Katapult Holdings Inc (KPLT) Q1 2024 Earnings Call Transcript Highlights: Robust Growth and ...
Gross Originations: Increased 1.6% to $55.6 million in Q1 2024.
Revenue: Grew 18.1% to $65.1 million in Q1 2024.
Gross Profit: Rose approximately 39% to $16.5 million in Q1 2024.
Gross Margin: Improved by nearly 380 basis points to 25% in Q1 2024.
Write-offs: As a percent of revenue were 8.4%, improving by 40 basis points from Q1 2023.
Adjusted EBITDA: Increased to $5.6 million in Q1 2024, up from a loss of $986,000 in Q1 2023.
Total Cash and Cash Equivalents: Stood at $37.6 million as of March 31, 2024.
Debt Levels: $68 million in outstanding debt on credit facility as of end of Q1 2024.
Q2 Outlook: Gross originations growth of 3% to 5%, revenue growth of 8% to 10%.
Full Year 2024 Outlook: Minimum 10% growth expected for both gross originations and revenue.
Release Date: May 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Katapult Holdings Inc (NASDAQ:KPLT) reported six consecutive quarters of gross originations growth, demonstrating strong and consistent performance.
Revenue increased by 18.1% to $65.1 million in Q1 2024, reflecting robust gross originations trends and effective collection efforts.
Gross profit for Q1 was approximately $16.5 million, an increase of nearly 39%, with a gross margin improvement of nearly 380 basis points compared to last year.
The introduction of Katapult Pay and strategic partnerships with major retailers like Lowe's have expanded consumer choice and engagement, enhancing the company's market position.
The launch of a new risk-based pricing model is expected to optimize pricing strategies, potentially increasing conversion rates and customer satisfaction.
Negative Points
Despite overall growth, the business with Wayfair saw a decline of about 5%, reflecting challenges in the home furnishings sector.
Katapult Holdings Inc (NASDAQ:KPLT) faced macroeconomic headwinds, including a slowdown in consumer traffic and purchase activity in the retail sector.
Historical financial misstatements required a restatement of financial results for 2022, which could impact investor confidence.
The company anticipates ongoing challenges in the home furnishings retail category, projecting only 3% to 5% gross originations growth in Q2.
There is uncertainty regarding the impact of potential changes in prime lending standards and access to credit, which could affect the company's core consumer base.
Q & A Highlights
Q: Good morning. Thanks for taking my questions and congrats on a strong start to the year. I guess my first question, it's sort of a two-parter. So I had to do some algebra. I haven't done it in quite some time. But based on my algebra, it appears that your Wayfair business was down about 7%. So I want to first confirm that my algebraic equation was correct. A: Thanks, Anthony. This is Orlando. Thanks for the questions, and good morning, So on Wayfair, you know, as I think has been reported by a number of others in the home furnishing industry, while their business overall is good. There's not a lot of the the financing side of it is where we are seeing the impact. So app outflow has been down a little bit. And so and that's not something we can't control. What we can control is a Katapult Pay and being able to get customers to come back, which which wouldn't show up in that number necessarily. So there's still a great partner. We're launching the risk-based pricing with them. We've done a number of marketing initiatives with them. They're trying to drive volume. And we're starting to see towards the end of the first quarter where the volume started to turn around and get back to what we think is normal and we're looking forward to the second quarter. May is a big furniture month. So we are hoping that May turns into a strong strong quarter for us with Wayfair.
Q: So next question. So I am intrigued by this new risk-based pricing model. I guess my question is, what do you see as the potential benefits? In other words, like look, you've always guided to like an 8% to 10% write-off rate. You're at the lower end of that, you're down 40 basis points year over year. Do you see it as maybe 8% to 10% becomes 7% to 9% or do you see it as well, maybe you drive higher gross originations because you can become more surgical and maybe somebody who got $1,000 of leasing power gets $1,200, you know, because you know, because you because you feel better about the credit, like how do you how do you sort of think about what the benefits of that would be? A: You kind answered the question, but you're up right on point, Anthony. So the way we look at risk-based pricing, as we've historically been in a waterfall, obviously with Wayfair and even what other retailers were in a waterfall situation. And what happens there is a person applies for credit and they may be thinking they're going to get approved maybe a special financing offer something and they get turned down. And so we see a number of higher credit people that come through the funnel on the waterfall that don't take the lease offer and we've been working for years to trying to convert those people because they didn't really have another option. And so what we started testing was can we can we change the offer a little bit of maybe lower the turn or lower the origination fee to entice the higher credit people that are getting turned down for the prime on a you know, it and the lease, and we're seeing some really positive signs on that. So I think you're right, it will improve is really about improving gross originations from. But I think obviously, keeping our eye on the losses to make sure that we don't exceed what our goals are to hit our margins.
Q: Got it. That's helpful. So next question, I mean, look waiting for the sort of credit trade down from prime and kind of subprime. It's been like Waiting for Godot, right? Wanted to see if you're seeing any additional signs of that, given the fact that inflation's stubbornly high and your credit card fees will I mean, I guess I haven't seen it yet, but some credit card late fees probably to go down, like what are you seeing from that perspective? A: We're not seeing anything yet. I think it was October of 22 that we started to see some trade down as we were kind of coming out of the COVID area. And the prime lenders were starting to tighten up because the consumer was a flush with cash. So we haven't seen much of them much movement since then. But we are anticipating or thinking that with the if the late fee income goes through and they can only charge $8 versus $20 or $30 that what that's going to force them to do is it's going to impact their margins. And what they'll end up doing is a start tightening up to hit those margins so we're kind of cheering for Texas court capacity, quite frankly, because I think that will be good for our business and it will help us see more trade done on our side.
Q: Got it. And then I know we've got this expiration coming up with the with the term loans and obviously with the fact that you're starting to generate significant EBITDA, certainly will help from that perspective, but any updates there in terms of your discussions with your lenders? Anything to report there? A: Hi, Anthony. At this point, you know, this is a important priority for us, but not yet ready to report anything out, so more to come.
Q: Got it. Got it. And then I guess sort of last but not least, I mean, you talked about adding Lowe's. I mean, obviously capital pay, it's looks like it's growing nicely and now it's pretty significant as a percentage of your lease release originations. Anything anything to report there? Just in terms of, you know, some improvements in functionality or any other big account or partners that you that you're thinking about adding to Katapult Pay specifically going forward? I mean, it seems like it seems like that's been a real nice business for you. A: Thanks, Anthony. yes, Katapult Mobile App and Katapult Pay are one of the areas of our business that I'm just so excited about the momentum that we've seen in the adoption. And I think what what this all really boils down to we had this objective of outgrowing our IT and engagement with the customer base. It shows a really high affinity for what we're offering. And in fact, we see that through our NPS scores, our repeat rates, et cetera, and now that we've made it easier to transact and easier to shop, those consumers are rewarding us with more activity in and we're going to continue to listen to them in terms of what types of products and what types of retailers they want to shop at, where are there steps in the process set that are creating friction that we can eliminate and what are those are the things that they're looking for in terms of a partner that will help them with their purchasing power. And so both in the app and with Katapult
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
