Q3 2024 Katapult Holdings Inc Earnings Call

Speaker Change: Hello everyone. Thank you for standing by and welcome to the Cettapult Folding 34-20204 earnings conference call. At this time, all participants are in Lysian only mode.

Speaker Change: and the speaker's remarks that will be a question and answer session.

Speaker Change: If you'd like to ask a question during that time, you need to press star and the number one on your telephone keypad. Thank you.

Speaker Change: I would now like to turn the conference over to your first speaker for today, Jennifer Kull, Vice President and the head of investor relations, we may now begin.

Jennifer Kull: Welcome to Catapult's third quarter 2024 conference call. On the call with me today, our Orlando Zayas, Chief Executive Officer, Nancy Walsh.

Jennifer Kull: Chief Financial Officer, and Derek Bedlin, President and Chief Growth Officer. For your reference, we have posted materials for today's call on the Investor Relations section of the Catapult website, which can be found at IR.catapultoldings.com.

Jennifer Kull: Please keep in mind that our remarks today include forward-looking statements related to our financial guidance, our business, and our operating results as noted in the earnings release and slide deck posted to our website for your reference.

Jennifer Kull: Our actual results may differ materially. Forward-looking statements involve risk and uncertainties. Some of which are described in today's earnings release and our most recent Gorm 10Q, in which we'll be updated in future periodic reports that we file with the SEC.

Jennifer Kull: and a forward-looking statement that we make on this call are based on our beliefs and assumptions today and we

Jennifer Kull: Also during the call, we'll present both GAP and non-GAP financial measures. Non-GAP financial measures should be considered supplemental to and not replaced in four or superior to our GAP results.

Jennifer Kull: A reconciliation of non-gap financial measures to the most directly comparable gap financial measure is included with today's earnings release and is available on the investor relations section of the company's website.

Jennifer Kull: Any comparisons to 2023 financial results are referencing a resated financial included in our form 10K for the year ended December 31, 2023, filed with the SEC on April 24, 2024.

Speaker Change: Finally, all comparisons are year over year and less otherwise stated. With that, I will turn the call over to Orlando.

Orlando Zayas: and everyone joining us this morning. We're excited to talk to you about our third quarter performance, which improved year of year.

Orlando Zayas: Today I'll focus my commentary on the drivers of our results and how I would have positioned in capital for continued growth and future profitability.

Jennifer Kull: In addition, I've asked Derek to say a few words about his new role as Chief Growth Officer.

Jennifer Kull: is top priorities and how these efforts can accelerate our progress. After this, Nancy will take us through our financial results and provide an update on our 2024 outlook.

Jennifer Kull: K3 marked another period of across the board progress for us and were proud to deliver our 8th consecutive quarter of gross and regination growth.

Jennifer Kull: Beyond Growth Surrogations, during Q3, we delivered healthy revenue growth and a solid adjusted EBITDA.

Jennifer Kull: We have successfully diversified our gross originations base by adding new direct and waterfall merchants and rapidly growing catapult pay originations.

Jennifer Kull: As a result, more than 58% of our total Q3 gross resonations, which excludes Ways Fair, grew more than 37% year of year. Up from 20% year of year growth, we achieved in Q2.

Jennifer Kull: In addition, for this portion of the business, applications grew by more than 50% year or year.

Jennifer Kull: Last quarter we discussed that our outlook for gross originations include an assumption that we would see improvement within the home furnishings category, particularly at WaysFare.

Jennifer Kull: During Q3, Ways Fair Application Flow was downmaning fully, and while I walk you through a few of the initiatives we've put in place to offset this, ultimately we can't control the application volume. As we've built the Home Pershings category, I'll show you our expectations.

Jennifer Kull: Overall, growths of regulations would have grown approximately 16% if lay fair growths of regulations had just been flat compared to Q3 of last year.

Jennifer Kull: So we believe that when this category begins to recover in earnest, this will be a tailwind far growth.

Jennifer Kull: Given the current operating environment, we have continued to focus on drivers that are within our control, including launching growth initiatives that are helping offset the challenges of the current macro economic environment.

Jennifer Kull: And it's important to note that we are making these investments while maintaining a very streamlined expense space.

Jennifer Kull: At Wafers specifically, our efforts include strategic pricing promotions and surgically precise underwriting that all together allow us to be even more targeted with our consumer offerings.

Jennifer Kull: Over the course of Q3, these initiatives help drive approval and towards a rate higher without a road in our risk profile.

Jennifer Kull: The let's look at the numbers. With these initiatives in place, we were able to drive a 350-based point improvement and approval rates for Waysair, a 440-based point improvement in same day take rates and a 60-based point improvement and overall take rates.

Jennifer Kull: With that as a backdrop, I'd like to walk you through some of the highlights from the rest of our business that achieved 37% year over year growth.

Jennifer Kull: Let's start with our Q3 progress against our merchant strategy. Our merchant strategy revolves around three main drivers. One, growing growths of our generations by integrating with new merchants, either through a direct integration or a waterfall relationship.

Jennifer Kull: 2. Growing a market share with our anchor merchants and 3, ensuring we offer a variety of durable goods, our customers are routinely looking to acquire.

Jennifer Kull: Starting with our integration progress, we have several new developments to discuss this quarter. Last quarter we announced our new agreement with TAC tomorrow, a premier waterfall financing platform.

Jennifer Kull: They have more than 2,700 merges on their platform. And we have already begun to convert these merges to catapult.

Jennifer Kull: We now have 24 merchants live on Pantsomora platform. Let me tell you about a few recent waterfall launches.

Jennifer Kull: and Metatober, we launched BB Wheels, which is tires wheels and accessories business with the customers throughout the continental U.S. We also launched a waterfall integration for extreme customs, another tire wheels, an accessories retailer that has a nationwide customer base.

Jennifer Kull: We already have a direct relationship with extreme customs and we are very excited to expand our relationship.

Jennifer Kull: We also launched Tyra agent, which went live in mid October.

Jennifer Kull: Tire Agent is an online tire and wheels company that serves customers across the continental U.S.

Jennifer Kull: Given their e-commerce model, they were drawn to catapult in large part because of the power of our app. They're excited about having access to the broad catapult economy and we are excited to welcome them to our platform.

Jennifer Kull: Automotive is becoming a key category for us, and it has an average order value that is higher than home furnishings category.

Jennifer Kull: During Q3, automotive grew more than 25% and we believe it will become an even larger part of our business over time.

Jennifer Kull: We're very pleased with our partnership with Pay to Marl and look forward to continuing to expand our relationship.

Jennifer Kull: These are just a few of our successes this quarter that demonstrate the steady progress we are making on this strategic front.

Jennifer Kull: As we remain focused on partnering with new merchants, we are also equally focused on doing more with our current merchant partners.

Jennifer Kull: Let me give you a few highlights.

Jennifer Kull: We've added more than 40 new merchant pathways in Q3. Pathways include new or existing merchant partners that launch a new website or an in-store experience that includes catapult as a direct or waterfall LTO offering.

Jennifer Kull: About 40% of the launches this quarter were with existing merchant partners, showcasing their interest in broadening their relationships with catapult.

Jennifer Kull: We look at these launches as incremental top line growth opportunities as well as low cost-ways to expand our brand reach.

Jennifer Kull: Let me give you another example of how our team is deepening our relationship with our merchants. That's in six months ago, we onboarded a new auto merchant that specializes in our real products.

Jennifer Kull: Just after four months, the lecture was so pleased with our performance that they agreed to move us up their financing funnel.

Jennifer Kull: As for that move, we saw average daily gross originations from that merchant grow by more than 180% in Q3.

Jennifer Kull: which contributed to the growth we saw in tires and wheels categories during the course.

Jennifer Kull: So, what are the two? We continue to work closely with our merchants to leverage the power of their marketing assets to amplify the impact on our promotional activities.

Jennifer Kull: For example, we launched a variety of pricing promotions for the Labor Day holiday and several of our merchants promoted these across their sites, newsletters, social media and other marketing domains.

Jennifer Kull: So the power of our partnership during the Labor Day sales period year over year, we grew applications that are provost by approximately 29 and 30 percent respectively.

Jennifer Kull: leading to a nearly 50% growth of a nation's growth during this period.

Jennifer Kull: And while these data points do include some impact from merchants that are new to catapult since the late day last year.

Jennifer Kull: and we look only at the week-over week growth.

Jennifer Kull: We achieved an approach like 850 basis point improvement and take rate.

Jennifer Kull: that led to 24% week over week, gross regulations growth during the Labor Day Sales Period.

Jennifer Kull: This performance demonstrates our ability to find new ways to work with our mature merchant base to properly grow our business.

Jennifer Kull: As you've heard, we're continuing to move with the great sense of urgency across several merchant avenues to drive growth and we are attacking our market opportunity creatively and strategically and we are our delivering results.

Jennifer Kull: The mantra is very true when it comes to executing her strategy to drive consumer demand for our market leading LTO product. Let's dive into our progress with catapult pay and marketing.

Jennifer Kull: Starting with Catapult Pay, or K Pay, which has continued to outpace our early expectations year to date, K Pay has delivered 46 million of gross resumations, and in that time period it has grown 110% year of year.

Jennifer Kull: During Q3, K Pay grew 86.1% to 16 million in gross regulations and represented 31% of our total base.

Jennifer Kull: In October, we added two merges to K-Pay, Blue Nile, which is our first jewelry merchant on K-Pay and Tyra Rack. Further strengthening our growing position in the Tyra and Wheel category.

Jennifer Kull: Here today we've added seven merchants to Cape A including New Egg, early in Q3, bringing the total number of merchants on Cape A to 30.

Jennifer Kull: During the third quarter alone, K-PAP applications nearly doubled and giving the growth and customer engagement with K-PAP, we feel confident that our app is allowing us to deepen and strengthen our relationship with our customers.

Jennifer Kull: Turning to marketing, we are continuing to build this muscle with an increasing cadence of task.

Jennifer Kull: With the Consumer Marketing, the majority of our resources remain focused on driving traffic to our app. We believe we can effectively leverage our marketing to complement the customer acquisition flow we received from our merchant partners and keep our acquisition cost reasonable.

Jennifer Kull: and our efforts continue to deliver results, including an 83% year over year increase in app downloads with a 52% increase in unique app users, including more than a 50% increase and quarterly active users.

Jennifer Kull: We have also doubled the number of marketing campaigns in Q3 vs last year. Set up operations that allow us to launch two new marketing channels in early Q4 and we increased leases at Trimidogal to our Google Ads by more than 100% vs Q2 of this year.

Jennifer Kull: This help drive a resignation coming through our app by 37% year of a year, which represented more than 53% of our total grossed resignations for the quarter.

Jennifer Kull: We also continue to make progress, expanding our referral networks. And while I don't have any specific to report this quarter, we are excited about several new partnerships that are on the horizon.

Jennifer Kull: All these partnerships are very focused on our app and we expect to launch new referral partnerships in the first quarter of next year. To give you a sense of their potential impact, these types of referral partnerships could deliver grossed the regulations in the range of a large enterprise merchant on an annual basis.

Jennifer Kull: I'd also like to give you a quick but exciting update on our tech front. During the first quarter of this year, we previewed our intention to introduce a product-based search. And early in Q's four, we were excited to launch our pilot of this new feature.

Jennifer Kull: In the past, our tech only allowed customers to shop at the retail level. When looking for a specific durable good, we could only show them the retailers that we knew offered similar products.

Jennifer Kull: Now, we can show them specific inventory that is available on multiple merchant sites, giving the customer options to get the best deal.

Jennifer Kull: In addition, over time, this capability should provide us with more precise insights into what customers are searching for and ultimately purchasing. Unlocking opportunities across business intelligence, marketing, and other areas of catapult.

Jennifer Kull: As you've heard, we are taking a multi-stronged approach to growing our catapult business.

Jennifer Kull: From the strength of our direct and waterfall merchant business, to our innovative K-Pay and app, to our scalable marketing strategy, to early progress we're making on expanding referral and affiliate partnerships, we believe we're well positioned to create value.

Jennifer Kull: We appreciate the support of our fantastic team of employees, our shareholders, merchants, other partners, and customers as we continue our journey. We recognize that we need to move as quickly as possible to make our vision a reality, and this is one of the reasons why we appointed Derek to the new role of President and Chief Growth Officer.

Jennifer Kull: Derek has spent the last seven years helping Tadapolt grow.

Jennifer Kull: He spearheaded our direct-to-consumer efforts, scaled our global operations to support our top-line growth, and led several cross-functional teams spanning product, technology, operations that have allowed us to expand our business.

Jennifer Kull: He's a terrific partner to both Nancy and me.

Jennifer Kull: Catafult has done a great job building a lease-to-own offering that has a terrific product market fit, a customer experience that drives high repeat rates and loyalty, and an app that sets us apart from the competitive landscape.

Jennifer Kull: These characteristics are turning Catapult into a partner of choice for customers and merchants alike.

Jennifer Kull: We are shifting from simply being a payment method to a growth partner that makes shopping easier.

Jennifer Kull: In doing so, we're diversifying our gross origination space by offering direct, waterfall, and catapult pay LTO options that meet consumers wherever they are.

Jennifer Kull: We have also successfully grown Gross Originations for eight consecutive quarters while remaining focused on fiscal discipline.

Jennifer Kull: In order to accelerate our top-line growth even more,

Jennifer Kull: We are focused on new opportunities to drive more volume to the top of our funnel.

Jennifer Kull: You've heard us talk about the testing and learning we've been doing within marketing. And those efforts continue to have positive impact. But our approach to marketing must be measured given that the investment required to scale customer acquisition and brand campaigns. And frankly, we need to move faster.

Jennifer Kull: Do this.

Jennifer Kull: We must significantly increase our application flow. This is our number one priority.

Jennifer Kull: Together with the team, we have ramped up activities that are allowing us to go deeper with our current partners.

Jennifer Kull: identify new partners that can bring new customer populations to Catapult, and at the same time we are supporting merchants with marketing collaborations that bring our consumer community, which translates to meaningful volume, to their retail doorsteps.

Jennifer Kull: We have been aggressively expanding our coverage of enterprise and omni-channel merchants.

Jennifer Kull: As merchants continue to look for growth wherever they can find it, the tone of the conversations we're having with them has become more and more positive.

Jennifer Kull: And here's why.

Jennifer Kull: We have built a marketplace ecosystem, and we can measure the traffic and conversion from traffic we drive, as well as the traffic that comes to us from merchant partners.

Jennifer Kull: Our data show that if merchants bring customers to Catapult, we can convert them, and we can also bring customers to merchants.

Jennifer Kull: These two data points have been amazing conversation starters. At the same time, we know that with the power of our app, we can cross-sell and up-sell consumers a variety of durable goods offered by merchants in the Catapult marketplace.

Jennifer Kull: making the growing applicant flow even more valuable to us.

Speaker Change: Orlando already told you that we nearly doubled KPAY applications in the quarter and that our cross-sell activity grew 62% year-over-year in the third quarter. So let me give you another data point that underscores why our app is so important to our future.

Jennifer Kull: Lifetime value.

Jennifer Kull: When a customer uses the Catafult app, this channel increases their lifetime lease originations by more than 2x.

Jennifer Kull: If we can rapidly grow our overall application volume like I believe we can, this can be a game changer for our business.

Jennifer Kull: One that I believe will ignite a new engine for long-term growth.

Jennifer Kull: The team is energized and organized for a great fourth quarter.

Jennifer Kull: I look forward to updating you on our progress.

Speaker Change: With that, I'll turn it over to Nancy to discuss our third quarter financial results.

Speaker Change: Nancy

Nancy Walsh: Thanks, Derek, and hello to everyone joining us this morning. As Orlando mentioned, we achieved growth across the board this quarter, and we believe we are well-positioned for a strong Q4.

Speaker Change: Let's start with a few insights on our top-line performance. We have now grown gross originations for eight consecutive quarters. Gross originations grew 3.3% to $51.2 million in the third quarter, and on a two-year stack basis, our gross originations grew 16%.

Speaker Change: When we provided our outlook for Q3, one key element was the assumption that home furnishings, including our business with Wayfair, would return to normal levels. Unfortunately, this did not happen.

Jennifer Kull: You have heard Orlando talk about all the ways that we are executing on initiatives that are within our control, and this is why, despite this headwind, we were able to drive growth in our overall business, as well as 37% growth in our business excluding Wayfair.

Speaker Change: I'm very proud of the team's efforts, which are not only driving growth, but also strong repeat purchase rates, cross-shopping, and net promoter scores.

Speaker Change: During Q3, our customer repeat purchase rate was 60.3%, cross-shopping activity grew by approximately 62%, and our NPS score was 61.

Speaker Change: On the revenue front, we delivered $60.3 million, or 10% growth, which is above our outlook and reflects continued improvements in productivity and efficiencies.

Speaker Change: Our collection trends also remain strong.

Speaker Change: Q3 marked our sixth consecutive quarter of year-over-year revenue growth.

Speaker Change: Gross profit for Q3 was approximately $11.9 million, an increase of nearly 4%, and gross profit during the first nine months of 2024 grew by nearly 17%.

Speaker Change: We achieved a Q3 gross margin of 19.8%, which is within our 18 to 20% range for full year 2024 and in line with seasonal patterns, where our margins are typically the highest in the first and third quarters.

Speaker Change: We have continued to effectively manage write-offs as a percent of revenue. During the third quarter, this metric was 9.5%, approximately flat compared to Q3 2023, and within our target range of 8-10%. Our approval rate in Q3 was consistent with Q3 of last year.

Speaker Change: We also continuously review a number of other metrics that are indicative of the quality of our incoming applications, approved applicants, and lease origination space.

Speaker Change: These data points suggest that the credit quality of applicants, approved applications, and lease originations have all trended up in Q3 2024 versus Q3 2023.

Speaker Change: Moving on to expenses and profitability. Our disciplined approach to expense management coupled with our top-line growth allowed us to deliver another quarter of solid Adjusted EBITDA performance. Let's first talk about some of the puts and takes within Adjusted EBITDA this quarter. During the third quarter, we entered into a $3 million agreement to set a litigation related to a matter involving DIWA Corporate Advisory, or DCA.

Speaker Change: We paid DCA $1.5 million in Q4, and the remainder will be paid quarterly over the next two years. This is an add back to adjusted EBITDA.

Speaker Change: This was the primary driver of our increase in total operating expenses, which grew by 38% during the quarter. Excluding the litigation expense, total OPEX as a percent of revenue was approximately the same as Q3 2023.

Speaker Change: Given the hard work our team has been doing to drive revenue growth while keeping our expense structure lean, we are starting to see the benefits of operating leverage.

Speaker Change: depreciation and stock-based compensation expense, which are non-cash expenses.

Speaker Change: and excluding litigation settlement and severance expense, our fixed cash operating expenses were $9.5 million, an increase of 8.5% compared to last year.

Speaker Change: During the third quarter, excluding litigation settlement expenses, our loss from operations was $1.1 million in Q3 2024 versus a loss of $400,000 in Q3 2023.

Speaker Change: During the first nine months of 2024, excluding litigation expense, we achieved approximately $100,000 in income from operations.

Speaker Change: Based on our top-line performance and our operating efficiencies, we were able to deliver positive adjusted EBITDA of $600,000, which was in line to slightly ahead of our Q3 outlook.

Speaker Change: This year-over-year decline was primarily driven by increased operating expenses.

Speaker Change: Year-to-date adjusted EBITDA is positive $5.8 million, a $7.4 million improvement compared to the same period of last year.

Speaker Change: Turning to the balance sheet and cash flow. As of September 30, 2024, we had total cash and cash equivalents of $30.3 million, which includes $4.4 million of restricted cash. As of the end of the third quarter, we also had $67.3 million in outstanding debt on our credit facility.

Speaker Change: Regarding our capital structure and balance sheet and our upcoming June 2025 debt maturity, in October, we signed a non-binding letter of intent with the lender for a new revolving line of credit, working capital line of credit, and term loan. If we finalize this credit facility, it would refinance and replace our outstanding credit facility.

Speaker Change: There can be no assurance that we will close this potential credit facility with this lender or any other lender.

Speaker Change: Cash flow from operations for the first nine months of 2024 improved by $3.6 million versus the same period in 2023.

Speaker Change: Year-to-date 2024 cash used in operations was 4.1 million dollars compared with 7.7 million dollars for the first nine months of 2023.

Speaker Change: For your models, I would note that as of September 30, 2024, we recorded a reserve for the $3 million DCA settlement included in accrued liabilities and operating expenses, and we have included approximately 168,000 shares in our total outstanding share count as of November 1 related to the Delaware litigation settlement.

Speaker Change: Turning to our Q4 outlook, we are continuing to navigate a challenging macro environment, particularly surrounding the home furnishings category.

Speaker Change: That said, we are excited about the fourth quarter and believe that given the breadth of our merchant selection, our strategic marketing, and our strong consumer offering, we are well positioned heading into the holiday season.

Speaker Change: From a big picture perspective, we believe we have a large addressable market of underserved non-prime consumers and that we will benefit if prime credit options become less available.

Speaker Change: From a Catapult-specific perspective, we plan to leverage the many direct and waterfall merchant relationships we have to provide our customers with access to just about any durable good they want and unleash the power of K-Pay in our targeted marketing campaigns to give consumers the inspiring shopping experiences they deserve this holiday season.

Speaker Change: Based on these dynamics and the operating plan in place for the rest of this year, we expect the following for the fourth quarter.

Speaker Change: Gross originations growth of six to eight percent. Gross originations excluding wafer are expected to continue to grow at a much faster pace than our overall gross originations.

Speaker Change: Revenue growth in the range of 5 to 7% and roughly break-even adjusted EBITDA.

Speaker Change: I will note that our outlook for Q4 assumes that the home furnishings category does not improve materially from our Q3 performance and that we will not see any material impact from prime creditors tightening or loosening above us.

Speaker Change: Based on our year-to-date performance, we are adjusting our outlook for full-year gross originations. We now expect 2024 gross originations to grow 2% to 4%. We are reiterating our 2024 revenue outlook for growth of at least 10%.

Speaker Change: Finally, we also expect to deliver $5.5 million in positive adjusted EBITDA for the full year 2024. This will be the first time we have achieved positive adjusted EBITDA since 2021.

Speaker Change: With that, I'll turn it back to the operator for Q&A. Operator?

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star 1. Your first question comes from Scott Buck from H.C. Wainwright. Your line is now open.

Scott Buck: Hi. Good morning, guys. Thanks for taking my questions.

Scott Buck: First one, Orlando.

Scott Buck: What would it take to see a material change in home furnishings demand? Is it as simple as just more home purchases?

Speaker Change: Yes.

Orlando Zayas: We're excited that interest rates are starting to come down. Home purchases are starting to pick up a little bit. So I think if that continues into 2025, we should probably see a turnaround on the home furnishing side, but we're prepared for it, let's just say.

Speaker Change: That's helpful, and maybe I missed it, but what is the average origination size today versus, you know, 12 months ago?

Speaker Change: Still in the $600 to $700 range.

Speaker Change: Okay, so not materially different? No, we have not seen that materially change.

Speaker Change: Okay, perfect. And then I want to kind of dig in a little bit on K-Pay. I'm curious if there's particular products or particular merchants maybe you're working with there that are driving...

Speaker Change: A material part of that new demand?

Speaker Change: Hi, this is Derek. Let me share a little bit more about that. It's a great question and it's something that we're really excited about. So within the KPAY and in our mobile app ecosystem, we're really excited because what we find is that the shopping activity that we see from our customers is really distributed and diversified across many different retailers.

Speaker Change: And so that means that we're seeing traffic going through.

Orlando Zayas: major players like Walmart, Amazon, and Best Buy, but also back into Wayfair and into our tire and wheel partners and to other segments.

Speaker Change: And really the key here is having the breadth of off-grain. And as we've added different retailers to the Catapult Pay ecosystem, we've found more shopping and finding those niches where customers are looking to

Speaker Change: lease different types of goods.

Speaker Change: And so having the breadth of offering has really diversified it. So it's not concentrated at all in any single merchant. It's spread across a large set with really kind of the top ten major e-commerce retailers that you know pulling in the bulk of that volume.

Speaker Change: Great, I appreciate that color. And then last one...

Speaker Change: Orlando, you mentioned potential referral partners in the pipeline. How long does it generally take for those relationships to mature?

Orlando Zayas: I'm actually going to let Derek answer that one since now that he's in charge of all the partnerships with the Zambiba role. Yeah, great. Thanks for that question. I think what's exciting is that when we initially launched the mobile app in KPAY, we really targeted on our existing customers.

Orlando Zayas: And the reason for that is that we wanted to validate that we could help

Orlando Zayas: customers find access to new retailers.

Orlando Zayas: to find the goods that they're looking to lease with us, and to just make the whole process easier. And as we have now matured that over the last two years, we've expanded further and further into not only using it as a cross-shopping sort of destination,

Orlando Zayas: for existing customers to do additional leases, but also as an acquisition channel. And so, we've done that through digital marketing activities, but we've also found massive referral networks. And so, we've done that through digital marketing activities, but we've also found massive referral networks.

Orlando Zayas: that have customers in segments that look a lot like ours.

Orlando Zayas: that can help us to attract new customers to the catapult community and to help them understand the value they can have to shop with us and the flexibility and transparency with our products.

Orlando Zayas: And so some of those, it's a flip of a switch in terms of getting access to those.

Orlando Zayas: which is really exciting to be able to get the flow quickly. But on top of that though, the maturity or the seasoning that needs to happen is to identify what's the right value proposition in front of that customer, what kind of conversion rate will we see, and how will they perform over time. And so Catapult takes a really

Orlando Zayas: diligent approach to analyzing these and

Orlando Zayas: and ramping up in some cases slowly to ensure that we're having solid quality, solid performance before we really open the funnel up completely. But this is an area of major focus for us in the fourth quarter and going into 2025.

Speaker Change: Thanks Derek, appreciate that and appreciate the time guys. Thank you.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Anthony Chukwumba from Loop Capital. Your line is now open.

Anthony Chukwumba: Good morning, thanks for taking my question. So, you gave a great update on paid tomorrow. Any update on the Synchrony waterfall integration?

Speaker Change: Sure, so at this stage Synchrony's only released their pre-approval waterfall flow which we're a part of and is active with a handful of merchants.

Orlando Zayas: They have a broader plan to extend functionality, and we're excited to keep partnering with them. They're a major player, especially in some of these segments that we see significant growth in. And so, as you know, Catapult

Orlando Zayas: Our platform is really extensible to any of these digital and omni-channel environments that make us, you know, a partner of choice.

Orlando Zayas: for these types of solutions, whether it be Synchrony, or Pay Tomorrow, or others. And we're really leaning in to partner closely to help them to deliver new value propositions and to make it easy for merchants to access the blind product offering. So stay tuned. I think there's more in 2025.

Speaker Change: Just I guess two questions there, you know, how did the terms compare to the terms and on the on the current line of credit and and also do you have any sense for you know like timing in terms of potentially closing that?

Nancy Walsh: So Anthony, this is Nancy, you know we can't say a lot at this point let's just say we're definitely pursuing market conditions both in terms of the maturity and any of the underlying covenants and whatnot and we've been working very hard at this trying to close it as soon as possible.

Anthony Chukwumba: Got it. Okay, and then.

Nancy Walsh: So, yeah, so yeah, it looks like your share is outstanding. I was just looking at the, you know, the queue and it looks like it was up about 220 or

Nancy Walsh: a thousand or so shares. Can you just fill us in with like, what is, how, why were those shares issued or what exactly happened with that? I was just, I just wasn't clear on that.

Speaker Change: So as part of the Delaware litigation settlement, we released 168,000 shares as of November 1st or October 24th, excuse me. And that, you know, is for your modeling going forward, that will be factored in.

Nancy Walsh: We anticipate as New York settles that that will be the case as well. And you know from the settlement arrangement that there is a secondary over the next 12 months that we can settle either in additional shares or in cash.

Nancy Walsh: I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.

Speaker Change: Got it. And sorry, just remind me, what was the litigation in reference to?

Speaker Change: That was the D-SPAC.

Nancy Walsh: litigation just settled for 12 million dollars. This is the stock component of it. We provided the cash and this is the secondary piece as we move through the process. So just Delaware has settled in terms of the shares. New York will happen sometime early next year.

Speaker Change: Okay, so none of this is with the warrants that you issued, you know, when you

Nancy Walsh: You know when you restructure the line of credit

Speaker Change: No, those have already been issued and.

Speaker Change: They're taken. That was a while ago.

Speaker Change: Got it. Okay, thanks for the clarification. I appreciate it.

Orlando Zayas: Thank you, Anthony.

Speaker Change: Your next question comes from Scott Buck from HSC Wainwright. Your line is now open.

Scott Buck: On fourth quarter seasonality in terms of originations, I'm curious what percentage of the quarters originations generally come from that you know Thanksgiving, Black Friday, to Cyber Monday period?

Speaker Change: They're a fair component that, as you imagine, Q4 with retailers as being the most important quarter for them, it's going to follow with us as well. So it'll be a significant portion.

Speaker Change: Okay, perfect. And then, lastly, I just want to ask about the patent infringement lawsuit brought against you by one of your peers. Curious if you guys are able to or have any comments you want to share on that.

Speaker Change: Sure, just...

Speaker Change: Just quickly, we're evaluating what's been recently filed and there's no current impact on our financial statements, but we intend to vigorously defend Catapult in this matter and that's really all we're ready to say.

Speaker Change: Great, I appreciate that and again thank you for the time today guys.

Speaker Change: Thank you.

Speaker Change: Thank you. I'd now like to hand back over to the management for further remarks.

Speaker Change: Thanks, Operator. Our team has done a good job developing growth opportunities throughout 2024, and I am grateful for their hard work.

Speaker Change: We have focused on the business drivers that are within our control, and as a result, we've been able to deliver nearly 40% gross originations growth, excluding Wayfair. We believe we are well-positioned heading into the holiday season and are looking forward to delivering another quarter of growth, momentum that we believe will carry us into 2025.

Speaker Change: We look forward to chatting with our investors as Q4 progresses. Please reach out to Jennifer if you have any questions or feedback. Thank you for your time today.

Speaker Change: Thank you for attending today's call. You may now disconnect. Have a wonderful day.