Infinitum Partners Delivers Open Letter to Katapult Board Of Directors

MIAMI, March 28, 2022 (GLOBE NEWSWIRE) -- Infinitum Partners, L.P. (together with its affiliates, “Infinitum” or “we”), a significant stockholder of Katapult Holdings, Inc. (Nasdaq: KPLT) (“Katapult” or the “Company”), with an ownership interest of approximately 1.3% of the Company’s outstanding shares, today announced that it has delivered an open letter to the Katapult board of directors (the “Board”).

The full text of Infinitum’s open letter to the Katapult Board is as follows:

Board of Directors
Katapult Holdings Inc.
5204 Tennyson Parkway, Suite 500
Plano, Texas 75024

Ladies and Gentlemen:

        Infinitum Asset Management LLC, together with its affiliates (“we” or “Infinitum”) owns 1.25 million shares (approximately 1.3%) of Katapult Holdings Inc. (“Katapult” or the “Company”).

        Since going public through a merger with FinServ Acquisition Corp. (the “SPAC”) in June 2021 at an almost $1 billion valuation, roughly 80% of Katapult’s equity value has been destroyed under its current management and board of directors (the “Board”). Katapult’s dismal performance of late starkly contrasts with its previous track record as a private company, when its growth was outstanding by any metric (139% Revenue CAGR from 2018 to 2020). In our opinion, this is partially explained by wildly unrealistic projections that were made while the SPAC deal was marketed, resulting in the Company subsequently missing every single target set then – by embarrassing margins. We also believe that this has been compounded by inaction and ineptitude by the Company’s management and the Board. At this point, based on our own research, in-depth discussions with other investors, and prevailing market conditions, it is clear to us that in order to protect what is left of shareholder value, Katapult must urgently explore strategic options that would take the Company private. Specifically, we encourage the Board to focus on potential acquisitions by strategic buyers and banking institutions. In our view, the past year has proved beyond reasonable doubt that Katapult was never, and is still not, ready to be a public company. We know there would be interest from a strategic buyer based on discussions we had and similar transactions that have occurred in the marketplace.

        We believe that a brief history of the SPAC transaction and subsequent events help illustrate the troubling record of the Company since going public. The merger between Katapult and the SPAC was announced on December 18, 2020. The investor presentation in connection with the deal included estimates such as FY 2021 LTO originations of $402 million, revenue of $455 million, and $70 million in EBITDA. Further projections included LTO originations growing at 77% CAGR, revenue at 87% CAGR, and EBITDA at a 75% CAGR through FY 2023 (shown below). Additionally, management stated on multiple occasions that these projections did not include the incremental signing of big box retailers and indicated that the Company would add at least 2-3 such merchant partners in 2021. As of Q1 2022, no such additional merchant partners have been signed.

Furthermore, the 2021 Projections have proven wildly inaccurate, as shown in the chart below:

        Shortly after the SPAC transaction, in January, 2021, Katapult’s CFO, Karissa Cupito, painted a rosy picture of the business, highlighting that lease performance had consistently increased every quarter due to improvements in the Company’s risk models, automation of payments and collection processes, and its ability to negotiate volume discounts. Based on these developments, Ms. Cupito argued that future revenue numbers carried a significant unaccounted upside based on improvements not then factored in. The Company’s COO, Derek Medlin, also gave a bullish view of the ease with which the Katapult could add large enterprise customers.

        Shortly after these comments were made, however, lease performance began to deteriorate significantly: bad debt expenses grew and the promised upside in revenue numbers failed to materialize. The forecast for the addition of large merchant customers shifted from “within weeks” to “within months” and ultimately to “within years”, supposedly due to the Company’s inexperience managing the SKUs of such retailers as well as a lack of IT support.

        Predictably, this deterioration surfaced in the Company’s Q1 2021 financials. Bad debt expense had increased by 44%, from $3.4 million in Q1 2020 to $4.9 million in Q1 2021. Nevertheless, management essentially re-affirmed guidance in June 2021, with only a slight drop in EBITDA expectations due to “public company costs”. However, just two months later, during the Q2 2021 earnings call, Katapult abruptly withdrew guidance and missed expectations that it had only recently re-affirmed. In our view, the company must have known what Q2 2021 would look like at the time of the Q1 2021 earnings call, which was held on June 15^th, two weeks before the end of Q1 2021. Affirming guidance at that time was, in our view, at best incompetent or, worse, blatantly dishonest and misleading.

        Despite concerning financial numbers, including growing bad debt expenses, the Company announced “targeted growth investment” initiatives in Q3 2021, including added headcount despite no meaningful increase in originations and without justifying a clear projection for growth. By the time of the Q3 2021 earnings call, management blamed these growth expenses, in addition to costs associated with being a public Company, for increasing operational costs and lackluster results. By the end of Q4 2021, SG&A had ballooned from $1mm to $4mm per the quarter. When its debt expense grew further to 13% – a level significantly out of line with the Katapult’s competitors – the Company announced that, unlike its competitors, it would no longer report bad debt expense going forward. While originations had declined 25% YTD through end of February 2022, the Company continued to try and hire its way to scale, with no growth to show for it. Management blamed this on reasons ranging from the government stimulus program and seasonality, to inventory limitations and the general credit environment.

        Amidst the dramatic deterioration during 2021, the Board seems to have remained out of touch. It has authorized an incremental $20 million SG&A expenditure and approved additional operating expenses, spending balance sheet cash without assuring shareholders that there is a real plan for how such investments will yield recovery, growth, and a return on their investment. In our view, this highly irresponsible move further threatens shareholder value unless the Company imminently signs a large enterprise merchant partner.

        Katapult was a fantastic grower and compounder in nearly every category as a private company. Between 2018 and 2020, revenues grew at a significant pace and company had $40mm of EBITDA in 2020. Since going public, however, the Company has flailed and floundered, missing expectations, failing to deliver on grand promises, and refusing to adapt to an increasingly bleak situation. In addition, the company as a public company had higher revenues in 2021 but SG&A went up dramatically and profitability declined. Our view is that the Company is fundamentally headed in the wrong direction. In hindsight, Katapult was not ready to be a public company at the time of the SPAC transaction, and would still be better off as a private company today and for the foreseeable future. Therefore, we urge the Board to immediately engage with financial and legal advisors to commence a full strategic review. Based on current market comps, we believe that the Company could be worth $8-10 per share to a strategic buyer or a banking institution.

        We have repeatedly voiced our views privately in discussions with Katapult’s management and members of the Board. However, at this point we find ourselves with little choice but to publicly air our grave misgivings about the state of affairs at the Company, and hope that this will encourage the Company to finally take decisive action. While we remain open to further conversations with the Company, we reserve all options available to us to protect the rights and shareholder value of all investors in Katapult.

Sincerely Yours,

John Yetimoglu
Chief Investment Officer
Infinitum Partners

About Infinitum Partners, L.P.
Infinitum is a Florida-based asset management firm, founded by John Yetimoglu in 2019, that employs a long-term focused investment strategy by taking stakes in public and private technology companies. Infinitum seeks to work constructively with founders, management teams and boards to drive long-term value for all shareholders.  

Investor contacts:
John Yetimoglu, (754) 300-6541

https://infinitumpartners.com/