Good day and thank you for standing by. Welcome to the Katapult Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Wright, Vice President, Investor Relations. Please go ahead.

Thank you and good morning. Welcome to the Katapult’s fourth quarter and full year 2021 earnings results and investor update conference call. With me today are Orlando Zayas, Chief Executive Officer; Karissa Cupito, Chief Financial Officer; and Derek Medlin, Chief Operating Officer. We issued our earnings release and corresponding investor presentation this morning and we will be referencing these during the call. Both can be found on the Investor Relations section of our website. We will be available for Q&A following today’s prepared remarks. Before we begin, I would like to remind everyone this call will contain forward-looking statements regarding future events and our financial performance, including statements regarding our market opportunity, the impact of our growth initiatives and our future financial performance. These should be considered in conjunction with cautionary statements contained in our earnings release and the company’s most recent periodic SEC reports, including our Form 10-K for the year ended December 31, 2021. 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. Except as required by law, we undertake 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 of our financial performance, we will provide certain information that constitutes non-GAAP financial measures under SEC rules. These include measures such as adjusted EBITDA and adjusted net income. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. Reconciliations to GAAP measures and certain additional information are also included in today’s earnings release, which is available on the Investor Relations section of our website. This call is being recorded and a webcast will be available for replay on the Investor Relations section of our website. I will now turn the call over to Orlando.

Thanks, Bill. Good morning, everyone and thank you for joining us. On today’s call, we will review our fourth quarter and full year results for 2021. In addition, we are going to provide a deeper dive regarding what we are seeing in the current macro environment as well as provide an update on our growth strategy. We realized many of you are new or potential investors to Katapult. So, we would like to begin today with a brief overview of what Katapult is all about starting on Slide 6. We are a company that first and foremost is focused on bringing financial inclusion to underserved non-prime consumers. At Katapult, we provide an attractive solution for these non-prime consumers to access the essential products they need for everyday living. Our highly scalable proprietary technology enables us to provide both merchants and consumers with a clear transparent lease purchase solution that facilitates transactions directly at the online checkout or point-of-sale. Slide 7 details some of the key attributes about Katapult’s leading e-commerce lease-to-own platform. We believe that our focus on non-prime consumers positions us to capture significant share of the large virtual lease-to-own market. Our proprietary technology platform along with our sophisticated risk and decision modeling is designed to enable us to deliver value-added solutions to our merchants and consumers. We have a robust suite of merchant solutions across a variety of integrated point-of-sale options that is designed to enable merchants to efficiently promote and sell incremental inventory. We believe Katapult’s seamless customer experience wins repeat customer business due to our simple application process, flexible and transparent payment options, and innovative lease financing solutions. Turning to Slide 9, as you can see from these highlights, our team continues to navigate the difficult macro environment for both our merchants and consumers. As we…

Thank you, Orlando. As detailed on Slide 10, Q4 largely played out in line with our quarter-to-date update, which is released on December 1 after Cyber 5. Total revenue for the fourth quarter of 2021 was $73.3 million, which was flat year-over-year. Gross originations were down slightly year-over-year as our retailers continue to face supply chain challenges, shifts in consumer spending habits, and with stimulus dollars exhausted, our consumers slowed down major purchases. Gross profit was down $1.2 million year-over-year due to lower lease margins driven in part by customer pricing offers and promotions that we offer throughout the holiday season as well as credit normalization to higher pre-pandemic levels. Our net income for fourth quarter was $7.5 million compared to $3.9 million and adjusted EBITDA for the fourth quarter of 2021 decreased by $10.3 million as we continue to invest for growth and incurred ongoing public company cost. Turning to Slide 11, overall operating expenses were up $7.8 million year-over-year. This operating expense growth is largely due to three factors: one, increased bad debt expense due to continued credit normalization, I will discuss the treatment of bad debt expense going forward on Slide 15; two, higher compensation costs from the addition of 36 full-time employees during the year as part of our strategic growth plan; and three, increased general and administrative expenses related to public company costs and higher marketing spend. Full year financial results are presented on Slide 12. Gross originations increased 5% to $248 million in the face of a challenging macro backdrop during ‘21. Total revenue for the full year 2021 was $303.1 million, up 23% year-over-year. Net income was modestly lower at $21.2 million in 2020 and adjusted EBITDA for 2021 decreased to $17.3 million, which reflects the addition of new full-time employees throughout the…

Slide 16 details the strategic investments we made in 2021 that positioned us to capture the large growth opportunity ahead. In sales and marketing, we expanded the total sales and marketing team from 21 to 46 full-time employees, all focused on capturing and onboarding new merchants. We also partnered with our merchants on co-promotion and messaging leading to insightful learnings on what marketing tactics we believe work best to attract new customers and improve lifetime value. In addition, we expanded digital marketing efforts in customer acquisition channels. In product, we hired and onboarded additional strategic product roles, which are intended to allow us to launch our innovative enhancements and capabilities at a faster pace. We also built and deployed dynamic testing environment for real-time conversion flow and individualized offers. This powerful tool is designed to be instrumental in maximizing our conversion rates and we believe it’s a competitive differentiator for how we go to market. In addition, our team developed proof-of-concepts for next generation lease-to-own capabilities, which we anticipate launching in 2022. We also hired key roles at the management level in technology, data science and analytics. We continue to integrate with more e-commerce platforms and point-of-sale systems that will drive future volume. We also made a sizable investment in infrastructure and security to ensure we can scale effectively. All these investments which we characterize as core investments have created a solid foundation, which we believe will enable us to accelerate growth in the future. I would now like to step back and provide an overall investor update beginning with market overview on Slide 18. We play in a virtual lease-to-own market estimated to be approximately $40 billion to $50 billion. We believe we have captured less than 1% of this addressable market, so our opportunity is vast. As you can see on Slide 19, we believe we have a competitive advantage that differentiates us from our peers. We are the only e-commerce LTO company that is focused solely on serving non-prime consumers. We view the prime focused lenders not as competition, but as partners. Our product serves the different type of consumer from the prime lenders given it as a lease not alone and has different requirements, regulations and benefits. Given these differences, prime lenders look to us as a solution and strategic partner for this particular segment of the durable goods e-commerce market. We are also differentiated by our focus on e-commerce as other lease-to-own businesses that serve non-prime consumers are largely based in brick-and-mortar stores. As a result, we believe we are well-positioned to capture a significant share of the addressable market as we focus on our strategic growth plans. I will now turn it over to Derek to discuss our business in more detail.

Thank you, Orlando. On Slide 21, you can see that Katapult provides value to merchants through our proprietary and differentiated technology and highly predictive risk model, which is designed to give merchants the opportunity to access a large segment of underserved to non-prime consumers. We believe that many of the lease sales enabled by Katapult are incremental to our merchants as this segment of consumers would have otherwise been declined by traditional financing options. Our simple and straightforward application process and strong customer service focus is designed to lead to high conversion rates and more repeat transactions. Our proprietary tech solution is entirely merchant-focused, designed for quick and efficient integration of our platform, using a variety of options, including platform, direct, and waterfall. Each of these options is intended to provide a seamless experience for our merchant partners and position them to increase their sales capture. Let me touch upon a few examples and success stories over the next few slides. Slides 22 provides detail on our platform and direct integration options. Our platform integration allows Katapult to create a payment solution in the form of a plug-in or extension for a merchant. This provides a streamlined experience for the merchant since no development is required. We are integrated with e-commerce platforms like Magento and Shopify. If a merchant is on this platform where we are integrated, it can be as quick as 30 minutes to complete integration and be a payment option in a shopping cart. We also offer direct custom integrations via APIs. This provides merchants the flexibility to integrate with Katapult if they utilize a proprietary shopping platform. We are also partnered with select prime lenders to offer waterfall integration. A waterfall is where the consumers declined application will flow from the prime lender to others automatically,…

Thanks, Derek. Turning to Slide 27, I’d like to share with you our vision for the future of Katapult. We are well-positioned for the growth opportunities ahead of us as a result of our available cash and strategic investments that we made in 2021. While the macro environment is challenging today, the elements for success in our category remain the same and in 2022, we are deliberately continuing to pursue growth initiatives that we believe will set us up for success over many years to come. Based on our experience in this industry, we anticipate the current macro backdrop conditions will have the potential to increase the number of consumers who need our product and expand the number of merchants looking to capture incremental sales. As a result, our belief is that companies who make investments today are going to be in the best position to take advantage of these long-term secular trends. We anticipate that the investments outlined on this slide will best position us to capture market share and grow our company. We have recognized that we have only scratched the surface of this $40 billion to $50 billion virtual LTO market that the opportunity ahead of us is significant. For the past year, we have invested to build a solid core foundation for growth. With that in place, we can now look ahead at the near and medium term initiatives that we have laid out on this slide. In the expansion category, we are focused on hiring strategic leadership talent that can drive execution. In addition, we are laser focused on upgrading sales and marketing processes and output, while at the same time building capabilities across our product, tech and data functions. Our goal for these investments is to pave the way for our optimized category. In…

[Operator Instructions] Our first question comes from Josh Siegler with Cantor Fitzgerald. Your line is open.

Yes. Hi. Good morning. Thanks for taking my question. I was wondering if you could start by providing a little more color on the build out. Typically, do expect your initiatives materially contribute to your revenue growth in 2022?

Hi Josh. Thanks for asking the question. Yes, this is Orlando. We have been very aggressive in hiring the team. I think we have gone from 21 to 47. There is a fourth – sorry, got the number wrong. They are in the process of getting on-boarded. We also hired a new VP of Sales, Marino Ruiz who came from ShopKeep. And he is doing a great job on kind of the data analytics around sales, lead generation. And we are starting to see the fruits of that labor. We also see from a sales – and then we also hired a Chief Marketing Officer, who has experience in BNPL and merchant financing. And she is doing some really interesting things around how to drive the leads that are appropriate for our business, and get them through the sales funnel as quick as possible. I think all these things are starting to come together with the new adds that we have, plus the new headcount that we had. So, we are starting to see the merchant count tick up. But the lead generation is definitely on track, so I believe have a successful second half of the year.

Excellent. That’s very helpful. And then, as you mentioned, you are on-boarding more than 100 new merchants this year, do your new customers typically generate a material contribution immediately, or is there a significant ramp period that can provide a tailwind heading into 2022? Thank you.

Hi, Josh, this is Derek, I will take that question. We see a variety of different ramp times depending on the size and the experience with financing by different retailers. So, the answer is that it depends. However, our team has been working closely again with the new resources that we brought onboard and the new tool kits to ramp those new merchants much more quickly. And typically, we will see anywhere between three months to six months to see the full cycle come through as retailers get the merchandising established, and their consumer base gets – becomes more aware that this option is available. So, we do expect to see some pull through from those 100 retailers this year and then as we continue to add more as just continues to grow.

And Josh, this is Orlando. If I can add when we onboard a merchant, usually it’s through either a waterfall or possibly a direct channel, it depends on where they come to us. And usually that’s one or the two of the first integration. And then if they have stores, that would be the third. So, the way we look at it is we want to get the integration done as quick as possible. Usually, the waterfall integration comes first, then the direct integration into the shopping carts were an option, their shopping cart maybe on their finance page. And then finally, if they have any storefronts, we have the capacity to do the storefront. So, that’s where you see the volume increasing over time as we integrate those three different channels.

Great. Thank you very much.

Thanks.

Thank you. Our next question comes from Anthony Chukumba with Loop Capital Markets. Your line is open.

Good morning. Thank you so much for taking my question. I guess my question is on the quarter-to-date lease originations, might be a bit tough to parse this out. But how much of that do you think is due to some of those macro trends that you identified as opposed to decisions you have made in terms of tightening your credit? How should we think about that?

Hi, Anthony, this is Karissa, great question. So, when we look at it, it’s the macro impact that we are seeing at our largest retailers are affecting their sales, so, our top funnel that’s coming in terms of application in the teen. So, you could parse it out that that’s really a macro impact that our merchants are challenged with right now. And then remainder of that 25% would be us proactively tightening and being conservative in our approval rates because of the macro condition in terms of the credit.

Another important thing, Anthony, for you to be reminded of is that year-over-year we are coming off stimulus that occurred right after the first of the year and so just the comps are a little bit different year-over-year. However, we are seeing kind of a turnaround of that thing equalizing the tax.

Got it. That’s helpful. And then just wonder if you would give any update in terms of your largest retail partner, Wayfair. And how you are doing there, I mean it looks like, your lease originations sort of outperformed in the fourth quarter relative to their – to their U.S. revenue growth, but I don’t think that they are sales going to be down 25% or anything close to that in the first quarter. So, I am just wondering if you can give us an update in terms of how things are going there. Thank you.

Thanks Anthony. We don’t comment specifically. We know that they called out to us on their call the other day, and we really appreciate the partnership that we have with them. And they have got a great business over there. And so our teams continue to lean in together and find optimal ways to help continue to grow their business and ours and deliver a great experience for our mutual customers. And so they continue to be good. And we are optimistic on the secular shift that continues to have an e-commerce and we think we are positioned to continue to gain share and grow with alongside them.

Fair enough. Thanks.

Thanks, Anthony.

Thank you. And we have a question from Ramsey El-Assal with Barclays. Your line is open.

Hi, this is Ben on for Ramsey. Thanks so much for taking the question. I wanted to kind of follow-up on the quarter-to-date results. And I understand there is sort of a lot of macro impacts that are difficult to forecast as well as challenging comps. But – so understanding why perhaps you didn’t guide for the full year I’ll ask anyway. And maybe I’ll ask this way, is there any way you can give us a sense of what you think the seasonality might look like? Because 1Q ‘22 look like a – normal 1Q ‘22 in terms of like the percentage, the distribution of originations, any color like that would be very helpful?

Yes, thanks, Ramsey. This is Karissa again. For Q1 last year obviously was our toughest comp, because there was abnormal seasonality with the two stimulus payments, one in January and one in March. So we are hoping, but obviously, the macro conditions remain very dynamic. So, it’s hard to provide near-term guidance. It’s really challenging. But we are hoping we go back to a more normalized calendar by the end of the year, which ultimately Q4 would – historically has been our highest origination volume quarter when the world is normal and the holiday season is strong. So, we would anticipate that returning, but obviously, everything remains very dynamic at this point in the macro environment. So that’s why we are not providing any near-term guidance.

Sure. Very understandable. And then just one follow-up on the sort of the new merchants in Q4 and perhaps the initiatives you’ve got with some of the new hires, is there any color you can share around either the pipeline or some characteristics around the new merchants? Is it SMBs, enterprise, anything like that?

Yes, Ramsey. This is Orlando. Thanks for the question. So what we are seeing this year compared to mid-last year let’s just say is that the retailers have gone past the BNPL shine that we had last year or the excitement around BNPL. I think we are seeing a lot of mergers and acquisitions happening on the BNPL side. I think they have penetrated many of the retailers by now. And so we are starting to see a shift in retailer saying, okay, I have done the BNPL, now, what’s the next step. And our pipeline has been building pretty nicely. Now, it’s a matter of just executing those leads into deals and getting them integrated as quick as possible. So – and then, with the addition of the added sales team, we are getting a lot more coverage out there reaching out to these retailers. But I guess compared to last year, the one way I would describe it is they are answering the phone now, where last year there was like, talk to me later. So, it gives me great hope in the year that we will be able to execute the plans and getting these retailers integrated as quick as possible and starting to produce.

Okay, great. Thanks for taking my questions.

Thank you. We have a question from Hal Goetsch with Loop Capital. Your line is open.

Hi, there. With so many more retailers onboard and more to come and then job market being materially better than it was in 2020 – in early 2021. You would think there is more people coming into your funnel or more qualifiable people than before? And so with that being said like, are your applications still growing and you are not improving as many or what is your outlook for kind of application growth with more stores and probably more qualifiable borrowers because of improving job market? Thank you.

Yes, I think there is a few answers there. One, obviously, short-term, near-term with just the macro challenges going on that our merchants are facing to applications like we mentioned, especially with the year-to-date or through February numbers to give you the application funnel has shrunk a little. But ultimately, the long-term viability of this business and some of the secular trends and countercyclicality that we would face especially if credit markets continue, we anticipate that prime will have to tighten and respond to increase delinquencies, which would widen that funnel for us. And then in terms of our sales pipeline and incremental merchants, yes, as we onboard more merchants that obviously creates more application flow. So, I think it’s a function of will continue to execute on our side from a merchant onboarding, which will increase applications coming to us, but then also there could be a tailwind as prime /tightens above us and then more decline from the prime come to us in the form of applications.

Thank you.

Thank you. And there are no other questions in the queue. This concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.