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

Welcome to Katapult's Second 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-Q 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 the 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 welcome to everyone joining us this morning. We had a terrific second quarter across the board, and we're excited to dive into the details of this progress. I'll start with a brief overview of our results and then turn it over to Derek, who will walk you through a more detailed summary of our operating momentum. Nancy will then provide you an update on our strong financial results, discuss the highlights of the debt refinancing, which we completed in June and provide you with an outlook for Q3. We'll then open it up for your questions. During the second quarter, we exceeded our expectations for gross originations, revenue and adjusted EBITDA. Q2 gross originations grew 30.4% year-over-year, beating our outlook for 25% to 30% growth. Second quarter revenue grew 22.1% also exceeding our outlook for 17% to 20% growth. And while we anticipated delivering about breakeven adjusted EBITDA, we reported slightly more than $300,000 in positive adjusted EBITDA. These strong results coupled with our Q1 success have led to an incredible first half performance. Year-to-date, we have grown gross originations by nearly 23% and revenue by approximately 16%, putting us on track to exceed our original gross originations outlook despite tough comps in the second half of the year. Our exciting vision of building a successful 2-sided marketplace shopping destination for lease-to-own consumers has become a reality. Perhaps this is best illustrated by our continued growth we're seeing in both total app originations and KPay originations. During Q2, total app originations, which are originations that started in our app and may be consummated elsewhere, grew 56% to $43.1 million. This means that approximately 60% of our gross originations started in our app marketplace. KPay originations, which are a subset of total app originations were $28.3 million,…

Thanks, Orlando, and good morning to everyone. We're so excited about the progress we've made year-to-date and about the value we're creating for both our customers and merchants. So let's begin with the progress we're making against our consumer engagement initiative. As we have discussed previously, 1 of our most important goals for 2025 is driving top-of-the-funnel activity. In this quarter, we made significant progress on this front. Total Katapult applications, which includes those incoming from direct, waterfall, our app marketplace and KPay, increased more than 91% year-over-year. This is the fourth consecutive quarter of accelerating growth and we are so excited about the success that we're seeing here, not only because we believe we can continue to leverage conversion strategies to drive sustainable gross originations growth, but we also see this as a way to build a bigger pool of consumers who are familiar with the Katapult brand which is a vital input to our ability to deliver incremental sales and growth to our merchants and our partners. As Orlando mentioned, we grew our unique new customer count by about 40% in Q2. This led to overall customer base growth of approximately 32%, demonstrating how we are monetizing this top-of-the-funnel activity. We are also closely monitoring other global business performance indicators that we believe will be drivers of lifetime value. Two of those indicators are customers with multiple leases and cross shopping. During Q2, the number of customers who had more than 1 current lease was up more than 16%, and this cohort of customers grew to approximately 29% of our total lease portfolio, up about 1 percentage point year-over-year. Likewise, cross-shopping activity, where a customer has 2 or more current leases, and these leases are with 2 or more different retailers also increased year-over-year. If we look at…

Thanks, Derek, and hello to everyone joining us this morning. I would echo Derek's sentiments about our strong year-to-date performance, which positions us 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 11 consecutive quarters. Gross originations grew 30.4% to $72.1 million, which was slightly above the top end of our outlook range. In addition, if we exclude home furnishings and mattress gross originations, Q2 gross originations grew 62% year-over-year. And as Derek mentioned, we are making significant progress on our top-of-the-funnel activity, which bodes well for future growth. Excluding home furnishings, applications for our total business grew 158% and our total approved applications in dollars grew by nearly 130%. As we continue to refine and improve our conversion funnel, we believe we have all the ingredients to sustain and accelerate top line growth. As Derek also noted, gross originations for our top 25 merchants grew 28% during the quarter, despite the fact that our largest merchant Wayfair continues to face category challenges. If we exclude Wayfair waterfall performance, our top 24 merchants grew more than 65% year-over-year. On the revenue front, we had another great quarter. We delivered $71.9 million or 22.1% growth in Q2, which was above our outlook for 17% to 20% growth and marked the ninth consecutive quarter of year-over-year growth. This growth reflects continued strong collection trends. Gross profit for Q2 was approximately $11.2 million, an increase of approximately 12.5% compared with $9.9 million last year and gross margin was 15.5% compared with 16.9% gross margin in Q2 2024. Similar to our performance in Q4 2024 and Q1 2025, our gross profit and gross margin were both impacted by strong gross originations growth in Q1 and Q2. This growth…

[Operator Instructions] Your first question comes from the line of Anthony Chukumba with Loop Capital Markets.

Congrats on a strong quarter. Just had a quick question. The lease merchandise charge-off rate was up 50 basis points. Now that was obviously within your targeted range but towards the high end. Just wondering what drove the year-over-year increase. And also how do you expect that to trend over the remainder of the year?

Anthony, it's Nancy. Thank you for the questions. We see fluctuation in the quarterly results of the write-offs. This is not something we're concerned about outside of our -- within our 8% to 10% range. And right now, we're considering our customer is very resilient. There is some macroeconomic factors out there and the tariffs are still looming, but we feel very comfortable that within this 8% to 10% range is what we expect the future to look like with respect to write-offs.

Anthony, this is Orlando. Also June is always our toughest month around delinquencies. So it's more of a summer trend that we always see. So we expect it to be back to normal next quarter.

Got it. And just -- just 1 last question. In terms of the waterfall and the direct partners, any commentary just in terms of what the -- what the pipeline looks like right now for new partners?

Yes. Thanks, Anthony. Derek, do you want to take that one?

Sure. Thanks, Orlando. Thanks for the question. So pipeline is looking really strong. And I think the reason for that is part of our strategy has been to add new consumers to our ecosystem where we can introduce consumers to our merchant partners and that strategy is working. Our merchants are getting to see new customers coming to their site and walking into their stores and that's really helping solve a problem that merchants are having right now, which is either footfall or clicks. And so the pipeline has been strong across different segments, specifically in auto and home furnishings and furniture and appliances, electronics. Just across the board, we're seeing strong interest of different sizes omnichannel merchants and e-commerce merchants.

Your next question comes from the line of Scott Buck with H.C. Wainwright.

I guess first up, you've seen a nice uptick or acceleration in applications. Could you go into a little bit of color on what you're doing on the sales and marketing side to drive this higher level of activity?

Derek, can you take that one too. Sorry, we're in different locations.

Scott, thanks for the question. Yes, this has been a major priority for us over the last 12 months in terms of adding to the top of the funnel. And the reason for that is our channels for the market come through our merchant partners, but also through customers that we can source ourselves and then distribute out to our merchant community. And so over the last year plus, we've been working intentionally on our digital marketing strategy, customer referral strategy and bringing customers that are fitting our profile and our segmentation that are looking for a fair transparent product that can help them acquire the durable goods that they're looking for from high-quality merchants. And so we've been really intentional about building in some of those factors ourselves, engaging with merchant partners that have a lot of traffic and then helping to support approval rates and conversion down the funnel. And so we think that we have a whole lot of opportunity there to continue to expand on that strategy at the top of the funnel. Meanwhile, our team is working feverishly on improving everything down the funnel so that we can turn those into origination dollars.

Perfect. That's helpful. And then second, I know Nancy touched on it when talking about the guide, not including any kind of change in the competitive environment. But I'm curious what you're seeing from your competitors in terms of either moving up and down the credit ladder, or being a little more creative around pricing. I'm just kind of curious what the environment looks like from that perspective.

I can take that one as well. So from -- from a competitive set, we think about it in a couple of different ways. So first of all, up above us in financing spectrum, we've seen not any significant tightening up above us, other than what we saw in 2023. It's been fairly consistent. There does seem to be some variability in what you see in terms of the in-store experience versus online, but online has been quite stable. I do think that from a pricing and a market standpoint, the way that Katapult thinks of things is optimizing both for the risk, but also for conversion and repeat rate. So with our clear communication with customers and then our strong affinity that we build, we can give unique pricing to each consumer to be able to convert at the highest rate possible as well as have a great outcome in terms of the customers' performance. And so we've really leaned into that to help drive more conversion for our merchant partners. And they are supportive of it, right? At the end of the day, they want to see monetization as many transactions as possible, but they want customers to come back again and again. And so from our standpoint, we think that's the winning play. We've invested in that in terms of our platform, within our communications and marketing strategy, and we're seeing the results. It's been exciting.

There are no further questions at this time. I would now like to turn the call over to Orlando Zayas for closing remarks. Please go ahead.

Thanks, operator, and thanks to everyone joining us today. We're really excited about the potential for our marketplace. And I believe that we are on the path of scaling our business both from a volume and profitability perspective. On behalf of the leadership team, I want to thank the Katapult team for their tireless efforts that are allowing us to turn our marketplace vision into reality for the benefit of everyone in the Katapult ecosystem. We look forward to chatting with our investors as the year progresses. Please reach out to Jennifer with any questions or feedback. Thank you again.

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