Katapult Holdings Reports Strong Growth Amid Challenges

Katapult Holdings, Inc. ((KPLT)) has held its Q2 earnings call. Read on for the main highlights of the call.

The latest earnings call from Katapult Holdings, Inc. painted a picture of robust growth and strategic financial maneuvers, tempered by some challenges in specific areas. The company reported impressive increases in gross originations, revenue, and consumer engagement, alongside positive adjusted EBITDA and successful debt refinancing efforts. However, concerns were raised regarding lease depreciation impacts on profit margins, challenges in certain product categories, and an uptick in charge-off rates.

Strong Year-Over-Year Growth

Katapult Holdings reported a significant 30.4% year-over-year growth in Q2 gross originations, surpassing their outlook. Revenue also saw a substantial increase of 22.1%, exceeding expectations and highlighting the company’s strong market performance.

Positive Adjusted EBITDA

The company achieved more than $300,000 in positive adjusted EBITDA, which was a notable achievement as it surpassed the breakeven expectation, showcasing effective cost management and operational efficiency.

Increased Consumer Engagement

Consumer engagement metrics were particularly strong, with total Katapult applications increasing by over 91% year-over-year. This marked the fourth consecutive quarter of accelerating growth, indicating a robust demand for the company’s offerings.

Successful Debt Refinancing

Katapult completed a successful debt refinancing with Blue Owl Capital, which increased liquidity and reduced interest rates. This strategic move is expected to enhance the company’s financial flexibility and support future growth initiatives.

KPay Originations Growth

KPay originations experienced an impressive 81% year-over-year growth, now representing 39% of total gross originations, up from 28%. This growth underscores the increasing popularity and adoption of the KPay platform.

Expansion of Merchant Partnerships

The company expanded its merchant ecosystem by adding approximately 48 new direct or waterfall merchants or merchant pathways in Q2, broadening its market reach and potential revenue streams.

Impact of Lease Depreciation

Despite strong gross originations growth, the gross profit margin decreased to 15.5% from 16.9% due to higher lease depreciation costs, highlighting a key area of concern for the company.

Challenges in Home Furnishings and Mattress Categories

Performance in the home furnishings and mattress categories was less robust, impacting overall results compared to other segments. This indicates potential market challenges or shifts in consumer preferences within these categories.

High Lease Merchandise Charge-Off Rate

The lease merchandise charge-off rate increased by 50 basis points year-over-year, reaching the high end of the 8% to 10% target range, which could pose a risk to profitability if not managed effectively.

Wayfair Performance

Continued challenges with Wayfair, the company’s largest merchant, affected overall merchant performance, suggesting the need for strategic adjustments to mitigate these impacts.

Forward-Looking Guidance

Looking ahead, Katapult Holdings has raised its full-year gross originations growth outlook to 20% to 25%, maintaining its revenue growth target of at least 20% and adjusted EBITDA of at least $10 million. For the third quarter, the company anticipates gross originations growth of 25% to 30% and revenue growth of 20% to 25%, with adjusted EBITDA estimated between $3 million and $3.5 million. These forecasts reflect a confident outlook despite current challenges.

In summary, Katapult Holdings, Inc.’s earnings call revealed a company on a strong growth trajectory, with significant achievements in gross originations and consumer engagement. While challenges such as lease depreciation and specific category performance persist, the company’s strategic initiatives and positive forward-looking guidance suggest a promising future.