Katapult Holdings Inc.

05/08/2026 | Press release | Distributed by Public on 05/08/2026 15:01

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references in this section to "we," "us," "our," the "Company", or "Katapult" refer to Katapult Holdings, Inc and its subsidiaries.
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, "Risk Factors" and "Special Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included on our Annual Report on Form 10-K filed with the SEC on March 28, 2025. All dollar amounts are in thousands, unless otherwise specified.
OVERVIEW (dollars in thousands)
We are a technology driven lease-to-own platform that integrates with omnichannel retailers and e-commerce platforms to power the purchase of everyday durable goods for underserved U.S. non-prime consumers. Our point-of-sale ("POS") integrations and innovative mobile app featuring KPay, make it easier for U.S. non-prime consumers unable to access traditional financing to spend responsibly and with confidence, easier for merchants to convert sales and grow, and easier for commerce to thrive.
Recent Developments
Pending Strategic Mergers with CCFI and Aaron's
On December 11, 2025, we entered into the Merger Agreement pursuant to which CCFI and Aaron's will become wholly owned subsidiaries of the Company, and the Company will remain a publicly traded entity. The Mergers, if completed, will create a premier omni-channel platform that provides non-prime consumers access to durable goods and a comprehensive suite of innovative financial solutions tailored to their specific needs. We have agreed to various customary covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the effective time of the Mergers. The Mergers are expected to close within the third quarter of 2026, following the receipt of the requisite stockholder and regulatory approvals and other customary closing conditions.
We expect the Mergers, if completed, to significantly affect our future capital structure. Immediately following the consummation of the Mergers, the existing Katapult stockholders, CCFI equityholders, and Aaron's equityholders, on a fully diluted basis, are expected to hold approximately 6.0%, 79.9%, and 14.1%, respectively, of the issued and outstanding shares of the combined company.
Refer to "Risk Factors" in Item 1A of Part II of this Quarterly Report for further discussion about the risks related to the Mergers.
Key Performance Metrics
We regularly review several metrics, including the following U.S. GAAP and non-GAAP key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions, which may also be useful to an investor.
Gross Originations
We measure gross originations to assess the growth trajectory and overall size of our lease portfolio. We define gross originations as the retail price of the merchandise associated with lease-purchase agreements entered into during the period through our platform. Gross originations do not represent revenue earned but are a leading indicator of forecasted revenue and is a useful operating metric for investors as it provides insight into the volume of transactions that take place on our platform.
Revenue is recognized over a period of time subsequent to the gross originations (on average over an 8 month period). Historically, we recognized approximately 70-75% of revenue from gross originations two quarters after the quarter in which the origination occurred.
The following tables present gross originations for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31, Change
2026 2025 $ %
Gross Originations $ 64,243 $ 64,199 $ 44 0.1 %
Gross originations through KPay represented 42% and 35% of gross originations during the three months ended March 31, 2026 and 2025, respectively.
Wayfair represented 18% and 27% of gross originations during the three months ended March 31, 2026 and 2025, respectively. The gross originations from Wayfair exclude transactions through KPay and only include transactions directly through the Wayfair waterfall platform.
Total Revenue
Total revenue represents the sum of rental revenue and other revenue. We record rental revenue in accordance with ASC 842, Leases, with revenue being recorded when earned and cash is collected. Other revenue is recorded in accordance with ASC 606, Revenue from Contracts with Customers, with revenue being recorded as performance obligations are satisfied. See "-Results of Operations" section below for total revenue amounts.
Historically, our revenue is typically strongest during the first quarter primarily due to higher gross originations during the fourth quarter holiday season. Our first quarter revenue is also positively impacted by the federal and state income tax refunds that our customers receive in the first quarter which, in the past, has led to our customers more frequently exercising the early purchase option on their lease agreements. Adverse and other events that occur could have a disproportionate effect on our financial results throughout the year.
Gross Profit
Gross profit represents total revenue less cost of revenue, and is a measure presented in accordance with U.S. GAAP.
See "-Results of Operations" section below for gross profit amounts.
Adjusted Gross Profit
Adjusted gross profit is a non-GAAP measure utilized by management, representing gross profit less variable operating expenses, which are servicing costs and underwriting fees. We believe that adjusted gross profit provides a meaningful understanding of profitability when variable lease origination costs are included. See "-Non-GAAP Financial Measures" section below for a reconciliation of gross profit to adjusted gross profit.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) before interest expense and other fees, transaction related costs, stock-based compensation expense, debt refinancing costs, depreciation and amortization on property and equipment and capitalized software, litigation and settlement expenses, provision for impairment of leased assets, interest income, gain on extinguishment of term loan and settlement of derivative liability, net, and change in fair value of derivative liability and warrants. Transaction-related costs consist primarily of professional fees incurred and retention bonus costs in connection with the Mergers.
We believe that adjusted EBITDA provides a meaningful understanding of our operating performance. See "-Non-GAAP Financial Measures" section below for a reconciliation of adjusted EBITDA, which is a non-GAAP measure utilized by management, to net income (loss).
Three Months Ended March 31, 2026 compared to Three Months Ended March 31, 2025:
Three Months Ended March 31,
2026 2025 Change % Change
Revenue
Rental revenue $ 77,422 $ 71,078 $ 6,344 8.9 %
Other revenue 1,599 868 731 84.2 %
Total revenue 79,021 71,946 7,075 9.8 %
Cost of revenue 60,822 57,597 3,225 5.6 %
Gross profit 18,199 14,349 3,850 26.8 %
Operating expenses
13,864 14,885 (1,021) (6.9 %)
Income (loss) from operations 4,335 (536) 4,871 (908.8 %)
Interest expense and other fees (3,139) (5,144) 2,005 (39.0 %)
Interest income 130 57 73 128.1 %
Change in fair value of derivative liability and warrants 4,316 (36) 4,352 NM
Income (loss) before income taxes 5,642 (5,659) 11,301 (199.7 %)
Benefit (provision) for income taxes 44 (29) 73 (251.7 %)
Net income (loss) $ 5,686 $ (5,688) $ 11,374 (200.0 %)
Net income (loss) available to common stockholders $ 355 $ (5,688) $ 6,043 (106.2 %)
Weighted average common shares outstanding - basic and diluted 5,455 4,618 837 18.1 %
Net income (loss) per common share available to common stockholders - basic and diluted $ 0.07 $ (1.23) $ 1.30 (105.7 %)
Revenue
The increase in total revenue of $7.1 million, or 9.8%, during the three months ended March 31, 2026 as compared to the same period in 2025 was primarily driven by growth in the Company's lease portfolio and strong collection efforts. Gross originations remained relatively consistent period-over-period, and revenue growth was driven by a larger base of active leases generating recurring revenue, as a result of originations growth in Q4 2025 as well as increased buyout activity and improvements in recoveries.
Write-offs as a percentage of total revenue was 9.2% and 9.0% during the three months ended March 31, 2026 and 2025, respectively, and remains within our 8% to 10% target range. The provision for write-offs represents estimated losses based on historical results. Actual write-offs may differ from this estimate.
Cost of Revenue
The increase in cost of revenue of $3.2 million, or 5.6%, during the three months ended March 31, 2026 as compared to the same period in 2025 was primarily driven by growth in the Company's lease portfolio, reflecting higher gross originations in Q4 2025. This growth resulted in higher depreciation expense, including the impact of accelerated depreciation associated with early lease-purchase options (buyouts) and impairment activity.
Gross Profit
Gross profit as a percentage of total revenue increased to 23.0% for the three months ended March 31, 2026 compared to 19.9% for the same period in 2025 primarily due to the increase in revenue outpacing growth in cost of revenue. Revenue is impacted
by growth in the Company's lease portfolio, increased buyout activity and recoveries, and growth in KPay as outlined in the Revenue section above.
Operating Expenses
Operating expenses primarily consist of servicing costs, underwriting fees, professional and consulting fees, technology and data analytics expense, compensation costs, general and administrative expense and litigation and settlement expenses. Servicing costs include permanent and temporary call center support. Underwriting fees primarily consist of data costs related to inputs for customer underwriting models. Professional and consulting fees include corporate legal, transaction related costs and accounting costs. Transaction related costs consist of professional fees and other expenses incurred in connection with the Mergers. Technology and data analytics expense includes technology costs and salaries and benefits for computer programming and data analytics employees that support our underlying technology and proprietary risk model algorithms. Compensation costs consist primarily of payroll and related costs and stock-based compensation. General and administrative expenses include insurance, occupancy costs, travel and entertainment, and other general overhead costs, including depreciation and amortization related to office equipment and software. Litigation and settlement expenses consist of agreed upon settlement amounts that are probable and estimable and associated legal fees.
The decrease in total operating expenses of $1.0 million, or 6.9% during the three months ended March 31, 2026 as compared to the same period in 2025 was primarily due to lower compensation expense of $1.2 million and lower general and administrative expense of $1.0 million, partially offset by $1.7 million of transaction related costs during the three months ended March 31, 2026 as compared to the same period in 2025.
Interest Expense and Other Fees
Interest expense decreased by $2.0 million during the three months ended March 31, 2026 as compared to the same period in 2025, primarily due to the absence of the Term Loan in 2026 following its extinguishment in November 2025, which eliminated PIK interest and the amortization of the related debt discount and issuance costs. The decrease was further supported by a decline in the average SOFR rate and the overall effective interest rate on the Company's debt period-over-period.
Change in Fair Value of Derivative Liability and Warrants
The Company recognized a gain of $4.3 million during the three months ended March 31, 2026 compared to an immaterial change in 2025. The current period gain was primarily driven by the remeasurement of the Company's derivative liability and warrant liabilities to fair value. The derivative liability was not outstanding during the three months ended March 31, 2025; prior period activity relates solely to changes in the fair value of warrant liabilities. These adjustments are non-cash in nature and reflect changes in the estimated fair value of these instruments at each reporting date. See Note 11 to our Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for more details.
Net Income (Loss)
As a result of the factors discussed above, the Company generated net income of $5.7 million during the three months ended March 31, 2026 compared to a net loss of $(5.7) million during the three months ended March 31, 2025.
Net Income (Loss) Available to Common Stockholders.
Net income available to common stockholders was $0.4 million during the three months ended March 31, 2026 compared to a net loss available to common stockholders of $(5.7) million during the three months ended March 31, 2025.
Although the Company generated net income of $5.7 million during the three months ended March 31, 2026 net income available to common stockholders was reduced by $(5.3) million related to the Company's Series A and Series B Convertible Preferred Stock, including accumulated undeclared dividends and allocation of undistributed earnings under the two-class method, which allocates earnings to participating securities prior to common stockholders.
Net Income (Loss) Available to Common Stockholders Per Share - Basic and Diluted
Net income per share available to common stockholders was $0.07 basic and diluted for the three months ended March 31, 2026 compared to net loss per share available to common stockholders of $(1.23) basic and diluted for the three months ended March 31, 2025.
Non-GAAP Financial Measures
In addition to gross profit and net loss, which are measures presented in accordance with U.S. GAAP, we believe that adjusted gross profit, adjusted EBITDA, adjusted net income (loss) and fixed cash operating expenses provide relevant and useful information, which is widely used by analysts, investors, and competitors in our industry in assessing performance. Adjusted gross profit, adjusted EBITDA, adjusted net income (loss) and fixed cash operating expenses are supplemental measures of our performance that are neither required by nor presented in accordance with U.S. GAAP. Adjusted gross profit, Adjusted EBITDA and adjusted net income (loss) should not be considered as substitutes for U.S. GAAP metrics such as gross profit, operating loss, net loss, or any other performance measures derived in accordance with U.S. GAAP and may not be comparable to similar measures used by other companies.
Adjusted gross profit, adjusted EBITDA and adjusted net loss are useful to an investor in evaluating our performance because these measures:
•Are widely used to measure a company's operating performance;
•Are financial measurements that are used by rating agencies, lenders and other parties to evaluate our credit worthiness; and
•Are considered by our management for various purposes, including as measures of performance and as a basis for strategic planning and forecasting.
Adjusted Gross Profit
Adjusted gross profit represents gross profit less variable operating expenses related to lease originations, which are servicing costs and underwriting fees. We believe that adjusted gross profit provides a meaningful understanding of one aspect of our performance specifically attributable to total revenue and the variable costs associated with total revenue. The reconciliations of gross profit to adjusted gross profit for the three months ended March 31, 2026 and 2025 are as follows:
Three Months Ended March 31,
2026 2025
Total revenue $ 79,021 $ 71,946
Cost of revenue 60,822 57,597
Gross profit 18,199 14,349
Less:
Servicing costs 1,235 1,085
Underwriting fees 658 772
Adjusted gross profit $ 16,306 $ 12,492
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) before interest expense and other fees, transaction related costs, stock-based compensation expense, depreciation and amortization on property and equipment and capitalized software, litigation and settlement expenses, provision (benefit) for income taxes, debt refinancing costs, interest income, provision for impairment of leased assets, and change in fair value of derivative liability and warrants. We believe that adjusted EBITDA provides a meaningful understanding of our operating performance.
The reconciliations of net income (loss) to adjusted EBITDA for the three months ended March 31, 2026 and 2025 are as follows:
Three Months Ended March 31,
2026 2025
Net income (loss) $ 5,686 $ (5,688)
Add back:
Interest expense and other fees 3,139 5,144
Transaction related costs 1,693 -
Stock-based compensation expense 546 1,066
Depreciation and amortization on property and equipment and capitalized software 317 330
Litigation and settlement expenses 135 259
Debt refinancing costs - 971
(Benefit) provision for income taxes (44) 29
Interest income (130) (57)
Provision for impairment of leased assets (629) 150
Change in fair value of derivative liability and warrants
(4,316) 36
Adjusted EBITDA $ 6,397 $ 2,240
Adjusted Net Income (Loss)
Adjusted net income (loss) is a non-GAAP financial measure that is defined as net loss before transaction related costs, stock-based compensation expense, litigation and settlement expense, debt refinancing costs, and change in fair value of derivative liability and warrants.
The reconciliations of net income (loss) to adjusted net income (loss) for the three months ended March 31, 2026 and 2025 are as follows
Three Months Ended March 31,
2026 2025
Net income (loss) $ 5,686 $ (5,688)
Add back:
Transaction related costs 1,693 -
Stock-based compensation expense 546 1,066
Litigation and settlement expenses 135 259
Debt refinancing costs - 971
Change in fair value of derivative liability and warrants (4,316) 36
Adjusted net income (loss) $ 3,744 $ (3,356)
Fixed Cash Operating Expenses
Fixed cash operating expenses is a non-GAAP measure that is defined as operating expenses less variable lease costs such as servicing costs and underwriting fees, transaction related costs, stock-based compensation expense, depreciation and amortization on property and equipment and capitalized software, litigation and settlement expenses, and debt refinancing costs. We believe fixed cash operating expenses illustrate the ongoing expenses that we control.
The reconciliations of operating expenses to fixed cash operating expenses for the three months ended March 31, 2026 and 2025 are as follows:
Three Months Ended March 31,
2026 2025
Operating expenses
$ 13,864 $ 14,885
Less:
Servicing costs 1,235 1,085
Underwriting fees 658 772
Transaction related costs 1,693 -
Stock-based compensation expense
546 1,066
Depreciation and amortization on property and equipment and capitalized software 317 330
Litigation and settlement expenses 135 259
Debt refinancing costs - 971
Fixed cash operating expenses $ 9,280 $ 10,402
LIQUIDITY & CAPITAL RESOURCES (dollars in thousands)
The Company's financing generally consists of cash generated from leases and borrowings under its RLOC, which is fully collateralized by the Company's assets. Restricted cash consists primarily of customer lease payments received in a collection account pending release by the Company's lenders. Restrictions are released on a weekly basis pursuant to completion of waterfall and borrowing base requirements.
Our revenue and operating results depend significantly on gross originations, which is defined as the retail price of the merchandise associated with lease-purchase agreements entered into during the period. Gross originations are a leading indicator of potential revenue streams. Revenue is recognized over a period of time subsequent to the gross origination date (on average over 8 months). As gross originations increase, the Company may require additional borrowings under the New Revolving Facility to fund growth in property held for lease.
The following table presents cash used in operating, investing, and financing activities during the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
2026 2025
Cash, cash equivalents and restricted cash at beginning of period $ 23,480 $ 16,552
Net cash provided by (used in):
Operating activities 12,212 3,438
Investing activities (384) (401)
Financing activities (7,188) (5,278)
Cash, cash equivalents and restricted cash at end of period $ 28,120 $ 14,311
The increase in cash provided by operating activities of $8.8 million for the 2026 period compared to the 2025 period is primarily driven by the improvement in net income (loss) and significant non-cash adjustments, including depreciation and amortization associated with the Company's lease portfolio, partially offset by continued investment in property held for lease and changes in working capital.
The decrease in cash used in investing activities of seventeen thousand dollars for the 2026 period compared to the 2025 period is primarily driven by lower purchases property and equipment.
The increase in cash used in financing activities of $1.9 million in the 2026 period compared to the 2025 period is primarily driven by higher net principal repayments on the New and Existing Revolving Facilities.
The New Revolving Facility provides total commitments of $110 million and matures on December 4, 2026. As the maturity date falls within twelve months of the issuance date of these financial statements and the Company does not have sufficient cash on hand to repay the outstanding borrowings at maturity absent refinancing or extension, the upcoming maturity and the need for potential waivers raise substantial doubt about the Company's ability to continue as a going concern.
The New Revolving Facility contains financial covenants, and as of March 31, 2026, the Company was in compliance with all such covenants, after giving effect to limited waivers obtained subsequent to quarter end; however, future compliance with certain covenants may require additional waivers from the lenders, and there can be no assurance that such waivers will be obtained.
Management intends to refinance, extend, or replace the New Revolving Facility prior to maturity and continues to work closely with the Company's lenders; however, there can be no assurance that such refinancing or extension will be completed on acceptable terms or at all.
Financing Arrangements
Loan Agreement
For information on our obligations under the Loan Agreement, see Note 5 to our Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Pledge and Guaranty
Borrowings under the New Revolving Facility are secured by substantially all of the Company's assets and the equity interests of certain subsidiaries.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We evaluate our significant estimates on an ongoing basis. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
There have been no significant changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K filed with the SEC on March 11, 2026.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our condensed consolidated financial statements.
Smaller Reporting Company
We are a "smaller reporting company" as defined in the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.
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