Katapult Holdings, Inc. — FY 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone fourth-quarter report. Katapult operates a technology-driven lease-to-own platform for non-prime U.S. consumers buying durable goods through e-commerce and retail merchants. Its largest merchant is Wayfair.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Gross originations | $196.9 million | $248.0 million |
| Total revenue | $212.1 million | $303.1 million reported |
| Gross profit / margin | $41.0 million / 19.3% | $89.0 million / 29.4% |
| Operating income (loss) | $(25.1) million | $1.7 million |
| Net income (loss) | $(37.9) million | $21.2 million |
| Adjusted EBITDA, non-GAAP | $(16.7) million | $17.3 million |
| Operating cash flow | $(20.8) million | $2.2 million |
- Gross originations fell 20.6%. Management attributed the decline to weaker consumer and merchant activity amid inflation and supply-chain pressures, and tighter underwriting that reduced approvals.
- Reported revenue declined 30.0%. Comparability is affected by adoption of ASC 842 in 2022: revenue is now recognized when earned and cash is collected, rather than on an accrual basis. The filing estimates 2021 revenue would have been $277.6 million under ASC 842; on that basis, 2022 revenue declined 23.6%.
- Gross profit fell 53.9%, and impairment expense as a share of originations rose to 8.7% from 5.9%. The filing cautions that accounting changes affect comparisons, including the elimination of separately reported bad-debt expense in 2022.
- Adjusted gross profit, a non-GAAP measure, was $34.8 million versus $54.1 million. The 2022 net loss included $20.0 million of interest expense and other fees; a $6.4 million gain from a lower warrant liability partly offset the loss.
- Cash and cash equivalents were $65.4 million at year-end, down from $92.5 million; restricted cash was $4.4 million. Total assets were $131.9 million and stockholders’ equity was $7.1 million.
- Debt principal outstanding was approximately $111.8 million at December 31, 2022: $58.0 million under the revolving facility and $53.8 million under the term loan, including PIK interest. The company reported covenant compliance at year-end. Its credit agreement requires at least $10 million of unrestricted liquidity.
Material changes, outlook and risks
- On March 6, 2023, after year-end, Katapult amended its credit facility: maturity was extended to June 4, 2025, revolving commitments were reduced from $125 million to $75 million, and the rate benchmark changed from LIBOR to SOFR. The company repaid $25 million of term-loan principal, increased the revolving spread to 8.5%, and issued a lender warrant for up to 2 million shares at $0.01 per share. The amendment also changed financial covenants; further warrant issuance may be required under specified conditions.
- Management expected challenging macroeconomic conditions to continue into 2023 and said it would continue monitoring consumer performance and adjusting underwriting. The company began cost-saving initiatives in Q4 2022; headcount fell from 120 at year-end to 99 by February 28, 2023. The filing provides no numerical revenue, earnings or cash-flow guidance.
- Wayfair accounted for 57% of gross originations in 2022, versus 63% in 2021; the top ten merchants represented 83%. The Wayfair agreement can be terminated by either party on 60 days’ notice, making merchant concentration a material risk.
- Other risks include consumer nonpayment and impairment, competition, access to funding and restrictive debt covenants, regulatory changes affecting lease-to-own and consumer data, and cybersecurity or platform disruptions.
- Two material weaknesses in internal control over financial reporting remained unremediated at year-end: insufficient GAAP-qualified personnel and inadequate journal-entry review and support controls. Management concluded disclosure controls and internal control over financial reporting were ineffective. The auditor gave an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
- Pending matters include DCA litigation, with a stated damages demand of $18.4 million and a company counterclaim of approximately $10.6 million, and a securities class action seeking unspecified damages. The company recorded no loss contingency for the class action, stating the loss was not probable or reasonably estimable. It reported that it had not received investigatory demands from California’s DFPI or state attorneys general as of the filing.
Important facts for investors to verify
- How operating performance and cash generation are trending after the 2022 originations decline, margin compression and operating cash outflow.
- Comparable revenue and credit-loss performance under ASC 842, including how the accounting change affects period-to-period interpretation.
- Post-amendment debt balances, borrowing availability, covenant headroom, interest costs and compliance with the $10 million minimum-liquidity requirement.
- Whether Katapult can diversify originations away from Wayfair and sustain merchant relationships and customer payment performance.
- Progress in remediating the material weaknesses, and developments in the DCA and securities litigation.