Third Quarter Outlook Includes Continued Growth in Gross Originations and Revenue
“During the quarter, our team continued to build the foundation for sustainable, profitable growth,” said
Second Quarter 2023 Financial and Operational Highlights:
(All comparisons are year-over-year unless stated otherwise.)
- Gross originations were
$54.7 million , an increase of 18.0%.- Approximately 51% of gross originations for the second quarter of 2023 came from repeat customers1.
- Total revenue was
$54.6 million , an increase of 2.9%. - Net loss was
$6.4 million for the second quarter of 2023 which compares favorably to net loss of$10.3 million reported for the second quarter of 2022. Net loss improvement in the second quarter of 2023 was driven primarily by an increase in total revenue and decrease in operating expenses resulting from the completion of our operating expense reduction initiative. Total operating expenses in the second quarter of 2023 were down 16.5% and fixed cash operating expenses were down approximately 24.6%. - Adjusted net loss2 improved to
$4.5 million for the second quarter of 2023 compared with an adjusted net loss of$10.8 million reported for the second quarter of 2022. - Adjusted EBITDA2 loss improved to
$0.3 million for the second quarter of 2023 compared to an Adjusted EBITDA2 loss of$5.3 million in the prior year period. Katapult ended the quarter with total cash and cash equivalents of$38.2 million .- Customer satisfaction remained high and
Katapult had a Net Promoter Score of 64 as ofJune 30, 2023 . - Writeoffs as a percentage of revenue were 9.2% in the second quarter of 2023 compared to 8.4% in the first quarter of 2023. This increase was due to seasonal patterns and trends and remains within the Company’s 8 to 10% long-term target range.
[1] Repeat rate is defined as the percentage of originations from existing customers.
[2] Please refer to the “Reconciliation of Non-GAAP Measure and Certain Other Data” section and the GAAP to non-GAAP reconciliation tables below for more information.
Third Quarter 2023 Business Outlook
The Company continues to navigate an evolving macro environment. While there are tailwinds such as better inflation data and a reduced likelihood of a recession in the
- A 14%-16% year-over-year increase in gross originations.
- A 5-7% year-over-year increase in revenue. As a reminder, there is a lag between new gross originations and revenue. Based on this, the Company expects to see the revenue benefit from gross originations recorded this quarter in future quarters.
- Meaningful improvement in its Adjusted EBITDA performance compared with the third quarter of last year, reflecting both its revenue growth expectation and a further reduction of fixed cash operating expenses. Fixed cash operating expenses are expected to be down approximately 25% year-over-year.
"We delivered strong financial performance in the first half of 2023 and are well positioned heading into the second half of the year,” said
Conference Call and Webcast
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Forward-Looking Statements
Certain statements included in this Press Release that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding our third quarter 2023 business outlook and our ability to weather the macroeconomic headwinds, including that lease-to-own solutions function as a countercyclical hedge, and our ability to drive revenue growth and profitability. These statements are based on various assumptions, whether or not identified in this Press Release, and on the current expectations of Katapult’s management and are not predictions of actual performance.
These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of
If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that
Key Performance Metrics
Gross originations are defined as the retail price of the merchandise associated with lease-purchase agreements entered into during the period through the
Total revenue represents the summation of rental revenue and other revenue.
Gross profit represents total revenue less cost of revenue, and is a measure presented in accordance with generally accepted accounting principles in
Non-GAAP Financial Measures
To supplement the financial measures presented in this press release and related conference call or webcast in accordance with GAAP, the Company also presents the following non-GAAP and other measures of financial performance: adjusted gross profit, adjusted EBITDA, adjusted net loss and fixed cash operating expenses. The Company urges investors to consider non-GAAP measures only in conjunction with its GAAP financials and to review the reconciliation of the Company’s non-GAAP financial measures to its comparable GAAP financial measures, which are included in this press release.
Adjusted gross profit represents gross profit less variable operating expenses, which are servicing costs, and underwriting fees. Management believes that adjusted gross profit provides a meaningful understanding of one aspect of its performance specifically attributable to total revenue and the variable costs associated with total revenue.
Adjusted EBITDA is a non-GAAP measure that is defined as net loss before interest expense and other fees, interest income, change in fair value of warrant liability, loss on partial extinguishment of debt, provision for income taxes, depreciation and amortization on property and equipment and capitalized software, impairment of leased assets and stock-based compensation expense.
Adjusted net loss is a non-GAAP measure that is defined as net loss before change in fair value of warrant liability and stock-based compensation expense.
Fixed cash operating expenses is a non-GAAP measure that is defined as operating expenses less variable lease costs such as underwriting fees and servicing costs, as well as non-cash equity-based compensation expenses. Management believes that fixed cash operating expenses provides a meaningful understanding of controllable ongoing expenses.
Adjusted gross profit, adjusted EBITDA and adjusted net loss are useful to an investor in evaluating the Company’s performance because these measures:
- Are widely used to measure a company’s operating performance;
- Are financial measurements that are used by rating agencies, lenders and other parties to evaluate the Company’s credit worthiness; and
- Are used by the Company’s management for various purposes, including as measures of performance and as a basis for strategic planning and forecasting.
Management believes the use of non-GAAP financial measures, as a supplement to GAAP measures, is useful to investors in that they eliminate items that are not part of our core operations, highly variable or do not require a cash outlay, such as stock-based compensation expense. Management uses these non-GAAP financial measures when evaluating operating performance and for internal planning and forecasting purposes. Management believes that these non-GAAP financial measures help indicate underlying trends in the business, are important in comparing current results with prior period results and are useful to investors and financial analysts in assessing operating performance. However, these non-GAAP measures exclude items that are significant in understanding and assessing Katapult’s financial results. Therefore, these measures should not be considered in isolation or as alternatives to revenue, net loss, gross profit, cash flows from operations or other measures of profitability, liquidity or performance under GAAP. You should be aware that Katapult’s presentation of these measures may not be comparable to similarly titled measures used by other companies.
Reverse Stock Split
All share and per share amounts in the condensed consolidated statements of operations and comprehensive loss and condensed consolidated balance sheets have been retroactively adjusted for all periods presented to give effect to the reverse stock split that was effective as of
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Revenue | |||||||||||||||
Rental revenue | $ | 53,874 | $ | 51,911 | $ | 108,598 | $ | 110,815 | |||||||
Other revenue | 697 | 1,128 | 1,649 | 2,102 | |||||||||||
Total revenue | 54,571 | 53,039 | 110,247 | 112,917 | |||||||||||
Cost of revenue | 43,874 | 44,849 | 86,047 | 92,962 | |||||||||||
Gross profit | 10,697 | 8,190 | 24,200 | 19,955 | |||||||||||
Operating expenses: | |||||||||||||||
Servicing costs | 1,103 | 1,131 | 2,093 | 2,337 | |||||||||||
Underwriting fees | 480 | 423 | 948 | 910 | |||||||||||
Professional and consulting fees | 1,623 | 2,259 | 4,278 | 5,547 | |||||||||||
Technology and data analytics | 1,959 | 2,455 | 3,624 | 4,864 | |||||||||||
Compensation costs | 5,768 | 6,470 | 12,825 | 11,847 | |||||||||||
General and administrative | 2,746 | 3,649 | 5,680 | 7,459 | |||||||||||
Total operating expenses | 13,679 | 16,387 | 29,448 | 32,964 | |||||||||||
Loss from operations | (2,982 | ) | (8,197 | ) | (5,248 | ) | (13,009 | ) | |||||||
Loss on partial extinguishment of debt | — | — | (2,391 | ) | — | ||||||||||
Interest expense and other fees | (4,098 | ) | (4,405 | ) | (9,287 | ) | (8,686 | ) | |||||||
Interest income | 427 | — | 1,047 | — | |||||||||||
Change in fair value of warrant liability | 257 | 2,323 | 389 | 5,412 | |||||||||||
Loss before income taxes | (6,396 | ) | (10,279 | ) | (15,490 | ) | (16,283 | ) | |||||||
Provision for income taxes | (14 | ) | (65 | ) | (34 | ) | (100 | ) | |||||||
Net loss | $ | (6,410 | ) | $ | (10,344 | ) | $ | (15,524 | ) | $ | (16,383 | ) | |||
Weighted average common shares outstanding - basic and diluted | 4,073 | 3,918 | 4,023 | 3,921 | |||||||||||
Net loss per common share - basic and diluted | $ | (1.57 | ) | $ | (2.64 | ) | $ | (3.86 | ) | $ | (4.18 | ) |
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
2023 | 2022 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 38,228 | $ | 65,430 | |||
Restricted cash | 3,343 | 4,411 | |||||
Property held for lease, net of accumulated depreciation and impairment | 54,352 | 50,278 | |||||
Prepaid expenses and other current assets | 6,485 | 8,515 | |||||
Total current assets | 102,408 | 128,634 | |||||
Property and equipment, net | 471 | 557 | |||||
Security deposits | 91 | 91 | |||||
Capitalized software and intangible assets, net | 2,021 | 1,847 | |||||
Right-of-use assets | 574 | 772 | |||||
Total assets | $ | 105,565 | $ | 131,901 | |||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 974 | $ | 1,264 | |||
Accrued liabilities | 14,588 | 14,532 | |||||
Term loan | — | 25,000 | |||||
Unearned revenue | 1,988 | 1,552 | |||||
Lease liabilities | 304 | 382 | |||||
Total current liabilities | 17,854 | 42,730 | |||||
Revolving line of credit | 63,538 | 57,639 | |||||
Term loan, non-current | 23,644 | 23,057 | |||||
Other liabilities | 513 | 902 | |||||
Lease liabilities, non-current | 296 | 445 | |||||
Total liabilities | 105,845 | 124,773 | |||||
STOCKHOLDERS' (DEFICIT) EQUITY | |||||||
Common stock, | — | — | |||||
Additional paid-in capital | 91,920 | 83,804 | |||||
Accumulated deficit | (92,200 | ) | (76,676 | ) | |||
Total stockholders' (deficit) equity | (280 | ) | 7,128 | ||||
Total liabilities and stockholders' (deficit) equity | $ | 105,565 | $ | 131,901 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Six Months Ended | |||||||
2023 | 2022 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (15,524 | ) | $ | (16,383 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 59,646 | 62,438 | |||||
Net book value of property buyouts | 12,921 | 19,040 | |||||
Impairment expense | 10,515 | 7,490 | |||||
Change in fair value of warrants liability | (389 | ) | (5,412 | ) | |||
Stock-based compensation | 4,303 | 2,946 | |||||
Loss on partial extinguishment of debt | 2,391 | — | |||||
Amortization of debt discount | 1,592 | 2,107 | |||||
Amortization of debt issuance costs, net | 145 | 181 | |||||
Accrued PIK Interest | 864 | 785 | |||||
Amortization of right-of-use assets | 198 | 179 | |||||
Change in operating assets and liabilities: | |||||||
Property held for lease | (86,725 | ) | (72,844 | ) | |||
Prepaid expenses and other current assets | 2,030 | (397 | ) | ||||
Accounts payable | (290 | ) | (277 | ) | |||
Accrued liabilities | (437 | ) | (899 | ) | |||
Lease liabilities | (227 | ) | (201 | ) | |||
Unearned revenues | 436 | (512 | ) | ||||
Net cash used in operating activities | (8,551 | ) | (1,759 | ) | |||
Cash flows from investing activities: | |||||||
Purchases of property and equipment | — | (153 | ) | ||||
Additions to capitalized software | (519 | ) | (845 | ) | |||
Net cash used in investing activities | (519 | ) | (998 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from revolving line of credit | 9,380 | 9,935 | |||||
Principal repayments on revolving line of credit | (3,311 | ) | (16,171 | ) | |||
Principal repayment on term loan | (25,000 | ) | — | ||||
Payments of deferred financing costs | (22 | ) | — | ||||
Repurchases of restricted stock | (247 | ) | (244 | ) | |||
Proceeds from exercise of stock options | — | 60 | |||||
Net cash used in financing activities | (19,200 | ) | (6,420 | ) | |||
Net decrease in cash, cash equivalents and restricted cash | (28,270 | ) | (9,177 | ) | |||
Cash, cash equivalents and restricted cash at beginning of period | 69,841 | 96,431 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 41,571 | $ | 87,254 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 6,602 | $ | 5,200 | |||
Cash paid for income taxes | $ | 108 | $ | 362 | |||
Debt issuance cost included in accrued liabilities | $ | 493 | $ | — | |||
Issuance of warrants to purchase common stock in connection with debt refinancing | $ | 4,060 | $ | — | |||
Right-of-use assets obtained in exchange for operating lease liabilities | $ | — | $ | 1,139 | |||
Cash paid for operating leases | $ | 260 | $ | 254 |
RECONCILIATION OF NON-GAAP MEASURES AND CERTAIN OTHER DATA (UNAUDITED)
(amounts in thousands)
Three Months Ended | Six Months Ended | ||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||
Total revenue | $ | 54,571 | $ | 53,039 | $ | 110,247 | $ | 112,917 | |||||
Cost of revenue | 43,874 | 44,849 | 86,047 | 92,962 | |||||||||
Gross profit | 10,697 | 8,190 | 24,200 | 19,955 | |||||||||
Less: | |||||||||||||
Servicing costs | 1,103 | 1,131 | 2,093 | 2,337 | |||||||||
Underwriting fees | 480 | 423 | 948 | 910 | |||||||||
Adjusted Gross Profit | $ | 9,114 | $ | 6,636 | $ | 21,159 | $ | 16,708 |
Three Months Ended | Six Months Ended | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Net loss | $ | (6,410 | ) | $ | (10,344 | ) | $ | (15,524 | ) | $ | (16,383 | ) | |||
Interest expense and other fees | 4,098 | 4,405 | 9,287 | 8,686 | |||||||||||
Interest income | (427 | ) | — | (1,047 | ) | — | |||||||||
Change in fair value of warrant liability | (257 | ) | (2,323 | ) | (389 | ) | (5,412 | ) | |||||||
Provision for income taxes | 14 | 65 | 34 | 100 | |||||||||||
Depreciation and amortization on property and equipment and capitalized software | 235 | 186 | 432 | 308 | |||||||||||
Impairment of leased assets | 254 | 866 | 806 | 315 | |||||||||||
Loss on partial extinguishment of debt | — | — | 2,391 | — | |||||||||||
Stock-based compensation expense | 2,213 | 1,857 | 4,303 | 2,946 | |||||||||||
Adjusted EBITDA | $ | (280 | ) | $ | (5,288 | ) | $ | 293 | $ | (9,440 | ) |
Three Months Ended | Six Months Ended | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Net loss | $ | (6,410 | ) | $ | (10,344 | ) | $ | (15,524 | ) | $ | (16,383 | ) | |||
Change in fair value of warrant liability | (257 | ) | (2,323 | ) | (389 | ) | (5,412 | ) | |||||||
Stock-based compensation expense | 2,213 | 1,857 | 4,303 | 2,946 | |||||||||||
Adjusted Net Loss | $ | (4,454 | ) | $ | (10,810 | ) | $ | (11,610 | ) | $ | (18,849 | ) |
Three Months Ended | Six Months Ended | ||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
Total operating expenses | $ | 13,679 | $ | 16,387 | $ | 29,448 | $ | 32,964 | |||
Less: | |||||||||||
Depreciation and amortization on property and equipment and capitalized software | 235 | 186 | 432 | 308 | |||||||
Stock based compensation expense | 2,213 | 1,857 | 4,303 | 2,946 | |||||||
Servicing costs | 1,103 | 1,131 | 2,093 | 2,337 | |||||||
Underwriting costs | 480 | 423 | 948 | 910 | |||||||
Fixed Cash Operating Expenses | $ | 9,648 | $ | 12,790 | $ | 21,672 | $ | 26,463 |
CERTAIN KEY PERFORMANCE METRICS
(in thousands) | Three Months Ended | Six Months Ended | |||||
2023 | 2022 | 2023 | 2022 | ||||
Total revenue | 54,571 | 53,039 | 110,247 | 112,917 |
GROSS ORIGINATIONS BY QUARTER
Gross Originations by Quarter | ||||||||||||
($ millions) | Q1 | Q2 | Q3 | Q4 | ||||||||
FY 2023 | $— | $— | ||||||||||
FY 2022 | ||||||||||||
FY 2021 | ||||||||||||
FY 2020 |
Source:
2023 GlobeNewswire, Inc., source