Thank you and good morning. Welcome to the Katapult Third Quarter 2021 Earnings Conference Call. With me today are Orlando Zayas, Chief Executive Officer; Derek Medlin, Chief Operating Officer and Karissa Cupito, Chief Financial Officer. We issued our earnings release and 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 that 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 Form 10-Q for the quarter ended September 30, 2021.

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.

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 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 and thank you for joining us. On today’s call we will review our third quarter 2021 results, share what we are seeing in the current macro environment and provide an update on how our strategy for sustainable growth within our large addressable market is progressing.

We are confident our highly scalable technology is delivering on our mission of financial inclusion for the nonprime consumer.

We see growing evidence of the value and satisfaction that we bring to our customers as well as incremental sales opportunities we enabled for our merchant partners that allow them to reach a very large and unpenetrated market of nonprime consumers.

Our long-term vision is supporting this underserved segment that is coming into sharp focus and we are pleased with our progress on our platforms and partnerships that enable ongoing growth. Turning to Slide 5, you can see the addressable market for durable goods e-commerce is already substantial.

As the leading e-commerce financing platform is focused solely on nonprime consumers we believe we are well positioned to capture a significant share of durable goods e-commerce market, targeting underserved consumers as we continue to grow strategically.

Our proprietary technology platform combined with our sophisticated risk and decisioning model is designed to allow us to deliver value added solutions to our merchant partners and offer innovative lease financing solutions to underserved nonprime consumer.

We provide ourselves on delivering a seamless customer experience with flexible and transparent payment options. Looking ahead, we will deliver incremental opportunities to our customers and merchant communities bringing more financial possibilities to the nonprime consumer.

As you can see from the quarterly highlights on Slide 6, our team continues to execute well in the face of a difficult macro environment. Consumer spending habits are changing as we begin to emerge from the pandemic, with people starting to move about more freely in public, spending on services and wants like entertainment and travel has increased.

However, demand for durable goods that are needed on a daily basis remain strong. In addition, significant supply chain disruptions are creating challenges for our merchant partners to secure inventory and fulfill orders in a timely matter, which is pressuring their sales and consequently our revenue and gross originations.

In spite of these ongoing macro challenges, we continue to capture market share and had merchant partners with 25 new merchants added in the quarter bringing our total to 82 new merchants year-to-date.

Our merchant retention rate also remain strong, while our customer satisfaction metrics such as our net promoter score and repeat customers are up significantly year-over-year. We expect that after a few more quarters of recovery from the pandemic, we will see a return to more normal macro environment.

Our strong balance sheet with $100 million of cash supports our growth strategy which includes expanded business development that is driving the addition of new merchants that can be on-boarded more quickly as a strategic investments in new product and technology initiatives setting us up for an exciting year ahead as we seek to accelerate the growth of our business.

Despite the current macro challenges that are impacting our merchant partners, we are executing well against a challenging sales backdrop.

We have established a solid operating foundation from which to execute our longer term growth strategy and believe we are at early stages of building a large and durable financial service enterprise with dramatic incremental profit opportunities as we scale.

I will now turn it over to Karissa, our CFO who will provide more details on our third quarter performance. Karissa..

Thanks you, Orlando. As detailed on Slide 7, total revenue for the third quarter of 2021 was 71.7 million an increase of 1% year-over-year. Revenue year-to-date reached 229.8 million versus 173.8 million last year, an increase of 32% year-over-year. Growth originations were 61 million in the third quarter of 2021, up 1% year-over-year.

Growth originations year-to-date are 189.1 million versus 175.3 million, up 8% year-over-year. As Orlando highlighted significant supply chain disruptions are creating challenges for our merchant partners to secure inventory and fulfill orders in a timely manner, which leads to lower sales and conversion rates.

These headwinds did use third quarter origination growth more merchant partners that we believe would have been higher absent a challenging macro environment. Despite these difficult macro factors, we were able to slightly increase overall growth originations in Q3 as our merchant partners work through the supply chain disruptions.

Breaking down our Q3 gross originations. Our largest merchant partner reported third quarter U.S. sales down 21% year-over-year. However, we actually increased our penetration rates defined as brokerage nations as percentage of U.S. sales with the merchant and our gross originations with that partner were down only 6% year-over-year.

Our gross originations with our other merchants grew 17% year-over-year spurred by new merchant adds. We believe the overall trajectory of our revenue and origination growth to accelerate as you continue to add new merchants to healthier baseline of existing growth originations.

So we are optimistic these industry trends will ultimately prove to be transitory, we anticipate supply chain disruptions will continue to create uncertainty for our merchant partners throughout the remainder of 2021.

Given these macro headwinds, it remains difficult for us to have sufficient visibility for the balance of the fourth quarter and be in a position to provide guidance at this time.

As a result, we plan to update you on our fourth quarter progress in the beginning of December after the cyber five period, which is Thanksgiving through Cyber Monday, and historically gains and record shoppers and sales for many retailers. Looking longer term trends in e-commerce sales remain extremely encouraging.

Our adjusted EBITDA for the third quarter of 2021 was roughly breakeven at 122,000. Reflecting three areas of year-over-year expense increases. One more normalized seasonal least in performance; two some level of incremental public company costs and three our increased investment in key new hires and growth initiatives.

We will dig into each of these categories more specifically, but at a high level, we feel our profit margin profile is poised to grow nicely as we gain economies of scale through our growth strategy.

Looking at Slide 8, the stimulus payments that occurred during 2020 and early 2021, the response to COVID lead historically favorable credit performance for prime and nonprime consumers alike. As we move through 2021 the credit environment is beginning to normalize to pre-pandemic patterns.

Our leasing payment performance is following that track in both lower early bite levels and higher write off. Our 90-day early purchase option rates have trended down through Q3 and delinquencies for the period increased year-over-year but are stabilizing at pre-COVID levels.

Our third quarter bad debt expense was up compared to a year ago when the issue of the stimulus checks with historically low delinquency rates. However, bad debt expense especially down sequentially from eight million in Q2 of 2021 to six million this quarter.

Our provision for impairment on our lease assets, which is a proxy for write-offs was 3.4 million in the third quarter of 2021 versus 4.4 million in the third quarter income of 2020. We do anticipate this to normalize back to our pre-pandemic levels going forward.

In regards to the credit normalization that we are seeing, one crucial distinction between buy now, pay later and our lease-to-own business is our revenue model driven by customer lease payments. We don’t rely on merchant discounts but rather higher margin lease economics and therefore we have more capacity for variations in our delinquencies.

In addition, our proprietary credit algorithms are constantly becoming more effective as we learn from additional data and sophisticated machine learning tools, which allows us to increase our approval rate overtime while maintaining lease performance that meets our hurdle rates.

Finally, I would note that there is some elements that counters cyclicality to our business. As we discussed on our last call, historically high savings rates and low delinquency rates earlier this year with the prime providers slightly stretching down the credit spectrum to capture some consumer transactions and our highest score bands.

Now as the credit environment normalizes any modest deterioration in macro consumer credit levels can be positive for our company as we expect prime credit providers will tighten their underwriting, leading to higher quality consumers coming down into our market and improving the overall quality of our customer pool. Turning to Slide 9.

Overall operating expenses were up 10.3 million year-over-year. This operating expense growth can be largely split into two categories. First, additional expenses of being a public company including D&O insurance premiums, accounting and we go expenses.

Second is investments and future growth, focused on technology and product enhancements and additional business development staffing. Our technology headcount including contractors is up from 32 professionals year-ago to 69 today, and our sales and marketing headcount is up from 19 to 37 full-time employees.

We anticipate that these expenses will shrink as a percentage of our revenue as we scale new growth originations. We expect investments and growth to continue into 2022 as we invest to capitalize on a massive scale of the addressable market opportunity ahead of us.

We believe that the potential payoff to those investments is significant overtime as Orlando will discuss further..

Thanks Karissa. We continue to maintain the strength of our balance sheet which gives us the flexibility to invest in organic growth initiatives, we closed the third quarter with nearly 100 million in unrestricted cash on hand and 57 million available from our asset backed revolving line of credit.

We are putting our strong balance sheet to good use by continuing to strategically invest in our business in order to capture greater market share.

Our investment focus continues to disrupt the omni-channel experience through technology and product enhancements that aligned to our mission statement of financial inclusion and to support a clear and transparent shopping experience. We recognize the need to expand our sales team and continue our investments in marketing and accelerate our growth.

We have doubled the size of our business development team over the past year to 30 people, which includes 16 members, who joined during the third quarter. Each new team member is onboard his or a 90-day period and has been able to start generating leads and bringing on new merchant partners.

We have also more than doubled the size of our technology and product team year-over-year. Our team is working on three key fronts.

One platform expenses to support new and emerging merchants demand across all channels; two operating infrastructure that will support large-scale expenses and three, customer and merchant solutions that expand access and transaction opportunities.

We are already seeing the results of these growth initiatives as we continue to steadily add new merchants. We added 82 merchants year-to-date compared to 54 new merchants during the full-year in 2020. We anticipate that growth will accelerate into the coming year, particularly as we expand more diverse end markets.

In addition, our firm partnership on their Connect platform continues to expand. They have recently identified more retailers with a Connect platform will bring new incremental customers. We continue to be excited about this partnership, as it gives retailers a simple platform to acquire new loyal customers.

While the bulk of our recent merchant additions have been small partners, our dialogue with medium to enterprise sized merchants continues as well. We believe that the growing evidence of our distinctive customer centric approach is accelerating discussions with larger volume partners.

Although is worth a reminder that sales and on-boarding cycle for merchants can be quite long. We continue to build our merchant base while we manage our business with an eye towards sustainable long-term growth. Katapult provide strong value to merchants.

Our variety of integration options ensure the integration is achieved sufficiently in as little as 30-days. In addition, our proprietary and differentiated technology and highly predictive risk model offers merchants the opportunity to access our large segment of underserved nonprime consumers driving higher conversion rates and higher sales.

Many of the transactions enabled by Katapult are incremental to merchants as these customers would have otherwise been declined by traditional financing options. We also drive repeat levels - farmers and partners by providing needed service of excellent customer service and support.

We are truly built for long-term relationships and we see it in our customer data, repeat customers are up 42% year-over-year, with more than 50% of new gross originations coming from repeat customers.

Our merchant pipeline is larger than ever before and as merchant resolved a variety of near-term challenges and constraints they are facing such a supply chain issues and shortage of IT resources, we anticipate our growth trajectory to accelerate overtime.

Our customers appreciate the ease of use of the Katapult platform and our customer centered approach. Our lease application was straightforward and provide our customers with flexible and transparent payment options.

Whether applying for a lease through our direct integration or one of our waterfall partners like a firm, our customer satisfaction continues to be high with a net promoter score of 60 as of September 30 2021, which is up 23% year-over-year.

In conclusion, as we head to the end of the year, we are proud to be providing high levels of both customer and merchant satisfaction. We are also pleased with our ability to weather the storm of continuing macro headwinds.

We believe our near-term investments and new customer solutions and multi channel merchant opportunities will open up even more growth potential in 2022 and beyond.

I’m excited about our positioning and ability to take advantage of the long-term secular trends of e-commerce and retail which matched with our strong balance sheet will provide us with ample liquidity to strategically grow our company. With that, I will now take questions..

Thank you. [Operator Instructions] Our first question comes from the line of Ramsey El-Assal with Barclays. Your line is now open..

Hi, thanks for taking my question this morning. I appreciate it. I wanted to ask if you could sort of help us think through the P&L implications of a return to a sort of more normal macro environment.

Does that mean sort of a return back to that high double-digit growth we saw previously?.

Sure. I think if we step back a little and we look at the macro environment, it continues to pose challenges. But we are seeing some green shoots around the credit normalization or at least performance of stabilizing and those things are obviously going to help us as we see the credit tightening on the prime side.

You have probably noticed, prime lenders have been talking about or posting that their delinquencies have been increasing lately. That means that would lead to more tightening which should generate kind of normalization of what we talked about last time and the better credit customers coming to us.

So we are pretty excited that things are starting to get back to normal. And then from a growth perspective and growing the business, we continue to capture market share, and we are steadily adding new merchants.

Some of the merchants have been pretty distracted in the last quarter around getting integrations because of the supply chain issues that they face. So we see kind of the door starting to open a little bit as we get to the holiday season and into next year. Yes Derek..

Yes. Ramsey, this is Derek, I will just add that we think continued progress on our path really consistent with our broader strategic goals of building a global enterprise here for the North nonprime consumer.

And that includes investing in our channel partners and our channel investments so that we can scale up rapidly to some of the announcements that we added different platforms and different channel partners. And this is really critical for us to be able to scale quickly.

And in addition, we have been running many controlled experiments in tinkering up the margin with our R&D about improving conversion and improving personalized offers for individuals, and we are really excited about the results that we are seeing.

And that is how we believe that we are going to continue to gain share and as the growth comes back in some of these areas whether it is has been depressed, we will be a gainer in that space..

That is great. Thank you. And I wanted also to ask about an update on the IT constraints with your partners.

I’m just trying to gauge whether that is certainly starting to loosen up or remains somewhat of a bottleneck?.

Yes, I mean, we are starting to see it kind of normalize, I think is the way to describe it. Obviously, during holiday season, many of our retailers who are holiday driven are in pretty cold freeze. So what we are seeing kind of more response around let’s talk after the first year, let’s put your integration later.

So I believe after the first year, we are going to see that open up..

And would you characterize that as sort of some pent up implementations that would then disproportionately benefit sort of next year, you get pushed into next year and therefore, provide a little bit more of a tailwind next year, is it that big of an impact? Yes you would okay..

We believe not only that, but I think they were also between the supply chain disruptions that they are trying to manage through and then some of the BNPLs, which kind of got the signed this year. Now, the prioritization, I think we are moving up the prioritization level of May the retails we are talking to..

Got it. Terrific, thanks so much..

Thanks Ramsey..

Our next question comes from the line of Josh Siegler with Cantor Fitzgerald. Your line is now open..

Hi guys. Thanks for taking my call.

My first question is around the increased penetration of your largest partner, I would love to get a little more detail around what were the driving factors behind that, and you believe that can continue in the future?.

Yes. I mean, the team works really closely with our top retailers. And actually many of our retailers around how do we drive conversion rates. And we do a lot of marketing, a lot of testing, obviously, our return customer base is really strong and continues to grow. So that helps drive that penetration rate even higher.

But it is about how you position the product to the customer online is much different than in store where a salesperson may be taking over the narrative. And we have been testing many options on trying to improve that conversion rate, we see the conversion rates and improving.

We are pretty thrilled with the fact that our top retailer was 21% down and we saw some gain share there.

Derek, you want to add anything?.

Yes. Great question. Really, we have got a vision of being able to deploy personalized offers for every consumer given their situation and at whichever retailer, whatever kind of type of transaction are looking to execute and many of the investments we made earlier this year, gives more capability around that space.

And so our ability to test and give relevant propensity offers and campaigns are really showing some early signs of fruiting and the team is really excited about those results and we think that that is going to gain share..

Excellent. Yes that color is very helpful. Thank you. And then we have seen a lot of big box retailers start implementing traditional buy now, pay later offerings into their checkouts.

Do you see that progressing overtime as they eventually move to the nonprime customers even lease-to-own and simply it is just a matter of progressing down the chain? I would love to get a little more color on that..

Yes, no. That is exactly right, Josh.

Right now BNPL is hot and not that it won’t be hot for a while, it will be, but I think it is just a prioritization level with many of the retailers and as we see they are managing through the supply chain issues, and they are working through the holiday season that we continue to drive - they continue to prioritize things further up the chain, if you will.

So we will see that I think happening after the first year. BNPL is really easy to implement, because it is just splitting the payments over four, It is not as let us just say complicated as ours could be and also can drive quite a bit of incremental business.

But I think once that is done, the next step is how do I drive even more incremental customers and that is through lease-to-own..

Yes Josh, I will just add one thing is that the process of going from a BNPL into an LTO conversation or into Katapult conversation, is just an evolution of understanding the power of giving payment flexibility to the customer set, and the nonprime customer is on these retailers websites or in their stores already, and just have not traditionally been able to transact or not transact at the level that they would like to.

And so we just see this as a journey that retailers are going through of awareness of what different payment options and financing can do for them, and how that powers loyal and recurring transactions from great customers and accessing new markets..

Excellent, thank you very much..

Thanks Josh..

Our next question comes from the line of Mark Argento with Lake Street. Your line is now open..

Hey good morning guys. Just a quick question on where you guys are in terms of your sales team. I know it seems like you guys have been hiring fairly aggressively and building out the team.

Any updates there would be helpful?.

Yes, we have been real aggressive. Actually, we had I think a team of seven new business development reps start this week, we have been real aggressive at hiring. Surprisingly, I know that hiring has been tough, but I think we are able to attract really strong talent on the sales side and right now we are up to 37 people.

And this includes lead generation support and account management. But mostly focused on those business development guys that, they take about 90-days to get on boarded. And so, once they are onboard, we start generating leads for them, they start doing the reach out and some from an SMB perspective, it is relatively quick.

So we should start seeing the fruits of that labor into next year. And now on the enterprise side, we added a couple heads, so that they are out talking to the larger merchants that do take a little bit of time, but we believe that, we have got to be out there, talking about the mission, talking about the company and getting our name out there.

And it is going to be done with that large team. We are going to continue to add I think by the end of the year, we will have over 50 people in that group.

And we believe that is a really good capital allocation, because we have some really strong processes around how we are generating leads, how we are reaching out to leads, the marketing support that goes along that really we are starting to see some green shoots if you will on conversion rates..

Okay that is helpful and then just one quick one. In terms of I know you had mentioned it seems like overall broader consumer credit default rates are starting to pick up a little bit partially as a result of probably less stimulus in the market to a degree.

In terms of a buy now, pay later guys, it seems like maybe they were stretching their bands a little bit in terms of how far down the credit spectrum they are willing to go.

And do you anticipate maybe that tightening back up if credit default rates start to pick up a little bit stimulus isn’t as robust?.

Yes, no, Mark, that is exactly what we believe is going to happen, I mean the early signs, the recent announcements that delinquencies on the prime side are starting to increase. So that is a natural tendency is for them to tighten up, especially in the lower credit bands.

And those are the customers that will flow to us and kind of, that is why we stated in the prepared remarks that we are starting to see more credit normalization..

Great. thanks guys, good luck through the holidays..

Thanks Mark..

Our next question comes from the line of Anthony Chukumba from Loop Capital Markets. Your line is now open..

Good morning. So a couple questions. I guess, first question, it was on gross profit. Obviously, it was down pretty significantly year-over-year. Now, obviously, part of that was bad debt expense. But I was just wondering, if there is any additional color you can give in terms of the drivers for the lower gross profit? Thanks..

Absolutely. What we spoke about in prepared remarks and I think what we are seeing across the board, is that credit is normalizing. And so if you look at last year, versus this year, on gross profit last year, we were in the midst of stimulus and lowest delinquencies in the history of the company.

And so now we are just right sizing to a more stable gross profit percentage.

On top of that, our revenue and we spoke about it last quarter, and it is continuing into Q3 is that we are testing and working through pricing promotions offers, other personalized incentives to really see how we can drive conversion rate, which obviously, if you charge less, you are going to have less revenue that you are booking.

So it is a function of both of those credit normalizations and some of the promotions that we are testing..

Got it, that is helpful. And then I guess my second question, when I look at your balance sheet, you got over $100 million in cash and obviously, your stock dislocated pretty significantly after your second quarter earnings release. So I guess, I was just wondering what is the thought process in terms of not aggressively buying back stock.

You just saw one of your competitors announced a pretty large [Dutch] (Ph) tender in the stock reacted pretty well to that.

So I guess, what is holding you guys back from buying back stock?.

Antony I think we are, I know and I don’t think we are a growth company. And we had a lot of discussions around how do we deploy our capital? And really, we are focused on growing the business. And we are adding a ton of salespeople, we have more than doubled the number of salespeople that we had last year.

We are investing on the tech side, so that not only do I have the platform stabilized, but also, we are working on some new initiatives that will help continue to drive that growth to support those salespeople. So I just think it is wise to invest in the company at this stage and that is what we have chosen to do..

Got it. That is helpful. Thank you..

[Operator Instructions] Our next question comes from the line of [indiscernible] with Loop Capital. Your line is now open..

Hi there.

You mentioned the loss rates had normalized at pre-COVID levels and I was just curious to get your thoughts on how that transpired and what your collections - well staff, your collection people well, staff and what are the drivers why you think it is normalized at below pre-COVID levels?.

Yes good question. So thank you. This is Derek. So just when we look at delinquency, and we look at the trends, when we talk about our loss rates and what has been happening in the portfolio, certainly we have to look back now many, many months to see trends that look like pre-COVID.

And what we are seeing is essentially pay through rates and execution that looks much more similar to so late 2019 than it did anything in 2020 or early 2021. And these are areas that we are very familiar with, we are very familiar with having the right amount of staffing, the right amount of resources.

And just to just emphasize most of what we do in terms of how we drive performance and curing of accounts that go delinquent is all in the digital space. We are very customer communication centric, we are very clear on having technology drive our solutions, so that will support customers entering and that is very data driven approaches.

So staffing is not a major issue for us whenever we go through the seasonality of these ups and downs. And so we are really proud of how the team has responded to the shifts, both on the data science and the policy side, as well as on the collections execution side. So this is just kind of part of everything that we do on a day-to-day basis..

Okay. Thank you..

Thank you. There are no further questions. I will now turn the call back to Orlando Zayas for closing remarks..

Thanks, Sara. So we continue to be really excited about our long-term growth of the company.

We are starting to see some green shoots and the aggressive hiring of our sales team, the penetration rate improvements that we are seeing, the build out of our tech team to disrupt what we are doing from both on e-commerce perspective and the omni-channel experience.

So we are excited going into 2022 that we have a team very energized on providing financial inclusion into our underserved community. And that the disruption of e-commerce continues. Our customers, our merchants rely on us to continue our immersion mission through the next several years.

So we are excited that you have joined us, and we appreciate the questions and thanks for your time today..

Ladies and gentlemen this concludes today’s conference call. Thank you for your participation. You may now disconnect..