Ladies and gentlemen good morning, and welcome to the Katapult Holdings Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Jennifer Kull, Head of Investor Relations at Katapult Holdings. Please go ahead.

Welcome to Katapult's second quarter 2023 conference call. On today's call are Orlando Zayas, Chief Executive Officer; Nancy Walsh, Chief Financial Officer; and Derek Medlin, Chief Operating Officer. For your reference we've posted materials from today's call on the Investor Relations section of the Katapult's website which can be found at ir.katapultholdings.com. I'd like to remind everyone that this call will contain forward-looking statements based on our current assumptions, expectations, and believe regarding our future financial performance results, which are all subject to significant risks and uncertainties. These forward-looking statements should be considered in conjunction with cautionary statements contained in the earnings release and on Form 10-Q for the quarter ended June 30, 2023, as well as the subsequent periodic and current reports the company filed with the SEC. These statements reflect management's current beliefs, assumptions, and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements. The information contained in this call is accurate only as of the date discussed. Except as required by law, the company undertakes no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise. During today's discussion, the company will provide certain financial information that constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is included with today's earnings release and is available on the Investor Relations section of the company's website. With that, I will now turn the call over to Orlando.

Thank you, Jennifer and welcome to Katapult. We're happy to have you here to lead our investor relations program and I know you're looking forward to getting to know our shareholders. Thanks also to everyone joining us today. We're excited to share our progress and hear your feedback, so I'll jump right in. During the second quarter, our team works hard and continue to lay the foundation for profitable growth. This focus coupled with ongoing demand for lease to own products for underserved non-prime consumers who are often left behind by traditional financing options led to another quarter of strong financial and operating results. In short, we had another good quarter. Year-over-year gross originations were up 18% to $54.7 million, and revenue grew 2.9% to $54.6 million. It's worth noting that gross originations have grown year-over-year for three consecutive quarters, and we are grateful for our team's hard work that is allowing us to deliver these strong results. With the strength of our top-line results and lower fixed cash operating expenses of $9.6 million are adjusted to EBITDA improved to a loss of $280,000. As I've mentioned before, more than 30% of American consumers do not have access to traditional financing options. Remarkably, approximately 37% of the adult U.S. population would not be able to cover a $400 emergency expense analysis and based on recent reports, we believe this number will continue to grow. With these dynamics, Katapult continues to have a compelling opportunity to put our innovative needs to own platform to work for these consumers. Our mission here at Katapult is to help this underserved community gain access to the durable goods they need when they need them, while simultaneously helping our merchant partners expand their reach to this growing base of engaged and loyal customers. It's a…

Thank you, Orlando. I'm excited to talk to you today about our strong second quarter results, which exceeded our outlook, and to provide you with an update on the third quarter. As Orlando has outlined for you, our operating priorities are centered around executing against our three pillars, which we believe will drive revenue growth and sustained profitability. With that, let me provide you with some of the financial highlights of the second quarter of 2023. Gross originations increased 18% year-over-year to $54.7 million. Increased originations were driven by strong performance through our direct merchants and mobile app channels, as well as the continued expansion of merchants on our mobile app marketplace, featuring Katapult Pay. Katapult's portfolio of direct merchants provides a funnel of new customers to drive gross origination at minimal customer acquisition costs. As a reminder, gross origination trends are a leading indicator of future revenue stream. A percentage of revenue is realized in the quarter in which the gross origination occurs and increases cumulatively over the next four quarters. During the quarter, approximately 51% of our originations came from existing customers. This is up from 47% in Q1 and demonstrates continued strong engagement through our mobile app. We are also seeing that customers who engage with our Katapult Pay feature tend to be higher-quality customers. They repeat purchase faster, tend to across shop -- across merchants and categories more frequently, and ultimately, we expect them to have a higher lifetime value. While we are still in early days since Katapult Pay was just launched late last year, we are very excited about its potential with both consumers and merchants. Revenue increased 2.9% year over year to $54.6 million and reflects the trends driving gross originations that I just mentioned, as well as the strong volume performance we…

[Operator Instructions]. Our first question comes from the line of Josh Siegler with Cantor Fitzgerald. Please go ahead.

Hi, good morning. Thanks for taking my question today. First of all, I'd like to talk about Wayfair. So, in the quarter, Wayfair represented 56% of gross originations which was the highest percentage since 2Q '22. Now as you expand Katapult Pay, do you expect further diversification away from Wayfair as we head in the 2024?

Hi, Josh, it's Orlando. Yes, we do, I mean, Wayfair had a good quarter, good half of the year, quite frankly, where they had their way day. And we've improved the partnership with them, we're driving more, repeat business back to them, they're on our app on Katapult Pay as well. So, we're real pleased that they continue to be a good part of our business. But yes, we believe that Katapult Pay and some of the other. Retailers that we added will start diversifying the portfolio more.

Great. Thanks, Orlando appreciate that. And then you guys were just talking about how your EBITDA guide implies further reduction in cash OpEx. I was wondering if you could elaborate a little more on the leverage in this business and your ability to maintain these lower OpEx levels in the future. Thanks.

Hi, this is Nancy. Thanks for the question, Josh. It really comes down to optimizing our efficiencies and productivity. So, I don't think of it as just cutting costs and then at some point in the future, we're going to have to build them back up again. As you remember, 2022 was an investment year that we've seen tremendous return on those investments that we made in terms of our app and Katapult Pay. This year we've continued to focus on optimizing the expenses which will be sustainable going forward.

Got it. Thank you, very much.

Our next question comes line of Vincent Caintic with Stephens. Please go ahead.

First question's, sort of the industry competitive landscape. I think it's impressive that, you've grown this quarter and are calling for growth in the third quarter, when the other leased owned, players in the industry are still shrinking year-over-year. I was wondering if you were able to compare and contrast sort of what's driving Katapult's growth and double-digit year-over-year growth versus maybe what we're seeing in the industry. That’s very helpful. Thank you.

When we look at our business versus our competitors, it really is about the efficiency of e-commerce. And I think that the merchants on e-commerce didn't suffer for some of the store traffic that I think they all represented that store traffic was down across the board. And then if you add to that working better with our merchants, Wayfair for example, streamlined the number of players they have in their waterfall flow. We also continue to work with them to drive improved business like I just mentioned with Josh. And then Katapult Pay obviously and adding some direct, we added cash flow, which was a competitive win. And the retailers that we're talking to, like the fact that the ease of use, the transparency, the way we treat our customers kind of matches their values and that's how we win and that's how we won Casper. And then if you look at Katapult Pay, you can get about any durable good that you can imagine. So, we're, I think in the early days on that one with getting our current customers to go back shop at multiple retailers including Amazon, and they can find stuff that maybe we didn't have a merchant before. So, we're pretty excited about that. And I think the next step is to really start growing our other partnerships where we can drive more customers in, not just from a merchant perspective, but maybe a related industry where we can do that.

Okay, thank you. And then I guess as part of, so you see a lot of waterfall data. Are you seeing, I guess maybe not competitors, but like those who provide credit maybe at the higher levels tightening a bit. I'm just sort of wondering if that, if there might be any volume opportunities from that.

I actually mentioned that I think after our first quarter call that we started to see tightening back in October. And because we are pretty much 95% waterfall. We can see that almost directly when it starts to happen. And it seems like it's leveled out. It doesn't seem to be going deeper. I think the tightening has happened and we're just taking advantage of that and that's helping obviously drive our growth, because we're seeing some better customers. But I don't see it tightening much more.

Okay. And last one from me. So, with the growth you're generating and over $50 million GMV and growing from here. Just kind of looking at your balance sheet, looking at under $40 million of cash and thinking about kind of your balance sheet position, anything that you need to do there to kind of fund your growth? Thank you.

We are well positioned between the cash that we have on the balance sheet as well as the revolving letter of, revolving credit facility that we have to sustain our growth going forward. We have options to accordion that facility and we just very comfortable with the liquidity position and that can continue to foster the growth that we have.

Okay. That’s great. Perfect, thanks very much.

And there are no further questions. I would now hand the conference over to all Orlando Zayas for his closing comments.

Thank you and thanks so much for following our progress. We're very excited not only by our results and the opportunities but also by the positive impact that our business success can create for people in the United States. Many of us can't imagine not having access to credit to pay for durable goods that most of us take for granted. We're proud of the work to change this landscape and grateful that you as our shareholders are on this journey with us. I look forward to updating you in the next quarter as on our continued progress. Thank you very much.

Thank you. The conference of Katapult Holdings has now concluded. Thank you for your participation. You may now disconnect your lines.