Q2 2021 Katapult Holdings Inc Earnings Call

August 10, 2021

[music].

And so I'd say, 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 zero on you touched on the telephone.

I shouldn't 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 right Vice President of Investor Relations, Sir you may begin.

Yeah.

Thank you and good morning, welcome to the catapult second quarter 2021 earnings Conference call with me today are Orlando Dias, Chief Executive Officer, Jarrett, Midland Chief operating officer, and Krishna Who's done cheap.

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.

Should be considered in conjunction with cautionary statements contained in our earnings release on the company's most recent periodic SEC reports.

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.

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.

Yeah.

During today's discussion of our financial performance, we will provide certain information that constitute non-GAAP financial measures under SEC rules vs.

These include measures such as adjusted EBITDA and adjusted net income these non-GAAP financial measures should not be considered replacements for and <unk>.

Should be read together with GAAP results reconciliation.

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 Dot IR dot catapult dot com.

This call is being recorded and a webcast will be available for replay on our Investor Relations website.

I'd now like to turn the call over to Orlando.

Bill Good morning, and thank you for joining us on today's call. We'll review our second quarter 2021 results Cheryl 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 and this addressable market.

We're 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 it for ecommerce and omnichannel merchants to access a new market.

Karissa, 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 100.

$3.6 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 4 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 based on our business, which makes forecasting difficult since our Q1 earnings call and continuing to date, many new developments emerge 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've heard from several retailers.

First we observed.

Our consumers shift their focus towards new spending categories and away from durable goods as summer activities increase in restrictions abated.

Coupled with this consumer category spend ship external data has become available suggesting e-commerce sales will likely slow for the balance of the year. The combination of these 2 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 provider stretching further.

Other down the credit spectrum to capture consumer transactions and 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. Normalized. However, it is difficult to have certainty and the timing of these changes on the <unk>.

Tail side, our merchants continue to be impacted by supply chain constraints stock levels that are reduced or bottleneck.

This produces longer wait times for consumers.

And depressed conversion rates in certain categories on 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 on the virus variants and vaccination activities is further complicated on 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 in 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 excellent position to continue our mission to serve the true E Commerce and Omnichannel needs of this consumer segment, you see catapult 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 in our ongoing platform enhancements are truly market, leading and we are excited to elaborate further on our progress.

Specifically in 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 thousands of online and omni channel merchants offering durable goods. This momentum is continuing in July and I'm thrilled to share that we have launched 15, new merchants last month, bringing our year to date total through July to 70.

Since the end of the year, we doubled the number of merchants that are partnered with both catapult and a firm through the affirm connect waterfall solution.

Despite the recent merchant deal sizes being on the smaller size, we're 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 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 are clear and transparent approach is resonating and our net promoter score was <unk> 16 as of July 2021 up from 53 in January 2021, and 46% in July 2020, we have.

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 ecommerce 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 on 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 the NPL adoption reaches the non prime because customers.

And while there may be some variability in the near term macro trends, we are steadfast in our business model and in fact, we believe the time is now to accelerate our investment accessed 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 on Chief operating officer here at catapult as Orlando mentioned, we are confident on our progress of our platform our distribution and the offering.

As you can see from our new merchant results our platform on scaling smoothly with the arrival of new merchants across diverse integration platforms on methods.

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 sourcing 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 tracking new retailers at a faster pace.

Comparing Q2.2021 versus Q2.2020, our active merchant base increased by 89% on a per.

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 on distribution and allowing us to access a wider net of omni channel opportunities for long term growth.

These new partners on seizing the opportunity to provide expanded payment options for non prime consumers.

On our platforms make it easy for merchants to incorporate catapult the checkout option on our website.

That said, we are 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 but plan on investing further in lifecycle marketing to enhance our promotions and increased consumer loyalty.

Next we're going to continue investing in our go to market strategies for sales marketing and channel relationships.

Given the size of the opportunity in higher deal close rates, we have and will continue to scale our sales force since.

Since Q2 of last year, we brought the head count 30 professionals vs 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 for.

Lastly, we are advancing investments from new capabilities and offerings that are aimed at merchants and customers.

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 being more targeted and relevant which is what our customers care about.

We know that our focus on the lifetime value on our customer benefits are retailer segment as they come back for the catapult community for items again and again.

These expanded capabilities will allow us to make our interactions with customers more personalised drive repeat originations and maintain the relevance of the capital solution to our important on growing customer base, we couldnt be more excited to deliver more value to our customers.

Now I'll hand, it off Chris <unk>, our CFO to discuss the financials.

Thank you Derek Q2, 2021 gross origination of $64.4 million were down 17% year over year, which was consistent with our previous expectation that we provided in Q1, 2 that from 'twenty line pop.

As a reminder, on the second quarter of 2020 credit originations are positively impacted by a combination of COVID-19, Santa Margarita and temporary closures of physical retail stores that shifted consumer spending on line.

Consumer spending trends, coupled with the cares act stimulus check search online transactions at our margin and ultimately our gross origination as a result, Q2.2020 with our highest gross originations quarter last year did not follow up on traditional retailer seasonality.

Thanks Pete.

In Q2.2020 line, we are pleased with our progress at the earthquake there and the continued development of our other valued on our time line.

There continues to be a strong partner and we completed the direct integration with their system during the quarter that deepens our relationship.

While we get a tariff on lower weight their U S sales penetration rate this quarter as a result of the private provider extraction down for the credit spectrum to capture volume on our highest for van we do believe we are continuing to maintain arkwright opposition in the non prime Dan.

Turning to revenue total revenue grew $16.7 million or 28% year over year as we continued the strong payment performance growth.

Gross profit margin for Q2, 2021 was 28% price of 30% in Q2 of 2020.

Gross profit percentage was 250 basis points lower year over year due to a combination of factors, including investments in various customer acquisition on <unk> and an acceleration of our depreciation card.

As part of our deployment of growth investment capital on your testing various unique off price, but that 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 further accelerate the curve to account for the increase early buy activity for <unk>.

Ron stimulus checks and late March early April of this year, which increased our cost of revenue.

Moving down the P&L, we continue to show improvements on our variable expense margins as we scale and focused on for your efficiency servicing costs were $1.1 million in Q2 of 2021 or 1.4% of revenue for US. It's 1.6% in Q2 of 2020 underwriting.

Underwriting fees for Q2, 2021, with 477000, representing 6% net revenue versus 1.4% in Q2 of 2020.

In Q2, 2021 professional and consulting fees included 1 time transaction cost of 482000 and employee recruiting costs of 191000. When you remove these costs normalized professional and consulting fees for 651000 for the quarter versus partnered in $2240.9000 increase.

Related to public company costs for audit and legal services.

Technology and data analytics cost increased by $1.2 million in Q2, 2021 from higher head count, 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 3 therapy put on our lease payments earned but not collected at the end of each acquired the gross accounts receivable balance was $7.4 million.

June 32021, Firstly on line 4 million as of June 32020, our larger fee on the hall, our loss rates continue to be within our acceptable ranges.

Compensation costs were $14.8 million in Q2, 2021 and included $11.6 million for onetime transaction expenses.

That related to the completion on the merger with senator including vesting of stock options.

Debt plus transaction related bonuses for on site.

On an apples to apples basis, when you back out these onetime costs compensation expense of close to $3.1 million, which is $1.5 million higher than our Q2.2020 number this.

This increased compensation costs will be ongoing and include the additional headcount for sales and marketing.

General and administrative costs were up $1.3 million in Q2.2021. This increase was made up of our new D&O insurance premium franchise taxes and increased spend in marketing interest.

Interest expense on other fees in Q2, 2021 were $4.1 million an increase of 522000 vs. Q2 for 2020, which is your thought of a higher average debt balance.

Interest expense as a percentage of revenue declined from 6% to $5.4 per cent year over year, our lower interest expense margin as a result of reaching profitability milestone in August of 2020, which stepped on our funding cost by 200 basis points on a revolving line of credit.

<unk> 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 for 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 111000 in Q2.2020.

Turning to our other non-GAAP metrics.

Adjusted EBITDA was $3.9 million for Q2.2021 person for $11.1 million in Q2 of 2020.

The $7.2 million decline reflects our increased investment in growth initiatives.

More normalized and therefore lower season on lease payment performance, new higher cost and incremental public company costs.

Adjusted net income was $1.5 million in Q2.2021 down from $5.2 million in Q2 of 2020.

Moving to the balance sheet and liquidity at June 32021, we had $110 million in available cash our total debt outstanding net debt issuance cost of the warrants was $111 million.

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 for these investments and given the tremendous potential we see in its large addressable market. We plan to increase our investment spending beyond just $10 million for this year.

As Darren 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 forecast and consumer spending behavior and in the past few weeks the onset of new policies from the COVID-19 Marion.

Beginning with the data that became available after our earnings call on with them validated as many online retailers released earnings over the past few weeks.

The consensus on the market suggests ecommerce sales will likely slow for the balance of the year.

Coupled with development consumer spending in July appear to be shifting away from durable goods categories and favorite on 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 resource constrained 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 credit payments commenced on July 15th.

The federal rent eviction moratorium expired on July 31, and was subsequently extended for certain parts of the nation and.

Unemployment benefits are set to expire on this date 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 are monitoring our portfolio performance and adjusting our models in real time.

Coupled with all of these factors is the backdrop of COVID-19, and the emergence of new variants and there was uncertainty of how the federal and state governments will respond.

On our previous earnings call, we believe our guidance for the year was appropriate and reasonable, but a lot has changed since that call, but it is especially challenging for our projections for the current time is that the visibility of strained and there are multiple conflicting factors at play when.

When looking for to the balance of the year. There is just too much uncertainty right now to try to predict gross originations and revenue and a highly specific way.

We expect to have more insight into this new and evolving trends by our November earnings call, but for now we feel that that's truly the explicit guidance the rest of 2021.

Well, we think it's 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 thing.

While we expected significant year over year growth in July 2021, gross origination for flat from the same period last year as our existing merchant experienced larger than anticipated declines in retail transaction volume.

On a positive note we have been able to offset this outsized decline with our new merchant additions and we are cautiously optimistic that as the summer winds down people return from their vacation and school begin that demand will increase.

Looking ahead to Q for the holiday season is normally our largest quarter from a volume perspective tracking to retailer promotions and consumer purchasing trends.

While we originally forecasted at 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.

For Q2, 2021, trailing 12 month gross originations for $250 million in trailing 12 month revenue was 302 million well above pre pandemic levels.

<unk> increased our sales and marketing investments new merchant adds have also accelerated reflected by the 72, new merchants on board it through July.

For efforts at cultivating customer loyalty are also paying off as our customer repeat rate continues to growth.

Our merchant pipeline is larger than ever before and as macroeconomic conditions change and merchants resolved for variety of near term challenges and constraints that they are facing it.

It resources, we anticipate our growth trajectory to accelerate over time.

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.

This will reduce near term net income and adjusted EBITDA that we have resolved, but this is the right decision at this time.

And while there may be some near term headwinds as we navigate a 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.

GAAP up I want to reiterate our sincere appreciation for all our stakeholders. We appreciate our shareholders' support our merchant trust and our customers' business on loyalty.

While we are 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.

Sure, Chris 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.

For 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 El <unk> 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 I guess, specifically about your comments about prime providers sort of moving down market ended the year Richard in your traditional kind of lower prime base.

What is your view about the degree to which it is it more sort of a permanent shift I guess in other words is the competitive environment become more challenging on a lasting basis I know thats a bit of a crystal ball question, but what's your view there.

Hi, Randy it's Orlando and thanks for the question. Thanks for the question.

If you look at what has happened in the last year.

Even the beginning of Covid.

Covid many of the prime lenders tightened up pretty dramatically.

We were the benefit up because of the waterfall down on us and I think right now the prime lenders and.

You try for do you have them. So you know that.

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 this is not I don't think it is sustainable necessarily.

Kind of things get back to normal.

Okay.

I also wanted to ask about the bad debt expense is 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 accounts receivable balances I'm just trying to understand here, whether we should be modeling a higher kind.

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 would be great.

Sure Ramsey this is Chris that the bad debt expense it is definitely seasonal.

In Q1, it was at the 6% Mark.

Q4 was $8.8 so it really depends on the seasonality, but in general and Q2, we had a few different dynamics..1 it was the bad debt expense as a percentage of revenue was just on a lower denominator, because we had been testing customer promotions and pricing offers.

Our revenue was a little bit.

Intentionally a little bit less than normal and then our growth. They are just continues to grow as our base growth and so that's where the bad debt expense is really a function of it reserving on our lead.

Lease payments that have come to you that we have not collected quite yet so as that growth they are gross.

We're going to see that debt bad debt expense growth and proportion, but I would say a good and bad debt expense run rate if you wanted to.

Build line that covers all the seasonality and other quarters, probably be around 8%, 9% at this point.

Okay terrific, let me sneak 1 last 1 and I was just curious are the headwinds youre seeing and I understand that sort of a macro overlay is it really manifesting itself, mostly at wafer your largest partner or is this something that youre seeing across the board sort of more broad based across the business.

Hi, Randy this is Derrick I'll take that 1 so.

Certainly our largest retailer not providing revenue guidance and having some headwinds in the furniture on the durable goods space.

Certainly 1 area.

We are seeing the impact of inflation and other pricing.

Back on some conversion rates and other categories, but.

I think.

In general our view is that there's some uncertainty.

<unk> in the market right now people are shifting their spend.

Spending to other categories and we're just expecting it to come back as soon as things settle down and Ramzi, if I can add.

Look at some of the e-commerce lender lenders and retailers that have announced recently, including 1 of the largest ones they've all signaled the E. Commerce has slowed and so we're seeing that across the board with many of our retailers. Because we are focused on ecommerce on 90 something percent of our businesses is ecommerce and I think it is a shift.

Spending on it.

<unk> in the mid June was when summer vacation started you'll 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 in the stores are open and so.

These are shifts that we believe are temporary and that we will 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.

Thanks Ramsey.

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

Hey, good morning, guys. Thanks for thanks for taking my question.

Just wanted to follow up on Ramsey's question on kind of debt.

On the prime kind of stretching a bit would you say that's kind of.

Traditional providers or more of like the new entrants into the prime financing market that youre seeing stretch.

Hi, Kyle.

So randall.

Thanks for the question.

Definitely say, it's more of the traditional providers.

And you're right some of the Npls have jumped into the space, but I think they are focused on a much different customer.

Really not.

Well you can stretch out the payments over for for example, without for pay or others.

We don't really think we're competing with that because our <unk> is higher.

And thats not something usually if somebody can split over for but we definitely see it in some other retailers, where we have a waterfall with.

It.

Wayfarer at city, we obviously have the affirm partnership on the waterfall and we've looked starting starting in the spring.

Looked at.

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 are definitely buying deeper because some of our higher score bands are no I don't want to say disappearing, but they have been minimized and so it's clear evidence that they've gone through.

And I think if you just look at any of the major prime providers. They have all talked about delinquencies being down and their.

Profitability going up and they've released some of the COVID-19 restrictions that they've had before so.

Again think it's temporary.

It will get back to normal probably at the end of this year or into next year.

Depending on what happens I mean, there's a lot going on.

Understood helpful. Thank you.

Then 1 follow up just wanted to get a sense for really kind of portfolio performance on the yield.

Stimulate auto recognizing the child tax credit starting to go out.

Last month.

For 2 whether it.

Payment rates or early buyout activity kind of any trends you've seen kind of on the heels on stimulus, but in front of child tax credit.

Sure. So I mentioned in my comments that we had accelerated depreciation curve because the last 1 on stimulus at the end of March did spur a bit of early buyout activity. So we accelerated our curves accordingly for.

For the child taxpayer.

Sorry child tax credit payments that started on July 15, we didn't see as big of a is it a big of an impact and we think that's probably because as you mentioned starting in <unk>.

In July, especially July 4th weekend, we did see consumers probably spending their money in other categories.

Rather than coming in making a self service payment to buy out or.

To pay down their lease we think they are spending on in other and other avenues at this point. So we didn't see as big of an impact with these child tax credit, but it'll be interesting to see obviously these are coming out monthly now how that trend evolves going forward.

Kyle This is Eric I'll add 1 more thing to it. So we have seen a slight up tick in delinquency over the last couple of months that is very typical during the seasonal period and so nothing out of the ordinary again.

Taking into account all the different ways of government stimulus and the supply and demand activities on shifting consumer behaviors everything's on the portfolio front operating within expectations.

Got it thanks very much for taking my question.

Thanks Scott.

Our next question comes from Anthony <unk> with loop capital markets. Your line is open.

Good morning, and thanks for taking my question.

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.

Aaron's progressive and rent a center are seeing no such phenomenon.

Hi, Anthony 1 thing that's really unique about the catapult solution is on and many of our environments, where in a waterfall environment where.

We are receiving declines from prime.

Providers.

And that allows us additional insight as we can see trending in detailed analytics that for what's happening on our base through application flow all the way through conversion.

And really simply 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 and just like last year when we saw tightening.

Is there any uncertainty.

Of course stimulus said, we have seen that loosening occur and this is something that we've seen before often non throughout the years. I think this is this is fairly common but.

And our position on the waterfall just have more visibility into it.

Got it that's helpful and then my second question.

I understand a lot of moving parts here in novato uncertainty, but when you talk about the COVID-19 virus I would think there will be a positive for your business right. I mean, you had your best ever lease originations in second quarter of last year because of widespread shutdowns on the shifting ecommerce so why wouldn't.

We are getting freaked out about the COVID-19 Delta very good for your business from that bad for your business.

Hi, Anthony This is Eric I'll continue on that and maybe on our call material.

I will jump in so.

On that front.

Puts and takes and so when we when we talk about the uncertainty.

Uncertainty associated with COVID-19, and what that has done 1 of the areas I'd like to emphasize is how do I think for impacting some of our retailer rollouts.

Their ability to get IP support to be able to do integrations as well as the priorities that they have in the response to what's going on in the macro environment is just shifting priorities for for our releases and so what's great is that theres still heavy amount of interest and a lot of activity on that front.

Many of these rollouts have been delayed.

And so that's 1 impact on our business now on a consumer front.

If there were more extreme activities that does tend to favor the e-commerce activity.

Purchasing behaviors.

That said that's.

Not something that we're modeling in for for the last half of the year Anthony This Orlando if I can add.

Many of the discussions on I think I've mentioned this on a previous call that July and August on 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.

<unk> with 1.

Pretty large retailer.

Requiring everybody to come back to work soon and many other resources of quit because.

They've moved to another area that can work from home and so there seems to be across the board. Many of these retailers just some constraint issue that is debt is unforeseen on that they can't get enough resources on the on the.

On the tech front and that the ones that they have are leaving for work from home if necessary.

And so well, we normally see a really big.

Uptick on.

On new retailer additions that we've had quite a few smaller ones. Some of the larger ones are a little bit low.

Bit tougher to get done because of those IC constraints.

Got it that's very helpful. Thank you.

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

Alright, I want to thank everyone for listening today.

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 on into next year for some of these retailers get back to normal.

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.

[music].

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 you touched on the telephone.

Question answer session will follow the formal presentation.

As a reminder, this conference call is being recorded.

I'd now like to turn the conference over to Mr. Bill White, Vice President of Investor Relations, Sir you may begin.

Yes.

Thank you and good morning, welcome to the catapult second quarter 2021 earnings Conference call with me today are Orlando Chief.

Chief Executive Officer, Jos Manuel <unk>, Chief operating Officer and Krishna.

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 on the company's most recent periodic SEC reports.

These statements reflect management's current beliefs assumptions 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 are available on the Investor Relations section of our company website at Www Dot IR dot catapult dot com.

This call is being recorded and a webcast will be available for replay on our Investor Relations website.

I'd now like to turn the call over to Orlando.

Good morning, and thank you for joining us on todays call well 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 and 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.

[noise] Karissa, 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 1 other.

$3.6 million last year, an increase of 53% year over year.

Gross originations were $64.4 million in Q2, 2021, 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.

Nevertheless, originations were roughly flat sequentially versus Q1, 2021 and have been steady in the $60 million to $65 million range over the past 4 quarters.

On the macro front it is a rapidly changing and complex environment that we have not previously based on our business, which makes forecasting difficult since our Q1 earnings call and continuing to day, many new developments emerge 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 towards new spending categories and away from durable goods as summer activities increase in restrictions abated.

Coupled with this consumer category spend ship external data has become available suggesting e-commerce sales will likely slow for the balance of the year. The combination of these 2 factors created uncertainty regarding our expectations for gross originations and the critical seasonal windows and for the balance of the year.

<unk> side, our merchants continue to be impacted by supply chain constraints stock levels that are reduced our bottleneck.

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 on the virus variants and vaccination activities is further complicated 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 behavior for back to school in 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.

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 excellent position to continue our mission to serve the true ecommerce and omni channel needs of this consumer segment, you see catapult 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 on our ongoing platform enhancements are truly market, leading and we are excited to elaborate further on our progress spin.

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.

<unk> 2.

Since the end of the year, we doubled the number of merchants that are partnered with both catapult and a firm through the affirmed connect waterfall solution.

Despite the recent merchant deal sizes being on the smaller size, we are closing more of them and more quickly.

We have high confidence in our technology and expect ongoing traction as these factors are resolved on the customer side are 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.

The risks 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 and Bath, we're pleased with all the expansion of point of sale solutions. The buy now pay later providers focused on the prime consumer segments there.

This wave of exposure to merchants and consumers is increasing the awareness that there are more opportunities on 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 BNP adoption reaches the non prime because customer RV.

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 for this market and while there may be some variability in the near term macro trends, we are steadfast in our business model and for.

We believe the time is now to accelerate our investment accessed 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 club on Chief operating Officer here on Castle as Orlando mentioned, we are confident on the progress of our platform our distribution and the offering as you can see from our new merchant results our platform scaling smoothly with the arrival of new merchants across diverse integration platforms on 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.

In terms of distribution as Orlando called out we are pleased to see that our investments on sales and marketing are attracting new retailers at a faster pace.

Comparing Q2.2021 versus Q2.2020, our active merchant base increased by 89% on.

On the progress continued in July with another 15 ads.

We're finding great adoption in categories, such as outdoor and sporting goods and automotive related goods, which both more than double than 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 on.

Footprint on distribution and allowing us to access a wider net of omni channel opportunities for long term growth.

These new partners on seizing the opportunity to provide expanded payment options for non prime consumers.

On our platforms make it easy for merchants to incorporate catapult the checkout option on our website.

That said, we are in Tech company, and where we focused 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 offerings, we continue to innovate how we go to market to serve our customers with relevant and attractive offers that drive conversions.

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 for plan on investing further in lifecycle marketing to enhance our promotions and increased consumer loyalty.

Next we are going to continue investing in our go to market strategy for sales marketing and channel relationships.

Given the size of the opportunity in higher deal close rates, we have and will continue to scale our sales force since.

Since Q2 of last year, we brought the head count 30 professionals vs 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 for.

Lastly, we're advancing investments in new capabilities and offerings that are aimed at merchants and customers we.

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 being more targeted and relevant which is what our customers care about.

We know that our focus on the lifetime value on our customer benefits are retailer segment as they come back for the catapult community for items again and again.

These expanded capabilities will allow us to make our interactions with customers more personalised drive repeat on originations and maintain the relevance of the capital solution to our important on growing customer base, we couldnt be more excited to deliver more value to our customers.

Now I will hand, it off to Chris <unk>, our CFO to discuss the financials.

Thank you Derek Q2, 2021 gross origination of $64.4 million were down 17% year over year consistent with our previous expectation haven't provided any key line teed up in 'twenty, 1 or any other.

A reminder, on the second quarter of 2020 credit originations are positively impacted by a combination of COVID-19, Santa Margarita and temporary closures of physical retail stores that shifted consumer spending on line.

<unk>.

In Q2.2020 line, we are pleased with our progress at that point, there and the continued development of our other valued on our train weight. There continues to be a strong partner and completed that direct integration with their system during the quarter that deepens our relationship.

While we did observe a lower weight per U S sales penetration rate this quarter as a result of the private provider scratching down for credit spectrum to capture volume on our highest for them and we do believe we are continuing to maintain or grow our position in the non prime ban.

Turning to revenue total revenue grew $16.7 million or 28% year over year. As we continued the strong payment performance gross profit margin for Q2, 2021 was 28% versus 30% on Q2 of 2020.

Gross profit percentage wise to on equity.

David on flower you react to it as a combination of factors, including investments in various customer acquisition offers and an acceleration of our depreciation curve.

As part of our deployment of gross investment capital on your testing various unique offers for their consumers.

Darren discussed in his comments, we see tremendous opportunity to differentiate ourselves with personalized offers that drive loyalty and repeat that net.

As for the changes in our depreciation curve, we further accelerated the curve to account for the increase early buy activity spurred by the last round of stimulus checks and late March early April of this year, which increased our cost debt right now.

Moving down the P&L, we continue to show improvements on our variable expense margins as we scale and focus on greater efficiency.

Leasing costs were $1.1 million in Q2 of 2021 or 1.4 per cent of right now for US. It's 1.6% in Q2 of 2020 on.

Underwriting fees for Q2, 2021 for 477000, representing 6% of revenue versus 1.4% in Q2.2020.

In Q2, 2021, and professional and consulting fees included 1 time transaction cost of 480000 and employee recruiting costs of 191000, when you're moving these costs normalized professional and consulting fees for 651000 for the quarter versus $402240.9000 increase.

Weighted to public company costs for audit and legal services.

Bad debt expense increased $4.7 million year over year. This is 3 therapy put on our lease payments earned but not collected at the end of each quarter. The gross accounts receivable balance of $7.4 million as of June 32021, Firstly on like 4 million as of June 32020, due to our larger nice day.

On the hall, our loss rates continue to be within our acceptable ranges.

Compensation costs for $14.8 million in Q2, 2021 and include $11.6 million for 1 time transaction expenses that related to the completion of the merger with center, including vesting of stock options.

Plus transaction related bonuses for employees.

On an apples to apples basis, when you back out. These 1 time costs compensation expense of close to $3.1 million, which is $1.5 million higher than our Q2.2020 number.

This increased compensation costs will be ongoing and include the additional headcount for sales and marketing.

General and administrative costs were up $1.3 million in Q2.2021. This increase was made up of our new D&O insurance premiums franchise taxes and increased spend in marketing. Thank.

Interest expense on other fees in Q2, 2021, or $4.1 million an increase of 522000 vs. Q2 of 2020, which is your thought of a higher average debt balance and.

Interest expense as a percentage of revenue declined from 6% to $5.4 per cent year over year, our lower interest expense margin as a result of reaching profitability milestones in August of 2020, which stepped down our funding cost by 200 basis points on a revolving line of credit.

<unk> 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 Q2.2021.

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 111000 in Q2.2020.

Turning to our other non-GAAP metrics adjusted.

Adjusted EBITDA was $3.9 million for Q2.2021 versus the $11.1 million in Q2.2020.

The $7.2 million decline reflects our increased investment in growth initiatives.

More normalized and therefore lower season on these payment performance, new higher cost and incremental public company costs.

Adjusted net income was $1.5 million in Q2.2021 down from $5.2 million in Q2 of 2020.

Moving to the balance sheet and liquidity at June 32021, we had $110 million in available cash our total debt outstanding net debt issuance costs of the warrants was $111 million.

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 for these investments and given the tremendous potentially see and its large addressable market. We plan to increase our investment spending beyond just $10 million for this year.

As Darren 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 sustain at least since our last call. We observed meaningful changes in the e-commerce retail sales forecast and consumer spending behavior and in the past few weeks the onset of new policies from the COVID-19 Marion.

Beginning with the data that became available after our earnings call with them validated as many online retailers released earnings over the past few weeks.

The consensus on the market suggests ecommerce sales will likely slow for the balance of the year.

Coupled with development consumer spending in July appear to be shifting away from durable goods category and favorite on travel clothing and entertainment.

This is delayed many opportunities into the future from a consumer perspective, the environment is still quite dynamic with multiple factors to consider monthly child tax credit payments commenced on July 15, the federal rent eviction moratorium expired on July 31, and was subsequently extended for certain parts of the nation and enhanced unemployment benefits.

<unk> are set to expire in the states by September.

How these events impact originations and revenue remains to be seen as we only have a few weeks of data available only in monitoring our portfolio performance and adjusting our models in real time.

Coupled with all of these factors as a backdrop of COVID-19, any emergence on Newbury and there was 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, it's bad for visibility strained and there are multiple conflicting factors at play when looking for to the balance of the year. There is just too much uncertainty right now to try to predict for us originations and revenue in our <unk>.

Highly specific way.

We expect to have more insight into this new and evolving trends by our November earnings call, but for now we feel that that's truly the explicit guidance the rest of 2021.

While we expected significant year over year growth in July 2021, gross originations were flat from the same period last year as our existing merchant experienced larger than anticipated declines in retail transaction volume.

On a positive note we have been able to offset this outsized decline for our new merchant additions and we are cautiously optimistic that as the summer winds down people return from their vacation and school began that demand will increase.

Looking ahead to Q for the holiday season is normally our largest quarter from a volume perspective tracking to retailer promotions and consumer purchasing trends.

While we originally forecasted in 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.

During Q2, 2021 trailing 12 month gross origination for $250 million and trailing 12 month revenue was 302 million well above pre pandemic levels.

We can increase our sales and marketing investments and new merchant adds have also accelerated reflected by the 72, new merchants on board it through July.

Our efforts at cultivating customer loyalty are also paying off as our customer repeat rate continues to growth.

Our merchant pipeline is larger than ever before and as macroeconomic conditions change and merchants resolves a variety of near term challenges and constraints that they are facing it.

Resource it we anticipate our growth trajectory to accelerate overtime.

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 merchant 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 adjusted EBITDA. We have resolved that this is the right decision at this time.

And with that I will turn it back over to our CEO Orlando for closing remarks to wrap up I want to reiterate our sincere appreciation for all our stakeholders. We appreciate our shareholders' support our merchant trust and our customers' business on loyalty.

Now, while we are 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 on improving profitability for many years to come.

Derek Chris 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 is for your question has been answered and you'd like to remove yourself from the queue press the pound key.

First question comes from Ramsey El <unk> 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 I guess, specifically about the your comments about prime providers sort of moving down market into the original and your traditional kind of lower prime base.

What is your view about the degree to which this is it more sort of permanent shift I guess in other words is the competitive environment become more challenging on a lasting basis I know thats 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.

If you look at what has happened in the last year.

Even the beginning of a COVID-19 many of the prime lenders tightened up pretty dramatically.

Which we were the benefit of because of the waterfall down on us and I think right now the prime lenders.

You tried to deal for them. So you know that.

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 this is not I don't think it's sustainable necessarily.

Kind of things get back to normal.

Okay.

I also wanted to ask about the bad debt expense is 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 accounts receivable balances Im 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 would be great.

Sure Yeah Ramsey this is correct that the bad debt expense it it's definitely seasonal.

In Q1, it was at in at the 6% Mark.

Q4 was $8.8 is it really depends on the seasonality, but in general and Q2, we had a few different dynamics..1 it was the bad debt expense as a percentage of revenue was just on a lower denominator, because we had been testing customer promotions and pricing offers.

Our revenue was a little bit.

Intentionally a little bit less than normal and then on our growth. They are just continues to grow as our base growth and so that's where the bad debt expense is really a function of it reserving on our lease payments that have come to you that we have not collected quite yet so as that growth they are gross.

We're going to see that debt bad debt expense growth and proportion, but I would say a good and bad debt expense run rate if you wanted to.

Build 1 debt that covers all the seasonality and other quarters, probably be around 8.9% at this point.

Peter on Okay terrific sneak 1 last 1 and I was just curious are the headwinds youre seeing and I understand there's sort of a macro overlay is it really manifesting itself, mostly at wayfarer your largest partner or is this something that youre seeing across the board sort of more broad based across the business.

Hi, Randy this is Derrick I'll take that 1 so.

Certainly our largest retailer not providing revenue guidance and having some headwinds on the front of trying to durable goods spaces.

Certainly 1 area.

We are seeing the impact of inflation and other pricing that has impact on 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.

They are spending to other categories and we're just expecting it to come back.

As soon as things settle down and Ramzi, if I can add.

If you look at some of the e-commerce.

Lender lenders and retailers that have announced recently, including 1 of the largest ones they've all signaled the E. Commerce has slowed and so we're seeing that across the board with many of our retailers. Because we are focused on ecommerce on 90 something percent of our businesses is ecommerce and I think it is a shift of spending it started in the mid.

June was 1 summer vacation started you'll see the airports crowded as can be people are spending money on travel and getting together again in durable goods and E. Commerce sales have slowed in the stores are open and so.

These these are shifts that we believe are temporary and that we will 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 for Anthony.

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

Hey, good morning, guys. Thanks for thanks for taking my question.

I just wanted to follow up on Ramsey's question on kind of debt.

On the price kind of stretching a bit would you say that's kind of.

Traditional providers or more of like the new entrants into the prime financing market that youre seeing stretch.

Hi, Heiko.

So randall.

Thanks for the questions.

Definitely say, it's more of the traditional providers.

And you're right some of the Npls have jumped into this space, but I think they are focused on a much different customer.

So really not.

Well you can stretch out the payments over for for example, without for pay or others.

We don't really think we're competing with that because our <unk> is higher.

And thats not something usually if somebody can split over for but we definitely see it in.

And some other retailers, where we have a waterfall with.

Ed.

What are your favorite city, we obviously have the affirmed partnership on the waterfall and we've looked starting starting in the spring.

Looked at.

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 or are minimized a little bit. So we have evidence that they are definitely buying deeper because some of our higher score bands are no I don't want to say disappearing, but they're they've been minimized and so it's clear evidence that they've gone through.

And I think if you just look at any of the major prime providers. They have all talked about delinquencies being down and their profitability going up and they've released some of the COVID-19 restrictions that they've had before so.

Again think it's temporary.

It will get back to normal probably at the end of this year or into next year and debt.

On what happens I mean, there's a lot going on.

Understood helpful. Thank you and then 1 on 1 follow up just wanted to get a sense for really kind of portfolio performance on the heels of a stimulus.

Recognizing the child tax credit starting to go out.

Last month, so just losses.

Whether it.

Payment rates or early buyout activity kind of any trends you've seen kind of on the heels on stimulus, but in front of child tax credits.

Sure. So I mentioned in my comments that we had accelerated depreciation curve because the last time on stimulus at the end of March did spur a bit of early buyout activity. So we accelerated our curves accordingly for the child tax for.

Child tax credit payments that started on July 15, we didn't see as big or is it as big of an impact and we think thats, probably because as you mentioned starting in <unk>.

In July, especially July 4th weekend, we did see consumers probably spending their money in other categories.

Rather than coming in making a self service payment to buy out or.

Kyle This is Eric I'll add 1 more thing to it. So we have seen a slight uptick taken delinquency over the last couple of months that is very typical during the seasonal period and so nothing out of the ordinary again, taking into account all the different ways of government stimulus.

The supply and demand activities on shifting consumer behaviors everything's on the portfolio front operating within expectations.

Got it thanks very much for taking my question.

Thanks Scott.

Our next question comes from Anthony to comeback with loop capital markets. Your line is open.

Good morning, and thanks for taking my question.

Beat a dead horse with this issue of prime lenders sort of dropping down.

But I 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 phenomenon.

Hi, Anthony 1 thing that's really unique about the catapult solution is on and many of our environments, where in a waterfall environment where.

We are receiving declines from prime providers.

And that allows us additional insight as we can see trending in detailed analytics that for what's happening on our base through application flow all the way through conversion and really simply there's been various outside stimulus.

The trends in supply and demand have changed what has been needed.

The change the character of what those above us are approving and just like last year when we saw tightening.

Is there any uncertainty.

For core stimulus said, we have seen that loosening occur.

And this is something that we've seen before often non drop out for years. I think this is this is fairly common but.

And our position in the waterfall, we just have more visibility into it.

Got it that's helpful. And then my second question I understand there's a lot of moving parts here on a lot of uncertainty, but when you're talking about the COVID-19 for area I would think there'll be a positive for your business right. I mean, you had your best.

Lease originations in second quarter of last year because of widespread shutdowns on the shifting ecommerce so why wouldn't you.

Get into freaked out about the COVID-19, Delta there and be good for your business and not bad for your business.

Hi, Anthony this is Eric I'll continue on that and.

On a call to Carol It sounds then so on.

On that front.

There's puts and takes and so when we when we talk about the.

Uncertainty associated with COVID-19, and what that has done 1 of the areas I'd like to emphasize is how do I think for impacting some of our retailer rollouts.

Their ability to get IP support to be able to do integrations as well as the priorities that they have in a response to what's going on in the macro environment is just shifting priorities for our releases and so what's great is that theres still heavy amount of interest and a lot of activity on that front.

Many of these rollouts have been delayed and and so that's 1 impact on our business now on a consumer front.

If there were more extreme activity that does tend to favor the e-commerce activity.

Are you seeing behaviors.

That said.

Yes.

Not something that we're modeling in for for the last half of the year, Yes, Anthony Orlando, if I can add.

Many of the discussions and I think I've mentioned this on a previous call that July and August on 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 1.

Pretty large retailer who is.

Acquiring everybody to come back to work soon and many other resources of quit because.

They've moved to another area that can work from home and so there seems to be across the board at many of these retailers just on constraint issue that as debt as unforeseen and that they can't get enough resources on the on the.

On the Tech front and that's the ones that they have are leaving for work from home if necessary.

And so well, we normally see a really big.

Uptick on.

On new of retailer additions and we've had quite a few smaller 1 on some of the larger ones are a little bit low.

Bit tougher to get done because of those IC constraints.

Got it that's very helpful. Thank you.

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

Alright, I want to thank everyone for listening today.

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 for the year and into next year, but 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.

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