Katapult Holdings, Inc.

Greetings and welcome to the Catapult third quarter 2023 on-air call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce our host, Jennifer Call. Please go ahead.

Welcome to Catapult's third quarter 2023 conference call. On the call with me today are Orlando Zayas, Chief Executive Officer, Nancy Walsh, Chief Financial Officer, and Derek Medlin, Chief Operating Officer. For your reference, we have posted materials from today's call on the investor relations section of the Catapult website, which can be found at ir.catapultholdings.com. I would like to remind everyone that this call will contain forward-looking statements based on our current assumptions, expectations, and beliefs, which include our future financial performance and financial results, and are subject to significant risks and uncertainties. These forward-looking statements should be considered in conjunction with cautionary statements contained in the earnings release and on Form 10-Q for the quarter ended September 30, 2023, as well as the subsequent periodic and current reports the company files with the SEC. These statements reflect 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. The information contained in this call is accurate only as of the date discussed. Except as required by law, the company undertakes 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, the company will provide certain financial information that constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is included with today's earnings release and is available on the investor relations section of the company's website. With that, I will turn the call over to Orlando.

Thank you, Jennifer, and thank you to everyone joining us this morning. I'm excited to give you an update on our progress this quarter, which illustrates the value we are creating for our merchant partners and the enhanced experience we're delivering to our loyal customers. Our third quarter results represented another strong period of growth for Catapult. While Nancy will give you more details on our financial performance, as well as our outlook for continued growth in the fourth quarter, let me set the stage. Despite the ebb and flow of macroeconomic headwinds that caused the consumer to pull back on retail spending during the late summer, we delivered our fourth consecutive quarter of year-over-year gross origination growth, which was up 12.5%. This is also what we'd consider to be a breakout quarter for revenue growth. Revenue was up nearly 10% year-over-year, more than tripling the year-over-year revenue growth we achieved last quarter. In addition, by coupling our top-line growth with continued focus on disciplined expense management we were able to deliver a positive adjusted EBITDA, which improved substantially compared to last year. Our progress this quarter was driven by strong performance across our strategic pillars focused on, one, expanding our merchant base and deepening our existing merchant relationships, two, growing our consumer reach by focusing mainly on doing more with our current customers, but taking measured steps to bring more consumers to our platform. And three, continuing to leverage our technology to support our merchant and consumer goals while expanding our competitive mulch. Let's start with our progress on the merchant front this quarter. The success of our merchant strategy lies in three key areas, driving gross origination growth through direct integration, gaining market share with our anchor merchants, and ensuring that our platform offers a wide variety of durable goods consumers are looking for. During the third quarter, we continue to make steady progress with our strategy to grow a number of merchants where Catapult is an integrated payment option at checkout. We successfully launched our online Casper integration, and we expect to finish our in-store integration in the first half of 2024. In addition, we have also added Casper to Catapult Pay, creating yet another avenue for our customers to shop with this leader in sleep products. The mattress category is important to us, and we are pleased to partner with Casper to give our consumers even more shopping choices. So far, our direct integration with Casper is off to a good start. These types of partnerships not only expand the depth of durable goods coverage where Catapult is an integrated payment option, They also allow us to acquire new customers at a very low cost. I also want to highlight an upcoming waterfall integration with Synchrony Financial that we recently finalized. This integration is expected to kick off in early 2024, at which time Synchrony will begin leveraging our innovative LTO solution and their digital waterfall application process. Synchrony works with a significant number of retailers in auto, electronics, appliances, home furnishings, home improvement, and jewelry categories, which are some of our top categories. This integration will enable Synchronize retail partners to offer our lease-to-own option to their customers and open the door for us to launch new merchant relationships at scale more easily. By creating a seamless experience with Synchronize Waterfall, we can leverage this new relationship to drive growth in the future. We continue to look for opportunities to deepen our partnerships with our existing merchants, and the work we're doing with Wayfair is a great example of how we can grow these relationships. For example, during the third quarter, we did a lot of A-B testing with Wayfair and created targeted offers for high-quality customers to improve their take rates. We define take rates as the percentage of Wayfair customers who originate with us divided by the number of customers who are approved for a lease with us. Just to give you an example of this impact we can have, when we made a few changes to how the customer-facing offer was displayed, we saw a nice improvement in take rates just from that update. We look at take rate as a core metric for our relationships with merchants, and we are always trying to optimize the customer and merchant experience to drive this higher. The results are encouraging and help drive our growth with Wayfair this quarter. Gross originations for Wayfair were up nearly 16% year-over-year, more than double the growth we achieved during the second quarter. Take rates also grew and were up mid-teens year-over-year, and this growth was also accompanied by higher application volume from Wayfair shoppers as well as higher same-day take rates. Our strong growth with Wayfair indicates that we are gaining market share in their U.S. business, and we believe this progress is evident that our strategy is working. We are taking our learnings from Wayfair to create customized offerings for other direct merchants to help drive volumes. Let me now provide an update on our customer-focused activity and progress this quarter, starting with Catapult Pay. We launched our Catapult Pay feature in our general app about a year ago. Over the past 12 months, we've learned a lot And based on Catapult Pay's early track record of performance, we believe it will be an important part of our future growth. As a reminder, Catapult Pay is the feature in our app and is powered by our virtual credit card technology. Each time a customer uses Catapult Pay and enters into a new lease, we create a unique one-time use card number that can be used at the store's checkout. Our advanced tech capabilities allow us to create models that predict whether a durable good is leasable. This is a highly specialized capability requiring a lot of technical know-how and expertise. In other words, Catapult Pay is a very special offering, and we believe it distinguishes us from the competition. Since launching Catapult Pay last year, we have continued to grow the number and variety of merchants with whom customers can shop within our app. This quarter, we added Target to the list of merchants that already includes retailers like Home Depot, Amazon, Wayfair, Best Buy, HP, Ikea, and Lull, truly making our app marketplace a shopping destination. I encourage you to download the app if you haven't already to see it firsthand. We look at Catapult Pay and Direct Integrated Merchants as complimentary go-to market channels for us. Together, they allow us to meet consumers wherever they are shopping directly with the merchant or using our marketplace as their starting point. We measure our progress with catapult pay across several metrics. One metric that we are watching very closely is the penetration rate of our customer base. In other words, how many of our customers have downloaded and engaged in the app? This has increased substantially since our launch and our penetration rate is now in a low double digits range. In addition, we track the percentage of originations that come through catapult pay specifically, and this has grown nicely over the past 12 months. Features like catapult pay allow us to create more opportunities to interact with and communicate with our customers. With higher engagement, we're able to create more meaningful long-term relationships with our customers. This in turn is allowing us to grow our lifetime value or LTV of our customers. In fact, For repeat customers who generated new leases through Catapult Pay, we estimate that their LTV is about 48% higher than it would have been if we didn't have Catapult Pay. And these customers originate approximately 50% more leases. Catapult Pay users are very high-quality customers for us. They have high repeat rates and are also more likely to cross-shop, two characteristics that are increasing their LTV with us. Beyond these important contributions, Catapult Pay is allowing us to get merchants on our platform more quickly and gather data that helps demonstrate Catapult's value proposition to these merchants. This is a win for merchants and customers alike. Right now, we are leveraging Catapult Pay to drive engagement with our existing customers, but we are seeing new customers coming to us through the feature, and we see a path using Catapult Pay for customer acquisition in the future. Beyond this feature, our Catapult app in general has become a great engagement tool in its own right. In Q3, approximately 40% of our originations, whether they were done through Catapult Pay Merchant or a directly integrated merchant, started in our app. We believe this engagement shows that in just one year, we have already demonstrated the value of the Catapult app to our customers. We are extremely proud of our progress. This is a great segue into progress we've made growing our customer base. As you've heard so far, we are expanding where and how consumers can shop using Catapult and looking for opportunities to monetize our platform through a variety of partnerships that bring us new customers or leverage our technology to create new revenue streams. One such partnership that we're excited to announce is our new pilot with Western Unions. Just a few weeks ago, we launched our partnership which positions Catapult as the preferred LTO provider for Western Union customers. This means Western Union will actively promote Catapult and help us introduce our innovative LTO solution to their millions of active users across the U.S. We believe that we have a lot of overlap from a customer demographic perspective with Western Union customers. and that this partnership will help us build brand awareness with a large, untapped base of potential Catapult customers. We believe that Western Union chose Catapult because our solution offers fair, transparent, and flexible terms that will empower their users with financial resources to get the durable goods they need when they want them. Under the terms of our agreement, we will pay Western Union a referral fee for each customer they help us acquire that originates a lease with us. Like our waterfall relationships on the merchant side, partnerships like this will create an opportunity for Catapult to build low cost, ROI positive consumer referral channels. And similar to Catapult Pay, this is yet another opportunity for us to control our destiny when it comes to growing our customer base. As we continue to look for opportunities to grow, we remain pleased with the performance of our existing customers. During the third quarter, we achieved very strong repeat rates, which are defined as the percentage of in-quarter originations from existing customers. Approximately 51.3% of customers in the third quarter will repeat. And with an NPS score of 58, we feel confident that they are happy with their Catapult experience, a driving factor of why they come back again and again to do business with us. Lastly, on the customer front, we had a few consumer marketing updates that I'd like to highlight. Throughout the third quarter, we introduced new capabilities that will be fueled by the data we are collecting from our mobile app and other direct-to-consumer applications. We expect these tools to increase our ability to leverage email, SMS, and in-app notifications to enhance conversion rates and provide insights on how best to allocate our resources in this area. Ultimately, our goal is to optimize customer journeys, and based on initial results we're seeing, we're excited about the potential of these tools to help accelerate our consumer marketing efforts. While we are still in the early phase of consumer marketing strategy, we believe our approved approach coupled with our current and future partnerships will prove to be a winning combination and support our efforts to grow our customer base. Before I turn it over to Nancy to go through our financial results and fourth quarter outlook, I want to spotlight some progress we've made on the tech front and why we believe our technology sets us apart from the crowd. I've already talked a bit about why our Catapult Pay feature is so unique from a consumer experience perspective. But let me put this into context on how our technology is creating a competitive moat for Catapult. When our models predict if a durable good is leaseable, this technology has to be deployed across every merchant. We have built dynamic and disciplined models that support our underwriting across all of our category coverage. Electronic merchants are different from furniture merchants, which are different from jewelry merchants, for example. This means that we must understand each merchant's catalog within the context of their category and then teach our model to understand their specific catalog. And that's just the beginning. We also continuously update the model to address the many exceptions to our rules. These updates are actually the secret sauce of our technology and so novel that we recently filed a patent around catapult pay and the area of leasable detection to protect our intellectual property. There is not a lot of patents in this area and we're proud of the work our team is doing to protect our competitive positioning. This technical know-how and massive amount of data we've collected over years set our technology apart from our competitive landscape. And we will continue to look for opportunities to both monetize and protect our tech lead. As I mentioned earlier, we've done a lot of A-B testing this quarter, and our tech team is pivotal in allowing us to accelerate this important work. The wayfarer examples I provided you earlier, when we create targeted offers to drive take rates higher, for example, would not be possible if we didn't have best-in-class technologies. Finally, I'm excited about our exploration of generative AI, which we believe will allow our teams to remain on the leading edge of technology. We believe we can leverage generative AI to optimize our processes, accelerate our progress using the same or fewer resources, and create an even more scalable tech infrastructure here at Catapult. From pre-approval to approval and throughout their lifetime with us, our technology powers our ability to deliver a great customer journey while creating great business outcomes. In summarizing our third quarter, we're really proud of our steady progress. We have a multi-pronged growth strategy that is delivering sustainable growth. On the merchant side, we are enhancing our shopability through new direct integrations and merchant additions to catapult pay while exploring opportunities to help drive even more growth with our current merchants. At the same time, we're also nurturing our customer base with new features and targeted marketing campaigns that are driving take rates and engagement. With these solid fundamentals in place, we're also embarking upon new partnerships, such as the one with Western Union, that are creating new channels for ROI-positive customer acquisition. Finally, we continue to build and protect our technology leads and we are exploring opportunities to leverage our data, proprietary technology, and industry know-how to drive growth, meet the unique and emerging needs of our merchants, and meet customers wherever they are shopping. With that, I'll turn it over to Nancy. Nancy?