Part 1: Performance Analysis
Katapult Holdings, Inc., a lease-to-own platform, has reported a decline in its gross origination volume by 20.6% during the year ended December 31, 2022, as compared to the previous year. The company's revenue has been impacted by macroeconomic factors, such as inflation and supply chain issues. The decrease in consumer confidence and spending due to inflation has led to the decline in sales volume of merchants associated with Katapult Holdings. Tightening of underwriting practices to manage payment ability of customers also contributed to the lower approvals, contributing to the reduced gross origination volume and revenue.
COVID-19 pandemic initially boosted the company's performance as there was an increase in customer spending, particularly e-commerce spending. During the first half of 2021, stimulus payments increased consumer spending, driving gross origination volume. However, the impairment charges returned to pre-pandemic levels during the year ended December 31, 2022. As the pandemic-related trends subside, the company may see buyout and delinquency patterns normalizing to pre-pandemic levels in the future.
Katapult Holdings conducts its business in a single segment of providing lease payment options to the consumers for durable goods purchase from e-commerce partners. The company adopted ASC 842 effective January 1, 2022, resulting in revenue recognition when revenue is earned, and cash is collected instead of accrual basis.
Part 2: Forward Looking Analysis
The significant increase in inflation and supply chain issues are expected to continue impacting Katapult Holdings' revenue and gross origination volume in the future. The company expects the challenging macroeconomic environment to extend into 2023. However, the company is monitoring the potential positive and negative trends in the broader macroeconomic environment, including the possibility of a prolonged recession.
The COVID-19 pandemic may continue to impact the company's business, results of operations, and financial condition. As pandemic-related trends subside, Katapult Holdings may see buyout and delinquency patterns stabilizing to pre-pandemic levels.
In response to the challenges posed by the macroeconomic environment, the company has tightened its underwriting to manage payment ability of customers. The company plans to continue monitoring business trends and make strategic decisions accordingly.
As per the company's Annual Report on Form 10-K, Wayfair represented 57% and 63% of gross originations during the years ended December 31, 2022 and 2021, respectively. Investors must consider the impact of a reduction in Wayfair's contribution to gross originations on the company's financial performance in the future.
In conclusion, investors should monitor the macroeconomic environment, particularly the supply chain challenges and potential recession, and Katapult Holdings' response to these challenges. Investors should also consider the potential impact of a reduction in Wayfair's contribution to gross originations on the company's financial performance.