Katapult Holdings, Inc.

Good day, ladies and gentlemen, and welcome to the Catapult second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. If anyone should require assistance, please press star and then zero on your touchstone telephone. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Bill Wright, Vice President of Investor Relations. Sir, you may begin.

Thank you and good morning. Welcome to the Catapult Second Quarter 2021 Earnings Conference Call. With me today are Orlando Zayas, Chief Executive Officer, Derek Medlin, Chief Operating Officer, and Carissa Caputo, Chief Financial Officer. We will all be available for Q&A following today's prepared remarks. Before we begin, I would like to remind everyone that this call will contain forward-looking statements regarding future events and financial performance. including statements regarding our market opportunity, impact of our growth initiatives, and our future financial performance, and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports. These statements reflected management's current beliefs, assumptions, and expectations and are subject to a number of factors that may cause actual results to differ material from those statements. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events, or otherwise. During today's discussion of our financial performance, we will provide certain information that constitute non-GAAP financial measures under SEC rules. These include measures such as adjusted EBITDA and adjusted net income. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release, which are available in the investor relations section of our company website at www.ir.catapult.com. This call is being recorded, and a webcast will be available for replay on our investor relations website. I would now like to turn the call over to Orlando.

Thanks, Bill. Good morning, and thank you for joining us. On today's call, we'll review our second quarter 2021 results, share what we're seeing in the current macro environment, and provide an update on our near-term outlook. Lastly, we will go into greater detail on our long-term growth strategy in this addressable market. We are enthusiastic about our market-leading technology that is delivering on our mission of financial inclusion for the non-prime consumer. We believe it's extremely powerful to enable this customer base to get the items they need and for e-commerce and omnichannel merchants to access a new market. Carissa, our CFO, will provide more details on our second quarter performance in a few minutes, but let me give you some second quarter highlights. Total revenue for Q2 2021 was $77.5 million, an increase of 28% year over year. Revenue year-to-date reached 158.1 million versus 103.6 million last year, an increase of 53% year-over-year. Gross originations were 64.4 million in Q2 2021, up 1% compared to Q1 2021, and down 17% year-over-year. Our compound annual growth rate for gross originations is 75% from Q2 2019 to Q2 2021. As we previously indicated in our first quarter earnings call, the second quarter represented a difficult comp due to the pandemic-related surge in demand for e-commerce durable goods in the spring of 2020. Nevertheless, originations were roughly flat sequentially versus Q1 2021 and have been steady in the $60 million to $65 million range over the past four quarters. Our adjusted EBITDA for Q2 2021 was $3.9 million down 65% from $11.1 million in Q2 2020, reflecting our increased investment in growth initiatives, more normalized seasonal lease payment performance, new higher costs, and incremental public company costs. On the macro front, it is a rapidly changing and complex environment that we have not previously faced in our business, which makes forecasting difficult. Since our Q1 earnings call and continuing to date, many new developments emerged that have impact on our business. Starting in late June and noticeably picking up during the July 4th weekend, we began seeing macro headwinds consistent with what you have heard from several retailers. First, we observed our consumers shift their focus toward new spending categories and away from durable goods as summer activities increased and restrictions abated. Coupled with this consumer category spend shift, external data has become available suggesting e-commerce sales will likely slow for the balance of the year. The combination of these two factors created uncertainty regarding our expectations for gross originations in the critical seasonal windows and for the balance of the year. Another key market factor that we monitor is the activity of prime credit and financing providers that offer solutions to consumers with higher quality credit or repayment histories. With historically high savings rate and low delinquency rates, some consumers buoyed by stimulus and a recovering jobs market, we are observing prime providers stretching further down the credit spectrum to capture consumer transactions in our highest score bands, which is negatively impacting our volume. We are optimistic that this competitive dynamic in the prime segments to be temporary and will subside as credit environments normalize. However, it is difficult to have certainty in the timing of these changes. On the retail side, our merchants continue to be impacted by supply chain constraints, stock levels that are reduced or bottlenecked. This produces longer wait times for consumers and depressed conversion rates in certain categories and transaction types. Though we are optimistic that these industry trends to be transitory, we think they will continue throughout 2021. Finally, COVID-19 and the recent announcement of new restrictions, virus variants, and vaccination activities is further complicating an already incredibly dynamic macro environment. As we sit here today, there is just too much uncertainty and multiple macro cross-currents to accurately predict our consumers' buying behaviors for back-to-school and the remainder of the year, which are important drivers in our 2021 forecast. We expect to have more insight into these new and evolving patterns by our November earnings call, but for now we feel it's best to remove explicit guidance for the balance of 2021. While the short-term outlook may not be 100% clear, we do continue to believe in our mission and our core business fundamentals. We are extremely pleased with the progress of our strategic investments that will drive long-term growth. Despite this current market uncertainty, we believe there is tremendous opportunity to serve the needs of the non-prime consumer with our best-in-class technology and customer-centered approach. We believe we are in an excellent position to continue our mission to serve the true e-commerce and omnichannel needs of this consumer segment. You see, Catapult's technology is delivering full click-to-ship capability for our customers and merchant community. This seamless experience reduces friction and enables a transparent and customer-friendly approach to the shopping process. We believe this capability and our ongoing platform enhancements are truly market-leading and we are excited to elaborate further on our progress. Specifically, the second quarter marked several milestones for Catapult resulting from recent growth investments. During the second quarter, we added 31 merchants to our platform, bringing our total to 57 new merchants for the first half of the year. As discussed on our last earnings call, we started investing in our sales and marketing organization to expand product awareness and availability to thousands of online and omnichannel merchants offering durable goods. This momentum is continuing in July, and I am thrilled to share that we have launched 15 new merchants last month, bringing a year-to-date total through July to 72. Since the end of the year, we've doubled the number of merchants that are partnered with both Catapult and Affirm through the Affirm Connect Waterfall Solutions. Despite the recent merchant deal sizes being on the smaller size, we are closing more of them and more quickly. Make no mistake, we are still engaged with larger merchants, but these deals are taking longer to move, partially due to IT constraints, competing priorities, and temporary inventory logistics issues that these merchants currently face. We have high confidence in our technology and expect ongoing traction as these factors are resolved. On the customer side, our clear and transparent approach is resonating, and our net promoter score was 60 as of July 2021, up from 53 in January 2021 and 46 in July 2020. We have built a rich and rapidly growing database of nearly 2 million approved customers. This is just beginning as we are focused on understanding all the ways we can support their financial progress to access the things they need. We are confident in our strategy to deliver value to our business partners and consumers and are excited about the growing interest in Catapult from both merchants, e-commerce platforms, and prime partners. In fact, we are pleased with all the expansion of point of sale solutions, the buy now, pay later providers focused on the prime consumer segments. This wave of exposure to merchants and consumers is increasing the awareness that there are more opportunities in the checkout experience than ever before, which accrues to our benefit. Catapult, with our leading technology platform, is perfectly positioned to take share of this expansion of BNPL adoption reaches the non-prime customer. Our vision is to expand financial possibilities for consumers that are left behind and looking for the items they need. Financial inclusion of the non-prime consumer drives us to continue innovating and delivering new solutions to this market. And while there may be some variability in the near-term macro trends, We are steadfast in our business model. In fact, we believe the time is now to accelerate our investment, access the market opportunity in front of us. With that, I'll turn it over to Derek to elaborate on our growth activities and platform advancements over the quarter. Derek? Hello.

This is Derek Bedlam, Chief Operating Officer here at Catapult. As Orlando mentioned, we are confident in the progress of our platform, our distribution, and the offerings. As you can see from our new merchant results, our platform is scaling smoothly with the arrival of new merchants across diverse integration platforms and methods. This flexibility that is inherent to our platform allows us to quickly react to merchant needs and activate the catapult solution across all kinds of retail environments. It also gives us operational leverage as more volume has come on the platform and our automation matures. This has led to improved servicing cost margins. We believe that this will continue to be a strategic advantage as we reinvest our earnings for customers and merchants. In terms of distribution, as Orlando called out, we are pleased to see that our investments in sales and marketing are attracting new retailers at a faster pace. Comparing Q2 2021 versus Q2 2020, our active merchant base increased by 89%, and the progress continued in July with another 15 ads. We're finding great adoption in categories such as outdoor sporting goods and automotive-related goods, which both more than doubled in merchant count year over year. And as Orlando mentioned before, our partnership with the firm continues to expand, having also doubled our mutual merchants year over year. We have been able to activate dozens of new channel partners as well, expanding our footprint of distribution and allowing us to access a wider net of omni-channel opportunities for long-term growth. These new partners are seizing the opportunity to provide expanded payment options for non-prime consumers, and our platforms make it easy for merchants to incorporate Catapult as a checkout option on their website. That said, we are a fintech company where we focus most of our investment dollars on growth and technology. As Orlando mentioned, we are accelerating our investment cadence to prepare for long-term growth and deliver on customer and merchant opportunities. In terms of our core offering, we continue to innovate how we go to market to serve our customers with relevant and attractive offers that drive conversion. First, we are supporting investments in merchandising, promotional collaborations, and search to drive growth of new and repeat customer origination rates. While our repeat rate reached 50% in Q2 2021, we still see incremental opportunities to drive this number higher. We plan on investing further in lifecycle marketing to enhance our promotions and increase consumer loyalty. Next, we are going to continue investing in our go-to-market strategies with sales, marketing, and channel relationships. Given the size of the opportunity and higher deal close rates, we have and will continue to scale our sales force. Since Q2 of last year, we brought the headcount to 30 professionals versus 14 year-over-year. We expect to continue investments in resources for the remainder of 2021 and into 2022. All in all, we see the momentum is mounting across merchant segments, sizes, and integration types and we believe the time is now to push forward. Lastly, we are advancing investments in new capabilities and offerings that are aimed at merchants and customers. We recently launched new testing and segmentation capabilities that lay the groundwork for even more targeted approaches to customer offers. Our data-rich environment and approach is helping us to be more targeted and relevant, which is what our customers care about. We know that our focus on the lifetime value of a customer benefits our retailer segment as they come back to the Catapult community for items again and again. These expanded capabilities will allow us to make our interactions with customers more personalized, drive repeat originations, and maintain the relevance of the Catapult solution to our important and growing customer base. We couldn't be more excited to deliver more value to our customers. Now I will hand it off to Krista Cupido, our CFO, to discuss the financials.

Thank you, Derek. Q2 2021 growth originations of $64.4 million were down 17% year-over-year, which was consistent with our previous expectation that we provided in the Q1 2021 earnings call. As a reminder, in the second quarter of 2020, growth originations were positively impacted by a combination of COVID-19 stay-at-home orders and temporary closures of physical retail stores that shifted consumer spending online. These consumer spending trends, coupled with the CARES Act stimulus checks, surged online transactions at our merchants and ultimately our gross origination. As a result, Q2 2020 was our highest gross originations quarter last year and did not follow the traditional retailer seasonality we typically see. In Q2 2021, we are pleased with our progress at both Wayfair and the continued development of our other valuable merchants. Wayfair continues to be a strong partner, and we completed a direct integration with their system during the quarter that deepens our relationship. While we did observe a lower Wayfair U.S. sales penetration rate this quarter as a result of the prime provider stretching down to the credit spectrum to capture volume in our highest score bands, we do believe we are continuing to maintain or grow our position in the non-prime bands. Turning to revenue, total revenue grew 16.7 million, or 28% year-over-year, as we continue to see strong payment performance. Growth profit margin for Q2 2021 was 28% versus 30% in Q2 of 2020. Growth profit percentage was 260 basis points lower year-over-year due to a combination of factors, including investments in various customer acquisition offers and an acceleration of our depreciation curve. As part of our deployment of growth investment capital, we are testing various unique offers with our consumers. As Derek discussed in his comments, we see tremendous opportunity to differentiate ourselves with personalized offers that drive loyalty and repeat business. As for the changes in our depreciation curve, we've further accelerated the curve to account for the increased early bioactivity spurred by the last round of stimulus checks in late March slash early April of this year, which increased our cost of revenue. Moving down to P&L, we continue to show improvements in our variable expense margins as we scale and focus on greater efficiency. Servancy costs were $1.1 million in Q2 of 2021, or 1.4% of revenue, versus 1.6% in Q2 of 2020. Underwriting fees for Q2 2021 were $477,000, representing 0.6% of revenue versus 1.4% in Q2 of 2020. In Q2 2021, professional and consulting fees included one-time transaction costs of $482,000 and employee recruiting costs of $191,000. When you remove these costs, normalized professional and consulting fees were $651,000 for the quarter versus $402,000. This $249,000 increase is related to public company costs for audit and legal services. Technology and data analytics costs increased by $1.2 million in Q2 2021 from higher headcount, including expanding data science personnel to enhance our proprietary underwriting model and additional IT resources to build out new product functionality. Bad debt expense increased $4.7 million year-over-year. This is the reserve we put on our lease payments earned but not collected at the end of each quarter. The gross accounts receivable balance was $7.4 million as of June 30, 2021, versus only $4 million as of June 30, 2020, due to our larger lease base. On the whole, our loss rates continue to be within our acceptable ranges. Compensation costs were $14.8 million in Q2 2021 and include the $11.6 million for one-time transaction expenses that related to the completion of the merger with SpinServe, including vesting of stock options and RSUs, plus transaction-related bonuses for employees. On an apple-to-apple basis, when you back out these one-time costs, compensation expense was close to $3.1 million, which is $1.5 million higher than our Q2 2020 numbers. This increased compensation cost will be ongoing and includes the additional headcount for sales and marketing. General and administrative costs are up $1.3 million in Q2 2021. This increase is made up of our new ZNO insurance premiums, franchise taxes, and increased spend in marketing. Interest expense and other fees in Q2 2021 were $4.1 million, an increase of $522,000 versus Q2 of 2020, which is a result of a higher average debt balance. Interest expense as percentage of revenue declined from 6% to 5.4% year-over-year. Our lower interest expense margin is a result of reaching profitability milestones in August of 2020, which stepped down our funding costs by 200 basis points on a revolving line of credit. We also refinanced $37.5 million of high interest debt last December to lower interest rates. The change in fair value of our warrants contributed $3.2 million of income in Q2 of 2021. We will book the gain or loss relative to the change in the fair value of our warrants each quarter. We also booked a benefit for income taxes of $1.8 million in Q2 2021 compared to a provision of $111,000 in Q2 2020. Turning to our other non-GAAP metrics, adjusted EBITDA was $3.9 million for Q2 2021 versus $11.1 million in Q2 of 2020. The $7.2 million decline reflects our increased investment in growth and initiatives, more normalized and therefore lower seasonal lease payment performance, new hire costs, and incremental public company costs. Adjusted net income was $1.5 million in Q2 2021, down from $5.2 million in Q2 2020. Moving to the balance sheet and liquidity, at June 30, 2021, we had $110 million in available cash. Our total debt outstanding net debt issuance costs and warrants was $111 million. With over 100 million of cash on our balance sheet, we have the financial flexibility and strength to continue to invest in organic growth initiatives. Earlier this year, we outlined spending 10 million in fiscal 2021 for targeted growth investments. Based on the encouraging early results of these investments and given the tremendous potential we see in this large addressable market, we plan to increase our investment spending beyond just 10 million for this year. As Derek outlined, we see a great opportunity to widen our competitive moat capture more market share, and ultimately accelerate revenue in 2022 and beyond. Turning to Outlook, we are in a very complex macroeconomic environment, to say the least. Since our last call, we observed meaningful changes in both e-commerce, retail sales forecasts, and consumer spending behavior, and in the past few weeks, the onset of new policies from the COVID-19 variant. beginning with the data that became available after our earnings call and was then validated as many online retailers released earnings over the past few weeks. The consensus in the market suggests e-commerce sales will likely slow for the balance of the year. Coupled with this development, consumer spending in July appeared to be shifting away from durable good categories in favor of travel, clothing, and entertainment. To add further complexity to these trends, many merchants are now dealing with rising inflation and supply chain challenges, including inventory shortages, as well as facing IT resource constraints and competing priorities. This has delayed many opportunities into the future. From a consumer perspective, the environment is still quite dynamic with multiple factors to consider. Monthly child tax care credit payments commenced on July 15th. The federal rent eviction moratorium expired on July 31st and was then subsequently extended for certain parts of the nation, and enhanced unemployment benefits are set to expire in most states by September. How these events impact our originations and revenue remains to be seen, as we only have a few weeks of data available, and we'll be monitoring our portfolio performance and adjusting our models in real time. Coupled with all these factors is the backdrop of COVID-19 and the emergence of new variants, and there is uncertainty of how the federal and state governments will respond. On our previous earnings call, we believed our guidance for the year was appropriate and reasonable, but a lot has changed since that call. What is especially challenging for our projections at the current time is that the visibility is strained and there are multiple conflicting factors at play. When looking forward to the balance of the year, there is just too much uncertainty right now to try to predict growth originations and revenue in a highly specific way. We expect to have more insight into these new and evolving trends by our November earnings call, but for now, we feel it is best to remove explicit guidance for the rest of 2021. What we think is prudent to offer you is what we've seen thus far in Q3 and provide some additional color to help frame how things might develop. To be clear, this is not guidance, but instead is intended to give you a directional sense. While we expected significant year-over-year growth, July 2021 growth originations were flat from the same period last year, as our existing merchants experienced larger-than-anticipated declines in retail transaction volumes. On a positive note, we have been able to offset this outsized decline with our new merchant edition, and we are cautiously optimistic that as the summer winds down, people return from their vacation, and school begins, that demand will increase. Looking ahead to Q4, the holiday season is normally our largest quarter from a volume perspective, tracking to retailer promotions and consumer purchasing trends. While we originally forecasted a typical Q4 holiday trend for 2021, at this point, it is difficult to be definitive about how things will play out based on the uncertainty we see in the market. Through Q2 2021, trailing 12-month growth origination for $250 million and trailing 12-month revenue is $302 million, well above pre-pandemic levels. As we've increased our sales and marketing investments, new merchant ads have also accelerated, reflected by the 72 new merchants onboarded through July. Our efforts at cultivating customer loyalty are also paying off as our customer repeat rate continues to grow. Our merchant pipeline is larger than ever before, and as macroeconomic conditions change and merchants resolve the variety of near-term challenges and constraints that they are facing, such as IT resources, we anticipate our growth trajectory to accelerate over time. While we can't control many of the macroeconomic factors that we are currently faced with today, we can control how we use our resources to serve our customers partner with our merchants, and prepare for long-term growth. Accordingly, we plan to leverage our strong balance sheet and significantly increase our spend on initiatives that will expand our presence in the merchant community, better serve our consumers, and grow our competitive advantage. While this will reduce near-term net income and adjust the EBITDA, we are resolved that this is the right decision at this time. And while there may be some near-term headwinds as we navigate the dynamic macroeconomic environment, we do believe we are best positioned to deliver on our mission of financial inclusion, but also delivering long-term value for our shareholders. And with that, I will turn it back over to our CEO, Orlando, for closing remarks.

To wrap up, we want to reiterate our sincere appreciation for all our stakeholders. We appreciate our shareholders' support, our merchants' trust, and our customers' business and loyalty. And while we're operating within an environment of uncertainty, we remain focused on a much bigger future and are convinced that our market-leading position, strategic investments, and long-term focus will equate to continued strong growth and improving profitability for many years to come. Derek, Carissa, and I will be happy to take your questions. Operator, please go ahead.

As a reminder, to ask a question, please press star then 1. If your question has been answered and you'd like to remove yourself from the queue, press the pound key. Our first question comes from Ramsey LSL with Barclays. Your line is open.

Hi, thanks for taking my question this morning. I wanted to ask about the competitive environment, and I guess specifically about your comments about prime providers sort of moving down market into your traditional kind of lower prime base environment. What is your view about the degree to which this is a more sort of permanent shift? I guess, in other words, has the competitive environment become more challenging on a lasting basis? I know that's a bit of a crystal ball question, but what's your view there?

Hi, Ramsey. It's Orlando. Thanks for the question. Thanks for the question. You know, if you look at what has happened in the last year, you know, even beginning at COVID, many of the prime lenders tightened up. pretty dramatically, which we were the benefit of because it waterfalled down to us. And I think right now the prime lenders, and you track a few of them so you know, their delinquency rates are at all-time lows, and they've opened up to try to hit volume. So we think it's temporary. Not knowing what's going to happen in the fall, obviously that's a question, but I don't think it's sustainable necessarily as kind of things get back to normal.

Okay. And I also wanted to ask about the bad debt expenses stepping up in the quarter. I think you mentioned it was related to an increase in gross originations, and forgive me if I missed it, but something to do with account receivable balances. I'm just trying to understand here whether we should be modeling a higher kind of loss rate going forward or whether there was a bit of an anomaly in the quarter. If you could just elaborate on the drivers there, it would be great.

Sure. Yeah. This is Carissa. So bad debt expense, it's definitely seasonal in Q1, it was at the 6% mark, and Q4 was 8.8. So it really depends on the seasonality. But in general, in Q2, we had a few different dynamics. One, the bad debt expenses percentage of revenue was just on a lower denominator because we have been testing customer promotions and pricing offers. So our revenue was a little bit intentionally a little bit less than normal. And then our gross AR just continues to grow as our base growth. And so that's what the bad debt expense is really a function of. It's reserving on our lease payments that have come due that we have not collected quite yet. So as that gross AR grows, we're going to see that bad debt expense grow in proportion. But I would say a good bad debt expense run rate, if you wanted to build one that covers all the seasonality in all the quarters, would probably be around 8% to 9% at this point.

Later on. Okay, terrific. Let me sneak one last one in. I was just curious, are the headwinds you're seeing, and I understand it's sort of a macro overlay, is it really manifesting itself mostly at Wayfair, your largest partner, or is this something that you're seeing across the board, sort of more broad-based across the business?

Hi, Ramsey. This is Derek. I'll take that one. So certainly our largest retailer not providing revenue guidance and having some headwinds in the furniture and the durable goods space is certainly one area. We are seeing the impact of inflation and other pricing that is impacting some conversion rates and other categories, but I think in general our view is that there's some uncertainty in the market right now. People are shifting their spending to other categories, and we're just expecting it to come back as soon as things settle down.

Yeah, and Ramsey, if I can add, If you look at some of the e-commerce lenders and retailers that have announced recently, including one of the largest ones, they've all signaled that e-commerce has slowed. And so we're seeing that across the board with many of our retailers because we are focused on e-commerce and 90-something percent of our business is e-commerce. And I think it is a shift of spending. It started in mid-June was when summer started. Vacation started. You see the airports crowded as can be. People are spending money on travel and getting together again. And durable goods and e-commerce sales have slowed. And the stores are open. And so these are shifts that we believe are temporary and that we'll get back to normal hopefully, depending on what happens with the Delta variant, sometime either later this year or early next year.

Okay. Got it. Thanks so much. I appreciate it.

Thanks, Ramsey.

Our next question comes from Kyle Joseph with Jefferies. Your line is open.

Hey, good morning, guys. Thanks for taking my questions. I just wanted to follow up on Ramsey's question on kind of the prime kind of stretching a bit. Would you say that's kind of traditional providers or more of like the new entrance into the prime financing market that you're seeing stretch?

Hi, Kyle. It's Orlando. Thanks for the question. I would definitely say it's more the traditional providers. You know, and you're right, some of the BMPLs have jumped into the space, but I think they're focused on a much different customer. They're really not, you know, while you can stretch out the payments over four, for example, with Afterpay or others, you know, we don't really think we're competing with that because our AOV is higher. and that's not something usually somebody can split over for. But we definitely see it in some of the retailers where we have a waterfall with, you know, at Wayfair at Citi. You know, we obviously have the Affirm partnership on the waterfall. And, you know, we've looked, you know, starting in the spring, we looked at, you know, our score bands and how, how many score bands are flowing to us, especially in the waterfall, and we're seeing that the higher score bands are minimized a little bit. So we have evidence that they're definitely buying deeper, because some of our higher score bands are, I don't want to say disappearing, but they've been minimized. And so it's clear evidence that they've gone deeper. And I think if you just look at any of the major prime providers, they've all talked about delinquencies being down, and, you know, their profitability going up, and they've released some of the COVID restrictions that they've had before. So, you know, again, I think it's temporary. You know, it'll get back to normal probably at the end of this year or into next year, and, you know, depending on what happens. I mean, there's a lot going on. Understood.

Helpful. Thank you. And then one follow-up. Just want to get a sense for really kind of portfolio performance on the heels of of stimulus, also recognizing that child tax credits started to go out last month. But just walk us through, you know, whether it's payment rates or early buyout activity, kind of any trends you've seen kind of on the heels of stimulus but in front of child tax credits.

Sure. So I mentioned in my comments that we had accelerated appreciation curve because the last round of stimulus at the end of March, spur a bit of early buyout activity, so we accelerated our curves accordingly. For the child tax credit payments that started on July 15th, we didn't see as big of an impact, and we think that's probably because, as we mentioned, starting in July, especially July 4th weekend, we did see consumers probably spending their money in other categories, so rather than coming and making a self-service payment to buyout or you know, to pay down their lease, we think they're spending that in other avenues at this point. So we didn't see as big of an impact with these child tax care credits, but it'll be interesting to see. Obviously, these are coming out monthly now, how that trend evolves going forward.

Kyle, this is Derek. I'll add one more thing to it. So we have seen a slight uptick in delinquency over the last couple of months. That is very typical during this seasonal period, and so nothing out of the ordinary. Again, you know, taking into account all the different ways of government stimulus and the supply and demand activities and shifting consumer behaviors, everything's on the portfolio front operating within expectations. Got it.

Thank you very much for taking my question. Thanks, Carl.

Our next question comes from Anthony Chacumba with Loop Capital Markets. Your line is open.

Good morning, and thanks for taking my question. Not to beat a dead horse with this issue of prime lenders sort of dropping down, but I cover Aaron's and Progressive and Rent-A-Center, and they haven't said anything about that phenomenon. So I guess I'm trying to understand why is that unique to Catapult when Aaron's, Progressive, and Rent-A-Center are seeing no such phenomenons.

Hi, Anthony. You know, one thing that's really unique about the Catapult solution is that in many of our environments, we're in a waterfall environment where we are receiving declines from prime providers, and that allows us additional insight as we can see trending and detailed analytics as to what's happening in our base through application flow all the way through conversion. And really simply, you know, there's been various outside stimulus The trends in supply and demand have changed what has been needed. It changed the character of what those above us are approving. Just like last year when we saw tightening during uncertainty before stimulus hit, we have seen that loosening occur. This is something that we've seen before off and on throughout the years. I think this is fairly common, but, you know, in our position in the waterfall, we just have more visibility into it.

Got it. That's helpful. And then my second question, you know, I understand there's a lot of moving parts here and a lot of uncertainty, but when you talk about the COVID-19 variant, I would think that would be a positive for your business, right? I mean, you had your best ever lease originations in the second quarter of last year because of, you know, widespread shutdowns and the shift to e-commerce. So why wouldn't, you know, people getting freaked out about the COVID-19, you know, Delta variant be good for your business and not bad for your business?

Hi, Anthony. This is Derek. I'll continue on that and maybe my colleague here will jump in. So on that front, you know, there's puts and takes. And so when we talk about the uncertainty associated with COVID-19 and what that has done, one of the areas I'd like to emphasize is how that's impacting some of our retailer rollouts. Their ability to get IT support to be able to do integrations as well as the priorities that they have in response to what's going in the macro environment is just shifting priorities for our releases. And so what's great is that there's still a heavy amount of interest and a lot of activity on that front many of these rollouts have been delayed. And so that's one impact on our business. Now, on a consumer front, you know, if there were more extreme activities, you know, that does tend to favor the e-commerce activity or purchasing behaviors, that says, you know, that's not something that we're modeling in for the last half of the year.

Yeah. Anthony, this is Rolando. If I can add, you know, Many of the discussions, and I think I've mentioned this on a previous call, that July and August are our biggest months in terms of retailer additions in preparation for the holiday. And resoundingly what we've heard, and I'll give you an example. I was speaking with one pretty large retailer who is requiring everybody to come back to work soon, and many of their IT resources have quit because they're They've moved to another area. They can work from home. There seems to be across the board at many of these retailers just an IT constraint issue that is unforeseen and that they can't get enough resources on the tech front and that the ones that they have are leaving for work from home if necessary. We normally see a really big uptick on new retailer additions and we've had quite a few smaller ones, some of the larger ones are a little bit tougher to get done because of those IT constraints.

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

There are no further questions at this time. Please proceed with any closing remarks.

All right. I want to thank everyone for listening today. You know, we're excited about the long-term growth aspects of Catapult. We continue to work hard to get the retailer integrations that we need and enjoy the strong pipeline that we have. There are constraints, but we're working hard to try to help alleviate some of those issues by simplifying our integrations with the retailers. and I think we're looking forward to the second half of the year and into next year as some of these retailers get back to normal and they can integrate our platform pretty quickly. So, again, thanks, everybody, for listening, and have a good day.

Ladies and gentlemen, this does conclude the conference. You may now disconnect. Everyone, have a great day.