Hello and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time, I would welcome everyone to the Katapult Holdings First Quarter 2025 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] Thank you. I would now like to turn the call over to Jennifer Kull, Head of Investor Relations. Please go ahead.

Welcome to Katapult’s first quarter 2025 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. 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're excited to give you an update on our first quarter financial results and the operating progress we've made towards achieving our 2025 plan. To start, I'll provide you with a little context for our strong Q1 results before turning it over to Derek, who will walk you through a more detailed summary of the quarter. After that, Nancy will provide an update on our financial results. We had another strong quarter that illustrated the momentum we have in the business. Q1 gross originations grew 15.4% year-over-year, beating our outlook for 11% growth. And first quarter revenue came in slightly above our expectation at 10.6%. These great results spring from our successful execution against our marketplace strategy. As we discussed last quarter, following the launch of our app at the end of 2022, we have worked hard to build our two-sided app marketplace. We are a destination where consumers can visit and shop for all of their durable goods needs as well as a growth partner to merchants, opening up new avenues for expansion. In addition to our continued growth, we see other indications that we have built a healthy and thriving ecosystem. On the consumer side, shoppers continue to love the Katapult brand. Our NPS score was 66 as of March 31st, and our repeat customer rate was 57.4%, both up year-over-year. These two positive data points are contributing to our growing lifetime value, which was up nearly 6% in Q1 2025. And as we continue to build our product offering to cover even more of the everyday needs our customers have, we believe we can take LTV even higher. We believe these data points really illustrate that we are doing a good job of delivering the product and…

Thanks Orlando and good morning to everyone. We have great momentum and are very encouraged by the velocity we are generating in our marketplace. We are connecting more customers to more merchants through our marketplace, and they are choosing the Katapult LTO to get the goods they need. This is great for merchants and great for Katapult. So, let me start with a few highlights that demonstrate the progress we're making in our consumer engagement initiative. As we shared with you last quarter, our top marketing priorities include driving application growth and increasing the number of customers who take out a second lease with us. To achieve these goals, over the past few quarters, we've leaned heavily into activities that focus on ROI-positive customer acquisition, and these activities are delivering. We are leveraging our most valuable asset, our app marketplace to support these efforts and complementing this with highly targeted marketing using other channels such as Google and Facebook. This hard work helped us grow applications by approximately 59% and our total lease count by approximately 22%, which included more than 60% growth in cross-shopping activity during the quarter. This means that the number of customers with more than one active lease as of the end of Q1 2025 grew nearly 60% year-over-year. And the percentage of customers with more than one active lease during the first quarter increased to more than 28% of our customer base from just under 27% in the first quarter of last year. KPay activity continues to fuel a lot of our growth, and we are incredibly excited about its potential. As Orlando mentioned, KPay originations grew 57% during Q1, which represented 35% of total gross originations, up from about 26% of our total originations in Q1 of 2024. As a reminder, KPay and related…

Thanks Derek and hello to everyone joining us this morning. We are excited about the year ahead and believe we are well-positioned to deliver on our full year goals. Let's start with a few insights on our top line performance. We have now grown gross originations for 10 consecutive quarters. Gross originations grew 15.4% to $64.2 million in the first quarter. And on a two-year stack basis, our gross originations grew 17.3%. In addition, if we exclude home furnishings and mattress gross originations, Q1 gross originations grew 51% year-over-year. Our gross originations growth came in above our outlook and was driven by a strong second half in March. As Derek mentioned, gross originations for our top 25 merchants grew 13% during the quarter despite the fact that our largest merchant, Wayfair, continues to face category challenges. On the revenue front, we also had another great quarter. We delivered $71.9 million or 10.6% growth in Q1, which was slightly above our outlook and marked the eighth consecutive quarter of year-over-year growth. This growth reflects continued strong collection trends. Gross profit for Q1 was approximately $14.3 million and gross margin was 19.9%. This compares with gross profit of $16.5 million last year. As we mentioned in the outlook we provided last quarter, based on our strong Q4 gross originations growth, we expected to have higher lease depreciation costs in this quarter, which would impact gross profit. Because our lease depreciation is front-loaded in times of rapid gross originations growth, such as what we achieved in December 2024, depreciation costs will have a disproportionate impact on gross profit in the quarter. This dynamic played out once again in Q1 2025, given the gross origination strength we saw in the last two weeks of the quarter. Finally, for comparison purposes, during the first quarter…

[Operator Instructions] Your first question comes from Anthony Chukumba with Loop Capital Markets. Please go ahead.

Good morning. Thank you for taking my questions. So I'm just trying to kind of work through the math here. As I look at last year, you did a little over 100% of your full year EBITDA in the first quarter. This year, based off of what you just reported and your guidance, that would assume that you only generated about, call it, 20% or so in the first quarter, and you're saying you're going to be breakeven. So, essentially, what it implies that you're going to generate $8 million of EBITDA in the second half of the year. And I'm just trying to figure out how we get there, particularly given the fact that on an adjusted basis, you were essentially breakeven in terms of EBITDA in the second half of last year?

Thank you, Anthony, for that question. We've talked about adjusted EBITDA in the past. And what happened in 2024, we had much slower growth in the first and the second half until we got to the tail end of Q4 of last year. This year, we are seeing much faster growth in the first quarter. We're providing an outlook that we're going to see strong growth in the second quarter, and we have seasonality in Q4. And with that growth, we are anticipating that despite being breakeven in Q2, we are still going to be able to make that EBITDA total for $10 million. And yes, we understand that backloads that a little bit. We also mentioned in Q4 that last year's gross profit was exceptionally high, and that was kind of an unusual occurrence. What we're seeing now is more what we would expect in line with our performance.

Got it. Okay. And then you mentioned that your top -- you had a few different stats. I mean I appreciate all the color, but you mentioned your top 25 merchants, growth was 13%, but it sounds like Wayfair continue to be challenged. And I think you typically include this in the Q, but what was the gross originations growth or decline for Wayfair specifically?

We did continue to see a challenge with not only Wayfair, but all of the home furnishings and mattress category. And so for Wayfair, we are calling out about $17 million of gross originations, and that excludes what goes through our own marketplace. So, this is just the direct waterfall component.

Okay. So, just to be clear, so you had $17 million of originations from Wayfair in the first quarter through the waterfall?

$17.2 million, correct.

Okay. Got it. Okay. And then I just wanted to understand, I mean, obviously, the credit facility maturity is coming up pretty quickly here. So, at this point, and I know there's somewhat limited in terms of what you can say, but -- so we're looking to -- for an extension as opposed to refinancing it or just getting some, I guess, some new banks in there?

I won't comment on the second piece of this. As we said in my prepared comments, we're negotiating with our existing lender, and it's going to be a comprehensive -- we're calling it a comprehensive maturity extension amendment. But we are, at the same time, adjusting our covenants and our advance rates, and that's all to align with the company's business plan.

Got it. Okay, those were all my questions. Thank you.

Thank you, Anthony.

Your next question comes from Scott Buck with H.C. Wainwright. Please go ahead.

Hey good morning guys. Thanks for taking my questions. I'm curious, all the momentum you're seeing in KPay, what do you attribute to greenfield opportunities versus taking share versus potentially cannibalizing other pieces of your business?

Hi Scott, this is Derek. Thanks for the question. Really, I think what we're seeing here is the greenfield opportunity that there is in this space. The TAM for this marketplace is so large. And when we think about the ways that we're growing, it's really across all of our channels, everything from adding new merchant pathways and new merchants that are bringing us consumers that can shop through with that partner, our direct acquisition activities like we mentioned, and then getting increased share of wallet with our customers and our existing customers. And so what the app does is just facilitates these transactions so much more simply and allows us to control more of the customer experience to make it easy, clear and transparent for these customers to find the things that they're looking for. And so it's really the culmination of all these things together that are working in tandem. And what I'm really excited about is seeing the response and the reaction of our customers as they engage further. And just like I mentioned on the prepared statements, we talked about getting greater share of wallet and getting multiple transactions. That's really, for me, a big validation point that we've really hit the nail on the head in terms of what the opportunities are here, providing lease limits that are over and above what a customer needs, allowing them to come back, find different high-quality goods from high-quality retailers and then having those retailers lean into it and market on our behalf has been a fantastic combination where everybody is really winning here.

Great. That's helpful, Derek. And then a bit of a follow-up there. Do you see any difference in the percentage of repeat customers coming through KPay versus other parts of the business?

Great question. So, in general, we see a higher overall LTV from the KPay users and from app users. These are consumers that just given the exposure of the different deals, offers and transactions, we just see a much more rapid and frequent repeat cycle. And that's really exciting to us because it allows us to give our retail partners more exposure to this customer base. And what's also just, I think, important to realize is that the performance has been really, really strong in this segment. And so what we see in terms of the pay-through and the yield continues to be aligned with our objectives for the year, and we're going to keep pushing it.

Great. And then last one--

If I can add -- sorry, Scott, it's Orlando. How are you?

Yes, good Orlando.

I just wanted to add one more comment to Derek. You asked about the repeat rate versus KPay versus regular coming in from merchants. I think what's interesting and what we've discovered over the last several years with KPay is that if you came in through a wheel retailer and you bought four wheels for your car, you're only going to buy four wheels for your car so often. And so what KPay opened that door was to be able to go to Wayfair and buy a sofa or go to Best Buy and buy a TV. And so I think the repeat rate has been driven mostly by KPay. We had a pretty decent repeat rate, especially at larger retailers like Wayfair before KPay, but KPay just really took that into the stratosphere.

Great. That makes a lot of sense. And then last one, gross originations were up 15-plus percent in the quarter. The full year expectation is 20-plus. Could you give us an indication of what the second quarter has looked like so far? And maybe what some of those drivers are in the back half of the year to put you over 20%?

So, I'll start with the numbers. What I had said in my prepared comments is based on year-to-date -- quarter-to-date, what we've seen thus far, we were providing that 20% gross origination growth for Q2. So, we're halfway through the quarter.

Okay. And you're tracking at 20% in the second quarter.

25% to 30%, I'm sorry.

Okay. And you expect these trends to continue through the back half of the year as well, and that pushes the total over 20%.

We have--

Our fourth quarter is always really strong.

But we've given full year -- we're not giving Q3 and Q4 at this point. So, just full year and Q2.

No, just full year. Right. Okay, guys. That’s all I had. I appreciate the added color.

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

Thanks to everyone for joining us today. We're really proud of our progress, and we believe we have set the stage for future success. Our entire team is laser-focused on pushing Katapult to reach its goals, and I'm incredibly grateful for their hard work and dedication. Because of their efforts, we are able to offer the best-in-class LTO product to our consumers and a growth engine to our merchants. Given our growth expectations for the rest of the year, we believe we're well positioned to create value for all of our stakeholders, including our shareholders, and we appreciate your support. We look forward to chatting with our investors as the year progresses. Please reach out to Jennifer with any questions or feedback. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.