Q1 2022 Katapult Holdings Inc Earnings Call

May 10, 2022

Okay.

Yeah.

Thank you for standing by.

And welcome to Catapult Holdings Incorporated first quarter 2022 earnings results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Mr. Bill Wright, Vice President of Investor Relations. Please go ahead.

Welcome to catapult Holdings incorporated first quarter 2022 earnings results conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Mr. Bill <unk>.

I used to president of Investor Relations. Please go ahead.

Okay.

Thank you and good morning, welcome to the catapult first quarter 2022 earnings results Conference call with me today are aligned desired Chief Executive Officer Christopher <unk>.

Thank you and good morning. Welcome to the Catapult First Quarter 2022 Earnings Results Conference Call. With me today are Orlando Zayas, Chief Executive Officer, Carissa Cupido, Chief Financial Officer, and Derek Medlin, Chief Operating Officer.

Chief Financial Officer, and Derek <unk>, Chief operating Officer, we issued our earnings release and corresponding Investor presentation. This morning, and we will be referencing these during the call. Both can be found on the Investor Relations section of our website, we will all be available for Q&A following today's.

We issued our earnings release and corresponding investor presentation this morning and we will be referencing these during the call. Both can be found on the investor relations section of our website. We will all be available for Q&A following today's prepared remarks.

Repaired remarks.

Before we begin, I would like to remind everyone this call will contain forward-looking statements regarding future events and our financial performance, including statements regarding our market opportunity, the impact of our growth initiatives, and our future financial performance. These should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports, including our quarterly report on Form 10-Q for the fiscal quarter ended March 31.

Before we begin I would like to remind everyone. This call will contain forward looking statements regarding future events and our financial performance, including statements regarding our market opportunity the impact of our growth initiatives and our future financial performance. These should be considered in conjunction with cautionary statements contained in our earnings release and the.

Company's most recent periodic SEC reports, including our quarterly report on Form 10-Q for the fiscal quarter ended March 31.

These statements reflected management's current beliefs, assumptions, and expectations and are subject to a number of factors that may cause actual results to differ materially from those statements. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events, or otherwise.

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.

Events or otherwise.

During today's discussion of our financial performance, we will provide certain financial information that constitute non-GAAP financial measures under SEC rules. These include measures such as adjusted EBITDA and adjusted net income. These non-GAAP financial measures should not be considered replacements for and should be read together with.

Our GAAP results reconciliations to GAAP measures and certain additional information are also included in today's earnings release, which is available on the Investor Relations section of our website. This call is being recorded and a webcast will be available for replay on the Investor Relations section of our website I will now turn the call over to Orlando.

Reconciliations to GAAP measures and certain additional information are also included in today's earnings release, which is available on the Investor Relations section of our website. This call is being recorded and a webcast will be available for replay on the Investor Relations section of our website. I will now turn the call over to Orlando. Thanks, Bill. Good morning, everyone, and thank you for joining us. On today's call, we'll review the results of the first quarter 2022 and provide an update on our growth strategy.

Thanks, Bill Good morning, everyone and thank you for joining us on today's call. We'll review the results of the first quarter 2022, and provide an update on our growth strategy. We are a company that first and foremost is focused on bringing financial inclusion to underserved non prime consumers.

We are a company that first and foremost is focused on bringing financial inclusion to underserved non-prime consumers.

At Catapult, we provide an attractive solution for these non-prime consumers to access the essential products they need for everyday living.

At catapult, we provide an attractive solution for these non prime consumers to access the essential products they need for everyday living.

Our highly scalable proprietary technology enables us to provide both merchants and consumers with clear and transparent lease purchase solution that facilitates transactions online or at the point of sale.

We believe that our focus on non prime consumers positions us to capture a significant share of the large virtual lease to own market.

We believe that our focus on non-prime consumers positions us to capture a significant share of the large virtual lease-to-own market.

Our proprietary technology platform, along with our sophisticated risk and decisioning model, is designed to enable us to deliver value-added solutions to our merchants and customers.

Our proprietary technology platform, along with our sophisticated risks and Decisioning model is designed to enable us to deliver value added solutions to our merchants and customers.

We have a robust suite of merchant solutions across a variety of integrated point-of-sale options that is designed to enable merchants to efficiently promote and sell incremental inventory.

We have a robust suite of merchant solutions across a variety of integrated point of sale options that is designed to enable merchants to efficiently promote and sell incremental inventory.

We believe Catapult's seamless customer experience wins repeat business due to our simple application process, flexible and transparent payment options, and innovative lease financing solution.

We believe catapult seamless customer experience <unk> repeat business due to our simple application process flexible and transparent payment options and innovative lease financing solutions. We are committed to continually enriching the customer and merchant experience in order to gain share of the large addressable market we serve.

We are committed to continually enriching the customer and merchant experience in order to gain share of the large addressable market we serve.

Serve.

Turning to slide five we will focus on how our team is working to deliver on our longer term ambitions, while navigating a macro environment that is challenging for both our merchant partners and to consumers.

Turning to slide five, we will focus on how our team is working to deliver on our longer-term ambitions while navigating a macro environment that is challenging for both our merchant partners and to consumers.

As we have mentioned on past calls the current turbulence and macroeconomic conditions, including ongoing supply chain headwinds the end of government government stimulus inflationary pressures and changes to consumer spending continues to impact the consumer and merchant economics.

As we have mentioned on past calls, the current turbulence in macroeconomic conditions, including ongoing supply chain headwinds, the end of government stimulus, inflationary pressures, and changes to consumer spending, continues to impact the consumer and merchant economy.

While we are not immune to the pressures from these issues. We are confident in our longer term ability to weather. These challenges and remain focused on capturing new volume opportunities from a large addressable market in order to create value for shareholders.

While we are not immune to the pressures from these issues, we are confident in our longer-term ability to weather these challenges and remain focused on capturing new volume opportunities from a large addressable market in order to create value for shareholders.

Key highlights from the first quarter are, number one, we welcome 27 new merchants in the quarter, the second highest amount in the history of our company, despite the macro backdrop. In addition, our merchant pipeline is building nicely, and we are starting to see acceleration in client wins.

Key highlights from the first quarter are number one we welcomed 27, new merchants in the quarter. The second highest amount in the history of our company. Despite the macro backdrop. In addition, our merchant pipeline is building nicely and we are starting to see acceleration in client wins.

Number two our satisfaction metrics remains strong our net promoter score was 51 as of March 31, 2022, and repeat customers made up 49% of our Q1 2022 originations and <unk>.

Number two, our satisfaction metrics remain strong. Our net promoter score was 51 as of March 31st, 2022, and repeat customers made up 49% of our Q1 2022 origination.

And number three, we are continuing to invest in initiatives that support our long-term growth strategy. During the quarter, we added high-caliber talent and key leadership roles to facilitate the execution and support of our growth opportunities. We are also investing in strategic product and technology initiatives that are designed to enable us to capture market share. As we build on our already solid operating foundation, we believe we're in the initial stages of creating a sizable, durable, and scalable financial services enterprise.

Number three we are continuing to invest in initiatives that support our long term growth strategy during the quarter. We added high caliber talent in key leadership roles to facilitate the execution in support of our growth opportunities. We're also investing in strategic product and technology initiatives that are designed to enable us to capture market share as we build.

On our already solid operating foundation, we believe we are in the initial stages of creating a sizeable durable and scalable financial services enterprise.

I will now turn it over to <unk>, our CFO , who will provide more details on our financial performance.

I will now turn it over to Carissa, our CFO , who will provide more details on our financial performance.

Thank you Orlando as detailed on slide six Q1, 2020 key results reflect it but you said about macro environment as inflationary pressures on consumer and supply chain challenges for merchants weighed on our key revenue drivers.

Thank you, Orlando. As detailed on slide 6, Q1 2022 results reflected the difficult macro environment as inflationary pressures on the consumer and supply chain challenges for merchants weighed on our key revenue drivers.

Total revenue for the first quarter of 2022 was $59.9 million, which was down 26% year-over-year.

Total revenue for the first quarter of 2022 was $59 9 million, which was down 26% year over year.

The $20 7 million dollar decline 3 million relates to the adoption of ASC 842, which as discussed on the next slide.

Of the $20.7 million decline, $3 million relates to the adoption of ASD 842, which is discussed on the next slide.

Originations were down 27% due to the impact of macro challenges noted above combined with targeted proactive underwriting tightening that lowered approval rate.

Growth originations were down 27% due to the impact of macro challenges noted above combined with targeted proactive underwriting tightening that lowered approval rates.

Growth profit was down $16 million year-over-year due to lower lease margins and our adoption of ASC842. Our net loss for the first quarter of 2022 was $5.6 million compared to net income of $8.1 million in Q1 2021, and adjusted EBITDA decreased by $18.8 million as we continue to invest for growth through the near-term headwinds, combined with public company costs that were not incurred during Q1 2021 as we were not a public company a year ago.

Gross profit was down $16 million every year due to lower lease margin and our adoption of ASC 840 here, our net loss for the first quarter of 2022 with $5 6 million compared to net income of $8 1 million in Q1, 2021, and adjusted EBITDA decreased by $18 8 million as we continued to invest for growth through the <unk>.

Near term headwinds combined with public company costs that were not incurred during Q1 2021, as we were not a public company a year ago.

Turning to slide seven as a reminder, effective January 1st 2020 care. The company adopted revised standard for accounting for leases as required by GAAP ASC 842 leases. This is a leasing standards that the catapult dictate the timing of recognition of leasing revenues and changes the accounting treatment of <unk>.

Turning to slide seven, as a reminder, effective January 1st, 2022, the company adopted a revised standard for accounting for leases as required by GAAP, ASD 842 leases. This is a leasing standard that for Catapult dictates the timing of recognition of leasing revenues and changes the accounting treatment of bad debt expense within the income statement.

Bad debt expense within the income statement.

As a result of the adoption this year, going forward, the company now records revenues on a cash basis and will no longer record rental revenue arising from lease receivables or any corresponding bad debt expense on the income state.

As a result of the adoption this year going forward. The company now reports revenue on a cash basis and will no longer record rental revenue arising from lease receivables or any corresponding bad debt expense on the income statement.

We adopted the accounting standard for the three months ended March 31, 2022, using the modified retrospective approach and have adopted the optional transition method in which reporting entities are permitted to not apply ASC 842s for comparative periods in the year of adoption.

We adopted the accounting standard for the three months ended March 31, 2022, using the modified retrospective approach we have adopted the optional transition method and which reporting entities are permitted to not apply.

S. P 842 is the comparative period in the year of adoption.

Therefore, we have not recast or restated 2021 or prior periods to conform to the new standard and the Q1 2022 line items affected by this transition may not, therefore, be comparable to prior periods.

Therefore, we have not recast our restated 2021, our prior period to conform to the new standard and the Q1 2022 line items affected by this transition may not therefore comparable to prior period.

On this slide, for illustrative purposes only, the table shows total revenue for the three months ended March 31st, 2021, as if the lesser accounting impacts of ASD 842 were in effect for this period, including the change in revenue recognition from accrual basis to when revenue is earned and cash is collected and that bad debt expense is no longer recorded. Q1 2021 total revenue would have been $3 million lower if ASD 842 were in effect for that period.

On this slide for illustrative purposes, only the table shows total revenue for the three months ended March 31, 2021, and if the lessor accounting impacts of ASC 842 were in effect for this period, including the change in revenue recognition from a core basis Q1 revenue was earned in cash is collected and that.

Bad debt expense is no longer reported.

Q1, 2021 slow revenue would have been $3 million lower it's a S E T where in effect for that period.

Turning to slide eight overall operating expenses were up $3 3 million year over year, excluding bad debt expense operating expenses were up $8 2 million year over year. The total operating expense growth is largely driven by two factors one higher compensation from the addition of 38 full time employees year over year as part of <unk>.

Turning to slide 8, overall operating expenses were up $3.3 million year-over-year. Excluding bad debt expense, operating expenses were up $8.2 million year-over-year. The total operating expense growth is largely driven by two factors. One, higher compensation from the addition of 38 full-time employees year-over-year as part of investments in our sales and technology development teams to support our strategic growth plan. And two, increased general and administrative expenses related to public company costs and higher marketing spend.

<unk> and our sales and technology teams to support our strategic growth plan and to increased general and administrative expenses related to public company costs and higher marketing spend.

Looking at slide 9, impairment charges related to the property health relief as percentage of gross originations was 6.9% in Q1 2022. As we have previously detailed, the stimulus payments that occurred in 2020 and early 2021 in response to COVID-19 led to historically favorable credit performance for both prime and non-prime consumers.

Looking at slide nine impairment charges related to the property held for lease as a percentage of gross originations was six 9% in Q1 2022 as we have previously detailed the stimulus payments that occurred in 2020 and early 2021 in response to COVID-19 led to historically favorable credit performance for the crime.

<unk> nine non prime consumers.

Beginning in the third quarter of 2021, the credit environment started to normalize the significant inflationary pressures coupled with an absence of government stimulus funds has further pressured performance.

Beginning in the third quarter of 2021, the credit environment started to normalize. The significant inflationary pressures coupled with an absence of government stimulus funds has further pressured performance.

In response to these data trends, we initiated proactive and targeted tightening of our underwriting in Q4 2021 and have continued to do so into 2022. We do anticipate impairment charges as a percentage of gross origination to continue to trend up to higher pre-pandemic levels as we move through 2022.

In response to these data trends, we initiated proactive and targeted tightening of our underwriting in Q4 2021 and have continued to do so in 2022.

We do anticipate impairment charges as a percentage of gross originations to continue to trend up to higher pre pandemic levels as we move through 2022.

It is worth noting that as the credit environment becomes weaker we believe that price of those lenders will begin to tighten as well leading to an increase in the buying applications as well as the overall increase in credit quality of customers looking for who asked for payment solution. We anticipate these historical pattern to repeat themselves at some point this year I will.

It is worth noting that as the credit environment becomes weaker, we believe that prime focus lenders will begin to tighten as well, leading to an increase in the volume applications as well as the overall increase in credit quality of customers looking to us for payment solutions. We anticipate these historical patterns will repeat themselves at some point this year. I will now turn it over to Orlando to discuss our strategic investments.

Now I'll turn it over to Orlando to discuss our strategic investments.

Thanks, Christa Slide 10 details as strategic investments, we are making to position us to capture the large growth opportunity ahead.

Thanks, Carissa. Slide 10 details the strategic investments we are making to position us to capture the large growth opportunity ahead.

We believe we've made impactful talent and technology strides in the first quarter of 2022. Most notably, we made key hires to our leadership team during the quarter, including a CMO, vice president of strategy and corporate development, and vice president of strategic partnerships and chief people officer.

We believe we've made impactful talent and technology strides in the first quarter of 2022.

Most notably we made key hires to our leadership team during the quarter, including a CMO Vice president of strategy and corporate development and Vice President of strategic partnerships and Chief people Officer.

Our new CMO, Colleen Gorski, brings to Catapult more than 20 years of B2B2C marketing and partnerships experience in growth phase companies.

Our new CMO Corp, choline Gorski brings to catapult more than 20 years of B to B to C marketing and partnerships experience in growth phase companies. Most recently she served as VP of partner marketing in a corner, where she established a cross functional team to drive brand awareness in the U S.

Most recently, she served as VP of Partner Marketing at Klarna, where she established a cross-functional team to drive brand awareness in the U.S. and expand customer acquisition and engagement through integrated merchant.

And expand customer acquisition and engagement through integrated merchants.

Eric Harman, Vice President of Strategy and Corporate Development, brings a wide range of experience to Catapult, from market analyst to fintech venture capitalist to most recently holding a position as Executive Director of Alternative Data Products at UBS.

Eric Harmon, Vice President of strategy and corporate development brings a wide range of experience to catapult from market analysts to fintech venture capitalists to most recently holding our position as executive director of alternative data products at UBS.

He has supported boundaries and boards of Nextgen startups, and developing new channels for accelerating growth.

He has supported founders and boards of next-gen startups in developing new channels for accelerating growth.

Continuing on the strategic side, Jay Diamonin, our Vice President of Strategic Partnerships, brings 15 years of FinTech experience to Catapult and previously held strategy-related positions at Visa, First Data, and Ingenico.

Continuing on the strategic side <unk>, our vice President of strategic partnerships brings 15 years of Fintech experience to catapult and previously held strategy related positions at visa first data and genco.

Prior to joining Catapult, Jay led the U.S. sales team for Adgen, a leading payments processing company, and during his time, he started and managed the partnerships team.

Prior to joining catapult J led the U S sales team for <unk>, a leading payments processing company and during his time, he started and manage the partnerships team.

Jorge ideas, our new Chief people officer brings over 25 years of creating and.

Jorge Diaz, our new chief people officer, brings over 25 years of creating and executing successful talent strategies.

Executing successful talent strategies.

He served as a management consultant and certified executive coach for a fast-growing company.

He served as a management consultant and certified executive coach for fast growing companies.

Moving to the sales organization, we continue to work to optimize our sales process to penetrate this large addressable market guided by our new vice president of sales, Marino Ruiz, and his first full quarter at Catapult. We are already seeing tangible progress across our key metrics and our confidence is growing that it's the right decision to invest in and grow our sales team.

Moving to the sales organization, we continue to work to optimize our sales process to penetrate this large addressable market guided by our new Vice President of sales Marino Ruiz.

In his first full quarter accountable, we are already seeing tangible progress across our key metrics and our confidence is growing that it's the right decision to invest and grow our sales team.

We are confident that this enhanced approach, augmented by a robust pipeline of new product offerings and brand initiatives that will be launched in the coming quarters, will help us drive a re-acceleration of our growth and maximize our chances to land additional large merchant partners.

We are confident that this enhanced approach augmented by a robust pipeline of new product offerings and brand initiatives that will be launched in the coming quarters will help us drive a reacceleration of our growth and maximize our chances to land additional large merchant partners.

We look forward to continuing to update you on our progress in the next quarter as we are seeing increased engagement from the retail community.

We look forward to continuing to update you on progress in the next quarter as we're seeing increased engagement from the retail community.

Slide 11 lays out our high-level strategic ambitions for the next three years. We have built a solid platform and ecosystem for non-prime consumers to access high-quality merchants and expand their e-commerce product choice.

Slide 11 lays out our high level strategic ambitions for the next three years, we have built a solid platform and ecosystem for non prime consumers to access high quality merchants and expand their e-commerce product choice.

Near term, our plans are to continue to deepen our relationships with our existing merchants and partners and to increase our new merchant pipeline.

Near term our plans are to continue to deepen our relationships with our existing merchants and partners and to increase our new merchant pipeline.

A growing and more efficiently engaged sales force and an exciting pipeline of product and technology enhancements give our leadership team confidence that despite the current macro headwinds, Catapult is on the right path to capturing share in our addressable market.

A growing and more efficient Lee engaged sales force and an exciting pipeline of product and technology enhancements give our leadership team confidence that despite the current macro headwinds catapult is on the right path to capturing share in our addressable market.

In conclusion as we look ahead to the rest of the year, we remain confident that our company is well positioned to take advantage of strong long term trends in digital commerce and alternative payment solutions, we believe that the anticipated continuing turbulence and macroeconomic conditions in the near term will not limit our ability.

In conclusion, as we look ahead to the rest of the year, we remain confident that our company is well-positioned to take advantage of strong long-term trends in digital commerce and alternative payment solutions. We believe that the anticipated continuing turbulence in macroeconomic conditions in the near term will not limit our ability to strategically grow our company over the longer term.

<unk> to strategically grow our company over the longer term.

We are managing our underwriting conservatively. We continue to deepen relationships with existing customers and merchants and are steadily adding new talent and technology-driven innovations that will enable our next phase of growth.

We are managing our underwriting conservatively, we continued to deepen our relationships with existing customers and merchants and are steadily adding new talent and technology driven innovations that will enable our next phase of growth.

With that I will now take questions.

Thank you.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question...

A reminder to ask a question you will need to press star one on Jonathan.

To withdraw your question. Please press the pound key.

Our first question comes from Josh Sigler with Cantor Fitzgerald. Your line is now open.

Our first question comes from Josh Sigler with Cancer Fixed Url. Your line is now open.

Hi, good morning, Thanks for taking my question.

Hi, good morning. Thanks for taking my question. So it looks like you guys accelerated new merchant ads during the quarter, especially for you. Are you starting to see the benefit of the sales team rollout? And do you expect this number to accelerate further as we progress through 2022?

So it looks like you guys are accelerating new merchant adds during the quarter, especially a comparator for Q are you starting to see the benefit of the sale team rollout and do you expect this number to it accelerate further as we progressed through playing playing too.

Hi Josh, this is Derek. Thanks for the question and thanks for joining us this morning.

Hi, Josh this is Derek thanks for the question.

Thanks for joining us this morning.

We are absolutely having meaningful conversations with many retailers.

We are finding that this is a tough retail sales environment for many more merchants, and Catapult is a solution that will actually help them increase sales and customer conversions. So we are seeing increased demand for these conversations, and we're really optimistic. Absolutely, just like you said, the investments that we've made both in headcount but also in sales process and investments in new capabilities is spurring growth.

We are finding that this is a tough retail sales environment for many more merchants.

<unk> capital is a solution that will actually help them increase sales and continued customer conversions. So we are seeing increased demand for these conversations and we're really optimistic absolutely absolutely just like you said the investments that we've made both in head count, but also in sales process and investments in new capabilities is spring.

Yes.

more conversations and acceleration of those. And so we're really optimistic what the second half of the year looks like.

More conversations and acceleration of those and so we're really optimistic about the second half of the year looks like.

Great. Thank you. I know we've talked for a couple of quarters now about the potential positive impact of prime lenders tightening their underwriting and what impact that could have on Catapult's book of business. Are you starting to see that play out in any way or is that more of a back half of the 2022 story?

Great. Thank you I know we've talked for a couple of quarters now about the potential positive impact of prime lender tightening their underwriting and what impact that could have on catapult. Our book of business are you starting to see that play out in any way or is that more of a back half of 2022 story.

Hi, Josh. This is Carissa. Yeah, at this point, we have not seen that play out. There's usually a lag where our consumers are impacted first by some of these macro headwinds, inflation, et cetera. But we're anticipating that at some point this year, it's going to move up the credit spectrum and impact more prime-type consumers, where the prime lenders would ultimately have to tighten. But we have not seen it yet.

Hey, Josh This is Chris Yeah. At this point, we have not seen that play out there's usually a lag where our consumers are impacted first by some of these macro headwinds.

Relation et cetera, but we you know we're anticipating that at some point this year, it's going to move up the credit spectrum and impact.

Our prime type consumers, where the prime lenders that ultimately have to pay it but we have not seen it yet.

Great. Thank you very much I'll hop back in the queue.

Thank you.

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

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

Good morning. Thanks for taking my questions. I just wanted to, and I know you're not providing specific guidance, but just wanted to get any sense for what you're seeing quarter to day, at least in terms of lease originations. Obviously, you were up against a really tough comparison in the first quarter of 2021, but comparisons should, on a year-over-year basis, sort of ease. So I was just wondering if you're seeing any benefit from at least the easier comparison or all these merchant ads that you brought on.

Good morning, Thanks for taking my questions.

Just wanted to and I know, you're not providing specific guidance, but just wanted to get any sense for what you're seeing quarter to date at least in terms of.

Originations, obviously, you were up against a really tough comparison in the first quarter.

2021, but you know our comparisons should.

On a year over year basis sort of ease. So I was just wondering if you're seeing any benefit from that at least the easier comparison.

Or you know or you know all of these merchant ads that you brought on.

Hi, Anthony this is Derek Thanks again for the question on good morning, So in general.

Hi, Anthony. This is Derek. Thanks again for the question, and good morning. So, in general, many of our merchants are going through a tough time right now, so we haven't seen a lot of shift overall. That said, like I mentioned before, our investments are certainly pulling through, and the merchant ads are improving our new business type. So, we are optimistic that, despite these headwinds, we're going to have a great opportunity for long-term growth. Thank you.

Many of our merchants.

Are going through a tough time right now so we haven't seen a lot of shift overall that said.

Like I mentioned before our investments are certainly pulling through.

And the merchant adds are improving our new business side. So we are optimistic that despite these headwinds we are going to have.

Great opportunity for long term growth.

And.

Yeah.

and we're going to keep monitoring it as we see what's coming next to decide whether or not we continue to invest in those spaces or if we pull back.

And we're going to keep monitoring that as we see.

What's coming next to decide whether or not we continue to invest in our spaces for it we.

Pull back.

Yeah, and Anthony just add a little bit more context.

Yeah, and Anthony, just to add a little bit more context, through, you know, today, we haven't seen much change in the macro trends that we were seeing through Q1, and on top of that, we're continuing to stay very conservative with our underwriting, so we're also, you know, prudently managing our approval rate just like we did in Q1.

Today, we haven't seen much change in the macro trends that we're seeing through Q1 and on top of that we're continuing to stay very conservative in our underwriting that we're also prudently.

Prudently managing our accrual rate just like we did in Q1.

Got it and then just one quick follow up you talked about.

Got it. And then just one quick follow up. You know, you talked about these investments you've made in this headcount you brought on. I guess, where are we in terms of that investment cycle? I mean, are those investments pretty much done at this point? Or are there still sort of, you know, investments that you're going to need?

Since you've made in the head count you brought on I guess.

Where are we in terms of that investment cycle. I mean are those investments pretty much done at this point or are there still sort of you know.

You bet.

We do make.

Sure Hi, Anthony its Orlando.

Sure, hi Anthony, it's Orlando. You know, we still plan on hiring a chief revenue officer, that's the last of the key hires, and we have some really good candidates that we're considering for the position.

We still plan on hiring a chief revenue officer, that's the last of the key hires and we have some really good candidates that we're considering for the position.

And then, you know, we made all the strategic hires, which I mentioned on the call, the CMO, the CPO, the vice president of strategy, those, you know, have all come in and started pretty strong. And, you know, we're excited because

And then you know we made all of the strategic hires which I mentioned on the.

On the call.

The CPR Vice President strategy those those have all come in and started pretty strong.

We're excited because the talent that we're getting is.

The talent that we're getting is better than we expected, I guess we should say. And so we're talking to a really strong, experienced people, both on the Chief Revenue Officer side, but obviously, like I mentioned, with the CMO coming from Klarna, we're getting a strong team together, and so now it's about executing that strategy.

Better than we expected I guess would you say.

And so we're talking to a really strong experienced people both on the Chief revenue Officer side, though obviously is like I mentioned with the CMO coming from corn.

We're getting a strong team together and so now it's about executing that strategy.

And on the technology and product side, we really feel good about the investments that we've made for long-term growth. All of this is just in response to listening to the voice of our customer and the retailers. And though they're going through a tough time, they're telling us exactly what they need to get back to growth. And we really believe in long-term growth opportunity and digital payments and digital shopping.

On the technology and product side, we really feel good about the investments that we've made for long term growth.

All of this has just been responsive response to listen to the voice of our customer.

And the retailers on though Theyre gone for some time were telling us exactly what they need to get back to growth and we really believe in the long term growth opportunity in digital.

Payments and digital shopping so that being said the spend is discretionary and will continue to monitor and we don't feel like we're going into 'twenty three with lots of traction we will.

So, that being said, this has been discretionary and we'll continue to monitor and if we don't feel like we're going into 23 with lots of traction, we will look at pulling back some of this. But we're excited about some of the announcements we'll have later in the back half of the year.

Look at pulling back some of this but we're excited about some of the announcements will help later in the back half of the year.

That's helpful. Thank you.

Thank you. Our next question comes from Vincent <unk> with Stephens. Your line is open.

Peggy O'Brien Thank you. Our next question comes from Vincent Koenig with Stevens. Your line is open.

Hey, Thanks. Good morning, Thanks for taking my questions first on funding. So I appreciate the discussion on.

Hey, thanks, good morning. Thanks for taking my questions. First on funding, so I appreciate the discussion on.

Your volume opportunities that's going to be my second question, but.

my second question, but it seems like there's been a lot of kind of broad.

It seems like there's been a lot of kind of broad.

industry issues with the ability to source funding and funding getting more expensive. And so I'm just wondering if you could talk about that and the appetite, your ability to fund.

Industry issues with ability to source funding in plumbing getting more expensive and so I'm. Just wondering if you could talk about that and the appetite your ability to fund.

The growth that you are that you are anticipating thank you.

Sure. Great question. So, we have an asset-backed facility with our lender that actually has over $76 million of capacity on it, and that's committed capacity to us. So, it's an asset-backed facility. We get a 90% advance rate. So, as we are growing Originations, we would be able to leverage that facility to basically fund all the growth for the foreseeable future. So, we feel like we're in a good spot with our lender and that arrangement that we have.

Sure Great question. So we have an asset backed facility with our lender.

That actually has over $76 million of capacity on it.

Thats committed capacity.

So you can ask that facility, we got a 90% advance rate. So as we are growing origination.

You'll be able to leverage that facility Q.

Basically find all of the growth for the foreseeable future. So we feel like we're in a good spot with our lender and that arrangement that we have.

Okay, great. That's helpful. And then, so now talking about the volume opportunities, I was wondering, so it sounds like you're getting more engaged.

Okay, Great. That's helpful. And then so now talking about the volume opportunities I was wondering.

So it sounds like Youre getting more engagement from merchants youre signing on more of them. I was just wondering if you could talk about it because it seems like.

more of them. I was just wondering if you could talk about it because it seems like the like e-com sales have been difficult.

Like E com sales have been difficult recently, we've seen even the biggest guys have weaker.

sales. So if you could talk about how you think about that dynamic.

Sales.

So if you could talk about how you think about that dynamic versus the merchant maybe wanting to stay that offered for trying to find other channels of growth and sort of what also what the competition is so as an example that I've seen that way fair has they've added Brad added.

or trying to find other channels of growth.

sort of what also what the competition is.

Progressive back as well, so just kind of the discussions youre, having the traction youre getting with your with your merchants. Thank you.

kind of the discussions you're having, the traction you're getting with your brand.

Yeah.

Hi Vincent, this is Derek. Just coming back, thanks for your question.

Hi, Vincent this is Darren just coming back and thanks for your question.

We've definitely been having more meaningful conversations with our retailers. It all starts with getting, uh, you know, having trusted relationships.

We've definitely been having more meaningful conversations with our retailers it all starts with getting.

Having trusted relationships and partnerships with our existing customers and having building long standing relationships with our prospects I'm hearing what what they're seeing in the market and what they see as the opportunity and it really cuts across three different areas. They are really focused on user experience there.

with our existing customers and building long-standing relationships with our prospects and hearing what they're seeing in the market and what they see as the opportunity, and it really cuts across three different areas. They're really focused on the user experience.

Their operational experience and how we can support them in marketing because yes during tough headwinds, they're really focused in on all three of those areas and our team has done an amazing job that we've made investments in product and technology and sales organization to be able to.

their operational experience and how we can support them in marketing because yes during tough headwinds

They're really focused in on all three of those areas and our team has done an amazing job as we've made investments in product and technology and sales organization to be able to, you know, respond to that. And that's where a lot of our time investment has been made.

Respond to that and that's where a lot of our time and investment has been made.

Um, I would say in general, the conversations that we're having are more aggressive and more intentional in terms of how we move forward.

I would say in general the conversations that we're having are more aggressive and more intentional in terms of how we move forward.

and specific in terms of ways to be able to support merchants in their growth and get them back on that growth trajectory in some of those segments where they've had a tough time of late. But yes, in general, we're seeing more engagement and we all know that

Specific in terms of ways to be able to support merchants and their growth and get them back on that growth trajectory and some of those segments were.

They've had a tough time of late.

But yes in general we're seeing more engagement and we all know that.

You know as sales become a little harder to find

As sales become a little harder to find.

You know, we're here to help them open up an entirely new segment, both from a financial inclusion standpoint, but also just from a convergent opportunity. And so...

We're here to help them open up an entirely new segment, both from a financial inclusion standpoint, but also just from a conversion opportunity and so we're a great partner for them to be able to grow their sales and access this market.

We're a great partner for them to be able to grow their sales and access this market set. Yeah. Vincent, this is Orlando.

Vincent This Orlando Hello.

If I can add about Wayfair, we've always been in a competitive position with Wayfair, and I think what they look for is they're trying to provide financing at all levels.

If I can add about wait there we've always been in a competitive position with wave there and I think what they look for is or trying to.

Financing at all levels and Thats why they have multiple lenders at different levels and so with us that volume goes to all parties equally.

And that's why they have multiple lenders at different levels. And so, you know, with us, the app volume goes to all parties equally. And really, our indicator for share is conversion rate. And, you know, we track this daily, if not hourly. We can see if there's any change. And quite frankly...

And really our indicator for share is conversion rate.

And we track this daily if not hourly we can see.

If there is any change in quite frankly.

Since Progressive has joined, we haven't seen any material change in these rates.

Progressive has joined we haven't seen any material change in these rates.

Okay. That's perfect. Thank you and if I could sweep sneak one more in you mentioned for on the credit side, you mentioned that.

Okay, that's perfect. Thank you. And if I could sneak sneak one more in you mentioned for on the credit side, you.

tightened your underwriting. Is your tightening complete and if you could talk about early results.

But tightened your underwriting.

Tightening are complete and if you could talk about early results.

Tom you're tightening. Thank you that's it for me okay.

Okay.

Yeah, we're always monitoring credit and changing things and testing things, but we did you obviously some significant tightening in Q4, and then into Q1 with some of the data trends that we're seeing so I would say from where our approval rates that we're probably it's probably complete in terms of our pro rate most likely not going to go down.

Yeah, we're always monitoring credit and changing things and testing things, but we did do obviously some significant tightening in Q4 and then into Q1 with some of the data trends that we were seeing. So, I would say from...

where our approval rate sits, we're probably, it's probably complete in terms of our approval rates most likely not gonna go down than where we're sitting at the current run rate. And now it's all about.

We're sitting at the current run rate and now it's all about.

you know, building that back up based off of how we can optimize approval rates and really, you know, understand the factors that are driving good performance and bad performance. So that's what we're now kind of in the maintenance mode and tweaking it and being a little bit more surgical on, you know, our approval rates and how we're going to manage those going forward.

You know building that back up based off of how we can optimize the approval rates.

And really you know.

I understand that the factors that are driving.

Good performance about performance. So that's what we're now we're kind of in the maintenance mode and tweaking and.

Being a little bit more surgical on.

Our approval rates and how we're going to manage that going forward.

Oh, great. Thank you.

Thank you as a reminder, the star one to ask a question.

Thank you. As a reminder, there's star one to ask a question. Have a follow-up with Josh Siegler with Cantor Fitzgerald. Your line is now open.

Follow up with Jeff Ziegler with Cantor Fitzgerald. Your line is now open.

Thanks. Thank you. And thanks for taking my follow up. It looks like one Q revenue as a percentage of gross originations perform very well, especially considering considering there was one last Friday during the quarter. Can you please provide some color on some of the drivers of this high revenue?

Thank you and thanks for taking my follow up it looks like <unk> revenue as a percentage of gross originations performed very well, especially considering considering there was one less Friday during the quarter can you. Please provide some color on some of the drivers of this high revenue performance.

Hi, Josh Yes, I mean, the biggest driver was taxi then check these actually played out pretty well for us considering there is some uncertainty about how large refunds would be this year with the child tax credit and if you had that happen in the second half of last year. So we had a really strong.

Josh, yeah, I mean, the biggest driver was tax season. Tax season actually played out pretty well for us, considering there was some uncertainty about how large refunds would be this year with the child tax credit initiative that happened in the second half of last year. So we had a really strong tax season, which I think spurred some of that revenue better than expectations.

Tax season, which I think spirits in that revenue.

Better than expectation.

Great, thank you. And it looks like the acceleration rate of impairment charges as a percentage of gross origination picked up this quarter. Do you expect this acceleration to continue throughout the year until you reach pre pandemic level?

Great. Thank you and it looks like the acceleration rate of impairment charges as a percentage of gross origination ticked up this quarter do you expect.

Acceleration is that continued throughout the year until you reach pre pandemic levels.

Yeah. That's the that's the expectation right now is that we were at historically low levels at neo during Covid starting in the second half of 2020. So we do think it is going to go back up to higher pre pandemic levels.

Yeah, that's the expectation right now is that we were at historically low levels during COVID, starting in the second half of 2020. So we do think it's going to go back up to higher pre-pandemic levels, and that's where we think it'll stop growing and kind of just maintain that rate on a go-forward basis.

And that's why we think it all it all.

Stopped growing and kind of maintain that rate.

I fell four basis.

Great. Thank you very much.

Thank you and I'm currently showing no further questions in the queue at this time I'd like to hand, the conference back over to Orlando for any closing remarks.

And I'm currently showing no further questions in the queue at this time. I'd like to hand the conference back over to Orlando for any closing remarks.

Thanks. Thanks for all the questions, guys. We appreciate it. We're really looking forward to the rest of the year. I think you're going to see some interesting announcements in the second half of the year on not only merchant ads, but also on the technology side. So we're very bullish about the second half of the year and the changes that might come to the company. So thanks for your support and thanks for your time today.

Thanks, Thanks for all the questions guys. We appreciate it and we're really looking forward to the rest of the year I think youre going to see some.

Interesting.

Ounces than the second half of the year on not only merchant adds but also on the technology side. So we're very bullish about the second half of the year and the changes that might that might come to the company. So thanks for your support and thanks for your time today.

Ladies and gentlemen, thank you for your participation you may now disconnect everyone have a wonderful day.

Ladies and gentlemen, thank you for your participation. You may now disconnect. Everyone have a wonderful day.

Thank you.

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