Katapult Holdings, Inc.

Good day and thank you for standing by. Welcome to the Catapult 4th Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Wright, Vice President, Investor Relations. Please go ahead.

Thank you and good morning. Welcome to Catapult's fourth quarter and full year 2021 earnings results and investor update conference call. With me today are Orlando Zayas, Chief Executive Officer, Chris F. Cupidow, Chief Financial Officer, and Derek Menglund, Chief Operating Officer. We issued our earnings release and corresponding investor presentation this morning, and we will be referencing these during the call. Both can be found on the investor relations section of our website. We will be available for Q&A following today's prepared remarks. Before we begin, I would like to remind everyone this call will contain forward-looking statements regarding future events and our financial performance, including statements regarding our market opportunity, the impact of our growth initiatives, and our future financial performance. These should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports. including our Form 10-K for the year ended December 31st, 2021. 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 materially 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 financial 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 our GAAP results. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release, which is available on the investor relations section of our website. This call is being recorded, and a webcast will be available for replay on the investor relations section of our website. I will now turn the call over to Orlando.

Thanks, Bill. Good morning, everyone, and thank you for joining us. On today's call, we'll review our fourth quarter and full year results for 2021. In addition, we're going to provide a deeper dive regarding what we're seeing in the current macro environment, as well as provide an update on our growth strategies. We realize many of you are new or potential investors to Catapult, so we'd like to begin today with a brief overview of what Catapult is all about, starting on slide six. We are a company that first and foremost is focused on bringing financial inclusion to underserved non-prime consumers. At Catapult, we provide an attractive solution for these non-prime consumers to access the essential products they need for everyday living. Our highly scalable proprietary technology enables us to provide both merchants and consumers with a clear, transparent lease purchase solution that facilitates transactions directly at the online checkout or point of sale. Slide 7 details some of the key attributes about Catapult's leading e-commerce lease-to-own platform. We believe that our focus on non-prime consumers positions us to capture a significant share of the large virtual lease-to-own market. Our proprietary technology platform, along with our sophisticated risk and decision modeling, is designed to enable us to deliver value-added solutions to our merchants and consumers. We have a robust suite of merchant solutions across a variety of integrated point of sale options that is designed to enable merchants to efficiently promote and sell incremental inventory. We believe Catapult's seamless customer experience wins repeat customer business due to our simple application process, flexible and transparent payment options, and innovative lease financing solutions. Turning to slide nine, as you can see from these highlights, our team continues to navigate the difficult macro environment for both our merchants and consumers. As we have mentioned on past calls, the current macro challenges, including ongoing supply chain headwinds, the end of government stimulus, and changes in consumer spending continues to impact the consumer and merchant environments. We are confident in our ability to navigate these challenges and remain focused on delivering our long-term objectives to capture new volume opportunities and create value for shareholders. Looking back at 2021, some important takeaways to mention are, number one, fiscal year 2021 revenue grew 23% year over year. Number two, despite the ongoing Macro challenges noted, we added 20 new merchants in the fourth quarter, bringing our total to 102 new merchants in 2021, up 127% from 45 new merchants in 2020. Number three, our satisfaction metrics remain strong. Our net promoter score was 54 as of December 31st, 2021, and has grown to 59 as of the end of February 2022, and repeat customers made up 53% of our Q4 2021 originations. We also have strong merchant retention as demonstrated by our deepening relationships with key merchants during 2021. Number four, we are accelerating our investment in initiatives that support our long-term growth strategy. We are adding critical personnel to our organization to facilitate execution of our strategy, as well as bring new leaders in key areas of growth opportunity. We are planning to invest in strategic product and technology investments initiatives that are designed to enable us to capture more market share. As we build our already solid operating foundation, we believe we're in the initial stages of creating a sizable, durable, and scalable business, which I will discuss in more detail later in the presentation. I will now turn it over to Carissa, our CFO, who will provide more details on our financial performance.

Thank you, Orlando. As detailed on slide 10, Q4 largely played out in line with our quarter-to-date update, which was released on December 1st after Cyber 5. Total revenue for the fourth quarter of 2021 was $73.3 million, which was flat year-over-year. Gross originations were down slightly year-over-year as our retailers continued to face supply chain challenges, shifts in consumer spending habits, and with stimulus dollars exhausted, our consumers slowed down major purchases. Growth profit was down 1.2 million year over year due to lower lease margins driven in part by customer pricing offers and promotions that we offered throughout the holiday season, as well as credit normalization to higher pre-pandemic levels. Our net income for fourth quarter was 7.5 million compared to 3.9 and adjusted EBITDA for the fourth quarter of 2021 decreased by 10.3 million as we continue to invest for growth and incurred ongoing public company costs. Turning to slide 11, Overall operating expenses were up $7.8 million year-over-year. This operating expense growth is largely due to three factors. One, increased bad debt expense due to continued credit normalization. I will discuss the treatment of bad debt expense going forward on slide 15. Two, higher compensation costs from the addition of 36 full-time employees during the year as part of our strategic growth plan. And three, increased general and administrative expenses related to public company costs and higher marketing expense. Full-year financial results are presented on slide 12. Gross originations increased 5% to $248 million in the face of a challenging macro backdrop during 2021. Total revenue for the full year of 2021 was $303.1 million, up 23% year-over-year. Net income was modestly lower at $21.2 million than 2020, and adjusted EBITDA for 2021 decreased to $17.3 million, which reflects the addition of new full-time employees throughout the year, other investments and growth initiatives aimed at increasing market penetration and public company costs. Turning to slide 13, effective January 1st, 2022, the company has adopted a revised standard for accounting for leases as required by GAAP ASC 842 leases. This is a leasing standard that for Catapult dictates the timing of the recognition of leasing revenue and will modify the accounting treatment a bad debt expense within the income statement. As a result of this adoption this year, going forward, the company will record lease revenues on a cash basis and will no longer record rental revenue arising from lease receivables or any corresponding bad debt expense. We will adopt the accounting standard for the three months ending March 31st, 2022 using the modified retrospective approach and plan to adopt the optional transition method in which reporting entities are permitted to not apply ASC 842 for comparative periods in the year of adoption. Therefore, we will not recast or restate 2021 or prior periods to conform to the new standard. On slide 14, For illustrated purposes only, we are disclosing here non-GAAP revenue, the elimination of bad debt expense, and non-GAAP income before provision for income taxes, as if the lesser accounting impacts of ASC 842 were in effect for the years ended December 31st, 2021, and 2020, respectively. As you can see, on a non-GAAP basis, applying the impact of ASC 842, rental revenue is reduced as compared to our historical results, which reflects the timing of cash receipts, and the corresponding bad debt expense is eliminated as compared to our as-reported numbers. Since bad debt expense will no longer be reported starting in the quarter ending March 31, 2022, due to our adoption of ASC 842, in order to evaluate lease portfolio performance, we point you to the impairment charges related to property health release that we book each quarter, which we have detailed on the next slide. Looking at slide 15, impairment charges related to property health relief as percentage of gross originations was 5.9% in Q4 2021. As we have previously detailed, the stimulus payments that occurred during 2020 and early 2021 in response to COVID-19 led to historically favorable credit performance for both prime and non-prime consumers. Beginning the third quarter of 2021, the credit environment started to normalize and heading into Q4 2021, a significant increase in inflation coupled with an absence of stimulus funds further pressured performance. In response to these new data trends and a deterioration in credit quality, we initiated proactive tightening of our underwriting in Q4 2021, and we have continued to do so into 2022. We do anticipate impairment charges as percentage of gross originations to trend up to higher pre-pandemic levels for the first half of 2022. I will now turn it over to Orlando to discuss our strategic investments.

Slide 16 details the strategic investments we made in 2021 that positioned us to capture the large growth opportunity ahead. In sales and marketing, we expanded the total sales and marketing team from 21 to 46 full-time employees, all focused on capturing and onboarding new merchants. We also partnered with our merchants on co-promotion and messaging, leading to insightful learnings on what marketing tactics we believe work best to attract new customers and improve lifetime value. In addition, we expanded digital marketing efforts and customer acquisition channels. In product, we hired and onboarded additional strategic product roles, which are intended to allow us to launch our innovative enhancements and capabilities at a faster pace. We also built and deployed dynamic testing environment for real-time conversion flow and individualized offers. This powerful tool is designed to be instrumental in maximizing our conversion rates and we believe is a competitive differentiator for how we go to market. In addition, our team developed proof of concepts for next-generation lease-to-own capabilities, which we anticipate launching in 2022. We also hire key roles at the management level in technology, data science, and analytics. We continue to integrate with more e-commerce platforms and point-of-sale systems that will drive future volumes. We also made a sizable investment in infrastructure and security to ensure we can scale effectively. All these investments, which we characterize as core investments, have created a solid foundation which we believe will enable us to accelerate growth in the future. I would now like to step back and provide an overall investor update, beginning with market overview on slide 18. We play in a virtual lease-to-own market estimated to be approximately $40 to $50 billion. We believe we have captured less than 1% of this addressable market, so our opportunity is vast. As you can see on slide 19, we believe we have a competitive advantage that differentiates us from our peers. We're the only e-commerce LTO company that is focused solely on serving non-prime consumers. We view the prime focus lenders not as competition, but as partners. Our product serves a different type of consumer from the prime lenders given it is a lease, not a loan, and has different requirements, regulations, and benefits. Given these differences, prime lenders look to us as a solution and strategic partner for this particular segment of the durable goods e-commerce market. We are also differentiated by our focus on e-commerce as other lease-to-own businesses that serve non-prime consumers are largely based in brick-and-mortar stores. As a result, we believe we are well-positioned to capture a significant share of the addressable market as we focus on our strategic growth plans. I will now turn it over to Derek to discuss our business in more detail. Thank you, Orlando.

On slide 21, you can see that Catapult provides value to merchants through our proprietary and differentiated technology and highly predictive risk models. which is designed to give merchants the opportunity to access a large segment of underserved non-prime consumers. We believe that many of the lease sales enabled by Catapult are incremental to our merchants, as this segment of consumers would have otherwise been declined by traditional financing options. Our simple and straightforward application process and strong customer service focus is designed to lead to high conversion rates and more repeat transactions. Our proprietary tech solution is entirely merchant-focused, designed for quick and efficient integration of our platform using a variety of options, including platform, direct, and waterfall. Each of these options is intended to provide a seamless experience for our merchant partners and position them to increase their sales capture. Let me touch upon a few examples and success stories over the next few slides. Slide 22 provides detail on our platform and direct integration options. Our platform integration allows Catapult to create a payment solution in the form of a plugin or extension for a merchant. This provides a streamlined experience for the merchant since no development is required. We're integrated with e-commerce platforms like Magento and Shopify. If a merchant is on this platform where we are integrated, it can be as quick as 30 minutes to complete an integration and be a payment option in their shopping cart. We also offer direct custom integrations via APIs. This provides merchants the flexibility to integrate with Catapult if they utilize a proprietary shopping platform. We are also partnered with select prime lenders to offer a waterfall integration. A waterfall is where the consumer's declined application will flow from the prime lender to others automatically, giving the consumer the best option for their credit situation. Our first waterfall partner realized that having a solution for their declines was important to their retailers. They chose to integrate with us, creating a waterfall where the consumer only has to submit the application once. If the prime lender declines the application, the data is electronically transmitted to us, and we have the opportunity to approve this customer. E-commerce retailers understand that when a consumer is searching for financing and payment flexibility, it's important to give them the best offer for their credit situation, or they may lose that customer to another retailer. We believe we offer a clear and compelling value proposition to consumers, as you can see on slide 24. Our platform is designed to remove financial barriers to increase inclusion, affordability, and access for underserved consumers in order to give them options to purchase the durable goods that they need for their daily lives. We offer the consumer a way to make purchases without the need for a credit score and without worrying about late fees. But perhaps most importantly, we offer flexible and fully transparent payment options. The application process is transparent with no hidden fees or charges since we are communicating directly with the consumer online. We offer the consumer the option to get to ownership if that's their goal. Our most cost-effective option is to buy out the item in 90 days or less, charging a 5% fee. After 90 days, we'll discount the remaining lease payments versus the full contractual cost to help facilitate ownership. Our goal is to be there for our consumer time and time again as their needs arise. Being upfront about how the lease works and communicating along the way is important to us as we work to increase financial inclusion for these underserved, non-prime consumers. Our customers also appreciate the ease of use of the Catapult platform and our customer-centered approach. Slide 25 demonstrates our application and checkout process. We provide consumers with a seamless and intuitive experience. Our three-step lease application is fast, simple, and discreet, with only 14 fields to fill out, no requirement to provide employment information or personal references, and importantly, no FICO hard credit bureau check. Once our consumers have completed the application process, They are given transparent lease terms before any money is collected. Customers can pay by payment card, and their item is immediately shipped after the initial payment is made. Finally, we offer our customers on-demand access to a lease management portal for their convenience. As part of our mission of financial inclusion for all, we empower our customers to understand more about their financing options, make changes to their account, and communicate with us through chat, text, and email. For those who wish to call, our support teams are using digital tools to rapidly solve the consumer's questions. and get them back to enjoying their items. I'll now turn it back to Orlando to discuss our strategy for growth.

Thanks, Derek. Turning to slide 27, I'd like to share with you our vision for the future of Catapult. We are well positioned for the growth opportunities ahead of us as a result of our available cash and strategic investments that we made in 2021. While the macro environment is challenging today, the elements for success in our category remain the same, And in 2022, we are deliberately continuing to pursue growth initiatives that we believe will set us up for success over many years to come. Based on our experience in this industry, we anticipate the current macro backdrop conditions will have the potential to increase the number of consumers who need our product and expand the number of merchants looking to capture incremental sales. As a result, our belief is that companies who make investments today are going to be in the best position to take advantage of these long-term secular trends. We anticipate that the investments outlined on this slide will best position us to capture market share and grow our company. We recognize that we have only scratched the surface of this $40 to $50 billion virtual LTO market and that the opportunity ahead of us is significant. For the past year, we've invested to build a solid core foundation for growth. With that in place, we can now look ahead at the near and medium-term initiatives that we have laid out on this slide. In the expansion category, we are focused on hiring strategic leadership talent that can drive execution. In addition, we are laser-focused on upgrading sales and marketing processes and outputs. while at the same time building capabilities across our product, tech, and data functions. Our goal for these investments is to pave the way for our optimized category. In this category, we are focusing our investment dollars on the following. Number one, ensuring our customer gets the offer that is right for them. Number two, maximizing conversion rates and originated lease volume. And three, accelerating the merchant flywheel and setting ourselves up to win larger enterprise accounts. Turning to slide 28, we plan on investing $15 to $21 million in growth initiatives in 2021. These initiatives are intended to focus on opportunities to access more consumers and convert more merchants for this purpose, driving growth. While this is our current plan, given the inputs we see today, I would like to note that our investment spend is discretionary, and the team and I will continue to monitor the macro environment and adjust this spend if we deem necessary. At a high level, hiring for strategic leadership roles has been a huge focus for us, and I am pleased to announce that we have been successful in this area. So far in 2022, we have onboarded a Chief Marketing Officer, Chief Human Resources Officer, VP of Strategy, VP of Sales, and VP of Partnerships, all with extensive experience at companies such as Klarna, Edge, and UBS, Verizon, and Morgan Stanley. These leaders will be instrumental in moving the company forward to help execute on the initiatives detailed on this slide. When it comes to sales initiatives, we are laser-focused on adding new merchants. We believe there are thousands of eligible merchants offering durable goods that could benefit from access to our platform, and we plan to target with an optimized sales process developed by our new VP of sales, Marino Ruiz. Marino comes to us from Shopkeep, where he implemented a structured plan around sales processes, which utilized data-driven decisions to accelerate the merchant flywheel. He is partnering with our new chief marketing officer, Colleen Gorski, to expand our B2B marketing opportunities, leveraging her experience at Klarna. We are also dedicated to deepening the relationships with our existing merchants, where we see opportunity to grow volume through increased sales penetrations. Currently, our lease originations represent a modest percentage of total sales volume of our merchants. We believe we can increase our penetration rate of merchants' overall total sales by collaborating with merchants to target a new and engaged customer base that is looking for solutions to acquire the items they need for everyday living. Our marketing investments focus around expanding brand awareness and positioning initiatives. In addition, we plan to expand our customer reach through targeted customer promotions and cross-shopping. In product, we are building new functionality that is designed to increase customer conversion rates and repeat business through new product capabilities and enhanced propensity data models. We are also focusing on expanding our partnership network to provide new solutions to both consumers and merchants. Our technology focus is on building out new digital and omnichannel experiences, as well as continue to integrate with additional e-commerce platforms and lenders to further expand our footprint. Moving to slide 29, as we turn to 2022, many of the recent macro headwinds from Q4 2021 have carried into Q1 2022. Q1 2022 represents our most difficult comp this year, as consumers were bolstered by two stimulus texts last year during the first quarter, one in January and one in March, that drove spending and consequently our gross origination volume. Our key merchant partners are experiencing lower sales volumes than a year ago. In addition, we have continued to tighten underwriting as we remain prudent in our lease portfolio risk management, leading to fewer approvals. The combination of these factors is resulting in originations trending down approximately 25% year-over-year through February. We expect the challenging macro environment to persist in that we will have tough comps through Q2, but our expectation is that our largest merchant partners will be able to return to growth in the second half of the year. We also anticipate impairment charges returning to pre-pandemic levels as lower-performing lease vintages work through the life cycle. Our management team has been working with the non-prime consumer for over a decade and have observed that as the credit environment becomes weaker, it leads to prime-focused lenders that previously expanded their underwriting due to record-low delinquencies will tighten their underwriting. This will drive the volume of applications as well as increase the credit quality of customers looking to us for payment solutions. We believe we have the tools and available cash to withstand what we anticipate are near-term macro headwinds. Our proprietary risk model is calibrated for a dynamic credit environment. Our focus is to underwrite conservatively now in order to have the capacity to add more leases later this year to the extent that historical trends bear out and higher quality customers start to come to us. As we look ahead, we are planning to seize the opportunity to invest in our business now so we remain the leader in the e-commerce non-prime finance segment. Slide 30 lays out our growth plan over the next three years. We have built a solid platform and ecosystem for non-prime consumers to access high-quality merchants and expand their e-commerce product choice. Nearer term, our plans are to continue to grow our merchant base, deepen relationships with existing merchants and partners, and build out a robust pipeline. Product and technology enhancements that are designed to improve conversion rates by keeping the control of the transaction in the customer's hands are in the works. The improvements are intended to empower consumers with the knowledge that enable more informed and quicker purchasing decisions. We believe this flow will aid consumers' ability to purchase high-quality goods at retailers where they had previously been unable to qualify for financing. Looking out further, we are developing additional ways to connect our merchants and non-prime consumers with solutions that are intended to drive lifetime value. We believe our platform and merchant integrations position us to be able to eventually expand to other financial products as our customers improve their credit scores and desire lower cost financing options. We also plan to look to diversify our revenue by monetizing our data, product platform, and proprietary risk models. Our goal of these efforts is to create a high-margin transaction-based revenue and expand our share of the addressable market. In conclusion, as we look ahead to the rest of the year, we are proud of our ability to provide high levels of both customer and merchant satisfaction. We believe our customer is well-positioned to take advantage of strong long-term trends in digital commerce and alternative payment solutions. and strategically grow our company for the investment strategy that we have laid out today. With that, I will now take questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Josh Siegler with Cantor Fitzgerald. Your line is open.

Yes. Hi. Good morning. Thanks for taking my question. I was wondering if you could start by providing a little more color on the sales team build-out. Specifically, do you expect this initiative to materially contribute to, you know, your revenue growth in 2022?

Hi, Josh. Thanks for asking the question. Yeah, this is Orlando. We have been very aggressive in hiring the team. I think we've gone from 21 to 47. Sorry, got the number wrong. So they're in the process of getting onboarded. We also hired a new VP of sales, Marino Ruiz, who came from Shopkeep, and he's doing a great job on kind of the data analytics around sales, lead generation, and we're starting to see the fruits of that labor. We also see from a sales – and then we also hired a chief marketing officer from who has experience in BNPL and merchant financing, and she's doing some really interesting things around how to drive the leads that are appropriate for our business. and get them through the sales funnel as quick as possible. I think all these things are starting to come together with the new ads that we have, plus the new headcount that we had. So we're starting to see the merchant count tick up, but the lead generation is definitely on track to, I believe, have a successful second half of the year.

Excellent. That's very helpful. And then, as you mentioned, you onboarded more than 100 new merchants this year. Do new customers typically generate a material contribution immediately, or is there a significant ramp period that could provide a tailwind heading into 2022? Thank you.

Hi, Josh. This is Derek. I'll take that question. We see a variety of different ramp times depending on the size and the experience with financing by different retailers. So the answer is that it depends. However, our team has been working closely, again, with the new resources that we brought on board and the new tool kits to ramp those new merchants much more quickly. And typically, we'll see anywhere between three months to six months to see the full cycle come through as retailers get their merchandising established and their consumer base gets becomes more aware that this option is available. So we do expect to see some pull through from those 100 retailers this year, and then as we continue to add more, the wedge just continues to grow.

And Josh, as Orlando, if I can add, when we onboard a merchant, usually it's through either a waterfall or possibly a direct channel. It depends on where they come to us. And usually that's one of the two or the first integration. And then if they have stores, that would be the third. So the way we look at it is, you know, we want to get the integration done as quick as possible. Usually the waterfall integration comes first, then the direct integration into their shopping cart, so we're an option in their shopping cart and maybe on their finance page. And then finally, if they have any storefronts, you know, we have the capacity to do the storefront. So that's where you see the volume increasing over time as we integrate those three different channels.

Great. Thank you very much. Thanks.

Thank you. Our next question comes from Anthony Chikuma with Loop Capital Markets. Your line is open.

Good morning. Thank you so much for taking my question. I guess my question is on the quarter-to-date lease originations. You know, it might be a bit tough to parse this out, but how much of that do you think is due to, you know, some of those macro trends that you identified as opposed to, you know, decisions you've made in terms of tightening your credit? How should we think about that?

Hi, Anthony. This is Carissa. Great question. So when we look at it, you know, it's a macro impact that we're seeing on our largest retailers are affecting their sales. So our top funnel that's coming in in terms of, applications in the teens. So you could parse it out that that's really a macro impact that our merchants are challenged with right now. And then the remainder of that 25% would be us proactively tightening and being conservative in our approval rates because of the macro condition in terms of the credit.

Another important thing, Anthony, for you to just be reminded of is that year over year we're coming off stimulus that occurred right after the the first of the year, and so just the comps are a little bit different year over year. However, we are seeing just kind of a turnaround of that as things equalize in the tax season.

Got it. No, that's helpful. And then, you know, I was just wondering if you could give any update in terms of, you know, your largest retail partner, Wayfair, and, you know, how you're doing there. I mean, it looks like, you know, you're lease originations, you know, sort of outperformed in the fourth quarter relative to their, you know, to their U.S. revenue growth. But I don't think that their, you know, sales are going to be down 25% or anything close to that in the first quarter. So I'm just wondering, you know, if you can give us an update, you know, in terms of how things are going there. Thank you.

Thanks, Anthony. We don't comment specifically. We know that they called out to us on their call the other day and we really appreciate the partnership that we have with them and they've got a great business over there and so our teams continue to lean in together and find optimal ways to help continue to grow their business and ours and deliver a great experience for our mutual customers and so things continue to be good and we're optimistic on the secular shift that continues to have in e-commerce and I think we're positioned to continue to gain share and grow alongside them.

Fair enough. Thanks. Thanks, Anthony.

Thank you. And we have a question from Ramsey Elisal with Barclays. Your line is open.

Hi, this is Ben on for Ramsey. Thanks so much for taking the question. I wanted to kind of follow up on the quarter-to-date results, and I understand there's sort of a lot of macro impacts that are difficult to forecast as well as challenging comps. But, you know, so understanding why perhaps you didn't guide for the full year, I'll ask anyway. And maybe I'll ask this way. Is there any way you can give us a sense of what you think the seasonality might look like? Does 1Q22 look like a normal 1Q22 in terms of like the percentage, you know, the distribution of originations? Any color like that would be very helpful.

Thanks, Ramsey. This is Chris again. You know, for Q1 last year, obviously, was our toughest comp because there was abnormal seasonality with the two stimulus payments, one in January and one in March. So we're hoping, but obviously the macro conditions remain very dynamic, so it's hard to provide near-term guidance. It's really challenging. But we are hoping we go back to a more normalized seasonality. calendar by the end of the year, which ultimately Q4 historically has been our highest origination volume quarter when the world is normal and the holiday season is strong. So we would anticipate that returning, but obviously everything remains very dynamic at this point in the macro environment. So that's why we're not providing any near-term guidance.

Sure. Very understandable. And then just one follow-up. On the sort of the new merchants in Q4 and perhaps the initiatives you've got with some of the new hires, is there any color you can share around, you know, either the pipeline or, you know, some characteristics around the new merchants? Is it, you know, SMB? Is it enterprise? Anything like that?

Yeah, Ramsey, this is Orlando. Thanks for the question. So what we're seeing this year compared to mid-last year, let's just say, is that the retailers have gone past the BNPL shine that we had last year, or the excitement around BNPL. I think we're seeing a lot of mergers and acquisitions happening on the BNPL side. I think they've penetrated many of the retailers by now. And so we're starting to see a shift and retailers saying, okay, I've done the BNPL, now what's the next step? And our pipeline has been building pretty nicely. Now it's a matter of just executing those leads into deals and getting them integrated as quick as possible. And then with the addition of the added sales team, we're getting a lot more coverage out there, reaching out to these retailers, But I guess compared to last year, the one way I would describe it is they're answering the phone now, where last year they were like, talk to me later. So it gives me great hope in the year that we'll be able to execute the plans and getting these retailers integrated as quick as possible and starting to produce.

Okay, great. Thanks for taking my questions.

Thank you. We have a question from... Hal Ghosh with Loop Capital. Your line is open.

Hi there. With so many more retailers on board and more to come and the job market being materially better than it was in 2020 and early 2021, you would think that there's more people coming into your funnel or more qualifiable people than before. And so with that being said, like, Are your applications still growing and you're not improving as many? And what is your outlook for kind of application growth with more stores and probably more qualifiable borrowers because of an improving job market? Thank you.

Yeah, I think there's a few answers there. One, obviously, you know, short-term, near-term, with just the macro challenges going on that our merchants are facing, the applications, like we mentioned, especially with the year-to-date or the through February numbers we gave you, the application funnel has shrunk a little. But ultimately, yeah, the long-term viability of this business and some of the secular trends and counter-cyclicality that we would face, especially... If credit markets continue, we anticipate that Prime will have to tighten in response to increased delinquencies, which would widen that funnel for us. And then in terms of our sales pipeline and incremental merchants, yes, as we onboard more merchants, that obviously creates more application flow. So I think it's a function of we'll continue to execute on our side from a merchant onboarding, which will increase applications coming to us, but then also there could be a tailwind as prime tightens above us and then more declines from the prime come to us in the form of applications.

Thank you.

Thank you. And there are no other questions in the queue. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.