10-Q: Katapult Reports Q3 Revenue Growth Amidst Going Concern Warning

Katapult Holdings, Inc. reported a 22.8% increase in Q3 2025 total revenue and a significant improvement in operating income, but faces substantial doubt about its ability to continue as a going concern.

Summary

• Total revenue increased by 22.8% to $74.0 million for the three months ended September 30, 2025, compared to $60.3 million in the same period of 2024.
• Net loss improved by 44.3% to $(4.9) million for Q3 2025, down from $(8.9) million in Q3 2024.
• Gross originations grew by 25.3% to $64.2 million in Q3 2025, with Katapult Pay transactions representing 41% of this volume.
• The company's largest merchant, Wayfair Inc., accounted for 25% of gross originations in Q3 2025, a decrease from 48% in Q3 2024.
• Operating expenses decreased by 26.3% to $12.1 million in Q3 2025, primarily due to lower litigation settlement and personnel costs.
• Interest expense increased by 22.9% to $(5.9) million in Q3 2025, driven by higher average outstanding principal balances and changes in the interest-rate structure from debt refinancing.
• The company's auditors have issued a going concern opinion, indicating substantial doubt about its ability to continue operations for one year.
• A significant capital raise occurred post-period, involving the issuance of Series A and Series B Convertible Preferred Stock totaling $65.0 million, which would convert into 5,474,800 shares of Common Stock, representing 54.5% of the issued and outstanding Common Stock, subject to stockholder approval.
• The New Term Loan was prepaid in full as a subsequent event on November 2, 2025, following the capital raise.

Sentiment

Score: 3

Explanation: The company shows some operational improvements with revenue growth and positive operating income in Q3, but the overall financial health remains precarious. The 'going concern' warning, persistent net losses for the nine-month period, and the high cost and dilutive nature of the recent capital raise through preferred stock indicate significant financial challenges and risks. While the capital raise addresses immediate liquidity, it comes at a substantial long-term cost and highlights the company's vulnerable position.

Positives

• Total revenue increased by 22.8% for the three months ended September 30, 2025, and 18.3% for the nine months ended September 30, 2025, demonstrating strong growth.
• Income from operations turned positive at $2.5 million for Q3 2025, a significant improvement from a $(4.4) million loss in Q3 2024.
• Gross originations increased by 25.3% in Q3 2025, indicating growing customer demand and platform usage.
• Katapult Pay's contribution to gross originations increased to 41% in Q3 2025, highlighting the success of the mobile app strategy.
• Operating expenses decreased by 26.3% in Q3 2025, primarily due to reduced litigation settlement and personnel costs, reflecting cost management efforts.
• The company successfully refinanced its debt and secured new capital through preferred stock issuances, addressing immediate liquidity concerns and prepaying the New Term Loan.

Negatives

• The company's auditors have issued a going concern opinion, raising substantial doubt about its ability to continue operations for the next year.
• Net loss for the nine months ended September 30, 2025, increased to $(18.5) million from $(16.3) million in the prior year.
• Gross profit as a percentage of total revenue decreased to 18.4% for the nine months ended September 30, 2025, from 20.8% in the prior year, primarily due to higher cost of revenue.
• Interest expense and other fees increased by 22.9% in Q3 2025 and 17.2% for the nine months ended September 30, 2025, due to higher principal balances and increased interest rates.
• The change in fair value of warrants and derivative liability resulted in a $(1.6) million loss for Q3 2025 and $(1.6) million for the nine months ended September 30, 2025.
• The company has substantial indebtedness, with approximately $114.1 million of principal outstanding under the Refinancing Agreement as of September 30, 2025.
• Multiple waivers were required from the lender for non-compliance with the Minimum Trailing Three-Month Net Originations covenant, indicating ongoing operational challenges in meeting financial targets.
• The newly issued Series A and Series B Convertible Preferred Stock carry a high annual dividend rate of at least 18% compounding weekly until Requisite Stockholder Approval, which could further strain financial resources.
• The preferred stock issuances result in significant potential dilution, with full conversion representing 54.5% of the issued and outstanding Common Stock, and could reduce the voting power of existing common stockholders.

Risks

• The Series A and Series B Convertible Preferred Stock could further reduce the voting power and dilute the ownership of existing common stockholders, and may adversely affect the market price of common stock.
• Until Requisite Stockholder Approval is obtained, the Preferred Stock will accrue Dividends at an annual rate of at least 18% compounding weekly, potentially increasing to 19% if approval is not met by February 27, 2026.
• If an event of default is triggered under the Refinancing Agreement and not waived, obligations could accelerate, materially adversely affecting the business, results of operations, and financial position.
• Substantial indebtedness may reduce the company's capability to withstand adverse developments or business conditions and limit future financing options.
• Restrictive covenants and financial maintenance covenants in the Refinancing Agreement could limit operations or growth strategies; failure to comply could accelerate debt repayment.
• A significant portion of gross originations is concentrated with Wayfair (25% in Q3 2025), and any deterioration in this relationship or Wayfair's business could materially affect the company.
• Inability to attract additional direct merchants and retain existing relationships could materially and adversely affect the business.
• Unexpected changes to consumer behavior could cause proprietary algorithms and decisioning tools to be inaccurate, leading to increased delinquencies and write-offs.
• Failure to maintain customer satisfaction and trust in the brand could materially and adversely affect the business.
• Inability to attract new customers and retain existing ones, or if doing so is not cost-efficient, would materially and adversely affect results.
• Estimates of market opportunity and forecasts of market growth may prove inaccurate, and the business may fail to grow at forecasted rates.
• Reliance on card issuers and payment processors means failure to comply with their requirements could result in fines, suspension, or termination of registrations.
• Real or perceived software errors, failures, bugs, defects, or outages could adversely affect the business.
• Dependence on continued integration and support of platforms by merchant partners, including how the platform is presented as a payment option.
• Reliance on KPay enabled merchants to allow access to their stores through the mobile app and websites; loss of access could be detrimental.
• Subject to stringent and changing data privacy and security laws, regulations, and contractual obligations, increasing compliance costs and potential liability.
• Data security breaches or other security incidents could result in regulatory investigations, litigation, fines, business disruption, and reputational harm.
• Failure to adequately obtain, maintain, protect, defend, and enforce intellectual property and proprietary rights could harm the business.
• Subject to sales, income, and other taxes that are complex to calculate; incorrect calculation or unfavorable outcomes could result in substantial tax liabilities.
• The auditors' going concern opinion indicates substantial doubt about the company's ability to continue as an ongoing business.
• Failure to establish and maintain effective internal control over financial reporting could adversely affect the ability to accurately and timely report financial results.
• Changes to tax laws or exposure to additional tax liabilities may negatively impact operating results.
• Subject to legal proceedings and claims that may seek material damages or otherwise have a material adverse effect on the business (e.g., FlexShopper patent litigation).
• Uncertain market and economic conditions (inflation, interest rates, geopolitical conflicts) have had and may continue to have a material adverse effect.
• Failure to effectively manage costs could materially adversely affect profitability.
• Negative publicity about the company or industry could adversely affect the business and reputation.
• Misconduct and errors by employees, vendors, and service providers could harm the business and reputation.
• Loss of services of any leadership team member could materially and adversely affect the business.
• Inability to attract and retain highly skilled employees could materially and adversely affect the business.
• The price of company securities may change significantly, and stockholders could lose all or part of their investment due to volatility and dilution.
• Increased costs and management time will be incurred as a result of exiting emerging growth company status.
• No current plans to pay cash dividends on common stock for the foreseeable future, limiting return on investment to stock price appreciation.
• Future sales, or potential future sales, by the company or stockholders in the public market could cause the market price for common stock to decline.
• Outstanding warrants are exercisable for common stock, which would increase shares eligible for future resale and result in dilution.
• Anti-takeover provisions in organizational documents could delay or prevent a change of control.

Future Outlook

The company aims to meet future liquidity requirements and comply with restrictive covenants related to indebtedness. It plans to execute its business strategy, including expanding information and technology capabilities, and growing its merchant and customer base, particularly through the Katapult Pay mobile app. The company anticipates making frequent adjustments to its decisioning process in a challenging macro environment. Strategic alternatives to repay the Term Loan, including equity capital raises, a sale of the business, or refinancing, are being pursued, though success is not assured. The company expects to incur increased costs as a public company, especially after exiting emerging growth company status.

Management Comments

• Management believes the disclosures made are adequate to make the information presented not misleading.
• Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other risk-based factors.
• The company plans to continue to work closely with Blue Owl to mitigate any potential adverse impact from the covenant provisions of the New Revolving Credit Facility.
• The company anticipates that it will not have sufficient cash available to repay the New Revolving Credit Facility in the Event of Default.
• The company intends to vigorously defend the FlexShopper patent infringement case.

Industry Context

Katapult operates in the highly competitive and rapidly changing lease-to-own and fintech industry, serving underserved U.S. non-prime consumers. The growth of its mobile app, Katapult Pay, aligns with broader industry trends towards digital payment platforms and mobile-first consumer engagement. The decreasing concentration of gross originations from Wayfair suggests a strategic effort to diversify merchant partnerships, a common goal for platforms reliant on a few large partners. The industry faces challenges from fluctuating consumer spending, inflation, interest rates, and evolving regulatory scrutiny on consumer financial products and data privacy, which directly impact Katapult's non-prime customer base.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• DCA Litigation: Settled for $3.0 million, with half paid on October 11, 2024, and the remainder due over the next two years. Case formally discontinued with prejudice on October 14, 2024. $0.8 million accrued liability as of September 30, 2025.
• Shareholder Litigation (McIntosh v. Katapult Holdings, Inc. and Saunders v. Einbinder, et al.): Settled for $12.0 million, comprising $8.5 million cash (of which $5.0 million paid by insurer) and $3.5 million in common stock/cash.
• Delaware Action settlement: Approved October 10, 2024. 275,845 shares determined for settlement, with 167,797 released October 24, 2024. Remaining 108,048 'Delaware Excess Settlement Shares' delivered in two equal installments on April 10, 2025, and October 10, 2025.
• New York Action settlement: Approved December 13, 2024. 103,424 shares determined for settlement, with 43,839 released December 20, 2024. Remaining 59,585 'New York Excess Settlement Shares' delivered in two equal installments, with the first on June 13, 2025, and the second due December 13, 2025. $0.7 million accrued litigation settlement liability as of September 30, 2025.
• FlexShopper Litigation: Complaint filed September 30, 2024, alleging patent infringement and seeking injunction and damages. Company filed a Motion to Dismiss on December 20, 2024. No loss contingencies recorded as loss is not probable or estimable.

Related Party Transactions

• The Refinancing Agreement was entered into with Midtown Madison Management LLC, an agent for funds of Atalaya Capital Management (acquired by Blue Owl Capital Inc.), which is a significant lender to the company.
• In connection with the Refinancing Agreement, the company issued warrants to purchase up to 486,264 shares of Common Stock to entities affiliated with Blue Owl.
• The Series A and Series B Convertible Preferred Stock were issued and sold to HHCF Series 21 Sub, LLC, a subsidiary of Hawthorn Horizon Credit Fund, LLC (the Purchaser), which also received the Blue Owl Warrants for no consideration.

Stakeholder Impact

• Shareholders: Face significant dilution from the issuance of preferred stock and warrants, potential reduction in voting power, and ongoing uncertainty due to the going concern warning. The high dividend rate on preferred stock could limit future common stock dividends.
• Lenders (Blue Owl): Have significant control through the Refinancing Agreement's covenants and the ability to nominate directors. The preferred stock issuance and prepayment of the Term Loan improve their position by reducing risk on the term loan and providing a high-yield preferred equity stake.
• Employees: Personnel costs decreased, indicating potential workforce adjustments. The company's ability to attract and retain highly skilled employees is a stated risk, especially given expense reductions.
• Customers: Continued access to lease-to-own financing for non-prime consumers, with growth in Katapult Pay. However, changes in underwriting standards or platform reliability could impact service.
• Merchants: Continued partnership with Katapult for lease-to-own options, but concentration risk with Wayfair remains, though it is decreasing. Diversification efforts could benefit other direct merchants.
• Creditors: The refinancing and capital raise have restructured debt, potentially improving the company's ability to meet obligations, but the going concern warning indicates ongoing risk.

Next Steps

• Obtain Requisite Stockholder Approval for the full conversion of Series A and Series B Convertible Preferred Stock and the associated lower dividend rate.
• Continue to work closely with Blue Owl to mitigate potential adverse impacts from the covenant provisions of the New Revolving Credit Facility.
• Pursue strategic alternatives to repay the Term Loan, including equity capital raises, a sale of the business, or refinancing the Refinancing Agreement.
• Vigorously defend against the FlexShopper patent infringement litigation.
• File a registration statement covering the resale of common stock issuable upon conversion of the Preferred Stock within 45 days following November 3, 2025.

Key Dates

Recommendation

Katapult Holdings, Inc. presents a highly speculative investment opportunity with significant downside risk. The 'going concern' opinion from auditors is a critical red flag, indicating substantial doubt about the company's ability to continue operations. While Q3 2025 showed revenue growth and improved operating income, the net loss for the nine-month period worsened, and the company consistently failed to meet financial covenants, requiring multiple waivers from its lender. The recent capital raise, while necessary for immediate liquidity, came at an extremely high cost: significant dilution for common shareholders (potential 54.5% ownership by preferred shareholders) and a burdensome 18% weekly compounding dividend on the preferred stock. This high cost of capital will severely strain future profitability and cash flow. The company's reliance on a single major merchant, Wayfair, despite diversification efforts, remains a risk, and the ongoing patent infringement litigation adds further uncertainty. Given the severe financial distress, high cost of capital, significant dilution, and persistent operational challenges, a seasoned investor would likely view this as a 'strong sell' due to the elevated risk of further capital impairment and potential bankruptcy.

Keywords

Lease-to-own, Fintech, Non-prime lending, E-commerce financing, Katapult Pay, SEC filing, 10-Q, Financial results, Gross originations, Debt refinancing, Preferred stock, Going concern, Risk management, Consumer finance, Retail partnerships