Executive Summary / Key Takeaways

• Strategic Transformation: Katapult has successfully transitioned from a merchant-dependent payment provider to a technology-driven, two-sided marketplace, with its proprietary app and Katapult Pay (KPay) now driving over 50% of gross originations and fostering strong customer loyalty.
• Accelerating Growth & Operational Discipline: The company delivered robust Q2 2025 results, exceeding expectations with 30.4% year-over-year gross originations growth and 22.1% revenue growth, while maintaining fiscal discipline with flat operating expenses.
• Strengthened Capital Structure: A crucial refinancing agreement with Blue Owl Capital in June 2025 extended debt maturities, increased liquidity to $110 million, and provided a more stable financial runway, addressing prior "going concern" concerns.
• Positive Outlook & Diversification: Katapult raised its full-year 2025 gross originations guidance to 20-25% growth, driven by diversification beyond the challenging home furnishings sector into high-growth categories like automotive, and expanding referral partnerships.
• Competitive Moat & Risks: Katapult's differentiated technology, customer-centric approach, and ability to offer multiple leases create a competitive advantage in the non-prime LTO space, though ongoing macroeconomic headwinds, Wayfair (W) concentration, and potential dilution from debt conversion remain key risks to monitor.

The Resilient Ascent of Katapult: A Tech-Driven Marketplace for Underserved Consumers

Katapult Holdings, Inc. operates at the intersection of e-commerce and financial technology, providing a vital lease-to-own (LTO) platform for underserved U.S. non-prime consumers. In an industry often dominated by traditional credit or broader buy-now-pay-later (BNPL) solutions, Katapult carves out a specialized niche, enabling access to everyday durable goods for those who may not qualify for conventional financing. This focus positions Katapult within a large addressable market, particularly benefiting from periods where prime credit options tighten.

The company's journey has been one of significant strategic evolution. Historically, Katapult's business model was largely reliant on merchant referrals through direct integrations or waterfall finance platforms. However, a pivotal shift began in late 2022 with the launch of its proprietary mobile app, featuring Katapult Pay (KPay). This innovation transformed Katapult into a two-sided marketplace, allowing it to engage directly with consumers, generate its own traffic, and expand its merchant network beyond traditional integrations. This strategic pivot has been instrumental in reshaping Katapult from "simply being a payment method to being a growth partner to our merchants and a destination for consumers."

Technological Edge and Operational Ingenuity

Katapult's core differentiator lies in its technology platform, which underpins its ability to serve the non-prime segment effectively. The company leverages proprietary risk models, enhanced by artificial intelligence and machine learning (AI/ML), for fraud and credit risk analysis. This advanced decisioning capability allows for precise underwriting, ensuring that lease offers are compelling for consumers while managing risk for the company. The cloud-based platform and its mobile app are central to this technological advantage.

The Katapult app, particularly with its KPay feature, provides tangible benefits. KPay acts as a virtual credit card, enabling seamless checkout with a growing network of KPay-enabled merchants, including those without prior direct integrations. This expands consumer choice and convenience. A key quantifiable benefit is that when a customer uses the Katapult app, this channel increases their lifetime lease originations by more than 2x, demonstrating the app's power in fostering repeat business and higher customer lifetime value (LTV). Recent app enhancements, such as the "Most Popular Products" feature and a pilot of product-based search launched in early Q4 2024, aim to provide more precise insights into customer preferences, further refining business intelligence and marketing strategies. These technological advancements contribute directly to Katapult's competitive moat, enabling personalized customer journeys, higher conversion rates, and operational efficiency.

Competitive Landscape and Strategic Positioning

The lease-to-own and BNPL industry is highly competitive, with players ranging from virtual LTO companies to e-commerce retailers offering layaway or BNPL programs, and traditional consumer finance companies. Key publicly traded competitors include Affirm Holdings, Inc. (AFRM), Upstart Holdings, Inc. (UPST), Block, Inc. (SQ) (via Afterpay), and Enova International, Inc. (ENVA).

Katapult occupies a specialized position by focusing on the non-prime segment, a market often underserved by broader BNPL providers like Affirm and Afterpay, which tend to target prime and near-prime consumers with interest-free or low-interest installment loans. While competitors like Affirm and Upstart leverage advanced AI for rapid credit decisions and broader market reach, Katapult's AI/ML is tailored to the unique risk profiles of non-prime consumers, aiming for optimal risk-adjusted returns and high conversion within its niche. Katapult's gross profit margin (TTM) of 19.49% reflects its lease-to-own model, which involves higher cost of revenue due to property held for lease, contrasting with the higher gross margins seen in pure lending or platform fee models like Affirm (64%) or Upstart (100%). This highlights a fundamental difference in business operations and revenue recognition.

Katapult's competitive strengths include its customer-centric philosophy (no late fees, transparent terms), which drives a high Net Promoter Score (NPS of 63 in Q2 2025) and a strong repeat customer rate (58.4% in Q2 2025). The ability to offer multiple leases simultaneously further differentiates Katapult from many rivals. However, Katapult faces vulnerabilities such as its smaller scale and lower overall profitability compared to larger competitors, as well as a historical concentration with its largest merchant, Wayfair. The company's strategic response involves aggressive diversification of its merchant base, rapid expansion of KPay, and the development of new referral partnerships to broaden its application funnel and reduce reliance on any single channel.

Financial Performance and Liquidity: A Turnaround Story

Katapult's recent financial performance reflects the success of its strategic transformation and operational discipline. The company delivered a strong second quarter in 2025, exceeding its own outlook. Gross originations grew an impressive 30.4% year-over-year to $72.1 million, driven by the mobile app and direct merchants. Total revenue increased by 22.1% to $71.9 million, reflecting strong origination growth and healthy customer payment collections. This robust performance contributed to a positive adjusted EBITDA of $0.3 million in Q2 2025, surpassing the breakeven expectation. For the first half of 2025, gross originations grew nearly 23%, and revenue increased by approximately 16%.

Despite the strong top-line growth, gross profit margin in Q2 2025 was 15.5%, a decrease from 16.9% in Q2 2024. This was primarily due to the front-loaded nature of lease depreciation costs, which are higher during periods of rapid gross origination growth. However, management maintains a full-year gross margin target of 18-20%. Operating expenses remained essentially flat year-over-year in Q2 2025, with fixed cash operating expenses (excluding variable, non-cash, litigation, and debt refinancing costs) increasing by only 0.6%. This demonstrates effective cost management and the early benefits of operating leverage. Write-offs as a percentage of total revenue remained within the company's target range of 8-10% at 9.8% in Q2 2025, indicating sound risk management.

A critical development for Katapult's financial stability was the refinancing agreement entered into with Blue Owl Capital on June 12, 2025. This agreement upsized the revolving credit facility to an initial committed amount of $110 million (a $20 million increase) and extended its maturity to December 4, 2026. The New Term Loan, with an initial principal of $33 million, also matures on December 4, 2026, and bears a fixed 18% PIK interest rate. This refinancing, which required stockholder approval for certain terms in August 2025, significantly de-risks the company's capital structure, providing crucial liquidity and a longer runway. As of June 30, 2025, Katapult had $9 million in cash and cash equivalents (including $5.3 million restricted cash) and approximately $115.9 million in outstanding debt as of August 8, 2025. While the refinancing addresses immediate liquidity concerns, the company continues to pursue strategic alternatives to repay the term loan, including equity capital raises or a sale of the business.

Outlook and Risks

Katapult's management is optimistic about its growth trajectory. The company raised its full-year 2025 gross originations outlook to a range of 20-25% growth, up from "at least 20%." Revenue growth is reiterated at "at least 20%," and adjusted EBITDA is expected to be "at least $10 million" positive for the full year. For Q3 2025, guidance includes gross originations growth of 25-30%, revenue growth of 20-25%, and adjusted EBITDA between $3 million and $3.5 million. These projections assume no extraordinary impact from potential tariffs or significant shifts in prime credit availability.

The growth is expected to be fueled by continued momentum in the app marketplace, diversification into new categories like automotive (which grew over 25% in Q3 2024), and expanding referral partnerships. Gross originations excluding the home furnishings and mattress category are expected to continue growing much faster than overall gross originations, mitigating the ongoing challenges in the Wayfair-dominated home furnishings sector.

Despite the positive outlook, several risks warrant investor attention. The "going concern" opinion issued by auditors for FY 2024, though mitigated by the recent refinancing, highlights the company's historical financial fragility. The new credit facility comes with rigorous covenants, and a limited waiver was already required for a breach of Minimum Trailing Three-Month Net Originations as of July 31, 2025. Failure to comply with these covenants could accelerate debt repayment or trigger conversion of the New Term Loan into common stock, leading to substantial dilution for existing shareholders.

The concentration of gross originations with Wayfair (27% in Q2 2025) remains a risk, as any further deterioration in that relationship or Wayfair's business could impact Katapult. Macroeconomic headwinds, including inflation and potential tariffs, could also affect consumer spending and merchant sales. Furthermore, Katapult is vigorously defending a patent infringement lawsuit from FlexShopper (FLXS), the outcome of which remains uncertain.

Conclusion

Katapult Holdings, Inc. is undergoing a profound transformation, evolving into a more diversified and resilient technology-driven marketplace. Its strategic pivot to direct consumer engagement through the Katapult app and KPay has proven successful, driving significant gross originations growth and fostering a loyal customer base. The recent refinancing agreement provides a critical financial lifeline, extending maturity and enhancing liquidity, thereby addressing the immediate "going concern" risks and offering a clearer path to sustainable profitability.

While the company operates in a highly competitive landscape against larger BNPL and lending platforms, its specialized focus on underserved non-prime consumers, coupled with its innovative technology and customer-centric approach, creates a distinct competitive advantage. The ability to generate its own traffic and diversify its merchant base beyond challenging categories positions Katapult for continued growth. Investors should closely monitor the company's execution on its growth initiatives, particularly the expansion of its app marketplace and referral partnerships, as well as its ability to consistently meet debt covenants and manage macroeconomic pressures. Katapult's journey from a payment method to a growth engine for e-commerce, underpinned by its technological leadership, presents a compelling, albeit not without risk, investment thesis for those seeking exposure to the evolving non-prime consumer finance market.