Thank you for standing by and welcome to the Katapult Holdings Fourth Quarter and Full-Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Jennifer Kull, Vice President and Head of Investor Relations you may begin.

Welcome to Katapult’s fourth quarter 2024 conference call. On the call with me today are Orlando Zayas, Chief Executive Officer; Nancy Walsh, Chief Financial Officer, and Derek Medlin, President and Chief Growth Officer. For your reference, we have posted materials related to today's call on the investor relations section of the Katapult website, which can be found at ir.katapultholdings.com. Please keep in mind that our remarks today include forward-looking statements related to our financial guidance, our business, and our operating results as noted in the earnings release and slide deck posted to our website for your reference. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, some of which are described in today's earnings release and our most recent Form 10-K and which will be updated in future periodic reports that we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also, during the call, we'll present both GAAP and non-GAAP financial measures. Non-GAAP financial measures should be considered supplemental to and not replacements for or superior to 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. Any comparisons to 2023 financial results are referencing our restated financials included in our Form 10-K for the year ended December 31, 2023, filed with the SEC on April 24, 2024. Finally, all comparisons are year-over-year unless stated otherwise. With that, I will turn the call over to Orlando.

Thank you, Jennifer, and thanks to everyone joining us today. We are excited to give you an update on our Q4 results and our plans for 2025. If we had to land on one headline this quarter, it would be, we finished the year strong. Q4 growth originations grew more than 11% year-over-year, and fourth quarter revenue was up more than 9%. With this strong performance, we have now grown our gross originations consistently for more than two years and we expect our revenue growth track record to hit this two-year milestone after we report Q1 in May. These results showcase the enhancements we've made across the board. From our go-to market strategy to operations, we believe we have executed well and transformed our business model, setting Katapult up for continued success. I could not be more proud of our team here. Their dedication and hard work are the main ingredients in our success. And I'd like to give a big thank you to everyone here at Katapult. Before we dive further into our results, I want to take a quick step back to summarize and review the progress we've made over the past few years. We have transformed our business from single input driven business to a multi-dimensional growth engine in a very short period of time. We believe this is important context as you evaluate where we are today and where we believe we can go over the next year and beyond. If you recall, just two short years ago, we launched our Katapult app, which included a groundbreaking feature we call Katapult Pay or KPay. Up until this launch, nearly 100% of our focus had been on merchant engagement opportunities. Before our app existed, our business model relied completely on merchants to refer consumer traffic to us,…

Thanks Orlando, and good morning to everyone. You just heard Orlando described how we've transformed our business over the past two years. When we launched our app in late 2022, we saw the opportunity to create a growth driver that would allow Katapult to gain more control over its destiny. Since that time, we've been executing against strategic initiatives we believe will support our continued progress. While we've already begun to see our strategy deliver, we believe we are still in the very early stages of a new phase of growth. We now have evidence that we can bring value to merchants and consumers alike, so our focus is on finding opportunities to move faster than we ever had before. So let's start with the progress we're making in our consumer engagement initiative. Within our consumer initiative, our overarching priority is engagement. In support of this, we're expanding our app functionality and footprint as we continue to test and learn with a variety of marketing campaigns. We believe our success in these efforts will allow us to leverage our app marketplace to drive consumer engagement, gross originations, and profitable revenue growth. During the fourth quarter, $46 million in gross originations started in our app. For easy reference going forward, we will refer to this data point as total app originations. Year-over-year, total app originations grew by 32% in Q4. This means that we were our own referral source for approximately 61% of the gross originations we generated in the fourth quarter. And roughly $31 million of our gross originations were transacted using KPay, which was up approximately 52% year-over-year. Going forward, we will continue to refer to this data point as KPay originations. This means that roughly 41% of our originations went through KPay. Both these data points show that…

Thanks, Derek, and hello to everyone joining us this morning. As you have heard, we had a great quarter and we believe we are well positioned to accelerate our momentum. Let's start with a few insights on our top line performance. We have now grown gross originations for nine consecutive quarters. Gross originations grew 11.3% to $75.2 million in the fourth quarter, and on a two-year stack basis, our gross originations grew 25.7%. In addition, if we exclude home furnishings and mattress gross originations from the direct and waterfall channel, Q4 gross originations grew more than 50% year-over-year. For the full-year 2024, total gross originations grew approximately 5%. Q4 gross originations grew faster than our 6% to 8% outlook, and this was driven in large part by an exceptional holiday sales season. We saw growth accelerate throughout the quarter culminating in December growing 24% year-over-year. We are leveraging our technology, underwriting and go-to market know-how to scale our two-sided marketplace and I'm proud of the results we're delivering. We are also successfully diversifying our gross originations footprint. As Derek mentioned, gross originations for our top 25 merchants grew 10% during the quarter and we reduced our merchant concentration. To add further context to our top 25 merchants, our largest merchant, Wayfair, represented 27% of our total gross originations in Q4, down from 43% of our total in Q4, 2023. From a financial model perspective, I am very excited about how accelerated top line growth can positively impact profitability and cash flow. Since we are a two-sided marketplace, we can rapidly grow the top line without having to rapidly grow our expense base. Given where we are in our growth cycle, we are prioritizing those initiatives that can accelerate gross originations, but that do not add meaningfully to our fixed cost…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from a line of Kyle Joseph from Stephens. Your line is open.

Hey, good morning. Thanks very much for taking my questions. Just wanted to dive into the model a little bit. I know you talked about the margin being impacted by growth in the fourth quarter and potentially kind of back weighted growth, but obviously your guidance for 2025 calls for strong growth again. So just want to get a sense for the outlook for the margin. I know you talked about it in the first quarter, year-over-year, but the margin for ‘25 given the outlook for originations growth, would you anticipate that kind of drifting back towards historical levels or given growth, should we anticipate that being a little bit lower than historically?

What we've talked about consistently is that for the full-year gross profit is expected to stay in that 18% to 20% range and that would be consistent in 2025. We do see seasonality obviously in Q1 and then in Q4, Q1 being high and Q4 being low, but that 18% to 20% range still holds for 2025.

Got it. And then just one follow-up from me. You know, given all the headlines on tariffs and everything, obviously, I mean, you're expecting strong growth, and I think you mentioned potential for trade-down effect as you see traditional providers of credit. But have you seen any changes in consumer behavior as a result of all the headlines recently, either a greater demand for credit or a change in purchase activity?

Hey, Kyle, this is Orlando. Yes, I think we haven't seen a direct impact yet to tariffs, and the consumer, you know, when we look at our consumer and how they're behaving, we haven't seen much of a change, and actually the delinquencies are kind of in line with what we expect. You know, when we've looked at this in the past, the thing that really drives our consumer is gas prices and as you know, gas prices are down. So I think that's some of them feel good about it. But you know, we're working closely with our merchants and I'll let Derek talk more about it, working closely with our merchants around how does the tariff affect their pricing and how do we look at that and how do we build that in?

Yes, thanks, Orlando. And Kyle, thanks for the question. Like Orlando mentioned, we really haven't seen any incremental increase in trade-down conversations since mid-2023 when we first saw it. Again, it hasn't been accelerating. It's been fairly stable for us. And like you mentioned, looking across things like tax season and tariffs, you know, just there's been a lot of stability and resiliency in our base. You know, I think when we think about the impact of tariffs, obviously, there could impact prices, which might decrease conversion, but it could also increase gross origination amounts and average order values. So we're just going to be watching very, very closely and understanding where there's opportunity for us to partner with our retailers to deliver meaningful offers that help to stabilize options for the customer.

Got it. Very helpful. Thanks for taking my questions.

Thanks, Kyle.

Thanks.

Thank you.

Your next question comes from a line of Anthony Chukumba from Loop Capital Markets. Your line is open.

Good morning. Thanks for taking my questions as well. I guess my first question was on lease merchandise write-offs. I know it was within your target range, but it was up year-over-year and I guess just wondering what was the driver for that?

You know they fluctuate Anthony that's why we provide the range, so there really was no significant reason for the change, you know, it is a function of the revenue growth as well, but we're very comfortable with where the range stands consistently and also you know, compared to some of our competitors, so very happy with that range.

Got it. Fair enough. So second thing, you know, in terms of your guidance you're assuming 20% revenue growth, but EBITDA essentially doubling. What's the -- so that would imply that your EBITDA margin obviously improves significantly. What's the driver that I mean, is that just, you know, since you're like, you know, corporate overhead leverage or what's sort of driving that?

That is predominantly what we're seeing. You know, we continue to manage our expenses very diligently, but we are focused on growth. So we're making sure that we're investing in the right places to drive that growth technology, marketing things that we've talked about in the past. So that's the main driver, but we're always looking for opportunities to continue to improve the profitability. Very thrilled with our first year of profitability or positive adjusted EBITDA this year and looking to continue to grow that as we get into 2025 and beyond.

Got it. And then maybe this is in your 10-K, but what was the growth in specifically Wayfair originations in the fourth quarter specifically?

Wayfair gross origination growth, we don't typically, I think, give that out, but it was a continued theme of what we had seen throughout the year. You know, the application flow continues to be down. We've signaled that as we've given our guidance. But the business outside of Wayfair continues to be very strong growing at 50%. So as we talked about next year, we're hoping to see that trend improve as we go through the year, but we're remaining very conservative on Wayfair and home furnishing sector in general.

Got it. That's all very helpful. Thank you.

Thank you, Anthony.

Thanks, Anthony.

Your next question comes from a line of Scott Buck from H.C. Wainwright. Your line is open.

Hi, good morning guys. Thanks for taking my questions. I'm curious, does an environment, macro environment where there's more uncertainty, can that actually help accelerate merchant acquisition as they look for every edge possible?

Hi Scott, this is Derek. Listen, I think across the board what we're finding is that merchants are looking for avenues of growth, whether that be helping them in their checkout experience or also bringing new customers to their door. And when things are stressed, certainly I think that, that makes the conversation more relevant and more timely. And what we've done with the app and being able to not only bring our community of users together, but then to distribute them out to merchants has really been resonating. So I think it's kind of the combination of the desire for growth, especially in segments that have been under pressure like home furnishings, but also the fact that we can deliver value that's measurable and specific and targeted for them with very little lift, if any, to help support their business. So yes, I think in general there is some concern of growth opportunities in different retail segments, but even when there's not, if someone can help bring you, you know put traffic and or click traffic that's a really attractive proposition that's really resonating in the marketplace.

Great that's helpful and then I apologize if I missed this, but first quarter seasonality around tax season, has that been consistent with previous years? Or are you seeing any changes there?

No, it was consistent with prior years. We were very pleased with how that contributed to first quarter.

Okay, perfect. And then last one, Nancy for ‘25, anywhere in the OpEx that you need to play catch up? Or expect to see increased investment in 2025?

The only place, as we've talked about, that we really expect to see any increases in SG&A relate to our investments in technology, investments in marketing, which we've talked about quite a bit, those are the two predominant ones. And that's to drive the growth. But we're looking always for places to offset that and to continue to optimize and make our business more efficient from an expense category and making sure all of those expenses have an appropriate ROI.

Okay. And then you brought it up in the comments, but timing around the refinancing of the line, what do we think in there?

You know, other than the prepared remarks, it really we have nothing new to add right now, but as soon as we do we will obviously share it with everyone.

Okay, well I appreciate it guys. Thanks for the time.

Thank you so much.

And that does conclude our question-and-answer session. I will now turn the call back over to Orlando for closing remarks.

Thanks, operator, and thanks to everyone tuning in today. We believe we have a differentiated offering that provides benefits for both consumers and merchants. For consumers, we provide a fair and transparent LTO that allows them to acquire the durable goods they need from merchants they trust. For merchants, we provide a growth partnership that gives them access to non-prime customer, who may not have been able to purchase their goods without our LTO. These benefits are the foundation for the Katapult app marketplace and we believe we are well positioned for continued growth. We look forward to chatting with you and then other investors as the year progresses. Please reach out to Jennifer if you have any questions or feedback. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.