operating expenses.
• Katapult is seeing strong growth in its Katapult Pay app, with 19% of total gross originations coming through the app in 2023.
• The company has a positive Net Promoter Score of 52 as of December 31, 2023.
• Adjusted EBITDA improved significantly in both Q4 and full year 2023.
• The company is projecting at least 10% growth in gross originations and revenue for 2024.

Negatives

• The company reported a net loss of $18.6 million for Q4 2023.
• The net loss includes $4.2 million in out-of-period adjustments and a $7 million expense related to class action lawsuit settlements.
• Total operating expenses increased by 14.5% in Q4 2023, although they would have decreased by 27.8% excluding the one-time litigation expense.
• The company's cash position decreased to $28.8 million, impacted by a payment delay with a third-party vendor.
• Write-offs as a percentage of revenue were 9.6% in Q4 2023, which is within the company's long-term target range but still represents a significant cost.

Risks

• The company is navigating an evolving macro environment with inflation impacting consumer spending.
• US retail traffic is down, interest rates remain elevated, and credit card usage is high, which could impact consumer access to credit.
• The company is subject to risks related to the concentration of a significant portion of its transaction volume with a single merchant partner.
• The company is involved in class action lawsuits, which could result in significant expenses and liabilities.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company is subject to various risks related to economic conditions, competition, technology, and regulatory compliance.

Future Outlook

Katapult expects at least 10% growth in gross originations and revenue for the full year 2024, with first quarter performance being the low point for the year. They also anticipate continued improvement in Adjusted EBITDA and expect to maintain strong credit quality in their portfolio.

Management Comments

• Orlando Zayas, CEO of Katapult, stated that the company's success was driven by strong execution in all key areas of the business.
• Zayas also highlighted the company's value proposition, including transparent pricing, fair terms, and no late fees.
• Nancy Walsh, CFO of Katapult, noted that the company's financial and operating models allow them to grow the top-line without significantly adding to their expense structure.
• Walsh also mentioned that gross originations performance through February appears to be in line with the macro environment, but they are confident about their competitive position and plan for 2024.

Industry Context

The announcement highlights Katapult's ability to grow its business in a challenging economic environment where many competitors are contracting. The company's focus on non-prime consumers and its lease-to-own model positions it well in a market where traditional credit options may become less available. The expansion of Katapult Pay and direct integrations with merchant partners also reflects a broader trend in the fintech industry towards offering more flexible and accessible payment solutions.

Comparison to Industry Standards

• Katapult's 13% year-over-year growth in gross originations in Q4 2023 is a strong performance compared to some competitors in the consumer finance space, particularly those focused on prime lending, who may be experiencing slower growth due to economic conditions.
• Companies like Affirm and Upstart, which also operate in the consumer lending space, have seen varying results, with some experiencing slower growth or even contractions in certain periods due to macroeconomic factors.
• Katapult's focus on the lease-to-own market for non-prime consumers differentiates it from companies that primarily offer traditional installment loans or credit cards.
• The company's adjusted EBITDA performance, moving towards breakeven, is a positive sign compared to some fintech companies that are still heavily loss-making.
• Katapult's customer repeat rate of approximately 60% is a strong indicator of customer loyalty and satisfaction, which is a key metric for success in the consumer finance industry.

Legal Proceedings

• The company is involved in negotiations to settle two class action lawsuits that have been pending in New York and Delaware since 2021 and 2022, respectively.
• The company has recorded a $12 million liability in connection with the potential settlement, which may be satisfied in a combination of cash and shares.
• Any settlement agreement is subject to court approval by the Delaware and New York courts.

Stakeholder Impact

• Shareholders will be impacted by the company's financial performance, including the net loss and potential settlement of class action lawsuits.
• Employees will be impacted by the company's growth and expense management strategies.
• Customers will benefit from the company's expanded merchant network and improved user experience.
• Merchant partners will benefit from the company's growing customer base and increased transaction volume.
• Creditors will be impacted by the company's debt levels and ability to service its obligations.

Next Steps

• The company will continue to focus on expanding its customer base and acquiring new customers.
• Katapult will continue to enhance its search experience and merchant selection to make the customer journey easier.
• The company will continue to execute its disciplined expense strategy.
• Katapult will host a conference call and webcast on March 14, 2024, to discuss the financial results.

Key Dates

Keywords

lease-to-own, e-commerce, financial technology, gross originations, revenue, Adjusted EBITDA, Katapult Pay, non-prime consumers, retail, fintech